Table of Contents
SECURITIES AND EXCHANGE COMMISSION
(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, 2005 | ||
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 | ||
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Jurisdiction of Incorporation or Organization)
CH-8001 Zurich, Switzerland
CH-4051 Basel, Switzerland
(Address of Principal Executive Offices)
Table of Contents
capital or common stock as of 31 December 2005:
(including 104,259,874 treasury shares)
Exchange Act of 1934.
Exchange Act of 1934 from their obligations under those Sections.
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.
2
Table of Contents
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 | |
$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 | |
$5,100,000 PPNs due September 2009 | American Stock Exchange | |
$24,223,000 PPNs due Oct 2009 | American Stock Exchange | |
$30,000,000 PPNs due Apr 2010 | American Stock Exchange | |
$31,000,000 PPNs due May 2010 | American Stock Exchange | |
$23,000,000 PPNs due June 2010 | American Stock Exchange | |
$10,000,000 PPNs due July 2010 | American Stock Exchange | |
$7,750,000 PPNs due August 2010 | American Stock Exchange | |
$12,660,000 PPNs due September 2010 | American Stock Exchange | |
$8,000,000 PPNs due November 2010 | American Stock Exchange | |
$17,842,000 PPNs due October 2011 | American Stock Exchange |
3
Table of Contents
of the Act:
$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
* | Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
4
Page | ||||||||
6 | ||||||||
8 | ||||||||
8 | ||||||||
8 | ||||||||
8 | ||||||||
9 | ||||||||
9 | ||||||||
10 | ||||||||
10 | ||||||||
10 | ||||||||
11 | ||||||||
12 | ||||||||
19 | ||||||||
19 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
20 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
22 | ||||||||
23 | ||||||||
EX-1.1: ARTICLES OF ASSOCIATION | ||||||||
EX-1.2: ORGANIZATION REGULATIONS | ||||||||
EX-7: STATEMENT RE RATIO OF EARNINGS TO FIXED CHARGES | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG LTD. |
5
Table of Contents
• | The implementation of strategic initiatives, such as the implementation of the European wealth management strategy and our plans to continue to expand our corporate finance business; | ||
• | The development of revenues overall and within specific business areas; | ||
• | The development of operating expenses; | ||
• | The anticipated level of capital expenditures and associated depreciation expense; | ||
• | The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or counterparty; | ||
• | Expected credit losses based upon UBS’s credit review; and | ||
• | Other statements relating to UBS’s future business development and economic performance. |
• | General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our assets; | ||
• | Changes in UBS’s expenses associated with acquisitions and dispositions; | ||
• | General competitive factors, locally, nationally, regionally and globally; | ||
• | Industry consolidation and competition; | ||
• | Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset quality; | ||
• | Developments in technology; | ||
• | Credit ratings and the financial position of obligors and counterparties; | ||
• | UBS’s ability to control risk in its businesses; | ||
• | Changes in tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products or subject it to increased taxation; | ||
• | Changes in accounting standards applicable to UBS, as more fully described below; | ||
• | Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they undertake, and hence the levels of transaction-based fees UBS earns; | ||
• | Changes in the market value of securities held by UBS’s clients, affecting the level of asset-based fees UBS can earn on the |
6
Table of Contents
services it provides; and | |||
• | Changes in currency exchange rates, including the exchange rate for the Swiss franc into US dollars. |
7
Table of Contents
1-3 | Please see page 5 of the attached Handbook 2005/2006 and page 5 of the attached Financial Report 2005. | |
4 | Please see pages 17 and 18 of the attached Handbook 2005/2006. | |
5, 6 | None. | |
7 | Not applicable. |
1, 2, 3, 5, 7 | Please see sectionOur businesseson pages 28 to 52 of the attached Handbook 2005/2006 and the sectionSeasonal Characteristicson page 10 of the attached Financial Report 2005. 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 93 to 100 of the attached Financial Report 2005. | |
4, 6 | Not applicable. | |
8 | Please see the sectionRegulation and Supervisionon pages 129 to 131 of the attached Handbook 2005/2006. |
8
Table of Contents
9
Table of Contents
1, 2, 3 | Please see pages 103 to 113 of the attached Handbook 2005/2006. | |
4 and 5 | None. |
10
Table of Contents
1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please see page 96 of the attached Handbook 2005/2006. |
11
Table of Contents
12
Table of Contents
a) | The Articles of Association of UBS AG and the Organization Regulations of UBS AG are filed as Exhibits 1.1 and 1.2, respectively, of this Form 20-F. |
13
Table of Contents
14
Table of Contents
15
Table of Contents
b) | The sectionCapital structureon pages 101 and 102 of the attached Handbook 2005/2006. | ||
c) | Pages 6 and 92 of the attached Handbook 2005/2006 which provide details of our transfer agent in the US, Mellon Investor Services. |
16
Table of Contents
• | 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 | |
• | 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. |
17
Table of Contents
18
Table of Contents
19
Table of Contents
20
Table of Contents
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 35 on pages 157 to 160 of the attached Financial Report 2005. | ||
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. |
21
Table of Contents
UBS AG | ||||
/s/ Peter Wuffli | ||||
Name: Peter Wuffli | ||||
Title: Chief Executive Officer | ||||
/s/ Clive Standish | ||||
Name: Clive Standish | ||||
Title: Group Chief Financial Officer | ||||
22
Table of Contents
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 35 on pages 157 to 160 of the attached Financial Report 2005. | ||
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. |
23
Table of Contents
UBS Handbook 2005/2006 |
Table of Contents
On the cover
“Together the world’s most powerful team.”
What “You & Us” means to Gary Wai Bong Chan, who works for us in Tokyo.
Table of Contents
1 | ||||
2 | ||||
3 | ||||
4 | ||||
6 | ||||
7 | ||||
8 | ||||
14 | ||||
17 | ||||
19 | ||||
20 | ||||
27 | ||||
28 | ||||
39 | ||||
43 | ||||
48 | ||||
51 | ||||
53 | ||||
54 | ||||
57 | ||||
70 | ||||
80 | ||||
83 | ||||
85 | ||||
87 | ||||
88 | ||||
90 | ||||
92 | ||||
94 | ||||
97 | ||||
98 | ||||
99 | ||||
101 | ||||
103 | ||||
110 | ||||
114 | ||||
122 | ||||
124 | ||||
125 | ||||
127 | ||||
129 | ||||
132 | ||||
135 | ||||
137 | ||||
147 |
Introduction
This is the sixth 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. This year, we have added a section, starting on page 19, which describes the relationship between UBS and its employees.
As in previous years, the Handbook also discusses our corporate governance arrangements and our relationships with regulators and shareholders, and provides comprehensive information on UBS shares.
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 publications useful and informative. We believe that UBS is one of the leaders in corporate disclosure, and we would be keen to hear your views on how we might improve the content, information or presentation of our products.
Tom Hill
Chief Communication Officer
UBS
1
Table of Contents
Introduction
UBS financial highlights
UBS income statement | For the year ended | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 75 | ||||||||||||
Basic earnings per share(CHF)1 | 13.93 | 7.78 | 5.44 | 79 | ||||||||||||
Diluted earnings per share(CHF)1 | 13.36 | 7.40 | 5.19 | 81 | ||||||||||||
Return on equity attributable to UBS shareholders(%)2 | 39.4 | 25.5 | 17.8 | |||||||||||||
Performance indicators from continuing operations3 | ||||||||||||||||
Basic earnings per share(CHF)1 | 9.78 | 8.02 | 5.72 | 22 | ||||||||||||
Return on equity attributable to UBS shareholders(%)4 | 27.6 | 26.3 | 18.8 | |||||||||||||
Financial Businesses5 | ||||||||||||||||
Operating income | 39,896 | 35,971 | 32,957 | 11 | ||||||||||||
Operating expenses | 27,704 | 26,149 | 25,397 | 6 | ||||||||||||
Net profit attributable to UBS shareholders | 13,517 | 7,656 | 5,959 | 77 | ||||||||||||
Cost / income ratio(%)6 | 70.1 | 73.2 | 76.8 | |||||||||||||
Net new money, wealth management businesses(CHF billion)7 | 95.1 | 60.4 | 44.0 | |||||||||||||
Personnel(full-time equivalents) | 69,569 | 67,407 | 65,879 | 3 | ||||||||||||
Pre-goodwill earnings from continuing operations3 | ||||||||||||||||
Operating income | 39,896 | 35,971 | 32,957 | 11 | ||||||||||||
Operating expenses | 27,704 | 25,503 | 24,720 | 9 | ||||||||||||
Net profit attributable to UBS shareholders | 9,442 | 8,003 | 6,468 | 18 | ||||||||||||
Cost / income ratio(%)6 | 70.1 | 71.4 | 74.8 | |||||||||||||
UBS balance sheet & capital management | As at | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 2,060,250 | 1,737,118 | 1,553,979 | 19 | ||||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 33,659 | 31 | ||||||||||||
Market capitalization | 131,949 | 103,638 | 95,401 | 27 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1(%)8 | 12.9 | 11.9 | 12.0 | |||||||||||||
Total BIS(%) | 14.1 | 13.8 | 13.5 | |||||||||||||
Risk-weighted assets | 310,409 | 264,832 | 252,398 | 17 | ||||||||||||
Invested assets(CHF billion) | 2,652 | 2,217 | 2,098 | 20 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
From 2005 on, all tables, charts, comments and analysis reflect the integration of Wealth Management US into the new Global Wealth Management & Business Banking Business Group, the change in treatment of the Wealth Management US cash management business and the shift of the municipal securities business to the Investment Bank. Prior years have been restated to reflect those changes. From 2005, the entire private equity portfolio started being reported as part of the Industrial Holdings segment.
Throughout this report, 2004 and 2003 results have been restated to reflect accounting changes (IAS 1, IFRS 2, IFRS 4, IAS 27, and IAS 28) effective 1 January 2005 as well as the presentation of discontinued operations.
2
Table of Contents
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 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
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 premium 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
3
Table of Contents
Introduction
Sources of information about UBS
This Handbook contains a detailed description of UBS, its strategy, organization, businesses and employees and corporate governance. It comprises sections on financial management including credit, market and operational risk and treasury processes.
Publications
This Handbook is available in English and German. (SAP no. 80532).
Annual Review 2005
Financial Report 2005
Quarterly reports
Compensation Report 2005
The making of UBS
How to order reports
SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
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 our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
4
Table of Contents
Introduction |
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 100 F Street, N.E., Room 1580, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also
inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the next page.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
Aeschenvorstadt 1,
5
Table of Contents
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 offices in Zurich and New York. | Hotline | +41-44-234 4100 | UBS AG | |||
Matthew Miller | +41-44-234 4360 | Investor Relations | ||||
Caroline Ryton | +41-44-234 2281 | P.O. Box | ||||
www.ubs.com/investors | Reginald Cash | +1-212-882 5734 | CH-8098 Zurich, Switzerland | |||
Nina Hoppe | +41-44-234 4307 | sh-investorrelations@ubs.com | ||||
Fax | +41-44-234 3415 | |||||
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 | ||||
New York | +1-212-882 5857 | mediarelations-ny@ubs.com | ||||
www.ubs.com/media | 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. | Calls from the US | 866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-680 6578 | 480 Washington Boulevard | ||||
www.melloninvestor.com | Fax | +1-201-680 4675 | Jersey City, NJ 07310, USA | |||
sh-relations@melloninvestor.com | ||||||
6
Table of Contents
UBS
We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment banking and securities businesses. We continually earn recognition and trust from clients, shareholders, and staff through our ability to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what we do.
7
Table of Contents
UBS
Strategy and structure
Strategy and structure
Our vision
We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment banking and securities businesses. We continually earn recognition and trust from clients, shareholders, and staff through our ability to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what we do. Our purpose is to help our clients make financial decisions with confidence. We use our resources to develop effective solutions and services for our clients. We foster a distinctive, meritocratic culture of ambition, performance and learning as this attracts, retains and develops the best talent for our company. By growing both our client and our talent franchises, we add sustainable value for our shareholders.
Our strategy
We are, and have for many years been, a truly global firm, working with corporate, institutional and private clients around the world. Our strategy is to concentrate on wealth management, investment banking and securities and asset management, all on a global scale, as well as retail and corporate banking in Switzerland. This long-term commitment has helped us to become the successful, diversified firm we are today.
Business strategies
ready significant progress we had made towards a consistent wealth management offering around the globe, making it even easier to fulfill clients’ individual needs with sophisticated products and services from across the firm. Our US-based wealth management business now operates alongside our international and Swiss business as part of one global wealth management franchise.
8
Table of Contents
UBS |
lored products. As a major global manager with a wide range of traditional and alternative capabilities, we are well placed to benefit from this.
Growth
above-average growth potential, is both successful and distinctive. As we have significant scale in our areas of focus, we are in a position to concentrate on organic development, avoiding the execution risks and disruptions that large transactions entail. “Bolt-on” acquisitions that improve the position of our core businesses quickly and efficiently will continue to be part of our strategy.
One of UBS’s main challenges in the next few years will be to deepen an already strong business footprint in the Asia Pacific region. That may sound like a prosaic matter of investing in new products and systems, and recruiting more staff. In the case of Asia Pacific, it is not. In a vast region where a flight between Mumbai and Sydney is two hours longer than it is between London and Hong Kong, global companies face numerous obstacles. The region is far from homogenous and boasts its own distinct mix of cultures. Language barriers, written and spoken, are substantial and time zones are awkward for companies with headquarters in Europe or North America. Many countries have a volatile economic and political history – with a significant number becoming democracies in the last two decades alone.
remain the primary driver of Asian growth, and, in the medium term, of the global economy. According to the International Monetary Fund (IMF), China’s GDP in 2000 was the seventh largest in the world – last year, it was fourth. By 2015, the IMF expects China’s economy to be second only to the US. The figures speak for themselves – and it is a reasonable projection that financial services markets in Asia Pacific, and China, will continue to become a larger percentage of the global total.
top three in the merger and acquisitions, equity capital market and debt capital market segments while having fast growing fixed income, rates, and currencies businesses as well as strongly expanding in asset management. At the end of 2005, for instance,Dealogicranked us as the number one investment bank in Asia Pacific (excluding Japan), with a market share of 7.6%. Including Japan, we have the leading equities franchise in Asia Pacific.
9
Table of Contents
UBS
Strategy and structure
uated for business and cultural fit before purchase. The success of the policy is particularly evident in Europe, where assets invested by clients have grown to CHF 114 billion at the end of 2005 from CHF 16 billion in 2001. Our European wealth management business now represents 12% of our international and Swiss wealth management business – up from 3% in 2001, when we started to build it up.
DRCM will allow us to satisfy the increasing demand from clients for long-term alternative investment opportunities provided by strong industry leaders and will create a new stream of investment management fees from what has until now been a purely in-house trading activity.
Securities. What at first glance appears an unusually quick implementation of a high-level strategic decision is, in fact, the result of patient investment and a long-term approach. UBS was one of the first foreign firms to gain a foothold in China with the opening of a Beijing representative office in 1989, followed by another in Shanghai four years later. Last year, we also opened a representative office in Guangzhou. Today, UBS’s USD 800 million Qualified Foreign Institutional Investor (QFII) quota, which allows the firm to trade in domestic shares and bonds on behalf of non-Chinese clients, remains the largest of all QFII quotas. The Investment Bank’s relationship with China dates back to 1985 and it continues to advise or execute a string of landmark transactions, while the Beijing branch, which commenced operations in August 2004, offers corporate and institutional clients in China tailor-made solutions to manage interest rate and currency risks.
largest city – an important step in further expanding our presence in the country. Japanese merger and acquisition activity has surged in recent years as well, with volumes rising from USD 43 billion and 1,014 deals in 2002 to USD 142 billion and 1,718 deals in 2005. Notable M&A transactions for UBS in Japan in 2005 include advisory roles for Sumitomo Trust & Banking on its acquisition of First Credit; for Sankyo on forming a joint venture company with Daiichi Pharmaceutical; to Nippon Shinpan on its merger with UFJ Card; and to Shinwa Bank on its formation of a non-performing loan workout joint venture with Orix Corporation.
UBS will open the UBS Service Centre – the firm’s first group-wide initiative in offshoring – in Hyderabad in 2006. Initially, the center will have a capacity for 500 employees capable of providing services to any UBS business. In Australia, UBS’s business is perhaps the best example of the integrated business model. UBS is pre-eminent in investment banking and securities trading and has a growing asset management presence. The wealth management business has a strong position in a fragmented market, but plans to grow further by recruiting new employees, launching new products and upgrading technology platforms while capitalizing on the strength of the UBS brand in Australia. Although the outlook for Asia Pacific activity is positive, competition remains intense. There are entrenched rivals in certain segments; some countries remain prone to political upheavals; and the regulatory environment is radically different across jurisdictions. Despite that, UBS remains extremely confident about the region’s future and the opportunities it presents. That is why UBS is doing everything possible to give its businesses in Asia Pacific the facilities, management, and resources they need to expand.
10
Table of Contents
UBS |
CHF 1.3 billion. This will create an opportunity to build a significant Swiss-European energy company with Swiss majority ownership. The transaction is expected to close, subject to various regulatory approvals, in 2006. In December 2005, we also finalized the sale of Private Banks & GAM to Julius Baer, following the successful financing of the transaction and after receiving the necessary regulatory approvals. In 2003, we had created the unit as a platform for our separately branded wealth management businesses – as a way of helping them to grow and to create value. We continue to hold a 20.7% stake in the new group as a pure financial investment. The transaction should enable it to play a role in the consolidation of the Swiss private banking industry.
Financial success, risk and capital management
Operating as “one firm”
We firmly believe our integrated business model creates more value than our businesses would as stand-alone units because business opportunities do not respect artificial demarcation lines between Business Groups. Our clients should 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 client referrals and the exchange of products and distribution services between businesses and contributes significantly to our revenue flows.
11
Table of Contents
UBS
Strategy and structure
based UBS Bank USA, which opened in 2003. It now offers a variety of lending products, broadening the scope of our financial relationships with our US clients. UBS Bank USA is now one of the top 50 banks in the US.
Managing our business
Board structure
pendent of each other. In particular, the functions of Chairman of the Board of Directors and Chief Executive Officer are conferred on two different people. No member of one board may be a member of the other. Detailed information on our corporate governance structures and principles can be read on page 98.
Organizational structure
Changes in senior management announced in 2005 and early 2006
– | Effective 1 July 2005, Marcel Rohner, Chief Executive Officer (CEO) Wealth Management & Business Banking since 2002 and a member of the Group Executive Board (GEB), was appointed CEO and Chairman Global Wealth Management & Business Banking, the new Business Group that includes the former Wealth Management & Business Banking and the Wealth Management US businesses. He remains a member of the GEB. Effective 1 January 2006, he was also appointed Deputy Group CEO. | |
– | Effective 1 January 2006, Rory Tapner, Chairman and CEO Asia Pacific, was appointed as a member of the GEB. | |
– | Effective 1 July 2005, Raoul Weil, head of our wealth management business serving international clients, was appointed to the GEB. | |
– | Effective 1 July 2005, Mark Sutton, previously Chairman and CEO of the Wealth Management US business and a member of the GEB, was appointed to the new position of Chairman and CEO, Americas. He remains on the GEB. | |
– | Effective 1 July 2005, Huw Jenkins was appointed CEO of the Investment Bank and a member of the GEB. He also became Chairman of the Investment Bank from 1 January 2006. |
12
Table of Contents
UBS |
– | Effective 1 July 2005, John Costas, CEO and Chairman Investment Bank, was appointed CEO Dillon Read Capital Management. As of 1 January 2006, he relinquished his functions as Deputy Group CEO, Chairman of the Investment Bank and a member of the GEB. | |
– | Effective 1 March 2005, Walter Stuerzinger, our Chief Risk Officer since 2001, was appointed to UBS’s GEB. Walter Stuerzinger has firm-wide responsibility for market, operational and credit risk control. | |
– | At the Annual General Meeting (AGM) on 21 April 2005, |
Alberto Togni, whose term of office expired in 2005, stepped down from the Board as he reached retirement age. Shareholders elected the following new members at the same AGM: Marco Suter, formerly UBS Chief Credit Officer, as Executive Vice Chairman, 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 member of the Board. After their election, the Board of Directors comprised eleven members.
13
Table of Contents
UBS
Industry trends
Industry trends
Long-term perspectives
The world economy is expected to grow at around 3.5% a year over the coming decade. There will be continued productivity gains due to global competition, the diffusion of new technologies and growing population. This effect may be somewhat dampened by slowing employment growth due to demographic shifts towards older populations in some countries.
– | financial liberalization and deregulation | |
– | wealth accumulation | |
– | retirement provisioning | |
– | securitization | |
– | equitization | |
– | alternative investments | |
– | corporate activity/restructuring | |
– | energy and raw materials |
These terms, and their distinct impact on our businesses, are explained in more detail below.
Financial liberalization and deregulation
Over the past few decades, deregulation and liberalization in financial services have accelerated the industry’s expansion and triggered considerable improvements in the quality and variety of new financial services. This process is now well advanced in many countries, and in some markets, for example the US, we do not expect any further notable deregulation. On the contrary, new regulations are arising in the US and some other developed countries, increasing the costs of doing business. However, further liberalization is likely in emerging economies where domestic markets are currently still relatively protected. These countries are exploring deregulation as a way to increase their competitiveness, especially compared with developed nations. The World Trade Organization’s
(WTO) multilateral trade negotiations under the Doha Round are currently trying to address some of these issues, but progress remains halting.
Wealth accumulation
In many economies, a notable shift is taking place away from labor-intensive production to more capital-intensive activity. Based on this development, we see a clear trend towards individual wealth accumulation that is likely to continue over the next decade, particularly in Asia. Wealth is expected to grow faster than GDP in developed countries. Moreover, the ratio of wealth to GDP in emerging markets is currently low and should increase, due, among other factors, to generally higher saving rates. These developments will benefit wealth management businesses across the world. They will also help the asset management industry as private wealth is a key driver for institutional asset growth. Investment banks and securities businesses should also benefit thanks to rising capitalization levels in global financial markets and higher trading volumes.
Retirement provisioning
In coming decades, most developed countries will be confronted with major demographic shifts. Thus, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform especially urgent. Although each country will follow its own regulatory agenda, in general we see a gradual shift from public unfunded to private funded pension schemes.
14
Table of Contents
UBS |
management, we believe that current developments will influence the demand for retirement-specific products. Individuals go through different stages in life. While the first four to five decades of an individual’s life are usually dominated by wealth accumulation, private clients usually experience a mind-set change when they enter their sixth decade; the focus shifts from wealth accumulation to wealth protection. Appropriate products and services are needed in order to prepare these individuals for their retirement, representing a substantial growth area for the financial services industry.
Securitization
The transformation of financial services over the last ten to twenty years has included the increasing de-emphasis of traditional lending activities and the increasing importance of securities trading and financial markets. Corporations are now frequently in a position to directly meet their funding needs by accessing the capital markets. This has driven the long-term expansion of corporate bond markets, replacing traditional bank lending services. At the same time, an increase in bank assets such as loans, mortgages and receivables has fuelled growth in the securitization of these assets, increasing the volume of asset-backed securities.
listing, and thereby meet requirements for also issuing debt securities.
Equitization
Over the past ten years, global equity market capitalization has grown at an annual rate of over 10% on a US dollar basis. Institutional and individual investors tend to allocate a greater share of their assets in equities. This reflects the transfer of ownership of assets from government and private owners to public markets. The corporate sector will also increasingly rely on public equity financing. We believe that the underlying trend towards an increasing role of equity financing and equity investments remains intact. In Western Europe, we see significant growth potential because of continued financial market integration. Growth potential is even higher in the emerging markets in view of the relatively low levels of stock market capitalization compared with GDP. Equitization is expected to provide growth opportunities not only to investment banking and securities businesses, but also to wealth and asset managers, as assets are increasingly shifted into higher margin classes. In addition, with the continued commoditization of trading services, we believe that smaller providers will start outsourcing these services to larger competitors.
Alternative investments
The last two decades have seen robust growth in the use of alternative investments – meaning investments other than cash, bonds, or public equities. North America led the way, with real estate and private equity becoming significant components of portfolios from the early 1980s, while hedge
15
Table of Contents
UBS
Industry trends
funds, once considered a fringe investment, continue to move into the mainstream across the globe. An increasing number of investors rely on alternative investments to boost returns and increase portfolio diversification. New alternative asset classes continue to emerge. This increases the demand for a variety of sophisticated products from the providers of these asset classes. These services range from IPOs and leveraged finance for private equity firms to prime brokerage and administrative services for hedge funds.
Corporate activity / restructuring
The search for growth, trade liberalization and technological progress will continue to increase global competition for corporations, pressuring them to concentrate on activities where they are genuinely competitive. At the same time, the complexity of doing business is increasing, for example because
of regulatory restrictions. We see long-term trends pointing towards growing demand for advice on mergers and acquisitions and restructuring.
Energy and raw materials
Production capacities for energy and raw materials currently lag behind rising global demand, particularly from emerging economies. This has shifted the focus to the efficient allocation of commodities, similar to efficient resource allocation in capital markets. Energy and raw material markets are becoming steadily more similar to financial markets. Financial firms are buying and selling futures or making private financial contracts (derivatives) with other players. With clients asking for more sophisticated products and services in the commodities area, financial firms are in an ideal position to profit from these developments, as they apply their experience of capital markets.
16
Table of Contents
UBS |
UBS
The making of UBS
The making of UBS
All the firms that have come to make up today’s UBS look back on a long and 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 form.
asset management, while remaining an important commercial and retail bank in Switzerland.
17
Table of Contents
UBS
The making of UBS
leading US-based institutional asset management firms. Both the O’Connor and Brinson deals represented fundamental steps in the development of the firm.
But there was still a major item left on the firm’s broader strategic agenda. It needed to establish a significant presence in the key US market to be a truly global player in investment banking and wealth management, both of which are “scale” businesses – meaning that size matters. That was achieved when PaineWebber became a part of UBS in 2000.
18
Table of Contents
Our employees
Competitive strength in the financial services industry depends, more than anything else, on the expertise and talent of a firm’s employees. In order for UBS to continue to succeed, we have to be capable of attracting, developing and retaining creative, highly qualified people. For employees, the strength of a firm’s core business, and its culture, are fundamental to giving them the opportunity for individual success.
19
Table of Contents
Our employees
The UBS workforce
Developments in our workforce
The number of people employed in our financial businesses rose to 69,569, up 2,162 or 3% from 67,407 a year earlier. In Swiss and international wealth management (up 1,462), we continued to add client advisors around the world and hire staff in support functions. Our US-based wealth management business (up 65) saw the number of employees increase because of hiring in support and logistics functions. The Swiss commercial and retail banking business recorded higher personnel numbers (up 515) – with the increase partly due to the first-time inclusion of employees paid by the hour. At the Investment Bank, staff levels (up 1,204) rose mainly in the investment banking and fixed income, rates and currencies businesses. They were also up in operations, reflecting higher market activity. Hiring was also seen in general counsel functions, reflecting the more stringent regulatory environment.
Recruitment and retention
Our business always needs talented people and our recruiting efforts in 2005 focused on supporting business growth. Last year, we hired 836 individuals with university degrees (including those with a Masters degree in Business Administration), 53% more than a year earlier.
students. We also hired 242 apprentices in banking and specialist functions such as Information Technology.
Graduate and MBA hiring across UBS
2005 | 2004 | |||||||||||||||||||||||||||||||
Europe | Americas | APAC | Total | Europe | Americas | APAC | Total | |||||||||||||||||||||||||
Investment Bank | 158 | 226 | 72 | 456 | 134 | 202 | 42 | 378 | ||||||||||||||||||||||||
Global Wealth Management & Business Banking | 227 | 82 | 30 | 339 | 96 | 50 | 146 | |||||||||||||||||||||||||
Global Asset Management | 18 | 10 | 7 | 35 | 18 | 18 | ||||||||||||||||||||||||||
Corporate Center | 6 | 6 | 5 | 5 | ||||||||||||||||||||||||||||
Total | 409 | 318 | 109 | 836 | 253 | 252 | 42 | 547 | ||||||||||||||||||||||||
20
Table of Contents
Our employees |
rates. In recent years, turnover has been moderate, with 167 of the 224 managing directors hired in 2002 and 2003 still employed at the end of 2005.
Diversity
Having a diverse workforce benefits our business. Seeking variety of thought, background, skill and experience, as well as other factors, including gender, ethnicity, race and nationality, helps us understand our clients’ needs and underpins an open work culture. We have a number of workplace policies in place that promote diversity. The Group Executive Board and ten Regional Diversity Boards, composed of regional senior management, set direction and regularly review how we recruit and retain a range of talent at all management, staff and employee levels. Last year, in a number of regions around the world, senior management also underwent a diversity awareness program that incorporated live actors in real-life decision-making situations.
Employee networks at UBS
Employee network name | Membership (approximate) | |||
All Bar None Americas | 860 | |||
All Bar None UK | 300 | 1 | ||
All Bar None Australasia | 200 | 1 | ||
All Bar None Tokyo | 30 | 1 | ||
Women’s Business Network Germany | 150 | 1 | ||
Women’s Business Network Switzerland | 725 | 1 | ||
Women’s Network Hong Kong | 80 | 1 | ||
Women’s Network Seoul | 40 | 1 | ||
Women’s Network Singapore | 120 | 1 | ||
Women’s Network Taiwan | 90 | 1 | ||
UBS Pride EMEA | 200 | |||
UBS Pride Switzerland | 150 | |||
UBS Pride US | 130 | |||
Cultural Awareness Network (UK) | 200 | |||
Cultural Awareness Network (US) | 250 | |||
League of Employees of African Descent | 150 | |||
Working Parents Group (US) | Subgroup of All Bar None Americas – no official membership | |||
Working Parents Group (Tokyo) | Subgroup of All Bar None Tokyo – approximately 30 members | |||
Working Parents Network (UK) | In formation | |||
Gender distribution by employee category1
Male | Female | Total | ||||||||||||||||||
Number | Percent | Number | Percent | |||||||||||||||||
Officers | 25,590 | 77.9 | 7,241 | 22.1 | 32,831 | |||||||||||||||
Non-Officers | 19,944 | 50.2 | 19,760 | 49.8 | 39,704 | |||||||||||||||
Total | 45,534 | 62.8 | 27,001 | 37.2 | 72,535 | |||||||||||||||
21
Table of Contents
Our employees
Composition of UBS’s workforce by citizenship1
Country | Number | Percent | ||||
USA | 24,857 | 34.3 | ||||
Switzerland | 23,423 | 32.3 | ||||
Great Britain | 6,724 | 9.3 | ||||
Germany | 2,797 | 3.9 | ||||
Italy | 1,790 | 2.5 | ||||
Australia | 1,432 | 2.0 | ||||
France | 1,146 | 1.6 | ||||
Japan | 892 | 1.2 | ||||
Singapore | 890 | 1.2 | ||||
Hong Kong | 773 | 1.1 | ||||
Spain | 656 | 0.9 | ||||
Canada | 642 | 0.9 | ||||
India | 601 | 0.8 | ||||
Russia | 331 | 0.4 | ||||
China | 289 | 0.4 | ||||
Ireland | 247 | 0.3 | ||||
Taiwan | 245 | 0.3 | ||||
Luxembourg | 189 | 0.3 | ||||
Malaysia | 177 | 0.2 | ||||
South Africa | 176 | 0.2 | ||||
Other countries | 4,258 | 5.9 | ||||
Total | 72,535 | 100.0 | ||||
Workforce diversity
The number of women working for UBS rose in 2005. We promoted and retained more women than in previous years and the number of women leaving UBS remained stable. At the end of last year, 63% of UBS’s employees were male and 37% female.
Performance measurement and management
Throughout the firm, all employees are subject to a process that evaluates individual achievements against agreed objectives. Our assessment process, called Performance Measurement and Management (PMM), has been in place since 1996. At the beginning of the year, each employee agrees to his or her individual objectives for the year with the evaluating manager. These objectives encompass targets relating to people, clients, economics and technical expertise. During this process, not only is individual performance assessed against business results but UBS also considers, among other things, whether client interests were safeguarded to the standards required by the firm. UBS also looks at whether employees
demonstrated superior leadership and good teamwork and whether they conducted themselves in an ethically appropriate manner, both professionally and personally. PMM also defines expected actions around corporate values such as client focus and diversity. It thus enables the firm to reward results and behaviors and helps to shape a learning and performance-oriented culture.
Group compensation policy
UBS’s compensation policy is designed 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.
22
Table of Contents
Our employees |
awardsthat vest or become unrestricted over time, UBS ensures that there is strong focus on the long-term implications of decisions and actions taken, thus aligning employees’ interests with those of shareholders.
ation of UBS, a competitive assessment, and the ability to purchase underlying shares in the market. The number of options to be granted to employees in a given period requires approval by the Board of Directors.
Employee share ownership
We are committed to the principle of employee share ownership throughout our organization. We believe it strengthens the link between employees and shareholders by fostering a culture that reinforces the entrepreneurial behavior that creates sustainable value for all shareholders.
The dedication of our employees is critical to performance and retention. We assess the engagement of employees through surveys.
Moreover, 86% of them were highly confident of UBS’s future, and a high proportion of employees (78%) said they would recommend UBS as an employer.
of the industry benchmark of 72%. Of those who answered the surveys, 70% felt their teams were effective and that the work environment was based on respect and mutual support, with 69% of them believing management showed a strong commitment to ethical decisions and conduct, and 67% agreeing that they were able to meet clients’ needs effectively.
23
Table of Contents
Our employees
Business training
We have a broad range of training programs. Many are job-specific, covering topics such as financial market education, sales and client management skills, technical training, information technology, and accounting. These programs are complemented by specific business training, induction programs, professional and personal skills development, and legal and regulatory training. All are made available to employees based on their specific role. We also run major educational initiatives when a change in the firm’s business or policies requires people to acquire new skills.
Key talent development
UBS’s key talent development process includes leadership development programs, mentoring and coaching, and a range of other measures to teach people new skills.
are closely coordinated across businesses to help ensure that future senior managers have consistent knowledge of the organization and its strategy.
Our Purpose
Our Core Competencies
Partnership:Relationships among our people as well as with our clients are driven by the power of partnership. It requires respect, contribution, trust and mutual support. We encourage the free exchange of ideas, and demand teamwork.
Meritocracy:We ask for entrepreneurial spirit and initiative from each individual. We actively strive to be the best at attracting, developing and retaining talented people. Decisions regarding recognition, reward and promotion are based on merit. We coach our people and invest in their development.
Our Ethical Beliefs
manner that is above reproach. Our integrity is key to preserving our most valuable asset – our reputation. We respect our clients’ right to privacy, and use information with appropriate discretion.
Corporate Responsibility:We are a member of the global community and behave as a responsible corporate citizen. We, both as a corporation and through our people strive to contribute positively and actively to the communities where we do business.
Diversity:Our strengths are leveraged by globally embracing diversity of skills, perspectives and backgrounds.
24
Table of Contents
Our employees |
Business-specific senior leadership development programs complement our global efforts by focusing on refining leadership skills and behaviors, and on strengthening participants’ understanding of strategy.
Selected 2005 awards
Number one in Europe for
“Top Companies for
Leaders 2005” by benefits
consultant Hewitt Associates
100 Best Companies
for Working Mothers
(Working Mother
Magazine; US)
10 Best Employers in Asia
(Hewitt Associates, Straits
Times, South China Morning
Post; Singapore & Hong Kong)
Our success depends on our staff. We support them – both during and beyond their careers with UBS. Our Employee Assistance Programs (EAPs) are a case in point.
and help resolve issues that occur in everyday life. UBS in Switzerland offers professional assistance for current and retired employees, as well as their family members, through its HR Social Counseling service. The specialized unit provides free confidential counseling for personal issues and guidance in solving business-related problems. Additional programs support employees when a business is re-organized. One example is COACH, a set of measures in Switzerland designed to help staff who lose their jobs because of restructuring. Launched early in 2003, the package extends the standard notice term of each eligible employee by two months.
help them apply for new jobs, either within UBS or outside. To this end, COACH advisors work closely with UBS’s human resources managers and draw on the expertise of UBS’s internal social consultancy service and specialized external agencies. Financial assistance of up to CHF 6,000 per employee is also available for job-related training where this will help applicants change their career path. To date, some 1,600 staff members have enrolled with COACH. Of this total, about one-tenth has found re-employment within UBS. The EAPs and COACH are not low-cost options, but we believe we have a responsibility to our staff and to the wider society, to be a conscientious employer.
25
Table of Contents
Our employees
Employee representation
The UBS Employee Forum was established following the merger of UBS and SBC to exchange information between employees and management on European issues potentially affecting the performance and prospects of UBS. The forum fulfils the obligations contained in EU Directive 94 / 45 on the establishment of a European Works Council. A UK employee forum meets on a regular basis to discuss topics particularly relevant to employees in the UK, including health and safety issues, changes to workplace conditions, pension arrange-
ments and collective redundancies. Employee representation in Switzerland is led by the Employee Representation Committee (ERC). This group of elected, internal representatives acts as an intermediary between business and employees, representing the interests of employees whose work contracts are governed by Swiss law and the Agreement on Conditions of Employment for Bank Staff. The ERC participates in annual salary negotiations and is involved in employee matters, including health and safety issues, social security and pension issues. The ERC also monitors and encourages communication between management and employees.
26
Table of Contents
Our businesses
We manage our Business Groups in a way that optimizes value for shareholders – making the whole worth more than the sum of the parts.
27
Table of Contents
Our businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking is both the top provider of financial services for wealthy clients around the world and the leading bank for individual and corporate clients in Switzerland.
Business Group / Business Unit reporting
Global Wealth | ||||||||||||||||||||||||||||||||
Wealth Management | Business Banking | Management & | ||||||||||||||||||||||||||||||
CHF million, except where indicated | International & Switzerland | Wealth Management US | Switzerland | Business Banking | ||||||||||||||||||||||||||||
For the year ended or as at | 31.12.05 | 31.12.04 | 31.12.05 | 31.12.04 | 31.12.05 | 31.12.04 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||
Total operating income | 9,011 | 7,693 | 5,156 | 4,736 | 5,071 | 5,039 | 19,238 | 17,468 | ||||||||||||||||||||||||
Total operating expenses | 4,850 | 4,297 | 4,844 | 4,707 | 2,882 | 3,026 | 12,576 | 12,030 | ||||||||||||||||||||||||
Business Group / Business Unit performance before tax | 4,161 | 3,396 | 312 | 29 | 2,189 | 2,013 | 6,662 | 5,438 | ||||||||||||||||||||||||
Net new money(CHF billion) | 68.2 | 42.3 | 26.9 | 18.1 | 3.4 | 2.6 | 98.5 | 63.0 | ||||||||||||||||||||||||
Invested assets(CHF billion) | 982 | 778 | 752 | 606 | 153 | 140 | 1,887 | 1,524 | ||||||||||||||||||||||||
Personnel(full-time equivalents) | 11,555 | 10,093 | 17,034 | 16,969 | 16,023 | 15,508 | 44,612 | 42,570 | ||||||||||||||||||||||||
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 business is to provide all our clients with the advice, financial products and tools that meet their individual needs.
Organizational structure
Effective 1 July 2005, we brought our US, Swiss and international wealth management businesses along with our Swiss corporate and retail banking unit into one Business Group called Global Wealth Management & Business Banking. We also transferred the municipal finance unit, until then a part of Wealth Management US, to the Investment Bank’s fixed income area.
– | Wealth Management International & Switzerland, serving wealthy and high-end affluent clients around the world except domestic clients in the United States | |
– | Wealth Management US, serving wealthy and affluent domestic US clients | |
– | Business Banking Switzerland, serving retail and corporate clients in Switzerland. |
Marcel Rohner |Chairman & CEO Global Wealth Management & Business Banking |
28
Table of Contents
Our Businesses |
Our vision
As theglobal leader in wealth management,we are determined to become the provider of choice for private clients worldwide. The scale and significance of our wealth management business in UBS ensures the highest levels of long-term commitment to the interests of our private clients. We will provide our clients with a consistent positive experience at every point of contact with our group, anywhere in the world. This is founded on the high quality of our advisory process through which we first take the time to listen to our clients, then develop and implement solutions for and with them, and finally monitor and learn from the results. At the center of this process is the client advisor. Careful selection, development and support of our client advisors is instrumental in providing a positive experience to our clients, thus fostering long-term personal relationships with our group.
As theleading bank in Switzerland,we grow by providing a complete range of top quality banking, securities and operational services, and multi-channel access for individual and corporate clients.
Cost discipline had been a key success factor for UBS in the phase following the merger of UBS and SBC in 1998. During that time, traditional targets helped management and staff to achieve the efficiency objectives defined for the post-merger integration.
wealth management and Swiss retail and corporate businesses.
This type of decision-making requires enhanced transparency and granularity in management information. As budget figures – the traditional point of reference – are no longer available, current performance is measured against actual results achieved in the previous periods and benchmarked to the performance of a defined group of peers. This encourages managers, client advisors and other employees to identify best practices and, through an active exchange of ideas, ways to learn from each other. In this context, managers increasingly take the role of coaches who encourage and support their employees to exploit their full potential and fulfill their own ambitions.
29
Table of Contents
Our businesses
Global Wealth Management & Business Banking
Wealth Management International & Switzerland
With more than 140 years of experience, an extensive global network, and CHF 982 billion in invested assets on 31 December 2005, our 4,154 client advisors consistently deliver high-quality, individually tailored solutions to our clients worldwide.
Business
The Wealth Management International & Switzerland 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, and Luxembourg), Germany, and Central Europe; UK, North, and Eastern Europe; Eastern Mediterranean, Middle East, and Africa; Asia Pacific; and Americas International. |
We also provide financial intermediaries, both inside and outside Switzerland, with our solutions, products and services, helping them to add substantial value to their client relationships.
Competitors
The Wealth Management International & Switzerland 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 mainly 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
We are committed to the consistent delivery of tailored and unbiased financial solutions of the highest quality to our clients. We strive to create long-term personal relationships.
30
Table of Contents
Our Businesses |
specific requirements by selecting from the best products and services available. In thethird step, 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 consultative approach.
Growth initiatives
European wealth management
31
Table of Contents
Our businesses
Global Wealth Management & Business Banking
Wealth management in Asia Pacific
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 to investments that would otherwise only be available to institutional clients.
Distribution
Our extensive wealth management branch network comprises 4,154 client advisors, 111 offices in Switzerland and 72 offices worldwide.
32
Table of Contents
Our Businesses |
Wealth Management US
As one of the leading wealth managers in the US, we provide a complete set of sophisticated wealth management services to our affluent, high net worth and ultra high net worth clients.
Business
With CHF 752 billion in invested assets, our focus is on wealth management services to core affluent individuals with more than USD 500,000 to invest, high net worth individuals with more than USD 5 million to invest, and ultra high net worth clients with more than USD 10 million to invest. We have more than 7,500 financial advisors in 346 branch office locations that build and maintain consultative relationships with our clients.
Organizational structure
PaineWebber merged with UBS in November 2000, and its US private clients business became a separate business unit
33
Table of Contents
Our businesses
Global Wealth Management & Business Banking
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 financial needs and goals of core affluent and high net worth clients in the US by providing them with wealth management services embracing both their assets and liabilities. Our private wealth management group serves ultra-high net worth clients with plan-
34
Table of Contents
Our Businesses |
Products and services
We offer a full array of proprietary offerings and third-party solutions, giving clients access to investments that suit their specific needs and goals. Our size means that individual clients can gain access to investments that might otherwise only be available to institutions.
Industry trends
We are already one of the premier US wealth managers. In 2006, we aim to increase our market share by making use of the increased range of products and services available since the creation of Global Wealth Management & Business Banking. Further growth will depend on a continued commitment to recruiting, retaining and developing top-performing financial advisors and providing them with the resources that will lead to increased revenue.
35
Table of Contents
Our businesses
Global Wealth Management & Business Banking
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 2005, clients had CHF 153 billion in invested assets with us. With a total loan book of CHF 141 billion on 31 December 2005, 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 as well as foreign bank branches in Switzerland.
Clients and products
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
Individual clients
36
Table of Contents
Our Businesses |
Corporate clients
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.
37
Table of Contents
Our businesses
Global Wealth Management & Business Banking
by telephone. Additionally, in 61 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 2005, more than 450,000 clients had active e-banking contracts and payment orders via electronic channels comprised 76% of all payments made.
Loan portfolio
On 31 December 2005, Business Banking Switzerland’s loan portfolio was CHF 141 billion. Of the total, mortgages represented CHF 117 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
38
Table of Contents
Our Businesses |
Our businesses
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 private, institutional and corporate clients, and through financial intermediaries.
Our vision
Ourglobal asset management businessprovides investment management solutions directly to our private, institutional and corporate clients and through financial intermediaries. We aim to deliver superior investment performance to clients through the management of their investments, across and within all major asset classes and through a number of investment approaches. The strength of our global asset management business lies in its globally integrated investment organization and processes, as well as in the quality of its client service.
Business Group reporting
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | ||||||
Total operating income | 2,487 | 2,022 | ||||||
Total operating expenses | 1,430 | 1,470 | ||||||
Business Group performance before tax | 1,057 | 552 | ||||||
Net new money – institutional(CHF billion) | 21.3 | 23.7 | ||||||
of which: money market funds–institutional (CHF billion) | (3.0 | ) | (1.2 | ) | ||||
Invested assets – institutional(CHF billion) | 441 | 344 | ||||||
of which: money market funds–institutional (CHF billion) | 16 | 17 | ||||||
Net new money – wholesale intermediary(CHF billion) | 28.2 | (4.5 | ) | |||||
of which: money market funds–wholesale intermediary (CHF billion) | (9.7 | ) | (20.6 | ) | ||||
Invested assets – wholesale intermediary(CHF billion) | 324 | 257 | ||||||
of which: money market funds–wholesale intermediary (CHF billion) | 62 | 64 | ||||||
Personnel(full-time equivalents) | 2,861 | 2,665 | ||||||
39
Table of Contents
Our businesses
Global Asset Management
Investment capabilities and services
Business
The diverse range of our specialized investment capabilities enables 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 needs.
40
Table of Contents
Our Businesses |
Reporting structure and local organization
Our main offices are in Chicago, Frankfurt, Hong Kong, London, New York, Sydney, Tokyo and Zurich. We have some 3,000 employees located in 20 countries.
Competitors
We have a range of competitors in traditional investments that extend from firms organized on a global basis – such as Fidelity Investments, Alliance Bernstein and Merrill Lynch Investment Managers – to firms organized on a regional or local basis and those that specialize in a particular asset class. In real estate and alternative investment, our competitors tend to be far more specialized and likely to be organized on a regional or local basis.
Clients and distribution
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.
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 corporations and public pension plans. 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.
41
Table of Contents
Our businesses
Global Asset Management
Investment performance
Equity markets rose in 2005, although progress varied by region. The US made modest gains, while Japan saw a 40% rise on increased optimism about the economic outlook. The global energy and materials sector soared on the back of rising commodity prices and robust demand from China. Our strategies that were underinvested in these areas underperformed during the year. Regional equity strategies were mostly ahead of benchmarks, with particularly strong performance in US and Asian equities, due to excellent stock selection.
Strategic opportunities
Our business performance in recent years has shown the soundness of our strategy of offering a wide range of investment products and solutions to various major markets and distribution channels. We remain focused on the effective execution of our strategy, ensuring that our initiatives deliver both revenue and profit growth.
42
Table of Contents
Our Businesses |
Our businesses
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 corporate and institutional clients, governments and financial intermediaries.
Our vision
Ourinvestment banking and securities businessprovides innovative solutions, independent research and advice for our corporate, institutional, intermediary and alternative asset management clients through complete access to the world’s financial markets across all product classes. We are a global leader in the services we provide and the leading risk manager in our industry.
Business Group reporting
For the year ended or as at | ||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | ||||||
Total operating income | 17,484 | 16,083 | ||||||
Total operating expenses | 12,303 | 11,473 | ||||||
Business Group performance before tax | 5,181 | 4,610 | ||||||
Personnel(full-time equivalents) | 18,174 | 16,970 | ||||||
43
Table of Contents
Our businesses
Investment Bank
Business
The Investment Bank is a global investment banking and securities firm. Our salespeople, research analysts and investment bankers, supported by our risk and logistics teams, deliver advice and execution to clients all over the world. In addition to serving the world’s key corporate and institutional clients, governments and financial intermediaries, we work with financial sponsors and hedge funds and indirectly meet the needs of private investors, through both our own wealth management business and other private banks.
Organizational structure
Our headquarters are in London and New York. We employ roughly 18,200 people in 34 countries around the world. Our
– | Equities | |
– | Fixed income, rates and currencies (FIRC) | |
– | Investment banking. |
Although we generally pursue a strategy of organic growth, we also take the opportunity to enhance our franchise with acquisitions where necessary. 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. In order to expand our trading technology, we acquired Prediction Company in November 2005, a financial engineering and trading software company. This specialized group will contribute to the development of our trading infrastructure.
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, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Products and services
Equities
44
Table of Contents
Our Businesses |
the prospects for approximately 3,000 companies (corresponding to some 80% of world market capitalization) across most industry sectors, and all geographical regions, as well as economic, strategy, quantitative and derivative research. We consistently have more highly rated analysts than any other broker globally, according toStarmine,which measures analysts based on the return of their stock recommendations. We also ranked first inInstitutional Investor’s surveys of equity research analysts in Europe, Asia, and Latin America and are highly ranked in Japan and the US.
trading, to our clients. Our focus on technology 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 | |
– | rates, incorporating interest rate derivatives, residential mortgages, government bonds and energy trading | |
– | municipals, incorporating origination, retail trading and distribution, derivatives, short-term trading and institutional trading | |
– | FX/CCT, incorporating foreign exchange, cash and collateral trading as well as base and precious metals. |
Our approach to products and markets varies. Where there is enough potential for risk-adjusted returns, we seek market share leadership in high-volume, liquid markets. 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 European Fixed Income
45
Table of Contents
Our businesses
Investment Bank
Strategy in theThomson Financial Extelsurvey for the second year running, first in European Investment Grade Research byInstitutional Investor, and second in Fixed Income Research in Asia byFinanceAsia.
ing to expand our FX e-commerce platform and deliver a suite of services tailored to meet the demands of each client segment.
Investment banking
– | joint financial advisor to Gillette on its USD 57 billion sale to Procter & Gamble | |
– | lead financial advisor to Gas Natural on its USD 47 billion public tender offer for Endesa | |
– | joint global coordinator/bookrunner on the USD 4.6 billion follow-on global offering for Central Japan Railway | |
– | joint bookrunner on the USD 2.2 billion global primary and secondary equity offering of American Depositary Shares (ADSs) and ordinary shares in LG Philips LCD | |
– | dealer-manager on the USD 81.8 billion debt exchange offer for the Republic of Argentina | |
– | joint bookrunner on a EUR 3 billion two-tranche unsecured bond offering for Deutsche Telekom | |
– | joint lead arranger and joint bookrunner on USD 2.2 billion of financing in support of the USD 2.3 billion leveraged buyout of MeadWestvaco’s coated papers business and associated timberlands by Cerberus Capital Management. |
46
Table of Contents
Our Businesses |
UBS underwriting and fee revenues
CHF million | 2005 | 2004 | 2003 | |||||||||
Corporate finance fees | 1,460 | 1,078 | 761 | |||||||||
Equity underwriting fees | 1,341 | 1,417 | 1,267 | |||||||||
Debt underwriting fees | 1,516 | 1,114 | 1,084 | |||||||||
Other capital markets revenues1 | 436 | 294 | 471 | |||||||||
Gross capital market and corporate finance fees | 4,753 | 3,903 | 3,583 | |||||||||
Capital market fees booked outside investment banking2 | (943 | ) | (813 | ) | (819 | ) | ||||||
Amounts shared with equities and FIRC | (1,182 | ) | (991 | ) | (1,017 | ) | ||||||
Financing, hedging and risk adjustment costs | (122 | ) | (184 | ) | (44 | ) | ||||||
Net investment banking area revenues | 2,506 | 1,915 | 1,703 | |||||||||
Strategic opportunities
Our industry is always competitive, but the strength of the markets and the level of client activity continue to offer attractive investment opportunities. The Investment Bank is positioned to take full advantage of market trends, and we have great ambitions for the future based on an investment program that targets our fastest growing clients and emerging asset classes.
47
Table of Contents
Our businesses
Corporate Center
Corporate Center
Corporate Center works with the Business Groups to ensure that the firm operates as an effective and integrated whole with a common vision and set of values. It helps UBS’s businesses grow sustainably through its risk, financial control, treasury, communication, legal, human resources strategy and technology functions.
Business Group reporting
For the year ended | ||||||||
or as at | ||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | ||||||
Total operating income | 687 | 398 | ||||||
Total operating expenses | 1,395 | 1,176 | ||||||
Business Group performance from continuing operations before tax | (708 | ) | (778 | ) | ||||
Business Group performance from discontinued operations before tax | 4,564 | 396 | ||||||
Personnel(full-time equivalents) | 3,922 | 5,202 | ||||||
Personnel excluding IT Infrastructure (ITI)(full-time equivalents) | 1,370 | 2,848 | ||||||
Personnel for ITI(full-time equivalents) | 2,552 | 2,354 | ||||||
Aims and objectives
Our commitment to an integrated business model means that our complementary businesses must be managed together to optimize returns and control risk. Corporate Center supports UBS’s businesses, enabling them to operate effectively within this framework.
Organizational structure
Until the sale of UBS’s private label banks and specialist asset manager GAM, Corporate Center was reported as two separate business units: Corporate Functions and Private Banks & GAM. Starting in fourth quarter 2005, Corporate Center was again reported as one single unit.
48
Table of Contents
Our Businesses |
Corporate Functions
Chief Financial Officer (CFO)
Chief Risk Officer (CRO)
Chief Credit Officer (CCO)
Group Controller
Group Treasurer
Chief Communication Officer
Group General Counsel
49
Table of Contents
Our businesses
Corporate Center
Group Head Human Resources
Leadership Institute
Chief Technology Officer (CTO)
Group Offshoring
The head of Group Offshoring leads the Group Offshoring team, established in late 2004. He is responsible for ensuring all offshoring activities of UBS on a firm-wide basis are well coordinated, optimally planned and executed in line with UBS’s strategy and values. The Group Offshoring team is currently overseeing the building of the UBS Service Center in Hyderabad, India, that will initially be able to accommodate 500 offshored roles when it becomes operational at the end of first quarter 2006.
Private Banks & GAM
In December 2005, UBS successfully completed the sale of its Private Banks & GAM unit to Julius Baer. As a result of the transaction, UBS holds a 20.7% stake in the enlarged Julius Baer. The stake is held as a financial investment. UBS will not take a seat on Julius Baer’s board of directors nor will it exercise any influence on its strategy or operational decisions, or vote the shares it holds.
The Chairman’s Office
Although not formally a part of Corporate Center, the costs for the Chairman’s Office (which comprises the Company Secretary, Board of Directors, and Group Internal Audit) are reported in Corporate Center results.
50
Table of Contents
Industrial Holdings
The Industrial Holdings segment is where our majority stakes
in industrial companies and large non-financial businesses
are held.
51
Table of Contents
Industrial Holdings
Industrial Holdings
Income statement
For the year ended | ||||||||
or as at | ||||||||
CHF million, except where indicated | 31.12.05 | 31.12.041 | ||||||
Continuing operations | ||||||||
Total operating income | 11,079 | 6,440 | ||||||
Total operating expenses | 10,222 | 5,975 | ||||||
Operating profit from continuing operations before tax | 857 | 465 | ||||||
Tax expense | 253 | 120 | ||||||
Net profit from continuing operations | 604 | 345 | ||||||
Discontinued operations | ||||||||
Profit from discontinued operations before tax | 124 | 140 | ||||||
Tax expense | 9 | 32 | ||||||
Net profit from discontinued operations | 115 | 108 | ||||||
Net profit | 719 | 453 | ||||||
Net profit attributable to minority interests | 207 | 93 | ||||||
from continuing operations | 202 | 93 | ||||||
from discontinued operations | 5 | 0 | ||||||
Net profit attributable to UBS shareholders | 512 | 360 | ||||||
from continuing operations | 402 | 252 | ||||||
from discontinued operations | 110 | 108 | ||||||
Personnel(full-time equivalents) | 21,636 | 29,453 | ||||||
Business and structure
On 31 December 2005, the Industrial Holdings segment consisted of UBS’s private equity investments and Motor-Columbus, a financial holding company whose only significant asset is a 59.3% interest in the Atel Group, a European energy provider.
52
Table of Contents
Financial Management
Taking risks is an integral part of our business. Our aim is
to achieve an appropriate balance between risk and
return based on our assessment of potential risk developments
in both normal and stressed conditions.
53
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.
54
Table of Contents
Financial Management |
Risk management and control framework
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 market developments and 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, 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.
– | credit riskis the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk |
55
Table of Contents
Financial Management
Risk management and control
– | 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.
Risk categories
56
Table of Contents
Financial Management |
Financial Management
Credit risk
Credit risk
Credit risk measurement
Components of credit risk
UBS internal rating scale and mapping
of external ratings
UBS | Moody's Investor | Standard & Poor's | ||||
Rating | Description | Services equivalent | equivalent | |||
0 and 1 | Investment grade | Aaa | AAA | |||
2 | Aa1 to Aa3 | AA+ to AA– | ||||
3 | A1 to A3 | A+ to A– | ||||
4 | Baa1 to Baa2 | BBB+ to BBB | ||||
5 | Baa3 | BBB– | ||||
6 | Sub-investment grade | Ba1 | BB+ | |||
7 | Ba2 | BB | ||||
8 | 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 | ||||
determining portfolio risk, not only for our internal credit risk measures but also for future regulatory capital calculations, since they are the basis of the Basel II Advanced Internal Rating Based approach, which we intend to adopt when it comes into force in 2008.
57
Table of Contents
Financial Management
Credit risk
Portfolio risk measures
Expected loss
Statistical and stress loss
Credit risk control
Limits and controls
58
Table of Contents
Financial Management |
Risk mitigation
59
Table of Contents
Financial Management
Credit risk
around these activities must be robust and strictly enforced, especially where the activity is on a large scale and volumes are high, as is the case with our hedge fund and OTC derivatives businesses. We have strict standards for netting and collateral agreements, including assurance that contracts are legally enforceable in insolvency in the relevant jurisdictions. The Investment Bank has rigorous systems and processes in a dedicated unit in the operations group to measure and monitor the value of both underlying credit instruments and collateral to ensure that the potential loss in the event of a counterparty default is within approved limits and tolerances on an ongoing basis. Concentrations in collateral type are also monitored where relevant.
Composition of credit risk
The table below provides an overview of the aggregate credit exposure of UBS in gross terms, i.e. without recognition of credit hedges, collateral or other risk mitigation.
Global Wealth Management & Business Banking
excluding mortgages, amounted to CHF 75 billion and are predominantly extended against the pledge of marketable securities. The volume of collateralized lending to private individuals rose by CHF 14 billion or 34% from the previous year, as the low interest rate environment triggered an increase in demand for this product and as we accepted a slightly broader and more complex range of investment instruments as eligible collateral.
Total credit exposure
Wealth Management | ||||||||||||||||||||||||||||
International & Switzerland | Wealth Management US | |||||||||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||
Lending portfolio, gross | 58,907 | 43,571 | 36,238 | 17,105 | 14,617 | 13,072 | ||||||||||||||||||||||
Contingent claims | 4,778 | 3,444 | 3,154 | 265 | 274 | 355 | ||||||||||||||||||||||
Unutilized committed lines | 372 | 669 | 408 | 0 | 0 | 25 | ||||||||||||||||||||||
Total banking products | 64,057 | 47,684 | 39,800 | 17,370 | 14,891 | 13,452 | ||||||||||||||||||||||
Unsecured OTC products | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Other derivatives (secured or exchange-traded) | 2,691 | 2,087 | 853 | 0 | 0 | 1 | ||||||||||||||||||||||
Securities lending / borrowing | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Repo / reverse-repo | 0 | 1 | 0 | 191 | 171 | 151 | ||||||||||||||||||||||
Total traded products3 | 2,691 | 2,088 | 853 | 191 | 171 | 152 | ||||||||||||||||||||||
Total credit exposure, gross | 66,748 | 49,772 | 40,653 | 17,561 | 15,062 | 13,604 | ||||||||||||||||||||||
Total credit exposure, net of allowances and provisions | 66,735 | 49,744 | 40,637 | 17,549 | 15,044 | 13,576 | ||||||||||||||||||||||
60
Table of Contents
Financial Management |
Business Banking | Global Wealth Management | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Switzerland | & Business Banking | Investment Bank | Other1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||||||||||||||
141,315 | 137,147 | 138,534 | 217,327 | 195,335 | 187,844 | 86,616 | 68,410 | 55,023 | 598 | 5,479 | 4,939 | 304,541 | 2 | 269,224 | 2 | 247,806 | 2 | |||||||||||||||||||||||||||||||||||||||||||
6,748 | 7,570 | 8,270 | 11,791 | 11,288 | 11,779 | 4,775 | 3,370 | 3,174 | 0 | 216 | 583 | 16,566 | 14,874 | 15,536 | ||||||||||||||||||||||||||||||||||||||||||||||
1,252 | 1,275 | 1,392 | 1,624 | 1,944 | 1,825 | 71,281 | 51,224 | 44,733 | 0 | 0 | 65 | 72,905 | 53,168 | 46,623 | ||||||||||||||||||||||||||||||||||||||||||||||
149,315 | 145,992 | 148,196 | 230,742 | 208,567 | 201,448 | 162,672 | 123,004 | 102,930 | 598 | 5,695 | 5,587 | 394,012 | 337,266 | 309,965 | ||||||||||||||||||||||||||||||||||||||||||||||
1,749 | 1,226 | 1,385 | 1,749 | 1,226 | 1,385 | 54,361 | 53,372 | 53,649 | 0 | 329 | 573 | 56,110 | 54,927 | 55,607 | ||||||||||||||||||||||||||||||||||||||||||||||
454 | 322 | 337 | 3,145 | 2,409 | 1,191 | 28,282 | 15,741 | 14,535 | 0 | 0 | 0 | 31,427 | 18,150 | 15,726 | ||||||||||||||||||||||||||||||||||||||||||||||
7,082 | 3,953 | 1,093 | 7,082 | 3,953 | 1,093 | 27,904 | 27,301 | 22,220 | 0 | 0 | 0 | 34,986 | 31,254 | 23,313 | ||||||||||||||||||||||||||||||||||||||||||||||
103 | 37 | 26 | 294 | 209 | 177 | 17,726 | 20,305 | 19,546 | 0 | 0 | 0 | 18,020 | 20,514 | 19,723 | ||||||||||||||||||||||||||||||||||||||||||||||
9,388 | 5,538 | 2,841 | 12,270 | 7,797 | 3,846 | 128,273 | 116,719 | 109,950 | 0 | 329 | 573 | 140,543 | 124,845 | 114,369 | ||||||||||||||||||||||||||||||||||||||||||||||
158,703 | 151,530 | 151,037 | 243,012 | 216,364 | 205,294 | 290,945 | 239,723 | 212,880 | 598 | 6,024 | 6,160 | 534,555 | 462,111 | 424,334 | ||||||||||||||||||||||||||||||||||||||||||||||
157,108 | 149,213 | 147,911 | 241,392 | 214,001 | 202,124 | 290,789 | 239,351 | 212,279 | 598 | 5,962 | 6,156 | 532,779 | 459,314 | 420,559 | ||||||||||||||||||||||||||||||||||||||||||||||
61
Table of Contents
Financial Management
Credit risk
Global Wealth Management & Business Banking:
distribution of banking products exposure across counterparty rating and loss given default (LGD) buckets
Loss given default buckets (LGD) | Weighted | |||||||||||||||||||||||
CHF million | Gross Exposure | 0-25% | 26-50% | 51-75% | 76-100% | Average LGD (%) | ||||||||||||||||||
0 | 857 | 104 | 389 | 364 | 47 | |||||||||||||||||||
1 | 830 | 11 | 353 | 459 | 7 | 54 | ||||||||||||||||||
2 | 38,070 | 35,608 | 1,591 | 868 | 3 | 22 | ||||||||||||||||||
3 | 27,641 | 20,824 | 2,730 | 2,402 | 1,685 | 29 | ||||||||||||||||||
4 | 8,407 | 5,020 | 2,117 | 1,264 | 6 | 30 | ||||||||||||||||||
5 | 103,492 | 97,159 | 2,760 | 3,523 | 50 | 22 | ||||||||||||||||||
6 | 12,549 | 9,161 | 2,158 | 1,220 | 10 | 26 | ||||||||||||||||||
7 | 14,351 | 11,075 | 1,721 | 1,455 | 100 | 26 | ||||||||||||||||||
8 | 11,333 | 7,212 | 2,747 | 1,160 | 214 | 28 | ||||||||||||||||||
9 | 6,740 | 4,155 | 852 | 795 | 938 | 35 | ||||||||||||||||||
10 | 1,546 | 874 | 231 | 433 | 8 | 34 | ||||||||||||||||||
11 | 832 | 747 | 36 | 48 | 1 | 23 | ||||||||||||||||||
12 | 801 | 726 | 15 | 49 | 11 | 24 | ||||||||||||||||||
Total non-impaired | 227,449 | 192,676 | 17,700 | 14,040 | 3,033 | 24 | ||||||||||||||||||
Investment grade | 179,297 | 158,726 | 9,940 | 8,880 | 1,751 | |||||||||||||||||||
Sub-investment grade | 48,152 | 33,950 | 7,760 | 5,160 | 1,282 | |||||||||||||||||||
Impaired and defaulted | 3,293 | |||||||||||||||||||||||
Total banking products | 230,742 | 192,676 | 17,700 | 14,040 | 3,033 | |||||||||||||||||||
credit portfolio, reducing both individual and sector concentrations.
Investment Bank
62
Table of Contents
Financial Management |
Investment Bank: credit hedging, banking products
31.12.05 | 31.12.04 | |||||||
CHF million | ||||||||
Total banking products exposure IFRS (accounting view) | 162,672 | 123,268 | ||||||
less: IFRS adjustments1 | (41,404 | ) | (24,268 | ) | ||||
less: traded loans | (2,388 | ) | (501 | ) | ||||
plus: residential and commercial real estate2 | 11,520 | 4,250 | ||||||
other reconciliation items | 490 | (16,344 | ) | |||||
Adjusted banking products exposure, gross | 130,890 | 86,405 | ||||||
Sub- | Impaired | Sub- | Impaired | |||||||||||||||||||||||||||||
Investment | investment | and | Investment | investment | and | |||||||||||||||||||||||||||
grade | grade | defaulted | UBS | grade | grade | defaulted | UBS | |||||||||||||||||||||||||
Adjusted banking products exposure, gross | 130,890 | 86,405 | ||||||||||||||||||||||||||||||
less: funded risk participations and cash collateral | (3,505 | ) | (433 | ) | ||||||||||||||||||||||||||||
risk transfers3 | 1,207 | (1,176 | ) | (31 | ) | 888 | (882 | ) | (6 | ) | ||||||||||||||||||||||
less: specific allowances for credit losses and | (131 | ) | (410 | ) | ||||||||||||||||||||||||||||
loan loss provisions | ||||||||||||||||||||||||||||||||
Adjusted banking products exposure, net | 127,254 | 85,562 | ||||||||||||||||||||||||||||||
less: credit protection bought | (24,121 | ) | (19,532 | ) | ||||||||||||||||||||||||||||
(credit default swaps, credit-linked notes)4 | ||||||||||||||||||||||||||||||||
Adjusted banking products exposure, net, after application of credit hedges | 59,876 | 43,024 | 233 | 103,133 | 38,050 | 27,589 | 391 | 66,030 | ||||||||||||||||||||||||
Temporary exposure | (6,872 | ) | (14,198 | ) | (37 | ) | (21,107 | ) | (7,716 | ) | (6,498 | ) | (68 | ) | (14,282 | ) | ||||||||||||||||
Net take & hold banking | 53,004 | 28,826 | 196 | 82,026 | 30,334 | 21,091 | 323 | 51,748 | ||||||||||||||||||||||||
products exposure (risk view) | ||||||||||||||||||||||||||||||||
Investment Bank: distribution of net take and hold banking products exposure across counterparty rating and loss given default (LGD) buckets
Loss given default buckets (LGD) | Weighted | |||||||||||||||||||||||
CHF million | Exposure1 | 0-25% | 26-50% | 51-75% | 76-100% | Average LGD (%) | ||||||||||||||||||
0 and 1 | 5,897 | 36 | 5,861 | 0 | 0 | 49 | ||||||||||||||||||
2 | 16,829 | 495 | 15,148 | 1,094 | 92 | 50 | ||||||||||||||||||
3 | 16,185 | 2,465 | 12,572 | 492 | 656 | 44 | ||||||||||||||||||
4 | 9,713 | 2,132 | 7,189 | 378 | 14 | 40 | ||||||||||||||||||
5 | 4,380 | 963 | 3,200 | 202 | 15 | 41 | ||||||||||||||||||
6 | 3,374 | 1,156 | 2,188 | 23 | 7 | 30 | ||||||||||||||||||
7 | 10,889 | 10,144 | 709 | 36 | 0 | 8 | ||||||||||||||||||
8 | 7,625 | 5,879 | 1,563 | 67 | 116 | 15 | ||||||||||||||||||
9 | 2,942 | 1,405 | 1,432 | 105 | 0 | 26 | ||||||||||||||||||
10 | 2,269 | 659 | 1,528 | 82 | 0 | 34 | ||||||||||||||||||
11 | 1,399 | 579 | 730 | 73 | 17 | 31 | ||||||||||||||||||
12 | 328 | 270 | 49 | 9 | 0 | 13 | ||||||||||||||||||
Total non-impaired | 81,830 | 26,183 | 52,169 | 2,561 | 917 | 34 | ||||||||||||||||||
Investment grade | 53,004 | 6,091 | 43,970 | 2,166 | 777 | 45 | ||||||||||||||||||
Sub-investment grade | 28,826 | 20,092 | 8,199 | 395 | 140 | 17 | ||||||||||||||||||
Impaired and defaulted | 196 | 21 | 165 | 8 | 2 | 50 | ||||||||||||||||||
Net take and hold exposure | 82,026 | 26,204 | 52,334 | 2,569 | 919 | |||||||||||||||||||
63
Table of Contents
Financial Management
Credit risk
64
Table of Contents
Financial Management |
probability of default, without reference to the likely severity of loss or loss mitigation from collateral or credit hedges.
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 portion of our settlement risk exposure arises from foreign exchange transactions. Through our membership of Continuous Linked Settlement (CLS), a clearing house for foreign exchange settlement which allows transactions to be settled on a delivery versus payment basis, we have significantly reduced our foreign exchange related settlement risk relative to the volume of our business. In 2005, the transaction volume settled through CLS continued to increase in absolute terms and reached 59% of overall gross volumes by fourth quarter 2005, compared to 57% in fourth quarter 2004. 76% of the CLS volume was with other 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 number of Third Party Members we deal with has again nearly doubled during 2005. Overall market growth has also been significant but CLS has allowed us to increase our own volumes without our settlement risk increasing by the same proportion.
CLS does not, of course, eliminate the credit risk on foreign exchange transactions resulting from changes in exchange rates prior to settlement. We measure and control this pre-settlement risk on forward foreign exchange transactions as part of the overall credit risk on traded products, as described on page 58-59, Limits and controls.
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 57), the three lowest ratings being designated “distressed”.
Emerging markets exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As at | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 3,955 | 2,878 | 1,833 | 970 | 683 | 441 | 808 | 955 | 606 | 2,177 | 1,240 | 786 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 13,003 | 9,461 | 6,822 | 3,326 | 2,398 | 1,517 | 2,954 | 2,438 | 1,113 | 6,723 | 4,625 | 4,192 | ||||||||||||||||||||||||||||||||||||
Latin America | 2,000 | 1,646 | 1,849 | 305 | 193 | 425 | 378 | 319 | 568 | 1,317 | 1,134 | 856 | ||||||||||||||||||||||||||||||||||||
Middle East / Africa | 2,491 | 2,219 | 2,363 | 1,065 | 842 | 882 | 1,003 | 842 | 1,083 | 423 | 535 | 398 | ||||||||||||||||||||||||||||||||||||
Total | 21,449 | 16,204 | 12,867 | 5,666 | 4,116 | 3,265 | 5,143 | 4,554 | 3,370 | 10,640 | 7,534 | 6,232 | ||||||||||||||||||||||||||||||||||||
65
Table of Contents
Financial Management
Credit risk
making conservative assumptions about potential recovery rates depending on the types of transaction involved and their economic importance to the affected countries, and thereby determining potential loss.
Country risk exposure
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 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 when insolvency proceedings have commenced or obligations have been restructured on concessionary terms.
charged to the income statement as credit loss expense. For products recorded at fair value, impairment is recognized through a credit valuation adjustment, which is charged to the income statement through the net trading income line.
Credit loss (expense) / recovery versus adjusted expected credit loss charged to the Business Groups
Wealth Management | ||||||||||||||||||||||||||||
CHF million | International & Switzerland | Wealth Management US | ||||||||||||||||||||||||||
For the year ended | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||
Total banking products exposure1 | 64,057 | 47,684 | 39,800 | 17,370 | 14,891 | 13,452 | ||||||||||||||||||||||
Credit loss (expense) / recovery1 | (8 | ) | (1 | ) | 4 | 0 | 3 | (3 | ) | |||||||||||||||||||
– as a proportion of total banking products exposure (bps) | (1 | ) | (0 | ) | 1 | 0 | 2 | (2 | ) | |||||||||||||||||||
Adjusted expected credit loss charged to the Business Groups2 | (13 | ) | (8 | ) | (4 | ) | (2 | ) | (5 | ) | (8 | ) | ||||||||||||||||
– as a proportion of total banking products exposure (bps) | (2 | ) | (2 | ) | (1 | ) | (1 | ) | (3 | ) | (6 | ) | ||||||||||||||||
66
Table of Contents
Financial Management |
essary, to evaluate the extent to which the value of our banking and traded product exposures would be affected by country risk incidents or country-specific systemic risks. Appropriate allowances and provisions are then determined by evaluating the type of credit exposure in the portfolio for each country and the loss severities that have been attributed to each exposure type. Where fair-valued portfolios are affected by country risk, it is recognized in the fair values of individual claims.
Credit loss expense
Our financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the financial statements in any period is the sum of net allowances and direct write-offs 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 58. 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 Center (see note 2 to the financial statements).
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.
Global Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking Switzerland | & Business Banking | Investment Bank | Other | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||||||||||||||
149,315 | 145,992 | 148,196 | 230,742 | 208,567 | 201,448 | 162,672 | 123,004 | 102,930 | 598 | 5,695 | 5,587 | 394,012 | 337,266 | 309,965 | ||||||||||||||||||||||||||||||||||||||||||||||
231 | 92 | (71 | ) | 223 | 94 | (70 | ) | 152 | 147 | (32 | ) | 0 | 0 | 0 | 375 | 241 | (102 | ) | ||||||||||||||||||||||||||||||||||||||||||
15 | 6 | (5 | ) | 10 | 5 | (3 | ) | 9 | 12 | (3 | ) | 0 | 0 | 0 | 10 | 7 | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||
122 | (25 | ) | (127 | ) | 107 | (38 | ) | (139 | ) | 36 | (7 | ) | (55 | ) | 0 | 0 | 0 | 143 | (45 | ) | (194 | ) | ||||||||||||||||||||||||||||||||||||||
8 | (2 | ) | (9 | ) | 5 | (2 | ) | (7 | ) | 2 | (1 | ) | (5 | ) | 0 | 0 | 0 | 4 | (1 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||
67
Table of Contents
Financial Management
Credit risk
Impaired loans, allowances and provisions
Allowances and provisions for credit losses
Wealth Management | ||||||||||||||||||||||||||||
CHF million | International & Switzerland | Wealth Management US | ||||||||||||||||||||||||||
As at | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||
Due from banks | 441 | 300 | 738 | 1,171 | 1,518 | 1,479 | ||||||||||||||||||||||
Loans | 58,466 | 43,271 | 35,500 | 15,934 | 13,099 | 11,593 | ||||||||||||||||||||||
Total lending portfolio, gross | 58,907 | 43,571 | 36,238 | 17,105 | 14,617 | 13,072 | ||||||||||||||||||||||
Allowances for credit losses | (13 | ) | (28 | ) | (16 | ) | (12 | ) | (18 | ) | (25 | ) | ||||||||||||||||
Total lending portfolio, net | 58,894 | 43,543 | 36,222 | 17,093 | 14,599 | 13,047 | ||||||||||||||||||||||
Impaired lending portfolio, gross | 7 | 10 | 8 | 12 | 18 | 25 | ||||||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | 0 | (2 | ) | 0 | 0 | 0 | (2 | ) | ||||||||||||||||||||
Impaired lending portfolio, net of collateral | 7 | 8 | 8 | 12 | 18 | 23 | ||||||||||||||||||||||
Allocated allowances for impaired lending portfolio | 7 | 7 | 8 | 12 | 18 | 25 | ||||||||||||||||||||||
Other allowances and provisions | 6 | 21 | 8 | 0 | 0 | 3 | ||||||||||||||||||||||
Total allowances and provisions for credit losses | 13 | 28 | 16 | 12 | 18 | 28 | ||||||||||||||||||||||
of which country allowances and provisions | 0 | 15 | 8 | 0 | 0 | 0 | ||||||||||||||||||||||
Non-performing loans | 7 | 4 | 2 | 12 | 18 | 25 | ||||||||||||||||||||||
Allowances for non-performing loans | 7 | 4 | 0 | 12 | 18 | 25 | ||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||
Allowances and provisions as a % of lending portfolio, gross | 0.0 | 0.1 | 0.0 | 0.1 | 0.1 | 0.2 | ||||||||||||||||||||||
Impaired as a % of lending portfolio, gross | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | 0.2 | ||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 100.0 | 70.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of collateral | 100.0 | 87.5 | 100.0 | 100.0 | 100.0 | 108.7 | ||||||||||||||||||||||
Non-performing loans as a % of lending portfolio, gross | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | 0.2 | ||||||||||||||||||||||
Allocated allowances as a % of non-performing loans, gross | 100.0 | 100.0 | 0.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||
68
Table of Contents
Financial Management |
Impaired assets1
Impaired since | ||||||||||||||||||||||||
CHF million | 0–90 days | 91–180 days | 181 days–1 year | 1 year–3 years | >3 years | Total | ||||||||||||||||||
Switzerland | 198 | 92 | 197 | 812 | 1,916 | 3,215 | ||||||||||||||||||
Europe | 3 | 6 | 14 | 111 | 79 | 213 | ||||||||||||||||||
North America | 3 | 3 | 3 | 39 | 56 | 104 | ||||||||||||||||||
Latin America | 13 | 34 | 47 | |||||||||||||||||||||
Asia Pacific | 1 | 23 | 27 | 51 | ||||||||||||||||||||
Other | 0 | 4 | 84 | 88 | ||||||||||||||||||||
Total 31.12.2005 | 204 | 102 | 227 | 989 | 2,196 | 3,718 | ||||||||||||||||||
Allocated allowances, provisions and valuation reserves | (52 | ) | (26 | ) | (66 | ) | (559 | ) | (1,128 | ) | (1,831 | ) | ||||||||||||
Carrying value | 152 | 76 | 161 | 430 | 1,068 | 1,887 | ||||||||||||||||||
Estimated liquidation proceeds of collateral | (118 | ) | (58 | ) | (99 | ) | (281 | ) | (810 | ) | (1,366 | ) | ||||||||||||
Net impaired assets | 34 | 18 | 62 | 149 | 258 | 521 | ||||||||||||||||||
of CHF 3.7 billion relates to positions that defaulted more than three years ago, reflecting the benign environment across global credit markets in recent years. Considering allocated specific allowances, provisions and valuation re-
serves of CHF 1.8 billion plus the estimated liquidation proceeds of collateral (predominantly Swiss real estate property) of CHF 1.4 billion, net impaired assets amounted to CHF 0.5 billion.
Global Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking Switzerland | & Business Banking | Investment Bank | Others1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||||||||||||||
3,893 | 3,052 | 2,574 | 5,505 | 4,870 | 4,791 | 26,954 | 26,572 | 24,488 | 502 | 3,313 | 2,732 | 32,961 | 34,755 | 32,011 | ||||||||||||||||||||||||||||||||||||||||||||||
137,422 | 134,095 | 135,960 | 211,822 | 190,465 | 183,053 | 59,662 | 41,838 | 30,535 | 96 | 2,166 | 2,207 | 271,580 | 234,469 | 215,795 | ||||||||||||||||||||||||||||||||||||||||||||||
141,315 | 137,147 | 138,534 | 217,327 | 195,335 | 187,844 | 86,616 | 68,410 | 55,023 | 598 | 5,479 | 4,939 | 304,541 | 2 | 269,224 | 2 | 247,806 | 2 | |||||||||||||||||||||||||||||||||||||||||||
(1,500 | ) | (2,135 | ) | (2,876 | ) | (1,525 | ) | (2,181 | ) | (2,917 | ) | (131 | ) | (308 | ) | (476 | ) | 0 | (62 | ) | (3 | ) | (1,656 | ) | (2,551 | ) | (3,396 | ) | ||||||||||||||||||||||||||||||||
139,815 | 135,012 | 135,658 | 215,802 | 193,154 | 184,927 | 86,485 | 68,102 | 54,547 | 598 | 5,417 | 4,936 | 302,885 | 2 | 266,673 | 2 | 244,410 | 2 | |||||||||||||||||||||||||||||||||||||||||||
3,231 | 4,171 | 6,382 | 3,250 | 4,199 | 6,415 | 184 | 395 | 581 | 0 | 105 | 3 | 3,434 | 4,699 | 6,999 | ||||||||||||||||||||||||||||||||||||||||||||||
(1,335 | ) | (1,678 | ) | (2,460 | ) | (1,335 | ) | (1,680 | ) | (2,462 | ) | (31 | ) | (33 | ) | (3 | ) | 0 | (45 | ) | 0 | (1,366 | ) | (1,758 | ) | (2,465 | ) | |||||||||||||||||||||||||||||||||
1,896 | 2,493 | 3,922 | 1,915 | 2,519 | 3,953 | 153 | 362 | 578 | 0 | 60 | 3 | 2,068 | 2,941 | 4,534 | ||||||||||||||||||||||||||||||||||||||||||||||
1,444 | 2,038 | 2,822 | 1,463 | 2,063 | 2,855 | 130 | 299 | 420 | 0 | 62 | 4 | 1,593 | 2,424 | 3,279 | ||||||||||||||||||||||||||||||||||||||||||||||
151 | 279 | 304 | 157 | 300 | 315 | 26 | 73 | 181 | 0 | 0 | 0 | 183 | 373 | 496 | ||||||||||||||||||||||||||||||||||||||||||||||
1,595 | 2,317 | 3,126 | 1,620 | 2,363 | 3,170 | 156 | 372 | 601 | 0 | 62 | 4 | 1,776 | 2,797 | 3,775 | ||||||||||||||||||||||||||||||||||||||||||||||
53 | 119 | 110 | 53 | 134 | 118 | 12 | 49 | 144 | 0 | 0 | 0 | 65 | 183 | 262 | ||||||||||||||||||||||||||||||||||||||||||||||
2,209 | 3,161 | 4,418 | 2,228 | 3,183 | 4,445 | 135 | 267 | 312 | 0 | 105 | 1 | 2,363 | 3,555 | 4,758 | ||||||||||||||||||||||||||||||||||||||||||||||
1,266 | 1,883 | 2,346 | 1,285 | 1,905 | 2,371 | 108 | 216 | 249 | 0 | 62 | 1 | 1,393 | 2,183 | 2,621 | ||||||||||||||||||||||||||||||||||||||||||||||
1.1 | 1.7 | 2.3 | 0.7 | 1.2 | 1.7 | 0.2 | 0.5 | 1.1 | 0.0 | 1.1 | 0.1 | 0.6 | 1.0 | 1.5 | ||||||||||||||||||||||||||||||||||||||||||||||
2.3 | 3.0 | 4.6 | 1.5 | 2.1 | 3.4 | 0.2 | 0.6 | 1.1 | 0.0 | 1.9 | 0.1 | 1.1 | 1.7 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||
44.7 | 48.9 | 44.2 | 45.0 | 49.1 | 44.5 | 70.7 | 75.7 | 72.3 | 0.0 | 59.0 | 133.3 | 46.4 | 51.6 | 46.8 | ||||||||||||||||||||||||||||||||||||||||||||||
76.2 | 81.7 | 72.0 | 76.4 | 81.9 | 72.2 | 85.0 | 82.6 | 72.7 | 0.0 | 103.3 | 133.3 | 77.0 | 82.4 | 72.3 | ||||||||||||||||||||||||||||||||||||||||||||||
1.6 | 2.3 | 3.2 | 1.0 | 1.6 | 2.4 | 0.2 | 0.4 | 0.6 | 0.0 | 1.9 | 0.0 | 0.8 | 1.3 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||||||
57.3 | 59.6 | 53.1 | 57.7 | 59.8 | 53.3 | 80.0 | 80.9 | 79.8 | 0.0 | 59.0 | 100.0 | 59.0 | 61.4 | 55.1 | ||||||||||||||||||||||||||||||||||||||||||||||
69
Table of Contents
Financial Management
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 market indices, 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.
Sources of market risk
Market risk is incurred primarily through our trading activities, but also arises in some of our non-trading businesses.
Trading
but their contribution to overall market risk exposure is generally relatively small. Base metals and soft commodities are not yet included in VaR but the exposure from this business is not material.
Non-trading
Risk control
There is a Chief Risk Officer (CRO) in each Business Group and a designated CRO for Treasury. The CROs report functionally to the Group CRO and are responsible for the independent control of market risk. They and their teams ensure that all market risks are identified, establish the necessary controls and limits, monitor positions and exposures, and ensure the complete capture of market risk in risk measurement and reporting systems. An important element of the CRO’s role is the assessment of market risk in new businesses and products and in structured transactions.
70
Table of Contents
Financial Management |
going enhancement of market risk measures, in particular the VaR model.
Portfolio risk measures
The principal portfolio measures of market risk are Value at Risk (VaR – a statistical loss measure, as defined on page 56) and stress loss which are applied to both trading and non-trading portfolios.
Value at Risk (VaR)
and precious metal and energy prices. It also includes changes in option implied volatilities in all risk types. Residual risks are risks that cannot be explained by general market moves – broadly changes in the prices of individual debt and equity securities resulting from factors specific to individual issuers. For equity arbitrage strategies, where we are typically long in the stock of one company and short in that of another, we apply a “deal break” methodology that assesses the probability of collapse of a merger or takeover with the stock prices reverting to pre-announcement levels. This is a one-off jump move (“event risk”), generating the same potential loss for both 10-day and 1-day VaR. It is a somewhat conservative measure but there have been isolated occasions when the break up of a deal has led to large negative contributions to revenues.
71
Table of Contents
Financial Management
Market risk
current impact on reported VaR for the Investment Bank as a whole would be negligible, although it may have a more material impact on the risk type “other”, where it will be reported. While an expansion of the business is planned we do not expect it to give rise to a significant increase in overall market risk, given the relatively low correlation of commodity markets with financial markets and the continuing dominance of credit spread and equity arbitrage positions in our risk profile.
Stress loss
– | this formula assumes that consecutive daily moves are uncorrelated (movements follow a “random walk”), whereas in fact markets can trend in one direction for several days or longer, especially in times of market upheaval | |
– | there are positions and products such as options which have a nonlinear sensitivity to changes in market risk factors (the change in value is not directly proportional to |
72
Table of Contents
Financial Management |
Trading portfolios – concentration limits and other controls
The market risk VaR and stress loss limits are the principal portfolio controls on UBS’s exposure to day-to-day movements in market prices, but controls are also applied to prevent any undue risk concentrations, taking into account variations in price volatility and market depth and liquidity. They include controls on exposure to individual market risk factors and to single name issuers (“issuer risk” positions).
the change in the market risk factor, nor is it necessarily even in the same direction – positions can be constructed, for example, to make money for a large move in either direction) and thus even if markets follow a random walk, the relationship between the 1-day and 10-day VaR cannot be determined by a formula | ||
– | our deal break methodology for equity long-short positions is not time dependent | |
– | the potential returns of the portfolio are not normally distributed | |
– | and the combination of all these effects means that the correlations and consequent diversification effect between risk types are different for the 1-day and the 10-day VaR. |
73
Table of Contents
Financial Management
Market risk
trading businesses of the Investment Bank. Separate risk factor limits are set for other Business Groups where they are considered necessary – in our alternative and quantitative investments business in Global Asset Management, for example, a comparable set of concentration limits and guidelines is applied.
Market risk developments – trading
The year in general was one of positive investor sentiment with equity markets in particular performing strongly on the back of excellent corporate earnings. The more buoyant markets supported high trading volumes with strong new issuance and merger and acquisition activity. Despite short term rate hikes during 2005, long-term rates throughout much of the world finished the year at low levels. In currency markets, the US dollar appreciated against other major currencies, but the expectation of a slowdown in growth in 2006 halted the trend towards the end of the year. Higher energy and commodity prices and concerns in the US automotive industry in the spring, and the damage caused by the unusually severe hurricane season in the autumn resulted in periods of market volatility.
74
Table of Contents
Financial Management |
Investment Bank: Value at Risk (10-day 99% confidence)
Year ended 31.12.05 | Year ended 31.12.04 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.05 | Min. | Max. | Average | 31.12.04 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 120 | 266 | 173 | 235 | 121 | 188 | 153 | 126 | ||||||||||||||||||||||||
Interest rates1 | 223 | 514 | 364 | 269 | 244 | 441 | 340 | 361 | ||||||||||||||||||||||||
Foreign exchange | 11 | 63 | 30 | 23 | 5 | 73 | 30 | 29 | ||||||||||||||||||||||||
Other2 | 6 | 88 | 38 | 46 | 9 | 87 | 37 | 32 | ||||||||||||||||||||||||
Diversification effect | 3 | 3 | (259 | ) | (218 | ) | 3 | 3 | (202 | ) | (215 | ) | ||||||||||||||||||||
Total | 245 | 512 | 346 | 355 | 274 | 457 | 358 | 332 | ||||||||||||||||||||||||
UBS: Value at Risk (10-day 99% confidence)
As at 31.12.05 | Year ended 31.12.05 | Year ended 31.12.04 | ||||||||||||||||||||||||||||||||||
CHF million | Limits | Min. | Max. | Average | 31.12.05 | Min. | Max. | Average | 31.12.04 | |||||||||||||||||||||||||||
Business Groups | ||||||||||||||||||||||||||||||||||||
Investment Bank1 | 600 | 245 | 512 | 346 | 355 | 274 | 457 | 358 | 332 | |||||||||||||||||||||||||||
Global Asset Management2 | 30 | 3 | 13 | 10 | 8 | 5 | 16 | 11 | 7 | |||||||||||||||||||||||||||
Global Wealth Management & Business Banking3 | 25 | 4 | 14 | 9 | 12 | 10 | 26 | 16 | 16 | |||||||||||||||||||||||||||
Corporate Center4 | 150 | 32 | 84 | 63 | 62 | 35 | 69 | 47 | 38 | |||||||||||||||||||||||||||
Diversification effect | 5 | 5 | (62 | ) | (64 | ) | 5 | 5 | (67 | ) | (61 | ) | ||||||||||||||||||||||||
Total | 750 | 255 | 520 | 366 | 373 | 274 | 453 | 365 | 332 | |||||||||||||||||||||||||||
UBS: Value at Risk (1-day 99% confidence)
Year ended 31.12.05 | Year ended 31.12.04 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.05 | Min. | Max. | Average | 31.12.04 | ||||||||||||||||||||||||
Investment Bank2, 3 | 105 | 206 | 150 | 155 | 106 | 168 | 133 | 114 | ||||||||||||||||||||||||
UBS | 109 | 211 | 157 | 164 | 107 | 173 | 137 | 118 | ||||||||||||||||||||||||
Wealth Management US was transferred to the Investment Bank. The VaR exposures shown in the tables above have been restated to reflect these changes. The exposure for Global Wealth Management & Business Banking includes all the businesses of Wealth Management US for 2004 but for 2005 excludes the municipal securities business. This business is included in VaR for the Investment Bank from 1 January 2005, but its impact on total VaR and interest rate VaR of the Investment Bank was not material.
our credit spread exposures remained the dominant contributor, but fluctuations in the level of stress loss exposure during the year were significantly impacted by the varying level of option risk in the equity portfolio.
75
Table of Contents
Financial Management
Market risk
Non-trading portfolios
Management of non-trading interest rate risk
market-linked rate, and their interest rate risk cannot be transferred by simple back-to-back transactions. Instead, they
76
Table of Contents
Financial Management |
are transferred on a pooled basis via “replication” portfolios – portfolios 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. |
Non-trading interest rate risk development
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 arises
77
Table of Contents
Financial Management
Market risk
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 | (202 | ) | (12 | ) | (61 | ) | 91 | (254 | ) | (438 | ) | |||||||||||||
USD | 69 | (19 | ) | 1 | 182 | 340 | 573 | |||||||||||||||||
EUR | 10 | (24 | ) | 31 | 193 | 1,175 | 1,385 | |||||||||||||||||
GBP | 2 | (2 | ) | (13 | ) | 28 | 537 | 552 | ||||||||||||||||
JPY | 0 | 0 | 0 | (4 | ) | 0 | (4 | ) | ||||||||||||||||
Others | (1 | ) | 0 | 0 | (1 | ) | (3 | ) | (5 | ) | ||||||||||||||
Total1 | (122 | ) | (57 | ) | (42 | ) | 489 | 1,795 | 2,063 | |||||||||||||||
of which | ||||||||||||||||||||||||
equity replicating portfolio (CHF) | 12 | 12 | 215 | 4,049 | 3,190 | 7,478 | ||||||||||||||||||
equity replicating portfolio (USD) | (9 | ) | 8 | 158 | 3,086 | 5,068 | 8,311 | |||||||||||||||||
equity replicating portfolio (EUR) | 1 | 1 | 16 | 286 | 217 | 521 | ||||||||||||||||||
equity replicating portfolio (GBP) | 1 | 1 | 17 | 301 | 217 | 537 | ||||||||||||||||||
Total equity replicating portfolio | 5 | 22 | 406 | 7,722 | 8,692 | 16,847 | ||||||||||||||||||
Treasury book without replicating portfolio (total) | (127 | ) | (79 | ) | (448 | ) | (7,233 | ) | (6,897 | ) | (14,784 | ) | ||||||||||||
Change in risk under the two measures
As at | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 32.12.03 | |||||||||
Net interest income at risk | (386 | ) | (321 | ) | (233 | ) | ||||||
Economic value sensitivity | (1,439 | ) | (1,214 | ) | (1,169 | ) | ||||||
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.
Swiss francs in order to reduce earnings volatility resulting from subsequent exchange rate movements. This monthly sell-down reduces 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. Where appropriate, a similar process is applied to material foreign currency profits and losses in subsidiaries.
78
Table of Contents
Financial Management |
twelve months and is not restricted to the current financial year. Although intended to hedge future earnings, these transactions are considered open currency positions and are included in VaR for internal and regulatory capital purposes.
Regulatory capital treatment of market risk
Our VaR model is consistent with the regulatory measure of market risk capital and has been approved by the Swiss Federal Banking Commission (SFBC), our main regulator.
asset ceases to be eligible for trading book treatment (for example if it becomes illiquid) it must be underpinned by capital on a banking book basis, but it remains subject to a market risk control framework for internal control purposes. Market risk regulatory capital is based on 10-day VaR while regulatory backtesting is based on 1-day VaR. As required by regulation, backtesting exceptions are notified to our internal and external auditors and relevant regulators.
Non-trading currency risk VaR (10-day 99% confidence)
CHF million | 2005 | 2004 | 2003 | |||||||||
Minimum | 3.1 | 2.2 | 0.7 | |||||||||
Maximum | 66.7 | 41.9 | 32.0 | |||||||||
Average | 26.3 | 17.2 | 12.3 | |||||||||
End of period | 29.8 | 3.5 | 28.3 | |||||||||
79
Table of Contents
Financial Management
Liquidity and funding management
Liquidity and funding management
Liquidity and funding management are critical to a financial institution. Liquidity must be continuously managed to ensure that the firm can survive a crisis, whether it is a general market event, a localized difficulty affecting a smaller number of institutions, or a problem unique to an individual firm. An institution that is unable to meet its liabilities when they fall due may collapse, even though it is not insolvent, because it is unable to borrow on an unsecured basis, or does not have sufficient good quality assets to borrow against or liquid assets to sell to raise immediate cash without severely damaging its net asset value. At UBS, we manage our liquidity position in order to be able to ride out a crisis without damaging the ongoing viability of our business. This is complemented by our funding risk management which aims to achieve the optimal liability structure to finance our businesses cost-efficiently and reliably. The long term stability and security of our funding in turn helps protect our liquidity position in the event of a UBS-specific crisis.
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 incurring unacceptable losses or risking sustained damage to our various business franchises. Our integrated framework incorporates an assessment of all material, known and expected cash flows and the level of high-grade collateral that could be used to raise additional funding. This framework entails both careful monitoring and control of our daily liquidity position, and regular liquidity stress testing. Risk limits are set by the GEB and monitored by Treasury and contingency plans for a liquidity crisis are incorporated into our general crisis management process.
Liquidity position
80
Table of Contents
Financial Management |
although they are not as vulnerable since they are generally not unconditional but, rather, are linked to other, independent conditions being fulfilled.
Liquidity limits and controls
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.
81
Table of Contents
Financial Management
Liquidity and funding management
regular assessments of any concentration risks in our main funding portfolios.
has no long-term commitments to continue to purchase the types of assets being securitized.
82
Table of Contents
Financial Management |
Financial Management
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. It is inherent in all our activities, not only in the business we conduct but also from the fact that we are a business – because we are an employer, we own and occupy property, and we hold assets, including information, belonging to ourselves and to our clients. Our approach to operational risk is not designed to eliminate risk per se but, rather, to contain it within acceptable levels, as determined by senior management, and to ensure that we have sufficient information to make informed decisions about additional controls, adjustments to controls, or other risk responses. The Group CRO and the Head of Operational Risk, who reports to him, are responsible for the independence, objectivity and effectiveness of our operational risk framework.
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. Each Business Group has therefore established cross-functional bodies as an integral part of its governance structure, to actively manage operational risk.
work in the Business Group and to ensure transparent assessment and reporting of operational risks to senior management.
83
Table of Contents
Financial Management
Operational risk
events affecting third parties that are relevant to our business if sufficient information is made public. 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
The specific risks that are identified by operational risk management and reported to senior management are evaluated in terms of their potential frequency of occurrence and severity of the resulting impact. These assessments are validated by the Operational Risk Control functions within the Business Groups.
correlated to actual financial losses or their frequency of occurrence, which are, at best, only indicative.
Operational risk developments
Regulatory compliance is a prerequisite for effective operational risk management and control and comes primarily in the form of Basel II, Sarbanes-Oxley Section 404 (SOX 404) and other related requirements (e.g. the Federal Deposit Insurance Corporation Improvement Act in the US). The Operational Risk Framework serves broadly as the backbone of the Bank’s approach to internal control requirements, and thus forms a key component of the SOX 404 compliance requirement that will come into effect at the end of 2006. Because this evaluation is a specialized form of risk assessment, a specific SOX Office has been created under the Group CFO. This office liaises closely with the Group and Business Group Operational Risk Controllers to ensure an efficient flow of information.
84
Table of Contents
Financial Management |
Financial Management
Motor-Columbus
Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is exposed to electricity price risk, interest rate risk, currency risk, credit risk, and other business risks.
Energy price risk
Price risks in the energy business arise from, among others, price volatility, changing market prices and changing correlations between markets and products. Derivative financial instruments are used to hedge underlying physical transactions, subject to the risk policy.
Interest rate risk
Interest rate swaps are permitted to hedge capital markets interest rate exposure, with changes in fair value being reported in the income statement.
Currency risks
To minimize currency risk, Atel tries to offset operating income and expenses in foreign currencies. Any surplus is hedged through currency forwards and options within the framework of the financial risk policy.
Credit risk
Credit risk management is based on assessment of the credit-worthiness 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.
85
Table of Contents
86
Table of Contents
Capital Management & UBS Shares
We strive to create value for shareholders while protecting our strong capitalization and credit ratings.
87
Table of Contents
Capital Management & UBS Shares
Capital management
Capital management
The approach we take to capital management is one of our hallmarks. We endeavour to maintain strong debt ratings and sound capital ratios (see capital strength box on the next page), as they help ensure our position as one of the best-capitalized financial services firms in the world. Being strongly capitalized allows us to invest in the growth of our businesses – whether organically or by acquisition. If we do not see opportunities to invest in growth, we return capital to our shareholders – while maintaining a high BIS Tier 1 ratio.
Distribution of cash to shareholders in 2005
We transferred a total of CHF 6.7 billion in equity to our shareholders in 2005. The total amount was split between our dividend payment of CHF 3.1 billion made in April 2005 and the CHF 3.6 billion in shares we repurchased during 2005 for purposes of cancellation. For more details on our dividend payments, see page 92 of this section.
Capital securities
In 2005, UBS placed CHF 1.6 billion in euro denominated preferred shares and raised CHF 2.6 billion in subordinated debt in various currencies in the capital markets. Outstanding Tier 2 capital securities accounted for CHF 7.2 billion in eligible
capital on 31 December 2005. In total, UBS has CHF 5.0 billion in preferred shares (outstanding), issued through trusts or subsidiaries and qualifying as Tier 1 capital under regulatory rules.
Capital requirement
The capital we are required to hold by our regulator, the Swiss Federal Banking Commission (SFBC), is determined by our balance sheet, off-balance sheet and market risk positions – risk-weighted according to defined criteria. For instance, counterparty-related risks are weighted according to type of counterparty instrument and collateral. Market risk positions are generally risk-weighted based on VaR (for more details please refer to note 28 to the financial statements). Most of our capital requirement arises from balance sheet assets. Off-balance sheet positions and market risk positions each repre-
Capital adequacy
As at | ||||||||||||
CHF million, except ratios | 31.12.05 | 31.12.04 | 32.12.03 | |||||||||
BIS Tier 1 capital | 39,943 | 31,629 | 30,189 | |||||||||
of which hybrid Tier 1 capital1 | 4,975 | 2,963 | 3,224 | |||||||||
BIS total capital | 43,917 | 36,444 | 34,005 | |||||||||
BIS Tier 1 capital ratio(%) | 12.9 | 11.9 | 12.0 | |||||||||
BIS total capital ratio(%) | 14.1 | 13.8 | 13.5 | |||||||||
Balance sheet assets | 252,363 | 218,476 | 212,673 | |||||||||
Off balance sheet and other positions | 37,011 | 28,205 | 21,456 | |||||||||
Market risk positions2 | 21,035 | 18,151 | 18,269 | |||||||||
Total BIS risk-weighted assets | 310,409 | 264,832 | 252,398 | |||||||||
88
Table of Contents
Capital Management & UBS Shares |
sent less than 10% of risk-weighted assets and, correspondingly, of our total capital requirement. For the calculation of BIS capital adequacy, risk-weighted assets are related to capital eligible according to BIS rules.
– | 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, and non-trading equity positions) | ||
– | where the BIS guidelines apply a 20% risk weight to obligations of OECD banks, the SFBC applies risk weights of 25% to 75%, depending on maturity. |
Capital ratios
The ratios we report measure capital adequacy by comparing our eligible capital (Tier 1 and total) with total risk-weighted assets. 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 ratings
As at | ||||||||||||
31.12.05 | 31.12.04 | 32.12.03 | ||||||||||
Fitch, London | AA+ | AA+ | AAA | |||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||
89
Table of Contents
Capital Management & UBS Shares
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 104,259,874 or 9.6% of shares issued on 31 December 2005, from 124,663,310 or 11.1% on the same date a year ago. Of the treasury shares held, 33,885,000 are earmarked for cancellation whereas the other 70,374,874 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 program 2005/2006)
Strong earnings and careful management of our balance sheet allowed us to conduct a share buyback program for the sixth consecutive year in 2005 – 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. The level of repurchases is determined by our capital management plan, which is adjusted throughout the year to reflect changes in business plans or acquisition opportunities. Our strong cash flow generation combined with our sound 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.
At the Annual General Meeting on 21 April 2005, shareholders gave the Board of Directors a mandate to set up a repurchase program in 2005 / 2006 for a maximum amount of CHF 5 billion. At the AGM on 19 April 2006, shareholders will be asked to approve the cancellation of 37,100,000 shares representing a total value of CHF 4.0 billion under the program that ended on 7 March 2006. The shares will be cancelled in summer 2006.
Treasury share holdings for employee participation plans
UBS shares are also purchased and held to satisfy share delivery obligations under UBS’s share and option-based participa-
Effect of second trading line program on basic earnings per share (EPS)
For the year ended | ||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,006,993,877 | 1,029,918,463 | 1,086,161,476 | |||||||||
Weighted average second trading line treasury shares1 | 272,169,755 | 236,970,415 | 182,301,119 | |||||||||
Basic EPS | 13.93 | 7.78 | 5.44 | |||||||||
Cumulative impact of treasury shares on basic EPS(CHF)1 | 2.96 | 1.45 | 0.79 | |||||||||
Cumulative impact of treasury shares on basic EPS(%)1 | 21.2 | 18.6 | 14.5 | |||||||||
90
Table of Contents
Capital Management & UBS Shares |
tion 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. To hedge 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 must be reported once they rise above a certain threshold. UBS’s holding in its shares remained between 5% and 10% throughout 2005.
Treasury share activities
Treasury shares purchased for | ||||||||||||||||||||||||||||||||
employee share and option parti- | ||||||||||||||||||||||||||||||||
Share buyback program | cipation plans and acquisitions1 | 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, 2005 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 94,650 | 95.04 | 94,650 | 95.04 | ||||||||||||||||||||||||
February, 2005 | 0 | 0.00 | 2004 / 2005 program | 2,457 | 90,555 | 102.67 | 90,555 | 102.67 | ||||||||||||||||||||||||
March, 2005 | 0 | 0.00 | 2005 / 2006 program | 5,000 | 11,872,485 | 102.38 | 11,872,485 | 102.38 | ||||||||||||||||||||||||
April, 2005 | 3,050,000 | 101.30 | 2005 / 2006 program | 4,691 | 2,461,870 | 100.92 | 5,511,870 | 101.13 | ||||||||||||||||||||||||
May, 2005 | 0 | 0.00 | 2005 / 2006 program | 4,691 | 3,525,905 | 95.90 | 3,525,905 | 95.90 | ||||||||||||||||||||||||
June, 2005 | 3,000,000 | 99.00 | 2005 / 2006 program | 4,394 | 792,535 | 97.27 | 3,792,535 | 98.64 | ||||||||||||||||||||||||
July, 2005 | 7,365,000 | 102.30 | 2005 / 2006 program | 3,641 | 118,834 | 102.75 | 7,483,834 | 102.30 | ||||||||||||||||||||||||
August, 2005 | 5,950,000 | 104.77 | 2005 / 2006 program | 3,017 | 974,188 | 103.79 | 6,924,188 | 104.63 | ||||||||||||||||||||||||
September, 2005 | 7,705,000 | 106.93 | 2005 / 2006 program | 2,193 | 5,381,325 | 106.96 | 13,086,325 | 106.94 | ||||||||||||||||||||||||
October, 2005 | 4,650,000 | 111.20 | 2005 / 2006 program | 1,676 | 1,134,848 | 111.49 | 5,784,848 | 111.25 | ||||||||||||||||||||||||
November, 2005 | 0 | 0.00 | 2005 / 2006 program | 1,676 | 8,933,201 | 119.33 | 8,933,201 | 119.33 | ||||||||||||||||||||||||
December, 2005 | 2,165,000 | 126.31 | 2005 / 2006 program | 1,403 | 5,086,761 | 124.16 | 7,251,761 | 124.80 | ||||||||||||||||||||||||
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 | 08.07.05 | 6 | 3.5 | 39,935,094 | 88.72 | 2.5 | |||||||||||||||||||||||||||
2005 / 20062 | 08.02.05 | 08.03.05 | 07.03.06 | 5 | 3.6 | 33,885,000 | 106.16 | 1.4 | ||||||||||||||||||||||||||||
91
Table of Contents
Capital Management & UBS Shares
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 in 2005
We were able, after the approval of the Annual General Meeting of shareholders on 21 April 2005, to pay a dividend of CHF 3.00 for 2004, 15.4% higher than the previous year’s CHF 2.60. Shareholders in the US received a net dividend payment of USD 1.65 per share. This excludes the 35% Swiss withholding tax that can partly be reclaimed by US investors. The ex-dividend date was 22 April 2005. Payment took place on 26 April 2005 for shareholders of record on 21 April 2005.
US shareholders
UBS’s share registry is divided into two parts. 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 to transfer shares from one register to the other upon giving proper instruction to the transfer agents.
sure 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.
92
Table of Contents
Capital Management & UBS Shares |
Distribution to shareholders
Share split 2-for-1
Creation of conditional capital
New share buyback program for 2006/2007
93
Table of Contents
Capital Management & UBS
Shares UBS shares in 2005
UBS shares in 2005
UBS shares are listed on the Swiss Exchange (where they are traded on virt-x), and on the New York and Tokyo stock exchanges. For a detailed definition of UBS shares (par value, type, rights of security), see page 99 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 | ||
higher at CHF 125.10 – outstripping its main benchmark, the DJ Stoxx Banks Europe index.
94
Table of Contents
Capital Management & UBS Shares |
UBS share data
As at | ||||||||||||
Registered shares | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Total shares outstanding | 1,088,632,522 | 1,126,858,177 | 1,183,046,764 | |||||||||
Total shares ranking for dividend | 1,054,747,522 | 1,086,923,083 | 1,126,339,764 | |||||||||
Treasury shares | 104,259,874 | 124,663,310 | 136,741,227 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,006,993,877 | 1,029,918,463 | 1,086,161,476 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,048,595,770 | 1,081,961,360 | 1,138,800,625 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 13.93 | 7.78 | 5.44 | |||||||||
Basic EPS from continuing operations, before goodwill | 9.78 | 8.02 | 5.72 | |||||||||
Diluted EPS | 13.36 | 7.40 | 5.19 | |||||||||
Diluted EPS from continuing operations, before goodwill | 9.39 | 7.64 | 5.46 | |||||||||
UBS shares and market capitalization
As at | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Total ordinary shares issued | 1,088,632,522 | 1,126,858,177 | 1,183,046,764 | (3 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2002 first program | ||||||||||||||||
2002 second program | ||||||||||||||||
2003 program | (56,707,000 | ) | ||||||||||||||
2004 program | (39,935,094 | ) | ||||||||||||||
2005 program | (33,885,000 | ) | ||||||||||||||
Shares outstanding for market capitalization | 1,054,747,522 | 1,086,923,083 | 1,126,339,764 | (3 | ) | |||||||||||
Share price (CHF) | 125.10 | 95.35 | 84.70 | 31 | ||||||||||||
Market capitalization (CHF million) | 131,949 | 103,638 | 95,401 | 27 | ||||||||||||
Total treasury shares | 104,259,874 | 124,663,310 | 136,741,227 | (16 | ) | |||||||||||
Trading volumes
For the year ended | ||||||||||||
1000 shares | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
SWX total (virt-x) | 957,896 | 827,064 | 987,743 | |||||||||
SWX daily average (virt-x) | 3,684 | 3,256 | 3,951 | |||||||||
NYSE total | 99,347 | 80,853 | 71,096 | |||||||||
NYSE daily average | 382 | 321 | 282 | |||||||||
became increasingly active. Activity in the merger and acquisitions market was at its strongest level seen in six years. UBS shares traced those developments, rising 10% to CHF 110. Its second quarter results came in sharply above expectations, beating the market consensus by 26%.
UBS shares rose to their all-time high just above CHF 125 in fourth quarter. It rose 13.7% in the quarter, significantly outpacing the S&P’s 4.8% and the SMI’s 9.3% gains. In early November, the firm reported third quarter earnings that were 8% above the market consensus.
Share liquidity
During 2005, daily average volume in UBS shares on virt-x was 3.7 million shares. On NYSE, it was 383,973 shares. Because
95
Table of Contents
Capital Management & UBS Shares
UBS shares in 2005
Stock exchange prices 1
SWX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High(CHF) | Low(CHF) | Period end(CHF) | High(USD) | Low(USD) | Period end(USD) | |||||||||||||||||||
2005 | ||||||||||||||||||||||||
Fourth quarter 2005 | 127.00 | 105.50 | 125.10 | 98.04 | 82.43 | 95.15 | ||||||||||||||||||
December | 127.00 | 123.20 | 125.10 | 98.04 | 95.11 | 95.15 | ||||||||||||||||||
November | 124.30 | 113.00 | 121.30 | 94.42 | 87.60 | 91.92 | ||||||||||||||||||
October | 112.90 | 105.50 | 109.50 | 87.30 | 82.43 | 85.67 | ||||||||||||||||||
Third quarter 2005 | 112.30 | 100.80 | 110.00 | 86.80 | 77.83 | 85.50 | ||||||||||||||||||
September | 112.30 | 103.00 | 110.00 | 86.80 | 83.25 | 85.50 | ||||||||||||||||||
August | 106.20 | 102.00 | 102.60 | 83.93 | 80.70 | 82.10 | ||||||||||||||||||
July | 105.90 | 100.80 | 105.90 | 82.43 | 77.83 | 81.96 | ||||||||||||||||||
Second quarter 2005 | 102.80 | 94.45 | 100.00 | 85.86 | 77.19 | 77.85 | ||||||||||||||||||
June | 100.20 | 97.95 | 100.00 | 79.25 | 77.19 | 77.85 | ||||||||||||||||||
May | 97.25 | 94.45 | 96.25 | 81.49 | 77.35 | 77.35 | ||||||||||||||||||
April | 102.80 | 94.65 | 95.20 | 85.86 | 78.95 | 80.30 | ||||||||||||||||||
First quarter 2005 | 104.60 | 93.50 | 101.00 | 89.42 | 79.39 | 84.40 | ||||||||||||||||||
March | 103.40 | 100.50 | 101.00 | 89.42 | 83.55 | 84.40 | ||||||||||||||||||
February | 104.60 | 97.15 | 100.90 | 87.72 | 81.72 | 86.75 | ||||||||||||||||||
January | 97.20 | 93.50 | 96.45 | 84.13 | 79.39 | 81.38 | ||||||||||||||||||
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 | ||||||||||||||||||
Third quarter 2004 | 91.00 | 81.60 | 87.90 | 72.38 | 64.94 | 70.33 | ||||||||||||||||||
Second quarter 2004 | 98.35 | 88.25 | 88.25 | 76.05 | 68.89 | 71.06 | ||||||||||||||||||
First quarter 2004 | 97.05 | 85.70 | 94.10 | 79.25 | 67.92 | 74.49 | ||||||||||||||||||
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 | ||||||||||||||||||
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.
price will therefore typically be expected to depend on both the virt-x price and the prevailing US dollar / Swiss franc exchange rate. When virt-x is closed for trading, traded volumes will typically be lower. However, the specialist firm making a market in UBS shares on the NYSE, Van der Moolen, is required to facilitate sufficient liquidity and an orderly market in UBS shares.
96
Table of Contents
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.
97
Table of Contents
Corporate Governance
Introduction and principles
Introduction and principles
SWX Swiss Exchange Reporting on Corporate Governance
The 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/GEB) | |
– | 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 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.
98
Table of Contents
Corporate Governance |
Corporate Governance
Group structure and shareholders
Group structure and shareholders
Under Swiss company law, UBS is organized as a limited company, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure
The legal entity structure of UBS is designed to support its businesses within an efficient legal, tax, regulatory and funding framework. None of the Business Groups of UBS or its Corporate Center are separate legal entities. They operate out of the parent bank, UBS AG, through its branches worldwide. The goal of this structure is to capitalize on the increased business opportunities and cost efficiencies offered by the use of a single legal platform and to enable the flexible and efficient use of capital.
Operational group structure
The three Business Groups – Global Wealth Management & Business Banking (with its three business units Wealth Management International & Switzerland, Wealth Management US, and Business Banking Switzerland), Global Asset Management, and Investment Bank – together with Corporate Center – form the operational structure of the Group’s financial businesses. Performance is reported according to this structure (see our Financial Report 2005). A description of the Business Groups and their strategy, structure, organization, products and services is contained in this Handbook on pages 8–13. 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 AG into the financial statements (and which also includes our private equity holdings). 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 (consolidated entities)
Motor-Columbus AG, Baden (Switzerland), listed on the SWX Swiss Exchange, share capital CHF 253 million, capitalization on 31 December 2005 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. UBS announced the intended sale of Motor-Columbus AG on 30 September 2005.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 8.55% of all shares issued as of 31 December 2005, compared to 8.76% at year-end 2004 and 8.27% at year-end 2003. DTC (Cede & Co.), New York, “The Depository Trust Company”, a US securities clearing organization, was registered as a shareholder for a great number of beneficial owners with 9.95% of all shares issued as of 31 December 2005 (5.77% as of 31 December 2004). 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.
99
Table of Contents
Corporate Governance
Group structure and shareholders
At year-end, UBS’s holdings in its own shares were 8.5% of the total share capital in the form of shares. It also held a further potential 0.5% of total share capital through derivatives UBS held on its own shares.
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 31.12.05 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1 – 100 | 45,707 | 24.9 | 2,514,038 | 0.2 | ||||||||||||
101 – 1,000 | 110,138 | 60.0 | 41,234,198 | 3.8 | ||||||||||||
1,001 – 10,000 | 25,641 | 14.0 | 64,654,096 | 5.9 | ||||||||||||
10,001 – 100,000 | 1,896 | 1.0 | 49,471,331 | 4.5 | ||||||||||||
100,001 – 1,000,000 | 252 | 0.1 | 73,679,613 | 6.8 | ||||||||||||
1,000,001 – 5,000,000 | 57 | 0.0 | 111,164,245 | 10.2 | ||||||||||||
5,000,001 – 10,886,325 (1%) | 10 | 0.0 | 73,829,006 | 6.8 | ||||||||||||
1 – 2% | 2 | 0.0 | 38,631,861 | 3.6 | ||||||||||||
2 – 3% | 1 | 0.0 | 25,633,959 | 2.4 | ||||||||||||
3 – 4% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
4 – 5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 2 | 1 | 0.0 | 191,568,442 | 17.6 | |||||||||||
Total registered | 183,706 | 100.0 | 672,380,789 | 61.8 | ||||||||||||
Unregistered2 | 416,251,733 | 38.2 | ||||||||||||||
Total shares issued | 1,088,632,522 | 3 | 100.0 | |||||||||||||
Shareholders: type and distribution
Shareholders | Shares | |||||||||||||||
As at 31.12.05 | Number | % | Number | % | ||||||||||||
Individual shareholders | 176,651 | 96.2 | 128,924,931 | 11.8 | ||||||||||||
Legal entities | 6,542 | 3.5 | 145,887,707 | 13.5 | ||||||||||||
Nominees, fiduciaries | 513 | 0.3 | 397,568,151 | 36.5 | ||||||||||||
Unregistered | 416,251,733 | 38.2 | ||||||||||||||
Total | 183,706 | 100.0 | 1,088,632,522 | 100.0 | ||||||||||||
Switzerland | 166,338 | 90.5 | 242,702,252 | 22.3 | ||||||||||||
Europe | 12,089 | 6.6 | 224,247,509 | 20.6 | ||||||||||||
North America | 2,441 | 1.3 | 159,272,770 | 14.6 | ||||||||||||
Other countries | 2,838 | 1.6 | 46,158,258 | 4.3 | ||||||||||||
Unregistered | 416,251,733 | 38.2 | ||||||||||||||
Total | 183,706 | 100.0 | 1,088,632,522 | 100.0 | ||||||||||||
100
Table of Contents
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 2005, the ordinary share capital was CHF 870,906,017.60.
Conditional and authorized share capital
UBS has currently no further approval from shareholders to issue new shares under conditional or authorized capital. However, at the 2006 AGM, shareholders will also be asked to approve conditional capital in the amount of 75,000,000 UBS shares to be used for employee option grants limited to a period of three years. For details see the Capital Management & UBS Share section on pages 88–96 of this Handbook.
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 122–123 of this Handbook.
– | Dividend payment of CHF 3.20 per share (increase of CHF 0.20 compared to last year), to be distributed to shareholders in April 2006 | |
– | One off capital repayment of CHF 0.60 per share, leading to a par value reduction from CHF 0.80 to CHF 0.20 per share. This is due to the sale of the Private Banks & |
GAM to Julius Baer in 2005. The par value reduction will be paid out to the shareholders in July 2006 | ||
– | A 2-for-1 share split, effective 10 July 2006, reducing the par value from CHF 0.20 to CHF 0.10 | |
– | New CHF 5 billion share repurchase program for 2006 / 2007 |
to be launched on 8 March 2006 after the 2005/2006 program ends | ||
– | Creation of conditional capital in the amount of 75,000,000 UBS shares (150,000,000 after the 2-for-1 share split) to be used for employee option grants, limited to a period of three years |
101
Table of Contents
Corporate Governance
Capital structure
Ordinary share capital
Share capital in CHF | Number of shares | Par value in CHF | ||||||||||
As at 31 December 2004 | 901,486,542 | 1,126,858,177 | 0.80 | |||||||||
Share repurchase programs 2004 / 2005: Cancelation of shares upon AGM decision of 21 April 2005 | (31,948,075 | ) | (39,935,094 | ) | 0.80 | |||||||
Options excercised from conditional capital | 1,367,551 | 1,709,439 | 0.80 | |||||||||
As at 31 December 2005 | 870,906,018 | 1,088,632,522 | 0.80 | |||||||||
1,054,747,522 shares ranked for dividends. There are no preferential rights for individual shareholders.
Limitation on transferability and nominee registration
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered according to the provisions in the Articles of Association (express declaration of beneficial ownership) may be voted without any limit in scope.
shares. An exception to the 5% rule exists for securities clearing organizations such as The Depository Trust Company (DTC) in New York and SIS SegaInterSettle in Switzerland.
Convertible bonds and options
UBS currently has no convertible debt on UBS shares outstanding. The only options outstanding were 90,882,545 employee options on UBS shares as reported in note 31c to the financial statements. For a total of 1,823,501 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 1,458,800.80. Once the proposed conditional capital is approved by the Annual General Meeting 2006, the number of options exercisable against the creation of newly issued shares will increase. For the other employee options, exercise would be satisfied by the delivery of already issued treasury shares.
102
Table of Contents
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 members of the various Board Committees.
Members of the Board of Directors
The texts in the boxes below provide information on the composition of the Board of Directors as of 31 December 2005. 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 has been Chairman of the Board of Directors of UBS AG since 2001. Prior to this, 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 appointed CEO of SBC Warburg in 1995, having been a member of the Executive Board of SBC since 1990. From 1987 to 1990, he was in charge of Securities Trading and Sales at SBC. From 1984 to 1987, Mr. Ospel was a Managing Director with Merrill Lynch Capital Markets, and from 1980 to 1984, he worked at SBC International London and New York in the Capital Markets division. He began his career at SBC in the Central Planning and Marketing Division in 1977. Mr. Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel and holds an “Honorary Doctor of Laws Degree” of the University of Rochester. He was born on 8 February 1950. Other activities and 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. 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 | 2008 | ||||||
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), Chairman of the Foundation Board of the UBS Pension Fund, a member of the Board Committee of the Zurich Chamber of Commerce and a member of the German-Swiss Chamber of Commerce. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Executive Vice Chairman | ||||||
Member of the | |||||||
Corporate Responsibility | |||||||
Committee | |||||||
Nationality | Swiss | ||||||
Year of initial appointment | 2004 | ||||||
Current term of office runs until | 2007 | ||||||
103
Table of Contents
Corporate Governance
Board of Directors
Marco Suter | Professional history, education and date of birth Marco Suter has been with UBS and its predecessor, Swiss Bank Corporation, since 1974. Between 1999 and 2005, he was Group Chief Credit Officer and a member of the Group Managing Board. From 1996 until the merger of SBC and Union Bank of Switzerland in 1998 he served as regional manager of the Zurich-Eastern Switzerland-Ticino area for the corporate and commercial banking activities of SBC. Prior to that, he held a number of different management roles in Zurich, following various assignments with SBC in St. Gallen, Nyon, Zurich, New York, and London. Mr. Suter graduated from the Commercial School in St. Gallen and the American Institute of Banking in New York. He was born on 7 May 1958. Other activities and functions Mandates on boards of important corporations, organizations, and foundations: Marco Suter is a member of the Swiss Institute of International Studies, the Latin-American Chamber of Commerce (Switzerland), the Swiss-Chinese Chamber of Commerce and the IIF Special Committee on Crises Prevention and Resolution in Emerging Markets. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Executive Vice Chairman | ||||||
Chairman of the | |||||||
Corporate Responsibility | |||||||
Committee | |||||||
Nationality | Swiss | ||||||
Year of initial appointment | 2005 | ||||||
Current term of office runs until | 2008 | ||||||
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 1975 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 nonresident 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), where he is the Chairman of its Remuneration Committee. He is a member 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 (not standing | ||||||
for re-election) | |||||||
Ernesto Bertarelli | Professional history, education and date of birth Since 1996, Ernesto Bertarelli has been the Chief Executive Officer of Serono International SA, Geneva. 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 Biotech SA, 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 | ||||||
Nominating Committee | |||||||
Nationality | Swiss | ||||||
Year of initial appointment | 2002 | ||||||
Current term of office runs until | 2006 (proposed for | ||||||
re-election at the | |||||||
AGM 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. He graduated from the Chartered Institute of Marketing and holds a Hon LL.D (Dr Law) from Exeter University. He was born on 23 December 1941. | ||||||
Address | 41 Bloomfield Terrace, | ||||||
UK-London SW1W 8BQ | |||||||
Functions in UBS | Member of the Audit | ||||||
Committee / Member | |||||||
of the Compensation | |||||||
Committee | |||||||
Nationality | British | ||||||
Year of initial appointment | 2001 | ||||||
Current term of office runs until | 2007 | ||||||
104
Table of Contents
Corporate Governance |
Rolf A. Meyer | Professional history, education and date of birth Rolf A. Meyer has been a member of the Boards of UBS and its predecessor, Union Bank of Switzerland, since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. He first joined Ciba-Geigy Group in 1973 as a financial analyst, and subsequently became Group Company Controller in Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Information Systems in Ardsley, N.Y., and later Chief Financial Officer of the Group. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. He is today a company director. Mr. Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration (lic. oec. HSG). 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. He is also a member of the Board of Directors of Ascom (Switzerland) Ltd., Berne. | ||||||
Address | Heiniweidstrasse 18 | ||||||
CH-8806 Bäch | |||||||
Functions in UBS | Chairman of the Com- | ||||||
pensation Committee/ | |||||||
Member of the Audit | |||||||
Committee | |||||||
Nationality | Swiss | ||||||
Year of initial appointment | 1998 | ||||||
Current term of office runs until | 2006 (proposed for | ||||||
re-election at the | |||||||
AGM 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 AG 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 AG and of Stadler Bussnang AG, 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 National Council of the Swiss Parliament (lower house). | ||||||
Address | Stadler Bussnang AG | ||||||
Bahnhofplatz | |||||||
CH-9565 Bussnang | |||||||
Function in UBS | Member of the Com- | ||||||
pensation Committee | |||||||
Nationality | Swiss | ||||||
Year of initial appointment | 2004 | ||||||
Current term of office runs until | 2007 | ||||||
Peter Voser | Professional history, education and date of birth Peter Voser has been Chief Financial Officer of the Royal Dutch Shell plc in London since 2004. Between 2002 and 2004, he was Chief Financial Officer of Asea Brown Boveri (ABB) in Switzerland. Between 1982 and 2002, he worked for the Royal Dutch/Shell Group, holding various assignments in Switzerland, UK, Argentina and Chile. Mr. Voser graduated at the University of Applied Sciences, Zurich. He was born on 29 August 1958. Other activities and functions Mandates on boards of important corporations, organizations and foundations: Peter Voser is a member of the Board of Directors and a member of the Audit Committee of Aegon N.V, The Netherlands (he will step down at its AGM in April 2006). | ||||||
Address | Royal Dutch Shell plc. | ||||||
2501 AN | |||||||
NL-The Hague | |||||||
Function in UBS | Member of the Board | ||||||
Nationality | Swiss | ||||||
Year of initial appointment | 2005 | ||||||
Current term of office runs until | 2008 | ||||||
105
Table of Contents
Corporate Governance
Board of Directors
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 | |||||||
USA-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 | 2008 | ||||||
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.
Changes in 2006
As of the Annual General Meeting on 19 April 2006, Peter Böckli, whose term of office expires in 2006, is stepping down from the Board as he has reached retirement age. The Board of Directors will propose as non-executive directors the following new members for election: Gabrielle Kaufmann-Kohler, partner with the Swiss-based international law firm Schellenberg Wittmer and professor of private international law at the University of Geneva, and Joerg Wolle, President and CEO of DKSH Holding Ltd., a Swiss-based services group for Asia that focuses on sourcing, marketing, logistics and distribution for small and medium sized companies as well as multinationals worldwide. The Board of Directors will then consist of twelve members and hence will reach the maximum statutory limit.
106
Table of Contents
Corporate Governance |
Organizational principles
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. While the majority of the Board members are always 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.
Internal Organization, Board committees and meetings in 2005
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 2005, the Board held seven meetings with the members of the Group Executive Board participating, one telephone conference and a full-day strategy seminar. In addition, the Board met six times without participation of executive management. On average, 97% of Board members were present at the meetings, and 98% at the ones without executive management.
The Board is organized as follows:
Chairman’s Office
Group CEO, GEB candidates for appointment or dismissal by the full Board.
Audit Committee
107
Table of Contents
Corporate Governance
Board of Directors
Compensation Committee
Nominating Committee
Corporate Responsibility Committee
The Corporate Responsibility Committee met twice during 2005. For additional information on corporate responsibility, please refer to the specific chapter at the end of this Handbook.
Charters and additional information
Roles and responsibilities of executive Board members
Marcel Ospel, Stephan Haeringer and Marco Suter, the Chairman and the two Executive Vice Chairmen of the Board, have entered into employment contracts with UBS AG in connection with their services on the Board, and are entitled to receive pension benefits upon retirement. They assume clearly defined management responsibilities.
Non-executive Board members
The eight non-executive members of the Board have never had any management responsibility at UBS or any of its subsidiaries; neither have any of their close family members. These non-executive directors and their close family members have not been employed by UBS’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
108
Table of Contents
Corporate Governance |
large companies and therefore with companies in which UBS Board members assume management or non-executive board responsibilities. None of the relationships with companies represented on the Board by their chairman or chief executive is of a magnitude to jeopardize the Board members’ independent judgment, and no non-executive director has personal business relationships with UBS which might infringe his independence.
Board of Directors and Group Executive Board: checks and balances
UBS operates under a strict dual Board structure, as mandated by Swiss banking law. The functions of Chairman of the Board of Directors (Chairman) and Group Chief Executive Officer (Group CEO) are assigned to two different people, thus providing separation of powers. This structure establishes checks and balances and creates an institutional independence of the Board of Directors from the day-to-day management of the firm, for which responsibility is delegated to the Group Executive Board. No member of one Board may be a member of the other.
Information and control instruments vis-à-vis the Group Executive Board
109
Table of Contents
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 text in the boxes below provide information on the composition of the Group Executive Board as of 31 December 2005. 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, a major Swiss daily newspaper, 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 Vice Chairman 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 (Bachelor of Arts) 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 P. 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 | ||||||
Investment Bank | |||||||
Nationality | American (US) | ||||||
Year of initial appointment to the GEB | 2001 | ||||||
110
Table of Contents
Corporate Governance |
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. 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 | ||||||
Huw Jenkins | Professional history, education and date of birth Huw Jenkins was appointed CEO Investment Bank in July 2005. Prior to that, he was Global Head of Equities. Between 1998 and 2004, he held various management functions in the Equities Division Asia Pacific and the Americas. Before the UBS-SBC merger, he worked for SBC Warburg Dillon Read on various assignments in the Asian Equities Division, having previously worked with BZW (Barclays de Zoete Wedd) as Head of Asian Equities. Huw Jenkins holds a Master of Business Administration from the London Business School. He was born on 20 February 1958. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Chief Executive Officer | ||||||
Investment Bank | |||||||
Nationality | British | ||||||
Year of initial appointment to the GEB | 2005 | ||||||
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, 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, and a member of the Board of Trustees of a foundation which acts as an advisory board to the University of St. Gallen Program for law and economics. | ||||||
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 and in 1995 he was appointed Head of Market Risk Control Europe. Mr. Rohner graduated with a Ph.D. in economics from the University of Zurich and was a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from 1990 to 1992. He was born on 4 September 1964. Other activities and functions Permanent functions for important interest groups: Marcel Rohner is Vice Chairman of the Swiss Bankers Association, Basel and the Vice Chairman of the Board of Trustees of the Swiss Finance Institute. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Chairman and Chief | ||||||
Executive Officer Global | |||||||
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 | ||||||
111
Table of Contents
Corporate Governance
Group Executive Board
Walter Stuerzinger | Professional history, education and date of birth Walter Stuerzinger has been the Group Chief Risk Officer since 2001. Prior to that, he was Head Group Internal Audit from 1998 until 2001. Before the merger, he was Head Group Internal Audit at UBS. Previously, he worked with Credit Suisse on various assignments in the controlling and auditing areas. Walter Stuerzinger holds a Swiss banking diploma and is a member of the Institute of Chartered Accountants. He was born on 6 July 1955. Other activities and functions Permanent functions for important interest groups: Walter Stuerzinger is a member of the Foundation Board of the UBS Pension Fund. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Group Chief Risk Officer | ||||||
Nationality | Swiss | ||||||
Year of initial appointment to the GEB | 2005 | ||||||
Mark B. Sutton | Professional history, education and date of birth Mark B. Sutton was appointed CEO of Wealth Management US 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 Financial Services Forum, Washington D.C. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Chairman and Chief | ||||||
Executive Officer, | |||||||
Americas | |||||||
Nationality | American (US) | ||||||
Year of initial appointment to the GEB | 2002 | ||||||
Raoul Weil | Professional history, education and date of birth Raoul Weil has been Head of Wealth Management International since 2002 and was appointed to the GEB in July 2005. Previous to that, he assumed different management roles in the Private Banking Division in Asia and Europe. Between 1984 and 1998, Mr. Weil was with SBC, holding various assignments within the Private Banking Division in Basel, Zurich, Monaco and New York. He graduated with a degree in economics from the University of Basel and was born on 13 November 1959. Other activities and functions Mandates on boards of important corporations, organizations, and foundations: Raoul Weil is a member of the “Optimus Foundation”, a charitable foundation administered by UBS. | ||||||
Address | UBS AG | ||||||
Bahnhofstrasse 45 | |||||||
CH-8098 Zurich | |||||||
Function in UBS | Head of | ||||||
Wealth Management | |||||||
International | |||||||
Nationality | Swiss | ||||||
Year of initial appointment to the GEB | 2005 | ||||||
Only committed and effective executive teams can ensure that sustainable value is created for shareholders. The Group Executive Board (GEB) shares a common vision for UBS – to be the best global financial services company. Achieving this strategic goal requires that members of the GEB agree on a fundamental set of values – including professional respect, trust and openness – in order to pursue a common agenda.
The GEB comprises the CEOs of the three Business Groups as well as senior leaders representing major growth businesses and geographic markets. It also includes the heads of the key control functions at UBS – risk, finance and legal – reflecting their importance in the overall success of the firm. The careers of the present GEB members indicate that UBS has been successful in retaining the executive members of most of the predecessor firms it has
acquired or merged with in the last two decades. UBS believes the experience they have gathered over time is integral to their understanding and balancing of the different facets of the firm and its complex businesses. The four different nationalities of its members also represent the fact that UBS is a truly global firm. This results in a spirit of partnership that creates a candid, productive and healthy ability to debate, take and implement decisions.
112
Table of Contents
Corporate Governance |
Responsibilities, authorities and organizational principles
The GEB has executive management responsibility for the Group and is accountable to the Board for the firm’s results. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The GEB, and in particular 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 2006
On 1 January 2006, John Costas assumed responsibility for the newly created Dillon Read Capital Management unit within Global Asset Management, relinquishing his role on the Group Executive Board. Marcel Rohner, Chairman & CEO Global Wealth Management & Business Banking, assumed the additional title of Deputy Group CEO that was previously held by John Costas. On the same date, Rory Tapner, Chairman & CEO Asia Pacific, joined the Group Executive Board.
Management contracts
UBS has not entered into management contracts with any third parties.
113
Table of Contents
Corporate Governance
Compensation, shareholdings and loans
Compensation, shareholdings and loans
UBS’s compensation policy is designed to enable the firm to attract, retain and motivate the talented people 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.
Senior executive compensation policy
For senior executives – the executive members of the Board of Directors and the members of the Group Executive Board – equity-based incentive awards play an important role within total compensation, as senior executives’ influence on the firm’s success is significant and their decisions should be aligned as closely as possible with the long-term interests of shareholders. In 2005 base salaries constituted on average 9% of total compensation for these individuals. The incentive component is determined on the basis of the financial performance of the firm and discretionary adjustments of up to plus or minus 25% reflecting individual performance and qualitative aspects. In aggregate, discretionary option awards in 2005 accounted for around 9% of total compensation. For details, see note 31 to the financial statements.
Senior executive share ownership programs and shareholding requirements
– | 50% of 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 are made separately as long-term incentives, to recognize contribution to the implementation of the integrated business model and to support long-term alignment to the overall success of the firm (Senior Executive Stock Option Plan, SESOP). The strike price is |
set at 10% above that of the UBS share price at grant on a defined date, thus creating a strong incentive for senior executives to build sustainable shareholder value. 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 incentive compensation in the form of restricted or deferred UBS shares. Executives opting to take a greater than mandatory portion of their annual incentive in UBS shares receive two stock options for each additional share. These options are granted under SESOP at the conditions described above. |
Non-executive directors’ remuneration
Remuneration of non-executive directors is not dependent on the Group’s financial performance. Board members receive a base fee of CHF 300,000, unchanged from last year. The chairmen and the members of the Audit, Compensation and Nominating Committees receive additional retainers between CHF 150,000 and CHF 500,000 per mandate, dependent on the workload associated with the respective mandates. Board fees are paid either 50% in cash and 50% in UBS restricted shares or 100% in restricted shares, according to the individual director’s election. Shares are attributed with a price discount of 15% and are restricted from sale for four years. Directors receive no additional fees for attending meetings, but are reimbursed for air travel and hotel expenses incurred in the performance of their services.
114
Table of Contents
Corporate Governance |
Authorities and responsibilities
Compensation Committee activities
– | Best practice review of compensation design, pay mix and disclosure: Generally, nine key competitors are considered as the most relevant labour market for senior executive compensation. The peer group comprises Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley. For certain positions, additional peers are |
taken into account, as appropriate. This review compiles publicly available data on our key competitors from US proxy statements and other filings as well as data provided by compensation consultants in order to develop a perspective on common as well as best practice amongst our key competitors. UBS’s compensation systems compare favorably with these nine key competitors, and are specifically tailored to support the achievement of UBS’s strategic objectives. Among other components, UBS’s compensation framework includes several shareholder friendly features such as share ownership requirements, premium-priced options (at a strike price of 110%), stringent forfeiture rules and no severance packages. | ||
– | Review of competitive pay and performance: The numbers for 2004 show that UBS’s senior executive compensation levels are well positioned relative to the market. The above-mentioned nine competitors paid total compensation between CHF 16 million and 32 million to their Chairmen and / or CEOs in 2004. Median pay for the Chairmen and / or CEOs of this group of competitors was CHF 24 million for 2004, the second highest value stood at CHF 30 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. |
115
Table of Contents
Corporate Governance
Compensation, shareholdings and loans
Key elements for decision-making process within the Compensation Committee
Actual process and decisions taken:
– | In February 2005 the Compensation Committee defined personal incentive targets for each senior executive for 2005 based on both financial performance and qualitative indicators. The 2004 results (Group net profit attributable to UBS shareholders / Business Group profit before tax and goodwill amortization) were compared against the 2005 operational plan (budget) and the resultant percentage change applied to 2004 target incentives to derive individual target incentives for 2005. Increases or decreases to these calculated targets were applied at the discretion of the Committee, taking into account future potential, changing roles and competitive positioning. |
– | In early February 2006, actual 2005 results were then assessed against the operational plan and with reference to UBS’s Group and Business Group financial targets as well as similar metrics of key competitors. These measurements and assessments defined a theoretical level of incentive award for each senior executive. |
– | This 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 led to increases or decreases from the theoretical target incentive by up to 25%. |
– | Long-term incentive option awards were granted in February 2005, based on the individual past performance of each senior executive, their contribution to the overall success of the firm, and their future potential. |
Assessment elements for Chairman’s compensation
The Compensation Committee determined the Chairman’s incentive award applying the same process as for all senior executives. His defining contribution to the design and implementation of a very successful strategy, based on efficiently taking advantage of growth opportunities without compromising on a stringent risk policy, were taken into account, as well as Marcel Ospel’s contributions to developing a strong and highly motivated executive management team.
Actual compensation 2005 for executive members of the Board of Directors and the Group Executive Board
116
Table of Contents
Corporate Governance |
Actual remuneration 2005 for non-executive members of the Board of Directors
The eight non-executive members of the Board of Directors were paid in aggregate CHF 6,065,277 (in cash and restricted shares) for the term between the 2005 and 2006 AGMs. Fees are paid 50% in cash and 50% in restricted UBS shares. However, non-executive Board members can elect to have 100% of their remuneration paid in restricted UBS shares. These UBS shares are issued at a discount of 15% and are blocked for four years. Details are shown in the table on page 119.
117
Table of Contents
Corporate Governance
Compensation, shareholdings and loans
Compensation details and additional information
Compensation for acting executive BoD members and members of the GEB1 | ||||||||||||
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Base salaries and other cash payments | 15,592,026 | 14,767,068 | 13,602,045 | |||||||||
Incentive awards – cash | 89,672,195 | 69,745,013 | 65,602,513 | |||||||||
Employer’s contributions to retirement benefit plans | 1,064,640 | 1,050,322 | 1,225,543 | |||||||||
Benefits in kind, fringe benefits (at market value) | 2,582,112 | 1,607,166 | 993,719 | |||||||||
Total (requested by SWX) | 108,910,973 | 87,169,569 | 81,423,820 | |||||||||
Incentive awards – restricted UBS shares (fair value) | 92,877,243 | 79,723,391 | 64,176,428 | |||||||||
Restricted UBS options (fair value)2 | 20,768,251 | 23,736,337 | 12,752,019 | |||||||||
Total (including shares and options) | 222,556,467 | 190,629,297 | 158,352,267 | |||||||||
Total number of shares granted | 655,746 | 792,256 | 675,741 | |||||||||
Total number of options awarded2 | 1,438,763 | 1,094,052 | 1,037,000 | |||||||||
of which CHF options | 968,763 | 473,666 | 457,000 | |||||||||
of which USD options | 470,000 | 620,386 | 580,000 | |||||||||
– | Number of senior executives: 2003: two executive BoD, ten GEB members in office as of 31 December and one executive BoD 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 2005: three executive BoD, and ten GEB members in office as of 31 December and one executive BoD who retired 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 141.50 per share (average price of UBS shares at virt-x over the last ten trading days of February 2006), and USD 107.86 per share (average price of UBS shares at the NYSE over the last ten trading days of February 2006). Value per share 2004: CHF 101.80 / USD 86.74; 2003: CHF 95.30 / USD 76.40. |
– | Optionson UBS shares were granted at a strike price of CHF 111.50 and USD 95.50 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 2005. Options vest three years after grant and will expire ten years from the date of grant. Fair values per option at grant: CHF 12.46 / USD 13.46 for options granted in February 2005 and CHF 20.80 for options granted to match higher share elections in February 2006. No US dollar options will be issued from now on. Fair values per option at grant 2004: CHF 23.90 / USD 20.51; 2003: CHF 12.33 / USD 9.90. |
– | Retirement benefit plans: In Switzerland,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 774,000 for all employees in 2005. This translates into a maximum annual pension of CHF 313,708 after retirement plus a one-off payout of accumulated capital from the savings plan in the maximum amount of CHF 297,617. There are no special pension schemes offered to senior executives. Senior executivesoutside Switzerland participate in the relevant 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. This plan is available to employees of the Investment Bank only. The other plan is a defined contribution plan with compensation included up to a limit of USD 210,000. 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 30 to the UBS Group financial statements describes the various retirement benefit plans established in Switzerland and in major foreign markets. |
118
Table of Contents
Corporate Governance |
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 23,975,954 for the financial year 2005:
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Base salary | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||
Incentive awards – cash | 9,625,000 | 9,500,000 | 7,500,080 | |||||||||
Employer’s contributions to retirement benefit plans | 98,949 | 82,588 | 82,588 | |||||||||
Benefits in kind, fringe benefits (at market value) | 197,192 | 190,371 | 150,000 | |||||||||
Incentive award – restricted UBS shares (fair value) | 9,625,113 | 9,500,078 | 7,499,920 | |||||||||
Restricted UBS options (fair value) | 2,429,700 | 0 | 1 | 1,565,910 | ||||||||
Total | 23,975,954 | 21,273,037 | 18,798,498 | |||||||||
Number of UBS shares granted | 68,022 | 93,321 | 78,698 | |||||||||
Number of UBS options granted | 195,000 | 0 | 1 | 127,000 | ||||||||
Additional severance payments
Remuneration for non-executive members of the Board | ||||||||||||
For the period | ||||||||||||
CHF, except where indicated | AGM 2005/2006 | AGM 2004/2005 | AGM 2003/2004 | |||||||||
Cash | 2,292,321 | 2,210,130 | 1,889,097 | |||||||||
Restricted UBS shares at fair value | 3,772,956 | 3,516,681 | 3,513,044 | |||||||||
Total | 6,065,277 | 5,726,811 | 5,402,141 | |||||||||
Number of UBS shares granted (15% discount) | 26,664 | 34,545 | 36,863 | |||||||||
Explanations:
– | Number of non-executive BoD members: 2003: seven acting members as of 31 December, one for nine months only 2004: seven acting members as of 31 December. 2005: eight acting members as of 31 December. |
– | Sharesvalued at CHF 141.50 (average price of UBS shares at virt-x over the last ten trading days of February 2006), discount price CHF 120.30. The shares are blocked for four years. Related parties of non-executive BoD members are not granted any shares. Value per share 2004: CHF 101.80; 2003: CHF 95.30 |
– | Allowance for “Out of pocket” expenses(CHF 15,000) in addition. |
119
Table of Contents
Corporate Governance
Compensation, shareholdings and loans
Additional information on equity-based compensation
Share ownership
No individual BoD or GEB member holds 1% or more of all shares issued.
Executive Board members and members of the Group Executive Board 1
Shares held as of 31 December 2005: 4,225,946
Of which | ||||||||||
Vested | Vesting 2006 | Vesting 2007 | Vesting 2008 | Vesting 2009 | Vesting 2010 | |||||
1,949,604 | 665,294 | 733,912 | 414,192 | 298,110 | 164,834 | |||||
Non-executive members of the Board 1
Shares held as of 31 December 2005: 131,046
Of which | ||||||||||
Non-restricted | Blocked until 2006 | Blocked until 2007 | Blocked until 2008 | Blocked until 2009 | ||||||
29,879 | 12,688 | 27,832 | 26,102 | 34,545 | ||||||
120
Table of Contents
Corporate Governance |
Options held
Executive Board members and members of the GEB
Senior executives held the following options on UBS shares as of 31 December 2005:
Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | |||||
633,562 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 100.00 | |||||
292,322 | 2002 | 20.02.2005 | 31.01.2012 | 1:1 | CHF 77.75 | |||||
188,072 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 45.26 | |||||
240,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 80.75 | |||||
12,311 | 2002 | 20.02.2005 | 31.07.2012 | 1:1 | CHF 77.75 | |||||
145,000 | 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 | |||||
607,000 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 65.00 | |||||
492,282 | 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 | |||||
1,171,654 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 111.50 | |||||
560,386 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | USD 95.50 | |||||
Parties closely linked to the executive members of the Board and the member 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
Loans granted to non-executive Board members
121
Table of Contents
Corporate Governance
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 directly registered shareholders and some 70,000 US shareholders registered via nominee companies regularly receive written information about the firm’s activities and performance and are personally invited to shareholder meetings.
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 SIS SegaInterSettle 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.
122
Table of Contents
Corporate Governance |
deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of 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.
123
Table of Contents
Corporate Governance
Change of control and defense measures
Change of control and defense measures
UBS refrains from restrictions that would hinder developments initiated in or supported by the financial markets. It also does not have any specific defenses in place to prevent hostile takeovers.
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 Ex-
124
Table of Contents
Corporate Governance |
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 129–131). 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
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 | 31.12.05 | 31.12.04 | ||||||
Audit | ||||||||
Global audit fees | 39,802 | 33,465 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 9,984 | 3,094 | ||||||
Total audit | 49,786 | 36,559 | ||||||
Non-audit | ||||||||
Audit-related fees | 10,870 | 9,513 | ||||||
Tax advisory | 2,511 | 3,451 | ||||||
Other | 3,076 | 3,282 | ||||||
Total non-audit | 16,457 | 16,246 | ||||||
125
Table of Contents
Corporate Governance
Auditors
sents, and reviews of documents filed with regulatory bodies under applicable law.
Pre-approval procedures and policies
Group Internal Audit
With 275 staff members worldwide at 31 December 2005, 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 Chair-
man’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.
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.
126
Table of Contents
Corporate Governance |
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.
UBS provides regular information to its shareholders and to the financial community.
Financial results will be published as follows:
First Quarter | 4 May 2006 | |
Second Quarter | 15 August 2006 | |
Third Quarter | 31 October 2006 | |
Fourth Quarter | 13 February 2007 | |
The Annual General Meeting of Shareholders will take place as follows:
2006 | 19 April 2006 | |
2007 | 18 April 2007 | |
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 web casting, 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 they might entail.
– | 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 after the end of every quarter, and include a breakdown of results by Business Groups and business units and extensive disclosures relating to credit and market risk.
127
Table of Contents
Corporate Governance
Information policy
US regulatory disclosure requirements
UBS’s regular 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.
128
Table of Contents
Corporate Governance |
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
vision 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:
– | Allocation Directives for the New Issues Market, 2004 | |
– | Agreement on Swiss banks’ code of conduct with regard to the exercise of due diligence (CDB 03), 2003 | |
– | Directives on the Independence of Financial Research, 2003 | |
– | Portfolio Management Guidelines, 2003 | |
– | Guidelines on Internal Control, 2002 | |
– | Guidelines on the handling of dormant accounts, custody accounts and safe-deposit boxes held in Swiss banks, 2000 |
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. As a means of improving information flows to investors, the SWX Swiss Exchange on 1 July 2005 enacted an amendment requiring the disclosure of management transactions.
Role of external auditors and direct supervision of large banking groups
129
Table of Contents
Corporate Governance
Regulation and supervision
overseas 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
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. |
130
Table of Contents
Corporate Governance |
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.
131
Table of Contents
Corporate Governance
Compliance with NYSE listing standards
on corporate governance
Compliance with NYSE listing standards on corporate governance
UBS aims to comply with all relevant standards on corporate governance. As a foreign company, listed 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 – were required to comply with the rules on Audit Committees by 31 July 2005 and had to also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 January 2004. UBS fully complies with the SEC requirements relating to Audit Committees and fulfills the overwhelming majority of the NYSE listing standards on corporate governance. The few exceptions are mainly due to the different legal system in Switzerland and are explained in detail in this 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 9 February 2006, affirmatively determined that Ernesto Bertarelli, Peter Böckli, Sir Peter Davis, Rolf A. Meyer, Helmut Panke, Peter Spuhler, Peter Voser 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.
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 2005 can be found on pages 107–108 of this section.
132
Table of Contents
Corporate Governance |
Organization Regulations with its Appendix, and the Charter for the Chairman’s Office (www.ubs.com/corporate-governance).
Differences from NYSE standards
According to Rule 303A.11 of the NYSE Corporate Governance listing standards, foreign private issuers have to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies. The UBS Board of Directors has determined the following differences:
– | 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. |
The New York Stock Exchange has published new forms for the annual and interim written affirmation required under Section 303A.12 (c) of the NYSE Corporate Governance listing standards. NYSE-listed foreign private issuers are required to submit an annual written affirmation and accompanying exhibits to the NYSE, certifying that it is in compliance with the NYSE corporate governance requirements applicable to foreign private issuers – specifically the audit committee requirements and the requirement to provide a statement of significant corporate governance differences. NYSE-listed foreign private issuers have become subject to these requirements as of 31 July 2005. UBS filed the requested affirmation forms and exhibits in mid-July 2005.
133
Table of Contents
Corporate Governance
Compliance with NYSE listing standards
on corporate governance
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.
quired by the Sarbanes-Oxley Act. The code is available on the UBS website at www.ubs.com/corporate-governance.
134
Table of Contents
Corporate Governance |
Corporate Governance
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 2005 and announced changes.
Global Wealth Management & Business Banking | ||
Michel Adjadj | Head of Wealth Management Eastern Mediterranean, Middle East & Africa | |
Robert J. (Bob) Chersi | Deputy Chief Financial Officer | |
Michael A. Davis | Head of Western Division of Wealth Management US (to retire as of 1 January 2006) | |
Arthur Decurtins | Head of Wealth Management Benelux, Germany & Central Europe | |
Jürg Haller | Head of Products & Services | |
Marten Hoekstra | Head Wealth Management US | |
Dieter Kiefer | Head of Wealth Management Western Europe | |
Martin Liechti | Head of Wealth Management Americas | |
Hans-Ulrich Meister | Head of Business Banking | |
Francesco Morra | Head of Wealth Management Italy | |
Tom Naratil | Head of Market, Strategy and Development | |
Jeremy Palmer | Head of Wealth Management UK, Northern & Eastern Europe | |
Werner H. Peyer | Head of Wealth Management for Zurich region | |
James M. Pierce | Head Western Division, Wealth Management US | |
James D. Price | Head Eastern Division, Wealth Management US | |
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 | |
Timothy Sennatt | Head of Eastern Division Wealth Management US (to retire as of 1 January 2006) | |
Robert H. Silver | Managing Director (to retire as of 1 January 2006) | |
Anton Stadelmann | Chief Financial Officer | |
Michael A. Weisberg | Head of Investment Solutions / Products and Services | |
Stephan Zimmermann | Chief Operations Officer | |
David Zoll | Head of Marketing Strategy and Development, Wealth Management US | |
Global Wealth Management & Business Banking (continued) | ||
New members as of 1 March 2006: | ||
Bernhard Buchs | Chief Risk Officer | |
Diane Frimmel | Director of Operations and Services, Wealth Management US | |
Rolf Olmesdahl | Head Information Technology | |
Felix B. Ronner | Global Head of Transaction Products and Head of Products & Services Europe | |
Klaus W. Wellershoff | Global Head Wealth Management Research | |
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 (to step down as of 1 March 2006) | |
Simon C. Bunce | Global Head of Fixed Income and Rates | |
Regina A. Dolan | Chief Financial Officer | |
Robert Gillespie | CEO EMEA and Vice Chairman | |
Thomas R. Hill | Global Head of Equity Research (as of 1 January 2006 Chief Communication Officer) | |
Stephan Keller | Chief Risk Officer | |
Ken Moelis | President of Investment Bank | |
Rory Tapner | Chairman and CEO Asia Pacific (Member of the GEB as of 1 January 2006) | |
Robert Wolf | Chief Operating Officer | |
New members as of 1 March 2006: | ||
David A. Bawden | Chief Credit Officer | |
Maria Bentley | Global Head of Human Resources | |
Daniel Coleman | Joint Global Head of Equities | |
J. Richard Leaman III | Joint Global Head Investment Banking Department | |
Jeffrey A. McDermott | Joint Global Head Investment Banking Department | |
Brad Orgill | CEO and Chairman, Australasia | |
John Pius Wall | Joint Global Head of Equities | |
Alexander Wilmot-Sitwell | Joint Head Investment Banking Department | |
Global Asset Management | ||
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Thomas Madsen | Global Head of Equities | |
Joe Scoby | Head of Alternative and Quantitative Investments | |
Brian Singer | Global Head of Global Investment Solutions | |
Kai Sotorp | Head of Americas | |
Mark Wallace | Chief Operating Officer | |
Paul Yates | Global Head of Strategic Client Development | |
135
Table of Contents
Corporate Governance
Senior leadership
Global Asset Management (continued) | ||
New members as of 1 March 2006: | ||
Mario Cueni | Global Head of Legal, Compliance & Risk Control | |
Christof Kutscher | Head of Asia Pacific | |
John A. Penicook Jr. | Global Head of Fixed Income | |
Corporate Center | ||
Scott G. Abbey | Chief Technology Officer | |
Mark Branson | Chief Communication Officer (as of 1 January 2006 Chief Executive Officer and President of UBS Securities Japan Limited) | |
Rolf Enderli | Group Treasurer (to retire as of 1 July 2006) | |
Thomas Hammer | Group Head of Human Resources | |
Philip J. Lofts | Group Chief Credit Officer | |
Robert W. Mann | Head of Leadership Institute | |
Hugo Schaub | Group Controller (retiring as of 1 July 2006) | |
Neil R. Stocks | Head of Group Compliance | |
New members as of 1 March 2006: | ||
Charles Nicholas Bolton | Group Head Operational Risk | |
Peter Thurneysen | Head Group Controlling & Accounting | |
William Widdowson | Head of Group Accounting Policy | |
Chairman’s Office | ||
Luzius Cameron | Company Secretary | |
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 31 December 2005 and announced changes
Global Wealth Management & Business Banking | ||
Thomas K. Escher | Wealth Management | |
Carlo Grigioni | Wealth Management | |
Eugen Haltiner | Business Banking | |
Investment Bank | ||
Ken Costa | ||
Lord Brittan of Spennithorne, QC | ||
Senator Phil Gramm | ||
Blair Effron (as of 1 March 2006) | ||
136
Table of Contents
Corporate Responsibility
Responsible behavior is an important part of our culture, identity and business practice.
137
Table of Contents
Corporate Responsibility
Corporate Responsibility
We make responsible behavior an important part of our 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 that we are a part of.
– | we aim to provide a working environment that is based on the values of equal opportunity, diversity and meritocracy | |
– | we uphold high ethical standards when dealing with our clients and suppliers | |
– | 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 | |
– | we support the communities we are a part of both through |
donations and by giving our employees the opportunity to engage in volunteer work. |
Since 2000, UBS has been a participating member of the UN Global Compact, a United Nations platform that encourages and promotes good corporate practice in the areas of human rights, labor, and the environment. By adhering to its principles, we contribute to the betterment of the communities and societies we work and live in – while also creating sustainable value for our shareholders.
UBS provides equal employment and advancement opportunities for all our employees, regardless of gender, ethnicity, race, nationality, age, disability, sexual orientation, or religion.
We have a whistleblowing policy to encourage employees to report any breach of law, regulations or codes of ethics to the appropriate senior manager without fear of retaliation.
UBS is committed to ensuring fair treatment of all its stakeholders, whilst recognizing that conflicts of interest cannot always be avoided. We have therefore established guiding principles that outline our approach in properly identifying and managing conflicts of interest. In addition, various other policies address situations in which a conflict of interest might potentially arise, such as personal account dealing, or the providing and receiving of gifts. UBS’s Investment Bank also has specific conflict of interest policies for its research activities.
138
Table of Contents
Corporate Responsibility |
ures the performance of global companies in the areas of environmental sustainability, stakeholder relations and support for human rights.
Our corporate responsibility processes
In 2001, we created a Corporate Responsibility Committee (CRC). It assesses how to meet the evolving expectations of our stakeholders related to our corporate conduct. If the committee concludes that there is a gap between what stakeholders expect and what we practice – and that this gap represents either a risk or an opportunity to the firm – the CRC suggests appropriate measures to management.
rather they ensure that UBS aligns business practices with changing societal expectations.
Contributing to society – preventing money laundering
Extensive and constant efforts to prevent money laundering and terrorist financing are important contributions to society. 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.
We have committed ourselves to fighting money laundering, corruption and terrorist finance. To do that, we have a number of policies in place, an effective risk management framework, and an anti-money laundering unit. We aim to prevent bribery of public officials by requiring the pre-approval of any transfer of assets to a public official.
We have a policy governing the handling and uniform treatment of memberships and donations by UBS and its employees globally. It specifies that donations are goodwill payments
We have a control and governance structure across UBS and its businesses defining a process to ensure that new business initiatives and, where relevant, individual transactions are in line with our environmental, social and ethical standards.
UBS adheres to the highest standards of information security. It meets legal and regulatory requirements related to
UBS is committed to integrating environmental considerations into all its business activities. Our environmental policy has put the practices prescribed by UNEP into operation in the areas of banking and in-house operations.
139
Table of Contents
Corporate Responsibility
we integrate into our money laundering prevention structure to the best of our abilities.
to the training programs accomplished within the context of the Wolfsberg Group, UBS frequently conducts, at the request of the Swiss Ministry of Foreign Affairs, training seminars for countries still developing anti-money laundering or contra terrorist financing legislation. In 2005, we held training seminars in Morocco, Tunisia, Algeria, Uzbekistan, Tajikistan, Azerbaijan, and China.
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 skills 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. UBS supports communities in various ways: we make direct cash donations to selected organizations, match donations from our employees to most charities, and promote employee volunteering. 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.
140
Table of Contents
Corporate Responsibility |
across all Business Groups in Switzerland and is also responsible for the newly introduced employee volunteering program as well as the matched giving program in Switzerland.
A glimpse of what we do
pertise of all employees of the UBS Securities Philippines office, AMFPA organized an exhibition where artists could display and promote their work. Through this event, the organization was able to sell paintings, hundreds of Christmas cards, children’s books and puzzles.
Socially Responsible Investments
UBS has strong expertise in incorporating environmental and social aspects into its research and advisory activities. In addition to financial considerations, socially responsible investments (SRI) put special focus on environmental, social, or ethical criteria.
141
Table of Contents
Corporate Responsibility
SRI invested assets | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
CHF billion, except where indicated | GRI1 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||||
UBS | 2,652 | 2,217 | 2,098 | 20 | ||||||||||||||||
Socially Responsible Investments | ||||||||||||||||||||
Positive criteria | F9 | 1.05 | 0.78 | 0.71 | 34 | |||||||||||||||
Engagement2 | F9 | 38.90 | 31.60 | 23 | ||||||||||||||||
Exclusion criteria | F9 | 10.73 | 7.32 | 8.95 | 47 | |||||||||||||||
Third-party2 | F9 | 0.61 | 0.29 | 109 | ||||||||||||||||
Total SRI assets | F9 | 51.29 | 39.99 | 28 | ||||||||||||||||
Proportion of invested assets(%)3 | 1.93 | 1.80 | ||||||||||||||||||
Performance of UBS’s SRI Funds (%) | ||||||||||||||||||||
Absolute performance Eco Performance4 | 21.79 | 4.66 | 15.90 | |||||||||||||||||
Relative performance Eco Performance vs. MSCI 5 | (5.72 | ) | (1.30 | ) | (3.74 | ) | ||||||||||||||
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.
folio of leading SRI stocks. We are currently able to offer global, European, and Japanese equity products; all benchmarked against MSCI or Topix indices. In the US, Global Asset Management manages various institutional accounts that exclude certain companies or sectors using “negative” screening criteria. In the UK, Global Asset Management seeks to influence corporate responsibility and corporate governance performance of the companies it invests in. UBS also offers SRI products from third party providers.
Environmental management
Our commitment to the environment is underpinned by a global environmental management system certified under the ISO 14001 standard. The system covers both banking activities and in-house operations and was successfully re-certified in 2005 by our auditors SGS.
– | we seek to consider environmental risks in all our businesses, especially in lending, investment banking, advisory and research, and in our own investments. |
– | we seek to pursue opportunities in the financial market for environmentally friendly products and services, such as Socially Responsible Investments. |
– | we are committed to actively seeking 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 will also seek to assess the environmental impact of our suppliers’ products and services. |
– | 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 know how and integrate environmental considerations into internal communications and training. | |
Environmental performance indicators
Every year, we provide a detailed description of our environmental performance using key performance indicators (KPIs), which allow for annual comparisons. They are based on in-
142
Table of Contents
Corporate Responsibility |
Management indicators for environmental performance | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
Full-time equivalent, except where indicated | GRI | 1 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||||
Personnel financial businesses 2 | 69,569 | 67,407 | 65,879 | 3 | ||||||||||||||||
In specialized environmental units 3 | 25.3 | 22.0 | 16.4 | 15 | ||||||||||||||||
Environmental awareness raising | ||||||||||||||||||||
Employees trained | F5 | 2,251 | 1,664 | 1,377 | 35 | |||||||||||||||
Training time(hours) | F5 | 1,214 | 2,124 | 1,857 | (43 | ) | ||||||||||||||
Specialized environmental training | ||||||||||||||||||||
Employees trained | F5 | 1,010 | 602 | 1,106 | 68 | |||||||||||||||
Training time(hours) | F5 | 2,066 | 1,932 | 2,548 | 7 | |||||||||||||||
External environmental audits 4 | ||||||||||||||||||||
Employees audited | F6 | 147 | 11 | 26 | 1,236 | |||||||||||||||
Auditing time(days) | F6 | 17 | 2 | 3 | 750 | |||||||||||||||
Internal environmental audits 5 | ||||||||||||||||||||
Employees audited | F6 | 216 | 148 | 171 | 46 | |||||||||||||||
Auditing time(days) | F6 | 39 | 29 | 37 | 34 | |||||||||||||||
dustry standards such as the Global Reporting Initiative (GRI) and VfU (both include environmental performance indicators tailored to financial institutions).
Managing environmental risks in our business transactions
For UBS, it is key to identify, manage, or control environmental risks in our business transactions. An example of such risks might be when a counterparty’s cash flow or assets are impaired by environmental factors such as inefficient production processes, or polluted or contaminated property. Another is liability risk, such as when a bank takes over collateral onto its own books.
Investment Bank
Global Wealth Management & Business Banking
Global Asset Management
143
Table of Contents
Corporate Responsibility
environmental risks that its investments might imply. In this review, investments were reviewed according to business areas and the results of the audit were presented to the ISO 14001 re-certification auditors. This risk matrix now forms part of the environmental management system employed within Global Asset Management.
Environmental and CO2 footprints
We directly 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.
Ratio Indicators per FTE | ||||||||||||||||
Unit | 2005 | Trend | 2004 | 2003 | ||||||||||||
Total direct energy | kWh / FTE | 13,891 | è | 13,924 | 14,706 | |||||||||||
Total indirect energy | kWh / FTE | 27,907 | è | 25,970 | 29,723 | |||||||||||
Total business travel | Pkm / FTE | 11,704 | ì | 10,563 | 7,831 | |||||||||||
Total paper consumption | kg / FTE | 203 | è | 198 | 218 | |||||||||||
Total water consumption | m 3/ FTE | 25.8 | è | 28.9 | 28.3 | |||||||||||
Total waste | kg / FTE | 316 | è | 363 | 395 | |||||||||||
Total environmental footprint | kWh / FTE | 43,251 | ì | 39,130 | 43,154 | |||||||||||
Total CO2 1 | t / FTE | 3.84 | è | 3.77 | 4.78 | |||||||||||
CO2 footprint 2 | t / FTE | 7.64 | è | 7.26 | 7.89 | |||||||||||
influence on our overall environmental and CO2 footprint. In 2005, 25% of the energy we consumed came from renewable energy sources and district heating.
Reducing our direct impact
Our past efforts in this area have already been highly recognized. For instance,BusinessWeek,in cooperation with ‘The Climate Group’ ranked UBS third on their ‘Single-Year Percentage Leader’ list for reductions in carbon emissions in 2004.
– | Our ‘On Floor Control System’ installed in London buildings detects the presence of people with sensors, eliminating wastage and delivering significant savings on the energy required for lighting and cooling. | |
– | In order to reduce carbon emissions from air travel, UBS has implemented extensive video conference facilities in all major buildings worldwide. These range from boardroom videoconferences to desktop videos for individual interaction. | |
– | In London, UBS purchases CCL-Free Electricity (Climate Change Levy exempt electricity) which is guaranteed to be generated from either renewable energy or good-quality combined heat and power. | |
– | In Zurich, the renovation of a major building resulted in yearly savings of |
144
Table of Contents
Corporate Responsibility |
lesser extent, in the US, where the electricity country mixes have higher carbon content than the cleaner energy mixes purchased in Switzerland and London. Our business growth in 2005 also led to more air travel, another major source of in-
creasing carbon emissions. UBS has recognized this trend, which is closely tied to its growth strategy, and has decided to address its CO2 emissions in a systematic and comprehensive way. Our planned carbon strategy is detailed on page 144.
More detailed information on UBS’s environmental management system is available on the internet: www.ubs.com/environment
– | 3.5 GWh, which is 41% of its total annual energy consumption. The building’s heating, cooling and lighting systems were entirely upgraded using state-of-the-art technology and operations. |
UBS also supports climate change initiatives promoted by governmental authorities: in Japan, UBS Tokyo became part of the Tokyo metropolitan Government “CO2 Emission Reduction Program” based on targeting business sites consuming large volumes of energy. Tokyo carried out an audit of their building and submitted a report. In Switzerland, UBS is a member of the Zurich Energy Model, an initiative launched in 1987 by twelve major energy consumers – among them UBS. Initially launched in the city of Zurich,
Engaging investors and markets
UBS’s dedicated SRI equity research team produces research that investigates the effects of climate change on certain companies and sectors. In 2005, the team was instrumental in organizing a UBS Climate Change Conference to discuss and assess climate change related risks for investors, with Sir David King, Chief Scientific Advisor to the UK Government, as the keynote speaker.
UBS is also a member of the Intercontinental Exchange (ICE), an electronic marketplace for energy and emissions trading in conjunction with the European Climate Exchange (ECX). UBS trades ECX carbon financial instruments on behalf of clients.
145
Table of Contents
Corporate Responsibility
Absolute Indicators | ||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
Absolute | Data | Absolute | Absolute | |||||||||||||||||||||
Environmental Performance Indicators 1 | GRI 2 | Normalized | 3 | Quality 4 | Trend | 5 | Normalized 3 | Normalized | 3 | |||||||||||||||
Total direct energy 6 | EN3 | 966 GWh | ** | è | 939 GWh | 970 GWh | ||||||||||||||||||
Direct intermediate energy purchased 7 | EN3 | 790 GWh | ** | è | 751 GWh | 771 GWh | ||||||||||||||||||
electricity from gas-fired power stations | 10% | ** | ê | 13% | 19% | |||||||||||||||||||
electricity from oil-fired power stations | 5.8% | ** | è | 5.5% | 5.5% | |||||||||||||||||||
electricity from coal-fired power stations | 18% | ** | è | 16% | 20% | |||||||||||||||||||
electricity from nuclear power stations | 36% | ** | ì | 31% | 30% | |||||||||||||||||||
electricity from hydroelectric power stations | 10% | ** | ê | 16% | 17% | |||||||||||||||||||
electricity from biomass and waste power stations | 2.3% | ** | é | 1.7% | 1.3% | |||||||||||||||||||
electricity from wind power stations | 11.4% | ** | é | 7.6% | 1.5% | |||||||||||||||||||
electricity from other renewable resources | 2.9% | ** | ê | 4.6% | 2.6% | |||||||||||||||||||
district heating | 3.8% | ** | î | 4.6% | 3.3% | |||||||||||||||||||
Direct primary energy consumption 8 | 177 GWh | ** | è | 188 GWh | 199 GWh | |||||||||||||||||||
natural gas | EN3 | 81% | ** | è | 83% | 81% | ||||||||||||||||||
heating oil | EN3 | 16% | ** | ì | 14% | 15% | ||||||||||||||||||
fuels (petrol, diesel, gas) | EN3 | 2.5% | ** | è | 2.6% | 3.1% | ||||||||||||||||||
renewable energy (solar power, bioorganic, etc.) | 0.03% | *** | ê | 0.04% | 0.10% | |||||||||||||||||||
Total indirect energy 9 | EN4 | 1,941 GWh | ** | ì | 1,751 GWh | 1,960 GWh | ||||||||||||||||||
Total business travel | EN34 | 814 m Pkm | ** | ì | 712 m Pkm | 516 m Pkm | ||||||||||||||||||
rail travel | 3.4% | * | î | 4.6% | 5.0% | |||||||||||||||||||
road travel | 0.7% | * | î | 1.0% | 1.5% | |||||||||||||||||||
air travel | 96% | *** | è | 94% | 94% | |||||||||||||||||||
Number of flights (segments) | 373,950 | *** | ì | 342,458 | 267,530 | |||||||||||||||||||
Total paper consumption | EN1 | 14,139 t | ** | è | 13,378 t | 14,393 t | ||||||||||||||||||
post-consumer recycled | (EN2) | 10 | 6.9% | ** | î | 8.3% | 8.4% | |||||||||||||||||
new fibres ECF + TCF 11 | 92.6% | ** | è | 91.5% | 91.5% | |||||||||||||||||||
new fibres chlorine bleached | 0.4% | ** | é | 0.2% | 0.1% | |||||||||||||||||||
Total water consumption | EN5 | 1.80 m m3 | * | è | 1.95 m m 3 | 1.86 m m 3 | ||||||||||||||||||
drinking water | 100% | n.a. | è | 100% | 100% | |||||||||||||||||||
Total waste | EN11 | 21,999 t | * | è | 24,462 t | 26,053 t | ||||||||||||||||||
valuable materials separated and recycled | 65% | * | è | 70% | 59% | |||||||||||||||||||
incinerated | 13.4% | * | é | 9.8% | 7.8% | |||||||||||||||||||
landfilled | 21% | * | è | 20% | 33% | |||||||||||||||||||
Total environmental footprint 12 | 3,009 GWh | ** | ì | 2,638 GWh | 2,845 GWh | |||||||||||||||||||
Total CO2 (GHG scope1 and 2) 13 | EN8 | 267,159 t | ** | è | 254,273 t | 315,188 t | ||||||||||||||||||
Direct CO2 (GHG scope1) | EN8 | 14% | ** | è | 16% | 13% | ||||||||||||||||||
Indirect CO2 (GHG scope 2) | EN8 | 86% | ** | è | 84% | 87% | ||||||||||||||||||
CO2 footprint (GHG scope1, 2 and 3) 14 | 531,462 t | ** | è | 489,500 t | 520,405 t | |||||||||||||||||||
Validation by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2005 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, February 2006
146
Table of Contents
Global Reporting Initiative Content Index
This content index refers to the 2002 Global Reporting Initiative (GRI) Guidelines and the Financial Services Sector Supplements. At UBS, we cover this information in this Handbook, the Financial Report 2005 and on the web.
147
Table of Contents
Global Reporting Initiative Content Index
GRI Content Index1
Vision and strategy | ||||
1.1 | Vision and strategy | HB | ||
Profile | ||||
2.1 | Name of organisation | FR HB | ||
2.2 | Products and/or services | HB | ||
2.3 | Operational structure | HB | ||
2.4 | Description of Business Groups & Corporate Center | HB | ||
2.6 | Legal form | FR HB | ||
2.8 | General information / financial highlights | FR HB | ||
2.10 | Contact persons for the report | FR HB | ||
2.11 | Reporting period | FR HB | ||
2.12 | Report 2004 | FR HB | ||
2.14 | Structural changes | FR HB | ||
2.15 | Reporting structure | FR | ||
2.16 | Re-statements | FR | ||
2.19 | Changes in accounting | FR | ||
2.21 | Independent assurance | FR HB | ||
2.22 | Additional information | FR HB | ||
Governance structure and management systems | ||||
3.1 | Governance structure | HB | ||
3.2 | Independency of directors | HB | ||
3.3 | Board members expertise | HB | ||
3.4 | Board level processes | HB | ||
3.5 | Executive compensation | HB | ||
3.6 | Corporate responsibility structure / environmental governance | HB | ||
3.7 | Principles and policies | HB | ||
3.8 | Shareholders participation rights | HB | ||
3.9 | Major stakeholders | HB | ||
3.13 | Risk management | HB | ||
3.14 | Externally developed voluntary charters | HB | ||
3.15 | Principal memberships in industry and business associations | HB | ||
3.19 | Environmental management system | Web only | ||
3.20 | Certification (ISO 14001) | HB | ||
Performance indicators | ||||
Economic indicators | ||||
EC1 | Net operating income | FR HB | ||
EC2 | Key markets by region | FR HB | ||
EC3 | Procurement spending | HB | ||
EC5 | Personnel expenses | FR | ||
EC6 | Interests and dividends | FR | ||
EC7 | Increase/reduction in retained earnings at the end of the period | FR | ||
EC8 | Taxes | FR | ||
EC10 | Donations to the community | HB | ||
Performance indicators (continued) | ||||
Environmental indicators | ||||
EN1 | Total material use other than water | HB | ||
EN2 | Recycling material | HB | ||
EN3 | Direct energy use | HB | ||
EN4 | Indirect energy use | HB | ||
EN5 | Total water use | HB | ||
EN8 | Greenhouse gas emission | HB | ||
EN11 | Total waste | HB | ||
EN17 | Initiatives to use renewable energy sources / efficiency | HB | ||
EN34 | Impact of transportation | HB | ||
Social indicators | ||||
LA1 | Workforce | HB | ||
LA2 | Job creation | HB | ||
LA9 | Employee training | HB | ||
LA10 | Equal opportunity | HB | ||
LA11 | Composition of senior management | HB | ||
LA12 | Benefits beyond legally mandated | HB | ||
LA13 | Employee representation | HB | ||
LA17 | Training and education programs | HB | ||
HR4 | Discrimination prevention | HB | ||
SO1 | Impact on communities | HB | ||
SO2 | Bribery & corruption | HB | ||
SO4 | Awards received | HB | ||
PR3 | Respect for privacy | HB | ||
Social performance supplement | ||||
CSR1 | CR statement | HB | ||
CSR2 | CR organisation | HB | ||
CSR3 | CR audits | HB | ||
CSR4 | Management of sensitive issues | HB | ||
INT1 | Policy on employment | HB | ||
INT2 | Staff turnover | HB | ||
INT3 | Employee satisfaction | HB | ||
INT4 | Senior management remuneration | HB | ||
INT7 | Employee profile | HB | ||
SOC1 | Charitable contributions | HB | ||
Environmental performance supplement | ||||
F1 | Environmental policies | HB | ||
F2 | Processes for assessing and screening environmental risks | HB | ||
F3 | Thresholds for environmental risk assessment procedures | HB | ||
F5 | Staff competency | HB | ||
F6 | Environmental audits | HB | ||
F7 | Engagement | HB | ||
F9 | Assets subject to environmental screening | HB | ||
148
Table of Contents
Table of Contents
UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |
Table of Contents
Financial Report 2005 – US Version |
Table of Contents
On the cover
“Hand in hand we are worldclass.”
What “You & Us” means to Christian Mutzner, who works for us in Zurich.
Table of Contents
1 | ||||
2 | ||||
3 | ||||
4 | ||||
6 | ||||
7 | ||||
8 | ||||
10 | ||||
12 | ||||
13 | ||||
15 | ||||
19 | ||||
20 | ||||
28 | ||||
42 | ||||
47 | ||||
52 | ||||
55 | ||||
59 | ||||
60 | ||||
63 | ||||
65 | ||||
66 | ||||
68 | ||||
71 | ||||
191 | ||||
205 |
Introduction
Our Financial Report comprises the audited financial statements of UBS for 2005, 2004 and 2003, prepared according to International Financial Reporting Standards (IFRS) and reconciled to the United States Generally Accepted Accounting Principles (US GAAP). It includes the audited financial statements of UBS AG (the “Parent Bank”) for 2005 and 2004, prepared according to Swiss banking law. Our Financial Report also discusses the financial and business performance of UBS and its Business Groups, and provides additional disclosure required by Swiss and US regulations.
The Financial Report should be read together with the other publications described on page 4.
We sincerely hope that you will find our publications useful and informative. We believe that UBS is one of the leaders in corporate disclosure, and we would be keen to hear your views on how we might improve the content, information or presentation of our products.
Tom Hill
Chief Communication Officer
UBS
1
Table of Contents
Introduction
UBS financial highlights
UBS income statement | For the year ended | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 75 | ||||||||||||
Basic earnings per share (CHF)1 | 13.93 | 7.78 | 5.44 | 79 | ||||||||||||
Diluted earnings per share (CHF)1 | 13.36 | 7.40 | 5.19 | 81 | ||||||||||||
Return on equity attributable to UBS shareholders (%)2 | 39.4 | 25.5 | 17.8 | |||||||||||||
Financial businesses3 | ||||||||||||||||
Operating income | 39,896 | 35,971 | 32,957 | 11 | ||||||||||||
Operating expenses | 27,704 | 26,149 | 25,397 | 6 | ||||||||||||
Net profit attributable to UBS shareholders | 13,517 | 7,656 | 5,959 | 77 | ||||||||||||
Cost / income ratio (%)4 | 70.1 | 73.2 | 76.8 | |||||||||||||
Net new money, wealth management businesses (CHF billion)5 | 95.1 | 60.4 | 44.0 | |||||||||||||
Personnel (full-time equivalents) | 69,569 | 67,407 | 65,879 | 3 | ||||||||||||
UBS balance sheet & capital management | As at | % change from | ||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Balance sheet key figures | ||||||||||||||||
Total assets | 2,060,250 | 1,737,118 | 1,553,979 | 19 | ||||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 33,659 | 31 | ||||||||||||
Market capitalization | 131,949 | 103,638 | 95,401 | 27 | ||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)6 | 12.9 | 11.9 | 12.0 | |||||||||||||
Total BIS (%) | 14.1 | 13.8 | 13.5 | |||||||||||||
Risk-weighted assets | 310,409 | 264,832 | 252,398 | 17 | ||||||||||||
Invested assets (CHF billion) | 2,652 | 2,217 | 2,098 | 20 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
From 2005 on, all tables, charts, comments and analysis reflect the integration of Wealth Management US into the new Global Wealth Management & Business Banking Business Group, the change in treatment of the Wealth Management US cash management business and the shift of the municipal securities business to the Investment Bank. Prior years have been restated to reflect those changes. In 2005, the entire private equity portfolio started being reported as part of the Industrial Holdings segment.
Throughout this report, 2004 and 2003 results have been restated to reflect accounting changes (IAS1, IFRS 2, IFRS 4, IAS 27, and IAS 28) effective 1 January 2005 as well as the presentation of discontinued operations.
2
Table of Contents
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 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
With more than 140 years of experience, an extensive global network that includes one of the largest private client businesses in the US, and more than CHF1,700 billion in invested assets, UBS is the world’s leading wealth management business, providing a comprehensive range of services customized for wealthy individuals, ranging from asset management to estate planning and from corporate finance to art banking.
Investment banking and securities
UBS is a global investment banking and securities firm with a strong institutional and corporate client franchise. Consistently 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 premium 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
UBS, a leading asset manager with invested assets of over CHF 750 billion, provides a broad base of innovative capabilities stretching from traditional to alternative investment solutions for, among other clients, financial intermediaries and institutional investors across the world.
Swiss corporate and individual clients
UBS is the leading bank for Swiss corporate and individual clients. It serves around 2.6 million individual clients through more than 3 million accounts, mortgages and other financial relationships. It also offers comprehensive banking and securities services for 136,500 corporations, institutional investors, public entities and foundations as well as 3,000 financial institutions worldwide. With a total loan book of over CHF 140 billion, UBS leads the Swiss lending and retail mortgage markets.
Corporate Center
The Corporate Center partners with the businesses, ensuring that the firm operates as a coherent and integrated whole with a common vision and set of values. It helps UBS’s businesses grow sustainably through its financial control, risk, treasury, communication, legal, human resources and technology functions.
3
Table of Contents
Introduction
Sources of information
This Financial Report contains UBS’s audited financial statements for the year 2005 and 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. 80531-0601).
Annual Review 2005
Our Annual Review contains a description of UBS and our Business Groups, as well as a summary review of our performance in 2005. It is available in English, German, French, Italian, Spanish and Japanese. (SAP no. 80530-0601).
Handbook 2005 / 2006
The Handbook 2005 / 2006 contains a detailed description of UBS, our strategy, organization, employees and businesses, as well as our financial management including credit, market and operational risk, our capital management approach and details of our corporate governance. It is available in English and German. (SAP no. 80532-0601).
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
Compensation Report 2005
The Compensation Report 2005 provides detailed information on the compensation paid to the members of UBS’s Board of Directors (BoD) and the Group Executive Board (GEB). The report is available in English and German. (SAP no.82307-0601). The same information can also be read in the Corporate Governance chapter of the Handbook 2005/2006.
The making of UBS
Our “The making of UBS” brochure 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. It is available in English and German. (SAP no. 82252).
How to order reports
Each of these reports is available in a PDF format on the internet at www.ubs.com/investors in the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of
the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
Information tools for investors
Website
Our Analysts and Investors website at www.ubs.com/investors offers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Our information on the internet is available in English and German, with some sections in French and Italian.
Messaging service
On the Analysts and Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results presentations
Senior management presents UBS’s results every quarter. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent result web-casts can be found in the Financials section of our Investors and Analysts website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our Annual Report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
4
Table of Contents
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 100 F Street, N.E., Room 1580, 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 in-
spect 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.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal
Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are:
Bahnhofstrasse 45,
CH-8001 Zurich, Switzerland,
telephone +41-44-234 11 11;
and
Aeschenvorstadt 1,
CH-4051 Basel, Switzerland,
telephone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange and on the Tokyo Stock Exchange.
5
Table of Contents
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 offices in Zurich and New York. www.ubs.com/investors | Hotline | +41-44-2344100 | UBS AG | |||
Matthew Miller | +41-44-234 4360 | Investor Relations | ||||
Caroline Ryton | +41-44-234 2281 | P.O. Box | ||||
Reginald Cash | +1-212-882 5734 | CH-8098 Zurich, Switzerland | ||||
Nina Hoppe | +41-44-234 4307 | sh-investorrelations@ubs.com | ||||
Fax | +41-44-234 3415 | |||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. www.ubs.com/media | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
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 | +41-44-2356202 | 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 | 866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-680 6578 | 480 Washington Boulevard | ||||
Fax | +1-201-680 4675 | Jersey City, NJ 07310, USA | ||||
sh-relations@melloninvestor.com | ||||||
6
Table of Contents
Table of Contents
Presentation of Financial Information
UBS reporting structure
UBS reporting structure
Changes in 2005
In 2005, we implemented several accounting and reporting structure changes. To reflect these changes, we have restated our consolidated financial statements and the segment reporting of business units affected for all prior periods, except for the amortization of goodwill, which ceased at the beginning of 2005 for financial years after 2004. The figures and results presented in this report are based on restated numbers.
Changes to reporting structure and presentation
In 2005, we implemented several changes in our reporting structure. At the year’s outset, we decided to start reporting our private equity investments, until then a part of the Investment Bank, in the Industrial Holdings segment.
Changes to accounting
At the start of 2005, we implemented the following changes in accounting:
– | IFRS 2 Share-based Payment.IFRS 2 requires entities to recognize the fair value of share-based payments made to employees as compensation expense, recognized over the service period, which is generally equal to the vesting period. |
– | IAS 27 Consolidated and Separate Financial Statements and IAS 28 Investments in Associates. In the past, we treated all our private equity investments as “Financial investments available-for-sale”. The revised IAS 27 and IAS 28 required us to change the accounting treatment for some of our private equity investments, consolidating those that we control, and using the equity method of accounting where we exercise significant influence. |
– | IFRS 3 Business Combinations.With the introduction of IFRS 3, we stopped amortizing goodwill at the beginning of 2005. Instead, from now on, we will test goodwill annually for impairment. |
– | IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.This new standard requires that major lines of business and subsidiaries acquired exclusively with the intent of future sale be presented as “discontinued operations” from the time a sale is highly likely to occur. Private Banks & GAM and certain of our previously held private equity investments (now reported in Industrial Holdings) met these criteria and were reclassified accordingly. |
8
Table of Contents
– | IAS 1 Presentation of Financial Statements.The adoption of revised IAS 1 requires the inclusion of minority interests in both net profit and equity. The newly defined net profit is then allocated into “Net profit attributable to UBS shareholders” and “Net profit attributable to minority interests”. When analyzing our performance, our focus will, as before, be on “Net profit attributable to UBS shareholders” (attributable profit) and “Equity attributable to UBS shareholders” (shareholders’ equity). | |
– | IFRS 4 Insurance Contracts.The majority of insurance products issued by UBS are considered investment contracts and are accounted for as financial liabilities and not as insurance contracts under IFRS 4. The related assets in the balance sheet were reclassified from other assets to trading assets in 2004. | |
– | A redefinition of recurring income for the Wealth Management US unit to include interest income, bringing it in line with the definition of recurring income for the other wealth management units. |
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 during 2005.
9
Table of Contents
Presentation of Financial Information
Measurement and analysis of performance
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, where revenues are impacted by the seasonal characteristics of general financial market activity and deal flows in investment banking.
Performance measures
UBS performance indicators
– | We seek to increase the value of UBS by achieving a sustainable, after-tax return on equity of 15–20% | |
– | We aim to increase shareholder value through double-digit average annual percentage growth in basic earnings per share (EPS) | |
– | By cost reduction and earnings enhancement initiatives, we aim to manage UBS’s cost / income ratio at a level that compares positively with best-in-class competitors | |
– | We aim to achieve a clear growth trend in net new money in our wealth management units. |
Business Group performance indicators
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. |
10
Table of Contents
Business Group Performance Indicators | ||||
Business | performance indicators | Definition | ||
Business Groups and Business Units within Financial Businesses | Cost / income ratio (%) | Total operating expenses / total operating income before adjusted expected credit loss. | ||
Wealth & Asset Management Businesses and Business Banking Switzerland | Invested assets (CHF billion) | Client assets managed by or deposited with UBS for investment purposes only (for further details please refer to page 12). | ||
Net new money (CHF billion) | Inflow of invested assets from new clients | |||
– outflows due to client defection | ||||
+/– inflows / outflows from existing clients | ||||
(for further details please refer to page 17). | ||||
Wealth & Asset Management Businesses | Gross margin on invested assets (bps) | Operating income before adjusted expected credit loss / average invested assets. | ||
Wealth Management International & Switzerland | Client advisors | Expressed in full-time equivalents. | ||
Wealth Management US | Recurring income (CHF million) | Interest, asset-based fees for portfolio management and fund distribution and account-based and advisory fees (as opposed to transactional fees). | ||
Revenues per advisor | Private client revenues / average number of financial advisors. | |||
(CHF thousand) | ||||
Business Banking Switzerland | Non-performing loans / gross loans ratio (%) | Non-performing loans / gross loans. | ||
Impaired loans / gross loans ratio (%) | Impaired loans / gross loans. | |||
Return on allocated regulatory capital (%) | Business Unit performance before tax / average allocated regulatory capital. | |||
Investment Bank | Compensation ratio (%) | Personnel expenses / operating income before adjusted expected credit loss. | ||
Non-performing loans / gross loans ratio (%) | Non-performing loans / gross loans. | |||
Impaired loans / gross loans ratio (%) | Impaired loans / gross loans. | |||
Return on allocated regulatory capital (%) | Business Group performance before tax / average allocated regulatory capital. | |||
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. | |||
Corporate Center | Information technology infrastructure (ITI) cost per Financial Business full-time employee | ITI costs / average Financial Business personnel. | ||
Industrial Holdings | Investment (private equity, only comprising financial investments available-for-sale) | Historical cost of investment made, less divestments and impairments. | ||
Portfolio fair value (private equity, only comprising financial investments available-for-sale) | 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. | |||
sitions and divestments are excluded from net new money. The use of invested assets to fund interest expense on clients’ loans results in net new money outflows. Reclassifications between invested assets and client assets as a result of a change in the service level delivered are treated as net new money flows.
provide an independent service to their respective client, add value and generate revenues. Most double counting arises where mutual funds are managed by the Global Asset Management business and sold by Global Wealth Management & Business Banking. Both businesses involved count these funds as invested assets. This approach is in line with industry practice and our open architecture strategy and allows us to accurately reflect the performance of each individual business. Overall, CHF 332 billion of invested assets were double counted in 2005 (CHF 294 billion in 2004).
11
Table of Contents
Presentation of Financial Information
Measurement and analysis of performance
Fair value option for financial instruments (IAS 39)
Revised performance indicators for UBS
– | seek to increase the value of UBS by achieving a sustainable, after-tax |
return on equity of a minimum of 20% (we previously targeted a range of 15–20%) | ||
– | aim to achieve a clear growth trend in net new money for all our financial businesses, including Global Asset Management and Business Banking Switzerland. (This measure was previously only applied to our wealth management units.) |
In future, we will use diluted earnings per share (EPS) instead of basic EPS as a reference for our EPS growth target which remains, as before, annual double-digit percentage growth. Our cost / income objective will not change, and we will continue to manage it at levels that compare well with our best competitors.
12
Table of Contents
Presentation of Financial Information
UBS Results
UBS Results
2005
In 2005, attributable profit was CHF 14,029 million, including a net gain of CHF 3,705 million from the sale of Private Banks & GAM.
Dividend
The Board of Directors will recommend a total payout of CHF 3.80 per share for the 2005 financial year at the Annual General Meeting (AGM) on 19 April 2006 in Basel. The payout comprises a regular dividend of CHF 3.20 and a one-time
par value repayment of CHF 0.60 per share. The repayment will allow our shareholders to benefit from the gain realized from the sale of Private Banks & GAM. Our dividend for the 2004 financial year (paid in 2005) was CHF 3.00 a share, up from the CHF 2.60 paid for the 2003 financial year.
2004
In 2004, attributable profit was CHF 8,016 million, up 36% from CHF 5,904 million a year earlier. Continuing operations contributed CHF 7,609 million to the result, while discontinued operations made up CHF 407 million.
Interest rates, equity prices, foreign exchange levels and other market fluctuations may affect earnings
13
Table of Contents
Presentation of Financial Information
UBS Results
Market levels and trading volumesmay be affected by a broad range of geopolitical or regional issues or events beyond our control, such as the possibility of war or terrorism, or by economic developments such as low growth, inflation, recession or depression. Counterparty failure may lead to credit loss Credit is an integral part of many of our business activities. The results of our credit-related activities (including loans, commitments to lend, contingent liabilities such as letters of credit, and derivative products such as swaps and options) would be adversely affected by any deterioration in the creditworthiness of our counterparties and the ability of clients to meet their obligations. The credit quality of our counterparties may be affected by various factors, such as an economic downturn, lack of liquidity, or an unexpected political event. Any of these events could lead us to incur losses. We believe that impairments in the portfolio at the balance sheet date are adequately covered by our allowances and provisions. In general, we aim to avoid risk concentrations in our credit portfolio and we make active use of credit protection. If our risk management and control measures prove inadequate or ineffective, then any credit losses sustained might have a material adverse
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
14
Table of Contents
Table of Contents
UBS Performance Indicators
Performance against targets | ||||||||||||
For the year ended | ||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||
RoE (%)1 | ||||||||||||
as reported | 39.4 | 25.5 | 17.8 | |||||||||
from continuing operations | 27.6 | 24.2 | 16.7 | |||||||||
Basic EPS (CHF)2 | ||||||||||||
as reported | 13.93 | 7.78 | 5.44 | |||||||||
from continuing operations | 9.78 | 7.39 | 5.07 | |||||||||
Cost / income ratio of the financial businesses (%)3,4 | 70.1 | 73.2 | 76.8 | |||||||||
Net new money, wealth management businesses (CHF billion)5 | ||||||||||||
Wealth Management International & Switzerland | 68.2 | 42.3 | 29.7 | |||||||||
Wealth Management US | 26.9 | 18.1 | 14.3 | |||||||||
Total | 95.1 | 60.4 | 44.0 | |||||||||
16
Table of Contents
2005
For the last six years, we have consistently focused on four performance indicators designed to ensure we deliver continually improving returns to our shareholders. We will modify some of them starting in 2006 to reflect the evolution of our business (see sidebar on page 12). They will continue to focus solely on continuing operations.
– | Return on equity in full-year 2005 at 27.6%, up from 24.2% in 2004. The increase was driven by higher attributable profit, but was partially offset by an increase in average equity levels, reflecting the growth in retained earnings. Amortization of goodwill reduced return on equity in 2004 by 2.1 percentage points. It had no effect on 2005 return on equity as we ceased amortizing goodwill at the |
beginning of 2005 following the introduction of new accounting standards. From 2006 onwards, we aim to exceed 20% in return on equity over periods of fluctuating market conditions. | |||
– | Basic earnings per share in 2005 at CHF 9.78, up 32% from CHF 7.39 a year ago, reflecting increased earnings and a slight reduction in the average number of shares outstanding (–2%) following share repurchases. Amortization of goodwill reduced the 2004 basic earnings per share result by CHF 0.63. Diluted earnings per share, our performance indicator from 2006 on, were at CHF 9.39 in 2005, up 33% from CHF 7.04 in 2004. | ||
– | A cost / income ratio for our financial businesses of 70.1% in 2005, down 3.1 percentage points from 73.2% a year ago. This reflects the increase in net fee and commission income and net income from trading activities, partly offset by higher costs related to personnel – all related to the expansion of our business volumes. Amortization of goodwill raised the 2004 cost/income ratio by 1.8 percentage points. |
Net new money1 | ||||||||||||
For the year ended | ||||||||||||
CHF billion | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Global Wealth Management & Business Banking | ||||||||||||
Wealth Management International & Switzerland | 68.2 | 42.3 | 29.7 | |||||||||
Wealth Management US | 26.9 | 18.1 | 14.3 | |||||||||
Business Banking Switzerland | 3.4 | 2.6 | 2.5 | |||||||||
Global Asset Management | ||||||||||||
Institutional | 21.3 | 23.7 | 12.7 | |||||||||
Wholesale Intermediary | 28.2 | (4.5 | ) | (5.0 | ) | |||||||
Investment Bank | 0.0 | 0.0 | 0.9 | |||||||||
UBS excluding Private Banks & GAM | 148.0 | 82.2 | 55.1 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM2 | 0.5 | 7.7 | 7.2 | |||||||||
UBS | 148.5 | 89.9 | 62.3 | |||||||||
Invested assets | ||||||||||||||||
As at | % change from | |||||||||||||||
CHF billion | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Global Wealth Management & Business Banking | ||||||||||||||||
Wealth Management International & Switzerland | 982 | 778 | 701 | 26 | ||||||||||||
Wealth Management US | 752 | 606 | 599 | 24 | ||||||||||||
Business Banking Switzerland | 153 | 140 | 136 | 9 | ||||||||||||
Global Asset Management | ||||||||||||||||
Institutional | 441 | 344 | 313 | 28 | ||||||||||||
Wholesale Intermediary | 324 | 257 | 261 | 26 | ||||||||||||
Investment Bank | 0 | 0 | 4 | |||||||||||||
UBS excluding Private Banks & GAM | 2,652 | 2,125 | 2,014 | 25 | ||||||||||||
Corporate Center | ||||||||||||||||
Private Banks & GAM1 | 0 | 92 | 84 | (100 | ) | |||||||||||
UBS | 2,652 | 2,217 | 2,098 | 20 | ||||||||||||
17
Table of Contents
UBS Performance Indicators
Our wealth management businesses continue to gather assets rapidly in all regions. In 2005, net new money totaled CHF 95.1 billion, up 57% from CHF 60.4 billion in 2004, corresponding to an annual growth rate of 6.9% of the asset base at the end of 2004. Wealth Management International & Switzerland recorded inflows of CHF 68.2 billion, driven by further growth in our five key European markets and Asia. Our US business contributed CHF 26.9 billion in net new money, CHF 8.8 billion above 2004 levels.
2004
From our continuing operations:
– | Our return on equity was 24.2%, up from 16.7% in 2003, well above our target range of 15% to 20%. The increase reflects the combined effects of our strong earnings, continued buyback programs and the dividend outpacing increased retained earnings. Amortization of goodwill re- |
duced the 2004 and 2003 return on equity by 2.1 percentage points. | |||
– | Basic earnings per share (EPS) were CHF 7.39, up 46% or CHF 2.32 from CHF 5.07 in 2003. The high level reflected the increase in net profit as well as the 5% reduction in average number of shares outstanding due to our continuing buyback programs. Amortization of goodwill reduced the 2004 basic earnings per share result by CHF 0.63 and the 2003 result by CHF 0.65. | ||
– | The cost/income ratio of our financial businesses was 73.2% in 2004, an improvement from 76.8% in 2003. Strong asset-based revenues drove fee and commission income higher, demonstrating the inherent operating leverage of our wealth and asset management businesses. Amortization of goodwill raised the 2004 cost/income ratio by 1.8 percentage points. It raised the 2003 ratio by 2.0 percentage points. |
18
Table of Contents
Table of Contents
Financial Businesses
Results
Results
Income statement1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 59,286 | 39,228 | 40,045 | 51 | ||||||||||||
Interest expense | (49,758 | ) | (27,484 | ) | (27,784 | ) | 81 | |||||||||
Net interest income | 9,528 | 11,744 | 12,261 | (19 | ) | |||||||||||
Credit loss (expense) / recovery | 375 | 241 | (102 | ) | 56 | |||||||||||
Net interest income after credit loss expense | 9,903 | 11,985 | 12,159 | (17 | ) | |||||||||||
Net fee and commission income | 21,436 | 18,506 | 16,673 | 16 | ||||||||||||
Net trading income | 7,996 | 4,902 | 3,670 | 63 | ||||||||||||
Other income | 561 | 578 | 455 | (3 | ) | |||||||||||
Total operating income | 39,896 | 35,971 | 32,957 | 11 | ||||||||||||
Cash components | 18,275 | 16,310 | 15,892 | 12 | ||||||||||||
Share-based components2 | 1,628 | 1,396 | 1,464 | 17 | ||||||||||||
Total personnel expenses | 19,903 | 17,706 | 17,356 | 12 | ||||||||||||
General and administrative expenses | 6,448 | 6,387 | 5,882 | 1 | ||||||||||||
Services to / from other business units | (14 | ) | (20 | ) | (23 | ) | 30 | |||||||||
Depreciation of property and equipment | 1,240 | 1,262 | 1,320 | (2 | ) | |||||||||||
Amortization of goodwill | 0 | 646 | 677 | (100 | ) | |||||||||||
Amortization of other intangible assets | 127 | 168 | 185 | (24 | ) | |||||||||||
Total operating expenses | 27,704 | 26,149 | 25,397 | 6 | ||||||||||||
Operating profit from continuing operations before tax | 12,192 | 9,822 | 7,560 | 24 | ||||||||||||
Tax expense | 2,296 | 2,104 | 1,409 | 9 | ||||||||||||
Net profit from continuing operations | 9,896 | 7,718 | 6,151 | 28 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 4,564 | 396 | 3 | 220 | 3 | |||||||||||
Tax expense | 489 | 97 | 52 | 404 | ||||||||||||
Net profit from discontinued operations | 4,075 | 299 | 168 | |||||||||||||
Net profit | 13,971 | 8,017 | 6,319 | 74 | ||||||||||||
Net profit attributable to minority interests | 454 | 361 | 360 | 26 | ||||||||||||
from continuing operations | 454 | 361 | 360 | 26 | ||||||||||||
from discontinued operations | 0 | 0 | 0 | |||||||||||||
Net profit attributable to UBS shareholders | 13,517 | 7,656 | 5,959 | 77 | ||||||||||||
from continuing operations | 9,442 | 7,357 | 5,791 | 28 | ||||||||||||
from discontinued operations | 4,075 | 299 | 168 | |||||||||||||
Additional information | As at | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Personnel (full-time equivalents) | 69,569 | 67,407 | 65,879 | 3 | ||||||||||||
20
Table of Contents
2005
Results
Our 2005 result was the best ever, with all our financial businesses reporting a stronger performance than a year earlier. Attributable profit in 2005 was CHF 13,517 million, of which discontinued operations contributed CHF 4,075 million, reflecting the impact of the sale of Private Banks & GAM. Net profit from continuing operations was CHF 9,442 million. This was up 28% from CHF 7,357 million in 2004. Higher revenues in practically all businesses drove the increase, clearly outpacing growth in costs. Asset-based revenues showed particular strength, reflecting rising market levels as well as strong inflows into our wealth and asset management businesses. We also saw a strong increase in brokerage, corporate finance and underwriting fees. Overall, net fee and commission income now contributes 54% to total operating income. Income from trading activities reached a record high as well, fueled by improved market opportunities, particularly in second half 2005. Revenues from interest margin products increased, reflecting the success and growth of lending activities to wealthy private clients worldwide. We also reported record credit loss recoveries. Personnel expenses were up 12% from a year earlier; performance-related payments rose with revenues and there was a general increase in staff numbers (the number of employees across the financial businesses rose 3% in 2005, with the increase spread across all businesses). For 2005, 50% of personnel expenses took the form of bonus or other variable compensation, up from 49% a year earlier. Average variable compensation per head in 2005 was 10% higher than in 2004. Despite continued investments in expanding our business while improving services to clients and streamlining internal processes, we kept costs under control. General and administrative expenses were up just 1% in 2005 from a year earlier. Because of the strength of revenue growth, our cost/income ratio was 70.1% in 2005.
Operating income
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Net interest income | 9,528 | 11,744 | 12,261 | (19 | ) | |||||||||||
Net trading income | 7,996 | 4,902 | 3,670 | 63 | ||||||||||||
Total net interest and trading income | 17,524 | 16,646 | 15,931 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
Equities | 3,928 | 3,098 | 2,445 | 27 | ||||||||||||
Fixed income | 5,741 | 6,264 | 6,474 | (8 | ) | |||||||||||
Foreign exchange | 1,458 | 1,467 | 1,436 | (1 | ) | |||||||||||
Other | 292 | 203 | 258 | 44 | ||||||||||||
Net income from trading activities | 11,419 | 11,032 | 10,613 | 4 | ||||||||||||
Net income from interest margin products | 5,355 | 5,070 | 5,000 | 6 | ||||||||||||
Net income from treasury and other activities | 750 | 544 | 318 | 38 | ||||||||||||
Total net interest and trading income | 17,524 | 16,646 | 15,931 | 5 | ||||||||||||
21
Table of Contents
Financial Businesses
Results
enues in our rates business were up, driven mainly by structured LIBOR derivatives, European interest rates and US energy trading. We recorded revenues of CHF 103 million relating to Credit Default Swaps (CDSs) hedging existing credit exposure in the loan book, against losses of CHF 62 million a year earlier. At CHF 1,458 million, revenues from our foreign exchange business were stable in 2005 compared to CHF 1,467 million recorded a year earlier. While derivatives trading was negatively impacted by historically low volatility levels, foreign exchange trading revenues rose due to higher volumes.
Credit loss (expense) / recovery | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Global Wealth Management & Business Banking | 223 | 94 | (70 | ) | ||||||||
Investment Bank | 152 | 147 | (32 | ) | ||||||||
UBS | 375 | 241 | (102 | ) | ||||||||
22
Table of Contents
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Equity underwriting fees | 1,341 | 1,417 | 1,267 | (5 | ) | |||||||||||
Bond underwriting fees | 1,516 | 1,114 | 1,084 | 36 | ||||||||||||
Total underwriting fees | 2,857 | 2,531 | 2,351 | 13 | ||||||||||||
Corporate finance fees | 1,460 | 1,078 | 761 | 35 | ||||||||||||
Brokerage fees | 6,718 | 5,794 | 5,477 | 16 | ||||||||||||
Investment fund fees | 4,750 | 3,948 | 3,500 | 20 | ||||||||||||
Fiduciary fees | 212 | 197 | 216 | 8 | ||||||||||||
Custodian fees | 1,176 | 1,143 | 1,097 | 3 | ||||||||||||
Portfolio and other management and advisory fees | 5,310 | 4,488 | 3,718 | 18 | ||||||||||||
Insurance-related and other fees | 372 | 343 | 356 | 8 | ||||||||||||
Total securities trading and investment activity fees | 22,855 | 19,522 | 17,476 | 17 | ||||||||||||
Credit-related fees and commissions | 306 | 264 | 244 | 16 | ||||||||||||
Commission income from other services | 1,027 | 977 | 1,082 | 5 | ||||||||||||
Total fee and commission income | 24,188 | 20,763 | 18,802 | 16 | ||||||||||||
Brokerage fees paid | 1,631 | 1,387 | 1,473 | 18 | ||||||||||||
Other | 1,121 | 870 | 656 | 29 | ||||||||||||
Total fee and commission expense | 2,752 | 2,257 | 2,129 | 22 | ||||||||||||
Net fee and commission income | 21,436 | 18,506 | 16,673 | 16 | ||||||||||||
in 2005, up 20% from CHF 3,948 million in 2004, mainly reflecting higher asset-based fees for our wealth and asset management businesses, driven by strong client money inflows and strong market conditions. Fiduciary fees were slightly higher in 2005 increasing from CHF 197 million in 2004 to CHF 212 million, reflecting an increased number of mandates. At CHF 1,176 million, custodian fees in 2005 were up 3% from CHF 1,143 million in 2004. This increase was entirely due to an enlarged asset base. Portfolio and other management and advisory fees increased by 18% to CHF 5,310 million in 2005 from CHF 4,488 million in 2004. The increase is again the result of rising invested asset levels driven by market valuations and strong net new money inflows. Insurance-related and other fees, at CHF 372 million in 2005, increased by 8% from a year earlier, due to higher commissions from insurance related products. Credit-related fees and commissions increased by 16% to CHF 306 million in 2005 from CHF 264 million in 2004, reflecting improved market conditions which brought higher volumes.
Operating expenses
23
Table of Contents
Financial Businesses
Results
Indicative tax rates for financial businesses1 | ||||||||||||
For the year ended | ||||||||||||
in % | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Global Wealth Management & Business Banking | 19 | 18 | 18 | |||||||||
Wealth Management International & Switzerland | 18 | 18 | 16 | |||||||||
Wealth Management US | 40 | 37 | 38 | |||||||||
Business Banking Switzerland | 17 | 19 | 20 | |||||||||
Global Asset Management | 24 | 21 | 20 | |||||||||
Investment Bank | 29 | 30 | 32 | |||||||||
Tax
Tax expense for 2005 was CHF 2,296 million, resulting in an effective tax rate of 18.8%, down from the full-year 2004 tax rate of 21.4%. The tax rate for full-year 2005 was positively influenced by the absence of goodwill amortization and the successful conclusion of tax audits in the third and fourth quarters. We believe that a tax rate of about 21% is a reasonable initial estimate for 2006.
Business Group tax rates
Fair value disclosure of shares and options
The fair value of shares granted in 2005 rose to CHF 1,376 million, 24% higher than CHF 1,113 million a year earlier. The increase compared to 2004 is primarily driven by an increased proportion of bonuses being delivered in restricted shares.
Outlook
At this time last year, we said that it would be challenging to beat our then record 2004 result. Helped by continued favor-
24
Table of Contents
2004
Results
Net profit attributable to UBS shareholders in 2004 was CHF 7,656 million, with CHF 7,357 million coming from continuing operations and CHF 299 million from discontinued operations – the latter solely related to Private Banks & GAM. Overall, performance improved 28% compared to 2003, when attributable net profit was CHF 5,959 million. 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. We also saw a strong increase in brokerage, corporate finance, underwriting fees and trading income. We reported record credit loss recoveries as well. Performance-related compensation rose in line with revenues, with higher general and administrative expenses driven by higher legal provisions and operational risk costs.
Operating income
Net interest incomewas CHF 11,744 million in 2004, down from CHF 12,261 million in the same period a year earlier.Net trading incomewas CHF 4,902 million, up from CHF 3,670 million in 2003.
25
Table of Contents
Financial Businesses
Results
Net credit loss recovery at Global Wealth Management & Business Banking amounted to CHF 94 million in 2004 compared to net credit loss expenses of CHF 70 million in 2003. Our domestic credit portfolio demonstrated strong resilience in a Swiss economic environment which saw a 9.2% increase in corporate bankruptcies compared to 2003. The measures taken in past 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 resulted in a higher than anticipated level of recoveries.
4,488 million in 2004 from CHF 3,718 million in 2003. The increase was again the result of rising invested asset levels driven by market valuations and strong net new money in-flows, as well as an increase in performance fees.
Operating expenses
26
Table of Contents
Tax
In 2004, we incurred a tax expense of CHF 2,104 million, reflecting an effective tax rate of 21.4% for full-year 2004, compared to the full-year rate of 18.6% in 2003. The 2003 tax rate was positively influenced by a favorable regional profit mix. The higher rate for 2004 has been driven by an increase in profitability in higher tax jurisdictions, mainly the US.
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 (pre-tax: CHF 576 million) in the same period a year ago. The after-tax increase was driven by a higher UBS share price, a lower pro-forma tax benefit, and adjusted assumptions for the valuation of options. In fact, significantly fewer option grants were made in 2004 (down nearly 40% from 2003), in line with our strategy of granting options more selectively.
27
Table of Contents
Financial Businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking
Pre-tax profit for our international and Swiss wealth management businesses was CHF 4,161 million, up 23% from the result achieved in 2004. In the US, pre-tax profit rose to CHF 312 million from CHF 29 million a year earlier. Business Banking Switzerland’s pre-tax profit was CHF 2,189 million, up 9% from 2004.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Income | 19,131 | 17,506 | 16,792 | 9 | ||||||||||||
Adjusted expected credit loss 1 | 107 | (38 | ) | (139 | ) | |||||||||||
Total operating income | 19,238 | 17,468 | 16,653 | 10 | ||||||||||||
Cash components | 8,252 | 7,630 | 7,711 | 8 | ||||||||||||
Share-based components 2 | 237 | 235 | 288 | 1 | ||||||||||||
Total personnel expenses | 8,489 | 7,865 | 7,999 | 8 | ||||||||||||
General and administrative expenses | 2,845 | 2,473 | 2,383 | 15 | ||||||||||||
Services to / from other business units | 960 | 1,137 | 1,285 | (16 | ) | |||||||||||
Depreciation of property and equipment | 226 | 202 | 236 | 12 | ||||||||||||
Amortization of goodwill | 0 | 238 | 246 | (100 | ) | |||||||||||
Amortization of other intangible assets | 56 | 115 | 137 | (51 | ) | |||||||||||
Total operating expenses | 12,576 | 12,030 | 12,286 | 5 | ||||||||||||
Business Group performance before tax | 6,662 | 5,438 | 4,367 | 23 | ||||||||||||
Performance indicators | ||||||||||||||||
Cost / income ratio (%) 3 | 65.7 | 68.7 | 73.2 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%) 4 | 34.7 | 31.3 | 25.8 | |||||||||||||
BIS risk-weighted assets | 147,348 | 134,004 | 132,106 | 10 | ||||||||||||
Goodwill | 5,407 | 3,648 | 3,713 | 48 | ||||||||||||
Allocated regulatory capital 5 | 20,142 | 17,048 | 16,924 | 18 | ||||||||||||
Additional Information | As at | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Client assets (CHF billion) | 2,895 | 2,306 | 2,196 | 26 | ||||||||||||
Personnel (full-time equivalents) | 44,612 | 42,570 | 42,386 | 5 | ||||||||||||
Marcel Rohner |Chairman & CEO Global Wealth Management & Business Banking |
28
Table of Contents
Wealth Management International & Switzerland
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Income | 9,024 | 7,701 | 6,797 | 17 | ||||||||||||
Adjusted expected credit loss 1 | (13 | ) | (8 | ) | (4 | ) | (63 | ) | ||||||||
Total operating income | 9,011 | 7,693 | 6,793 | 17 | ||||||||||||
Cash components | 2,491 | 2,047 | 1,921 | 22 | ||||||||||||
Share-based components 2 | 88 | 72 | 75 | 22 | ||||||||||||
Total personnel expenses | 2,579 | 2,119 | 1,996 | 22 | ||||||||||||
General and administrative expenses | 804 | 642 | 604 | 25 | ||||||||||||
Services to / from other business units | 1,371 | 1,395 | 1,479 | (2 | ) | |||||||||||
Depreciation of property and equipment | 89 | 66 | 82 | 35 | ||||||||||||
Amortization of goodwill | 0 | 67 | 54 | (100 | ) | |||||||||||
Amortization of other intangible assets | 7 | 8 | 21 | (13 | ) | |||||||||||
Total operating expenses | 4,850 | 4,297 | 4,236 | 13 | ||||||||||||
Business Unit performance before tax | 4,161 | 3,396 | 2,557 | 23 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 982 | 778 | 701 | 26 | ||||||||||||
Net new money (CHF billion) 3 | 68.2 | 42.3 | 29.7 | |||||||||||||
Gross margin on invested assets (bps) 4 | 102 | 103 | 101 | (1 | ) | |||||||||||
Cost / income ratio (%) 5 | 53.7 | 55.8 | 62.3 | |||||||||||||
Client advisors (full-time equivalents) | 4,154 | 3,744 | 3,300 | 11 | ||||||||||||
International clients | ||||||||||||||||
Income | 6,476 | 5,429 | 4,734 | 19 | ||||||||||||
Invested assets (CHF billion) | 729 | 562 | 491 | 30 | ||||||||||||
Net new money (CHF billion) 3 | 64.2 | 40.4 | 29.7 | |||||||||||||
Gross margin on invested assets (bps) 4 | 100 | 102 | 101 | (2 | ) | |||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 722 | 437 | 267 | 65 | ||||||||||||
Invested assets (CHF billion) | 114 | 82 | 46 | 39 | ||||||||||||
Net new money (CHF billion) 3 | 21.8 | 13.7 | 10.8 | |||||||||||||
Client advisors (full-time equivalents) | 803 | 838 | 672 | (4 | ) | |||||||||||
29
Table of Contents
Financial Businesses
Global Wealth Management & Business Banking
Business Unit reporting (continued)
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 2,548 | 2,272 | 2,063 | 12 | ||||||||||||
Invested assets (CHF billion) | 253 | 216 | 210 | 17 | ||||||||||||
Net new money (CHF billion) 1 | 4.0 | 1.9 | 0.0 | |||||||||||||
Gross margin on invested assets (bps) 2 | 109 | 106 | 102 | 3 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%) 3 | 78.9 | 82.5 | 70.0 | |||||||||||||
BIS risk-weighted assets | 43,369 | 31,903 | 28,130 | 36 | ||||||||||||
Goodwill | 1,566 | 1,176 | 838 | 33 | ||||||||||||
Allocated regulatory capital 4 | 5,903 | 4,366 | 3,651 | 35 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Recurring income5 | 6,635 | 5,679 | 4,787 | 17 | ||||||||||||
Client assets (CHF billion) | 1,235 | 972 | 884 | 27 | ||||||||||||
Personnel (full-time equivalents) | 11,555 | 10,093 | 9,176 | 14 | ||||||||||||
Components of operating income
2005
Performance indicators
In 2005, net new money inflows totaled CHF 68.2 billion, up 61% from CHF 42.3 billion in 2004, representing an annual growth rate of 8.8% of the underlying invested asset base at end-2004. This excellent performance was driven by gains in all geographical areas, especially from Asian clients, and a par-
ticularly strong CHF 21.8 billion inflow into our European wealth management business.
Net new moneyCHF billion 2003 2004 2005 8068.260 4042.3 29.7 20 0 |
Invested assetsCHF billion 31.12.03 31.12.04 31.12.05 1,000253750 216 210500 729 562 491 250 0 International Clients Swiss Clients |
30
Table of Contents
mately 36% of invested assets were denominated in US dollars at the end of 2005.
Gross margin on invested assets 2003 2004 2005 110 100103 102 10190 80 70 |
The cost / income ratio improved to 53.7% in 2005 from 55.8% a year earlier, reflecting the strong rise in income, which more than offset the increase in personnel expenses (mainly performance-related compensation) and higher general and administrative costs.
Cost / income ratioin % 2003 2004 2005 70 6062.3 55.8 53.750 40 30 |
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 2005 was CHF 21.8 billion, up 59% from the previous year’s intake of CHF 13.7 billion. The result reflects an annual net new money inflow rate of 27% of the underlying asset base at year-end 2004.
Net new money European wealth managementCHF billion 2003 2004 2005 2521.820 1513.71010.85 0 |
billion a year earlier. As well as new inflows, this reflected rising equity market levels and a 15% appreciation of the US dollar against the Swiss franc.
Invested assets European wealth managementCHF billion 31.12.03 31.12.04 31.12.05 1201149082604630 0 |
In 2005, the number of client advisors decreased by 35. The decline was due to the reclassification of some former Sauer-born Trust employees initially accorded client advisor status, and the departure of less productive client advisors.
Results
In 2005, pre-tax profit, at CHF 4,161 million, was up 23% from the result in 2004. This increase reflects favorable equity markets, which drove a 17% increase in revenues through higher asset-based fees, and strengthening client activity. Rising interest income, a reflection of the expansion of our margin lending activities, also bolstered revenues. At the same time, our expenses, up 13% in 2005 from 2004, reflect our ongoing growth strategy. Personnel expenses, up 22%, rose due to the hiring of an additional 1,462 employees.
31
Table of Contents
Financial Businesses
Global Wealth Management & Business Banking
Performance before taxCHF million 2003 2004 2005 5,000 4,0004,161 3,396 3,0002,5572,000 1,000 0 |
Operating income
Operating expenses
was CHF 7 million, practically unchanged from CHF 8 million in 2004.
2004
Performance indicators
In 2004, net new money inflows totaled CHF 42.3 billion, up 42% from CHF 29.7 billion in 2003. 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 made 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 reflected an annual net new money inflow rate of 30% of the underlying asset base at year-end 2003.
32
Table of Contents
Results
Wealth Management International and Switzerland’s 2004 pre-tax profit, at CHF 3,396 million, increased 33% from 2003, mainly due to a recovery in major financial markets that started in the middle of 2003, driving a 13% increase in revenues through higher asset-based fees. At the same time, our expenses only rose by 1% in 2004 from 2003, reflecting our tight cost management.
Operating income
Operating expenses
33
Table of Contents
Financial Businesses
Global Wealth Management & Business Banking
Wealth Management US
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Private client revenues | 5,347 | 4,906 | 4,959 | 1 | 9 | |||||||||||
Net goodwill funding2 | (189 | ) | (165 | ) | (211 | ) | (15 | ) | ||||||||
Income | 5,158 | 4,741 | 4,748 | 9 | ||||||||||||
Adjusted expected credit loss3 | (2 | ) | (5 | ) | (8 | ) | 60 | |||||||||
Total operating income | 5,156 | 4,736 | 4,740 | 9 | ||||||||||||
Cash components | 3,353 | 3,206 | 3,394 | 5 | ||||||||||||
Share-based components4 | 107 | 114 | 161 | (6 | ) | |||||||||||
Total personnel expenses | 3,460 | 3,320 | 3,555 | 4 | ||||||||||||
General and administrative expenses | 1,047 | 767 | 689 | 37 | ||||||||||||
Services to / from other business units | 223 | 275 | 415 | (19 | ) | |||||||||||
Depreciation of property and equipment | 65 | 67 | 66 | (3 | ) | |||||||||||
Amortization of goodwill | 0 | 171 | 192 | (100 | ) | |||||||||||
Amortization of other intangible assets | 49 | 107 | 116 | (54 | ) | |||||||||||
Total operating expenses | 4,844 | 4,707 | 5,033 | 3 | ||||||||||||
Business Unit performance before tax | 312 | 29 | (293 | ) | 976 | |||||||||||
Acquisition costs | ||||||||||||||||
Net goodwill funding2 | 189 | 165 | 211 | 15 | ||||||||||||
Retention payments | 0 | 99 | 299 | (100 | ) | |||||||||||
Amortization of goodwill | 0 | 171 | 192 | (100 | ) | |||||||||||
Amortization of other intangible assets | 49 | 107 | 116 | (54 | ) | |||||||||||
Total acquisition costs | 238 | 542 | 818 | (56 | ) | |||||||||||
34
Table of Contents
Business Unit reporting (continued)
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 752 | 606 | 599 | 24 | ||||||||||||
Net new money (CHF billion)1 | 26.9 | 18.1 | 14.3 | |||||||||||||
Interest and dividend income (CHF billion)2 | 18.3 | 15.3 | 15.1 | 20 | ||||||||||||
Gross margin on invested assets (bps)3 | 75 | 77 | 82 | (3 | ) | |||||||||||
Cost / income ratio (%)4 | 93.9 | 99.3 | 106.0 | |||||||||||||
Recurring income5 | 2,834 | 2,343 | 2,124 | 21 | ||||||||||||
Revenues per advisor (CHF thousand)6 | 715 | 655 | 597 | 9 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)7 | 5.8 | 0.6 | (6.5 | ) | ||||||||||||
BIS risk-weighted assets | 18,928 | 17,664 | 16,248 | 7 | ||||||||||||
Goodwill | 3,841 | 2,472 | 2,875 | 55 | ||||||||||||
Allocated regulatory capital8 | 5,734 | 4,238 | 4,500 | 35 | ||||||||||||
Additional information | As at | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Client assets (CHF billion) | 826 | 679 | 690 | 22 | ||||||||||||
Personnel (full-time equivalents) | 17,034 | 16,969 | 17,029 | 0 | ||||||||||||
Financial advisors (full-time equivalents) | 7,520 | 7,519 | 7,766 | 0 | ||||||||||||
Components of operating income
35
Table of Contents
Global Wealth Management & Business Banking
Performance indicators
The inflow of net new money in 2005 was a strong CHF 26.9 billion, up 49% from CHF 18.1 billion in 2004. Including interest and dividends, net new money in 2005 was CHF 45.2 billion, up from CHF 33.4 billion a year earlier. The increase in net new money was mainly due to the hiring of highly efficient financial advisors and inflows from ultra high net worth clients.
Wealth Management US had CHF 752 billion in invested assets on 31 December 2005, up 24% from CHF 606 billion on 31 December 2004. The increase was due to the strong appreciation of the year-end US dollar spot rate against the Swiss franc, the inflows of net new money as well as positive market movements. In US dollar terms, invested assets were 8% higher on 31 December 2005 than they were on the same date in 2004.
The gross margin on invested assets was 75 basis points in 2005, down from 77 basis points in 2004. The increase in average invested asset levels (up 11%) outpaced the gain in revenues (up 9%) following a decrease in transactional revenues over the year.
The cost / income ratio was 93.9% for 2005, compared to 99.3% in 2004. The decrease reflects the absence of goodwill amortization and retention payments in 2005, offsetting the higher expenses associated with litigation provisions and personnel.
In 2005, recurring income was CHF 2,834 million, up 21% from CHF 2,343 million a year earlier. Excluding the impact of currency fluctuations, recurring income was up 20% in 2005 from 2004, mainly due to higher levels of managed account fees on a record level of invested assets in US dollar terms, and increased net interest income from the lending business. Flows into managed account products were USD
36
Table of Contents
Results
In 2005, we reported a pre-tax profit of CHF 312 million compared to CHF 29 million in 2004. This reflects the absence of goodwill amortization and retention payments in 2005 offsetting higher litigation provisions. In US dollar terms, operational performance in 2005 was USD 250 million, against USD 23 million a year earlier.
Operating income
rency effects, operating income increased by 8% from 2004. The increase in operating income is primarily due to higher recurring income based on higher levels of assets, rising net interest income in UBS Bank USA, slightly offset by lower transactional revenues.
Operating expenses
37
Table of Contents
Global Wealth Management & Business Banking
Performance indicators
In 2004, inflows of net new money were CHF 18.1 billion, CHF 3.8 billion higher than the CHF 14.3 billion reported in 2003. Including interest and dividends, net new money in 2004 was CHF 33.4 billion, higher than the CHF 29.4 billion reported in 2003.
In 2004, we reported a pre-tax gain of CHF 29 million compared to a loss of CHF 293 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. In US dollar terms, operational performance in 2004 was USD 23 million, up from an operating loss of USD 219 million in 2003. This represents the best result since PaineWebber became part of UBS, reflecting record recurring income and increased net interest revenues benefiting from the first full-year impact of UBS Bank USA.
Operating income
Operating expenses
38
Table of Contents
Business Banking Switzerland
Business Unit reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Interest income | 3,317 | 3,390 | 3,542 | (2 | ) | |||||||||||
Non-interest income | 1,632 | 1,674 | 1,705 | (3 | ) | |||||||||||
Income | 4,949 | 5,064 | 5,247 | (2 | ) | |||||||||||
Adjusted expected credit loss1 | 122 | (25 | ) | (127 | ) | |||||||||||
Total operating income | 5,071 | 5,039 | 5,120 | 1 | ||||||||||||
Cash components | 2,408 | 2,377 | 2,396 | 1 | ||||||||||||
Share-based components2 | 42 | 49 | 52 | (14 | ) | |||||||||||
Total personnel expenses | 2,450 | 2,426 | 2,448 | 1 | ||||||||||||
General and administrative expenses | 994 | 1,064 | 1,090 | (7 | ) | |||||||||||
Services to / from other business units | (634 | ) | (533 | ) | (609 | ) | (19 | ) | ||||||||
Depreciation of property and equipment | 72 | 69 | 88 | 4 | ||||||||||||
Amortization of goodwill | 0 | 0 | 0 | |||||||||||||
Amortization of other intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,882 | 3,026 | 3,017 | (5 | ) | |||||||||||
Business Unit performance before tax | 2,189 | 2,013 | 2,103 | 9 | ||||||||||||
Performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 153 | 140 | 136 | 9 | ||||||||||||
Net new money (CHF billion)3 | 3.4 | 2.6 | 2.5 | |||||||||||||
Cost / income ratio (%)4 | 58.2 | 59.8 | 57.5 | |||||||||||||
Non-performing loans / gross loans (%) | 1.6 | 2.3 | 3.2 | |||||||||||||
Impaired loans / gross loans (%) | 2.3 | 3.0 | 4.6 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)5 | 25.6 | 23.2 | 24.0 | |||||||||||||
BIS risk-weighted assets | 85,051 | 84,437 | 87,728 | 1 | ||||||||||||
Goodwill | 0 | 0 | 0 | |||||||||||||
Allocated regulatory capital6 | 8,505 | 8,444 | 8,773 | 1 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 485 | 411 | 383 | 18 | ||||||||||||
Client assets (CHF billion) | 834 | 655 | 622 | 27 | ||||||||||||
Personnel (full-time equivalents) | 16,023 | 15,508 | 16,181 | 3 | ||||||||||||
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.
39
Table of Contents
Global Wealth Management & Business Banking
Performance indicators
Net new money was CHF 3.4 billion in 2005, CHF 0.8 billion higher than the inflow of CHF 2.6 billion in 2004.
Business Banking Switzerland’s loan portfolio was CHF 141.3 billion on 31 December 2005, up CHF 4.2 billion from the previous year. An increase in volumes of private client mortgages and higher credit demand from corporate clients was
Results
Pre-tax profit in 2005, at a record level of CHF 2,189 million, was CHF 176 million or 9% higher than the result achieved in 2004. It was achieved despite a CHF 115 million fall in income, driven mainly by lower interest income. The result shows the continued tight management of our cost base, with a credit loss recovery of CHF 122 million reflecting the structural improvement in our loan portfolio in recent years. While general and administrative costs were at their lowest levels, personnel expenses increased slightly, reflecting an increase in staff levels.
40
Table of Contents
Operating expenses
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.
Results
Pre-tax profit in 2004 was CHF 2,013 million, only CHF 90 million or 4% lower than the record result achieved in 2003. It was achieved despite a CHF 183 million fall in income, driven mainly by lower interest income. The result showed 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
41
Table of Contents
Global Asset Management
Global Asset Management
Pre-tax profit was CHF 1,057 million, an increase of 91% from the 2004 profit of CHF 552 million. The increase was driven by higher operating income, which rose 23%, reflecting strong net new money inflows, improved margins and consequently higher asset based revenues across all businesses. In addition, performance fees, particularly in alternative and quantitative investments, increased significantly.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Institutional fees | 1,330 | 1,085 | 922 | 23 | ||||||||||||
Wholesale intermediary fees | 1,157 | 937 | 815 | 23 | ||||||||||||
Total operating income | 2,487 | 2,022 | 1,737 | 23 | ||||||||||||
Cash components | 899 | 822 | 766 | 9 | ||||||||||||
Share-based components1 | 89 | 71 | 69 | 25 | ||||||||||||
Total personnel expenses | 988 | 893 | 835 | 11 | ||||||||||||
General and administrative expenses | 304 | 299 | 265 | 2 | ||||||||||||
Services to / from other business units | 116 | 126 | 156 | (8 | ) | |||||||||||
Depreciation of property and equipment | 21 | 23 | 25 | (9 | ) | |||||||||||
Amortization of goodwill | 0 | 129 | 152 | (100 | ) | |||||||||||
Amortization of other intangible assets | 1 | 0 | 1 | |||||||||||||
Total operating expenses | 1,430 | 1,470 | 1,434 | (3 | ) | |||||||||||
Business Group performance before tax | 1,057 | 552 | 303 | 91 | ||||||||||||
Performance indicators | ||||||||||||||||
Cost / income ratio (%)2 | 57.5 | 72.7 | 82.6 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 441 | 344 | 313 | 28 | ||||||||||||
of which: money market funds | 16 | 17 | 14 | (6 | ) | |||||||||||
Net new money (CHF billion)3 | 21.3 | 23.7 | 12.7 | |||||||||||||
of which: money market funds | (3.0 | ) | (1.2 | ) | (5.0 | ) | ||||||||||
Gross margin on invested assets (bps)4 | 34 | 32 | 32 | 6 | ||||||||||||
42
Table of Contents
Business Group reporting (continued)
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Wholesale intermediary | ||||||||||||||||
Invested assets (CHF billion) | 324 | 257 | 261 | 26 | ||||||||||||
of which: money market funds | 62 | 64 | 87 | (3 | ) | |||||||||||
Net new money (CHF billion)1 | 28.2 | (4.5 | ) | (5.0 | ) | |||||||||||
of which: money market funds | (9.7 | ) | (20.6 | ) | (23.0 | ) | ||||||||||
Gross margin on invested assets (bps)2 | 40 | 36 | 31 | 11 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 69.9 | 36.4 | 18.6 | |||||||||||||
BIS risk-weighted assets | 1,570 | 1,702 | 2,325 | (8 | ) | |||||||||||
Goodwill | 1,438 | 1,189 | 1,400 | 21 | ||||||||||||
Allocated regulatory capital4 | 1,595 | 1,359 | 1,633 | 17 | ||||||||||||
Additional information | As at | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Invested assets (CHF billion) | 765 | 601 | 574 | 27 | ||||||||||||
Personnel (full-time equivalents) | 2,861 | 2,665 | 2,627 | 7 | ||||||||||||
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
43
Table of Contents
Global Asset Management
Performance indicators
For 2005, the cost/income ratio was 57.5%, a decrease of 15.2 percentage points from 2004. This was a result of improving operating income across all businesses, mainly induced by higher asset based fees.
Institutional
The gross margin for full-year 2005 was 34 basis points, slightly above the 32 basis points of full-year 2004.
Wholesale intermediary
44
Table of Contents
The 2005 gross margin was 40 basis points, up by 4 basis points from a year earlier, reflecting shifts into higher margin asset classes.
Results
We had a very strong full-year result in 2005. Pre-tax profit was CHF 1,057 million, an increase of 91% from the 2004 pre-tax profit of CHF 552 million. The increase was driven by higher operating income, which rose 23%, reflecting strong net new money inflows and a positive market environment that resulted in higher asset valuations. In addition, performance fees, particularly in alternative and quantitative investments, increased. This was partially offset by higher personnel expenses, in line with business growth.
Operating income
Operating expenses
45
Table of Contents
Global Asset Management
Performance indicators
For 2004, the cost / income ratio was 72.7%, a decrease of 9.9 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.
Institutional
Wholesale intermediary
Money market sweep accounts
Results
Pre-tax profit was CHF 552 million in 2004, an increase of 82% from 2003. The significant improvement 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 producing 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
46
Table of Contents
Financial Businesses
Investment Bank
Investment Bank
In 2005, the Investment Bank’s pre-tax profit was CHF 5,181 million, up 12% from a year earlier. Results were driven by increased revenues, mainly in equities and investment banking.
Business Group reporting
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Equities | 6,980 | 5,906 | 4,875 | 18 | ||||||||||||
Fixed income, rates and currencies | 7,962 | 8,269 | 7,932 | (4 | ) | |||||||||||
Investment banking | 2,506 | 1,915 | 1,703 | 31 | ||||||||||||
Income | 17,448 | 16,090 | 14,510 | 8 | ||||||||||||
Adjusted expected credit loss1 | 36 | (7 | ) | (55 | ) | |||||||||||
Total operating income | 17,484 | 16,083 | 14,455 | 9 | ||||||||||||
Cash components | 8,065 | 7,130 | 6,690 | 13 | ||||||||||||
Share-based components2 | 1,194 | 1,022 | 1,047 | 17 | ||||||||||||
Total personnel expenses | 9,259 | 8,152 | 7,737 | 14 | ||||||||||||
General and administrative expenses | 2,215 | 2,538 | 2,068 | (13 | ) | |||||||||||
Services to / from other business units | 640 | 226 | 175 | 183 | ||||||||||||
Depreciation of property and equipment | 136 | 243 | 248 | (44 | ) | |||||||||||
Amortization of goodwill | 0 | 278 | 279 | (100 | ) | |||||||||||
Amortization of other intangible assets | 53 | 36 | 27 | 47 | ||||||||||||
Total operating expenses | 12,303 | 11,473 | 10,534 | 7 | ||||||||||||
Business Group performance before tax | 5,181 | 4,610 | 3,921 | 12 | ||||||||||||
47
Table of Contents
Financial Businesses
Investment Bank
Investment Bank (continued)
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Performance indicators | ||||||||||||||||
Compensation ratio (%)3 | 53 | 51 | 53 | |||||||||||||
Cost/income ratio (%)4 | 70.5 | 71.3 | 72.6 | |||||||||||||
Non-performing loans/gross loans (%) | 0.2 | 0.4 | 0.6 | |||||||||||||
Impaired loans/gross loans (%) | 0.2 | 0.6 | 1.1 | |||||||||||||
Average VaR (10-day 99%)5 | 346 | 358 | 295 | (3 | ) | |||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)6 | 28.6 | 30.5 | 27.9 | |||||||||||||
BIS risk-weighted assets | 151,313 | 116,512 | 102,517 | 30 | ||||||||||||
Goodwill | 4,309 | 3,579 | 3,812 | 20 | ||||||||||||
Allocated regulatory capital7 | 19,440 | 15,230 | 14,064 | 28 | ||||||||||||
Additional information | As at or for the year ended | % change from | ||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Deferral (included in adjusted expected credit loss) | 155 | 85 | 29 | 82 | ||||||||||||
Client assets (CHF billion) | 164 | 147 | 143 | 12 | ||||||||||||
Personnel (full-time equivalents) | 18,174 | 16,970 | 15,633 | 7 | ||||||||||||
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 port folio; and | |
– | gains and losses on market making, proprietary, and arbitrage positions. |
As a result, operating income is affected by movements in market conditions, interest rate swings, the level of trading activity in primary and secondary markets and the extent of merger and acquisition activity. These and other factors have had, and may in the future have, a significant impact on results of operations from year to year.
48
Table of Contents
2005
Performance indicators
The cost / income ratio decreased to 70.5% in 2005 from 71.3% a year earlier. This reflects the absence of goodwill amortization in 2005 combined with revenue growth driven by a strong performance in investment banking and equities, offsetting higher personnel expenses.
The full-year compensation ratio, at 53%, rose two percentage points between 2004 and 2005. This reflects higher performance-related compensation and increased staff levels. In particular, client-facing business areas, which are more service intensive but use less capital, saw faster growth this year. Share-based compensation was also higher, since awards made in 2005 for the 2004 financial year contained
an increased proportion of stock.
ing our expanding prime brokerage and equity finance businesses as well as increased underwriting activity. The impaired loans to total loans ratio fell to 0.2% at the end of 2005 from 0.6% on 31 December 2004. The non-performing loans to total loans ratio fell to 0.2% from 0.4% in the same
period.
49
Table of Contents
Financial Businesses
Investment Bank
Results
2005 was our most profitable year since 2000. Pre-tax profit was CHF 5,181 million, up 12% from 2004. The result was driven by strong revenues in investment banking (up 31%) and in equities (up 18%), reflecting our successful expansion in significant growth areas such as M&A, in particular in Asia Pacific, equity derivatives and prime brokerage. Results in the fixed income, rates and currencies business were slightly lower than last year’s all-time high. Lower revenues in structured credit – mainly driven by lower volumes and following the turmoil in the automotive sector in second quarter 2005 – were offset by an increase in the rates business. At the same time, costs increased as our business continued to expand.
Operating income
Investment banking revenues, at CHF 2,506 million in 2005, increased 31% from CHF 1,915 million a year earlier. This reflected growth in each region. Advisory revenues grew significantly, in line with the strong momentum in the M&A business and our increased presence in important transactions. During 2005, our Investment Bank advised on a total of 343 transactions with a deal volume of USD 496 billion, more than double from 2004. Its pace last year exceeded market growth and included some of the largest deals announced during the year – among them advising Gillette on its sale to Procter & Gamble. Revenues in the capital markets business rose as well, mainly in debt underwriting and in global syndicated finance, reflecting improved market conditions and our strengthened competitive position.
Operating expenses
2004
Performance indicators
The cost / income ratio improved to 71.3% in 2004 from 72.6% a year earlier. It reflected a strong revenue performance in all businesses.
50
Table of Contents
Results
Pre-tax profit was CHF 4,610 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 reflected revenue growth across all our businesses. In particular, our fixed income, rates and currencies business posted a record result, up 4% from 2003, while the equities business reported a 21% increase in revenues on the strong improvement in market conditions. Investment banking also contributed to our result, recording revenues of CHF 1,915 million, a 12% improvement compared to 2003. At the same time, costs increased as our businesses continued to expand, with specific operational provisions also a factor.
Operating income
rivative activity. Losses of CHF 62 million relating to Credit Default Swaps (CDSs) hedging existing credit exposure in the loan book had a negative impact on the fixed income, rates and currencies result. But they were significantly lower than the losses of CHF 678 million in 2003.
Operating expenses
1 Financial Times, 26 January 2005. Table: Global fee ranking 2004
51
Table of Contents
Financial Businesses
Corporate Center
Corporate Center
With the sale of Private Banks & GAM at the end of the year, Corporate Center recorded a pre-tax gain of CHF 3,856 million in 2005. The continuing operations of Corporate Center reported a pre-tax loss of CHF 708 million, compared with a loss of CHF 778 million in 2004.
Business Group reporting
For the year ended | % change from | ||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Income | 455 | 112 | 20 | 306 | |||||||||||||
Credit loss (expense)/recovery1 | 232 | 286 | 92 | (19 | ) | ||||||||||||
Total operating income | 687 | 398 | 112 | 73 | |||||||||||||
Cash components | 1,059 | 728 | 725 | 45 | |||||||||||||
Share-based components2 | 108 | 68 | 60 | 59 | |||||||||||||
Total personnel expenses | 1,167 | 796 | 785 | 47 | |||||||||||||
General and administrative expenses | 1,084 | 1,077 | 1,166 | 1 | |||||||||||||
Services to / from other business units | (1,730 | ) | (1,509 | ) | (1,639 | ) | (15 | ) | |||||||||
Depreciation of property and equipment | 857 | 794 | 811 | 8 | |||||||||||||
Amortization of goodwill | 0 | 1 | 0 | (100 | ) | ||||||||||||
Amortization of other intangible assets | 17 | 17 | 20 | 0 | |||||||||||||
Total operating expenses3 | 1,395 | 1,176 | 1,143 | 19 | |||||||||||||
Business Group performance from continuing operations before tax | (708 | ) | (778 | ) | (1,031 | ) | 9 | ||||||||||
Business Group performance from discontinued operations before tax | 4,564 | 396 | 220 | ||||||||||||||
Business Group performance before tax | 3,856 | (382 | ) | (811 | ) | ||||||||||||
Additional information | As at | % change from | |||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||||
BIS risk-weighted assets (CHF million) | 8,143 | 9,841 | 13,406 | (17 | ) | ||||||||||||
Personnel (full-time equivalents) | 3,922 | 5,202 | 5,233 | (25 | ) | ||||||||||||
Personnel excluding IT Infrastructure (ITI) (full-time equivalents) | 1,370 | 2,848 | 2,878 | (52 | ) | ||||||||||||
Personnel for ITI (full-time equivalents) | 2,552 | 2,354 | 2,355 | 8 | |||||||||||||
52
Table of Contents
2005
Results
Corporate Center’s result from continuing operations – formerly reported as the separate Business Unit Corporate Functions – was a loss of CHF 708 million in full-year 2005, compared to a loss of CHF 778 million a year earlier. The improvement was driven by a CHF 343 million increase in income. This was partly offset by lower credit loss recoveries and a rise in performance-related personnel costs.
Private Banks & GAM (discontinued operations)
Operating income
Operating expenses
IT infrastructure
In 2005 the information technology infrastructure cost per average number of financial business employees was CHF 26,731, down CHF 1,600 from CHF 28,331 in 2004, showing the positive effects of managing our information technology infrastructure centrally.
2004
Results
The pre-tax loss was CHF 382 million in 2004, down from a loss of CHF 811 million a year earlier. Private Banks & GAM, which is shown under discontinued operations, contributed profit of CHF 396 million, whereas continuing operations – or our Corporate Functions – saw a loss of CHF 778 million.
Operating income
Operating expenses
53
Table of Contents
Financial Businesses
Corporate Center
lated to infrastructure cost savings as well as lower legal provisions. Other business units were charged CHF 1,509 million for services provided by Corporate Functions in 2004, compared with CHF 1,639 million in 2003. This drop was due to reduced charges reflecting cost savings at our ITI unit as well as lower project-related charges. Depreciation
dropped to CHF 794 million in 2004 from CHF 811 million in 2003, reflecting lower IT-related charges, partially offset by higher costs for real estate. Amortization of other intangible assets was CHF 17 million in 2004, down CHF 3 million from 2003 due to the weakening of the US dollar against the Swiss franc.
54
Table of Contents
Industrial Holdings
Table of Contents
Industrial Holdings
Industrial Holdings
Income statement1
For the year ended | % change from | ||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Continuing operations | |||||||||||||||||
Revenues from industrial holdings | 10,515 | 6,086 | 2,900 | 73 | |||||||||||||
Other income | 564 | 354 | (230 | ) | 59 | ||||||||||||
Total operating income | 11,079 | 6,440 | 2,670 | 72 | |||||||||||||
Personnel expenses | 1,146 | 906 | 862 | 26 | |||||||||||||
General and administrative expenses | 599 | 773 | 748 | (23 | ) | ||||||||||||
Services to / from other business units | 14 | 20 | 23 | (30 | ) | ||||||||||||
Depreciation of property and equipment | 253 | 215 | 178 | 18 | |||||||||||||
Amortization of goodwill | 0 | 7 | 26 | (100 | ) | ||||||||||||
Amortization of other intangible assets | 207 | 169 | 8 | 22 | |||||||||||||
Goods and materials purchased | 8,003 | 3,885 | 1,113 | 106 | |||||||||||||
Total operating expenses | 10,222 | 5,975 | 2,958 | 71 | |||||||||||||
Operating profit / (loss) from continuing operations before tax | 857 | 465 | (288 | ) | 84 | ||||||||||||
Tax expense | 253 | 120 | 10 | 111 | |||||||||||||
�� | |||||||||||||||||
Net profit / (loss) from continuing operations | 604 | 345 | (298 | ) | 75 | ||||||||||||
Discontinued operations | |||||||||||||||||
Profit from discontinued operations before tax | 124 | 140 | 2 | 259 | 2 | (11 | ) | ||||||||||
Tax expense | 9 | 32 | 27 | (72 | ) | ||||||||||||
Net profit from discontinued operations | 115 | 108 | 232 | 6 | |||||||||||||
Net profit / (loss) | 719 | 453 | (66 | ) | 59 | ||||||||||||
Net profit / (loss) attributable to minority interests | 207 | 93 | (11 | ) | 123 | ||||||||||||
from continuing operations | 202 | 93 | (17 | ) | 117 | ||||||||||||
from discontinued operations | 5 | 0 | 6 | ||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 512 | 360 | (55 | ) | 42 | ||||||||||||
from continuing operations | 402 | 252 | (281 | ) | 60 | ||||||||||||
from discontinued operations | 110 | 108 | 226 | 2 | |||||||||||||
Private equity3 | |||||||||||||||||
As at | % change from | ||||||||||||||||
CHF billion | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Investment4 | 0.7 | 1.2 | 1.4 | (42 | ) | ||||||||||||
Portfolio fair value | 1.0 | 1.7 | 1.6 | (41 | ) | ||||||||||||
Additional information | For the year ended or as at | % change from | |||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||||
Cost / income ratio (%)5 | 92.3 | 92.8 | 110.8 | ||||||||||||||
BIS risk-weighted assets (CHF million) | 2,035 | 2,773 | 2,044 | (27 | ) | ||||||||||||
Personnel (full-time equivalents) | 21,636 | 29,453 | 29,121 | (27 | ) | ||||||||||||
56
Table of Contents
Major participations
Our private equity investments were moved to our Industrial Holdings segment in first quarter 2005, matching our strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities as they arise.
2005
In 2005, the Industrial Holdings segment reported a net profit of CHF 719 million, of which CHF 512 million was attributable to UBS shareholders.
holdings. Previous income statements have also been restated to reflect these divestments.
2004
In 2004, industrial holdings reported a net profit of CHF 453 million, of which CHF 360 million was attributable to UBS shareholders. Of the investments fully consolidated in the period, we sold five in 2004.
57
Table of Contents
58
Table of Contents
Table of Contents
Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
Balance sheet and off-balance sheet
UBS’s total assets stood at CHF 2,060.3 billion on 31 December 2005, up from CHF 1,737.1 billion on 31 December 2004. The increase in total assets was largely due to currency movements against the Swiss franc (mainly the 15% appreciation of the US dollar). Other factors contributing to the rise were the growth in collateral trading (up CHF 127 billion), the trading portfolio (up CHF 105 billion), positive replacement values (up CHF 49 billion) and the loan book (up CHF 38 billion). Total liabilities rose due to higher borrowing (up CHF 174 billion), collateral trading liabilities (up CHF 72 billion) and negative replacement values (up CHF 34 billion).
Lending and borrowing
Lending
Borrowing
classified in the balance sheet from negative replacement values to financial liabilities designated at fair value. Currency and fair value movements and increased securitization activities also increased during the same period. We believe the maturity profile of our long-term debt portfolio adequately matches the maturity profile of our assets. For further details, please refer to note 18 to the financial statements.
Repo and securities borrowing / lending
Trading portfolio
Replacement values
60
Table of Contents
Other assets / liabilities
Equity
Contractual obligations
The table below summarizes our contractual obligations as of 31 December 2005. 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, disclosed in note 25 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 a specific asset. 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 | 53,720 | 25,071 | 29,512 | 59,469 | ||||||||||||
Capital lease obligations | 135 | 317 | 275 | |||||||||||||
Operating leases | 963 | 1,752 | 1,455 | 3,973 | ||||||||||||
Purchase obligations | 20,082 | 11,183 | 2,545 | 8,251 | ||||||||||||
Other long-term liabilities | 222 | 1,039 | ||||||||||||||
Total | 75,122 | 39,362 | 33,787 | 71,693 | ||||||||||||
61
Table of Contents
Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
which issue collateralized debt obligations. A typical securitization transaction of this kind would involve the transfer of assets into a trust or corporation in return for beneficial interests in the form of securities. Generally, the beneficial interests are sold to third parties shortly after 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 33 to the financial statements.
Derivative instruments recorded in equity attributable to UBS shareholders
62
Table of Contents
Balance Sheet and Cash Flows
Cash flows
Cash flows
2005
At end-2005, the level of cash and cash equivalents rose to CHF 91.0 billion, up CHF 3.9 billion from CHF 87.1 billion at end-2004.
Operating activities
Investing activities
Financing activities
That inflow was partly offset by outflows attributable to net movements in treasury shares and own equity derivative activity (CHF 2.4 billion), and dividend payments (CHF 3.1 billion). In contrast, in 2004, we had also a net cash inflow of CHF 39.8 billion from our financing activities. The difference between the two years was mainly due to the fact that long-term debt issuance increased by CHF 25.1 billion in 2005.
2004
At end-2004, the level of cash and cash equivalents rose to CHF 87.1 billion, up CHF 13.7 billion from CHF 73.4 billion at end-2003.
Operating activities
Investing activities
Financing activities
63
Table of Contents
Balance Sheet and Cash Flows
Cash flows
cash flows of CHF 39.8 billion. This reflected the net issuance of money market paper of CHF 21.4 billion and the issuance of CHF 51.2 billion in long-term debt – the latter significantly outpacing long-term debt repayments, which totaled CHF 24.7 billion. That inflow was partly offset by out-flows attributable to net movements in treasury shares and own equity derivative activity (CHF 5.0 billion), and dividend
payments (CHF 2.8 billion). In contrast, in 2003, we had experienced a negative cash flow of CHF 13.7 billion from our financing activities. The difference between the two years was mainly due to the fact that long-term debt issuance more than doubled from 2003, and because we issued CHF 21.4 billion in money market paper in 2004 after repaying CHF 14.7 billion a year earlier.
64
Table of Contents
Table of Contents
Accounting Standards and Policies
Accounting principles
Accounting principles
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. The presentation of the business segments reflects UBS’s organization structure and management responsibilities. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
Units” for both Business Units concerned (see page 11). The corporate functions within Corporate Center expenses are allocated to the operating business units to the extent that it is appropriate.
66
Table of Contents
Credit loss expense charged to the Business Groups
CHF million | Global Wealth Management & Business Banking | Investment Bank | UBS Total | |||||||||||||||||
Wealth Management | Wealth | Business | ||||||||||||||||||
For the year ended 31.12.05 | International & Switzerland | Management US | Banking CH | |||||||||||||||||
Actuarial expected loss | (54 | ) | (8 | ) | (363 | ) | (119 | ) | (544 | ) | ||||||||||
Deferrals | 41 | 6 | 485 | 155 | 687 | |||||||||||||||
Adjusted expected credit loss | (13 | ) | (2 | ) | 122 | 36 | 143 | |||||||||||||
Credit loss (expense) / recovery | (8 | ) | 0 | 231 | 152 | 375 | ||||||||||||||
Balancing item credited as credit loss recovery in Corporate Functions | 232 | |||||||||||||||||||
67
Table of Contents
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 generally accepted accounting principles in the United States (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.
68
Table of Contents
Recognition of deferred Day 1 profit and loss
A closely related issue to determining fair value of financial instruments is the 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 the recognition of Day 1 profit and loss in the income statement prior to the time when fair value can be determined using market observable inputs or by reference to prices for similar instruments in active markets. It also does not address subsequent measurement of these instruments and recognition of subsequent fair value changes indicated by the model.
Special Purpose Entities and Securitizations
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments in separate legal entities, to allow clients to jointly invest in alternative assets, for asset securitization transactions, and for buying or selling credit protection. In accordance with IFRS we do 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 indicate that we obtain the majority of the benefits or risks of its activities.
69
Table of Contents
Accounting Standards and Policies
Critical accounting policies
Allowances and provisions for credit losses
Assets accounted for at amortized cost are assessed for objective evidence of 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.
siders factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance or provision, we make assumptions both to define the way we model inherent losses and to determine the required input parameters, based on historical experience and current economic conditions.
Equity compensation
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. The effect of applying IFRS 2 is disclosed in Note 1 aa) to the financial statements, and further information on UBS equity compensation plans, including inputs used to determine fair value of options, is disclosed in Note 31.
70
Table of Contents
Table of Contents
Financial Statements
Table of Contents
Financial Statements
Table of Contents
72
Table of Contents
Table of Contents
Financial Statements
Financial Statements
Income Statement
For the year ended | % change from | |||||||||||||||||||
CHF million, except per share data | Note | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||||
Continuing operations | ||||||||||||||||||||
Interest income | 3 | 59,286 | 39,228 | 40,045 | 51 | |||||||||||||||
Interest expense | 3 | (49,758 | ) | (27,484 | ) | (27,784 | ) | 81 | ||||||||||||
Net interest income | 3 | 9,528 | 11,744 | 12,261 | (19 | ) | ||||||||||||||
Credit loss (expense) / recovery | 375 | 241 | (102 | ) | 56 | |||||||||||||||
Net interest income after credit loss expense | 9,903 | 11,985 | 12,159 | (17 | ) | |||||||||||||||
Net fee and commission income | 4 | 21,436 | 18,506 | 16,673 | 16 | |||||||||||||||
Net trading income | 3 | 7,996 | 4,902 | 3,670 | 63 | |||||||||||||||
Other income | 5 | 1,125 | 932 | 225 | 21 | |||||||||||||||
Revenues from industrial holdings | 10,515 | 6,086 | 2,900 | 73 | ||||||||||||||||
Total operating income | 50,975 | 42,411 | 35,627 | 20 | ||||||||||||||||
Personnel expenses | 6 | 21,049 | 18,612 | 18,218 | 13 | |||||||||||||||
General and administrative expenses | 7 | 7,047 | 7,160 | 6,630 | (2 | ) | ||||||||||||||
Depreciation of property and equipment | 14 | 1,493 | 1,477 | 1,498 | 1 | |||||||||||||||
Amortization of goodwill | 15 | 0 | 653 | 703 | (100 | ) | ||||||||||||||
Amortization of other intangible assets | 15 | 334 | 337 | 193 | (1 | ) | ||||||||||||||
Goods and materials purchased | 8,003 | 3,885 | 1,113 | 106 | ||||||||||||||||
Total operating expenses | 37,926 | 32,124 | 28,355 | 18 | ||||||||||||||||
Operating profit from continuing operations before tax | 13,049 | 10,287 | 7,272 | 27 | ||||||||||||||||
Tax expense | 21 | 2,549 | 2,224 | 1,419 | 15 | |||||||||||||||
Net profit from continuing operations | 10,500 | 8,063 | 5,853 | 30 | ||||||||||||||||
Discontinued operations | ||||||||||||||||||||
Profit from discontinued operations before tax | 38 | 4,688 | 536 | 479 | 775 | |||||||||||||||
Tax expense | 21 | 498 | 129 | 79 | 286 | |||||||||||||||
Net profit from discontinued operations | 4,190 | 407 | 400 | 929 | ||||||||||||||||
Net profit | 14,690 | 8,470 | 6,253 | 73 | ||||||||||||||||
Net profit attributable to minority interests | 661 | 454 | 349 | 46 | ||||||||||||||||
from continuing operations | 656 | 454 | 343 | 44 | ||||||||||||||||
from discontinued operations | 5 | 0 | 6 | |||||||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 75 | ||||||||||||||||
from continuing operations | 9,844 | 7,609 | 5,510 | 29 | ||||||||||||||||
from discontinued operations | 4,185 | 407 | 394 | 928 | ||||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic earnings per share (CHF) | 8 | 13.93 | 7.78 | 5.44 | 79 | |||||||||||||||
from continuing operations | 9.78 | 7.39 | 5.07 | 32 | ||||||||||||||||
from discontinued operations | 4.15 | 0.39 | 0.37 | 964 | ||||||||||||||||
Diluted earnings per share (CHF) | 8 | 13.36 | 7.40 | 5.19 | 81 | |||||||||||||||
from continuing operations | 9.39 | 7.04 | 4.84 | 33 | ||||||||||||||||
from discontinued operations | 3.97 | 0.36 | 0.35 | |||||||||||||||||
74
Table of Contents
Balance Sheet
% change from | ||||||||||||||||
CHF million | Note | 31.12.05 | 31.12.04 | 31.12.04 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 5,359 | 6,036 | (11 | ) | ||||||||||||
Due from banks | 9 | 33,644 | 35,419 | (5 | ) | |||||||||||
Cash collateral on securities borrowed | 10 | 300,331 | 220,242 | 36 | ||||||||||||
Reverse repurchase agreements | 10 | 404,432 | 357,164 | 13 | ||||||||||||
Trading portfolio assets | 11 | 499,297 | 389,487 | 28 | ||||||||||||
Trading portfolio assets pledged as collateral | 11 | 154,759 | 159,115 | (3 | ) | |||||||||||
Positive replacement values | 22 | 333,782 | 284,577 | 17 | ||||||||||||
Financial assets designated at fair value | 1,153 | 653 | 77 | |||||||||||||
Loans | 9 | 269,969 | 232,167 | 16 | ||||||||||||
Financial investments | 12 | 6,551 | 4,188 | 56 | ||||||||||||
Accrued income and prepaid expenses | 8,918 | 6,309 | 41 | |||||||||||||
Investments in associates | 13 | 2,956 | 2,675 | 11 | ||||||||||||
Property and equipment | 14 | 9,423 | 9,510 | (1 | ) | |||||||||||
Goodwill and other intangible assets | 15 | 13,486 | 12,201 | 11 | ||||||||||||
Other assets | 16, 21 | 16,190 | 17,375 | (7 | ) | |||||||||||
Total assets | 2,060,250 | 1,737,118 | 19 | |||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 17 | 124,328 | 120,026 | 4 | ||||||||||||
Cash collateral on securities lent | 10 | 77,267 | 61,545 | 26 | ||||||||||||
Repurchase agreements | 10 | 478,508 | 422,587 | 13 | ||||||||||||
Trading portfolio liabilities | 11 | 188,631 | 171,033 | 10 | ||||||||||||
Negative replacement values | 22 | 337,663 | 303,712 | 11 | ||||||||||||
Financial liabilities designated at fair value | 18 | 117,401 | 65,756 | 79 | ||||||||||||
Due to customers | 17 | 451,533 | 376,076 | 20 | ||||||||||||
Accrued expenses and deferred income | 18,392 | 15,040 | 22 | |||||||||||||
Debt issued | 18 | 160,710 | 117,856 | 36 | ||||||||||||
Other liabilities | 19, 20, 21 | 53,874 | 44,120 | 22 | ||||||||||||
Total liabilities | 2,008,307 | 1,697,751 | 18 | |||||||||||||
Equity | ||||||||||||||||
Share capital | 871 | 901 | (3 | ) | ||||||||||||
Share premium | 9,992 | 9,231 | 8 | |||||||||||||
Net gains / (losses) not recognized in the income statement, net of tax | (182 | ) | (2,081 | ) | 91 | |||||||||||
Revaluation reserve from step acquisitions, net of tax | 101 | 90 | 12 | |||||||||||||
Retained earnings | 44,414 | 37,001 | 20 | |||||||||||||
Equity classified as obligation to purchase own shares | (133 | ) | (96 | ) | (39 | ) | ||||||||||
Treasury shares | (10,739 | ) | (11,105 | ) | 3 | |||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 31 | |||||||||||||
Equity attributable to minority interests | 7,619 | 5,426 | 40 | |||||||||||||
Total equity | 51,943 | 39,367 | 32 | |||||||||||||
Total liabilities and equity | 2,060,250 | 1,737,118 | 19 | |||||||||||||
75
Table of Contents
Financial Statements
Statement of Changes in Equity
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Share capital | ||||||||||||
Balance at the beginning of the year | 901 | 946 | 1,005 | |||||||||
Issue of share capital | 2 | 2 | 2 | |||||||||
Cancellation of second trading line treasury shares (2002 program) | (61 | ) | ||||||||||
Cancellation of second trading line treasury shares (2003 program) | (47 | ) | ||||||||||
Cancellation of second trading line treasury shares (2004 program) | (32 | ) | ||||||||||
Balance at the end of the year | 871 | 901 | 946 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 9,231 | 7,595 | 12,641 | |||||||||
Change in accounting policy | 660 | |||||||||||
Premium on shares issued and warrants exercised | 295 | 325 | 103 | |||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (302 | ) | (20 | ) | (130 | ) | ||||||
Employee share and share option plans | 768 | 1,331 | (211 | ) | ||||||||
Cancellation of second trading line treasury shares (2002 program)1 | (5,468 | ) | ||||||||||
Balance at the end of the year | 9,992 | 9,231 | 7,595 | |||||||||
Net gains / (losses) not recognized in the income statement, net of tax | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (2,520 | ) | (1,694 | ) | (849 | ) | ||||||
Change in accounting policy | (50 | ) | ||||||||||
Movements during the year | 2,088 | (826 | ) | (795 | ) | |||||||
Subtotal – balance at the end of the year2 | (432 | ) | (2,520 | ) | (1,694 | ) | ||||||
Net unrealized gains / (losses) on available-for-sale investments, net of tax | ||||||||||||
Balance at the beginning of the year | 761 | 399 | 946 | |||||||||
Change in accounting policy | (406 | ) | ||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 463 | 501 | (108 | ) | ||||||||
Impairment charges reclassified to the income statement | 96 | 192 | 285 | |||||||||
Realized gains reclassified to the income statement | (396 | ) | (353 | ) | (340 | ) | ||||||
Realized losses reclassified to the income statement | 7 | 22 | 22 | |||||||||
Subtotal – balance at the end of the year | 931 | 761 | 399 | |||||||||
Change in fair value of derivative instruments designated as cash flow hedges, net of tax | ||||||||||||
Balance at the beginning of the year | (322 | ) | (144 | ) | (256 | ) | ||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | (474 | ) | (223 | ) | 116 | |||||||
Net realized (gains) / losses reclassified to the income statement | 115 | 45 | (4 | ) | ||||||||
Subtotal – balance at the end of the year | (681 | ) | (322 | ) | (144 | ) | ||||||
Balance at the end of the year | (182 | ) | (2,081 | ) | (1,439 | ) | ||||||
Revaluation reserve from step acquisitions, net of taxes | ||||||||||||
Balance at the beginning of the year | 90 | |||||||||||
Movements during the year | 11 | 90 | ||||||||||
Balance at the end of the year | 101 | 90 | ||||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 37,001 | 36,260 | 32,700 | |||||||||
Change in accounting policy | (46 | ) | ||||||||||
Net profit attributable to UBS shareholders for the year | 14,029 | 8,016 | 5,904 | |||||||||
Dividends paid3 | (3,105 | ) | (2,806 | ) | (2,298 | ) | ||||||
Cancellation of second trading line treasury shares (2003 program)1 | (4,469 | ) | ||||||||||
Cancellation of second trading line treasury shares (2004 program)1 | (3,511 | ) | ||||||||||
Balance at the end of the year | 44,414 | 37,001 | 36,260 | |||||||||
76
Table of Contents
Statement of Changes in Equity (continued)
For the year ended | ||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||
Equity classified as obligation to purchase own shares | ||||||||||||||||
Balance at the beginning of the year | (96 | ) | (49 | ) | (104 | ) | ||||||||||
Movements during the year | (37 | ) | (47 | ) | 55 | |||||||||||
Balance at the end of the year | (133 | ) | (96 | ) | (49 | ) | ||||||||||
Treasury shares | ||||||||||||||||
Balance at the beginning of the year | (11,105 | ) | (9,654 | ) | (7,131 | ) | ||||||||||
Change in accounting policy | (1,474 | ) | ||||||||||||||
Acquisitions | (8,375 | ) | (9,368 | ) | (8,424 | ) | ||||||||||
Disposals | 5,198 | 3,401 | 1,846 | |||||||||||||
Cancellation of second trading line treasury shares (2002 program) | 5,529 | |||||||||||||||
Cancellation of second trading line treasury shares (2003 program) | 4,516 | |||||||||||||||
Cancellation of second trading line treasury shares (2004 program) | 3,543 | |||||||||||||||
Balance at the end of the year | (10,739 | ) | (11,105 | ) | (9,654 | ) | ||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 33,659 | |||||||||||||
Equity attributable to minority interests | ||||||||||||||||
Balance at the beginning of the year | 5,426 | 3,879 | 3,529 | |||||||||||||
Change in accounting policy | 143 | |||||||||||||||
Issuance of preferred securities | 1,539 | 372 | ||||||||||||||
Other increases | 44 | 1,922 | 247 | |||||||||||||
Decreases and dividend payments | (595 | ) | (523 | ) | (357 | ) | ||||||||||
Foreign currency translation | 544 | (306 | ) | (404 | ) | |||||||||||
Minority interest in net profit | 661 | 454 | 349 | |||||||||||||
Balance at the end of the year | 7,619 | 5,426 | 3,879 | |||||||||||||
Total equity | 51,943 | 39,367 | 37,538 | |||||||||||||
Shares issued | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Balance at the beginning of the year | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | (5 | ) | |||||||||||
Issue of share capital | 1,709,439 | 3,293,413 | 2,719,166 | (48 | ) | |||||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2004 program) | (39,935,094 | ) | ||||||||||||||
Balance at the end of the year | 1,088,632,522 | 1,126,858,177 | 1,183,046,764 | (3 | ) | |||||||||||
Treasury shares | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Balance at the beginning of the year | 124,663,310 | 136,741,227 | 97,181,094 | (9 | ) | |||||||||||
Change accounting policy | 25,380,535 | |||||||||||||||
Acquisitions | 78,218,035 | 96,139,004 | 116,080,976 | (19 | ) | |||||||||||
Disposals | (58,686,377 | ) | (48,734,921 | ) | (25,931,298 | ) | (20 | ) | ||||||||
Cancellation of second trading line treasury shares (2002 program) | (75,970,080 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2003 program) | (59,482,000 | ) | ||||||||||||||
Cancellation of second trading line treasury shares (2004 program) | (39,935,094 | ) | ||||||||||||||
Balance at the end of the year | 104,259,874 | 124,663,310 | 136,741,227 | (16 | ) | |||||||||||
77
Table of Contents
Financial Statements
Statement of Cash Flows
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | 14,690 | 8,470 | 6,253 | |||||||||
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 | 1,556 | 1,576 | 1,570 | |||||||||
Amortization of goodwill and other intangible assets | 340 | 1,066 | 980 | |||||||||
Credit loss expense / (recovery) | (374 | ) | (241 | ) | 102 | |||||||
Equity in income of associates | (152 | ) | (67 | ) | (138 | ) | ||||||
Deferred tax expense / (benefit) | (382 | ) | 171 | 360 | ||||||||
Net loss / (gain) from investing activities | (5,062 | ) | (1,008 | ) | (301 | ) | ||||||
Net loss / (gain) from financing activities | 4,025 | 1,203 | 115 | |||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | (1,690 | ) | (7,471 | ) | 42,916 | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (127,357 | ) | (42,975 | ) | (101,381 | ) | ||||||
Trading portfolio and net replacement values | (74,799 | ) | (19,733 | ) | (52,193 | ) | ||||||
Loans / due to customers | 42,440 | 10,093 | 38,636 | |||||||||
Accrued income, prepaid expenses and other assets | (1,227 | ) | (10,809 | ) | (20,296 | ) | ||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements and cash collateral on securities lent | 71,643 | 14,991 | 65,413 | |||||||||
Accrued expenses and other liabilities | 15,536 | 22,019 | 22,420 | |||||||||
Income taxes paid | (2,394 | ) | (1,345 | ) | (1,117 | ) | ||||||
Net cash flow from / (used in) operating activities | (63,207 | ) | (24,060 | ) | 3,339 | |||||||
Cash flow from / (used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (1,540 | ) | (2,511 | ) | (428 | ) | ||||||
Disposal of subsidiaries and associates | 3,240 | 1,277 | 1,234 | |||||||||
Purchase of property and equipment | (1,892 | ) | (1,149 | ) | (1,376 | ) | ||||||
Disposal of property and equipment | 270 | 704 | 123 | |||||||||
Net (investment in) / divestment of financial investments | (2,487 | ) | 703 | 2,317 | ||||||||
Net cash flow from / (used in) investing activities | (2,409 | ) | (976 | ) | 1,870 | |||||||
78
Table of Contents
Statement of Cash Flows (continued)
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market paper issued / (repaid) | 23,221 | 21,379 | (14,737 | ) | ||||||||
Net movements in treasury shares and own equity derivative activity | (2,416 | ) | (4,999 | ) | (6,810 | ) | ||||||
Capital issuance | 2 | 2 | 2 | |||||||||
Dividends paid | (3,105 | ) | (2,806 | ) | (2,298 | ) | ||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 76,307 | 51,211 | 23,644 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (30,457 | ) | (24,717 | ) | (13,615 | ) | ||||||
Increase in minority interests1 | 1,572 | 85 | 419 | |||||||||
Dividend payments to / purchase from minority interests | (575 | ) | (332 | ) | (278 | ) | ||||||
Net cash flow from / (used in) financing activities | 64,549 | 39,823 | (13,673 | ) | ||||||||
Effects of exchange rate differences | 5,018 | (1,052 | ) | (524 | ) | |||||||
Net increase / (decrease) in cash and cash equivalents | 3,951 | 13,735 | (8,988 | ) | ||||||||
Cash and cash equivalents, beginning of the year | 87,091 | 73,356 | 82,344 | |||||||||
Cash and cash equivalents, end of the year | 91,042 | 87,091 | 73,356 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 5,359 | 6,036 | 3,584 | |||||||||
Money market paper2 | 57,826 | 45,523 | 40,599 | |||||||||
Due from banks with original maturity of less than three months | 27,857 | 35,532 | 29,173 | |||||||||
Total | 91,042 | 87,091 | 73,356 | |||||||||
Significant non-cash investing and financing activities | ||||||||||||
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 | |||||||||||
Private Banks and GAM, deconsolidation | ||||||||||||
Financial investments | 60 | |||||||||||
Property and equipment | 180 | |||||||||||
Goodwill and other intangible assets | 362 | |||||||||||
Debt issued | 5 | |||||||||||
Private equity investments, deconsolidation | ||||||||||||
Property and equipment | 248 | |||||||||||
Goodwill and other intangible assets | 3 | |||||||||||
Minority interests | 27 | |||||||||||
Acquisitions of businesses | ||||||||||||
Financial investments | 35 | |||||||||||
Property and equipment | 112 | |||||||||||
Goodwill and other intangible assets | 377 | |||||||||||
Minority interests | 6 | |||||||||||
Cash paid for interest was CHF 44,392 million and CHF 24,192 million for 2005 and 2004 respectively.
79
Table of Contents
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
d) Derecognition
80
Table of Contents
e) Securitizations
f) Securities borrowing and lending
g) Repurchase and reverse repurchase transactions
h) Segment reporting
81
Table of Contents
Financial Statements
Notes to the Financial Statements
i) Foreign currency translation
j) Cash and cash equivalents
k) Fee income
l) Determination of fair value
m) Trading portfolio
82
Table of Contents
n) Financial instruments designated as held at fair value through profit and loss
o) Derivative instruments and hedging
83
Table of Contents
Financial Statements
Notes to the Financial Statements
p) Loans
q) Allowance and provision for credit losses
84
Table of Contents
r) Financial investments
s) Property and equipment
85
Table of Contents
Financial Statements
Notes to the Financial Statements
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 and equipment the Group has decided to sell are classified as assets held for sale and recorded in Other assets. Upon classification as held for sale, they are no longer depreciated and are carried at the lower of book value or fair value less costs to sell. Foreclosed property is defined as Properties held for resale and recorded in Other assets. They are carried at the lower of cost and recoverable value.
t) Goodwill and other intangible assets
of acquisition and are amortized using the straight-line method over their estimated useful economic life, generally not exceeding 20 years. At each balance sheet date, other intangible assets are reviewed for indications of impairment or changes in estimated future benefits. If such indications exist, the intangible assets are analyzed to assess whether their carrying amount is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount.
u) Income taxes
86
Table of Contents
v) Debt issued
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. | |
87
Table of Contents
Financial Statements
Notes to the Financial Statements
y) Equity participation plans
z) Earnings per share (EPS)
aa) Changes in accounting policies and comparability
88
Table of Contents
IFRS 2 Share-based Payment
Goodwill and Intangible Assets
Insurance Contracts
Non-current Assets Held for Sale and Discontinued Operations
89
Table of Contents
Financial Statements
Notes to the Financial Statements
Presentation of minority interests and earnings per share
Financial Instruments
Investment properties
Credit losses incurred on OTC derivatives
90
Table of Contents
Segment reporting
ab) International Financial Reporting Standards
to be adopted in 2006 and later
91
Table of Contents
IFRS 7 Financial Instruments: Disclosures
Amendments to existing standards
IFRIC 4 Leases: Determining Whether an Arrangement Contains a Lease
IFRIC 5 Provisions: Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
92
Table of Contents
Note 2a Segment Reporting by Business Group
Global Wealth Management & Business Banking
Global Asset Management
Investment Bank
Corporate Center
Industrial Holdings
93
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2005
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at internally agreed transfer prices or at arm’s length.
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of other intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure |
Management reporting based on expected credit loss
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 of property and equipment | ||||
Amortization of other intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
94
Table of Contents
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | ||||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Corporate Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | Business Banking | Private | Corporate | ||||||||||||||||||||||||||||||||
International & Switzerland | Management US | Switzerland | Banks & GAM | Functions | ||||||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 11,079 | 50,600 | |||||||||||||||||||||||||||||
(8 | ) | 0 | 231 | 0 | 152 | 0 | 0 | 375 | ||||||||||||||||||||||||||||
9,016 | 5,158 | 5,180 | 2,487 | 17,600 | 455 | 11,079 | 50,975 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 1,146 | 21,049 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 599 | 7,047 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 253 | 1,493 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 207 | 334 | |||||||||||||||||||||||||||||
8,003 | 8,003 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 10,222 | 37,926 | |||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | (940 | ) | 857 | 13,049 | ||||||||||||||||||||||||||||
4,556 | 8 | 124 | 4,688 | |||||||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | 4,556 | (932 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,549 | ||||||||||||||||||||||||||||||||||||
498 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
223,719 | 64,896 | 176,713 | 40,782 | 1,768,391 | (225,800 | ) | 11,549 | 2,060,250 | ||||||||||||||||||||||||||||
219,069 | 59,567 | 170,544 | 39,191 | 1,750,762 | (242,640 | ) | 11,814 | 2,008,307 | ||||||||||||||||||||||||||||
81 | 84 | 58 | 16 | 138 | 25 | 1,264 | 299 | 1,965 | ||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 11,079 | 50,600 | |||||||||||||||||||||||||||||
(13 | ) | (2 | ) | 122 | 0 | 36 | 232 | 0 | 375 | |||||||||||||||||||||||||||
9,011 | 5,156 | 5,071 | 2,487 | 17,484 | 687 | 11,079 | 50,975 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 1,146 | 21,049 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 599 | 7,047 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 253 | 1,493 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 207 | 334 | |||||||||||||||||||||||||||||
8,003 | 8,003 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 10,222 | 37,926 | |||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | (708 | ) | 857 | 13,049 | ||||||||||||||||||||||||||||
4,508 | 56 | 124 | 4,688 | |||||||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | 4,508 | (652 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,549 | ||||||||||||||||||||||||||||||||||||
498 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
95
Table of Contents
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 internally agreed transfer prices or 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 of property and equipment | ||||
Amortization of goodwill3 | ||||
Amortization of other intangible assets3 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information4 | ||||
Total assets | ||||
Total liabilities | ||||
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 of property and equipment | ||||
Amortization of goodwill3 | ||||
Amortization of other intangible assets3 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
96
Table of Contents
Industrial1 | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | ||||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Corporate Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | Business Banking | Private | Corporate | ||||||||||||||||||||||||||||||||
International & Switzerland | Management US | Switzerland | Banks & GAM | Functions | ||||||||||||||||||||||||||||||||
7,701 | 4,741 | 5,064 | 2,022 | 16,090 | 112 | 6,440 | 42,170 | |||||||||||||||||||||||||||||
(1 | ) | 3 | 92 | 0 | 147 | 0 | 0 | 241 | ||||||||||||||||||||||||||||
7,700 | 4,744 | 5,156 | 2,022 | 16,237 | 112 | 6,440 | 42,411 | |||||||||||||||||||||||||||||
2,119 | 3,320 | 2,426 | 893 | 8,152 | 796 | 906 | 18,612 | |||||||||||||||||||||||||||||
642 | 767 | 1,064 | 299 | 2,538 | 1,077 | 773 | 7,160 | |||||||||||||||||||||||||||||
1,395 | 275 | (533 | ) | 126 | 226 | (1,509 | ) | 20 | 0 | |||||||||||||||||||||||||||
66 | 67 | 69 | 23 | 243 | 794 | 215 | 1,477 | |||||||||||||||||||||||||||||
67 | 171 | 0 | 129 | 278 | 1 | 7 | 653 | |||||||||||||||||||||||||||||
8 | 107 | 0 | 0 | 36 | 17 | 169 | 337 | |||||||||||||||||||||||||||||
3,885 | 3,885 | |||||||||||||||||||||||||||||||||||
4,297 | 4,707 | 3,026 | 1,470 | 11,473 | 1,176 | 5,975 | 32,124 | |||||||||||||||||||||||||||||
3,403 | 37 | 2,130 | 552 | 4,764 | (1,064 | ) | 465 | 10,287 | ||||||||||||||||||||||||||||
386 | 10 | 140 | 536 | |||||||||||||||||||||||||||||||||
3,403 | 37 | 2,130 | 552 | 4,764 | 386 | (1,054 | ) | 605 | 10,823 | |||||||||||||||||||||||||||
2,224 | ||||||||||||||||||||||||||||||||||||
129 | ||||||||||||||||||||||||||||||||||||
8,470 | ||||||||||||||||||||||||||||||||||||
164,716 | 48,026 | 210,133 | 29,698 | 1,477,275 | 8,043 | (210,167 | ) | 9,394 | 1,737,118 | |||||||||||||||||||||||||||
161,042 | 43,847 | 204,479 | 28,311 | 1,463,469 | 7,480 | (220,843 | ) | 9,966 | 1,697,751 | |||||||||||||||||||||||||||
304 | 48 | 212 | 8 | 415 | 19 | 599 | 1,484 | 3,089 | ||||||||||||||||||||||||||||
7,701 | 4,741 | 5,064 | 2,022 | 16,090 | 112 | 6,440 | 42,170 | |||||||||||||||||||||||||||||
(8 | ) | (5 | ) | (25 | ) | 0 | (7 | ) | 286 | 0 | 241 | |||||||||||||||||||||||||
7,693 | 4,736 | 5,039 | 2,022 | 16,083 | 398 | 6,440 | 42,411 | |||||||||||||||||||||||||||||
2,119 | 3,320 | 2,426 | 893 | 8,152 | 796 | 906 | 18,612 | |||||||||||||||||||||||||||||
642 | 767 | 1,064 | 299 | 2,538 | 1,077 | 773 | 7,160 | |||||||||||||||||||||||||||||
1,395 | 275 | (533 | ) | 126 | 226 | (1,509 | ) | 20 | 0 | |||||||||||||||||||||||||||
66 | 67 | 69 | 23 | 243 | 794 | 215 | 1,477 | |||||||||||||||||||||||||||||
67 | 171 | 0 | 129 | 278 | 1 | 7 | 653 | |||||||||||||||||||||||||||||
8 | 107 | 0 | 0 | 36 | 17 | 169 | 337 | |||||||||||||||||||||||||||||
3,885 | 3,885 | |||||||||||||||||||||||||||||||||||
4,297 | 4,707 | 3,026 | 1,470 | 11,473 | 1,176 | 5,975 | 32,124 | |||||||||||||||||||||||||||||
3,396 | 29 | 2,013 | 552 | 4,610 | (778 | ) | 465 | 10,287 | ||||||||||||||||||||||||||||
438 | (42 | ) | 140 | 536 | ||||||||||||||||||||||||||||||||
3,396 | 29 | 2,013 | 552 | 4,610 | 438 | (820 | ) | 605 | 10,823 | |||||||||||||||||||||||||||
2,224 | ||||||||||||||||||||||||||||||||||||
129 | ||||||||||||||||||||||||||||||||||||
8,470 | ||||||||||||||||||||||||||||||||||||
97
Table of Contents
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 internally agreed transfer prices or at arm’s length.
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services to / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of goodwill2 | ||||
Amortization of other intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure |
Management reporting based on expected credit loss
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 of property and equipment | ||||
Amortization of goodwill2 | ||||
Amortization of other intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from continuing operations before tax | ||||
Business Group performance from discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
98
Table of Contents
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | ||||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Corporate Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | Business Banking | Private | Corporate | ||||||||||||||||||||||||||||||||
International & Switzerland | Management US | Switzerland | Banks & GAM | Functions | ||||||||||||||||||||||||||||||||
6,797 | 4,748 | 5,247 | 1,737 | 14,510 | 20 | 2,670 | 35,729 | |||||||||||||||||||||||||||||
4 | (3 | ) | (71 | ) | 0 | (32 | ) | 0 | 0 | (102 | ) | |||||||||||||||||||||||||
6,801 | 4,745 | 5,176 | 1,737 | 14,478 | 20 | 2,670 | 35,627 | |||||||||||||||||||||||||||||
1,996 | 3,555 | 2,448 | 835 | 7,737 | 785 | 862 | 18,218 | |||||||||||||||||||||||||||||
604 | 689 | 1,090 | 265 | 2,068 | 1,166 | 748 | 6,630 | |||||||||||||||||||||||||||||
1,479 | 415 | (609 | ) | 156 | 175 | (1,639 | ) | 23 | 0 | |||||||||||||||||||||||||||
82 | 66 | 88 | 25 | 248 | 811 | 178 | 1,498 | |||||||||||||||||||||||||||||
54 | 192 | 0 | 152 | 279 | 0 | 26 | 703 | |||||||||||||||||||||||||||||
21 | 116 | 0 | 1 | 27 | 20 | 8 | 193 | |||||||||||||||||||||||||||||
1,113 | 1,113 | |||||||||||||||||||||||||||||||||||
4,236 | 5,033 | 3,017 | 1,434 | 10,534 | 1,143 | 2,958 | 28,355 | |||||||||||||||||||||||||||||
2,565 | (288 | ) | 2,159 | 303 | 3,944 | (1,123 | ) | (288 | ) | 7,272 | ||||||||||||||||||||||||||
209 | 11 | 259 | 479 | |||||||||||||||||||||||||||||||||
2,565 | (288 | ) | 2,159 | 303 | 3,944 | 209 | (1,112 | ) | (29 | ) | 7,751 | |||||||||||||||||||||||||
1,419 | ||||||||||||||||||||||||||||||||||||
79 | ||||||||||||||||||||||||||||||||||||
6,253 | ||||||||||||||||||||||||||||||||||||
150,282 | 44,972 | 192,517 | 22,584 | 1,318,752 | 9,084 | (186,867 | ) | 2,655 | 1,553,979 | |||||||||||||||||||||||||||
147,476 | 40,346 | 186,185 | 20,912 | 1,305,025 | 8,406 | (197,442 | ) | 5,533 | 1,516,441 | |||||||||||||||||||||||||||
173 | 68 | 261 | 18 | 500 | 17 | 420 | 371 | 1,828 | ||||||||||||||||||||||||||||
6,797 | 4,748 | 5,247 | 1,737 | 14,510 | 20 | 2,670 | 35,729 | |||||||||||||||||||||||||||||
(4 | ) | (8 | ) | (127 | ) | 0 | (55 | ) | 92 | 0 | (102 | ) | ||||||||||||||||||||||||
6,793 | 4,740 | 5,120 | 1,737 | 14,455 | 112 | 2,670 | 35,627 | |||||||||||||||||||||||||||||
1,996 | 3,555 | 2,448 | 835 | 7,737 | 785 | 862 | 18,218 | |||||||||||||||||||||||||||||
604 | 689 | 1,090 | 265 | 2,068 | 1,166 | 748 | 6,630 | |||||||||||||||||||||||||||||
1,479 | 415 | (609 | ) | 156 | 175 | (1,639 | ) | 23 | 0 | |||||||||||||||||||||||||||
82 | 66 | 88 | 25 | 248 | 811 | 178 | 1,498 | |||||||||||||||||||||||||||||
54 | 192 | 0 | 152 | 279 | 0 | 26 | 703 | |||||||||||||||||||||||||||||
21 | 116 | 0 | 1 | 27 | 20 | 8 | 193 | |||||||||||||||||||||||||||||
1,113 | 1,113 | |||||||||||||||||||||||||||||||||||
4,236 | 5,033 | 3,017 | 1,434 | 10,534 | 1,143 | 2,958 | 28,355 | |||||||||||||||||||||||||||||
2,557 | (293 | ) | 2,103 | 303 | 3,921 | (1,031 | ) | (288 | ) | 7,272 | ||||||||||||||||||||||||||
205 | 15 | 259 | 479 | |||||||||||||||||||||||||||||||||
2,557 | (293 | ) | 2,103 | 303 | 3,921 | 205 | (1,016 | ) | (29 | ) | 7,751 | |||||||||||||||||||||||||
1,419 | ||||||||||||||||||||||||||||||||||||
79 | ||||||||||||||||||||||||||||||||||||
6,253 | ||||||||||||||||||||||||||||||||||||
99
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 are based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets, the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line. The geographical analysis of operating income,
total assets and capital expenditure is provided in order to comply with IFRS and does not reflect the way the Group is managed. Management believes that analysis by Business Group, 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 2005 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 15,042 | 29 | 203,854 | 10 | 973 | 49 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 17,680 | 35 | 687,963 | 33 | 467 | 24 | ||||||||||||||||||
Americas | 15,293 | 30 | 1,006,185 | 49 | 386 | 20 | ||||||||||||||||||
Asia Pacific | 2,960 | 6 | 162,248 | 8 | 139 | 7 | ||||||||||||||||||
Total | 50,975 | 100 | 2,060,250 | 100 | 1,965 | 100 | ||||||||||||||||||
For the year ended 31 December 2004 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,863 | 33 | 193,411 | 11 | 1,993 | 65 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 12,240 | 29 | 561,390 | 32 | 556 | 18 | ||||||||||||||||||
Americas | 14,048 | 33 | 830,350 | 48 | 376 | 12 | ||||||||||||||||||
Asia Pacific | 2,260 | 5 | 151,967 | 9 | 164 | 5 | ||||||||||||||||||
Total | 42,411 | 100 | 1,737,118 | 100 | 3,089 | 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 | 12,294 | 35 | 182,225 | 12 | 683 | 37 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 8,373 | 23 | 538,305 | 35 | 562 | 31 | ||||||||||||||||||
Americas | 13,160 | 37 | 739,021 | 47 | 530 | 29 | ||||||||||||||||||
Asia Pacific | 1,800 | 5 | 94,428 | 6 | 53 | 3 | ||||||||||||||||||
Total | 35,627 | 100 | 1,553,979 | 100 | 1,828 | 100 | ||||||||||||||||||
100
Table of Contents
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 in-
come according to the business activity generating it. The table below (labeled Breakdown by business activity) 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 table on the next page (Net trading income).
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Net interest income | 9,528 | 11,744 | 12,261 | (19 | ) | |||||||||||
Net trading income | 7,996 | 4,902 | 3,670 | 63 | ||||||||||||
Total net interest and trading income | 17,524 | 16,646 | 15,931 | 5 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Equities | 3,928 | 3,098 | 2,445 | 27 | ||||||||||||
Fixed income | 5,741 | 6,264 | 6,474 | (8 | ) | |||||||||||
Foreign exchange | 1,458 | 1,467 | 1,436 | (1 | ) | |||||||||||
Other | 292 | 203 | 258 | 44 | ||||||||||||
Net income from trading activities | 11,419 | 11,032 | 10,613 | 4 | ||||||||||||
Net income from interest margin products | 5,355 | 5,070 | 5,000 | 6 | ||||||||||||
Net income from treasury and other activities | 750 | 544 | 318 | 38 | ||||||||||||
Total net interest and trading income | 17,524 | 16,646 | 15,931 | 5 | ||||||||||||
Net interest income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 11,414 | 8,907 | 10,449 | 28 | ||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 23,641 | 11,006 | 11,148 | 115 | ||||||||||||
Interest and dividend income from financial investments | 86 | 38 | 57 | 126 | ||||||||||||
Interest and dividend income from trading portfolio | 24,145 | 19,277 | 18,391 | 25 | ||||||||||||
Total | 59,286 | 39,228 | 40,045 | 51 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 11,080 | 5,475 | 4,996 | 102 | ||||||||||||
Interest on securities lent and repurchase agreements | 20,626 | 10,014 | 9,623 | 106 | ||||||||||||
Interest and dividend expense from trading portfolio | 10,736 | 7,993 | 9,925 | 34 | ||||||||||||
Interest on financial liabilities designated at fair value | 2,390 | 1,168 | 751 | 105 | ||||||||||||
Interest on debt issued | 4,926 | 2,834 | 2,489 | 74 | ||||||||||||
Total | 49,758 | 27,484 | 27,784 | 81 | ||||||||||||
Net interest income | 9,528 | 11,744 | 12,261 | (19 | ) | |||||||||||
101
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 3 Net Interest and Trading Income (continued)
Interest includes forward points on foreign exchange swaps used to manage short-term interest rate risk on foreign currency loans and deposits.
Net trading income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Equities | 3,900 | 2,254 | 1,660 | 73 | ||||||||||||
Fixed income2 | 1,256 | 131 | 369 | 859 | ||||||||||||
Foreign exchange and other | 2,840 | 2,517 | 1,614 | 13 | ||||||||||||
Net trading income | 7,996 | 4,902 | 3,670 | 63 | ||||||||||||
Included in the Net trading income table are fair value changes of CHF (4,024) million for the year ended 31 December 2005, CHF (1,203) million for the year ended 31 December 2004, and CHF (115) million for the year ended 31 December 2003 related to financial liabilities designated as held at fair value through profit and loss. For 2005, CHF (4,277) million of the total fair value change was attributable to changes in fair value of embedded derivatives, while CHF 253 million was
attributable to changes in LIBOR. 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 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Equity underwriting fees | 1,341 | 1,417 | 1,267 | (5 | ) | |||||||||||
Bond underwriting fees | 1,516 | 1,114 | 1,084 | 36 | ||||||||||||
Total underwriting fees | 2,857 | 2,531 | 2,351 | 13 | ||||||||||||
Corporate finance fees | 1,460 | 1,078 | 761 | 35 | ||||||||||||
Brokerage fees | 6,718 | 5,794 | 5,477 | 16 | ||||||||||||
Investment fund fees | 4,750 | 3,948 | 3,500 | 20 | ||||||||||||
Fiduciary fees | 212 | 197 | 216 | 8 | ||||||||||||
Custodian fees | 1,176 | 1,143 | 1,097 | 3 | ||||||||||||
Portfolio and other management and advisory fees | 5,310 | 4,488 | 3,718 | 18 | ||||||||||||
Insurance-related and other fees | 372 | 343 | 356 | 8 | ||||||||||||
Total securities trading and investment activity fees | 22,855 | 19,522 | 17,476 | 17 | ||||||||||||
Credit-related fees and commissions | 306 | 264 | 244 | 16 | ||||||||||||
Commission income from other services | 1,027 | 977 | 1,082 | 5 | ||||||||||||
Total fee and commission income | 24,188 | 20,763 | 18,802 | 16 | ||||||||||||
Brokerage fees paid | 1,631 | 1,387 | 1,473 | 18 | ||||||||||||
Other | 1,121 | 870 | 656 | 29 | ||||||||||||
Total fee and commission expense | 2,752 | 2,257 | 2,129 | 22 | ||||||||||||
Net fee and commission income | 21,436 | 18,506 | 16,673 | 16 | ||||||||||||
102
Table of Contents
Note 5 Other Income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Associates and subsidiaries | ||||||||||||||||
Net gains from disposals of consolidated subsidiaries | 1 | 83 | 168 | (99 | ) | |||||||||||
Net gains from disposals of investments in associates | 26 | 1 | 2 | |||||||||||||
Total | 27 | 84 | 170 | (68 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gains from disposals | 231 | 132 | 90 | 75 | ||||||||||||
Impairment charges | (26 | ) | (34 | ) | (184 | ) | 24 | |||||||||
Total | 205 | 98 | (94 | ) | 109 | |||||||||||
Net income from investments in property1 | 42 | 65 | 75 | (35 | ) | |||||||||||
Equity in income of associates | 57 | 43 | 123 | 33 | ||||||||||||
Net gains/(losses) from investment properties2 | 12 | 11 | (42 | ) | 9 | |||||||||||
Other | 218 | 277 | 223 | (21 | ) | |||||||||||
Total other income from Financial Businesses | 561 | 578 | 455 | (3 | ) | |||||||||||
Other income from Industrial Holdings | 564 | 354 | (230 | ) | 59 | |||||||||||
Total other income | 1,125 | 932 | 225 | 21 | ||||||||||||
Note 6 Personnel Expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Salaries and bonuses | 16,646 | 14,807 | 14,206 | 12 | ||||||||||||
Contractors | 834 | 580 | 539 | 44 | ||||||||||||
Insurance and social security contributions | 1,351 | 1,069 | 960 | 26 | ||||||||||||
Contribution to retirement plans | 736 | 670 | 685 | 10 | ||||||||||||
Other personnel expenses | 1,482 | 1,486 | 1,828 | 0 | ||||||||||||
Total personnel expenses | 21,049 | 18,612 | 18,218 | 13 | ||||||||||||
Note 7 General and Administrative Expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | ||||||||||||
Occupancy | 1,276 | 1,259 | 1,300 | 1 | ||||||||||||
Rent and maintenance of IT and other equipment | 675 | 722 | 748 | (7 | ) | |||||||||||
Telecommunications and postage | 853 | 822 | 847 | 4 | ||||||||||||
Administration | 998 | 1,036 | 1,048 | (4 | ) | |||||||||||
Marketing and public relations | 609 | 527 | 459 | 16 | ||||||||||||
Travel and entertainment | 777 | 639 | 522 | 22 | ||||||||||||
Professional fees | 689 | 718 | 599 | (4 | ) | |||||||||||
Outsourcing of IT and other services | 872 | 924 | 826 | (6 | ) | |||||||||||
Other | 298 | 513 | 281 | (42 | ) | |||||||||||
Total general and administrative expenses | 7,047 | 7,160 | 6,630 | (2 | ) | |||||||||||
103
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 8 Earnings per Share (EPS) and Shares Outstanding
For the year ended | % change from | |||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 75 | ||||||||||||
from continuing operations | 9,844 | 7,609 | 5,510 | 29 | ||||||||||||
from discontinued operations | 4,185 | 407 | 394 | 928 | ||||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 75 | ||||||||||||
Less: (Profit)/loss on equity derivative contracts | (22 | ) | (5 | ) | 1 | (340 | ) | |||||||||
Net profit attributable to UBS shareholders for diluted EPS | 14,007 | 8,011 | 5,905 | 75 | ||||||||||||
from continuing operations | 9,845 | 7,612 | 5,511 | 29 | ||||||||||||
from discontinued operations | 4,162 | 399 | 394 | 943 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding | 1,006,993,877 | 1,029,918,463 | 1,086,161,476 | (2 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from options and warrants outstanding1 | 41,601,893 | 52,042,897 | 52,639,149 | (20 | ) | |||||||||||
Weighted average shares outstanding for diluted EPS | 1,048,595,770 | 1,081,961,360 | 1,138,800,625 | (3 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | 13.93 | 7.78 | 5.44 | 79 | ||||||||||||
from continuing operations | 9.78 | 7.39 | 5.07 | 32 | ||||||||||||
from discontinued operations | 4.15 | 0.39 | 0.37 | 964 | ||||||||||||
Diluted | 13.36 | 7.40 | 5.19 | 81 | ||||||||||||
from continuing operations | 9.39 | 7.04 | 4.84 | 33 | ||||||||||||
from discontinued operations | 3.97 | 0.36 | 0.35 | |||||||||||||
As at | % change from | |||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.04 | |||||||||||||
Shares outstanding | ||||||||||||||||
Total ordinary shares issued | 1,088,632,522 | 1,126,858,177 | 1,183,046,764 | (3 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2003 program | 56,707,000 | |||||||||||||||
2004 program | 39,935,094 | |||||||||||||||
2005 program | 33,885,000 | |||||||||||||||
Other treasury shares | 70,374,874 | 84,728,216 | 80,034,227 | (17 | ) | |||||||||||
Total treasury shares | 104,259,874 | 124,663,310 | 136,741,227 | (16 | ) | |||||||||||
Shares outstanding | 984,372,648 | 1,002,194,867 | 1,046,305,537 | (2 | ) | |||||||||||
104
Table of Contents
Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Banks1 | 33,689 | 35,675 | ||||||
Allowance for credit losses | (45 | ) | (256 | ) | ||||
Net due from banks | 33,644 | 35,419 | ||||||
Loans1 | ||||||||
Residential mortgages | 127,990 | 117,731 | ||||||
Commercial mortgages | 18,509 | 18,950 | ||||||
Other loans | 125,081 | 97,777 | ||||||
Subtotal | 271,580 | 234,458 | ||||||
Allowance for credit losses | (1,611 | ) | (2,291 | ) | ||||
Net loans | 269,969 | 232,167 | ||||||
Net due from banks and loans | 303,613 | 267,586 | ||||||
By geographical region (based on the location of the borrower) | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Switzerland | 158,465 | 152,130 | ||||||
Rest of Europe/Middle East/Africa | 50,669 | 45,840 | ||||||
Americas | 83,514 | 61,751 | ||||||
Asia Pacific | 12,621 | 10,412 | ||||||
Subtotal | 305,269 | 270,133 | ||||||
Allowance for credit losses | (1,656 | ) | (2,547 | ) | ||||
Net due from banks and loans | 303,613 | 267,586 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Secured by real estate | 148,412 | 138,692 | ||||||
Collateralized by securities | 45,393 | 38,872 | ||||||
Guarantees and other collateral | 24,338 | 18,973 | ||||||
Unsecured | 87,126 | 73,596 | ||||||
Subtotal | 305,269 | 270,133 | ||||||
Allowance for credit losses | (1,656 | ) | (2,547 | ) | ||||
Net due from banks and loans | 303,613 | 267,586 | ||||||
105
Table of Contents
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 | 31.12.05 | 31.12.04 | ||||||||||||
Balance at the beginning of the year | 2,641 | 161 | 2,802 | 3,775 | ||||||||||||
Write-offs | (647 | ) | (4 | ) | (651 | ) | (856 | ) | ||||||||
Recoveries | 63 | 0 | 63 | 59 | ||||||||||||
Increase / (decrease) in credit loss allowance and provision | (298 | ) | (76 | ) | (374) | 2 | (241 | ) | ||||||||
Disposal of subsidiaries | (61 | ) | 0 | (61 | ) | 0 | ||||||||||
Foreign currency translation and other adjustments | (8 | ) | 5 | (3 | ) | 65 | ||||||||||
Balance at the end of the year1 | 1,690 | 86 | 1,776 | 2,802 | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||||||||||
As a reduction of Due from banks | 45 | 256 | ||||||||||||||
As a reduction of Loans | 1,611 | 2,291 | ||||||||||||||
As a reduction of other balance sheet positions | 11 | 41 | ||||||||||||||
Subtotal | 1,667 | 2,588 | ||||||||||||||
Included in Other liabilities related to provisions for contingent claims | 109 | 214 | ||||||||||||||
Total allowances and provisions for credit losses | 1,776 | 2,802 | ||||||||||||||
Note 9c Impaired Due from Banks and Loans
CHF million | 31.12.05 | 31.12.04 | ||||||
Total gross impaired due from banks and loans1,2 | 3,434 | 4,699 | ||||||
Allowance for impaired due from banks | 32 | 239 | ||||||
Allowance for impaired loans | 1,561 | 2,185 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 1,593 | 2,424 | ||||||
Average total gross impaired due from banks and loans3 | 4,089 | 5,858 | ||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Total gross impaired due from banks and loans | 3,434 | 4,699 | ||||||
Estimated liquidation proceeds of collateral | (1,366 | ) | (1,758 | ) | ||||
Net impaired due from banks and loans | 2,068 | 2,941 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 1,593 | 2,424 | ||||||
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.
106
Table of Contents
Note 9d Non-Performing Due from Banks and Loans (continued)
CHF million | 31.12.05 | 31.12.04 | ||||||
Total gross non-performing due from banks and loans | 2,363 | 3,555 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 1,393 | 2,183 | ||||||
Average total gross non-performing due from banks and loans1 | 3,082 | 4,197 | ||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Non-performing due from banks and loans at the beginning of the year | 3,555 | 4,758 | ||||||
Net additions/(reductions) | (515 | ) | (496 | ) | ||||
Write-offs and disposals | (677 | ) | (707 | ) | ||||
Non-performing due from banks and loans at the end of the year | 2,363 | 3,555 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Banks | 27 | 242 | ||||||
Loans | ||||||||
Mortgages | 621 | 1,011 | ||||||
Other | 1,715 | 2,302 | ||||||
Total loans | 2,336 | 3,313 | ||||||
Total non-performing due from banks and loans | 2,363 | 3,555 | ||||||
By geographical region (based on the location of borrower) | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Switzerland | 2,106 | 2,772 | ||||||
Rest of Europe/Middle East/Africa | 155 | 466 | ||||||
Americas | 94 | 220 | ||||||
Asia Pacific | 8 | 97 | ||||||
Total non-performing due from banks and loans | 2,363 | 3,555 | ||||||
Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements
The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group controls credit
risk associated with these activities by monitoring counterparty credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets | ||||||||||||||||
Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | |||||||||||||
securities borrowed | agreements | securities borrowed | agreements | |||||||||||||
CHF million | 31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 236,286 | 259,608 | 167,567 | 243,890 | ||||||||||||
Customers | 64,045 | 144,824 | 52,675 | 113,274 | ||||||||||||
Total | 300,331 | 404,432 | 220,242 | 357,164 | ||||||||||||
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | �� | securities lent | agreements | ||||||||||||
CHF million | 31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 46,766 | 278,287 | 40,580 | 252,151 | ||||||||||||
Customers | 30,501 | 200,221 | 20,965 | 170,436 | ||||||||||||
Total | 77,267 | 478,508 | 61,545 | 422,587 | ||||||||||||
107
Table of Contents
Financial Statements
Notes to the Financial Statements
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 22 provides a description of the various classes of derivatives together with the related notional amounts.
CHF million | 31.12.05 | 31.12.04 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 57,685 | 44,956 | ||||||
thereof pledged as collateral with central banks | 11,717 | 4,706 | ||||||
thereof pledged as collateral (excluding central banks) | 16,307 | 17,869 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty | 11,563 | 12,580 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 589 | 776 | ||||||
US Treasury and government agencies | 77,569 | 92,330 | ||||||
Other government agencies | 64,823 | 80,539 | ||||||
Corporate listed | 169,841 | 144,684 | ||||||
Other unlisted | 74,253 | 35,650 | ||||||
Total | 387,075 | 353,979 | ||||||
thereof pledged as collateral | 146,035 | 147,525 | ||||||
thereof can be repledged or resold by counterparty | 110,857 | 120,317 | ||||||
Equity instruments | ||||||||
Listed | 139,101 | 103,924 | ||||||
Unlisted | 20,958 | 18,516 | ||||||
Total | 160,059 | 122,440 | ||||||
thereof pledged as collateral | 33,559 | 27,140 | ||||||
thereof can be repledged or resold by counterparty | 32,339 | 26,218 | ||||||
Traded loans | 36,212 | 16,077 | ||||||
Precious metals, commodities1 | 13,025 | 11,150 | ||||||
Total trading portfolio assets | 654,056 | 548,602 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 407 | 511 | ||||||
US Treasury and government agencies | 74,758 | 54,848 | ||||||
Other government agencies | 52,833 | 49,512 | ||||||
Corporate listed | 19,885 | 27,413 | ||||||
Other unlisted | 1,224 | 2,600 | ||||||
Total | 149,107 | 134,884 | ||||||
Equity instruments | 39,524 | 36,149 | ||||||
Total trading portfolio liabilities | 188,631 | 171,033 | ||||||
108
Table of Contents
Note 12 Financial Investments (available-for-sale)
CHF million | 31.12.05 | 31.12.04 | ||||||
Money market paper | 141 | 567 | ||||||
Other debt instruments | ||||||||
Listed | 587 | 261 | ||||||
Unlisted | 91 | 28 | ||||||
Total | 678 | 289 | ||||||
Equity instruments | ||||||||
Listed | 2,548 | 504 | ||||||
Unlisted | 1,738 | 689 | ||||||
Total | 4,286 | 1,193 | ||||||
Private equity investments | 1,446 | 2,139 | ||||||
Total financial investments | 6,551 | 4,188 | ||||||
thereof eligible for discount at central banks | 40 | 86 | ||||||
The following tables show the unrealized gains and losses not recognized in the income statement for the years ended 2005 and 2004:
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 2005 | ||||||||||||||||||||||||
Money market paper | 141 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 3 | 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 | 64 | 0 | (1 | ) | (1 | ) | 0 | (1 | ) | |||||||||||||||
Debt securities issued by foreign governments and official institutions | 47 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 421 | 7 | (11 | ) | (4 | ) | 0 | (4 | ) | |||||||||||||||
Mortgage-backed securities | 143 | 0 | (3 | ) | (3 | ) | 0 | (3 | ) | |||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity investments | 4,286 | 738 | (16 | ) | 722 | (133 | ) | 589 | ||||||||||||||||
Private equity investments | 1,446 | 405 | (15 | ) | 390 | (31 | ) | 359 | ||||||||||||||||
Total | 6,551 | 1,150 | (46 | ) | 1,104 | (164 | ) | 940 | ||||||||||||||||
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 | 147 | 7 | (4 | ) | 3 | 0 | 3 | |||||||||||||||||
Mortgage-backed securities | 72 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity investments | 1,193 | 455 | (5 | ) | 450 | (83 | ) | 367 | ||||||||||||||||
Private equity investments | 2,139 | 577 | (22 | ) | 555 | (88 | ) | 467 | ||||||||||||||||
Total | 4,188 | 1,041 | (31 | ) | 1,010 | (171 | ) | 839 | ||||||||||||||||
109
Table of Contents
Financial Statements
Notes to the Financial Statements
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 invest-
ments, 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.
The following table shows the duration of unrealized losses not recognized in the income statement for the year ended 2005:
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 2005 | ||||||||||||||||||||||||
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 | 55 | 0 | 55 | (1 | ) | 0 | (1 | ) | ||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 272 | 0 | 272 | (11 | ) | 0 | (11 | ) | ||||||||||||||||
Mortgage-backed securities | 0 | 143 | 143 | 0 | (3 | ) | (3 | ) | ||||||||||||||||
Other debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity investments | 2,032 | 16 | 2,048 | (13 | ) | (3 | ) | (16 | ) | |||||||||||||||
Private equity investments | 117 | 34 | 151 | (10 | ) | (5 | ) | (15 | ) | |||||||||||||||
Total | 2,476 | 193 | 2,669 | (35 | ) | (11 | ) | (46 | ) | |||||||||||||||
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 2005 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 2 | 4.36 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 42 | 5.51 | 10 | 5.77 | 12 | 6.03 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.91 | 2 | 1.90 | 5 | 5.64 | 2 | 6.17 | ||||||||||||||||||||||||
Corporate debt securities | 13 | 3.20 | 239 | 4.25 | 66 | 5.38 | 103 | 5.66 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 14 | 3.92 | 129 | 4.80 | ||||||||||||||||||||||||
Other debt securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 51 | 285 | 95 | 247 | ||||||||||||||||||||||||||||
Proceeds from sales and maturities of investment securities available-for-sale, excluding private equity, were as follows:
CHF million | 31.12.05 | 31.12.04 | ||||||
Proceeds | 298 | 277 | ||||||
Gross realized gains | 60 | 58 | ||||||
Gross realized losses | 1 | 45 | ||||||
110
Table of Contents
Note 13 Investments in Associates
CHF million | 31.12.05 | 31.12.04 | ||||||
Carrying amount at the beginning of the year | 2,675 | 2,009 | ||||||
Additions | 938 | 1,919 | 1 | |||||
Disposals | (935 | ) | (823 | ) | ||||
Transfers | (13 | ) | (378 | ) | ||||
Income2 | 152 | 67 | ||||||
Dividend paid | (59 | ) | (42 | ) | ||||
Foreign currency translation | 198 | (77 | ) | |||||
Carrying amount at the end of the year | 2,956 | 2,675 | ||||||
Note 14 Property and Equipment
At historical cost less accumulated depreciation | ||||||||||||||||||||||||||||||||
Other | Plant and | |||||||||||||||||||||||||||||||
Leasehold | IT, software | machines | manu- | |||||||||||||||||||||||||||||
Own-used | improve- | and com- | and | facturing | Projects in | |||||||||||||||||||||||||||
CHF million | properties | ments | munication | equipment | equipment | progress | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,752 | 2,592 | 3,979 | 1,835 | 3,031 | 239 | 21,428 | 20,346 | ||||||||||||||||||||||||
Additions | 178 | 132 | 841 | 194 | 127 | 393 | 1,865 | 1,462 | ||||||||||||||||||||||||
Additions from acquired companies | 3 | 1 | 2 | 0 | 110 | 0 | 116 | 2,093 | ||||||||||||||||||||||||
Disposals/write-offs1 | (490 | ) | (98 | ) | (880 | ) | (393 | ) | (494 | ) | (8 | ) | (2,363 | ) | (2,020 | ) | ||||||||||||||||
Reclassifications | (26 | ) | 232 | 108 | (118 | ) | 71 | (217 | ) | 50 | (186 | ) | ||||||||||||||||||||
Foreign currency translation | 29 | 191 | 211 | 78 | 59 | 6 | 574 | (267 | ) | |||||||||||||||||||||||
Balance at the end of the year | 9,446 | 3,050 | 4,261 | 1,596 | 2,904 | 413 | 21,670 | 21,428 | ||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,701 | 1,659 | 3,375 | 1,503 | 760 | 0 | 11,998 | 11,867 | ||||||||||||||||||||||||
Depreciation2 | 276 | 216 | 716 | 115 | 233 | 0 | 1,556 | 1,576 | ||||||||||||||||||||||||
Disposals/write-offs1 | (158 | ) | (61 | ) | (811 | ) | (318 | ) | (354 | ) | 0 | (1,702 | ) | (1,182 | ) | |||||||||||||||||
Reclassifications | (42 | ) | 71 | 0 | 3 | 0 | 0 | 32 | (43 | ) | ||||||||||||||||||||||
Foreign currency translation | 4 | 114 | 194 | 46 | 33 | 0 | 391 | (220 | ) | |||||||||||||||||||||||
Balance at the end of the year | 4,781 | 1,999 | 3,474 | 1,349 | 672 | 0 | 12,275 | 11,998 | ||||||||||||||||||||||||
Net book value at the end of the year3 | 4,665 | 1,051 | 787 | 247 | 2,232 | 413 | 9,395 | 9,430 | ||||||||||||||||||||||||
At fair value | ||||||||||||||||
Investment | Projects | |||||||||||||||
CHF million | properties | in progress | 31.12.05 | 31.12.04 | ||||||||||||
Balance at the beginning of the year | 41 | 39 | 80 | 236 | ||||||||||||
Additions | 26 | 0 | 26 | 91 | ||||||||||||
Additions from acquired companies | 0 | 0 | 0 | 1 | ||||||||||||
Sales | (25 | ) | 0 | (25 | ) | (241 | ) | |||||||||
Reclassifications | (16 | ) | (39 | ) | (55 | ) | 0 | |||||||||
Foreign currency translation | 2 | 0 | 2 | (7 | ) | |||||||||||
Balance at the end of the year | 28 | 0 | 28 | 80 | ||||||||||||
111
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets
Six out of eight segments carry goodwill, of which Industrial Holdings and Private Banks & GAM (at 31 December 2004 only) each have less than 5% of the total balance. Business Banking Switzerland and Corporate Functions carry no goodwill. For the purpose of testing goodwill for impairment, UBS determines the recoverable amount of its segments on the basis of value in use. The recoverable amount is determined using a proprietary model based on the discounted cash flow method, which has been adapted to give effect to the special features of the banking business and its regulatory environment. The recoverable amount is determined by estimating streams of earnings available to shareholders in the next four quarters based on a rolling forecast process, discounted to their presented values. The terminal value reflecting the second and subsequent years is calculated using the first-year profit multiplied by the individual price-earnings multiple per segment, and discounted to present value. The recoverable amount of the segments is the sum of earnings
available to shareholders in the first year and the terminal value.
Goodwill | Other intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relationships, | ||||||||||||||||||||||||
contractual | ||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.05 | 31.12.04 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 8,865 | 880 | 3,351 | 4,231 | 13,096 | 15,741 | ||||||||||||||||||
Additions and reallocations | 1,518 | 0 | (1,426 | ) | (1,426 | ) | 92 | 2,503 | ||||||||||||||||
Disposals | (354 | ) | 0 | (41 | ) | (41 | ) | (395 | ) | (407 | ) | |||||||||||||
Write-offs1 | 0 | 0 | (112 | ) | (112 | ) | (112 | ) | (524 | ) | ||||||||||||||
Foreign currency translation | 1,284 | 136 | 284 | 420 | 1,704 | (1,203 | ) | |||||||||||||||||
Balance at the end of the year | 11,313 | 1,016 | 2,056 | 3,072 | 14,385 | 16,110 | ||||||||||||||||||
Accumulated amortization2 | ||||||||||||||||||||||||
Balance at the beginning of the year | 184 | 711 | 895 | 895 | 3,872 | |||||||||||||||||||
Amortization3 | 49 | 291 | 340 | 340 | 1,066 | |||||||||||||||||||
Reallocations | 0 | (307 | ) | (307 | ) | (307 | ) | 0 | ||||||||||||||||
Disposals | 0 | (30 | ) | (30 | ) | (30 | ) | (188 | ) | |||||||||||||||
Write-offs1 | 0 | (112 | ) | (112 | ) | (112 | ) | (524 | ) | |||||||||||||||
Foreign currency translation | 30 | 83 | 113 | 113 | (317 | ) | ||||||||||||||||||
Balance at the end of the year | 263 | 636 | 899 | 899 | 3,909 | |||||||||||||||||||
Net book value at the end of the year | 11,313 | 753 | 1,420 | 2,173 | 13,486 | 12,201 | ||||||||||||||||||
112
Table of Contents
Note 15 Goodwill and Other Intangible Assets (continued)
The following table presents the disclosure of goodwill and other intangible assets by business segment for the year ended 31 December 2005.
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Foreign currency | the end | |||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 1,176 | 263 | 0 | 0 | 127 | 1,566 | ||||||||||||||||||
Wealth Management US | 2,472 | 996 | 0 | 0 | 373 | 3,841 | ||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 1,189 | 57 | 0 | 0 | 192 | 1,438 | ||||||||||||||||||
Investment Bank | 3,579 | 184 | 0 | 0 | 546 | 4,309 | ||||||||||||||||||
Private Banks & GAM | 311 | 0 | (353 | ) | 0 | 42 | 0 | |||||||||||||||||
Corporate Functions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Industrial Holdings | 138 | 18 | (1 | ) | 0 | 4 | 159 | |||||||||||||||||
UBS | 8,865 | 1,518 | (354 | ) | 0 | 1,284 | 11,313 | |||||||||||||||||
Other intangible assets | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 159 | (15 | ) | 0 | (7 | ) | 4 | 141 | ||||||||||||||||
Wealth Management US | 1,560 | (996 | ) | 0 | (49 | ) | 238 | 753 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 0 | 10 | 0 | (1 | ) | (1 | ) | 8 | ||||||||||||||||
Investment Bank | 418 | (132 | ) | 0 | (53 | ) | 63 | 296 | ||||||||||||||||
Private Banks & GAM | 14 | 0 | (9 | ) | (5 | ) | 0 | 0 | ||||||||||||||||
Corporate Functions | 24 | 0 | 0 | (18 | ) | 3 | 9 | |||||||||||||||||
Industrial Holdings | 1,161 | 14 | (2 | ) | (207 | ) | 0 | 966 | ||||||||||||||||
UBS | 3,336 | (1,119 | ) | (11 | ) | (340 | ) | 307 | 2,173 | |||||||||||||||
For further information about disclosure by Business Group, including the amortization of goodwill and other intangible assets of previous years, please see Note 2a: Segment Reporting by Business Group.
The estimated, aggregated amortization expenses for other intangible assets are as follows:
Other intangible | ||||
CHF million | assets | |||
Estimated, aggregated amortization expenses for: | ||||
2006 | 297 | |||
2007 | 283 | |||
2008 | 269 | |||
2009 | 238 | |||
2010 | 219 | |||
2011 and thereafter | 867 | |||
Total | 2,173 | |||
Due to the issuance of IFRS 3Business Combinations,goodwill amortization ceased from 1 January 2005. In addition, certain intangible assets were 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 Note 1aa) for further details.
113
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 16 Other Assets
CHF million | Note | 31.12.05 | 31.12.04 | |||||||||
Deferred tax assets | 21 | 2,758 | 2,554 | |||||||||
Settlement and clearing accounts | 3,528 | 4,747 | ||||||||||
VAT and other tax receivables | 312 | 358 | ||||||||||
Prepaid pension costs | 832 | 804 | ||||||||||
Properties held for resale | 578 | 535 | ||||||||||
Accounts receivable trade | 364 | 387 | ||||||||||
Inventory – Industrial Holdings | 2,007 | 2,045 | ||||||||||
Other receivables | 5,811 | 5,945 | ||||||||||
Total other assets | 16,190 | 17,375 | ||||||||||
114
Table of Contents
Balance Sheet: Liabilities
Note 17 Due to Banks and Customers
CHF million | 31.12.05 | 31.12.04 | ||||||
Due to banks | 124,328 | 120,026 | ||||||
Due to customers in savings and investment accounts | 113,889 | 101,081 | ||||||
Other amounts due to customers | 337,644 | 274,995 | ||||||
Total due to customers | 451,533 | 376,076 | ||||||
Total due to banks and customers | 575,861 | 496,102 | ||||||
Note 18 Financial Liabilities Designated at Fair Value and Debt Issued
The Group issues both CHF and non-CHF denominated fixed-rate and floating-rate debt. Floating-rate debt generally pays interest based on the three-month or six-month London Interbank Offered Rate (LIBOR).
As described in Note 1n), most of these debt instruments have been designated as held at fair value through profit and loss and are presented in a separate line in the balance sheet. At 31 December 2005 and 31 December 2004, the Group had CHF 0 million and CHF 148 million, respectively, in bonds with attached warrants on UBS shares outstanding. All warrants related to those bonds issued in prior years have expired.
115
Table of Contents
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 | 31.12.05 | 31.12.04 | ||||||
Bonds and compound debt instruments issued | 109,724 | 61,646 | ||||||
Compound debt instruments – OTC | 7,677 | 4,110 | ||||||
Total | 117,401 | 65,756 | ||||||
Debt issued (held at amortized cost) | ||||||||
CHF million | 31.12.05 | 31.12.04 | ||||||
Short-term debt: Money market paper issued | 102,662 | 79,442 | ||||||
Long-term debt: | ||||||||
Bonds | ||||||||
Senior | 46,545 | 28,063 | ||||||
Subordinated | 10,001 | 8,605 | ||||||
Shares in bond issues of the Swiss regional or cantonal banks’ central bond institutions | 38 | 60 | ||||||
Medium-term notes | 1,464 | 1,686 | ||||||
Subtotal long-term debt | 58,048 | 38,414 | ||||||
Total | 160,710 | 117,856 | ||||||
The following table shows the split between fixed-rate 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 those of floating-rate debt.
Contractual maturity dates | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2006 | 2007 | 2008 | 2009 | 2010 | 2011–2015 | Thereafter | 31.12.05 | 31.12.04 | |||||||||||||||||||||||||||
UBS AG (Parent Bank) | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 90,714 | 8,597 | 5,982 | 7,988 | 6,754 | 7,687 | 782 | 128,504 | 69,413 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–16.5 | 0–12.25 | 0–20 | 0–13.5 | 0–19.4 | 0–12 | 0–10 | |||||||||||||||||||||||||||||
Floating rate | 9,296 | 560 | 32 | 226 | 386 | 1,176 | 13,624 | 25,300 | 22,585 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 1,637 | 1,385 | 0 | 518 | 0 | 3,112 | 1,006 | 7,658 | 8,247 | |||||||||||||||||||||||||||
Interest rates (range in %) | 4.25–7.25 | 5.75–8 | 0 | 5.875 | 0 | 2.375–7.375 | 7.247–8.75 | |||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 1,931 | 395 | 2,326 | 342 | |||||||||||||||||||||||||||
Subtotal | 101,647 | 10,542 | 6,014 | 8,732 | 7,140 | 13,906 | 15,807 | 163,788 | 100,587 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 53,878 | 960 | 5,955 | 7,688 | 3,420 | 4,180 | 17,251 | 93,332 | 71,018 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–10 | 0–10 | 0–10 | 0–18.5 | 0–10 | 0–35 | 0–35 | |||||||||||||||||||||||||||||
Floating rate | 263 | 678 | 1,499 | 1,367 | 1,182 | 3,804 | 4,504 | 13,297 | 7,881 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 17 | 17 | 16 | |||||||||||||||||||||||||||
Interest rates (range in %) | 9 | |||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Subtotal | 54,141 | 1,638 | 7,454 | 9,055 | 4,602 | 7,984 | 21,772 | 106,646 | 78,915 | |||||||||||||||||||||||||||
Total | 155,788 | 12,180 | 13,468 | 17,787 | 11,742 | 21,890 | 37,579 | 270,434 | 179,502 | |||||||||||||||||||||||||||
The table above indicates fixed interest rate coupons ranging from 0 up to 35% on the Group’s bonds. These high or low coupons generally relate to structured debt issues prior to the separation of embedded derivatives. As a result, the stated in-
terest rate on such debt issues generally does not reflect the effective interest rate the Group is paying to service its debt after the embedded derivative has been separated and, where applicable, the application of hedge accounting.
116
Table of Contents
Note 19 Other Liabilities
CHF million | Note | 31.12.05 | 31.12.04 | |||||||||
Provisions | 20 | 2,072 | 2,020 | |||||||||
Provisions for contingent claims | 9b | 109 | 214 | |||||||||
Current tax liabilities | 3,592 | 2,318 | ||||||||||
Deferred tax liabilities | 21 | 2,633 | 3,146 | |||||||||
VAT and other tax payables | 712 | 520 | ||||||||||
Settlement and clearing accounts | 2,707 | 2,185 | ||||||||||
Amounts due under unit-linked investment contracts | 30,224 | 22,057 | ||||||||||
Accounts payable | 1,425 | 1,597 | ||||||||||
Other payables | 10,400 | 10,063 | ||||||||||
Total other liabilities | 53,874 | 44,120 | ||||||||||
Note 20 Provisions
Total | Total | |||||||||||||||||||
CHF million | Operational | Litigation | Other1 | 31.12.05 | 31.12.04 | |||||||||||||||
Balance at the beginning of the year | 299 | 485 | 1,236 | 2,020 | 1,490 | |||||||||||||||
Additions from acquired companies | 0 | 0 | 1 | 1 | 700 | |||||||||||||||
New provisions charged to income | 117 | 317 | 86 | 520 | 587 | |||||||||||||||
Capitalized reinstatement costs | 0 | 0 | 3 | 3 | 66 | |||||||||||||||
Recoveries | 3 | 17 | 5 | 25 | 34 | |||||||||||||||
Provisions applied | (102 | ) | (269 | ) | (217 | ) | (588 | ) | (772 | ) | ||||||||||
Disposal of subsidiaries | (4 | ) | (7 | ) | 0 | (11 | ) | (11 | ) | |||||||||||
Foreign currency translation | 21 | 49 | 32 | 102 | (74 | ) | ||||||||||||||
Balance at the end of the year | 334 | 592 | 1,146 | 2,072 | 2,020 | |||||||||||||||
Note 21 Income Taxes
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Tax expense from continuing operations | ||||||||||||
Domestic | ||||||||||||
Current | 1,490 | 1,225 | 795 | |||||||||
Deferred | 64 | 13 | 99 | |||||||||
Foreign | ||||||||||||
Current | 1,441 | 828 | 264 | |||||||||
Deferred | (446 | ) | 158 | 261 | ||||||||
Total income tax expense from continuing operations | 2,549 | 2,224 | 1,419 | |||||||||
Tax expense from discontinued operations | ||||||||||||
Domestic | 489 | 108 | 66 | |||||||||
Foreign | 9 | 21 | 13 | |||||||||
Total income tax expense from discontinued operations | 498 | 129 | 79 | |||||||||
Total income tax expense | 3,047 | 2,353 | 1,498 | |||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 2,394 million, CHF 1,345 million and CHF 1,117 million for the full years of 2005, 2004 and 2003 respectively.
117
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 21 Income Taxes (continued)
The components of operating profit before tax, as well as 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 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Operating profit from continuing operations before tax | 13,049 | 10,287 | 7,272 | |||||||||
Domestic | 6,241 | 5,882 | 4,996 | |||||||||
Foreign | 6,808 | 4,405 | 2,276 | |||||||||
Income taxes at Swiss statutory rate of 22% for 2005 and 24% for 2004 and 2003 | 2,871 | 2,469 | 1,745 | |||||||||
Increase / (decrease) resulting from: | ||||||||||||
Applicable tax rates differing from Swiss statutory rate | 436 | 137 | (233 | ) | ||||||||
Tax losses not recognized | 75 | 103 | 85 | |||||||||
Previously unrecorded tax losses now recognized | (100 | ) | (249 | ) | (291 | ) | ||||||
Lower taxed income | (603 | ) | (660 | ) | (366 | ) | ||||||
Non-deductible goodwill and other intangible asset amortization | 22 | 262 | 386 | |||||||||
Other non-deductible expenses | 223 | 219 | 186 | |||||||||
Adjustments related to prior years and other | (219 | ) | (296 | ) | (191 | ) | ||||||
Change in deferred tax valuation allowance | (156 | ) | 239 | 98 | ||||||||
Income tax expense from continuing operations | 2,549 | 2,224 | 1,419 | |||||||||
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.05 | 31.12.04 | ||||||
Deferred tax assets | ||||||||
Compensation and benefits | 1,851 | 1,582 | ||||||
Net operating loss carry-forwards | 2,235 | 2,251 | ||||||
Trading assets | 586 | 483 | ||||||
Other | 804 | 906 | ||||||
Total | 5,476 | 5,222 | ||||||
Valuation allowance | (2,718 | ) | (2,668 | ) | ||||
Net deferred tax assets | 2,758 | 2,554 | ||||||
Deferred tax liabilities | ||||||||
Compensation and benefits | 55 | 119 | ||||||
Property and equipment | 515 | 542 | ||||||
Investments | 468 | 343 | ||||||
Provisions | 0 | 313 | ||||||
Trading assets | 448 | 408 | ||||||
Intangible assets | 264 | 272 | ||||||
Other | 883 | 1,149 | ||||||
Total deferred tax liabilities | 2,633 | 3,146 | ||||||
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 effects of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF, as well as the booking of some of the tax benefits related to deferred compensation through Equity. In 2004, the acquisition of Motor-Columbus also had a significant impact.
118
Table of Contents
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. Because realization of these assets is uncertain, the Group has established valuation allowances of CHF 2,718 million (CHF 2,668 million at 31 December 2004). For companies that suffered tax losses in either the current or preceding year, an amount of CHF 442 million (CHF 436 million at 31 December 2004) 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: | 31.12.05 | |||
Within 1 year | 8 | |||
From 2 to 4 years | 211 | |||
After 4 years | 5,334 | |||
Total | 5,553 | |||
Note 22 Derivative Instruments
A derivative is a financial instrument, the value of which is derived from the value of another (“underlying”) financial instrument, an index or some other variable. Typically, the underlying is a share, commodity or bond price, an index value or an exchange or interest rate.
flows will be settled on a net basis. Changes in replacement values of derivative instruments are recognized in trading income unless they qualify as hedges for accounting purposes, as explained in Note 1 Summary of Significant Accounting Policies, section o) Derivative instruments and hedging.
Types of derivative instruments
– | Interest rate swap contracts generally entail the contractual exchange of fixed-rate and floating-rate interest payments in a single currency, based on a notional amount and a reference interest rate, 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 pro- |
119
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 22 Derivative Instruments (continued)
tection in exchange for an undertaking by the seller to make a payment to the buyer following a credit event (as defined in the contract) with respect to a third-party credit entity (as defined in the contract). Settlement following a credit event may be a net cash amount or cash in return for physical delivery of one or more obligations of the credit entity and is made regardless of whether the protection buyer has actually suffered a loss. After a credit event and settlement, the contract is terminated. | ||
– | Total rate of return swaps give the total return receiver exposure to all of the cash flows and economic benefits and risks of an underlying asset, without having to own the asset, in exchange for a series of payments, often based on a reference interest rate, e.g. LIBOR. The total return payer has an equal and opposite position. |
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
plained in Note 1o), Derivative instruments and hedging, where terms used in the following sections are explained.
Fair value hedges
Fair value hedge of portfolio of interest rate risk
Cash flow hedges of forecast transactions
120
Table of Contents
Note 22 Derivative Instruments (continued)
for each portfolio of financial assets and liabilities, based on contractual terms and other relevant factors including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying the non-trading interest rate risk
of the Group, which is hedged with interest rate swaps, the maximum maturity of which is 22 years.
CHF billion | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | |||||||||||||||
Cash inflows (assets) | 212 | 391 | 270 | 263 | 8 | |||||||||||||||
Cash outflows (liabilities) | 93 | 117 | 28 | 182 | 60 | |||||||||||||||
Net cash flows | 119 | 274 | 242 | 81 | (52 | ) | ||||||||||||||
Risks of derivative instruments
121
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 22 Derivative Instruments (continued)
Total | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2005 | Term to maturity | 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 | 652 | 607 | 154 | 96 | 97 | 32 | 86 | 179 | 989 | 914 | 1,345.7 | |||||||||||||||||||||||||||||||||
Swaps | 5,953 | 4,701 | 12,630 | 13,156 | 77,445 | 75,523 | 105,029 | 101,256 | 201,057 | 194,636 | 15,680.4 | |||||||||||||||||||||||||||||||||
Options | 832 | 690 | 1,750 | 2,163 | 9,600 | 10,701 | 6,738 | 9,247 | 18,920 | 22,801 | 1,273.1 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,418.3 | |||||||||||||||||||||||||||||||||||||||||||
Options | 59 | 55 | 118 | 123 | 6 | 6 | 183 | 184 | 26.6 | |||||||||||||||||||||||||||||||||||
Total | 7,496 | 6,053 | 14,652 | 15,538 | 87,148 | 86,262 | 111,853 | 110,682 | 221,149 | 218,535 | 20,744.1 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 13 | 21 | 290 | 195 | 7,911 | 10,691 | 4,247 | 2,472 | 12,461 | 13,379 | 1,481.0 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 50 | 74 | 30 | 143 | 757 | 778 | 713 | 820 | 1,550 | 1,815 | 44.4 | |||||||||||||||||||||||||||||||||
Total | 63 | 95 | 320 | 338 | 8,668 | 11,469 | 4,960 | 3,292 | 14,011 | 15,194 | 1,525.4 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,905 | 2,470 | 962 | 806 | 643 | 499 | 54 | 96 | 4,564 | 3,871 | 502.9 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 20,162 | 22,092 | 10,239 | 9,256 | 12,102 | 12,252 | 5,875 | 6,242 | 48,378 | 49,842 | 3,592.6 | |||||||||||||||||||||||||||||||||
Options | 1,910 | 1,800 | 1,855 | 1,600 | 386 | 637 | 5 | 2 | 4,156 | 4,039 | 659.6 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 4.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 6 | 6 | 1 | 1 | 7 | 7 | 0.1 | |||||||||||||||||||||||||||||||||||||
Total | 24,983 | 26,368 | 13,057 | 11,663 | 13,131 | 13,388 | 5,934 | 6,340 | 57,105 | 57,759 | 4,759.9 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 444 | 365 | 407 | 366 | 558 | 284 | 85 | 91 | 1,494 | 1,106 | 17.4 | |||||||||||||||||||||||||||||||||
Options | 276 | 431 | 607 | 521 | 1,128 | 1,050 | 99 | 55 | 2,110 | 2,057 | 56.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.6 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,179 | 1,143 | 1,498 | 1,512 | 1,288 | 1,312 | 3,965 | 3,967 | 4.4 | |||||||||||||||||||||||||||||||||||
Total | 1,899 | 1,939 | 2,512 | 2,399 | 2,974 | 2,646 | 184 | 146 | 7,569 | 7,130 | 80.3 | |||||||||||||||||||||||||||||||||
Equity / index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 859 | 627 | 747 | 769 | 1,410 | 499 | 2 | 13 | 3,018 | 1,908 | 101.8 | |||||||||||||||||||||||||||||||||
Options | 270 | 1,058 | 3,017 | 4,621 | 7,154 | 8,635 | 2,237 | 4,487 | 12,678 | 18,801 | 204.7 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 59.5 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,997 | 1,827 | 2,396 | 2,473 | 3,787 | 4,277 | 178 | 206 | 8,358 | 8,783 | 345.3 | |||||||||||||||||||||||||||||||||
Total | 3,126 | 3,512 | 6,160 | 7,863 | 12,351 | 13,411 | 2,417 | 4,706 | 24,054 | 29,492 | 711.3 | |||||||||||||||||||||||||||||||||
Commodity contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,146 | 2,099 | 4,208 | 3,908 | 2,301 | 2,488 | 3 | 8,658 | 8,495 | 70.7 | ||||||||||||||||||||||||||||||||||
Options | 164 | 185 | 354 | 300 | 599 | 457 | 1 | 4 | 1,118 | 946 | 6.8 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 105.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 28 | 42 | 64 | 47 | 26 | 23 | 118 | 112 | 12.2 | |||||||||||||||||||||||||||||||||||
Total | 2,338 | 2,326 | 4,626 | 4,255 | 2,926 | 2,968 | 4 | 4 | 9,894 | 9,553 | 195.1 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 39,905 | 40,293 | 41,327 | 42,056 | 127,198 | 130,144 | 125,352 | 125,170 | 333,782 | 337,663 | ||||||||||||||||||||||||||||||||||
122
Table of Contents
Note 22 Derivative Instruments (continued)
Total | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2004 | Term to maturity | 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 | 74 | 67 | 85 | 77 | 118 | 57 | 277 | 201 | 3.6 | |||||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 2 | 6 | 2 | 2 | 8 | 1.2 | ||||||||||||||||||||||||||||||||||||||
Total | 414 | 416 | 604 | 570 | 538 | 436 | 0 | 0 | 1,556 | 1,422 | 41.2 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 43,930 | 50,455 | 36,817 | 43,517 | 110,565 | 116,222 | 93,265 | 93,518 | 284,577 | 303,712 | ||||||||||||||||||||||||||||||||||
123
Table of Contents
Financial Statements
Notes to the Financial Statements
Off-Balance Sheet Information
Note 23 Fiduciary Transactions
Fiduciary placement represents funds 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 | 31.12.05 | 31.12.04 | ||||||
Placements with third parties | 40,603 | 39,588 | ||||||
Fiduciary credits and other fiduciary financial transactions | 0 | 57 | ||||||
Total fiduciary transactions | 40,603 | 39,645 | ||||||
Note 24 Commitments and Contingent Liabilities
124
Table of Contents
Note 24 Commitments and Contingent Liabilities (continued)
CHF million | 31.12.05 | 31.12.04 | ||||||
Contingent liabilities | ||||||||
Credit guarantees and similar instruments1 | 11,526 | 10,252 | ||||||
Sub-participations | (719 | ) | (621 | ) | ||||
Total | 10,807 | 9,631 | ||||||
Performance guarantees and similar instruments2 | 2,805 | 2,536 | ||||||
Sub-participations | (335 | ) | (415 | ) | ||||
Total | 2,470 | 2,121 | ||||||
Documentary credits | 2,235 | 2,106 | ||||||
Sub-participations | (207 | ) | (272 | ) | ||||
Total | 2,028 | 1,834 | ||||||
Gross contingent liabilities | 16,566 | 14,894 | ||||||
Sub-participations | (1,261 | ) | (1,308 | ) | ||||
Net contingent liabilities | 15,305 | 13,586 | ||||||
Irrevocable commitments | ||||||||
Undrawn irrevocable credit facilities | 72,905 | 53,168 | ||||||
Sub-participations | (2 | ) | (7 | ) | ||||
Total | 72,903 | 53,161 | ||||||
Liabilities for calls on shares and other equities | 20 | 19 | ||||||
Gross irrevocable commitments | 72,925 | 53,187 | ||||||
Sub-participations | (2 | ) | (7 | ) | ||||
Net irrevocable commitments | 72,923 | 53,180 | ||||||
Gross commitments and contingent liabilities | 89,491 | 68,081 | ||||||
Sub-participations | (1,263 | ) | (1,315 | ) | ||||
Net commitments and contingent liabilities | 88,228 | 66,766 | ||||||
Market value guarantees in form of written put options | 317,973 | 352,509 | ||||||
125
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 24 Commitments and Contingent Liabilities (continued)
CHF million | Mortgage collateral | Other collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 355 | 9,558 | 6,653 | 16,566 | ||||||||||||
Gross irrevocable commitments | 3,333 | 33,722 | 35,850 | 72,905 | ||||||||||||
Liabilities for calls on shares and other equities | 20 | 20 | ||||||||||||||
Total 31.12.05 | 3,688 | 43,280 | 42,523 | 89,491 | ||||||||||||
Total 31.12.04 | 3,599 | 30,045 | 34,437 | 68,081 | ||||||||||||
Other commitments
Note 25 Operating Lease Commitments
CHF million | 31.12.05 | |||||||||||
Operating leases due | ||||||||||||
2006 | 963 | |||||||||||
2007 | 908 | |||||||||||
2008 | 844 | |||||||||||
2009 | 783 | |||||||||||
2010 | 672 | |||||||||||
2011 and thereafter | 3,973 | |||||||||||
Subtotal commitments for minimum payments under operating leases | 8,143 | |||||||||||
Less: Sublease rentals under non-cancellable leases | 821 | |||||||||||
Net commitments for minimum payments under operating leases | 7,322 | |||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Gross operating lease expense | 1,232 | 1,309 | 1,354 | |||||||||
from continuing operations | 1,157 | 1,236 | 1,263 | |||||||||
from discontinued operations | 75 | 73 | 91 | |||||||||
Sublease rental income from continuing operations | 51 | 43 | 43 | |||||||||
Net operating lease expense | 1,181 | 1,266 | 1,311 | |||||||||
from continuing operations | 1,106 | 1,193 | 1,220 | |||||||||
from discontinued operations | 75 | 73 | 91 | |||||||||
126
Table of Contents
Additional Information
Note 26 Pledged Assets and Pledgeable Off-Balance Sheet Securities
Assets are pledged from the Group’s balance sheet as collateral or for other purposes. Additionally, the Group receives pledgeable securities in various types of transactions. These securities are not recognized on the balance sheet.
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 2005 and 31 December 2004.
Carrying amount | Related liability | Carrying amount | Related liability | |||||||||||||
CHF million | 31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | ||||||||||||
Mortgage loans | 64 | 38 | 175 | 60 | ||||||||||||
Securities | 115,580 | 88,596 | 92,440 | 87,113 | ||||||||||||
Property and equipment | 520 | 683 | 320 | 0 | ||||||||||||
Other | 474 | 0 | 0 | 0 | ||||||||||||
Total pledged assets | 116,638 | 89,317 | 92,935 | 87,173 | ||||||||||||
Pledgeable Off-Balance Sheet Securities
The Group also obtains off-balance sheet securities with the right to sell or repledge them as shown in the table below.
CHF million | 31.12.05 | 31.12.04 | ||||||
Fair value of securities received which can be sold or repledged | 1,255,176 | 968,737 | ||||||
as collateral under reverse repurchase, securities borrowing and lending arrangements, | ||||||||
derivative transactions and other transactions | 1,183,238 | 921,067 | ||||||
in unsecured borrowings which can be sold or repledged | 71,938 | 47,670 | ||||||
thereof sold or repledged | 1,002,423 | 818,151 | ||||||
in connection with financing activities | 918,802 | 737,805 | ||||||
to satisfy commitments under short sale transactions | 70,174 | 57,903 | ||||||
in connection with derivative transactions | 9,205 | 6,714 | ||||||
in connection with other transactions | 4,242 | 15,729 | ||||||
Note 27 Litigation
127
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 28 Financial Instruments Risk Position
– | 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 risk (part c) is the risk that UBS is unable to meet its payment obligations when due. |
a) Market Risk
(i) Overview
128
Table of Contents
Note 28 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
(ii) Interest Rate Risk
Interest rate sensitivity position1
Interest rate sensitivity by time bands at 31.12.05 | ||||||||||||||||||||||||||
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 | 167 | (526 | ) | 120 | 213 | (322 | ) | (349 | ) | ||||||||||||||||
Non-trading | (258 | ) | (57 | ) | (883 | ) | (6,514 | ) | (287 | ) | (7,998 | ) | ||||||||||||||
USD | Trading | (306 | ) | (103 | ) | 122 | (3,238 | ) | 3,329 | (196 | ) | |||||||||||||||
Non-trading | 70 | (159 | ) | (546 | ) | (7,847 | ) | 35 | (8,447 | ) | ||||||||||||||||
EUR | Trading | 536 | (344 | ) | (302 | ) | (2,792 | ) | 2,725 | (178 | ) | |||||||||||||||
Non-trading | (2 | ) | (33 | ) | (18 | ) | (271 | ) | 1,174 | 850 | ||||||||||||||||
GBP | Trading | 169 | (652 | ) | 131 | (310 | ) | (9 | ) | (672 | ) | |||||||||||||||
Non-trading | (1 | ) | (8 | ) | (78 | ) | (437 | ) | 536 | 12 | ||||||||||||||||
JPY | Trading | 194 | 367 | (435 | ) | 406 | (704 | ) | (172 | ) | ||||||||||||||||
Non-trading | (0 | ) | (0 | ) | (3 | ) | (4 | ) | 0 | (7 | ) | |||||||||||||||
Other | Trading | 2 | (48 | ) | 69 | (125 | ) | (371 | ) | (473 | ) | |||||||||||||||
Non-trading | (3 | ) | (1 | ) | (0 | ) | (1 | ) | (3 | ) | (8 | ) | ||||||||||||||
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 | ) | ||||||||||||||||
129
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 28 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Trading
Non-trading
(iii) Currency Risk
Trading
Non-Trading
130
Table of Contents
Note 28 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
(iv) Equity Risk
(v) Issuer Risk
(vi) Financial Investments
b) Credit Risk
131
Table of Contents
Note 28 Financial Instruments Risk Position
b) Credit Risk (continued)
Breakdown of credit exposure1
Amounts for each product type are shown gross before allowances and provisions.
CHF million | 31.12.05 | 31.12.04 | ||||||
Banking products | ||||||||
Due from banks and loans2 | 304,541 | 269,224 | ||||||
Contingent liabilities (gross – before participations)3 | 16,566 | 14,894 | ||||||
Undrawn irrevocable credit facilities (gross – before participations)3 | 72,905 | 53,168 | ||||||
Traded products4 | ||||||||
Derivatives positive replacement values (before collateral but after netting)5 | 86,950 | 78,317 | ||||||
Securities borrowing and lending, repos and reverse repos6, 7 | 40,765 | 24,768 | ||||||
Allowances and provisions8 | (1,776 | ) | (2,802 | ) | ||||
Total credit exposure net of allowances and provisions | 519,951 | 437,569 | ||||||
132
Table of Contents
Note 28 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
Impaired claims
c) Liquidity Risk
133
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 28 Financial Instruments Risk Position (continued)
c) Liquidity Risk (continued)
Maturity analysis of assets and liabilities
Due | Due | |||||||||||||||||||||||||||
Due | between | between | ||||||||||||||||||||||||||
On | Subject | within | 3 and | 1 and | Due after | |||||||||||||||||||||||
CHF billion | demand | to notice1 | 3 months | 12 months | 5 years | 5 years | Total | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and balances with central banks | 5.4 | 5.4 | ||||||||||||||||||||||||||
Due from banks | 21.9 | 0.1 | 6.0 | 2.1 | 1.8 | 1.7 | 33.6 | |||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 202.6 | 90.4 | 7.3 | 0.0 | 0.0 | 300.3 | |||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 59.3 | 281.0 | 57.3 | 5.7 | 1.1 | 404.4 | |||||||||||||||||||||
Trading portfolio assets2 | 499.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 499.3 | |||||||||||||||||||||
Trading portfolio assets pledged as collateral2 | 154.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 154.7 | |||||||||||||||||||||
Positive replacement values2 | 333.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 333.8 | |||||||||||||||||||||
Financial assets designated at fair value | 1.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.2 | |||||||||||||||||||||
Loans | 27.1 | 39.7 | 73.6 | 31.5 | 80.1 | 18.0 | 270.0 | |||||||||||||||||||||
Financial investments | 5.7 | 0.0 | 0.1 | 0.1 | 0.3 | 0.4 | 6.6 | |||||||||||||||||||||
Accrued income and prepaid expenses | 8.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 8.9 | |||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 3.0 | 3.0 | |||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 9.4 | 9.4 | |||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 13.5 | 13.5 | |||||||||||||||||||||
Other assets | 16.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 16.2 | |||||||||||||||||||||
Total 31.12.05 | 1,074.2 | 301.7 | 451.1 | 98.3 | 87.9 | 47.1 | 2,060.3 | |||||||||||||||||||||
Total 31.12.04 | 910.0 | 271.8 | 345.2 | 79.4 | 87.3 | 43.4 | 1,737.1 | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Due to banks | 32.0 | 5.6 | 83.5 | 2.7 | 0.1 | 0.4 | 124.3 | |||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 66.2 | 10.5 | 0.6 | 0.0 | 0.0 | 77.3 | |||||||||||||||||||||
Repurchase agreements | 0.0 | 21.5 | 406.2 | 50.8 | 0.0 | 0.0 | 478.5 | |||||||||||||||||||||
Trading portfolio liabilities2 | 188.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 188.6 | |||||||||||||||||||||
Negative replacement values2 | 337.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 337.7 | |||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 0.0 | 6.7 | 18.2 | 66.3 | 26.2 | 117.4 | |||||||||||||||||||||
Due to customers | 132.0 | 123.1 | 189.1 | 6.8 | 0.4 | 0.1 | 451.5 | |||||||||||||||||||||
Accrued expenses and deferred income | 18.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 18.4 | |||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 95.5 | 11.0 | 8.0 | 46.2 | 160.7 | |||||||||||||||||||||
Other liabilities | 23.7 | 30.2 | 0.0 | 0.0 | 0.0 | 0.0 | 53.9 | |||||||||||||||||||||
Total 31.12.05 | 732.4 | 246.6 | 791.5 | 90.1 | 74.8 | 72.9 | 2,008.3 | |||||||||||||||||||||
Total 31.12.04 | 662.8 | 212.5 | 663.4 | 65.6 | 56.1 | 37.4 | 1,697.8 | |||||||||||||||||||||
134
Table of Contents
Note 28 Financial Instruments Risk Position (continued)
d) Capital Adequacy
BIS eligible capital
BIS risk-weighted assets (RWAs)
135
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 28 Financial Instruments Risk Position (continued)
d) Capital Adequacy (continued)
Risk-weighted assets (BIS)
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | amount | |||||||||||||
CHF million | 31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings1 | 665,932 | 6,991 | 556,947 | 7,820 | ||||||||||||
Net positions in securities2, 3 | 8,079 | 6,849 | 8,227 | 6,914 | ||||||||||||
Positive replacement values4 | 86,950 | 20,546 | 78,317 | 17,121 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings1 | 540,051 | 196,091 | 429,186 | 164,620 | ||||||||||||
Accrued income and prepaid expenses | 9,081 | 4,815 | 5,790 | 3,573 | ||||||||||||
Property and equipment | 7,957 | 7,957 | 8,772 | 8,772 | ||||||||||||
Other assets | 13,292 | 9,115 | 33,432 | 9,656 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 16,595 | 7,474 | 14,894 | 7,569 | ||||||||||||
Irrevocable commitments | 73,220 | 18,487 | 53,187 | 11,764 | ||||||||||||
Forward and swap contracts5 | 22,365,432 | 10,738 | 14,419,106 | 8,486 | ||||||||||||
Purchased options5 | 1,629,260 | 311 | 2,306,605 | 386 | ||||||||||||
Market risk positions6 | 21,035 | 18,151 | ||||||||||||||
Total risk-weighted assets | 310,409 | 264,832 | ||||||||||||||
BIS capital ratios
Capital | Ratio | Capital | Ratio | |||||||||||||
CHF million | % | CHF million | % | |||||||||||||
31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||||||
Tier 1 | 39,943 | 12.9 | 31,629 | 11.9 | ||||||||||||
of which hybrid Tier 1 | 4,975 | 1.6 | 2,963 | 1.1 | ||||||||||||
Tier 2 | 3,974 | 1.3 | 4,815 | 1.8 | ||||||||||||
Total BIS | 43,917 | 14.1 | 36,444 | 13.8 | ||||||||||||
The Tier 1 capital includes preferred securities of CHF 4,975 million (USD 2,600 million and EUR 1,000 million) at 31 December 2005 and CHF 2,963 million (USD 2,600 million) at 31 December 2004.
136
Table of Contents
Note 28 Financial Instruments Risk Position (continued)
e) Financial Instruments Risk Position in Motor-Columbus
Energy price risk
Interest rate risk
Currency risks
Credit risk
137
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 29 Fair Value of Financial Instruments
29a 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 | 31.12.05 | 31.12.05 | 31.12.05 | 31.12.04 | 31.12.04 | 31.12.04 | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash and balances with central banks | 5.4 | 5.4 | 0.0 | 6.0 | 6.0 | 0.0 | ||||||||||||||||||
Due from banks | 33.6 | 33.6 | 0.0 | 35.4 | 35.4 | 0.0 | ||||||||||||||||||
Cash collateral on securities borrowed | 300.3 | 300.2 | (0.1 | ) | 220.2 | 220.2 | 0.0 | |||||||||||||||||
Reverse repurchase agreements | 404.4 | 404.5 | 0.1 | 357.1 | 357.1 | 0.0 | ||||||||||||||||||
Trading portfolio assets | 499.3 | 499.3 | 0.0 | 389.5 | 389.5 | 0.0 | ||||||||||||||||||
Trading portfolio assets pledged as collateral | 154.8 | 154.8 | 0.0 | 159.1 | 159.1 | 0.0 | ||||||||||||||||||
Positive replacement values | 333.8 | 333.8 | 0.0 | 284.6 | 284.6 | 0.0 | ||||||||||||||||||
Financial assets designated at fair value | 1.2 | 1.2 | 0.0 | 0.7 | 0.7 | 0.0 | ||||||||||||||||||
Loans | 270.0 | 270.6 | 0.6 | 232.2 | 233.6 | 1.4 | ||||||||||||||||||
Financial investments | 6.6 | 6.6 | 0.0 | 4.2 | 4.2 | 0.0 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Due to banks | 124.3 | 124.3 | 0.0 | 120.0 | 120.0 | 0.0 | ||||||||||||||||||
Cash collateral on securities lent | 77.3 | 77.3 | 0.0 | 61.5 | 61.5 | 0.0 | ||||||||||||||||||
Repurchase agreements | 478.5 | 478.5 | 0.0 | 422.6 | 422.6 | 0.0 | ||||||||||||||||||
Trading portfolio liabilities | 188.6 | 188.6 | 0.0 | 171.0 | 171.0 | 0.0 | ||||||||||||||||||
Negative replacement values | 337.7 | 337.7 | 0.0 | 303.7 | 303.7 | 0.0 | ||||||||||||||||||
Financial liabilities designated at fair value | 117.4 | 117.4 | 0.0 | 65.8 | 65.8 | 0.0 | ||||||||||||||||||
Due to customers | 451.5 | 451.5 | 0.0 | 376.1 | 376.1 | 0.0 | ||||||||||||||||||
Debt issued | 160.7 | 162.0 | (1.3 | ) | 117.8 | 118.9 | (1.1 | ) | ||||||||||||||||
Subtotal | (0.7 | ) | 0.3 | |||||||||||||||||||||
Unrealized gains and losses recorded in equity before tax on: | ||||||||||||||||||||||||
Financial investments | 1.1 | 1.0 | ||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.9 | ) | (0.4 | ) | ||||||||||||||||||||
Net unrealized gains and losses not recognized in the income statement | (0.5 | ) | 0.9 | |||||||||||||||||||||
(a) | trading portfolio assets and liabilities, trading portfolio assets pledged as collateral, financial assets and liabilities designated at fair value, derivatives, and other transactions undertaken for trading purposes are measured at fair value |
138
Table of Contents
Note 29 Fair Value of Financial Instruments (continued)
29a Fair Value of Financial Instruments (continued)
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 Equity until an asset is sold, collected or otherwise disposed of; |
(c) | 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; |
(d) | 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 impairment is recognized separately by deducting the amount of the allowance for credit losses from both carrying and fair values; |
(e) | 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 impairment is recognized separately by deducting the amount of the allowance for credit losses from both carrying and fair values. |
139
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 29 Fair Value of Financial Instruments (continued)
29b Determination of Fair Values from Quoted Market Prices or Valuation Techniques
31.12.05 | 31.12.04 | |||||||||||||||||||||||||||||||
Valuation | Valuation | Valuation | Valuation | |||||||||||||||||||||||||||||
technique – | technique – | technique – | technique – | |||||||||||||||||||||||||||||
Quoted | market | non-market | Quoted | market | non-market | |||||||||||||||||||||||||||
market | observable | observable | market | observable | observable | |||||||||||||||||||||||||||
CHF billion | price | inputs | inputs | Total | price | inputs | inputs | Total | ||||||||||||||||||||||||
Trading portfolio assets | 273.2 | 225.2 | 0.9 | 499.3 | 228.4 | 160.1 | 1.0 | 389.5 | ||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 147.6 | 7.2 | 0.0 | 154.8 | 156.0 | 3.1 | 0.0 | 159.1 | ||||||||||||||||||||||||
Positive replacement values | 13.6 | 313.4 | 6.8 | 333.8 | 6.2 | 265.2 | 13.2 | 284.6 | ||||||||||||||||||||||||
Financial assets designated at fair value | 0.2 | 1.0 | 0.0 | 1.2 | 0.7 | 0.0 | 0.0 | 0.7 | ||||||||||||||||||||||||
Financial investments | 3.0 | 1.1 | 2.5 | 6.6 | 1.1 | 0.4 | 2.7 | 4.2 | ||||||||||||||||||||||||
Total assets | 437.6 | 547.9 | 10.2 | 995.7 | 392.4 | 428.8 | 16.9 | 838.1 | ||||||||||||||||||||||||
Trading portfolio liabilities | 171.2 | 17.4 | 0.0 | 188.6 | 161.3 | 9.7 | 0.0 | 171.0 | ||||||||||||||||||||||||
Negative replacement values | 15.9 | 311.1 | 10.7 | 337.7 | 9.8 | 270.1 | 23.8 | 303.7 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 92.5 | 24.9 | 117.4 | 0.0 | 65.8 | 0.0 | 65.8 | ||||||||||||||||||||||||
Total liabilities | 187.1 | 421.0 | 35.6 | 643.7 | 171.1 | 345.6 | 23.8 | 540.5 | ||||||||||||||||||||||||
140
Table of Contents
Note 29 Fair Value of Financial Instruments (continued)
29c Sensitivity of Fair Values to Changing Significant Assumptions to Reasonably Possible Alternatives
29d Changes in Fair Value Recognized in Profit or Loss during the Period which were Estimated using Valuation Techniques
141
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 29 Fair Value of Financial Instruments (continued)
29e Continuing Involvement with Transferred Assets
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:
31.12.05 | 31.12.04 | |||||||||||||||
Continued asset | Continued asset | |||||||||||||||
recognition in full | recognition in full | |||||||||||||||
CHF billion | Total | Associated | Total | Associated | ||||||||||||
assets | liability | assets | liability | |||||||||||||
Nature of transaction | ||||||||||||||||
Securities lending agreements | 50.5 | 10.0 | 37.3 | 13.8 | ||||||||||||
Repurchase agreements | 100.0 | 78.6 | 121.8 | 117.6 | ||||||||||||
Property and equipment | 0.5 | 0.7 | 0.4 | 1 | 0.0 | |||||||||||
Other collateralized securities trading | 60.6 | 3.0 | 35.6 | 1 | 2.1 | |||||||||||
Total | 211.6 | 92.3 | 195.1 | 133.5 | ||||||||||||
142
Table of Contents
Note 30 Pension and Other Post-Retirement Benefit Plans
a) Defined benefit plans
Swiss pension plans
Foreign pension plans
143
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 30 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (20,225 | ) | (18,216 | ) | (19,204 | ) | (4,142 | ) | (3,663 | ) | (3,436 | ) | ||||||||||||
Service cost | (353 | ) | (345 | ) | (362 | ) | (82 | ) | (83 | ) | (91 | ) | ||||||||||||
Interest cost | (660 | ) | (672 | ) | (703 | ) | (236 | ) | (212 | ) | (197 | ) | ||||||||||||
Plan participant contributions | (219 | ) | (203 | ) | (202 | ) | ||||||||||||||||||
Actuarial gain / (loss) | (713 | ) | (1,392 | ) | 1,395 | (416 | ) | (296 | ) | (201 | ) | |||||||||||||
Foreign currency translation | (280 | ) | 146 | 138 | ||||||||||||||||||||
Benefits paid | 866 | 910 | 930 | 144 | 125 | 124 | ||||||||||||||||||
Special termination benefits | (37 | ) | (35 | ) | (70 | ) | (2 | ) | ||||||||||||||||
Acquisitions | (272 | ) | (6 | ) | (159 | ) | ||||||||||||||||||
Settlements | 369 | |||||||||||||||||||||||
Defined benefit obligation at the end of the year | (20,972 | ) | (20,225 | ) | (18,216 | ) | (5,020 | ) | (4,142 | ) | (3,663 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 18,575 | 17,619 | 16,566 | 3,580 | 3,402 | 2,382 | ||||||||||||||||||
Expected return on plan assets | 925 | 878 | 818 | 263 | 248 | 178 | ||||||||||||||||||
Actuarial gain / (loss) | 1,284 | 102 | 593 | 247 | 122 | 251 | ||||||||||||||||||
Foreign currency translation | 253 | (132 | ) | (116 | ) | |||||||||||||||||||
Employer contributions | 468 | 411 | 370 | 89 | 65 | 831 | ||||||||||||||||||
Plan participant contributions | 219 | 203 | 202 | |||||||||||||||||||||
Benefits paid | (866 | ) | (910 | ) | (930 | ) | (144 | ) | (125 | ) | (124 | ) | ||||||||||||
Acquisitions | 272 | |||||||||||||||||||||||
Settlements | (376 | ) | ||||||||||||||||||||||
Fair value of plan assets at the end of the year | 20,229 | 18,575 | 17,619 | 4,288 | 3,580 | 3,402 | ||||||||||||||||||
Funded status | (743 | ) | (1,650 | ) | (597 | ) | (732 | ) | (562 | ) | (261 | ) | ||||||||||||
Unrecognized net actuarial (gains) / losses | 2,334 | 3,006 | 1,716 | 1,222 | 1,046 | 970 | ||||||||||||||||||
Unrecognized prior service cost | 1 | 1 | 1 | |||||||||||||||||||||
Unrecognized asset | (1,591 | ) | (1,356 | ) | (1,119 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 491 | 485 | 710 | ||||||||||||||||||
Movement in the net (liability or) asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 33 | 485 | 710 | 73 | ||||||||||||||||||||
Net periodic pension cost | (468 | ) | (411 | ) | (403 | ) | (125 | ) | (105 | ) | (168 | ) | ||||||||||||
Employer contributions | 468 | 411 | 370 | 89 | 65 | 831 | ||||||||||||||||||
Acquisitions | (6 | ) | (159 | ) | ||||||||||||||||||||
Foreign currency translation | 48 | (26 | ) | (26 | ) | |||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 491 | 485 | 710 | ||||||||||||||||||
Amounts recognized in the Balance Sheet | ||||||||||||||||||||||||
Prepaid pension cost | 832 | 805 | 862 | |||||||||||||||||||||
Accrued pension liability | (341 | ) | (320 | ) | (152 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 491 | 485 | 710 | ||||||||||||||||||
144
Table of Contents
Note 30 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 353 | 345 | 362 | 82 | 83 | 91 | ||||||||||||||||||
Interest cost | 660 | 672 | 703 | 236 | 212 | 197 | ||||||||||||||||||
Expected return on plan assets | (925 | ) | (878 | ) | (818 | ) | (263 | ) | (248 | ) | (178 | ) | ||||||||||||
Amortization of unrecognized past service cost | (3 | ) | ||||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 101 | 188 | 68 | 58 | 58 | |||||||||||||||||||
Special termination benefits | 37 | 35 | 70 | 2 | ||||||||||||||||||||
Settlements | 10 | |||||||||||||||||||||||
Increase / (decrease) of unrecognized asset | 235 | 237 | (102 | ) | ||||||||||||||||||||
Net periodic pension cost | 468 | 411 | 403 | 125 | 105 | 168 | ||||||||||||||||||
Funded and unfunded plans | Swiss | |||||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||
Defined benefit obligation from funded plans | (20,972 | ) | (20,225 | ) | (18,216 | ) | (19,204 | ) | (17,879 | ) | ||||||||||||||
Plan assets | 20,229 | 18,575 | 17,619 | 16,566 | 18,289 | |||||||||||||||||||
Surplus / (deficit) | (743 | ) | (1,650 | ) | (597 | ) | (2,638 | ) | 410 | |||||||||||||||
Experience gains / (losses) on plan liabilities | (77 | ) | ||||||||||||||||||||||
Experience gains / (losses) on plan assets | 1,284 | |||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||||||
Defined benefit obligation from funded plans | (4,635 | ) | (3,815 | ) | (3,509 | ) | (3,295 | ) | (3,402 | ) | ||||||||||||||
Defined benefit obligation from unfunded plans | (385 | ) | (327 | ) | (154 | ) | (141 | ) | (151 | ) | ||||||||||||||
Plan assets | 4,288 | 3,580 | 3,402 | 2,382 | 2,887 | |||||||||||||||||||
Surplus / (deficit) | (732 | ) | (562 | ) | (261 | ) | (1,054 | ) | (666 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | 7 | |||||||||||||||||||||||
Experience gains / (losses) on plan assets | 247 | |||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.0 | 3.3 | 3.8 | 5.0 | 5.5 | 5.7 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.4 | 4.6 | ||||||||||||||||||
Rate of pension increase | 0.8 | 1.0 | 1.0 | 1.9 | 1.9 | 1.9 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.3 | 3.8 | 3.8 | 5.5 | 5.7 | 5.8 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.0 | 7.2 | 7.1 | ||||||||||||||||||
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 | ||||||||||||||||||
145
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 30 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Expected future benefit payments | ||||||||||||||||||||||||
2006 | 922 | 150 | ||||||||||||||||||||||
2007 | 931 | 147 | ||||||||||||||||||||||
2008 | 949 | 158 | ||||||||||||||||||||||
2009 | 965 | 168 | ||||||||||||||||||||||
2010 | 968 | 180 | ||||||||||||||||||||||
2011–2015 | 5,063 | 1,272 | ||||||||||||||||||||||
Plan assets (weighted average) | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 43 | 43 | 39 | 52 | 54 | 52 | ||||||||||||||||||
Debt instruments | 43 | 41 | 43 | 39 | 41 | 30 | ||||||||||||||||||
Real estate | 12 | 12 | 12 | 4 | 2 | 1 | ||||||||||||||||||
Other | 2 | 4 | 6 | 5 | 3 | 17 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 34–46 | 34–49 | 52–55 | 49–55 | ||||||||||||||||||||
Debt instruments | 30–53 | 30–53 | 44–45 | 44–47 | ||||||||||||||||||||
Real estate | 11–19 | 12–19 | 0–3 | 1–2 | ||||||||||||||||||||
Other | 0 | 0 | 1–2 | 0–6 | ||||||||||||||||||||
Actual return on plan assets (%) | 12.0 | 5.5 | 8.6 | 13.6 | 10.8 | 17.8 | ||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 613 | 1,239 | 1,005 | |||||||||||||||||||||
UBS AG shares1 | 225 | 238 | 246 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 2,222 | 3,778 | 2,930 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 69 | 73 | 84 | |||||||||||||||||||||
146
Table of Contents
Note 30 Pension and Other Post-Retirement Benefit Plans (continued)
b) Post-retirement medical and life plans
b) Post-retirement medical and life plans | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Post-retirement benefit obligation at the beginning of the year | (166 | ) | (179 | ) | (166 | ) | ||||||
Service cost | (8 | ) | (6 | ) | (11 | ) | ||||||
Interest cost | (11 | ) | (9 | ) | (10 | ) | ||||||
Actuarial gain / (loss) | (17 | ) | 8 | (14 | ) | |||||||
Foreign currency translation | (22 | ) | 12 | 16 | ||||||||
Benefits paid | 8 | 8 | 6 | |||||||||
Post-retirement benefit obligation at the end of the year | (216 | ) | (166 | ) | (179 | ) | ||||||
Fair value of plan assets at the beginning of the year | 0 | 0 | 2 | |||||||||
Employer contributions | 8 | 8 | 4 | |||||||||
Benefits paid | (8 | ) | (8 | ) | (6 | ) | ||||||
Fair value of plan assets at the end of the year | 0 | 0 | 0 | |||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||
Defined benefit obligation | (216 | ) | (166 | ) | (179 | ) | (166 | ) | (145 | ) | ||||||||||
Plan asset | 0 | 0 | 0 | 2 | 3 | |||||||||||||||
Surplus / (deficit) | (216 | ) | (166 | ) | (179 | ) | (164 | ) | (142 | ) | ||||||||||
Experience gains / (losses) on plan liabilities | (3 | ) | ||||||||||||||||||
The assumed average health care cost trend rate used in determining post-retirement benefit expense is assumed to be 11% for 2005 and to decrease to an ultimate trend rate of 5% in 2012. 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 | 4 | (3 | ) | |||||
Effect on the post-retirement benefit obligation | 28 | (23 | ) | |||||
147
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 30 Pension and Other Post-Retirement Benefit Plans (continued)
c) Defined contribution plans
d) Related party disclosure
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Received by UBS | ||||||||||||
Fees | 48 | 42 | 33 | |||||||||
Paid by UBS | ||||||||||||
Interest | 4 | 4 | 3 | |||||||||
Dividends and capital repayments | 7 | 7 | 7 | |||||||||
The foreign UBS pension funds do not have a similar banking relationship with UBS, but they may hold and trade UBS shares and/or securities.
For the year ended | ||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||
Financial instruments bought by pension funds | ||||||||||||
UBS AG shares (in thousands of shares) | 1,387 | 2,822 | 4,987 | |||||||||
UBS financial instruments (nominal values in CHF million) | 0 | 47 | 34 | |||||||||
Financial instruments sold by pension funds or matured | ||||||||||||
UBS AG shares (in thousands of shares) | 2,263 | 3,713 | 5,760 | |||||||||
UBS financial instruments (nominal values in CHF million) | 45 | 18 | 36 | |||||||||
UBS has also leased buildings from the Swiss pension fund. The rent paid by UBS under these leases amounted to CHF 4 million in 2005, CHF 5 million in 2004 and CHF 5 million in 2003.
148
Table of Contents
Note 31 Equity Participation and Other Compensation 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.
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, options were not granted as part of EOP and awards were generally made in UBS shares. EOP awards vest in one-third increments over a three-year vesting period. Under certain conditions, these awards are fully forfeitable by the employee.
149
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 31 Equity Participation and Other Compensation Plans (continued)
b) UBS share awards
Movements in shares granted under various equity participation plans described in Note 31a) are as follows:
UBS share awards | ||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
Number of | grant date | Number of | grant date | Number of | grant date | |||||||||||||||||||
shares | fair value | shares | fair value | shares | fair value | |||||||||||||||||||
Share compensation plans | 31.12.05 | (CHF) | 31.12.04 | (CHF) | 31.12.03 | (CHF) | ||||||||||||||||||
Unvested, at the beginning of the year | 24,636,819 | 79 | 31,383,890 | 75 | 48,136,561 | 78 | ||||||||||||||||||
Shares awarded during the year | 13,626,050 | 101 | 11,713,406 | 95 | 11,023,553 | 61 | ||||||||||||||||||
Vested during the year | (10,995,880 | ) | 78 | (17,996,498 | ) | 79 | (26,915,860 | ) | 75 | |||||||||||||||
Forfeited during the year | (404,396 | ) | 89 | (463,979 | ) | 77 | (860,364 | ) | 79 | |||||||||||||||
Unvested, at the end of the year | 26,862,593 | 92 | 24,636,819 | 79 | 31,383,890 | 75 | ||||||||||||||||||
UBS estimates the grant date fair value of shares awarded during the year by using the average UBS share price on the grant date as quoted on the virtX.
c) UBS option awards
Movements in options granted under various equity participation plans described in Note 31a) are as follows:
UBS option awards | ||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
Number of | grant date | Number of | grant date | Number of | grant date | |||||||||||||||||||
options | fair value1 | options | fair value1 | options | fair value1 | |||||||||||||||||||
31.12.05 | (CHF) | 31.12.04 | (CHF) | 31.12.03 | (CHF) | |||||||||||||||||||
Outstanding, at the beginning of the year | 100,907,354 | 69 | 109,040,026 | 63 | 88,164,227 | 67 | ||||||||||||||||||
Granted during the year | 22,601,427 | 109 | 24,113,252 | 91 | 38,969,319 | 59 | ||||||||||||||||||
Exercised during the year | (30,651,709 | ) | 68 | (29,396,959 | ) | 58 | (14,782,471 | ) | 54 | |||||||||||||||
Forfeited during the year | (1,905,053 | ) | 90 | (2,692,824 | ) | 66 | (2,721,970 | ) | 64 | |||||||||||||||
Expired unexercised | (69,474 | ) | 68 | (156,141 | ) | 76 | (589,079 | ) | 76 | |||||||||||||||
Outstanding, at the end of the year | 90,882,545 | 84 | 100,907,354 | 69 | 109,040,026 | 63 | ||||||||||||||||||
Exercisable, at the end of the year | 37,394,419 | 70 | 37,941,280 | 65 | 34,726,720 | 59 | ||||||||||||||||||
The weighted average share price of options exercised during the year was CHF 106, CHF 93 and CHF 77 for the years ended 31 December 2005, 31 December 2004 and 31 December 2003, respectively.
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||
Intrinsic value of options exercised during the year (CHF million) | 1,224 | 960 | 326 | |||||||||
Weighted-average grant date fair value of options granted (CHF) | 16 | 25 | 15 | |||||||||
In addition, UBS received cash of CHF 2,018 million and an income tax benefit of CHF 217 million from the exercise of share options for the year ended 31 December 2005.
150
Table of Contents
Note 31 Equity Participation and Other Compensation Plans (continued)
c) UBS option awards (continued)
The following tables summarize additional information about options outstanding and options exercisable at 31 December 2005:
as at 31.12.05 | ||||||||||||||||||||||||||||||||
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | Weighted- | |||||||||||||||||||||||||||||
average | Aggregate | average | average | Aggregate | average | |||||||||||||||||||||||||||
Number of | exercise | intrinsic | remaining | Number of | exercise | intrinsic | remaining | |||||||||||||||||||||||||
options | price | value | contractual | options | price | value | contractual | |||||||||||||||||||||||||
Range of exercise price per share | outstanding | (CHF/USD) | (CHF million) | term (years) | exercisable | (CHF/USD) | (CHF million) | term (years) | ||||||||||||||||||||||||
CHF | ||||||||||||||||||||||||||||||||
53.37–70.00 | 11,419,873 | 60.44 | 738 | 6.8 | 5,374,311 | 59.77 | 351 | 6.4 | ||||||||||||||||||||||||
70.01–85.00 | 9,663,720 | 77.90 | 456 | 6.3 | 9,110,432 | 77.82 | 431 | 6.3 | ||||||||||||||||||||||||
85.01–100.00 | 12,146,701 | 95.31 | 362 | 7.2 | 4,179,263 | 96.83 | 118 | 5.6 | ||||||||||||||||||||||||
100.01–126.45 | 14,458,375 | 104.08 | 304 | 9.1 | 9,459 | 102.93 | 0 | 9.3 | ||||||||||||||||||||||||
53.37–126.45 | 47,688,669 | 86.09 | 1,860 | 7.5 | 18,673,465 | 76.89 | 900 | 6.2 | ||||||||||||||||||||||||
USD | ||||||||||||||||||||||||||||||||
9.48–35.00 | 1,610,614 | 25.23 | 113 | 1.0 | 1,610,614 | 25.23 | 113 | 1.0 | ||||||||||||||||||||||||
35.01–45.00 | 7,739,569 | 43.15 | 402 | 7.1 | 3,967,147 | 42.92 | 207 | 7.1 | ||||||||||||||||||||||||
45.01–55.00 | 12,192,501 | 47.81 | 577 | 5.0 | 10,336,354 | 47.75 | 490 | 4.6 | ||||||||||||||||||||||||
55.01–80.00 | 10,127,640 | 71.02 | 244 | 7.8 | 2,745,506 | 66.61 | 78 | 6.3 | ||||||||||||||||||||||||
80.01–96.52 | 11,523,552 | 87.38 | 91 | 9.1 | 61,333 | 83.58 | 1 | 9.0 | ||||||||||||||||||||||||
9.48–96.52 | 43,193,876 | 62.13 | 1,427 | 7.0 | 18,720,954 | 47.67 | 889 | 5.1 | ||||||||||||||||||||||||
d) Valuation
Upon adoption of IFRS 2 and SFAS 123-R, both titledShare-based Payment,on 1 January 2005, UBS conducted a review of its option valuation inputs to ensure they were in line with the guidance included in the two standards. As a result of that review, UBS now uses a mix of implied and historic volatility instead of solely historic volatility and specific employee exercise behavior patterns based on statistical data instead of a single expected life input to determine the fair value of the options. A more sophisticated option valuation model was concurrently introduced to better model the UBS-specific employee exercise behavior patterns. The overall change in fair
value of the options in 2005 versus 2004 is primarily attributable to using implied instead of historic volatility. The use of market-implied volatility decreased the fair value of the option by approximately CHF 7 or 29% compared to using historic volatility. The remaining reduction in fair value of approximately CHF 2 is attributable to the introduction of the new valuation model which uses UBS-specific employee exercise behavior patterns rather than an expected life input, as well as all other input changes based on observable market factors.
31.12.05 | ||||||||||||||||||||||||
CHF awards | range low | range high | USD awards | range low | range high | |||||||||||||||||||
Expected volatility (%) | 23.20 | 12.39 | 27.03 | 23.36 | 15.21 | 27.21 | ||||||||||||||||||
Risk-free interest rate (%) | 2.00 | 0.62 | 2.34 | 4.11 | 1.91 | 4.63 | ||||||||||||||||||
Expected dividend (CHF/USD) | 4.59 | 3.00 | 7.78 | 3.77 | 2.43 | 8.24 | ||||||||||||||||||
Strike price (CHF/USD) | 104.16 | 96.45 | 126.45 | 88.21 | 78.49 | 96.52 | ||||||||||||||||||
Share price (CHF/USD) | 102.65 | 96.45 | 126.45 | 86.79 | 78.49 | 96.52 | ||||||||||||||||||
151
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 31 Equity Participation and Other Compensation Plans (continued)
d) Valuation (continued)
The valuation technique takes into account the specific terms and conditions under which the share options are granted such as the vesting period, forced exercises during the lifetime, and gain- and time-dependent exercise behavior. The expected term of each option is calculated, by means of Monte Carlo simulation, as the probability-weighted average of the time of exercise.
31.12.04 | 31.12.03 | |||||||||||||||
CHF awards | USD awards | CHF awards | USD awards | |||||||||||||
Expected volatility (%) | 33.66 | 33.45 | 35.20 | 34.74 | ||||||||||||
Risk-free interest rate (%) | 2.03 | 3.70 | 1.70 | 3.17 | ||||||||||||
Expected dividend rate (%) | 3.86 | 3.88 | 4.58 | 4.35 | ||||||||||||
Strike price (CHF/USD) | 95.59 | 75.12 | 60.84 | 46.44 | ||||||||||||
Share price (CHF/USD) | 94.17 | 74.06 | 59.32 | 46.25 | ||||||||||||
Expected life (years) | 5.6 | 5.6 | 4.5 | 4.5 | ||||||||||||
The expected life was estimated on the basis of observed employee option exercise patterns. Volatility was derived from the observed long-term historic share price volatility aligned to the expected life of the option. Dividends were assumed to grow at a 10% yearly rate over the expected life of the option.
e) Compensation expense
Generally, under IFRS, for all employee share and option awards for which the underlying is UBS shares, UBS recognizes compensation expense over the requisite service period which is generally equal to the vesting period. Share and option awards typically have a three-year tiered vesting structure which means awards vest in one-third increments over that period. The total share-based compensation expense recognized for the years ended 31 December 2005, 31 December 2004 and 31 December 2003 was CHF 1,662 million, CHF 1,406 million and CHF 1,474 million, respectively. The total income taxes recognized in the Income statement in relation to these expenses were a benefit of CHF 431 million, CHF 64 million and CHF 197 million for the years ended 31 December 2005, 31 December 2004 and 31 December 2003, respectively.
152
Table of Contents
Note 32 Related Parties
The Group defines related parties as associated companies, post-employment benefit plans for the benefit of UBS employees, key management personnel, close family members of key management personnel and enterprises which are, directly or indirectly, controlled by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close family members. Key management personnel is defined as members of the Board
of Directors (BoD) and Group Executive Board (GEB). This definition is based on the requirements of revised IAS 24Related Party Disclosuresadopted by UBS on 1 January 2005 and 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 of key management personnel
The executive members of the BoD have top management employment contracts and receive pension benefits upon retirement. Total remuneration of the executive members of the BoD and GEB is as follows:
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Base salaries and other cash payments | 15 | 15 | 14 | |||||||||
Incentive awards – cash | 90 | 70 | 65 | |||||||||
Employer’s contributions to retirement benefit plans | 1 | 1 | 1 | |||||||||
Benefits in kind, fringe benefits (at market value) | 3 | 2 | 1 | |||||||||
Equity compensation benefits1 | 114 | 103 | 77 | |||||||||
Total | 223 | 191 | 158 | |||||||||
Total compensation numbers exclude merger-related retention payments for two ex-PaineWebber executives of CHF 21.1 million (USD 17.0 million) in 2003. These retention payments were committed to at the time of the merger in 2000 and fully disclosed at the time.
b) Equity holdings | ||||||||||||
As at | ||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||
Number of stock options from equity participation plans held by executive members of the BoD and the GEB | 5,431,125 | 6,004,997 | 6,218,011 | |||||||||
Number of shares held by members of the BoD, GEB and parties closely linked to them | 4,356,992 | 3,506,610 | 3,150,217 | |||||||||
Of the share totals above, at 31 December 2005, 3,269 shares were held by close family members of key management personnel and 1,243,030 shares were held by enterprises which are directly or indirectly controlled by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close family members.
153
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 32 Related Parties (continued)
c) Loans, advances and mortgages to key management personnel
Movements in the loan, advances and mortgage balances are as follows:
CHF million | 31.12.05 | 31.12.04 | ||||||
Balance at the beginning of the year | 16 | 25 | ||||||
Additions | 7 | 2 | ||||||
Reductions | (2 | ) | (11 | ) | ||||
Balance at the end of the year | 21 | 16 | ||||||
No unsecured loans were granted to key management personnel as at 31 December 2005 and 31 December 2004.
d) Associated companies
CHF million | 31.12.05 | 31.12.04 | ||||||
Balance at the beginning of the year | 83 | 81 | ||||||
Additions | 267 | 38 | ||||||
Reductions | (26 | ) | (36 | ) | ||||
Credit loss (expense)/recovery | (3 | ) | 0 | |||||
Balance at the end of the year | 321 | 83 | ||||||
All loans to associated companies are transacted at arm’s length. Of the balances above, the amount of unsecured loans amounted to CHF 82 million and CHF 61 million at 31 December 2005 and 31 December 2004, respectively.
Other transactions with associated companies transacted at arm’s length are as follows:
For the year ended or as at | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Payments to associates for goods and services received | 397 | 248 | 120 | |||||||||
Fees received for services provided to associates | 258 | 180 | 122 | |||||||||
Commitments and contingent liabilities to associates | 39 | 83 | ||||||||||
During 2003, UBS sold its VISA acquiring business to Telekurs Holding AG, an associated company. UBS realized a CHF 90 million gain from this divestment. Note 35 provides a list of significant associates.
154
Table of Contents
Note 32 Related Parties (continued)
e) Other related party transactions
Movements in loans to other related parties are as follows:
CHF million | 31.12.05 | 31.12.04 | ||||||
Balance at the beginning of the year | 294 | 79 | ||||||
Additions | 628 | 275 | ||||||
Reductions | 3 | 60 | ||||||
Loans at the end of the year1 | 919 | 294 | ||||||
No unsecured loans were entered into as at 31 December 2005 and 31 December 2004.
Other transactions with these related parties include:
For the year ended | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Goods sold and services provided to UBS | 15 | 34 | 43 | |||||||||
Fees received for services provided by UBS | 1 | 10 | 7 | |||||||||
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 8.4 million (EUR 5.4 million) as sponsoring fee for 2005. Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli.
f) Additional information
155
Table of Contents
Note 33 Securitizations
During the years ended 31 December 2005, 2004 and 2003, UBS securitized (i.e. transformed owned financial assets into securities) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. UBS’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests.
Proceeds received | ||||||||||||
CHF billion | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Residential mortgage securitizations | 66 | 91 | 131 | |||||||||
Commercial mortgage securitizations | 5 | 3 | 4 | |||||||||
Other financial asset securitizations | 9 | 9 | 2 | |||||||||
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 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Residential mortgage securitizations | 107 | 197 | 338 | |||||||||
Commercial mortgage securitizations | 125 | 141 | 214 | |||||||||
Other financial asset securitizations | 17 | 21 | 2 | |||||||||
At 31 December 2005 and 2004, UBS retained CHF 1.7 billion and CHF 2.4 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 non-investment grade interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2005 and 2004.
Note 34 Post-Balance Sheet Events
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 2005 Financial Statements.
156
Table of Contents
Note 35 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, Global Wealth Management & Business Banking and Global Asset Management) nor Corporate Center are replicated in their own individual legal entities, but rather they generally operate out of UBS AG (Parent Bank) through its Swiss and foreign branches.
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 | |||||||||||
Crédit Industriel SA | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||||
Etra SIM SpA | Milan, Italy | Global WM&BB | EUR | 7.6 | 100.0 | |||||||||||
Factors AG | Zurich, Switzerland | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||||
Noriba Bank BSC | Manama, Bahrain | Global WM&BB | USD | 10.0 | 100.0 | |||||||||||
PaineWebber Capital Inc | Delaware, USA | IB | USD | 25.8 | 100.0 | |||||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 100,000.0 | 98.4 | |||||||||||
Thesaurus Continentale Effekten-Gesellschaft in Zürich | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||||
UBS (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 4.0 | 100.0 | |||||||||||
UBS (France) SA | Paris, France | Global WM&BB | EUR | 10.7 | 100.0 | |||||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||||
UBS (Italia) SpA | Milan, Italy | Global WM&BB | EUR | 60.0 | 100.0 | |||||||||||
UBS (Luxembourg) SA | Luxembourg, Luxembourg | Global WM&BB | CHF | 150.0 | 100.0 | |||||||||||
UBS (Monaco) SA | Monte Carlo, Monaco | Global 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 | 100.0 | |||||||||||
UBS Asesores SA | Panama, Panama | Global WM&BB | USD | 0.0 | 100.0 | |||||||||||
UBS Australia Limited | Sydney, Australia | IB | AUD | 50.0 | 100.0 | |||||||||||
UBS Bank (Canada) | Toronto, Canada | Global WM&BB | CAD | 8.5 | 100.0 | |||||||||||
UBS Bank USA | Utah, USA | Global WM&BB | USD | 1,700.0 | 100.0 | |||||||||||
UBS Belgium SA/NV | Brussels, Belgium | Global WM&BB | EUR | 17.0 | 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 | |||||||||||
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 Card Center AG | Glattbrugg, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||||
UBS Commodities Canada Ltd. | Toronto, Canada | IB | USD | 11.3 | 100.0 | |||||||||||
UBS Corporate Finance Italia SpA | Milan, Italy | IB | EUR | 1.9 | 100.0 | |||||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 60.0 | 100.0 | |||||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | Global WM&BB | EUR | 176.0 | 100.0 | |||||||||||
157
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||||
Share | Equity | |||||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | CHF | 0.0 | 100.0 | |||||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||||
UBS España SA | Madrid, Spain | Global WM&BB | EUR | 62.2 | 100.0 | |||||||||||
UBS Fiduciaria SpA | Milan, Italy | Global WM&BB | EUR | 0.2 | 100.0 | |||||||||||
UBS Fiduciary Trust Company | New Jersey, USA | Global WM&BB | 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 | Global WM&BB | USD | 1,672.3 | 2 | 100.0 | ||||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | Global WM&BB | USD | 31.0 | 2 | 100.0 | ||||||||||
UBS Fund Advisor LLC | Delaware, USA | Global WM&BB | 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 | 1.3 | 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 (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||||
UBS Global Asset Management (France) SA | Paris, France | Global WM&BB | EUR | 2.1 | 100.0 | |||||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||||
UBS Global Asset Management (Italia) SIM SpA | Milan, Italy | Global AM | EUR | 2.0 | 100.0 | |||||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||||
UBS Global Asset Management (Singapore) Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||||
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 | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||||
UBS Global Trust Corporation | St. John, Canada | Global 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 | Global WM&BB | USD | 34.3 | 2 | 100.0 | ||||||||||
UBS International Life Limited | Dublin, Ireland | Global WM&BB | EUR | 1.0 | 100.0 | |||||||||||
UBS Investment Bank Nederland BV | Amsterdam, the Netherlands | IB | EUR | 10.8 | 100.0 | |||||||||||
UBS Investment Management Canada Inc | Toronto, Canada | Global WM&BB | CAD | 0.0 | 100.0 | |||||||||||
UBS Italia SIM SpA | Milan, Italy | IB | EUR | 15.1 | 100.0 | |||||||||||
UBS Leasing AG | Zurich, Switzerland | Global WM&BB | CHF | 10.0 | 100.0 | |||||||||||
UBS Life AG | Zurich, Switzerland | Global WM&BB | CHF | 25.0 | 100.0 | |||||||||||
UBS Life Insurance Company (USA) | California, USA | Global WM&BB | USD | 39.3 | 2 | 100.0 | ||||||||||
UBS Limited | London, Great Britain | IB | GBP | 29.4 | 100.0 | |||||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||||
UBS Mortgage Holdings LLC | Delaware, USA | Global WM&BB | 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 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 | |||||||||||
158
Table of Contents
Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||||
Share | Equity | |||||||||||||||
Jurisdiction | Business | capital | interest | |||||||||||||
Company | of incorporation | Group1 | in millions | accumulated in % | ||||||||||||
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 | Global WM&BB | AUD | 53.9 | 100.0 | |||||||||||
UBS Real Estate Investments Inc | Delaware, USA | IB | USD | 0.3 | 100.0 | |||||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 51.0 | |||||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 0.4 | 100.0 | |||||||||||
UBS Realty Investors LLC | Massachusetts, 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 Malaysia Sdn Bdn | Kuala Lumpur, Malaysia | IB | MYR | 75.0 | 100.0 | |||||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 150.0 | 100.0 | |||||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 90.0 | 100.0 | |||||||||||
UBS Services USA LLC | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | Global WM&BB | CHF | 1.5 | 100.0 | |||||||||||
UBS Trust Company National Association | New York, USA | Global WM&BB | USD | 5.0 | 2 | 100.0 | ||||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 2.0 | 100.0 | |||||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | Global WM&BB | USD | 2.0 | 100.0 | |||||||||||
UBS Trustees (Jersey) Ltd | St. Helier, Jersey | Global WM&BB | GBP | 0.0 | 100.0 | |||||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | Global WM&BB | SGD | 3.3 | 100.0 | |||||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | Global WM&BB | GBP | 2.5 | 100.0 | |||||||||||
Motor-Columbus AG | Baden, Switzerland | CC | CHF | 253.0 | 55.6 | |||||||||||
Aare-Tessin AG für Elektrizität3 | Olten, Switzerland | CC | CHF | 303.6 | 33.0 | |||||||||||
Atel Energia S.r.l.3 | Milan, Italy | CC | EUR | 20.0 | 32.3 | |||||||||||
Atel Installationstechnik AG3 | Olten, Switzerland | CC | CHF | 30.0 | 33.0 | |||||||||||
Entrade GmbH3 | Schaffhausen, Switzerland | CC | CHF | 0.4 | 24.7 | |||||||||||
GAH Beteiligungs AG3 | Heidelberg, Germany | CC | EUR | 25.0 | 33.0 | |||||||||||
Società Elettrica Sopracenerina SA3 | Locarno, Switzerland | CC | CHF | 27.5 | 19.6 | |||||||||||
159
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 35 Significant Subsidiaries and Associates (continued)
Consolidated companies: changes in 2005 | ||||
Significant new companies | ||||
Etra SIM SpA – Milan, Italy | ||||
UBS Real Estate Kapitalanlagegesellschaft mbH – Munich, Germany | ||||
UBS Swiss Financial Advisers AG – Zurich, Switzerland | ||||
Deconsolidated companies | ||
Significant deconsolidated companies | Reason for deconsolidation | |
Ehinger & Armand von Ernst AG – Zurich, Switzerland | Sold | |
Ferrier Lullin & Cie SA – Geneva, Switzerland | Sold | |
BDL Banco di Lugano – Lugano, Switzerland | Sold | |
GAM Holding AG – Zurich, Switzerland | Sold | |
UBS Investment Bank AG – Frankfurt am Main, Germany | Merged | |
UBS Capital SpA – Milan, Italy | Sold | |
Cantrade Private Bank Switzerland (CI) Limited – St. Helier, Jersey | Sold | |
GAM Limited – Hamilton, Bermuda | Sold | |
BDL Banco di Lugano (Singapore) Ltd – Singapore, Singapore | Sold | |
SBC Wealth Management AG – Zug, 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 | ||||||||||
UBS Alpha Select – George Town, Cayman Islands | Private Investment Company | 32 | USD | 295 | 2 | |||||||||
UBS Alpha Hedge Fund – George Town, Cayman Islands | Private Investment Company | 23 | USD | 345 | 2 | |||||||||
UBS Currency Portfolio Ltd – George Town, Cayman Islands | Private Investment Company | 25 | USD | 957 | 2 | |||||||||
UBS Global Equity Arbitrage Ltd – George Town, Cayman Islands | Private Investment Company | 21 | USD | 613 | 2 | |||||||||
Azienda Energetica Municipale S.p.A. – Milan, Italy | Electricity | 2 | EUR | 930 | ||||||||||
Chou Mitsui Private Equity Partners Investment Limited | ||||||||||||||
Partnership V – Tokyo, Japan | Private Investment Company | 47 | JPY | 10,490 | ||||||||||
ATR Acquisition LLC – Texas, USA | Manufacturing | 28 | USD | 273 | ||||||||||
Waterside Plaza Holdings LLC – Delaware, USA | Real Estate | 50 | USD | 119 | ||||||||||
None of the above investments carries voting rights that are significantly different from the proportion of shares held.
160
Table of Contents
Note 36 Invested Assets and Net New Money
Invested assets include all client assets managed by or deposited with UBS for investment purposes only. 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. All assets held for purely transactional purposes and custody-only including corporate client assets held for cash management and transactional purposes are excluded, as the bank only administers the assets and does not offer advice on how the assets should be invested. Also excluded are non-bankable assets (e. g. art collections) and deposits from third-party banks for funding or trading purposes.
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 | 31.12.05 | 31.12.04 | ||||||
Fund assets managed by UBS | 390 | 354 | ||||||
Discretionary assets | 716 | 570 | ||||||
Other invested assets | 1,546 | 1,293 | ||||||
Total invested assets | 2,652 | 2,217 | ||||||
thereof double count | 332 | 294 | ||||||
Net new money | 148.5 | 89.9 | ||||||
161
Table of Contents
Note 37 Business Combinations
During 2005, UBS completed several acquisitions that were accounted for as business combinations. None of the acquisitions was individually significant to the financial statements, and therefore they are presented in aggregate for each of Financial Businesses and Industrial Holdings.
Financial Businesses
Julius Baer North America
Etra
Dresdner Bank Lateinamerika
goodwill of approximately CHF 133 million. The acquired business managed invested assets from private clients of approximately EUR 3.7 billion. The acquired business covers all important Latin American markets and strengthens UBS’s position as a provider of wealth management services for clients in that region.
Global Asset Management – Siemens Real Estate Funds
Investment Bank – Prediction
162
Table of Contents
Note 37 Business Combinations (continued)
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 2 | 43 | 45 | |||||||||
Property and equipment | 2 | 0 | 2 | |||||||||
Financial investments | 35 | 0 | 35 | |||||||||
Goodwill | 0 | 327 | 327 | |||||||||
All other assets | 1,092 | 0 | 1,092 | |||||||||
Total assets | 1,131 | 370 | 1,501 | |||||||||
Liabilities | ||||||||||||
Provisions | 18 | 0 | 18 | |||||||||
Deferred tax liabilities | 0 | 6 | 6 | |||||||||
All other liabilities | 1,022 | 2 | 1,024 | |||||||||
Total liabilities | 1,040 | 8 | 1,048 | |||||||||
Net assets | 91 | 362 | 453 | |||||||||
Total liabilities and equity | 1,131 | 370 | 1,501 | |||||||||
Industrial Holdings
purchase price was predominantly allocated to the power station and fair value of net assets acquired was equal to the purchase price. No goodwill was recognized in this acquisition. The acquisition is a further step in expanding Motor-Columbus’s operations in Eastern Europe.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Property and equipment | 97 | 14 | 111 | |||||||||
Deferred tax assets | 0 | 2 | 2 | |||||||||
Goodwill | 0 | 4 | 4 | |||||||||
All other assets | 15 | 0 | 15 | |||||||||
Total assets | 112 | 20 | 132 | |||||||||
Liabilities | ||||||||||||
Provisions | 1 | 0 | 1 | |||||||||
Deferred tax liabilities | 6 | 5 | 11 | |||||||||
All other liabilities | 6 | (4 | ) | 2 | ||||||||
Total liabilities | 13 | 1 | 14 | |||||||||
Net assets | 99 | 19 | 118 | |||||||||
Total liabilities and equity | 112 | 20 | 132 | |||||||||
163
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 37 Business Combinations (continued)
Business combinations completed in 2004
Wealth Management
wealth management operations in the United Kingdom. Scott Goodman Harris, with 28 employees, provides advice on pension and retirement benefit products, serving primarily executives and company directors. 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 existing customer relationships of the businesses and have been assigned useful lives of twenty years, over which they will be amortized.
164
Table of Contents
Note 37 Business Combinations (continued)
Investment Bank
lion, of which UBS paid at closing a cash consideration to the sellers of CHF 113 million (USD 99 million), while the balance, which includes 20% of Brunswick UBS’s net profits for 2005, is payable in 2005 and 2006. Formed in 1997, Brunswick UBS has developed a significant franchise in the Russian securities market, employing 120 people in Moscow. UBS 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 | ) | 0 | ||||||||
Goodwill | 0 | 336 | 336 | |||||||||
All other assets | 361 | (1 | ) | 360 | ||||||||
Total assets | 538 | 416 | 954 | |||||||||
Liabilities | ||||||||||||
Deferred tax liabilities | 0 | 23 | 23 | |||||||||
All other liabilities | 364 | 32 | 396 | |||||||||
Total liabilities | 364 | 55 | 419 | |||||||||
Equity attributable to minority interests | 40 | (39 | ) | 1 | ||||||||
Equity attributable to shareholders | 134 | 400 | 534 | |||||||||
Total liabilities 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.
165
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 37 Business Combinations (continued)
Notz Stucki
Motor-Columbus
asset is an approximate 59.3% ownership interest in Aare-Tessin AG für 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 | 0 | 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 | 0 | 3,045 | |||||||||
Total liabilities | 4,873 | 410 | 5,283 | |||||||||
Equity attributable to minority interests | 784 | 382 | 1,166 | |||||||||
Equity attributable to shareholders | 744 | 555 | 1,299 | |||||||||
Total liabilities and equity | 6,401 | 1,347 | 7,748 | |||||||||
The CHF 75 million step-up to fair value of provision 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 additional minority interests, bringing the total minority interest as of the acquisition date to CHF 1,742 million.
Useful economic lives of 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.
166
Table of Contents
Note 37 Business Combinations (continued)
Pro-forma information (unaudited)
in 2004 had been made as at 1 January 2004 and 2003. 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 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||
Total operating income | 51,069 | 46,336 | 39,536 | |||||||||
Net profit | 14,043 | 8,044 | 6,277 | |||||||||
Basic earnings per share (CHF) | 13.95 | 7.81 | 5.62 | |||||||||
Acquisitions announced in 2006
UBS Bunting Limited
an additional CAD 29 million (approximately CHF 32 million) depending on the performance of the acquired business post-closing in 2006 and 2007. The transaction is expected to close during the first quarter of 2006 and is subject to shareholder and regulatory approvals. UBS currently owns a controlling stake of 50% in UBS Bunting Limited, with the remaining shares held by employees of its wholly owned operating subsidiary.
Note 38 Discontinued Operations
Private Banks & GAM
Baer. In such an event, UBS has the option to register its shares with voting rights and thus obtain the possibility to vote them at shareholders’ meetings. Given the fact that the shares are not entered into Julius Baer’s share register with voting rights, UBS classified the stake as a financial investment available-for-sale.
Industrial Holdings
167
Table of Contents
Note 38 Discontinued Operations (continued)
CHF million | For the year ended 31.12.05 | |||||||
Private Banks & GAM | Industrial Holdings | |||||||
Operating income | 1,102 | 975 | ||||||
Operating expenses | 633 | 967 | ||||||
Profit from operations before tax | 469 | 8 | ||||||
Pre-tax gain on sale | 4,095 | 116 | ||||||
Profit from discontinued operations before tax | 4,564 | 124 | ||||||
Tax expense on profit from operations | 99 | 9 | ||||||
Tax expense on gain on sale | 390 | 0 | ||||||
Tax expense from discontinued operations | 489 | 9 | ||||||
Net profit from discontinued operations | 4,075 | 115 | ||||||
Net cash flows from | ||||||||
operating activities | (143 | ) | 41 | |||||
investing activities | (22 | ) | (14 | ) | ||||
financing activities | 0 | 1 | ||||||
CHF million | For the year ended 31.12.04 | |||||||
Private Banks & GAM | Industrial Holdings | |||||||
Operating income | 1,086 | 1,890 | ||||||
Operating expenses | 690 | 1,818 | ||||||
Profit from operations before tax | 396 | 72 | ||||||
Pre-tax gain on sale | 0 | 68 | ||||||
Profit from discontinued operations before tax | 396 | 140 | ||||||
Tax expense on profit from operations | 97 | 32 | ||||||
Tax expense on gain on sale | 0 | 0 | ||||||
Tax expense from discontinued operations | 97 | 32 | ||||||
Net profit from discontinued operations | 299 | 108 | ||||||
Net cash flows from | ||||||||
operating activities | (725 | ) | 5 | |||||
investing activities | 30 | (34 | ) | |||||
financing activities | 3 | 44 | ||||||
CHF million | For the year ended 31.12.03 | |||||||
Private Banks & GAM | Industrial Holdings | |||||||
Operating income | 882 | 2,136 | ||||||
Operating expenses | 662 | 2,071 | ||||||
Profit from operations before tax | 220 | 65 | ||||||
Pre-tax gain on sale | 0 | 194 | ||||||
Profit from discontinued operations before tax | 220 | 259 | ||||||
Tax expense on profit from operations | 52 | 27 | ||||||
Tax expense on gain on sale | 0 | 0 | ||||||
Tax expense from discontinued operations | 52 | 27 | ||||||
Net profit from discontinued operations | 168 | 232 | ||||||
Net cash flows from | ||||||||
operating activities | 2,348 | 103 | ||||||
investing activities | 135 | (118 | ) | |||||
financing activities | (1 | ) | (3 | ) | ||||
168
Table of Contents
Note 38 Discontinued Operations (continued)
Motor-Columbus
350 million. The transaction must be approved by various national and international authorities.
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 As at | Average rate Year ended | |||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||
1 USD | 1.31 | 1.14 | 1.25 | 1.24 | 1.34 | |||||||||||||||
1 EUR | 1.56 | 1.55 | 1.55 | 1.54 | 1.54 | |||||||||||||||
1 GBP | 2.26 | 2.19 | 2.27 | 2.27 | 2.20 | |||||||||||||||
100 JPY | 1.11 | 1.11 | 1.13 | 1.15 | 1.16 | |||||||||||||||
169
Table of Contents
Financial Statements
Notes to the Financial Statements
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
4. Investment property
5. Fair value option
6. Goodwill and intangible assets
7. Discontinued operations
170
Table of Contents
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 iden-tifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.
Goodwill and intangible assets
Corporation which had previously been subject to valuation reserves.
Other purchase accounting adjustments
b. Goodwill
With the adoption of IFRS 3Business Combinationson 31 March 2004, UBS ceased amortizing goodwill on 1 January 2005 for all goodwill existing before 31 March 2004. Goodwill is now subject to an annual impairment test as it is under US GAAP and is no longer amortized under both sets of standards. Goodwill from business combinations entered into on or after 31 March 2004 was already accounted for under the provisions of IFRS 3, and no goodwill amortization was recorded for these transactions under IFRS or US GAAP. An IFRS to US GAAP difference remains on the balance sheet due to the fact that US GAAP goodwill amortization ceased on 1 January 2002 and IFRS goodwill amortization ceased on 31 December 2004. This difference was reduced during 2005 due to the sale of GAM on 2 December 2005.
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.
171
Table of Contents
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) (continued)
Note 41.1 Valuation and Income Recognition Differences between IFRS and US GAAP (continued)
terests would tend to have a higher measurement value under IFRS than under US GAAP.
d. Derivative instruments
Under IAS 39, UBS hedges interest rate risk based on forecast cash inflows and outflows on a Group basis. For this purpose, UBS accumulates information about non-trading financial assets and financial liabilities, which is then used to estimate and aggregate cash flows and to schedule the future periods in which these cash flows are expected to occur. Appropriate derivative instruments are then used to hedge the estimated future cash flows against repricing risk. SFAS 133 does not permit hedge accounting for hedges of future cash flows determined by this methodology. Accordingly, for US GAAP such hedging instruments continue to be carried at fair value with changes in fair value recognized in Net trading income.
e. Financial investments and private equity
Financial investments available-for-sale
and subsequent changes in fair value recorded directly in Equity on non-marketable equity financial instruments due to the implementation of IAS 39 have been reversed under US GAAP to reflect the difference between the two standards in measuring such investments. 2) Writedowns on impaired debt instruments can be fully or partially reversed through profit under IFRS if the value of the impaired assets increases. Such reversals of impairment writedowns are not allowed under US GAAP. Reversals under IFRS were not significant in 2005, 2004 or 2003. 3) Private equity investments, as described in the next section.
Private equity investments
172
Table of Contents
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP) (continued)
Note 41.1 Valuation and Income Recognition Differences between IFRS and US GAAP (continued)
ments still accounted for as Financial investments available-for-sale with changes in fair value recorded directly in Equity are reclassified to the line Private equity investments on the US GAAP balance sheet and are recorded either at fair value through net profit or cost less “other than temporary” impairment as described in the previous paragraph.
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
On 1 January 2005, UBS adopted IFRS 2Share-based paymentwhich requires that the fair value of all share-based payments made to employees be recognized as compensation expense from the date of grant over the service period, which is generally equal to the vesting period. UBS applied IFRS 2 on a retrospective application basis and restated its 2003 and 2004 comparative prior periods for all awards that impact income statements commencing 2003. UBS recorded an opening retained earnings adjustment on 1 January 2003 to reflect the cumulative income statement effects of prior periods. See Note 1aa) for details. Previously under IFRS, option awards were expensed at their intrinsic value which is generally zero as options are normally granted at or out of the money. Shares were recognized as compensation expense in full in the performance year, which is generally the year prior to grant.
173
Table of Contents
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) (continued)
Note 41.1 Valuation and Income Recognition Differences between IFRS and US GAAP (continued)
nition 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.
over the period from grant until the employee reaches retirement eligibility. Under IFRS 2 such awards are generally recognized over the vesting period, with an acceleration of expense at the actual retirement date.
174
Table of Contents
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP) (continued)
Note 41.1 Valuation and Income Recognition Differences between IFRS and US GAAP (continued)
i. Consolidation of Variable Interest Entities (VIEs) and deconsolidation of entities issuing 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.
debt held by these entities and the respective interest amounts are eliminated in the UBS Group Financial Statements. Under US GAAP, these entities are not consolidated, and the UBS-issued debt is recognized as a liability in the UBS Group Financial Statements, with interest paid reported in interest expense.
j. Financial assets and liabilities designated 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 compound instruments, consisting of a debt host with an embedded derivative. Regular debt instruments as well as compound 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 compound instruments are separated from the debt hosts and accounted for as if they were freestanding derivatives.
k. 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.
l. Investment properties
From 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.
175
Table of Contents
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) (continued)
Note 41.2 Recently Issued US Accounting Standards
In December 2004, the FASB issued SFAS 123 (revised 2004),Share-Based Payment(SFAS 123-R), which is a revision of SFAS 123,Accounting for Stock-Based Compensation(SFAS 123), and supersedes APB Opinion 25,Accounting for Stock Issued to Employees(APB Opinion 25). Further information on the impact of the adoption of SFAS 123-R can be found in Note 41.1.h.
Recently issued US accounting standards not yet adopted
176
Table of Contents
Note 41.3 Reconciliation of IFRS Equity Attributable to UBS Shareholders to US GAAP Shareholders’ Equity and IFRS Net Profit Attributable to UBS Shareholders to US GAAP Net Profit
Equity attributable to | ||||||||||||||||||||||||
UBS shareholders (IFRS) / | Net profit attributable to | |||||||||||||||||||||||
Shareholders’equity | UBS shareholders (IFRS) / | |||||||||||||||||||||||
(US GAAP) | Net profit (US GAAP) | |||||||||||||||||||||||
Note 41.1 | as at | for the year ended | ||||||||||||||||||||||
CHF million | Reference | 31.12.05 | 31.12.04 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 44,324 | 33,941 | 14,029 | 8,016 | 5,904 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,116 | 15,152 | (36 | ) | (44 | ) | (89 | ) | |||||||||||||||
Goodwill | b | 2,373 | 2,603 | 0 | 778 | 808 | ||||||||||||||||||
Purchase accounting under IFRS 3 and FAS 141 | c | (86 | ) | (88 | ) | 35 | 3 | 0 | ||||||||||||||||
Derivative instruments | d | (40 | ) | (75 | ) | (455 | ) | (217 | ) | 188 | ||||||||||||||
Financial investments and private equity | e | 325 | 605 | (486 | ) | 217 | (243 | ) | ||||||||||||||||
Pension plans | f | 230 | 372 | (18 | ) | (110 | ) | (235 | ) | |||||||||||||||
Other post-retirement benefit plans | g | (1 | ) | (1 | ) | 0 | 0 | 0 | ||||||||||||||||
Equity participation plans | h | (792 | ) | 86 | 358 | 62 | 267 | |||||||||||||||||
Consolidation of variable interest entities (VIEs) and deconsolidation of entities issuing preferred securities | i | (98 | ) | 47 | 0 | 18 | (10 | ) | ||||||||||||||||
Financial assets and liabilities designated at fair value through profit and loss | j | (197 | ) | 197 | (436 | ) | 100 | 78 | ||||||||||||||||
Physically settled written puts | k | 131 | 93 | 8 | 9 | 5 | ||||||||||||||||||
Investment properties | l | (8 | ) | (8 | ) | 0 | 14 | 88 | ||||||||||||||||
Other adjustments | 74 | (50 | ) | (118 | ) | (50 | ) | 0 | ||||||||||||||||
Tax adjustments | (876 | ) | (206 | ) | (529 | ) | 22 | (248 | ) | |||||||||||||||
Total adjustments | 16,151 | 18,727 | (1,677 | ) | 802 | 609 | ||||||||||||||||||
Amounts determined in accordance with US GAAP | 60,475 | 52,668 | 12,352 | 8,818 | 6,513 | |||||||||||||||||||
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.
For the year ended | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||||
US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||||||
Net profit (US GAAP)/Net profit attributable to UBS shareholders (IFRS) – available for ordinary shares (CHF million) | 12,352 | 14,029 | 8,818 | 8,016 | 6,513 | 5,904 | ||||||||||||||||||
from continuing operations | 8,499 | 9,844 | 8,446 | 7,609 | 6,263 | 5,510 | ||||||||||||||||||
from discontinued operations | 3,853 | 4,185 | 372 | 407 | 250 | 394 | ||||||||||||||||||
Net profit (US GAAP)/Net profit attributable to UBS shareholders – for diluted EPS (CHF million) | 12,330 | 14,007 | 8,813 | 8,011 | 6,514 | 5,905 | ||||||||||||||||||
from continuing operations | 8,500 | 9,845 | 8,449 | 7,612 | 6,264 | 5,511 | ||||||||||||||||||
from discontinued operations | 3,830 | 4,162 | 364 | 399 | 250 | 394 | ||||||||||||||||||
Weighted-average shares outstanding | 1,006,929,991 | 1,006,993,877 | 1,029,895,610 | 1,029,918,463 | 1,116,602,289 | 1,086,161,476 | ||||||||||||||||||
Diluted weighted-average shares outstanding | 1,048,595,770 | 1,048,595,770 | 1,081,961,360 | 1,081,961,360 | 1,138,800,625 | 1,138,800,625 | ||||||||||||||||||
Basic earnings per share (CHF) | 12.27 | 13.93 | 8.56 | 7.78 | 5.83 | 5.44 | ||||||||||||||||||
from continuing operations | 8.44 | 9.78 | 8.20 | 7.39 | 5.61 | 5.07 | ||||||||||||||||||
from discontinued operations | 3.83 | 4.15 | 0.36 | 0.39 | 0.22 | 0.37 | ||||||||||||||||||
Diluted earnings per share (CHF) | 11.76 | 13.36 | 8.15 | 7.40 | 5.72 | 5.19 | ||||||||||||||||||
from continuing operations | 8.11 | 9.39 | 7.81 | 7.04 | 5.50 | 4.84 | ||||||||||||||||||
from discontinued operations | 3.65 | 3.97 | 0.34 | 0.36 | 0.22 | 0.35 | ||||||||||||||||||
177
Table of Contents
Financial Statements
Notes to the Financial Statements
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 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 collateral in a securities-for-
securities lending transaction
4. Reverse repurchase, repurchase, securities borrowing and securities lending transactions
5. Recognition/derecognition of financial assets
178
Table of Contents
Note 41.6 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2005, 31 December 2004 and 31 December 2003, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
CHF million,for the year ended | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||
Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||
Interest income | a, d, e, i, j, 1, 4, 5 | 59,039 | 59,286 | 38,991 | 39,228 | 39,802 | 40,045 | |||||||||||||||||||||
Interest expense | a, c, d, e, i, j, k, 1, 4, 5 | (49,588 | ) | (49,758 | ) | (27,245 | ) | (27,484 | ) | (27,628 | ) | (27,784 | ) | |||||||||||||||
Net interest income | 9,451 | 9,528 | 11,746 | 11,744 | 12,174 | 12,261 | ||||||||||||||||||||||
Credit loss (expense)/recovery | e | 375 | 375 | 334 | 241 | (74 | ) | (102 | ) | |||||||||||||||||||
Net interest income after credit loss (expense)/recovery | 9,826 | 9,903 | 12,080 | 11,985 | 12,100 | 12,159 | ||||||||||||||||||||||
Net fee and commission income | e | 21,436 | 21,436 | 18,435 | 18,506 | 16,606 | 16,673 | |||||||||||||||||||||
Net trading income | d, e, i, j, k, 4 | 6,864 | 7,996 | 4,795 | 4,902 | 3,944 | 3,670 | |||||||||||||||||||||
Other income | c, e, i | 793 | 1,125 | 1,180 | 932 | 382 | 225 | |||||||||||||||||||||
Revenues from Industrial Holdings | e | 8,674 | 10,515 | 3,648 | 6,086 | 2,900 | ||||||||||||||||||||||
Total operating income | 47,593 | 50,975 | 40,138 | 42,411 | 33,032 | 35,627 | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Personnel expenses | e, f, g, h | 20,220 | 21,049 | 18,297 | 18,612 | 17,234 | 18,218 | |||||||||||||||||||||
General and administrative expenses | c, e | 6,667 | 7,047 | 6,545 | 7,160 | 5,917 | 6,630 | |||||||||||||||||||||
Depreciation of property and equipment | a, c, e | 1,414 | 1,493 | 1,365 | 1,477 | 1,368 | 1,498 | |||||||||||||||||||||
Amortization of goodwill | b | 0 | 0 | 0 | 653 | 0 | 703 | |||||||||||||||||||||
Amortization of other intangible assets | b, c, e | 201 | 334 | 180 | 337 | 110 | 193 | |||||||||||||||||||||
Goods and materials purchased | e | 7,142 | 8,003 | 2,861 | 3,885 | 0 | 1,113 | |||||||||||||||||||||
Total operating expenses | 35,644 | 37,926 | 29,248 | 32,124 | 24,629 | 28,355 | ||||||||||||||||||||||
Operating profit from continuing operations before tax | 11,949 | 13,049 | 10,890 | 10,287 | 8,403 | 7,272 | ||||||||||||||||||||||
Tax expense | 3,078 | 2,549 | 2,015 | 2,224 | 1,790 | 1,419 | ||||||||||||||||||||||
Minority interests (US GAAP) | c, e, i | (410 | ) | (435 | ) | (350 | ) | |||||||||||||||||||||
Net profit from continuing operations | 8,461 | 10,500 | 8,440 | 8,063 | 6,263 | 5,853 | ||||||||||||||||||||||
Net profit from discontinued operations | 3,853 | 4,190 | 372 | 407 | 250 | 400 | ||||||||||||||||||||||
Net profit (IFRS) | 14,690 | 8,470 | 6,253 | |||||||||||||||||||||||||
Net profit attributable to minority interests (IFRS) | c, e, i | (661 | ) | (454 | ) | (349 | ) | |||||||||||||||||||||
Cumulative adjustment due to the adoption of SFAS 123 (revised 2004), “Share-Based Payment” on 1 January 2005, net of tax | h | 38 | ||||||||||||||||||||||||||
Cumulative adjustment of accounting for certain equity-based compensation plans as cash settled, net of tax | h | 6 | ||||||||||||||||||||||||||
Net profit (US GAAP)/Net profit attributable to UBS shareholders (IFRS) | 12,352 | 14,029 | 8,818 | 8,016 | 6,513 | 5,904 | ||||||||||||||||||||||
Note: References above coincide with the discussions in Note 41.1 and Note 41.5. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption.
179
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 41.7 Condensed Consolidated Balance Sheet
The following is a Condensed Consolidated Balance Sheet of the Group, as at 31 December 2005 and 31 December 2004, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
31.12.05 | 31.12.04 | |||||||||||||||||||
CHF million | Reference | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 5,359 | 5,359 | 6,036 | 6,036 | ||||||||||||||||
Due from banks | e, i, j, 1, 5 | 33,427 | 33,644 | 35,286 | 35,419 | |||||||||||||||
Cash collateral on securities borrowed | 4 | 274,099 | 300,331 | 218,414 | 220,242 | |||||||||||||||
Reverse repurchase agreements | 404,432 | 404,432 | 357,164 | 357,164 | ||||||||||||||||
Trading portfolio assets | e, i, j, 1, 4, 5 | 607,432 | 499,297 | 449,389 | 389,487 | |||||||||||||||
Trading portfolio assets pledged as collateral | 5 | 152,237 | 154,759 | 159,115 | 159,115 | |||||||||||||||
Positive replacement values | i, j, 1, 4, 5 | 337,409 | 333,782 | 284,468 | 284,577 | |||||||||||||||
Financial assets designated at fair value | j | 1,153 | 653 | |||||||||||||||||
Loans | a, e, j, 1, 5 | 267,530 | 269,969 | 228,968 | 232,167 | |||||||||||||||
Financial investments | e, j, 2 | 3,407 | 6,551 | 1,455 | 4,188 | |||||||||||||||
Securities received as collateral | 3 | 67,430 | 12,950 | |||||||||||||||||
Accrued income and prepaid expenses | e, i, j | 8,853 | 8,918 | 5,882 | 6,309 | |||||||||||||||
Investments in associates | c, e | 2,554 | 2,956 | 2,153 | 2,675 | |||||||||||||||
Property and equipment | a, c, e, l | 9,282 | 9,423 | 9,045 | 9,510 | |||||||||||||||
Goodwill | a, b, e | 28,104 | 11,313 | 26,977 | 8,865 | |||||||||||||||
Other intangible assets | b, c, e | 1,665 | 2,173 | 1,722 | 3,336 | |||||||||||||||
Private equity investments | e, 2 | 2,210 | 3,094 | |||||||||||||||||
Other assets | c, d, e, f, h, i, j, 1, 2, 5 | 116,831 | 16,190 | 101,068 | 17,375 | |||||||||||||||
Total assets | 2,322,261 | 2,060,250 | 1,903,186 | 1,737,118 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | e, j, 1, 5 | 127,252 | 124,328 | 119,021 | 120,026 | |||||||||||||||
Cash collateral on securities lent | 4 | 66,916 | 77,267 | 57,792 | 61,545 | |||||||||||||||
Repurchase agreements | i, 4 | 482,843 | 478,508 | 423,513 | 422,587 | |||||||||||||||
Trading portfolio liabilities | i, j, 1, 4 | 193,965 | 188,631 | 190,907 | 171,033 | |||||||||||||||
Obligation to return securities received as collateral | 3 | 67,430 | 12,950 | |||||||||||||||||
Negative replacement values | i, j, k, 1, 4 | 432,171 | 337,663 | 360,345 | 303,712 | |||||||||||||||
Financial liabilities designated at fair value | i, j | 117,401 | 65,756 | |||||||||||||||||
Due to customers | e, i, j, 1, 5 | 466,410 | 451,533 | 386,913 | 376,076 | |||||||||||||||
Accrued expenses and deferred income | e, i, j | 18,707 | 18,392 | 14,830 | 15,040 | |||||||||||||||
Debt issued | a, c, e, i, 1 | 240,212 | 160,710 | 164,744 | 117,856 | |||||||||||||||
Other liabilities | c, d, e, f, g, h, i, j, k, 1 | 163,872 | 53,874 | 117,743 | 44,120 | |||||||||||||||
Total liabilities | 2,259,778 | 2,008,307 | 1,848,758 | 1,697,751 | ||||||||||||||||
Minority interests | c, e, i | 2,008 | 7,619 | 1,760 | 5,426 | |||||||||||||||
Total shareholders’ equity (US GAAP) / Equity attributable to UBS shareholders (IFRS) | 60,475 | 44,324 | 52,668 | 33,941 | ||||||||||||||||
Total equity (IFRS) | 51,943 | 39,367 | ||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 2,322,261 | 2,060,250 | 1,903,186 | 1,737,118 | ||||||||||||||||
Note: References above coincide with the discussions in Note 41.1 and Note 41.5. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption.
180
Table of Contents
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 2005, 31 December 2004 and 31 December 2003 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 2003 | (849 | ) | 263 | (3 | ) | (1,223 | ) | 131 | (1,681 | ) | ||||||||||||||||||
Net profit | 6,513 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (966 | ) | 121 | (845 | ) | (845 | ) | |||||||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | (130 | ) | 49 | (81 | ) | (81 | ) | |||||||||||||||||||||
Impairment charges reclassified to the income statement | 111 | (18 | ) | 93 | 93 | |||||||||||||||||||||||
Reclassification of (gains) / losses on available-for-sale investments realized in net profit | (69 | ) | 11 | (58 | ) | (58 | ) | |||||||||||||||||||||
Reclassification of (gains) / 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) | (966 | ) | (88 | ) | 3 | 917 | (80 | ) | (54 | ) | (54 | ) | ||||||||||||||||
Comprehensive income | 6,459 | |||||||||||||||||||||||||||
Balance at 31 December 2003 | (1,815 | ) | 175 | 0 | (306 | ) | 211 | (1,735 | ) | |||||||||||||||||||
Net profit | 8,818 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | (1,062 | ) | 236 | (826 | ) | (826 | ) | |||||||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 32 | (15 | ) | 17 | 17 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 10 | (2 | ) | 8 | 8 | |||||||||||||||||||||||
Reclassification of (gains) / losses 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) | (1,062 | ) | 37 | 0 | (819 | ) | 241 | (1,603 | ) | (1,603 | ) | |||||||||||||||||
Comprehensive income | 7,215 | |||||||||||||||||||||||||||
Balance at 31 December 2004 | (2,877 | ) | 212 | 0 | (1,125 | ) | 452 | (3,338 | ) | |||||||||||||||||||
Net profit | 12,352 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||
Foreign currency translation | 2,380 | (292 | ) | 2,088 | 2,088 | |||||||||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 130 | (6 | ) | 124 | 124 | |||||||||||||||||||||||
Impairment charges reclassified to the income statement | 19 | (3 | ) | 16 | 16 | |||||||||||||||||||||||
Reclassification of (gains) / losses on available-for-sale investments realized in net profit | (19 | ) | 3 | (16 | ) | (16 | ) | |||||||||||||||||||||
Additional minimum pension liability | (127 | ) | 18 | (109 | ) | (109 | ) | |||||||||||||||||||||
Other comprehensive income / (loss) | 2,380 | 130 | 0 | (127 | ) | (280 | ) | 2,103 | 2,103 | |||||||||||||||||||
Comprehensive income | 14,455 | |||||||||||||||||||||||||||
Balance at 31 December 2005 | (497 | ) | 342 | 0 | (1,252 | ) | 172 | (1,235 | ) | |||||||||||||||||||
181
Table of Contents
Financial Statements
Notes to the Financial Statements
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
182
Table of Contents
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.1 Variable Interest Entities (continued)
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 | 1,140 | Loan receivables, government debt securities, corporate debt securities | 1,140 | |||||||
Investment fund products | 4,079 | Investment funds | 4,079 | |||||||
Investment funds managed by UBS | 5,290 | Debt, equity | 5,015 | |||||||
Credit protection vehicles | 220 | Corporate debt securities | 220 | |||||||
Passive intermediary to a derivative transaction | 157 | Loan receivables, corporate debt securities | 47 | |||||||
Trust vehicles for awards to UBS employees | 2,882 | UBS shares and derivatives thereon | 2,882 | |||||||
Private equity investments | 500 | Private equity investments | 242 | |||||||
Other miscellaneous structures | 1,521 | Equity, derivatives, investment funds | 1,488 | |||||||
Total 31.12.05 | 15,789 | 15,113 | ||||||||
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 | 1,162 | UBS acts as swap counterparty | 1,056 | |||||||
Investment fund products | 1,476 | UBS holds notes or units | 633 | |||||||
Investment funds managed by UBS | 3,425 | UBS acts as investment manager | 936 | |||||||
SPE used for credit protection – | ||||||||||
Credit protection vehicles | 894 | UBS sells credit risk on portfolios to investors | 633 | |||||||
Other miscellaneous structures | 778 | UBS acts as swap counterparty | 186 | |||||||
Total 31.12.05 | 7,735 | 3,444 | ||||||||
183
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.1 Variable Interest Entities (continued)
Third-party VIEs not otherwise classified
VIEs not originated by UBS – information determining VIE status 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 | 1,917 | UBS acts as swap counterparty | (1 | ) | 1,917 | |||||||||
Investment fund products | 4,730 | UBS acts as swap counterparty | 200 | 4,711 | ||||||||||
Total 31.12.05 | 6,647 | 199 | 6,628 | |||||||||||
Future developments
184
Table of Contents
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.2 Industrial Holdings’ Income Statement
In 2004, following the acquisition of an additional 20% stake in Motor-Columbus, a Swiss holding company whose most significant asset is a 59.3% interest in Atel, a Swiss-based European energy provider, UBS now holds a majority ownership interest in the company. As a result, UBS has fully consolidated Motor-Columbus in its Financial Statements since 1 July 2004. In addition, due to the adoption of IAS 27Con-
solidated and Separate Financial Statementswhich is further described in Note 1aa), UBS retrospectively consolidated certain private equity investments to 1 January 2003. 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:
Note 42.2 Industrial Holdings’ Income Statement
For the year ended or as at | ||||||||||||
CHF million | 31.12.05 | 31.12.041 | 31.12.03 | |||||||||
Operating income | ||||||||||||
Net sales | 10,515 | 6,086 | 2,900 | |||||||||
Operating expenses | ||||||||||||
Cost of products sold | 9,044 | 5,028 | 2,161 | |||||||||
Marketing expenses | 283 | 144 | 77 | |||||||||
General and administrative expenses | 478 | 553 | 610 | |||||||||
Amortization of goodwill | 0 | 7 | 26 | |||||||||
Amortization of other intangible assets | 207 | 169 | 8 | |||||||||
Other operating expenses | 210 | 74 | 76 | |||||||||
Total operating expenses | 10,222 | 5,975 | 2,958 | |||||||||
Operating profit/(loss) | 293 | 111 | (58 | ) | ||||||||
Non-operating profit | ||||||||||||
Interest income | 26 | 40 | 7 | |||||||||
Interest expense | (138 | ) | (141 | ) | (113 | ) | ||||||
Other non-operating income, net | 582 | 430 | (138 | ) | ||||||||
Non-operating profit/(loss) | 470 | 329 | (244 | ) | ||||||||
Net profit/(loss) from continuing operations before tax | 763 | 440 | (302 | ) | ||||||||
Income taxes | 247 | 117 | 11 | |||||||||
Equity in income of associates, net of tax | 88 | 22 | 15 | |||||||||
Net profit/(loss) from continuing operations | 604 | 345 | (298 | ) | ||||||||
Net profit from discontinued operations | 115 | 108 | 232 | |||||||||
Net profit/(loss) | 719 | 453 | (66 | ) | ||||||||
Net profit/(loss) attributable to minority interests | 207 | 93 | (11 | ) | ||||||||
Net profit/(loss) attributable to UBS shareholders | 512 | 360 | (55 | ) | ||||||||
Accounts receivables trade, gross | 2,068 | 2,084 | ||||||||||
Allowance for doubtful receivables | (62 | ) | (39 | ) | ||||||||
Accounts receivables trade, net | 2,006 | 2,045 | ||||||||||
185
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.3 Indemnifications
Note 42.4 Supplemental Guarantor Information
Guarantee of PaineWebber securities
186
Table of Contents
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.4 Supplemental Guarantor Information (continued)
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,779 | 27,782 | 20,729 | (29,004 | ) | 59,286 | ||||||||||||||
Interest expense | (33,892 | ) | (24,803 | ) | (20,067 | ) | 29,004 | (49,758 | ) | |||||||||||
Net interest income | 5,887 | 2,979 | 662 | 0 | 9,528 | |||||||||||||||
Credit loss (expense) / recovery | 370 | (3 | ) | 8 | 0 | 375 | ||||||||||||||
Net interest income after credit loss expense | 6,257 | 2,976 | 670 | 0 | 9,903 | |||||||||||||||
Net fee and commission income | 9,670 | 7,420 | 4,346 | 0 | 21,436 | |||||||||||||||
Net trading income | 7,453 | (123 | ) | 666 | 0 | 7,996 | ||||||||||||||
Income from subsidiaries | (675 | ) | 0 | 0 | 675 | 0 | ||||||||||||||
Other income | 2,635 | 476 | (1,986 | ) | 0 | 1,125 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 10,515 | 0 | 10,515 | |||||||||||||||
Total operating income | 25,340 | 10,749 | 14,211 | 675 | 50,975 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,962 | 6,587 | 4,500 | 0 | 21,049 | |||||||||||||||
General and administrative expenses | 2,330 | 2,667 | 2,050 | 0 | 7,047 | |||||||||||||||
Depreciation of property and equipment | 988 | 140 | 365 | 0 | 1,493 | |||||||||||||||
Amortization of other intangible assets | 24 | 70 | 240 | 0 | 334 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 8,003 | 0 | 8,003 | |||||||||||||||
Total operating expenses | 13,304 | 9,464 | 15,158 | 0 | 37,926 | |||||||||||||||
Operating profit from continuing operations before tax | 12,036 | 1,285 | (947 | ) | 675 | 13,049 | ||||||||||||||
Tax expense / (benefit) | 1,712 | 1,079 | (242 | ) | 0 | 2,549 | ||||||||||||||
Net profit / (loss) from continuing operations | 10,324 | 206 | (705 | ) | 675 | 10,500 | ||||||||||||||
Net profit / (loss) from discontinued operations | 3,705 | 0 | 485 | 0 | 4,190 | |||||||||||||||
Net profit / (loss) | 14,029 | 206 | (220 | ) | 675 | 14,690 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 122 | 539 | 0 | 661 | |||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 14,029 | 84 | (759 | ) | 675 | 14,029 | ||||||||||||||
Net profit / (loss) US GAAP2 | 14,490 | (891 | ) | (1,247 | ) | 0 | 12,352 | |||||||||||||
187
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.4 Supplemental Guarantor Information (continued)
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 0 | 5,359 | |||||||||||||||
Due from banks | 127,321 | 14,684 | 156,999 | (265,360 | ) | 33,644 | ||||||||||||||
Cash collateral on securities borrowed | 110,001 | 257,943 | 118,415 | (186,028 | ) | 300,331 | ||||||||||||||
Reverse repurchase agreements | 240,762 | 162,069 | 284,360 | (282,759 | ) | 404,432 | ||||||||||||||
Trading portfolio assets | 299,750 | 174,707 | 24,840 | 0 | 499,297 | |||||||||||||||
Trading portfolio assets pledged as collateral | 79,333 | 36,956 | 38,470 | 0 | 154,759 | |||||||||||||||
Positive replacement values | 330,894 | 6,656 | 158,514 | (162,282 | ) | 333,782 | ||||||||||||||
Financial assets designated at fair value | 2,186 | 737 | (1,770 | ) | 0 | 1,153 | ||||||||||||||
Loans | 289,577 | 41,901 | 33,987 | (95,496 | ) | 269,969 | ||||||||||||||
Financial investments | 3,198 | 910 | 2,443 | 0 | 6,551 | |||||||||||||||
Accrued income and prepaid expenses | 5,720 | 3,135 | 4,877 | (4,814 | ) | 8,918 | ||||||||||||||
Investments in associates | 31,250 | 173 | 1,974 | (30,441 | ) | 2,956 | ||||||||||||||
Property and equipment | 5,462 | 592 | 3,369 | 0 | 9,423 | |||||||||||||||
Goodwill and other intangible assets | 641 | 11,095 | 1,750 | 0 | 13,486 | |||||||||||||||
Other assets | 7,456 | 3,758 | 7,468 | (2,492 | ) | 16,190 | ||||||||||||||
Total assets | 1,536,263 | 715,321 | 838,338 | (1,029,672 | ) | 2,060,250 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 181,592 | 126,834 | 81,262 | (265,360 | ) | 124,328 | ||||||||||||||
Cash collateral on securities lent | 102,698 | 50,395 | 110,202 | (186,028 | ) | 77,267 | ||||||||||||||
Repurchase agreements | 132,073 | 360,932 | 268,262 | (282,759 | ) | 478,508 | ||||||||||||||
Trading portfolio liabilities | 113,171 | 69,460 | 6,000 | 0 | 188,631 | |||||||||||||||
Negative replacement values | 337,172 | 7,274 | 155,499 | (162,282 | ) | 337,663 | ||||||||||||||
Financial liabilities designated at fair value | 93,207 | 0 | 24,194 | 0 | 117,401 | |||||||||||||||
Due to customers | 419,301 | 63,243 | 64,485 | (95,496 | ) | 451,533 | ||||||||||||||
Accrued expenses and deferred income | 10,090 | 7,494 | 5,622 | (4,814 | ) | 18,392 | ||||||||||||||
Debt issued | 87,267 | 19,496 | 53,947 | 0 | 160,710 | |||||||||||||||
Other liabilities | 10,431 | 3,594 | 42,341 | (2,492 | ) | 53,874 | ||||||||||||||
Total liabilities | 1,487,002 | 708,722 | 811,814 | (999,231 | ) | 2,008,307 | ||||||||||||||
Equity attributable to UBS shareholders | 49,261 | 6,485 | 19,019 | (30,441 | ) | 44,324 | ||||||||||||||
Equity attributable to minority interests | 0 | 114 | 7,505 | 0 | 7,619 | |||||||||||||||
Total equity | 49,261 | 6,599 | 26,524 | (30,441 | ) | 51,943 | ||||||||||||||
Total liabilities and equity | 1,536,263 | 715,321 | 838,338 | (1,029,672 | ) | 2,060,250 | ||||||||||||||
Total shareholders’ equity – US GAAP2 | 32,577 | 7,893 | 20,005 | 0 | 60,475 | |||||||||||||||
188
Table of Contents
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.4 Supplemental Guarantor Information (continued)
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (29,118 | ) | (15,771 | ) | (18,318 | ) | (63,207 | ) | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (1,540 | ) | 0 | 0 | (1,540 | ) | ||||||||||
Disposal of subsidiaries and associates | 3,240 | 0 | 0 | 3,240 | ||||||||||||
Purchase of property and equipment | (1,153 | ) | (155 | ) | (584 | ) | (1,892 | ) | ||||||||
Disposal of property and equipment | 71 | 6 | 193 | 270 | ||||||||||||
Net (investment in) / divestment of financial investments | (4,667 | ) | (40 | ) | 2,220 | (2,487 | ) | |||||||||
Net cash flow from / (used in) investing activities | (4,049 | ) | (189 | ) | 1,829 | (2,409 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 22,698 | 615 | (92 | ) | 23,221 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (2,416 | ) | 0 | 0 | (2,416 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (3,105 | ) | 0 | 0 | (3,105 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 50,587 | 14,635 | 11,085 | 76,307 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (17,780 | ) | (753 | ) | (11,924 | ) | (30,457 | ) | ||||||||
Increase in minority interests | 0 | 8 | 1,564 | 1,572 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (175 | ) | (400 | ) | (575 | ) | |||||||||
Net activity in investments in subsidiaries | (1,591 | ) | (214 | ) | 1,805 | 0 | ||||||||||
Net cash flow from / (used in) financing activities | 48,395 | 14,116 | 2,038 | 64,549 | ||||||||||||
Effects of exchange rate differences | 3,283 | (720 | ) | 2,455 | 5,018 | |||||||||||
Net increase / (decrease) in cash equivalents | 18,511 | (2,564 | ) | (11,996 | ) | 3,951 | ||||||||||
Cash and cash equivalents, beginning of the year | 50,037 | 16,095 | 20,959 | 87,091 | ||||||||||||
Cash and cash equivalents, end of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 5,359 | ||||||||||||
Money market paper2 | 47,838 | 8,991 | 997 | 57,826 | ||||||||||||
Due from banks with original maturity of less than three months | 17,998 | 4,535 | 5,324 | 27,857 | ||||||||||||
Total | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Guarantee of other securities
189
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.5 Pro-Forma Effect of the Fair Value Method of Accounting on US GAAP Net Profit
The following table presents US GAAP Net profit and earnings per share for the years ended 31 December 2004 and 31 December 2003 as if UBS had applied the fair value method of accounting for its share-based compensation plans in that
period. With the adoption of SFAS 123-R on 1 January 2005, UBS adopted the fair value method of accounting for its share-based compensation plans using the modified prospective method. See Note 41.1h) for details.
CHF million, except per share data | 31.12.04 | 31.12.03 | ||||||
Net profit under US GAAP, as reported | 8,818 | 6,513 | ||||||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 1,209 | 752 | ||||||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,717 | ) | (1,191 | ) | ||||
Net profit, pro-forma | 8,310 | 6,074 | ||||||
Earnings per share | ||||||||
Basic, as reported | 8.56 | 5.83 | ||||||
Basic, pro-forma | 8.07 | 5.44 | ||||||
Diluted, as reported | 8.15 | 5.72 | ||||||
Diluted, pro-forma | 7.68 | 5.33 | ||||||
190
Table of Contents
Table of Contents
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 | ||||
203 |
192
Table of Contents
UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
Income Statement
The Parent Bank UBS AG net profit increased by CHF 7,551 million from CHF 5,946 million to CHF13,497 million. Income from investments in associated companies increased to CHF 3,943 million from CHF 461 million in 2004 mainly due to higher distributions received. The increase in extraordinary income and expenses is explained on page 198.
Balance Sheet
Total assets increased by CHF 224 billion to CHF 1,360 billion at 31 December 2005. This movement is mainly caused by increased positions in Money market paper of CHF17 billion, Due from banks of CHF 81 billion and Due from customers of CHF 25 billion. A considerable increase resulted as well in Trading balances in securities and precious metals of CHF 70 billion (thereof debt instruments CHF 23 billion and equities CHF 44 billion).
193
Table of Contents
UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Interest and discount income | 27,320 | 18,902 | 45 | |||||||||
Interest and dividend income from trading portfolio | 12,482 | 10,457 | 19 | |||||||||
Interest and dividend income from financial investments | 36 | 13 | 177 | |||||||||
Interest expense | (33,972 | ) | (21,659 | ) | 57 | |||||||
Net interest income | 5,866 | 7,713 | (24 | ) | ||||||||
Credit-related fees and commissions | 244 | 228 | 7 | |||||||||
Fee and commission income from securities and investment business | 9,751 | 8,002 | 22 | |||||||||
Other fee and commission income | 773 | 735 | 5 | |||||||||
Fee and commission expense | (1,349 | ) | (1,135 | ) | 19 | |||||||
Net fee and commission income | 9,419 | 7,830 | 20 | |||||||||
Net trading income | 7,289 | 3,469 | 110 | |||||||||
Net income from disposal of financial investments | 95 | 87 | 9 | |||||||||
Income from investments in associated companies | 3,943 | 461 | 755 | |||||||||
Income from real estate holdings | 38 | 46 | (17 | ) | ||||||||
Sundry income from ordinary activities | 46 | 1,418 | (97 | ) | ||||||||
Sundry ordinary expenses | (234 | ) | (26 | ) | 800 | |||||||
Other income from ordinary activities | 3,888 | 1,986 | 96 | |||||||||
Operating income | 26,462 | 20,998 | 26 | |||||||||
Personnel expenses | 10,999 | 9,699 | 13 | |||||||||
General and administrative expenses | 4,113 | 3,833 | 7 | |||||||||
Operating expenses | 15,112 | 13,532 | 12 | |||||||||
Operating profit | 11,350 | 7,466 | 52 | |||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 1,265 | 1,021 | 24 | |||||||||
Allowances, provisions and losses | 27 | 184 | (85 | ) | ||||||||
Profit before extraordinary items and taxes | 10,058 | 6,261 | 61 | |||||||||
Extraordinary income | 5,274 | 1,016 | 419 | |||||||||
Extraordinary expenses | 0 | 49 | (100 | ) | ||||||||
Tax expense / (benefit) | 1,835 | 1,282 | 43 | |||||||||
Profit for the period | 13,497 | 5,946 | 127 | |||||||||
194
Table of Contents
Balance Sheet | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Assets | ||||||||||||
Liquid assets | 2,712 | 4,152 | (35 | ) | ||||||||
Money market paper | 47,840 | 31,262 | 53 | |||||||||
Due from banks | 431,071 | 350,055 | 23 | |||||||||
Due from customers | 185,331 | 159,988 | 16 | |||||||||
Mortgage loans | 153,387 | 132,941 | 15 | |||||||||
Trading balances in securities and precious metals | 358,600 | 288,170 | 24 | |||||||||
Financial investments | 4,216 | 4,503 | (6 | ) | ||||||||
Investments in associated companies | 22,016 | 20,547 | 7 | |||||||||
Fixed assets | 4,527 | 4,212 | 7 | |||||||||
Accrued income and prepaid expenses | 5,359 | 3,129 | 71 | |||||||||
Positive replacement values | 136,503 | 128,300 | 6 | |||||||||
Other assets | 7,980 | 8,550 | (7 | ) | ||||||||
Total assets | 1,359,542 | 1,135,809 | 20 | |||||||||
Total subordinated assets | 6,094 | 4,970 | 23 | |||||||||
Total amounts receivable from Group companies | 557,355 | 446,850 | 25 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 52,335 | 29,637 | 77 | |||||||||
Due to banks | 482,134 | 428,371 | 13 | |||||||||
Due to customers on savings and deposit accounts | 86,997 | 83,976 | 4 | |||||||||
Other amounts due to customers | 406,724 | 316,467 | 29 | |||||||||
Medium-term bonds | 1,464 | 1,686 | (13 | ) | ||||||||
Bond issues and loans from central mortgage institutions | 102,386 | 60,125 | 70 | |||||||||
Accruals and deferred income | 11,451 | 7,588 | 51 | |||||||||
Negative replacement values | 160,002 | 158,811 | 1 | |||||||||
Other liabilities | 5,648 | 5,951 | (5 | ) | ||||||||
Allowances and provisions | 4,249 | 3,929 | 8 | |||||||||
Share capital | 871 | 901 | (3 | ) | ||||||||
General statutory reserve | 7,927 | 7,572 | 5 | |||||||||
Reserve for own shares | 10,562 | 9,056 | 17 | |||||||||
Other reserves | 13,295 | 15,793 | (16 | ) | ||||||||
Profit for the period | 13,497 | 5,946 | 127 | |||||||||
Total liabilities | 1,359,542 | 1,135,809 | 20 | |||||||||
Total subordinated liabilities | 16,022 | 12,695 | 26 | |||||||||
Total amounts payable to Group companies | 404,108 | 357,311 | 13 | |||||||||
195
Table of Contents
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 2005 as per the Parent Bank’s Income Statement | 13,497 | |||
Appropriation to general statutory reserve | 334 | |||
Appropriation to other reserves | 9,788 | |||
Proposed dividends | 3,375 | |||
Total appropriation | 13,497 | |||
Dividend Distribution
196
Table of Contents
UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the Financial Statements
Accounting Principles
Treasury shares
Foreign currency translation
Investments in associated companies
Property and equipment
Extraordinary income and expenses
197
Table of Contents
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Income Statement Information
Net Trading Income | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Equities | 3,068 | 2,262 | 36 | |||||||||
Fixed income1 | 1,540 | (266 | ) | |||||||||
Foreign exchange and other | 2,681 | 1,473 | 82 | |||||||||
Total | 7,289 | 3,469 | 110 | |||||||||
Extraordinary Income and Expenses
198
Table of Contents
Additional Balance Sheet Information
Allowances and Provisions | ||||||||||||||||||||||||
Provisions | Recoveries, | |||||||||||||||||||||||
applied in | doubtful interest, | New | ||||||||||||||||||||||
accordance | currency | Provisions | provisions | |||||||||||||||||||||
Balance at | with their | translation | released | charged | Balance at | |||||||||||||||||||
CHF million | 31.12.04 | specified purpose | differences | to income | to income | 31.12.05 | ||||||||||||||||||
Default risks (credit and country risk) | 2,777 | (629 | ) | 61 | (971 | ) | 598 | 1,836 | ||||||||||||||||
Trading portfolio risks | 3,337 | 534 | 9 | 3,880 | ||||||||||||||||||||
Litigation risks | 233 | (80 | ) | 148 | (62 | ) | 89 | 328 | ||||||||||||||||
Operational risks | 1,508 | (56 | ) | (105 | ) | (247 | ) | 562 | 1,662 | |||||||||||||||
Capital and income taxes | 1,858 | (1,658 | ) | 72 | 1,839 | 2,111 | ||||||||||||||||||
Total allowances and provisions | 9,713 | (2,423 | ) | 710 | (1,280 | ) | 3,097 | 9,817 | ||||||||||||||||
Allowances deducted from assets | 5,784 | 5,568 | ||||||||||||||||||||||
Total provisions as per balance sheet | 3,929 | 4,249 | ||||||||||||||||||||||
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 31.12.03 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 and 1.1.05 | 901 | 6,213 | 1,359 | 9,056 | 21,739 | 39,268 | ||||||||||||||||||
Cancellation of own shares | (32 | ) | (3,511 | ) | (3,543 | ) | ||||||||||||||||||
Capital increase | 2 | 33 | 35 | |||||||||||||||||||||
Increase in reserves | 322 | (322 | ) | |||||||||||||||||||||
Prior year dividend | (3,105 | ) | (3,105 | ) | ||||||||||||||||||||
Profit for the period | 13,497 | 13,497 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,506 | (1,506 | ) | |||||||||||||||||||||
As at 31.12.05 | 871 | 6,246 | 1,681 | 10,562 | 26,792 | 46,152 | ||||||||||||||||||
Share Capital | ||||||||||||||||
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As at 31.12.05 | ||||||||||||||||
Issued and paid up | 1,088,632,522 | 870,906,018 | 1,054,747,522 | 843,798,018 | ||||||||||||
Conditional share capital | 1,823,501 | 1,458,801 | ||||||||||||||
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 | ||||||||||||||
199
Table of Contents
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 | ||||||||||||||||||||||||
31.12.05 | 31.12.04 | Change in % | ||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||
Money market paper | 26,513 | 6,120 | 15,387 | 4,633 | 72 | 32 | ||||||||||||||||||
Mortgage loans | 64 | 38 | 175 | 60 | (63 | ) | (37 | ) | ||||||||||||||||
Securities | 102,330 | 48,580 | 79,534 | 41,310 | 29 | 18 | ||||||||||||||||||
Total | 128,907 | 54,738 | 95,096 | 46,003 | 36 | 19 | ||||||||||||||||||
Assets are pledged as collateral for securities borrowing and repurchase 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 | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Contingent liabilities | 184,665 | 123,429 | 50 | |||||||||
Irrevocable commitments | 68,071 | 50,552 | 35 | |||||||||
Liabilities for calls on shares and other equities | 130 | 104 | 25 | |||||||||
Confirmed credits | 2,004 | 1,820 | 10 | |||||||||
Derivative Instruments | ||||||||||||||||||||||||
31.12.05 | 31.12.04 | |||||||||||||||||||||||
Notional amount | Notional amount | |||||||||||||||||||||||
CHF million | PRV1 | NRV2 | CHF bn | PRV | NRV | CHF bn | ||||||||||||||||||
Interest rate contracts | 222,508 | 221,437 | 20,656 | 174,994 | 183,210 | 15,398 | ||||||||||||||||||
Credit derivative contracts | 15,811 | 16,427 | 1,557 | 7,895 | 9,353 | 671 | ||||||||||||||||||
Foreign exchange contracts | 57,705 | 58,600 | 4,757 | 81,377 | 79,046 | 3,729 | ||||||||||||||||||
Precious metal contracts | 3,616 | 3,444 | 82 | 1,919 | 1,590 | 61 | ||||||||||||||||||
Equity/index contracts | 25,663 | 49,924 | 706 | 20,487 | 44,107 | 721 | ||||||||||||||||||
Commodity contracts | 10,677 | 9,647 | 194 | 1,739 | 1,616 | 41 | ||||||||||||||||||
Total derivative instruments | 335,980 | 359,479 | 27,952 | 288,411 | 318,922 | 20,621 | ||||||||||||||||||
Replacement values netting | 199,477 | 199,477 | 160,111 | 160,111 | ||||||||||||||||||||
Replacement values after netting | 136,503 | 160,002 | 128,300 | 158,811 | ||||||||||||||||||||
200
Table of Contents
Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Deposits: | ||||||||||||
with other banks | 37,171 | 30,581 | 22 | |||||||||
with Group banks | 1,382 | 740 | 87 | |||||||||
Loans and other financial transactions | 0 | 6 | (100 | ) | ||||||||
Total | 38,553 | 31,327 | 23 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies/Related Parties | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.04 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 719 | 1,329 | (46 | ) | ||||||||
Securities borrowed from pension plans | 2,222 | 3,778 | (41 | ) | ||||||||
Loans to directors, senior executives and auditors1 | 21 | 16 | 31 | |||||||||
The employees of UBS AG are covered through the pension plans of UBS Group. The major Group pension plans are disclosed in Note 30 of the Group’s Financial Statements.
a) Defined benefit plans
Foreign pension plans
b) Defined contribution plans
Personnel
201
Table of Contents
Table of Contents
Table of Contents
204
Table of Contents
Table of Contents
Table of Contents
Additional Disclosure Required
under SEC Regulations
Table of Contents
206
Table of Contents
A – Introduction
The following pages contain additional disclosure about UBS Group which is required under SEC regulations.
or CHF, the reporting currency of the Group. Certain financial information has also been presented in accordance with United States Generally Accepted Accounting Principles (US GAAP).
The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The noon buying rate is the rate in New York
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
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 | ||||||||||||
2005 | 0.8721 | 0.7544 | 0.8039 | 0.7606 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2005 | 0.8139 | 0.7712 | ||||||||||||||
October 2005 | 0.7855 | 0.7679 | ||||||||||||||
November 2005 | 0.7825 | 0.7544 | ||||||||||||||
December 2005 | 0.7820 | 0.7570 | ||||||||||||||
January 2006 | 0.7940 | 0.7729 | ||||||||||||||
February 2006 | 0.7788 | 0.7575 | ||||||||||||||
207
Table of Contents
Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
For the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Income statement data | ||||||||||||||||||||
Interest income | 59,286 | 39,228 | 40,045 | 39,896 | 52,187 | |||||||||||||||
Interest expense | (49,758 | ) | (27,484 | ) | (27,784 | ) | (29,417 | ) | (44,236 | ) | ||||||||||
Net interest income | 9,528 | 11,744 | 12,261 | 10,479 | 7,951 | |||||||||||||||
Credit loss (expense) / recovery | 375 | 241 | (102 | ) | (112 | ) | (499 | ) | ||||||||||||
Net interest income after credit loss (expense)/recovery | 9,903 | 11,985 | 12,159 | 10,367 | 7,452 | |||||||||||||||
Net fee and commission income | 21,436 | 18,506 | 16,673 | 17,481 | 19,440 | |||||||||||||||
Net trading income | 7,996 | 4,902 | 3,670 | 5,381 | 8,732 | |||||||||||||||
Other income | 1,125 | 932 | 225 | 285 | 609 | |||||||||||||||
Income from Industrial Holdings | 10,515 | 6,086 | 2,900 | 1,245 | 1,691 | |||||||||||||||
Total operating income | 50,975 | 42,411 | 35,627 | 34,759 | 37,924 | |||||||||||||||
Total operating expenses | 37,926 | 32,124 | 28,355 | 31,007 | 31,723 | |||||||||||||||
Operating profit from continuing operations before tax | 13,049 | 10,287 | 7,272 | 3,752 | 6,201 | |||||||||||||||
Tax expense | 2,549 | 2,224 | 1,419 | 597 | 1,359 | |||||||||||||||
Net profit from continuing operations | 10,500 | 8,063 | 5,853 | 3,155 | 4,842 | |||||||||||||||
Net profit from discontinued operations | 4,190 | 407 | 400 | 210 | 445 | |||||||||||||||
Net profit | 14,690 | 8,470 | 6,253 | 3,365 | 5,287 | |||||||||||||||
Net profit attributable to minority interests | 661 | 454 | 349 | 348 | 356 | |||||||||||||||
Net profit attributable to UBS shareholders | 14,029 | 8,016 | 5,904 | 3,017 | 4,931 | |||||||||||||||
Cost / income ratio (%)1 | 70.1 | 73.2 | 76.8 | 84.7 | 79.1 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | 13.93 | 7.78 | 5.44 | 2.59 | 4.05 | |||||||||||||||
Diluted earnings per share2 | 13.36 | 7.40 | 5.19 | 2.54 | 3.90 | |||||||||||||||
Operating profit before tax per share | 12.96 | 9.99 | 6.70 | 3.22 | 5.09 | |||||||||||||||
Cash dividends declared per share (CHF)3 | 3.20 | 3.00 | 2.60 | 2.00 | 0.00 | |||||||||||||||
Cash dividend equivalent in USD3 | 2.54 | 2.00 | 1.46 | 0.00 | ||||||||||||||||
Dividend payout ratio (%) | 23.0 | 38.6 | 47.8 | 77.2 | ||||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on equity attributable to UBS shareholders4 | 39.4 | 25.5 | 17.8 | 8.2 | 12.4 | |||||||||||||||
Return on average equity | 36.9 | 23.6 | 16.8 | 7.6 | 11.9 | |||||||||||||||
Return on average assets | 0.67 | 0.44 | 0.38 | 0.20 | 0.36 | |||||||||||||||
208
Table of Contents
B – Selected Financial Data (continued)
As at | ||||||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 2,060,250 | 1,737,118 | 1,553,979 | 1,350,852 | 1,258,093 | |||||||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 33,659 | 36,010 | 40,873 | |||||||||||||||
Average equity to average assets (%) | 1.81 | 1.86 | 2.25 | 2.67 | 3.03 | |||||||||||||||
Market capitalization | 131,949 | 103,638 | 95,401 | 79,448 | 105,475 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 1,088,632,522 | 1,126,858,177 | 1,183,046,764 | 1,256,297,678 | 1,281,717,499 | |||||||||||||||
Treasury shares | 104,259,874 | 124,663,310 | 136,741,227 | 141,230,691 | 89,804,451 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 12.9 | 11.9 | 12.0 | 11.3 | 11.6 | |||||||||||||||
Total BIS (%) | 14.1 | 13.8 | 13.5 | 13.8 | 14.8 | |||||||||||||||
Risk-weighted assets | 310,409 | 264,832 | 252,398 | 238,790 | 253,735 | |||||||||||||||
Invested assets (CHF billion) | 2,652 | 2,217 | 2,098 | 1,959 | 2,448 | |||||||||||||||
Personnel Financial Businesses (full-time equivalents) | ||||||||||||||||||||
Switzerland | 26,028 | 25,990 | 26,662 | 27,972 | 29,163 | |||||||||||||||
Europe (excluding Switzerland) | 11,007 | 10,764 | 9,906 | 10,009 | 9,650 | |||||||||||||||
Americas | 27,136 | 26,232 | 25,511 | 27,350 | 27,463 | |||||||||||||||
Asia Pacific | 5,398 | 4,438 | 3,850 | 3,730 | 3,709 | |||||||||||||||
Total | 69,569 | 67,424 | 65,929 | 69,061 | 69,985 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | AAA | AAA | |||||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | Aa2 | Aa2 | |||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data
As at | ||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,060,250 | 1,737,118 | 1,553,979 | 1,350,852 | 1,258,093 | |||||||||||||||
Due from banks | 33,644 | 35,419 | 31,959 | 32,777 | 27,736 | |||||||||||||||
Cash collateral on securities borrowed | 300,331 | 220,242 | 213,932 | 139,049 | 162,938 | |||||||||||||||
Reverse repurchase agreements | 404,432 | 357,164 | 320,499 | 294,067 | 269,256 | |||||||||||||||
Trading portfolio assets | 499,297 | 389,487 | 354,558 | 261,080 | 397,888 | |||||||||||||||
Trading portfolio assets pledged as collateral | 154,759 | 159,115 | 120,759 | 110,365 | ||||||||||||||||
Positive replacement values | 333,782 | 284,577 | 248,206 | 247,421 | 73,447 | |||||||||||||||
Loans | 269,969 | 232,167 | 212,670 | 211,707 | 226,535 | |||||||||||||||
Liabilities and Equity | ||||||||||||||||||||
Due to banks | 124,328 | 120,026 | 129,084 | 83,561 | 107,031 | |||||||||||||||
Cash collateral on securities lent | 77,267 | 61,545 | 53,278 | 36,870 | 30,317 | |||||||||||||||
Repurchase agreements | 478,508 | 422,587 | 415,863 | 366,858 | 368,620 | |||||||||||||||
Trading portfolio liabilities | 188,631 | 171,033 | 143,957 | 106,453 | 105,798 | |||||||||||||||
Negative replacement values | 337,663 | 303,712 | 254,768 | 247,206 | 71,443 | |||||||||||||||
Financial liabilities designated at fair value | 117,401 | 65,756 | 35,286 | 14,516 | ||||||||||||||||
Due to customers | 451,533 | 376,076 | 346,577 | 306,876 | 333,781 | |||||||||||||||
Debt issued | 160,710 | 117,856 | 88,874 | 115,798 | 158,307 | |||||||||||||||
Equity attributable to UBS shareholders | 44,324 | 33,941 | 33,659 | 36,010 | 40,873 | |||||||||||||||
209
Table of Contents
Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
US GAAP Income Statement Data
For the year ended | ||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 59,039 | 38,991 | 39,802 | 39,612 | 51,817 | |||||||||||||||
Interest expense | (49,588 | ) | (27,245 | ) | (27,628 | ) | (29,334 | ) | (44,096 | ) | ||||||||||
Net interest income | 9,451 | 11,746 | 12,174 | 10,278 | 7,721 | |||||||||||||||
Credit loss (expense) / recovery | 375 | 334 | (74 | ) | (112 | ) | (499 | ) | ||||||||||||
Net interest income after credit loss (expense) / recovery | 9,826 | 12,080 | 12,100 | 10,166 | 7,222 | |||||||||||||||
Net fee and commission income | 21,436 | 18,435 | 16,606 | 17,481 | 19,440 | |||||||||||||||
Net trading income | 6,864 | 4,795 | 3,944 | 5,870 | 8,889 | |||||||||||||||
Other income | 793 | 1,180 | 382 | (65 | ) | 504 | ||||||||||||||
Revenues from Industrial Holdings | 8,674 | 3,648 | ||||||||||||||||||
Total operating income | 47,593 | 40,138 | 33,032 | 33,452 | 36,055 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 20,220 | 18,297 | 17,234 | 18,224 | 19,294 | |||||||||||||||
General and administrative expenses | 6,667 | 6,545 | 5,917 | 6,953 | 7,465 | |||||||||||||||
Depreciation of property and equipment | 1,414 | 1,365 | 1,368 | 1,573 | 1,759 | |||||||||||||||
Amortization of goodwill | 0 | 0 | 0 | 0 | 2,385 | |||||||||||||||
Amortization of other intangible assets | 201 | 180 | 110 | 1,443 | 298 | |||||||||||||||
Goods and materials purchased | 7,142 | 2,861 | ||||||||||||||||||
Restructuring costs | 0 | 0 | 0 | 0 | 112 | |||||||||||||||
Total operating expenses | 35,644 | 29,248 | 24,629 | 28,193 | 31,313 | |||||||||||||||
Operating profit from continuing operations before tax | 11,949 | 10,890 | 8,403 | 5,259 | 4,742 | |||||||||||||||
Tax expense | 3,078 | 2,015 | 1,790 | 456 | 1,323 | |||||||||||||||
Minority interests | (410 | ) | (435 | ) | (350 | ) | (331 | ) | (344 | ) | ||||||||||
Net profit from continuing operations | 8,461 | 8,440 | 6,263 | 4,472 | 3,075 | |||||||||||||||
Net profit from discontinued operations | 3,853 | 372 | 250 | 435 | 159 | |||||||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | 639 | |||||||||||||||||||
Cumulative adjustment of accounting for certain equity-based compensation plans as cash settled, net of tax | 6 | |||||||||||||||||||
Cumulative adjustment due to the adoption of SFAS 123 (revised 2004), “Share-Based Payment” on 1 January 2005, net of tax | 38 | |||||||||||||||||||
Net profit | 12,352 | 8,818 | 6,513 | 5,546 | 3,234 | |||||||||||||||
210
Table of Contents
B – Selected Financial Data (continued)
US GAAP Balance Sheet Data
As at | ||||||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,322,261 | 1,903,186 | 1,699,007 | 1,296,938 | 1,361,920 | |||||||||||||||
Due from banks | 33,427 | 35,286 | 31,758 | 32,481 | 27,550 | |||||||||||||||
Cash collateral on securities borrowed | 274,099 | 218,414 | 211,058 | 139,073 | 162,566 | |||||||||||||||
Reverse repurchase agreements | 404,432 | 357,164 | 320,499 | 294,086 | 269,256 | |||||||||||||||
Trading portfolio assets | 607,432 | 449,389 | 423,733 | 331,480 | 455,406 | |||||||||||||||
Trading portfolio assets pledged as collateral | 152,237 | 159,115 | 120,759 | 110,365 | ||||||||||||||||
Positive replacement values1 | 337,409 | 284,468 | 248,924 | 83,757 | 73,474 | |||||||||||||||
Loans | 267,530 | 228,968 | 212,729 | 211,755 | 226,747 | |||||||||||||||
Goodwill | 28,104 | 26,977 | 26,775 | 28,127 | 29,255 | |||||||||||||||
Other intangible assets | 1,665 | 1,722 | 1,174 | 1,222 | 4,510 | |||||||||||||||
Other assets | 116,831 | 101,068 | 64,381 | 21,314 | 36,972 | |||||||||||||||
Liabilities and Equity | ||||||||||||||||||||
Due to banks | 127,252 | 119,021 | 127,385 | 83,178 | 106,531 | |||||||||||||||
Cash collateral on securities lent | 66,916 | 57,792 | 51,157 | 36,870 | 30,317 | |||||||||||||||
Repurchase agreements | 482,843 | 423,513 | 415,863 | 366,858 | 368,620 | |||||||||||||||
Trading portfolio liabilities | 193,965 | 190,907 | 149,380 | 117,721 | 119,528 | |||||||||||||||
Obligation to return securities received as collateral | 67,430 | 12,950 | 13,071 | 16,308 | 10,931 | |||||||||||||||
Negative replacement values1 | 432,171 | 360,345 | 326,136 | 132,354 | 116,666 | |||||||||||||||
Due to customers | 466,410 | 386,913 | 347,358 | 306,872 | 333,766 | |||||||||||||||
Accrued expenses and deferred income | 18,707 | 14,830 | 13,673 | 15,330 | 17,289 | |||||||||||||||
Debt issued | 240,212 | 164,744 | 123,259 | 129,527 | 156,462 | |||||||||||||||
Shareholders’ equity | 60,475 | 52,668 | 53,174 | 55,576 | 59,282 | |||||||||||||||
Ratio of Earnings to Fixed Charges
The following table sets forth UBS’s ratio of earnings to fixed charges for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividend requirements are not presented as there were no preferred share dividends in any of the periods indicated.
For the year ended | ||||||||||||||||||||
31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | ||||||||||||||||
IFRS1 | 1.24 | 1.35 | 1.24 | 1.11 | 1.13 | |||||||||||||||
US GAAP1 | 1.23 | 1.37 | 1.28 | 1.17 | 1.10 | |||||||||||||||
C – Information on the Company
211
Table of Contents
D – Information Required by Industry Guide 3
ber 2004 and 31 December 2003 are calculated from monthly data. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower.
Average 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 2005, 2004 and 2003.
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||
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 | 15,467 | 270 | 1.7 | 12,463 | 154 | 1.2 | 11,417 | 158 | 1.4 | |||||||||||||||||||||||||||
Foreign | 25,497 | 1,334 | 5.2 | 23,843 | 397 | 1.7 | 21,317 | 1,064 | 5.0 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 33,012 | 1,079 | 3.3 | 17,969 | 457 | 2.5 | 6,576 | 200 | 3.0 | |||||||||||||||||||||||||||
Foreign | 787,389 | 22,562 | 2.9 | 710,065 | 10,549 | 1.5 | 582,066 | 10,948 | 1.9 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 15,545 | 457 | 2.9 | 10,122 | 336 | 3.3 | 7,990 | 219 | 2.7 | |||||||||||||||||||||||||||
Foreign taxable | 580,763 | 23,630 | 4.1 | 513,922 | 18,914 | 3.7 | 421,413 | 18,151 | 4.3 | |||||||||||||||||||||||||||
Foreign non-taxable | 3,390 | 58 | 1.7 | 2,309 | 27 | 1.2 | 1,668 | 21 | 1.3 | |||||||||||||||||||||||||||
Foreign total | 584,153 | 23,688 | 4.1 | 516,231 | 18,941 | 3.7 | 423,081 | 18,172 | 4.3 | |||||||||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 616 | 0 | 196 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign | 691 | 26 | 3.8 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 174,299 | 5,424 | 3.1 | 168,456 | 5,308 | 3.2 | 165,397 | 6,357 | 3.8 | |||||||||||||||||||||||||||
Foreign | 81,264 | 3,241 | 4.0 | 60,145 | 1,813 | 3.0 | 51,459 | 1,805 | 3.5 | |||||||||||||||||||||||||||
Financial investments | ||||||||||||||||||||||||||||||||||||
Domestic | 1,036 | 3 | 0.3 | 1,132 | 17 | 1.5 | 1,988 | 27 | 1.4 | |||||||||||||||||||||||||||
Foreign taxable | 3,546 | 83 | 2.3 | 3,000 | 21 | 0.7 | 2,880 | 30 | 1.0 | |||||||||||||||||||||||||||
Foreign non-taxable | 0 | 0 | 0.0 | 0 | 0 | 0.0 | ||||||||||||||||||||||||||||||
Foreign total | 3,546 | 83 | 2.3 | 3,000 | 21 | 0.7 | 2,880 | 30 | 1.0 | |||||||||||||||||||||||||||
Total interest-earning assets | 1,722,515 | 58,167 | 3.4 | 1,523,622 | 37,993 | 2.5 | 1,274,171 | 38,980 | 3.1 | |||||||||||||||||||||||||||
Net interest on swaps | 1,119 | 1,235 | 1,065 | |||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | 1,722,515 | 59,286 | 3.4 | 1,523,622 | 39,228 | 2.6 | 1,274,171 | 40,045 | 3.1 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 319,698 | 246,952 | 249,155 | |||||||||||||||||||||||||||||||||
Fixed assets | 9,308 | 8,808 | 12,874 | |||||||||||||||||||||||||||||||||
Other | 55,125 | 53,087 | 29,750 | |||||||||||||||||||||||||||||||||
Total average assets | 2,106,646 | 1,832,469 | 1,565,950 | |||||||||||||||||||||||||||||||||
212
Table of Contents
D – Information Required by Industry Guide 3 (continued)
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||||||||||||||
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 | 35,713 | 897 | 2.5 | 31,129 | 385 | 1.2 | 28,719 | 116 | 0.4 | |||||||||||||||||||||||||||
Foreign | 92,431 | 3,321 | 3.6 | 96,335 | 1,582 | 1.6 | 74,695 | 1,747 | 2.3 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 40,772 | 881 | 2.2 | 33,846 | 489 | 1.4 | 23,287 | 295 | 1.3 | |||||||||||||||||||||||||||
Foreign | 661,722 | 19,745 | 3.0 | 614,295 | 9,525 | 1.6 | 515,665 | 9,328 | 1.8 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 3,632 | 145 | 4.0 | 3,717 | 180 | 4.8 | 3,252 | 156 | 4.8 | |||||||||||||||||||||||||||
Foreign | 173,394 | 10,591 | 6.1 | 161,286 | 7,813 | 4.8 | 127,104 | 9,769 | 7.7 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 638 | 5 | 0.8 | 85 | 1 | 1.2 | 0 | 0 | ||||||||||||||||||||||||||||
Foreign | 86,688 | 2,385 | 2.8 | 49,234 | 1,167 | 2.4 | 22,445 | 751 | 3.3 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic demand deposits | 67,987 | 292 | 0.4 | 67,005 | 167 | 0.2 | 55,496 | 100 | 0.2 | |||||||||||||||||||||||||||
Domestic savings deposits | 86,373 | 404 | 0.5 | 84,112 | 414 | 0.5 | 81,963 | 527 | 0.6 | |||||||||||||||||||||||||||
Domestic time deposits | 24,245 | 386 | 1.6 | 19,052 | 250 | 1.3 | 21,125 | 357 | 1.7 | |||||||||||||||||||||||||||
Domestic total | 178,605 | 1,082 | 0.6 | 170,169 | 831 | 0.5 | 158,584 | 984 | 0.6 | |||||||||||||||||||||||||||
Foreign1 | 236,228 | 5,760 | 2.4 | 192,992 | 2,677 | 1.4 | 161,738 | 2,149 | 1.3 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 1,584 | 20 | 1.3 | 246 | 0 | 64 | 0 | 0.0 | ||||||||||||||||||||||||||||
Foreign | 96,767 | 2,905 | 3.0 | 79,902 | 1,338 | 1.7 | 73,193 | 1,015 | 1.4 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 4,250 | 117 | 2.8 | 10,358 | 168 | 1.6 | 6,413 | 188 | 2.9 | |||||||||||||||||||||||||||
Foreign | 43,035 | 1,904 | 4.4 | 28,259 | 1,328 | 4.7 | 30,805 | 1,286 | 4.2 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,655,459 | 49,758 | 3.0 | 1,471,853 | 27,484 | 1.9 | 1,225,964 | 27,784 | 2.3 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 335,992 | 260,629 | 254,819 | |||||||||||||||||||||||||||||||||
Other | 70,292 | 60,482 | 46,025 | |||||||||||||||||||||||||||||||||
Total liabilities | 2,061,743 | 1,792,964 | 1,526,808 | |||||||||||||||||||||||||||||||||
Equity attributable to UBS shareholders | 44,903 | 39,505 | 39,142 | |||||||||||||||||||||||||||||||||
Total average liabilities and equity | 2,106,646 | 1,832,469 | 1,565,950 | |||||||||||||||||||||||||||||||||
attributable to UBS shareholders | ||||||||||||||||||||||||||||||||||||
Net interest income | 9,528 | 11,744 | 12,261 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.6 | 0.8 | 1.0 | |||||||||||||||||||||||||||||||||
213
Table of Contents
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 ended31 December 2005 compared with the year ended31 December 2004, and for the year ended31 December 2004 compared with the year ended 31
December 2003. 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.
2005 compared with 2004 | 2004 compared with 2003 | ||||||||||||||||||||||||
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 | 36 | 80 | 116 | 15 | (19 | ) | (4 | ) | |||||||||||||||||
Foreign | 28 | 909 | 937 | 126 | (793 | ) | (667 | ) | |||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | |||||||||||||||||||||||||
Domestic | 376 | 246 | 622 | 342 | (85 | ) | 257 | ||||||||||||||||||
Foreign | 1,160 | 10,853 | 12,013 | 2,432 | (2,831 | ) | (399 | ) | |||||||||||||||||
Trading portfolio assets | |||||||||||||||||||||||||
Domestic | 179 | (58 | ) | 121 | 58 | 59 | 117 | ||||||||||||||||||
Foreign taxable | 2,473 | 2,243 | 4,716 | 3,978 | (3,215 | ) | 763 | ||||||||||||||||||
Foreign non-taxable | 13 | 18 | 31 | 8 | (2 | ) | 6 | ||||||||||||||||||
Foreign total | 2,486 | 2,261 | 4,747 | 3,986 | (3,217 | ) | 769 | ||||||||||||||||||
Financial assets designated at fair value | |||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Foreign | 26 | 0 | 26 | 0 | 0 | 0 | |||||||||||||||||||
Loans | |||||||||||||||||||||||||
Domestic | 187 | (71 | ) | 116 | 116 | (1,165 | ) | (1,049 | ) | ||||||||||||||||
Foreign | 634 | 794 | 1,428 | 304 | (296 | ) | 8 | ||||||||||||||||||
Financial investments | |||||||||||||||||||||||||
Domestic | (1 | ) | (13 | ) | (14 | ) | (12 | ) | 2 | (10 | ) | ||||||||||||||
Foreign taxable | 4 | 58 | 62 | 1 | (10 | ) | (9 | ) | |||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Foreign total | 4 | 58 | 62 | 1 | (10 | ) | (9 | ) | |||||||||||||||||
Interest income | |||||||||||||||||||||||||
Domestic | 777 | 184 | 961 | 519 | (1,208 | ) | (689 | ) | |||||||||||||||||
Foreign | 4,338 | 14,875 | 19,213 | 6,849 | (7,147 | ) | (298 | ) | |||||||||||||||||
Total interest income from interest-earning assets | 5,115 | 15,059 | 20,174 | 7,368 | (8,355 | ) | (987 | ) | |||||||||||||||||
Net interest on swaps | (116 | ) | 170 | ||||||||||||||||||||||
Total interest income | 20,058 | (817 | ) | ||||||||||||||||||||||
214
Table of Contents
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)
2005 compared with 2004 | 2004 compared with 2003 | |||||||||||||||||||||||
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 | 55 | 457 | 512 | 10 | 259 | 269 | ||||||||||||||||||
Foreign | (62 | ) | 1,801 | 1,739 | 498 | (663 | ) | (165 | ) | |||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 97 | 295 | 392 | 137 | 57 | 194 | ||||||||||||||||||
Foreign | 759 | 9,461 | 10,220 | 1,775 | (1,578 | ) | 197 | |||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | (4 | ) | (31 | ) | (35 | ) | 22 | 2 | 24 | |||||||||||||||
Foreign | 581 | 2,197 | 2,778 | 2,632 | (4,588 | ) | (1,956 | ) | ||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||
Domestic | 7 | (3 | ) | 4 | 0 | 1 | 1 | |||||||||||||||||
Foreign | 899 | 319 | 1,218 | 884 | (468 | ) | 416 | |||||||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic demand deposits | 2 | 123 | 125 | 23 | 44 | 67 | ||||||||||||||||||
Domestic savings deposits | 11 | (21 | ) | (10 | ) | 13 | (126 | ) | (113 | ) | ||||||||||||||
Domestic time deposits | 68 | 68 | 136 | (35 | ) | (72 | ) | (107 | ) | |||||||||||||||
Domestic total | 81 | 170 | 251 | 1 | (154 | ) | (153 | ) | ||||||||||||||||
Foreign | 605 | 2,478 | 3,083 | 406 | 122 | 528 | ||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 20 | 0 | 20 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 287 | 1,280 | 1,567 | 94 | 229 | 323 | ||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | (98 | ) | 47 | (51 | ) | 114 | (134 | ) | (20 | ) | ||||||||||||||
Foreign | 694 | (118 | ) | 576 | (107 | ) | 149 | 42 | ||||||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | 158 | 935 | 1,093 | 284 | 31 | 315 | ||||||||||||||||||
Foreign | 3,763 | 17,418 | 21,181 | 6,182 | (6,797 | ) | (615 | ) | ||||||||||||||||
Total interest expense | 3,921 | 18,353 | 22,274 | 6,466 | (6,766 | ) | (300 | ) | ||||||||||||||||
215
Table of Contents
D – Information Required by Industry Guide 3 (continued)
Deposits
31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 8,491 | 0.1 | 7,770 | 0.1 | 3,836 | 0.0 | ||||||||||||||||||
Time deposits | 6,976 | 3.3 | 4,693 | 1.7 | 7,581 | 0.6 | ||||||||||||||||||
Total domestic offices | 15,467 | 1.5 | 12,463 | 0.7 | 11,417 | 0.4 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 25,497 | 3.6 | 23,843 | 1.6 | 21,317 | 2.4 | ||||||||||||||||||
Total due to banks | 40,964 | 2.8 | 36,306 | 1.3 | 32,734 | 1.7 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 67,987 | 0.4 | 67,005 | 0.2 | 55,496 | 0.2 | ||||||||||||||||||
Savings deposits | 86,373 | 0.5 | 84,112 | 0.5 | 81,963 | 0.6 | ||||||||||||||||||
Time deposits | 24,245 | 1.6 | 19,052 | 1.3 | 21,125 | 1.7 | ||||||||||||||||||
Total domestic offices | 178,605 | 0.6 | 170,169 | 0.5 | 158,584 | 0.6 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 236,228 | 2.4 | 192,992 | 1.4 | 161,738 | 1.3 | ||||||||||||||||||
Total due to customers | 414,833 | 1.6 | 363,161 | 1.0 | 320,322 | 1.0 | ||||||||||||||||||
At 31 December 2005, 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 | 26,427 | 179,430 | ||||||
3 to 6 months | 1,588 | 3,779 | ||||||
6 to 12 months | 823 | 2,745 | ||||||
1 to 5 years | 581 | 1,606 | ||||||
Over 5 years | 296 | 60 | ||||||
Total time deposits | 29,715 | 187,620 | ||||||
216
Table of Contents
D – Information Required by Industry Guide 3 (continued)
Short-term Borrowings
The following table presents the period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2005, 2004 and 2003.
Money market paper issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||||||||||
Period-end balance | 102,662 | 79,442 | 58,115 | 90,651 | 84,351 | 90,615 | 667,317 | 557,892 | 500,592 | |||||||||||||||||||||||||||
Average balance | 98,351 | 80,148 | 73,257 | 87,180 | 91,158 | 70,680 | 628,362 | 587,988 | 498,679 | |||||||||||||||||||||||||||
Maximum month-end balance | 112,217 | 94,366 | 92,605 | 101,178 | 115,880 | 96,694 | 719,208 | 637,594 | 593,738 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 3.0 | 1.7 | 1.4 | 3.3 | 1.6 | 2.8 | 3.0 | 1.5 | 1.8 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 4.0 | 2.1 | 1.3 | 3.0 | 2.0 | 1.5 | 2.6 | 2.0 | 1.3 | |||||||||||||||||||||||||||
217
Table of Contents
Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Contractual Maturities of Investments in Debt Instruments1,2
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2005 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 2 | 4.36 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 42 | 5.51 | 10 | 5.77 | 12 | 6.03 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.91 | 2 | 1.90 | 5 | 5.64 | 2 | 6.17 | ||||||||||||||||||||||||
Corporate debt securities | 13 | 3.20 | 239 | 4.25 | 66 | 5.38 | 103 | 5.66 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 14 | 3.92 | 129 | 4.80 | ||||||||||||||||||||||||
Other debt securities | 0 | 0.00 | �� | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | |||||||||||||||||||||||
Total fair value | 51 | 285 | 95 | 247 | ||||||||||||||||||||||||||||
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 | 0.00 | 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 2003 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 3 | 6.61 | 4 | 2.92 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 5 | 3.90 | 20 | 2.01 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 45 | 1.89 | 9 | 1.49 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 81 | 1.09 | 68 | 3.53 | 7 | 7.38 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Other debt securities | 4 | 0.00 | 8 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 138 | 109 | 13 | 1 | ||||||||||||||||||||||||||||
218
Table of Contents
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 Switzerland. With the exception of private households (foreign and domestic), 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
2005/2006. The following table illustrates the diversification of the loan portfolio among industry sectors at 31 December 2005, 2004, 2003, 2002 and 2001. 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 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Domestic1 | ||||||||||||||||||||
Banks | 1,407 | 1,406 | 619 | 1,029 | 1,533 | |||||||||||||||
Construction | 1,816 | 1,943 | 2,175 | 2,838 | 3,499 | |||||||||||||||
Financial institutions | 4,213 | 4,332 | 4,009 | 4,301 | 5,673 | |||||||||||||||
Hotels and restaurants | 2,044 | 2,269 | 2,440 | 2,655 | 2,950 | |||||||||||||||
Manufacturing 2 | 5,038 | 5,485 | 6,478 | 7,237 | 8,686 | |||||||||||||||
Private households | 111,549 | 105,160 | 102,180 | 95,295 | 93,746 | |||||||||||||||
Public authorities | 5,494 | 5,460 | 5,251 | 5,529 | 5,222 | |||||||||||||||
Real estate and rentals | 11,792 | 11,466 | 12,449 | 13,573 | 14,992 | |||||||||||||||
Retail and wholesale | 4,808 | 4,908 | 6,062 | 7,172 | 8,674 | |||||||||||||||
Services 3 | 9,300 | 9,110 | 9,493 | 10,237 | 12,161 | |||||||||||||||
Other 4 | 1,004 | 591 | 1,014 | 1,722 | 1,860 | |||||||||||||||
Total domestic | 158,465 | 152,130 | 152,170 | 151,588 | 158,996 | |||||||||||||||
Foreign1 | ||||||||||||||||||||
Banks | 32,282 | 34,269 | 31,405 | 31,882 | 26,728 | |||||||||||||||
Chemicals | 2,716 | 366 | 245 | 519 | 1,080 | |||||||||||||||
Construction | 295 | 122 | 84 | 153 | 266 | |||||||||||||||
Electricity, gas and water supply | 1,637 | 745 | 249 | 1,105 | 977 | |||||||||||||||
Financial institutions | 52,365 | 35,459 | 23,493 | 18,378 | 14,458 | |||||||||||||||
Manufacturing 5 | 3,899 | 2,758 | 2,421 | 2,300 | 4,258 | |||||||||||||||
Mining | 2,694 | 1,695 | 1,114 | 868 | 1,313 | |||||||||||||||
Private households | 38,280 | 30,237 | 21,195 | 33,063 | 25,619 | |||||||||||||||
Public authorities | 1,501 | 1,228 | 1,224 | 2,628 | 6,454 | |||||||||||||||
Real estate and rentals | 2,707 | 940 | 473 | 616 | 10,227 | |||||||||||||||
Retail and wholesale | 1,257 | 1,102 | 1,880 | 1,367 | 1,732 | |||||||||||||||
Services | 5,596 | 8,002 | 7,983 | 1,654 | 4,786 | |||||||||||||||
Transport, storage and communication | 1,419 | 762 | 3,658 | 676 | 2,117 | |||||||||||||||
Other 6 | 156 | 318 | 432 | 2,314 | 2,956 | |||||||||||||||
Total foreign | 146,804 | 118,003 | 95,856 | 97,523 | 102,971 | |||||||||||||||
Total gross | 305,269 | 270,133 | 248,026 | 249,111 | 261,967 | |||||||||||||||
219
Table of Contents
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 2005, 2004, 2003, 2002 and 2001. Mortgages are included in the industry categories mentioned above.
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 130,880 | 124,496 | 122,069 | 116,359 | 116,628 | |||||||||||||||
Foreign | 15,619 | 12,185 | 7,073 | 11,510 | 9,583 | |||||||||||||||
Total gross mortgages | 146,499 | 136,681 | 129,142 | 127,869 | 126,211 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 127,990 | 117,731 | 109,980 | 108,779 | 101,969 | |||||||||||||||
Commercial | 18,509 | 18,950 | 19,162 | 19,090 | 24,242 | |||||||||||||||
Total gross mortgages | 146,499 | 136,681 | 129,142 | 127,869 | 126,211 | |||||||||||||||
Due from Banks and Loan Maturities (gross)
The following table discloses loans by maturity at 31 December 2005. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 28 to the Financial Statements.
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 1,101 | 294 | 12 | 1,407 | ||||||||||||||||
Mortgages | 51,060 | 65,686 | 14,134 | 130,880 | ||||||||||||||||
Other loans | 19,372 | 5,318 | 1,488 | 26,178 | ||||||||||||||||
Total domestic | 71,533 | 71,298 | 15,634 | 158,465 | ||||||||||||||||
Foreign | ||||||||||||||||||||
Banks | 30,542 | 1,523 | 217 | 32,282 | ||||||||||||||||
Mortgages | 13,956 | 1,381 | 282 | 15,619 | ||||||||||||||||
Other loans | 88,568 | 8,155 | 2,180 | 98,903 | ||||||||||||||||
Total foreign | 133,066 | 11,059 | 2,679 | 146,804 | ||||||||||||||||
Total gross1 | 204,599 | 82,357 | 18,313 | 305,269 | ||||||||||||||||
At 31 December 2005, 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 | 79,139 | 16,923 | 96,062 | |||||||||
Adjustable or floating-rate loans | 3,218 | 1,390 | 4,608 | |||||||||
Total | 82,357 | 18,313 | 100,670 | |||||||||
220
Table of Contents
D – Information Required by Industry Guide 3 (continued)
Impaired and Non-performing Loans
A loan (included in Due from banks or Loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or the liquidation of collateral; 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
31 December 2002 and CHF 336 million for all non-performing loans for the year ended 31 December 2001.
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 2,106 | 2,772 | 4,012 | 4,609 | 6,531 | |||||||||||||||
Foreign | 257 | 783 | 746 | 1,170 | 1,882 | |||||||||||||||
Total non-performing loans | 2,363 | 3,555 | 4,758 | 5,779 | 8,413 | |||||||||||||||
UBS does not, as a matter of policy, typically restructure loans to accrue interest at rates different from the original contractual terms or reduce the principal amount of loans. Instead, specific loan allowances are established as necessary. Unrecognized interest related to restructured loans was not material to the results of operations in 2005, 2004, 2003, 2002 or 2001.
2004, 2003, 2002 and 2001, respectively. For the years ended 31 December 2003, 2002 and 2001, 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 2005 and 2004, 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 2005 and 31 December 2004, specific allowances of CHF 200 million and CHF 241 million, respectively, had been established against these loans.
221
Table of Contents
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 and Loans from Industrial Holdings.
the country where the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.
31.12.05 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 6,878 | 140,905 | 23,855 | 171,638 | 8.3 | |||||||||||||||
Germany | 17,037 | 10,202 | 1,338 | 28,577 | 1.4 | |||||||||||||||
Japan | 2,670 | 8,975 | 11,015 | 22,660 | 1.1 | |||||||||||||||
United Kingdom | 6,515 | 13,351 | 624 | 20,490 | 1.0 | |||||||||||||||
Italy | 3,432 | 3,012 | 11,370 | 17,814 | 0.9 | |||||||||||||||
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 | |||||||||||||||
222
Table of Contents
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.
ing assets and / or in case of debt forgiveness. Under Swiss law, a creditor can continue to collect from a debtor who has emerged from bankruptcy, unless the debt has been forgiven through a formal agreement.
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Balance at beginning of year | 2,802 | 3,775 | 5,015 | 7,992 | 10,581 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (16 | ) | (49 | ) | (73 | ) | (148 | ) | (248 | ) | ||||||||||
Financial institutions | (14 | ) | (24 | ) | (37 | ) | (103 | ) | (51 | ) | ||||||||||
Hotels and restaurants | (26 | ) | (101 | ) | (57 | ) | (48 | ) | (52 | ) | ||||||||||
Manufacturing1 | (39 | ) | (77 | ) | (121 | ) | (275 | ) | (109 | ) | ||||||||||
Private households | (131 | ) | (208 | ) | (262 | ) | (536 | ) | (1,297 | ) | ||||||||||
Public authorities | 0 | 0 | (18 | ) | 0 | 0 | ||||||||||||||
Real estate and rentals | (56 | ) | (109 | ) | (206 | ) | (357 | ) | (317 | ) | ||||||||||
Retail and wholesale | (25 | ) | (68 | ) | (67 | ) | (101 | ) | (115 | ) | ||||||||||
Services2 | (35 | ) | (83 | ) | (111 | ) | (155 | ) | (93 | ) | ||||||||||
Other3 | (4 | ) | (9 | ) | (43 | ) | (49 | ) | (46 | ) | ||||||||||
Total domestic write-offs | (346 | ) | (728 | ) | (995 | ) | (1,772 | ) | (2,328 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (164 | ) | (21 | ) | (17 | ) | (49 | ) | (24 | ) | ||||||||||
Chemicals | 0 | (1 | ) | 0 | 0 | (2 | ) | |||||||||||||
Construction | 0 | (3 | ) | 0 | 0 | (10 | ) | |||||||||||||
Electricity, gas and water supply | 0 | 0 | 0 | (36 | ) | (63 | ) | |||||||||||||
Financial institutions | (50 | ) | (34 | ) | (112 | ) | (228 | ) | (74 | ) | ||||||||||
Manufacturing4 | (8 | ) | (23 | ) | (77 | ) | (70 | ) | (119 | ) | ||||||||||
Mining | (23 | ) | (8 | ) | (15 | ) | (1 | ) | (304 | ) | ||||||||||
Private households | (21 | ) | (8 | ) | (11 | ) | (65 | ) | (5 | ) | ||||||||||
Public authorities | (22 | ) | (2 | ) | 0 | (1 | ) | 0 | ||||||||||||
Real estate and rentals | (3 | ) | 0 | (1 | ) | (2 | ) | (1 | ) | |||||||||||
Retail and wholesale | (9 | ) | 0 | (76 | ) | (10 | ) | 0 | ||||||||||||
Services | 0 | (7 | ) | (25 | ) | (39 | ) | (30 | ) | |||||||||||
Transport, storage and communication | 0 | 0 | (24 | ) | (74 | ) | 0 | |||||||||||||
Other5 | (5 | ) | (21 | ) | (83 | ) | (189 | ) | (48 | ) | ||||||||||
Total foreign write-offs | (305 | ) | (128 | ) | (441 | ) | (764 | ) | (680 | ) | ||||||||||
Total write-offs | (651 | ) | (856 | ) | (1,436 | ) | (2,536 | ) | (3,008 | ) | ||||||||||
223
Table of Contents
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 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 53 | 54 | 49 | 43 | 58 | |||||||||||||||
Foreign | 10 | 5 | 38 | 27 | 23 | |||||||||||||||
Total recoveries | 63 | 59 | 87 | 70 | 81 | |||||||||||||||
Net write-offs | (588 | ) | (797 | ) | (1,349 | ) | (2,466 | ) | (2,927 | ) | ||||||||||
Increase/(decrease) in credit loss allowance and provision | (298 | ) | (216 | ) | 102 | 115 | 498 | |||||||||||||
Collective loan loss provisions | (76 | ) | (25 | ) | ||||||||||||||||
Other adjustments 1 | (64 | ) | 65 | 7 | (626 | ) | (160 | ) | ||||||||||||
Balance at end of year | 1,776 | 2,802 | 3,775 | 5,015 | 7,992 | |||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Net foreign exchange | 50 | 2 | (57 | ) | (269 | ) | 44 | |||||||||||||
Subsidiaries sold and other adjustments | (114 | ) | 63 | 64 | (357 | ) | (204 | ) | ||||||||||||
Total adjustments | (64 | ) | 65 | 7 | (626 | ) | (160 | ) | ||||||||||||
224
Table of Contents
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 2005, 2004, 2003, 2002 and 2001. For a description of procedures with respect to allowances and provisions for credit losses, see the Handbook 2005/2006. The following analysis includes Due from banks from Industrial Holdings.
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 10 | 10 | 10 | 10 | 34 | |||||||||||||||
Construction | 91 | 112 | 158 | 265 | 467 | |||||||||||||||
Financial institutions | 75 | 82 | 137 | 89 | 262 | |||||||||||||||
Hotels and restaurants | 49 | 98 | 214 | 286 | 346 | |||||||||||||||
Manufacturing1 | 174 | 224 | 327 | 458 | 722 | |||||||||||||||
Private households | 262 | 333 | 511 | 750 | 1,082 | |||||||||||||||
Public authorities | 8 | 9 | 9 | 39 | 37 | |||||||||||||||
Real estate and rentals | 168 | 250 | 383 | 577 | 1,067 | |||||||||||||||
Retail and wholesale | 330 | 363 | 201 | 315 | 395 | |||||||||||||||
Services2 | 196 | 222 | 549 | 470 | 448 | |||||||||||||||
Other3 | 61 | 188 | 150 | 225 | 165 | |||||||||||||||
Total domestic | 1,425 | 1,891 | 2,649 | 3,484 | 5,025 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks4 | 35 | 246 | 256 | 24 | 39 | |||||||||||||||
Chemicals | 5 | 4 | 5 | 5 | 5 | |||||||||||||||
Construction | 2 | 1 | 0 | 6 | 0 | |||||||||||||||
Electricity, gas and water supply | 15 | 15 | 0 | 96 | 88 | |||||||||||||||
Financial institutions | 8 | 140 | 168 | 153 | 420 | |||||||||||||||
Manufacturing5 | 57 | 112 | 359 | 314 | 653 | |||||||||||||||
Mining | 1 | 14 | 19 | 148 | 169 | |||||||||||||||
Private households | 30 | 48 | 48 | 58 | 103 | |||||||||||||||
Public authorities | 72 | 66 | 69 | 0 | 0 | |||||||||||||||
Real estate and rentals | 3 | 5 | 7 | 6 | 9 | |||||||||||||||
Retail and wholesale | 1 | 95 | 51 | 13 | 0 | |||||||||||||||
Services | 27 | 32 | 32 | 262 | 414 | |||||||||||||||
Transport, storage and communication | 0 | 1 | 195 | 144 | 45 | |||||||||||||||
Other6 | 8 | (75 | ) | (345 | ) | (394 | ) | 25 | ||||||||||||
Total foreign | 265 | 704 | 864 | 835 | 1,970 | |||||||||||||||
Collective loan loss provisions7 | 86 | 207 | 262 | 696 | 1,006 | |||||||||||||||
Total allowances and provisions for credit losses8 | 1,776 | 2,802 | 3,775 | 5,015 | 8,001 | |||||||||||||||
225
Table of Contents
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 sector to evaluate the credit risks in each of the categories.
in % | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Domestic1 | ||||||||||||||||||||
Banks | 0.5 | 0.5 | 0.2 | 0.4 | 0.6 | |||||||||||||||
Construction | 0.6 | 0.7 | 0.9 | 1.1 | 1.3 | |||||||||||||||
Financial institutions | 1.4 | 1.6 | 1.6 | 1.7 | 2.2 | |||||||||||||||
Hotels and restaurants | 0.7 | 0.8 | 1.0 | 1.1 | 1.1 | |||||||||||||||
Manufacturing 2 | 1.6 | 2.0 | 2.6 | 2.9 | 3.3 | |||||||||||||||
Private households | 36.5 | 39.0 | 41.2 | 38.3 | 35.8 | |||||||||||||||
Public authorities | 1.8 | 2.0 | 2.1 | 2.2 | 2.0 | |||||||||||||||
Real estate and rentals | 3.9 | 4.3 | 5.0 | 5.4 | 5.7 | |||||||||||||||
Retail and wholesale | 1.6 | 1.8 | 2.4 | 2.9 | 3.3 | |||||||||||||||
Services 3 | 3.0 | 3.4 | 3.8 | 4.1 | 4.7 | |||||||||||||||
Other 4 | 0.3 | 0.2 | 0.6 | 0.8 | 0.7 | |||||||||||||||
Total domestic | 51.9 | 56.3 | 61.4 | 60.9 | 60.7 | |||||||||||||||
Foreign1 | ||||||||||||||||||||
Banks | 10.6 | 12.7 | 12.7 | 12.8 | 10.2 | |||||||||||||||
Chemicals | 0.9 | 0.1 | 0.1 | 0.2 | 0.4 | |||||||||||||||
Construction | 0.1 | 0.1 | 0.0 | 0.1 | 0.1 | |||||||||||||||
Electricity, gas and water supply | 0.5 | 0.3 | 0.1 | 0.4 | 0.4 | |||||||||||||||
Financial institutions | 17.1 | 13.1 | 9.5 | 7.4 | 5.5 | |||||||||||||||
Manufacturing 5 | 1.3 | 1.0 | 1.0 | 0.9 | 1.6 | |||||||||||||||
Mining | 0.9 | 0.6 | 0.4 | 0.3 | 0.5 | |||||||||||||||
Private households | 12.5 | 11.2 | 8.5 | 13.3 | 9.8 | |||||||||||||||
Public authorities | 0.5 | 0.5 | 0.5 | 1.1 | 2.5 | |||||||||||||||
Real estate and rentals | 0.9 | 0.3 | 0.2 | 0.2 | 3.9 | |||||||||||||||
Retail and wholesale | 0.4 | 0.4 | 0.8 | 0.5 | 0.7 | |||||||||||||||
Services | 1.8 | 3.0 | 3.2 | 0.7 | 1.8 | |||||||||||||||
Transport, storage and communication | 0.5 | 0.3 | 1.5 | 0.3 | 0.8 | |||||||||||||||
Other 6 | 0.1 | 0.1 | 0.1 | 0.9 | 1.1 | |||||||||||||||
Total foreign | 48.1 | 43.7 | 38.6 | 39.1 | 39.3 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
226
Table of Contents
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 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | 31.12.01 | |||||||||||||||
Gross loans | 305,269 | 1 | 270,133 | 1 | 248,026 | 1 | 249,111 | 261,967 | ||||||||||||
Impaired loans | 3,434 | 4,699 | 6,999 | 9,654 | 14,403 | |||||||||||||||
Non-performing loans | 2,363 | 3,555 | 4,758 | 5,779 | 8,413 | |||||||||||||||
Allowances and provisions for credit losses2 | 1,776 | 2,802 | 3,775 | 5,015 | 8,001 | |||||||||||||||
Net write-offs | 588 | 797 | 1,349 | 2,466 | 2,927 | |||||||||||||||
Credit loss (expense) / recovery | 375 | 241 | (102 | ) | (115 | ) | (498 | ) | ||||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 1.1 | 1.7 | 2.8 | 3.9 | 5.5 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 0.8 | 1.3 | 1.9 | 2.3 | 3.2 | |||||||||||||||
Allowances and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 0.6 | 1.0 | 1.5 | 2.0 | 3.1 | |||||||||||||||
Impaired loans | 51.7 | 59.6 | 53.9 | 52.7 | 55.6 | |||||||||||||||
Non-performing loans | 75.2 | 78.8 | 79.3 | 86.8 | 95.1 | |||||||||||||||
Allocated allowances as a percentage of impaired loans3 | 46.4 | 51.6 | 46.8 | 44.8 | 46.1 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans4 | 59.0 | 61.4 | 55.1 | 56.0 | 60.8 | |||||||||||||||
Net write-offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.2 | 0.3 | 0.5 | 1.0 | 1.1 | |||||||||||||||
Average loans outstanding during the period | 0.2 | 0.3 | 0.5 | 1.0 | 2.2 | |||||||||||||||
Allowances and provisions for credit losses | 33.1 | 28.5 | 35.7 | 49.2 | 36.6 | |||||||||||||||
Allowances and provisions for credit losses as a multiple of net write-offs | 3.02 | 3.51 | 2.80 | 2.03 | 2.73 | |||||||||||||||
227
Table of Contents
228
Table of Contents
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 2005. 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-0601
229
Table of Contents
UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |