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SECURITIES AND EXCHANGE COMMISSION
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Jurisdiction of Incorporation or Organization)
Bahnhofstrasse 45
CH-8001 Zurich, Switzerland
and
Aeschenvorstadt 1,
CH-4051 Basel, Switzerland
(Address of Principal Executive Offices)
Please see page 3.
Please see page 4.
Please see page 4.
Yes þ | No o |
Yes o | No þ |
Yes þ | No o |
Large accelerated filer þ | accelerated filer o | Non-accelerated filer o |
Item 17 o | Item 18 þ |
Yes o | No þ |
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Name of each exchange on | ||
Title of each class | which registered | |
Ordinary Shares (par value of CHF 0.10 each) | New York Stock Exchange | |
$300,000,000 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* | |
$1,000,000,000 6.243% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$1,000,000,000 6.243% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities | New York 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 April 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 |
1 | Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
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EX-1.1: ARTICLES OF ASSOCIATION | ||||||||
EX-4.B: TERMS OF THE MANDATORY CONVERTIBLE NOTES | ||||||||
EX-7: STATEMENT RE RATIO OF EARNINGS TO FIXED CHARGES | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG LTD. |
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1-3 | Please see page 155 of the Strategy, Performance and Responsibility report, page 75 of the Risk, Treasury and Capital Management report, page 55 of the Corporate Governance and Compensation report, and page 167 of the Financial Statements report. | |
4 | Please see pages 18 and 19 of the Strategy, Performance and Responsibility report. | |
5, 6 | None. | |
7 | None. |
1, 2, 5, 7 | Please refer toUBS’s businesseson pages 85 to 152 in the Strategy, Performance and Responsibility report and, in particular, pages 86 and 89 with respect to Global Wealth Management & Business Banking, pages 91 to 95 with respect to Wealth |
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Management International & Switzerland, pages 103 to 107 with respect to Wealth Management US, pages 113 to 116 with respect to Business Banking Switzerland, pages 122 to 128 with respect to Global Asset Management, pages 134 to 140 with respect to the Investment Bank, pages 147 to 148 with respect to the Corporate Center and page 152 with respect to Industrial Holdings. 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 StatementsReporting by Business Group andSegment Reporting by Geographic Location on pages 41 to 48 of the Financial Statements report. | ||
3 | Please refer toSeasonal Characteristicson page 28 of the Strategy, Performance and Responsibility report. | |
4, 6 | Not applicable. | |
8 | Please seeRegulation and Supervisionon pages 44 to 46 of the Corporate Governance and Compensation report. |
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1, 2, 3 | Please see pages 9 to 12 and pages 16 to 18 of the Corporate Governance and Compensation report. | |
4 and 5 | None. |
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1 | Please see pages 30 to 35 ofCompensation, shareholdings and loansin the Corporate Governance and Compensation report and also Note 30 to the Financial StatementsEquity Participation and Other Compensation Planson pages 89 to 92 and Note 31 to the Financial StatementsRelated Partieson pages 93 to 95 of the Financial Statements report. | |
2 | Please see Note 29 to the Financial StatementsPension and Other Post-Retirement Benefits Planson pages 83 to 88 of the Financial Statements report. |
1 | Please see pages 12 to 15 ofBoard of Directorsin the Corporate Governance and Compensation report. | |
2 | Please see page 32 ofCompensation, shareholdings and loansin the Corporate Governance and Compensation report and Note 31 to the Financial StatementsRelated Partieson pages 93 to 95 of the Financial Statements report. | |
3 | Please seeInternal organization, Board of Directors’ committees and meetings in 2007on pages 13 and 14 of the Corporate Governance and Compensation report. |
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1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please seeStock exchange priceson page 71 of the Risk, Treasury and Capital Management report. |
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• | amendments to the Articles | ||
• | elections of directors and statutory auditors | ||
• | approval of the annual report and the annual group accounts | ||
• | setting the annual dividend | ||
• | decisions to discharge directors and management from liability for matters disclosed to the shareholders’ meeting | ||
• | the ordering of an independent investigation into the specific matters proposed to the shareholders’ meeting |
• | change the limits on Board size in the Articles |
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• | remove one-fourth or more of the members of the Board of Directors | ||
• | delete or modify the above supermajority voting requirements |
• | a change in our stated purpose in the Articles | ||
• | the creation of shares with privileged voting rights | ||
• | a restriction of transferability | ||
• | an increase in authorized capital | ||
• | an increase of capital out of equity against contribution in kind, for the purpose of acquisition and granting of special rights | ||
• | changes to pre-emptive rights | ||
• | a change of domicile of the company |
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• | 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. |
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Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG (incorporated by reference to Exhibit 1.2 of UBS AG’s annual report on Form 20-F for the year end December 31, 2006). | |
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. | |
4(b). | Terms of the Mandatory Convertible Notes. | |
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. Please see Note 33 to the Financial StatementsSignificant Subsidiaries and Associateson pages 96 to 99 of the Financial Statements report. | |
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
15. | Consent of Ernst & Young Ltd. |
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UBS AG | ||
/s/ Marcel Rohner | ||
Name: Marcel Rohner | ||
Title: Chief Executive Officer | ||
Date: March 17, 2008 | /s/ Marco Suter | |
Name: Marco Suter | ||
Title: Group Chief Financial Officer |
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Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG.* | |
1.2. | Organization Regulations of UBS AG (incorporated by reference to Exhibit 1.2 of UBS AG’s annual report on Form 20-F for the year end December 31, 2006). | |
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. | |
4(b). | Terms of the Mandatory Convertible Notes.* | |
7. | Statement regarding ratio of earnings to fixed charges.* | |
8. | Significant Subsidiaries of UBS AG. Please see Note 33 to the Financial StatementsSignificant Subsidiaries and Associateson pages 96 to 99 of the Financial Statements report. | |
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)).* | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).* | |
15. | Consent of Ernst & Young Ltd.* |
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Annual Report 20071 | Strategy, Performance and Responsibility 2 | Risk, Treasury and Capital Management 3 | Corporate Governance and Compensation Report 4 | Financial Statements |
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Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our work-force and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here.
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
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Letter to shareholders
Letter to shareholders
Dear shareholders,
In this year’s annual report we present a Group net loss of CHF 4,384 million. This resulted almost completely from our exposure to the US residential real estate market through positions in mortgage-backed securities and related structured products. The losses on these positions overshadow the outstanding 2007 performance in the majority of our other businesses. This makes this year’s financial result even more difficult for us to accept.
How are we correcting our shortcomings?We closed DRCM in 2007 and re-integrated its businesses into the Investment Bank. Recently, we introduced a new funding framework for the Investment Bank to ensure that our trading activities are financed at market comparable levels and consistent with the nature and liquidity of the respective positions. This will reduce the potential incentive to hold dis-
proportionately high trading inventories. Combined with commensurate balance sheet limits, it will also ensure better control over the size of our balance sheet. Finally, we have repositioned the activities of the Investment Bank so that its future will be built on our strengths and client franchises. In 2007, the areas in which we achieved outstanding results are those where we have developed strong and long-standing client relationships and excellent client service. They represent the majority of the Investment Bank’s business and are a solid basis on which to build sustainable and profitable growth.
Wealth and asset management delivered excellent results in 2007.Global Wealth Management & Business Banking produced record results in both net new money inflow, at CHF 156 billion, and profitability. Our Global Asset Management business group fell short of a record result only because it absorbed costs related to the closure of DRCM. The outflows in institutional assets largely related to the weak past investment performance in some core and value equity capabilities. However, these problems have been addressed and new investment management teams are in place. We are therefore confident that we can reverse this trend in the medium term.
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wide basis and therefore be able to direct investment spending towards areas where it most benefits our clients and investors. We remain committed to managing our capital in a disciplined fashion. We will strive, subject to regulatory requirements, to return to our usual pattern of redistributing capital not required to grow our business to shareholders, once our profitability and capital ratios return to more normalized levels.
towards our clients is the backbone of our business. As an employer, UBS therefore remains committed to investing in its employees. We are dedicated to creating a productive working environment based on fairness and meritocracy.
Outlook –As explained in our letter about the fourth quarter result for 2007, we expect 2008 to be another difficult year. We are focusing on the development of our client-driven businesses and the risk management of our remaining exposures to the US real estate market. Our employees and senior management are committed to managing the business in a disciplined fashion, while continuing to deliver outstanding services to clients. We believe this is the best way to earn your confidence.
UBS | ||
Marcel Ospel | Marcel Rohner | |
Chairman | Chief Executive Officer |
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Strategy and development
– | UBS is a global financial services firm delivering advice, products and services to corporate, institutional and private clients | |
– | Three businesses – Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank – operating as one firm | |
– | Challenges faced in 2007 are being addressed at a strategic, structural and operational level |
UBS’s commitment
Client focus:UBS’s purpose is to serve clients and provide them with confidence in financial decision making. UBS strives to truly understand clients’ goals – the first priority is the success and interests of clients
Growth through client-driven revenue streams: targeting sustainable and profitable growth by establishing a set of earnings streams based on true customer benefit
Three businesses, one underlying trend – growth of wealth:based on sustained social and economic trends, all of UBS’s businesses – Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank – are focused on areas with above-average growth rates
“One firm” approach:the synergies between UBS’s businesses create additional sustainable earnings opportunities, on top of their individual growth rates. To UBS, the “one firm” approach means meeting client needs without expecting clients to worry about its internal organizational structures
Challenges in 2007
Losses on sizeable trading positions in the US mortgage market led to UBS’s first ever negative Group result:the sudden collapse in the US mortgage securitization market impacted UBS worse than anticipated, overshadowing the strength of UBS’s client-driven businesses. Lessons from these developments were drawn at all levels
Measures taken
– | Closure of alternative investment business Dillon Read Capital Management (DRCM) in the first half of 2007 | |
– | Strategic realignment of the Investment Bank in early 2008 led to repositioning of the fixed income, currencies and commodities (FICC) business unit, in order to strengthen client-driven businesses and consolidate integration with wealth and asset management businesses | |
– | Establishment of a workout group for mortgage-backed securities (MBS) and collateralized debt obligation (CDO) portfolios, in order to improve risk management and reduce exposure | |
– | Introduction of a new funding framework to improve balance sheet management discipline |
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UBS’s business structure
UBS key facts | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||
Financials | ||||||||||||||||
Operating income (CHF million) | 31,980 | 47,736 | 40,691 | (33 | ) | |||||||||||
Net profit attributable to UBS shareholders (CHF million) | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
Invested assets (CHF billion) | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||
Tier 1 ratio (%)1 | 8.8 | 11.9 | 12.8 | |||||||||||||
Economic | ||||||||||||||||
Tax expense (CHF million)2 | 1,017 | 2,751 | 2,785 | (63 | ) | |||||||||||
Distribution to shareholders (dividends and buybacks) (CHF million) | 5,075 | 5,889 | 6,702 | (14 | ) | |||||||||||
Salaries and bonuses (CHF million) | 20,057 | 19,011 | 15,867 | 6 | ||||||||||||
Social and environmental | ||||||||||||||||
Personnel (FTE)2 | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||
Women in ranked positions (% of total officer population) | 26.5 | 25.5 | 22.1 | 4 | ||||||||||||
Corporate charitable donations (incl. disaster relief efforts) (CHF million)3 | 46 | 38 | 45 | 21 | ||||||||||||
Volunteering hours spent by employees | 82,858 | 53,679 | N/A | 54 | ||||||||||||
CO2 emissions (tons) | 281,705 | 293,169 | 372,184 | (4 | ) | |||||||||||
Long-term ratings and benchmarks | ||||||||||||||||
Fitch, London | AA | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | |||||||||||||
Dow Jones Sustainability Index4 | ü | ü | ü | |||||||||||||
FTSE4Good4 | ü | ü | ü | |||||||||||||
Climate Leadership Index4 | ü | ü | ü | |||||||||||||
Interbrand: rank among 100 most valuable global brands | 39 | 42 | 44 | |||||||||||||
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Strategy and development
Strategy and structure
Strategy and structure
UBS is a global firm, working with corporate, institutional and private clients. Its strategy is to concentrate on three global core businesses – wealth management, asset management and investment banking and securities trading. It also focuses on retail and corporate banking in Switzerland. All the businesses are built to benefit from the same underlying fundamental trend – the growth of wealth. UBS operates as one firm and aims to deliver valuable advice, products and services to its clients while creating high quality sustainable earnings streams.
UBS clients and businesses
Global Wealth Management & Business Banking
Inwealth management,UBS’s services are designed for high net worth and affluent individuals around the world, whether investing internationally or in their home country. UBS provides them with tailored, unbiased advice and investment services – ranging from asset management to estate planning and from corporate finance to art banking. ItsSwiss retail and corporate banking businessprovides a complete set of banking and securities services for domestic individual and corporate clients.
Global Asset Management
As anasset manager,UBS offers innovative investment management solutions in nearly every asset class to private, institutional and corporate clients, as well as through financial intermediaries. Investment capabilities comprise traditional assets (for instance equities, fixed income and asset allocation), alternative and quantitative investments (multi-manager funds, funds of hedge funds and hedge funds) and real estate.
Investment Bank
In theinvestment banking and securitiesbusinesses, UBS provides securities products and research in equities, fixed income, rates, foreign exchange, energy and metals. It also provides access to the world’s capital markets for corporate, institutional, intermediary and alternative asset management clients.
UBS’s competitive profile
Client focus
UBS’s purpose is to serve clients and give them confidence in making financial decisions. Whether it serves individual, corporate or institutional clients, UBS puts their success and interests first and strives to truly understand their goals. Client needs develop continuously, as does the financial services industry. UBS strives to systematically capture clients’ feedback, in order to identify potential for improving processes, and then adapt its products and services accordingly.
Three businesses, one underlying trend: growth of wealth Based on sustained social and economic trends, UBS’s businesses are focused on areas with above-average growth rates. In addition, structural developments in various countries are creating broader regional client demand for new financial advice, structuring and execution.
è | Financial industry trends are detailed on page 15–17 |
A global and focused strategy
UBS’s consistent strategic focus has led to the current business mix. The current business mix has emerged over fifteen years of development, internal growth initiative and acquisitions, reflecting the firm’s core capabilities, strengths, culture and history. Since 1998, UBS has progressively divested non-core businesses and participations, helping it to invest in growing its core businesses and create a balanced reach worldwide.
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business to the Swiss market, concentrating on domestic opportunities and growing selected market segments.
Growth through sustainable, client-driven revenue streams The composition and structure of UBS’s businesses is defined by the long-term needs of its clients. The optimal basis for building a high quality, sustainable earnings stream is a business mix that reflects these long-term needs. Because UBS takes this approach, the firm can grow without needing to change its strategic positioning or competitive profile. In order to fulfill the long-term needs of its clients, UBS:
– | makes efficiency improvementa permanent task and a source of innovation, allowing investment spending to be directed to areas that will make the greatest difference for clients and investors; | |
– | expands market share in existing businessesby attracting new clients in fast growth segments (for example, high net worth private clients) and increasing business volume through improved client segmentation and targeted solutions customized to client needs; and |
– | expands geographically,with a focus on regions with rapid economic and wealth growth, such as China, Brazil, Russia, India and the Middle East. |
“One firm” approach
The synergies between UBS’s businesses create additional sustainable earnings opportunities, on top of their individual growth rates.
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Strategy and development
Strategy and structure
ment offering. Cooperation between businesses helps UBS to capture important trends such as the demand for structured products and alternative investments. In mid-2006, the investment banking department and the wealth management businesses launched a dedicated joint initiative focusing on the ultra-high net worth segment. In 2007, the cooperation between the investment banking department and wealth management in key regions has resulted in an inflow of approximately CHF 9 billion of net new money
into the wealth management business and resulted in over 90 new mandates for the Investment Bank, generating around CHF 300 million in fees.
Last year was very difficult for UBS, with the sudden and unprecedented collapse in the US mortgage securitization market hitting UBS far worse than anticipated. Since the middle of 2007, UBS has concentrated on the immediate challenge of risk managing its exposure to the US real estate market, and on drawing the appropriate lessons for the firm as a whole. With the approval of the capital improvement measures by UBS shareholders at the extraordinary general meeting in February 2008, UBS retained a strong capital position. These measures include:
– | the issuance of mandatory convertible notes (MCNs) of CHF 13 billion to two long-term financial investors | |
– | the Government of Singapore Investment Corporation Pte. LTD (GIC) has subscribed for CHF 11 billion and an investor from the Middle East for 2 billion; | |
– | the replacement of the cash dividend with a stock dividend; and | |
– | the rededication of treasury shares previously bought for cancellation. |
Closure of Dillon Read Capital Management and repositioning of fixed income, currencies and commodities
In May 2007, UBS announced the closure of Dillon Read Capital Management (DRCM) an alternative investment management venture established in June 2006 in order to allow outside investors access to the trading strategies managed by UBS. The core of DRCM was formed by the transfer of UBS’s principal finance and commercial real estate trading business from the Investment Bank to Global Asset Management. DRCM’s first outside investor fund was launched at the end of 2006. The development of the business, however, did not meet original expectations. After a review of its prospects, the operational complexity of its business model and other factors, UBS’s management decided to close DRCM. As a consequence, outside investor interests were redeemed and UBS’s proprietary portfolios were returned from Global Asset Management to the Investment Bank, where the positions were integrated into the appropriate desks of the fixed income, currencies and commodities (FICC) business unit.
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Another advantage of the “one firm” approach is that it helps UBS to create synergies on cost and funding, which the firm estimates saves it around CHF 1 billion per year. UBS shares infrastructure and services between parts of its business, eliminating redundant structures, management and control functions and providing it with more purchasing power. All the businesses operate under one brand, increasing the efficiency of brand building efforts.
Managing UBS’s business
Board structure
The management and oversight structure of UBS is based on two separate boards – the Board of Directors (BoD) and the Group Executive Board (GEB).
driven businesses such as global syndicated finance and the flow credit businesses (investment grade, high yield trading and loans sales and trading).
è | Refer to the Investment Bank section on pages 134 to 146 for details regarding developments of its strategy and structure |
Balance sheet management and funding framework
Until 2007, the Investment Bank’s activities were substantially funded on a short-term basis and therefore at short-term rates. This allowed individual business lines in the Investment Bank to benefit from the low, short-term funding rates available to UBS as a whole and led to the build-up of sizeable trading inventories. Now, in order to encourage more disciplined use of UBS’s balance sheet, the internal pricing applied for the Investment Bank reflects UBS’s funding costs, plus an add-on to align the price more closely to the prices of defined peer firms. In addition, the Investment Bank’s businesses are required to be term-funded, based on an assessment of the quality and liquidity of their assets by UBS’s central treasury function.
treasury department. As a result of this change, the cost of funding in the Investment Bank now better reflects the liquidity of the underlying assets being funded and is comparable with the costs applicable to its peer group.
è | Details on funding management can be found inRisk, Treasury and Capital Management 2007 |
Improvements in risk management and control
The losses experienced in 2007 do not invalidate UBS’s risk management and risk control principles, but it became evident that their implementation needs to be strengthened. In addition to the structural changes in the Investment Bank and its funding framework, risk management and valuation of US residential real estate related products have been refined, and will continue to be updated to reflect changes in projections for lifetime cumulative losses and market parameters. UBS is also applying more extensive limits, by asset class, based on gross values and risk sensitivities. Stress testing is being revisited to deliver a more diverse range of scenarios which better differentiate between the source of a stress event and its contagion effect. UBS plans to use more targeted analysis of the positions and vulnerabilities of each portfolio. Liquidity as well as price
sensitivity will form another important aspect of stress testing.
è | Details on risk control can be found inRisk, Treasury and Capital Management 2007 |
Focus on profitable growth
UBS shareholders expect the firm to achieve profitable growth. As described in this section, fulfilling this expectation requires UBS to establish a set of earning streams that are based on true customer benefit, build a strong and growing client base and maintain its unique assets and capabilities that are hard for competitors to copy. Efficiency in managing financial resources and risks is a prerequisite for all three of these requirements. By making continuous efficiency improvement – achieving the same or a better result or service with fewer resources a permanent task, UBS will enforce discipline in the way it manages costs. This will help to optimize spending across different economic and business cycles in such a way that it creates value for both clients and investors.
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Strategy and development
Strategy and structure
also defines UBS’s risk framework, principles and overall risk-taking capacity. A clear majority of its members are non-executive and fully independent.
functions of Chairman of the BoD and Chief Executive Officer (who is positioned within the GEB) are performed by two different people. No member of one board may be a member of the other.
è | Corporate Governance and Compensation Report 2007details the corporate governance structures and principles of UBS |
Organizational structure
While UBS is structured into three business groups and a Corporate Center, it is managed as an integrated firm. Each business group is led by a member of the GEB.
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Strategy and development
Industry trends
Industry trends
Long-term perspectives
In the next ten years, the world economy is expected to grow around 3.1% per year (source: International Monetary Fund and UBS research, December 2007). There will be continued productivity gains as a result of global competition and the diffusion of new technologies. Worldwide population, and therefore economic activity, will also grow; although employment may increase at a slower pace, reflecting demographic shifts towards older populations in some countries, which is expected to reduce the growth potential of the global economy.
Client sophistication
The recent growth of financial sponsors and hedge funds ex-emplifies the changing nature of financial market relationships, in which increasingly sophisticated clients are asking for more complex solutions to meet their needs. These clients require innovative solutions that span product groups and
geographies. Aided by technological improvements, investment banks are reacting with product innovations, such as new structured products, algorithmic trading or equity bridge financing and targeted services, such as prime brokerage, in a bid to produce the most competitive offering. UBS believes that the investment banks which are best positioned to serve such clients are those with global reach, strong platform capabilities and the scale to offer customization economically.
Wealth accumulation
In many economies, a notable shift is taking place away from labor-intensive production to more capital-intensive activity.
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Strategy and development
Industry trends
Based on this, UBS sees 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 savings rates. These developments will benefit wealth management businesses across the world. They will also help the asset management industry as private wealth is a key driver for institutional asset growth. Investment banks and securities businesses should also benefit thanks to rising capitalization levels in global financial markets and higher trading volumes.
Retirement provisioning
In coming decades, most countries with established, mature economies will face a major demographic shift related to declining birth rates. This means that while the number of retired citizens will rise, there will be fewer younger people available to replace them in the workforce and therefore fund their retirement. Due to this demographic trend, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform especially urgent in these locations. Although each country will follow its own regulatory agenda, UBS sees a general and gradual shift from unfunded public pension schemes to privately funded ones.
Securitization
The de-emphasis of traditional on-balance sheet lending and an increase in securities trading were key contributors to the transformation of the financial services industry over the past decades. Better capital market access and a globalization of financial flows, which improved the pool of available liquidity, have enabled corporations to solve funding needs by directly accessing capital markets while allowing banks to securitize assets and redistribute risk previously held on balance sheet. However, the recent US-led dislocation of credit markets has slowed down this development.
Equitization
According to recent estimates, equity accounts for nearly half of the growth in global financial assets as more institutional and individual investors tend to allocate a greater share
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of their assets to equities. Since 1980, global equity market capitalization has grown at an annual rate of around 12%. With regards to global GDP, the capitalization of world stock markets increased from 23% of GDP in 1980 to almost 110% of GDP at the end of 2007 (see graph below). The rising share of equity in global financial assets reflects the transfer of ownership of productive assets from government and private owners to public markets and the increasing reliance of corporations on public equity financing to fund their operation. UBS believes that the underlying trend towards an increasing role for equity financing and equity investments remains intact, even though the private equity industry is also growing fast. In Western Europe, UBS sees 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 commoditiza-tion of trading services, UBS believes that smaller providers will start outsourcing these services to larger competitors.
Non-traditional asset classes
The last two decades have seen robust growth in non-traditional asset classes – meaning investments other than cash, bonds or public equities. North America led the way, with real estate and private equity becoming significant components of portfolios from the early 1980s onwards. More recently, UBS has seen hedge funds becoming mainstream investments across the globe. Investors are increasingly relying on these asset classes to boost expected returns and increase portfolio diversification. The strong demand and improved ability to structure and securitize even non-financial assets has spurred the development of even more asset classes.
While this is a key driver for the asset management industry, it also builds demand for a variety of sophisticated ancillary products and services, ranging from initial public offerings (IPOs) and leveraged finance for private equity firms to prime brokerage and administrative services for hedge funds.
Corporate restructuring and internationalization
In the last few years, many businesses have benefited from strong global economic growth, low levels of nominal interest rates and abundant global liquidity. As a result, the global default rate touched a historical minimum and profits grew significantly. More recently, however, due to the sub-prime crisis, interest rates have risen while global levels of liquidity have fallen. The credit cycle has turned and default rates are moving back towards the long-term average. This is likely to trigger continued corporate restructuring which will, in turn, offer business opportunities for the investment banking business.
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Strategy and development
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 Group Inc. (PaineWebber) came into being in the second half of the 19th century, while S.G. Warburg’s roots go back to 1934. But it was in the 1990s when UBS’s current identity began to form.
it an institutional client franchise, which is still crucial to today’s equities business.
è | Detailed information on UBS’s history can be found at www.ubs.com/history |
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Strategy and development
Risk factors
Risk factors
Certain risks, including those described below, can impact UBS’s ability to carry out its business strategies and directly affect its earnings. As a consequence, the revenues and operating profit of UBS have varied from period-to-period – and are likely to continue to vary – and revenues and operating profit for any particular period will not be indicative of future results.
Risks related to the current market crisis
UBS, like many other financial market participants, was severely affected by the progressive market dislocation during 2007. The deterioration of the US residential mortgage market in 2007 was more sudden and severe than any such event in recent market history. As a result, the securitized markets became illiquid and UBS’s positions, including securities that had been assigned high credit ratings, lost substantial value. The losses incurred in 2007, and the positions held by UBS on 31 December 2007, are detailed in the “Risk concentrations” section ofRisk, Treasury and Capital Management 2007.
UBS continues to hold positions exposed to the US residential mortgage market
UBS has bought protection from monoline insurers that may not be effective
UBS holds positions in other asset classes that might be negatively affected by the current market crisis
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Risk factors related to UBS’s business activity
Performance in the financial services industry depends on the economic climate – negative developments can adversely affect UBS’s business activities
– | a general reduction in business activity and market volumes affects fees, commissions and margins from market-making and customer-driven transactions and activities; | ||
– | a market downturn is likely to reduce the volume and valuations of assets UBS manages on behalf of clients, reducing its asset- and performance-based fees; | ||
– | reduced market liquidity limits trading and arbitrage opportunities and impedes UBS’s ability to manage risks, impacting both trading income and performance-based fees; | ||
– | assets UBS holds for its own account as investments or trading positions could continue to fall in value; | ||
– | impairments and defaults on credit exposures and on trading and investment positions could increase, and losses may be exacerbated by falling collateral values; and | ||
– | if individual countries impose restrictions on cross-border payments or other exchange or capital controls, UBS could suffer losses from enforced default by counterparties, be unable to access its own assets, or be impeded in – or prevented from – managing its risks. |
Due to its sizeable trading inventory, trading activities and the counterparty credit risks in many of its businesses, UBS is dependent upon its risk management and control processes to avoid or limit potential losses
– | it does not fully identify the risks in its portfolio, in particular risk concentrations and correlated risks; | ||
– | its assessment of the risks identified, or its response to negative trends, proves to be inadequate or incorrect; | ||
– | markets move in ways that are unexpected – in terms of their speed, direction, severity or correlation – and UBS’s ability to manage risks in the resultant environment is therefore restricted; | ||
– | third parties to whom UBS has credit exposure or whose securities it holds for its own account are severely affected by events not anticipated by UBS’s models and the bank accordingly suffers defaults and impairments beyond the level implied by its risk assessment; and | ||
– | collateral or other security provided by its counterparties proves inadequate to cover their obligations at the time of their default. |
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Strategy and development
Risk factors
The valuation of certain assets, including many of the positions related to the US sub-prime residential mortgage market, rely on models. For some or all of the inputs to these models there is no observable source
è | UBS’s approach to liquidity and funding management is described inRisk, Treasury and Capital Management 2007 |
UBS’s capital strength is important to support its client franchise
Operational risks may affect UBS’s business
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risks associated with the bank’s activities including those arising from process error, failed execution, unauthorized trading, fraud, systems failure and failure of security and physical protection are appropriately controlled. If these internal controls fail or prove ineffective in identifying and remedying such risks, UBS could suffer operational failures that might result in losses.
Legal claims and regulatory risks arise in the conduct of UBS’s business
è | See Note 21 inFinancial Statements 2007for information on legal proceedings in which UBS is involved |
UBS might be unable to identify or capture revenue or competitive opportunities, or retain and attract qualified employees
UBS’s reputation is key to its business
UBS’s global presence exposes the bank to other risks
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Financial performance
– | In 2007, UBS reported a Group net loss attributable to UBS shareholders of CHF 4,384 million | |
– | Losses from positions related to the US residential mortgage market outweighed the strong performance in the other parts of UBS |
UBS results 2007
Losses on trading positionsrelated to the US residential sub-prime and Alt-A real estate market totaled approximately CHF 21.3 billion
Record net fee and commission incomeof CHF 30.6 billion, reflecting strong performance in wealth and asset management, investment banking and equity underwriting
Operating expensesof the financial businesses, at CHF 34,503 million, were up 5% from 2006. Higher staff levels drove salary expenses and general and administrative expenses up. Performance-based compensation declined, reflecting the losses on US sub-prime related positions
UBS performance indicators 2007
Return on equitywas negative 10.2%, down from positive 26.4% in 2006
Diluted earnings per sharewere negative CHF 2.49, compared with a positive CHF 5.57 in 2006
Cost/income ratiofor financial businesses was 110.3% in 2007, significantly up from 69.7% in 2006
Net new money:at CHF 140.6 billion, down from a record in 2006 (CHF 151.7 billion). The decrease was mostly driven by full-year outflows in Global Asset Management. Record net new money inflows were seen in Swiss and international wealth management (up by CHF 27.5 billion from 2006)
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Business group performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Wealth Management US | 718 | 582 | 312 | 23 | ||||||||||||
Business Banking Switzerland | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Global Wealth Management & Business Banking | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Global Asset Management | 1,315 | 1 | 1,392 | 1,057 | (6 | ) | ||||||||||
Investment Bank | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Corporate Center | 1,255 | 2 | (1,087 | ) | (708 | ) | ||||||||||
Financial Businesses | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
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Financial performance
Measurement and analysis of performance
Measurement and analysis of performance
UBS’s performance is reported in accordance with International Financial Reporting Standards (IFRS). This discussion and analysis of the UBS results comments on the underlying operational performance of the business, with a focus on continuing operations. As discontinued activities are no longer relevant to the management of the company, UBS does not consider them to be indicative of its future potential performance. They are therefore not included in UBS’s business planning decisions. This helps to better assess UBS’s performance against that of its peers and to estimate future growth potential.
– | in fourth quarter 2005, UBS’s Private Banks & GAM unit was sold to Julius Baer at a gain of CHF 3,705 million after tax (pre-tax CHF 4,095 million) – the unit comprised the Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin private banks as well as specialist asset manager GAM. After the sale, UBS retained a stake of 20.7% in the new Julius Baer; and | |
– | on 23 March 2006, UBS sold its 55.6% stake in Motor-Columbus to a consortium representing Atel’s Swiss minority shareholders, EOS Holding and Atel, as well as French utility Electricité de France (EDF) for a sale price of approximately CHF 1,295 million, which led to an after-tax gain on sale of CHF 387 million. |
Factors affecting UBS’s financial positions and results of operations in 2007
– | In second quarter 2007, UBS sold its 20.7% stake in Julius Baer which was held as a financial investment available-for-sale. The post-tax gain of CHF 1,926 million was therefore included in performance from continuing operations. | |
– | In the same quarter, the closure of Dillon Read Capital Management (DRCM), an alternative investment venture launched in 2006, led to a charge against profits of CHF 384 million pre-tax (CHF 229 million after-tax). | |
– | In the second half of 2007, UBS was severely affected by the progressive market dislocation. This led to total losses of approximately USD 18.7 billion (CHF 21.3 billion) on UBS’s positions related to the US residential sub-prime and Alt-A real estate market, representing a combination of write- |
downs, hedge gains and losses, realized losses from the scale of position and credit valuation adjustments on credit default swaps (CDSs) purchased from monoline insurers. Losses on securities related to US sub-prime residential mortgages totaled USD 14.6 billion, of which USD 9.2 billion were recorded on super senior tranches of collateralized debt obligations (CDOs). Positions related to Alt-A mortgages lost USD 2 billion due to spread widening towards the end of the year. Losses of USD 1.3 billion were incurred on US structured credit programs (reference-linked notes) in the US. Total credit valuation adjustments on protection bought from monoline insurers were USD 0.8 billion in 2007, reflecting the degree to which UBS considers its claims against these counterparties to be impaired. |
è | For details on these positions, see the “Risk concentrations” section inRisk, Treasury and Capital Management 2007 |
Seasonal characteristics
The main businesses of UBS 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
For the last eight years, UBS has consistently assessed its performance against a set of four measures that were designed to measure the delivery of continuously improving returns to its shareholders.
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– | seek to increase the value of its firm by achieving a sustainable, after-tax return on equity of a minimum of 20%; | |
– | aim to achieve a clear growth trend in net new money for all financial businesses, including Global Wealth Management & Business Banking as well as Global Asset Management; | |
– | target a double-digit percentage growth for diluted earnings per share (EPS); and | |
– | continue to manage business group and business unit cost / income ratios at levels that compare well with competitors. The cost / income ratio target is limited to the financial businesses. |
Business group key performance indicators
At the business group or business unit level, performance is measured by carefully chosen key performance indicators (KPIs). They indicate the business group’s or business unit’s success in creating value for shareholders but UBS does not disclose explicit targets for these KPIs. The KPIs show the key drivers of each unit’s core business activities and include financial metrics, such as cost / income ratios and invested assets, along with non-financial metrics, such as the number of client advisors.
Client/invested assets reporting
Since 2001, UBS has reported two distinct metrics for client funds:
– | client assetsare all client assets managed by or deposited with UBS, including custody-only assets and assets held for purely transactional purposes; and | |
– | invested assetsis a more restrictive term and includes all client assets managed by or deposited with UBS for investment purposes. |
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Financial performance
Measurement and analysis of performance
Business group / business unit key performance indicators | ||||
Business | Key performance indicators | Definition | ||
Business groups (excluding Corporate Center) 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 see page 29). | ||
Net new money (CHF billion) | Inflow of invested assets from new clients | |||
+ inflows from existing clients | ||||
- outflows from existing clients | ||||
- outflows due to client defection. | ||||
Wealth & 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. | ||
Revenues per advisor (CHF thousand) | Income / average number of client advisors. | |||
Net new money per advisor (CHF thousand) | Net new money / average number of client advisors. | |||
Invested assets per advisor (CHF thousand) | Average invested assets / average number of client advisors. | |||
Wealth Management US | Recurring income (CHF million) | Interest, asset-based revenues for portfolio management and account-based, distribution and advisory fees (as opposed to transactional revenues). | ||
Revenues per advisor (CHF thousand) | Income (including net goodwill funding) / average number of financial advisors. Net goodwill funding is defined as goodwill and intangible asset related funding, net of interest income on the corresponding regulatory capital allocated. | |||
Net new money per advisor (CHF thousand) | Net new money / average number of financial advisors. | |||
Invested assets per advisor (CHF thousand) | Average invested assets / average number of financial advisors. | |||
Business Banking Switzerland | Impaired lending portfolio as a % of total lending | Impaired lending portfolio, gross / | ||
portfolio, gross | total lending portfolio, gross. | |||
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. | ||
Impaired lending portfolio as a % of total lending | Impaired lending portfolio, gross / | |||
portfolio, gross | total lending portfolio, gross. | |||
Return on allocated regulatory capital (%) | Business group performance before tax /average allocated regulatory capital. | |||
Average VaR (10-day, 99% confidence, 5 years of historical data) | Value at Risk (VaR) expresses maximum potential loss measured to a 99% confidence level, over a 10-day time horizon and based on 5 years of historical data. | |||
Corporate Center | IT infrastructure (ITI) cost per financial businesses full-time employee | ITI costs / average number of Financial Businesses employees. | ||
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UBS reporting structure
UBS reporting structure
Reintegration of Dillon Read Capital Management portfolios into the Investment Bank
Netting of balance sheet items
Syndicated finance revenues
Accounting changes
Effective 2007, UBS adopted the disclosure requirements of the International Financial Reporting Standard 7 (IFRS 7). The new standard has no impact on recognition, measurement and presentation of financial instruments. It does require entities to provide disclosures in their financial statements that enable users to evaluate:
– | the significance of financial instruments for the entity’s financial position and performance; and | ||
– | the nature and extent of the credit, market and liquidity risks arising from financial instruments during the period and at the reporting date (including concentrations of such risk), and how the entity manages those risks. |
è | IFRS 7 disclosure requirements are discussed inRisk, Treasury and Capital Management 2007andFinancial statements 2007 |
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UBS reporting structure
UBS stopped disclosing non-performing loans as a key performance indicator for the Investment Bank and Business Banking Switzerland in quarterly reports beginning in first quarter 2007, after the firm had previously stopped doing so in its annual report 2006. UBS continues to disclose and discuss the impaired lending portfolio, which is a key component of its internal credit risk management and control processes. As in previous years, non-performing loans, as defined under Swiss Federal Banking Commission (SFBC) regulation, will be reported in the notes to the annual financial statements.
Share-based payment: disclosure (IFRS 2)
impact of this change will be that, from 1 January 2008 on, most of UBS’s share awards will be expensed in the performance year rather than over the period through which the non-compete conditions are applicable. Restrictions remaining effective after the employee becomes entitled to the share-based award will be considered when determining grant date fair value. Following adoption of this amendment, UBS will fully restate the two comparative prior years (2006 and 2007). With the restatement, an additional compensation expense of approximately CHF 800 million will be recognized in 2007 to account for higher share-based awards, mainly in the Investment Bank. For further details please see Note 1 inFinancial Statements 2007.
Discontinuation of the adjusted expected credit loss concept Starting in first quarter 2008, UBS will cease using the adjusted expected
Industrial Holdings to be reported in Corporate Center
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Performance indicators
Performance indicators
For the year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
RoE (%)1 | ||||||||||||
as reported | (9.4 | ) | 28.2 | 39.7 | ||||||||
from continuing operations | (10.2 | ) | 26.4 | 27.6 | ||||||||
Diluted earnings per share (CHF)2 | ||||||||||||
as reported | (2.28 | ) | 5.95 | 6.68 | ||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||
Cost / income ratio of the financial businesses (%)3,4 | 110.3 | 69.7 | 70.1 | |||||||||
Net new money, financial businesses (CHF billion)5 | 140.6 | 151.7 | 148.5 | |||||||||
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Financial performance
Performance indicators
UBS focuses on four key performance indicators, designed to measure the continuous delivery of improving returns to shareholders. Each indicator is calculated based on results from continuing operations. The first two indicators, return on equity and diluted earnings per share, are based on the results of the entire firm. The cost / income ratio and net new money indicators are limited to the financial businesses. On this basis, performance indicators 2007 show:
– | return on equity for full-year 2007 at negative 10.2%, down from positive 26.4% in the same period a year earlier, while the strong results posted by UBS’s wealth and asset management businesses were more than offset by substantial losses in the Investment Bank; | |
– | negative diluted earnings per share of CHF 2.49, compared with positive CHF 5.57 in 2006; | |
– | a cost / income ratio for the financial businesses of 110.3% in 2007, significantly up from 69.7% a year ago; and |
– | net new money at CHF 140.6 billion, down from a record in 2006 of CHF 151.7 billion. The decrease was mostly driven by full-year outflows in Global Asset Management, mainly in institutional which had net new money out-flows of CHF 16.3 billion. The net new money outflows in core / value equity mandates and, to a lesser extent, in fixed income mandates were only partly offset by net new money inflows into all other asset classes, particularly alternative and quantitative investments and money market funds. Record net new money inflows were seen in Swiss and international wealth management (where net new money inflows increased by CHF 27.5 billion from 2006), particularly in Europe and Asia Pacific. Net new money inflows of CHF 26.6 billion in the US wealth management business were an increase of CHF 10.9 billion from prior year, reflecting the recruitment of experienced advisors and reduced outflows from existing clients. The Swiss retail business recorded net new money inflows of CHF 4.6 billion. |
Net new money1 | ||||||||||||
For the year ended | ||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Wealth Management International & Switzerland | 125.1 | 97.6 | 68.2 | |||||||||
Wealth Management US | 26.6 | 15.7 | 26.9 | |||||||||
Business Banking Switzerland | 4.6 | 1.2 | 3.4 | |||||||||
Global Wealth Management & Business Banking | 156.3 | 114.5 | 98.5 | |||||||||
Institutional | (16.3 | ) | 29.8 | 21.3 | ||||||||
Wholesale intermediary | 0.6 | 7.4 | 28.2 | |||||||||
Global Asset Management | (15.7 | ) | 37.2 | 49.5 | ||||||||
UBS excluding Private Banks & GAM | 140.6 | 151.7 | 148.0 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM2 | 0.0 | 0.0 | 0.5 | |||||||||
UBS | 140.6 | 151.7 | 148.5 | |||||||||
Invested assets | ||||||||||||||||
As of | % change from | |||||||||||||||
CHF billion | 31.12.07 | 31.12.06 | 31.12.051 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 1,294 | 1,138 | 982 | 14 | ||||||||||||
Wealth Management US | 840 | 824 | 752 | 2 | ||||||||||||
Business Banking Switzerland | 164 | 161 | 153 | 2 | ||||||||||||
Global Wealth Management & Business Banking | 2,298 | 2,123 | 1,887 | 8 | ||||||||||||
Institutional | 522 | 519 | 441 | 1 | ||||||||||||
Wholesale intermediary | 369 | 347 | 324 | 6 | ||||||||||||
Global Asset Management | 891 | 866 | 765 | 3 | ||||||||||||
UBS | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||
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2006
From continuing operations, performance indicators show:
– | return on equity in full-year 2006 at 26.4%, down from 27.6% in 2005. Higher attributable profit was offset by an increase in average equity following strong retained earnings; | |
– | diluted earnings per share (EPS) in 2006 at CHF 5.57, up 20% from CHF 4.65 in 2005, a reflection of increased earnings and a slight reduction in the average number of shares outstanding (–2%) following share repurchases; |
– | a cost / income ratio for the financial businesses of 69.7% in 2006, down 0.4 percentage points from 70.1% in 2005, reflecting the increase in net trading income and net fee and commission income, partly offset by higher personnel and general and administrative expenses (in 2006, over 8,500 employees were added in areas where UBS saw long-term strategic opportunities); and | |
– | for the whole of 2006, net new money of CHF 151.7 billion, up from CHF 148.0 billion a year earlier (excluding Private Banks & GAM), corresponding to an annual growth rate of 5.7% of the asset base at the end of 2005. Inflows remained strong worldwide. |
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UBS results
UBS results
Income statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million, except per share data | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | |||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | ||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | |||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Other income | 4,332 | 1,598 | 1,127 | 171 | ||||||||||||
Revenues from Industrial Holdings | 268 | 262 | 229 | 2 | ||||||||||||
Total operating income | 31,980 | 47,736 | 40,691 | (33 | ) | |||||||||||
Personnel expenses | 24,798 | 23,591 | 20,067 | 5 | ||||||||||||
General and administrative expenses | 8,465 | 7,980 | 6,504 | 6 | ||||||||||||
Depreciation of property and equipment | 1,251 | 1,252 | 1,247 | 0 | ||||||||||||
Amortization of intangible assets | 282 | 153 | 133 | 84 | ||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||
Total operating expenses | 34,915 | 33,092 | 28,048 | 6 | ||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | ||||||||||||
Tax expense | 1,311 | 2,785 | 2,465 | (53 | ) | |||||||||||
Net profit from continuing operations | (4,246 | ) | 11,859 | 10,178 | ||||||||||||
Discontinued operations | ||||||||||||||||
Operating profit from discontinued operations before tax | 135 | 879 | 5,094 | (85 | ) | |||||||||||
Tax expense | (266 | ) | (12 | ) | 582 | |||||||||||
Net profit from discontinued operations | 401 | 891 | 4,512 | (55 | ) | |||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | ||||||||||||
Net profit attributable to minority interests | 539 | 493 | 661 | 9 | ||||||||||||
from continuing operations | 539 | 390 | 430 | 38 | ||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | |||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
from continuing operations | (4,785 | ) | 11,469 | 9,748 | ||||||||||||
from discontinued operations | 401 | 788 | 4,281 | (49 | ) | |||||||||||
Earnings per share | ||||||||||||||||
Basic earnings per share (CHF) | (2.28 | ) | 6.20 | 6.97 | ||||||||||||
from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||||||
from discontinued operations | 0.21 | 0.40 | 2.13 | (48 | ) | |||||||||||
Diluted earnings per share (CHF) | (2.28 | ) | 5.95 | 6.68 | ||||||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||||||
from discontinued operations | 0.21 | 0.38 | 2.03 | (45 | ) | |||||||||||
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In 2007, UBS reported a Group net loss attributable to UBS shareholders (“attributable loss”) of CHF 4,384 million – a loss of CHF 4,785 million from continuing operations and a profit of CHF 401 million from discontinued operations. In 2006, UBS recorded a Group net profit attributable to UBS shareholders (“attributable profit”) of CHF 12,257 million.
Dividend
As agreed by the extraordinary general meeting on 27 February 2008, the cash dividend for 2007 was replaced by a stock dividend. Furthermore, the Board of Directors (BoD) is authorized, at any time until 27 February 2010, to increase the share capital by a maximum of CHF 10,370,000 through the issuance of a maximum of 103,700,000 fully paid registered shares with a par value of CHF 0.10 each. Existing shareholders will be granted subscription rights for the acquisition of the new shares without payment in proportion
to their shareholdings after the annual general meeting (AGM) to be held on 23 April 2008. The exchange ratio will be determined by the BoD, and shareholders will be informed of it on or by the date of the AGM. The allotted entitlements will be tradable on virt-x and therefore allow shareholders to choose whether they wish to receive new UBS AG shares or monetize the value of the entitlements by selling them in the market.
2006
In 2006, attributable profit was CHF 12,257 million.
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Financial performance
Financial businesses results
Financial businesses results
Income statement1 | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | |||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | ||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | |||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Other income | 3,652 | 1,295 | 561 | 182 | ||||||||||||
Total operating income | 31,032 | 47,171 | 39,896 | (34 | ) | |||||||||||
Cash components | 22,300 | 21,282 | 18,275 | 5 | ||||||||||||
Share-based components2 | 2,387 | 2,187 | 1,628 | 9 | ||||||||||||
Total personnel expenses | 24,687 | 23,469 | 19,903 | 5 | ||||||||||||
General and administrative expenses | 8,421 | 7,929 | 6,448 | 6 | ||||||||||||
Services (to) / from other business units | (124 | ) | (9 | ) | (14 | ) | ||||||||||
Depreciation of property and equipment | 1,243 | 1,245 | 1,240 | 0 | ||||||||||||
Amortization of intangible assets | 276 | 148 | 127 | 86 | ||||||||||||
Total operating expenses | 34,503 | 32,782 | 27,704 | 5 | ||||||||||||
Operating profit from continuing operations before tax | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
Tax expense | 1,275 | 2,751 | 2,296 | (54 | ) | |||||||||||
Net profit from continuing operations | (4,746 | ) | 11,638 | 9,896 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 7 | 4 | 4,564 | 75 | ||||||||||||
Tax expense | (258 | ) | 0 | 489 | ||||||||||||
Net profit from discontinued operations | 265 | 4 | 4,075 | |||||||||||||
Net profit | (4,481 | ) | 11,642 | 13,971 | ||||||||||||
Net profit attributable to minority interests | 489 | 389 | 454 | 26 | ||||||||||||
from continuing operations | 489 | 389 | 454 | 26 | ||||||||||||
from discontinued operations | 0 | 0 | 0 | |||||||||||||
Net profit attributable to UBS shareholders | (4,970 | ) | 11,253 | 13,517 | ||||||||||||
from continuing operations | (5,235 | ) | 11,249 | 9,442 | ||||||||||||
from discontinued operations | 265 | 4 | 4,075 | |||||||||||||
Additional information | ||||||||||||||||
Personnel (full-time equivalents) | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||
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2007
Results
Last year was one of the most difficult in UBS’s history. While most UBS businesses, in particular the wealth management businesses, continued their strong revenue and profit growth momentum and finished the year with record results, this performance was overshadowed by the developments in the Investment Bank’s positions related to the US residential mortgage market. The sudden and serious deterioration in the US housing market, in combination with a large exposure in sub-prime mortgage related securities and derivatives, has deeply impacted UBS.
Operating income
Total operating income was CHF 31,032 million in 2007, down 34% from CHF 47,171 million in 2006.Net interest incomeat CHF 5,337 million was down 18% compared with CHF 6,521 million a year earlier.Net trading incomewas negative CHF 8,353 million, sharply down from positive CHF 13,743 million in 2006.
was severely impacted by losses on positions related to the US mortgage market (see Note 3 inFinancial statements 2007for further details). Fixed income, currencies and commodities (FICC) results were very weak. As credit markets continued to worsen towards the end of 2007, the credit business in FICC delivered negative revenues, especially in proprietary strategies. Structured products results were down, especially in Europe and the US, reflecting the decrease in customer demand for complex derivatives transactions. Markdowns on highly leveraged underwriting commitments also had a negative impact. The result for emerging markets was helped by gains from the sale of UBS’s stake in Brazil Mercantile & Futures Exchange after demutualization. In addition, UBS had a gain of CHF 397 million on credit default swaps (CDS) hedging loan exposures, compared with a loss of CHF 245 million the previous year.
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Breakdown by businesses | ||||||||||||||||
Net income from trading businesses1 | (10,658 | ) | 13,730 | 11,795 | ||||||||||||
Net income from interest margin businesses | 6,230 | 5,718 | 5,292 | 9 | ||||||||||||
Net income from treasury activities and other | 1,412 | 816 | 689 | 73 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
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Financial performance
Financial businesses results
At CHF 1,412 million,net income from treasury activities and otherin 2007 was CHF 596 million, 73% higher than CHF 816 million in 2006. The accounting treatment of interest rate swaps, which hedge the economic interest rate risk of accrual-accounted balance sheet items (for example, loans or money market and retail banking products), positively affected income. They are carried on the balance sheet at fair value and, if they qualify for cash flow hedge accounting under IAS 39, changes in fair value are recorded in equity, thereby avoiding volatility in the group income statement. In 2007, these hedges were not fully effective, leading to a gain that was booked to UBS’s income statement. Higher interest income was also recorded as a result of increased yield on a slightly higher average capital base.
The Investment Bank realized a net credit loss expense of CHF 266 million in 2007, compared with a net credit loss recovery of CHF 47 million in 2006. This mainly relates to valuation adjustments taken in connection with the securitization of certain US commercial real estate assets.
è | Risk, Treasury and Capital Management 2007details UBS’s risk management approach, method of credit risk measurement and the development of credit risk exposures |
In 2007,net fee and commission incomewas CHF 30,634 million, up 20% or CHF 5,178 million from CHF 25,456 million in 2006. Asset-based revenues showed particular strength, reflecting higher average invested asset levels, following strong inflows into the wealth management businesses. Underwriting fees, at their highest level ever, were CHF 3,742 million, up 20% from CHF 3,113 million in 2006. Equity underwriting fees, at CHF 2,564 million, increased by CHF 730 million, or 40%, with double-digit growth in the Americas and Europe. Fixed income underwriting fees were CHF 1,178 million, down 8% or CHF 101 million from CHF 1,279 million, reflecting the adverse conditions in credit markets and a decline in investor sentiment affecting volume and pricing of debt issuance. At CHF 2,768 million, mergers and acquisitions and corporate finance fees in 2007 were up significantly by 49% from CHF 1,852 million a year earlier. Advisory gross revenues increased during 2007, as clients took advantage of strategic opportunities in the brisk merger and acquisition environment and UBS’s growing franchises across all regions. Net brokerage fees were CHF 7,671 million in 2007, up 25% or CHF 1,522 million from CHF 6,149 million in 2006, mainly driven by higher revenues in Europe, the US and Asia, due to additional services from a new equities trading platform, and a considerable increase in client activity in all client segments. Additionally, the equity derivatives business also posted higher revenues due to increased business volume. Investment fund fees, at their highest level ever, were CHF 7,422 million in 2007, up 27% from CHF 5,858 million in 2006, mainly reflecting higher asset-based fees for the wealth management businesses, driven by strong client money inflows. Global Asset Management also increased management and performance fees globally. Fiduciary fees were slightly higher in 2007, increasing from CHF 252 million in 2006 to CHF 297 million, reflecting an increase in business volume. At CHF 1,367 million, custodian fees in 2007 were up 8% from CHF 1,266 million in 2006. This increase was
Credit loss (expense) / recovery | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Global Wealth Management & Business Banking | 28 | 109 | 223 | (74 | ) | |||||||||||
Investment Bank | (266 | ) | 47 | 152 | ||||||||||||
UBS | (238 | ) | 156 | 375 | ||||||||||||
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due to an enlarged asset base. Portfolio and other management and advisory fees increased by 18% to CHF 7,790 million in 2007 from CHF 6,622 million in 2006. The increase is again the result of rising invested asset levels driven by strong net new money inflows and to a lesser extent due to higher management fees. Insurance-related and other fees, at CHF 423 million in 2007, decreased by 6% from a year earlier. Lower insurance fees paid in Global Asset Management were only partially offset by increased sales and asset-based fees from the wealth management businesses. Credit-related fees and commissions increased slightly by 4% to CHF 279 million in 2007 from CHF 269 million in 2006. Commission income from other services decreased by 4% from CHF 1,064 million in 2006 to CHF 1,017 million in 2007, mainly driven by equity derivative products, partially offset by higher fees for account keeping.
Operating expenses
Total operating expenses increased by 5% to CHF 34,503 million in 2007 from CHF 32,782 million in 2006.
Personnel expensesincreased CHF 1,218 million, or 5%, to CHF 24,687 million in 2007 from CHF 23,469 million in 2006. The rise was driven by higher salaries due to the 7% increase in personnel over the year, mainly in wealth management businesses which added 1,400 client and financial advisors. Performance-related compensation decreased, reflecting the losses incurred in the Investment Bank. Personnel expenses are managed on a full-year basis with final fixing of annual performance-related payments in fourth quarter. Share-based components were up 9%, or CHF 200 million, to CHF 2,387 million from CHF 2,187 million, mainly reflecting accelerated amortization of deferred compensation awarded for senior managers who have left UBS. Contractors’ expenses, at CHF 630 million, were CHF 192 million below 2006’s, mainly due to the transfer of Perot contractors into permanent staff. Insurance and social security contributions declined by 11% to CHF 1,219 million in 2007 compared with CHF 1,374 million in 2006, reflecting lower bonus payments. Contributions to retirement benefit plans rose 15% or CHF 120 million to CHF 922 million in 2007 as a result of both higher salaries paid and the increased staff levels. At CHF 1,956 million in 2007, other personnel expenses increased by CHF 392 million from 2006, mainly driven by severance payments relating to the reduction in staff levels.
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | �� | 31.12.05 | 31.12.06 | |||||||||||
Equity underwriting fees | 2,564 | 1,834 | 1,341 | 40 | ||||||||||||
Debt underwriting fees | 1,178 | 1,279 | 1,264 | (8 | ) | |||||||||||
Total underwriting fees | 3,742 | 3,113 | 2,605 | 20 | ||||||||||||
Mergers and acquisitions and corporate finance fees | 2,768 | 1,852 | 1,460 | 49 | ||||||||||||
Brokerage fees | 10,281 | 8,053 | 6,718 | 28 | ||||||||||||
Investment fund fees | 7,422 | 5,858 | 4,750 | 27 | ||||||||||||
Fiduciary fees | 297 | 252 | 212 | 18 | ||||||||||||
Custodian fees | 1,367 | 1,266 | 1,176 | 8 | ||||||||||||
Portfolio and other management and advisory fees | 7,790 | 6,622 | 5,310 | 18 | ||||||||||||
Insurance-related and other fees | 423 | 449 | 372 | (6 | ) | |||||||||||
Total securities trading and investment activity fees | 34,090 | 27,465 | 22,603 | 24 | ||||||||||||
Credit-related fees and commissions | 279 | 269 | 306 | 4 | ||||||||||||
Commission income from other services | 1,017 | 1,064 | 1,027 | (4 | ) | |||||||||||
Total fee and commission income | 35,386 | 28,798 | 23,936 | 23 | ||||||||||||
Brokerage fees paid | 2,610 | 1,904 | 1,631 | 37 | ||||||||||||
Other | 2,142 | 1,438 | 1,121 | 49 | ||||||||||||
Total fee and commission expense | 4,752 | 3,342 | 2,752 | 42 | ||||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
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Financial performance
Financial businesses results
Indicative tax rates for financial businesses | ||||||||||||
For the year ended | ||||||||||||
in % | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Global Wealth Management & Business Banking | 20 | 20 | 19 | |||||||||
Wealth Management International & Switzerland | 19 | 19 | 18 | |||||||||
Wealth Management US | 42 | 42 | 40 | |||||||||
Business Banking Switzerland | 20 | 20 | 17 | |||||||||
Global Asset Management | 20 | 24 | 24 | |||||||||
Investment Bank | N/A | 31 | 29 | |||||||||
travel and entertainment expenditures, higher. Professional fees were up on higher legal fees and IT and other outsourcing expenses were higher in all UBS businesses. This increase was only partially offset by lower provisions.
Tax
Tax expense from continuing operations for 2007 was CHF 1,275 million, compared with a tax expense for 2006 of CHF 2,751 million. The tax charge for 2007 reflects tax expenses on profits earned outside the US during the year, partially offset by US and Swiss tax benefits on the writedowns incurred related to the US sub-prime crisis. The US tax benefits recognized have arisen mainly as a result of the ability to carry back losses against US profits earned in the two prior years. The remainder of the losses are carried forward to offset against future US taxable earnings. Only a portion of these losses have been recognized as deferred tax assets on the balance sheet in line with the requirements of IAS 12, which limits the ability to recognize such assets when losses have been incurred.
Business group tax rates
Fair value disclosure of shares and options
The fair value of shares granted in 2007 rose to CHF 2,116 million. This is 258 million, or 14%, more than the CHF 1,858
Business group performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wealth Management International & Switzerland | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Wealth Management US | 718 | 582 | 312 | 23 | ||||||||||||
Business Banking Switzerland | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Global Wealth Management & Business Banking | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Global Asset Management | 1,315 | 1 | 1,392 | 1,057 | (6 | ) | ||||||||||
Investment Bank | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Corporate Center | 1,255 | 2 | (1,087 | ) | (708 | ) | ||||||||||
Financial businesses | (3,471 | ) | 14,389 | 12,192 | ||||||||||||
1 Includes costs related to the closure of Dillon Read Capital Management (CHF 384 million, pre-tax). 2 Includes gain on sale of 20.7% stake in Julius Baer (CHF 1,950 million, pre-tax).
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million granted in 2006, with the increase largely due to a rise in the proportion of bonuses being delivered in restricted shares.
2006
Results
Attributable net profit in 2006 was CHF 11,253 million, of which discontinued operations contributed CHF 4 million, compared with CHF 4,075 million in 2005 following the sale of Private Banks & GAM. Net profit from continuing operations was CHF 11,249 million, up 19% from CHF 9,442 million in 2005. Higher revenues in practically all businesses drove the increase, outpacing growth in costs. Asset-based revenues showed particular strength, a reflection of rising market levels as well as strong inflows into the wealth and asset management businesses. UBS saw a strong increase in brokerage, corporate finance and underwriting fees. Income from trading activities was driven by higher gains from equity derivatives, prime brokerage and equity proprietary trading. Fixed income activities saw stronger results driven by positive market conditions and improved performances in derivatives, mortgage-backed securities and commodities. Revenues from interest margin products increased, a reflection of the success and growth of lending activities to wealthy private clients worldwide. UBS also reported credit loss recoveries. Expenses continued to increase (+18%) in the context of strategic expansion. Personnel expenses were up 18% from 2005, performance-related payments rose with revenues and there was a 12% increase in staff numbers. For 2006, 53% of personnel expenses took the form of bonus or other variable compensation, up from 50% in 2005. General and administrative expenses were up 23% from 2005. Provision expenses rose, mainly as a result of the settlement agreement with Sumitomo Corporation and the sublease of unused office space in New Jersey, US. The rise in costs was
outpaced by the improvement in revenues, driving the cost / income ratio down to 69.7% – the lowest level ever recorded.
Operating income
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Financial performance
Financial businesses results
vironment in key emerging markets allowed the release of CHF 48 million of collective loan loss provisions for country risk.
money inflows. Insurance-related and other fees, at CHF 449 million in 2006, increased by 21% from 2005, due to higher commissions from insurance related products. Credit-related fees and commissions decreased by 12% to CHF 269 million in 2006 from CHF 306 million in 2005, a reflection of declining business volumes and lower income from loans.
Operating expenses
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Tax
The tax expense for 2006 was CHF 2,751 million, resulting in an effective tax rate of 19.1%, compared with the full-year 2005 tax rate of 18.8%. The tax rate for 2006 was positively influenced by the release of deferred tax valuation allowances, mainly reflecting improved forecast earnings in certain group companies and branches.
Fair value disclosure of shares and options
The fair value of shares granted in 2006 rose to CHF 1,858 million, 35% higher than CHF 1,381 million in 2005. The increase compared with 2005 was primarily driven by higher performance-based compensation and a rise in the proportion of bonuses being delivered in restricted shares.
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Financial performance
Balance sheet and off balance sheet
Balance sheet and off balance sheet
Balance sheet
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Assets | ||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 438 | |||||||||
Due from banks | 60,907 | 50,426 | 21 | |||||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | (41 | ) | ||||||||
Reverse repurchase agreements | 376,928 | 405,834 | (7 | ) | ||||||||
Trading portfolio assets | 610,061 | 627,036 | (3 | ) | ||||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | (35 | ) | ||||||||
Positive replacement values | 428,217 | 292,975 | 46 | |||||||||
Financial assets designated at fair value | 11,765 | 5,930 | 98 | |||||||||
Loans | 335,864 | 297,842 | 13 | |||||||||
Financial investments available-for-sale | 4,966 | 8,937 | (44 | ) | ||||||||
Accrued income and prepaid expenses | 11,953 | 10,361 | 15 | |||||||||
Investments in associates | 1,979 | 1,523 | 30 | |||||||||
Property and equipment | 7,234 | 6,913 | 5 | |||||||||
Goodwill and intangible assets | 14,538 | 14,773 | (2 | ) | ||||||||
Other assets | 18,000 | 17,249 | 4 | |||||||||
Total assets | 2,272,579 | 2,346,362 | (3 | ) | ||||||||
Liabilities | ||||||||||||
Due to banks | 145,762 | 203,689 | (28 | ) | ||||||||
Cash collateral on securities lent | 31,621 | 63,088 | (50 | ) | ||||||||
Repurchase agreements | 305,887 | 545,480 | (44 | ) | ||||||||
Trading portfolio liabilities | 164,788 | 204,773 | (20 | ) | ||||||||
Negative replacement values | 443,539 | 297,063 | 49 | |||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | 32 | |||||||||
Due to customers | 641,892 | 555,886 | 15 | |||||||||
Accrued expenses and deferred income | 21,848 | 21,527 | 1 | |||||||||
Debt issued | 222,077 | 190,143 | 17 | |||||||||
Other liabilities | 60,776 | 63,251 | (4 | ) | ||||||||
Total liabilities | 2,230,043 | 2,290,587 | (3 | ) | ||||||||
Equity | ||||||||||||
Share capital | 207 | 211 | (2 | ) | ||||||||
Share premium | 8,884 | 9,870 | (10 | ) | ||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | 815 | |||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||
Retained earnings | 38,081 | 49,151 | (23 | ) | ||||||||
Equity classified as obligation to purchase own shares | (74 | ) | (185 | ) | 60 | |||||||
Treasury shares | (10,363 | ) | (10,214 | ) | (1 | ) | ||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | (28 | ) | ||||||||
Equity attributable to minority interests | 6,951 | 6,089 | 14 | |||||||||
Total equity | 42,536 | 55,775 | (24 | ) | ||||||||
Total liabilities and equity | 2,272,579 | 2,346,362 | (3 | ) | ||||||||
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UBS’s total assets stood at CHF 2,272.6 billion on 31 December 2007, down from CHF 2,346.4 billion on 31 December 2006. These shifts were driven by declines in the Investment Bank, where deliberate balance sheet reductions led to lower collateral trading portfolio (down CHF 173.4 billion) and lower trading portfolio assets (down CHF 104.1 billion). The positive and negative replacement values grew by CHF 135.2 billion and CHF 146.5 billion respectively and the loan portfolio was up CHF 38.0 billion. Currency movements against the Swiss franc (mainly the 7% depreciation of the US dollar) strongly supported the decline in total assets. Total liabilities decreased due to lower collateral trading liabilities (down CHF 271.1 billion) and trading portfolio liabilities (down CHF 40.0 billion), however, these movements were partially offset by higher unsecured borrowings, which went up CHF 106.2 billion.
Lending and borrowing
Lending
Borrowing
occurred primarily in prime brokerage and the exchange-traded derivatives business.
Repurchase agreements and securities borrowing/lending
In 2007, cash collateral on securities borrowed and reverse repurchase agreements significantly decreased by CHF 173.4 billion, or 23% to CHF 584.0 billion, while the sum of securities lent and repurchase agreements declined by CHF 271.1 billion or 45% to CHF 337.5 billion. This occurred almost entirely in the Investment Bank, where the matched book (a repurchase agreement portfolio comprised of assets and liabilities with equal maturities and equal value, so that the market risks substantially cancel each other out) was reduced. In addition, the fixed income book decreased as a result of lower short trading inventories and, to a lesser extent, through lower equity securities borrowing activities.
Trading portfolio
Between 31 December 2006 and 31 December 2007, trading assets declined sharply by CHF 104.1 billion to CHF 774.4 billion. This included a currency impact of approximately CHF 33 billion. Trading assets inventory in debt instruments dropped by CHF 97 billion in all major securities categories such as commercial paper, government bonds, asset-backed securities and corporate bonds due to either disposals or markdowns. Equity instruments also slightly decreased, while precious metals inventory continued to grow.
Replacement values
In 2007, the positive replacement value of derivative instruments increased by CHF 135.2 billion to CHF 428.2 billion, while the negative replacement values of derivative instruments increased by CHF 146.5 billion to CHF 443.5 billion. Both changes are due to movements in interest rates and currencies, as well as because of increased spread volatility in credit default swaps on products related to the US mortgage trading business.
Other assets/liabilities
Investments in associates increased by 30% to CHF 2.0 billion on 31 December 2007, mainly due to a direct investment of Global Asset Management’s infrastructure business. Property and equipment were marginally up by 5% to CHF 7.2 billion, mainly driven by new investments, partially offset by write-offs and currency impact. Goodwill and other intangible assets, at CHF 14.5 billion on 31 December 2007, declined slightly by 2% from a year earlier, mainly related to currency movements, partially offset by UBS’s acquisitions
47
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Financial performance
Balance sheet and off balance sheet
during 2007 of McDonald Investments and Daehan Investment Trust Management Company Ltd. (DIMCO).
Equity
At CHF 35.6 billion on 31 December 2007, equity attributable to UBS shareholders decreased by CHF 14.1 billion from 2006. The decline reflects the attributable loss of CHF 4.4 billion and dividend payments for the performance year 2006 of CHF 4.3 billion. In addition, the cancellation of secondary trading line treasury shares that were purchased
under the share buy-back program 2006 / 2007 of CHF 2.4 billion also reduced UBS’s equity.
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Off-balance sheet
Contractual obligations
The table below summarizes UBS’s contractual obligations as of 31 December 2007. All contracts, with the exception of purchase obligations (those where UBS is committed to purchasing determined volumes of goods and services), are either recognized as liabilities on UBS’s balance sheet or, in the case of operating leases, disclosed in Note 25 inFinancial Statements 2007.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under International Financial Reporting Standards (IFRS), are not initially recognized on the balance sheet and do not affect the income statement. These types of arrangements are kept off-balance sheet, unless (i) they become onerous, (ii) they are considered derivative instruments, or (iii) UBS incurs an obligation from them or becomes entitled to a specific asset. As soon as such an obligation is in-
curred, it is recognized on the balance sheet, with the resulting loss recorded in the income statement.
Risk concentrations
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 | 58,869 | 68,517 | 35,735 | 98,553 | ||||||||||||
Capital lease obligations | 163 | 301 | 222 | 0 | ||||||||||||
Operating leases | 1,085 | 1,929 | 1,595 | 3,769 | ||||||||||||
Purchase obligations | 873 | 973 | 41 | 99 | ||||||||||||
Other long term liabilities | 2,549 | 21 | 1,564 | 7 | ||||||||||||
Total | 63,539 | 71,741 | 39,157 | 102,428 | ||||||||||||
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Financial performance
Balance sheet and off balance sheet
Off-balance sheet arrangements, risks, | |||
consolidation and fair value measurements | Disclosure in the Annual Report | ||
Credit guarantees, performance guarantees, undrawn irrevocable credit facilities, and similar instruments | Strategy, Performance and Responsibility, section Off-balance sheet arrangements, and Risk, Treasury and Capital Management, section Liquidity and funding management | ||
Contractual obligations | Strategy, Performance and Responsibility, section Off-balance sheet arrangements | ||
Derivative financial instruments | Financial Statements, Note 23 Derivatives and Hedge Accounting | ||
Leases | Financial Statements, Note 25 Operating Lease Commitments | ||
Non-consolidated securitization vehicles – agency transactions | Strategy, Performance and Responsibility, section Off-balance sheet arrangements | ||
Non-consolidated securitization vehicles – non-agency transactions | Strategy, Performance and Responsibility, section Off-balance sheet arrangements | ||
Risk concentrations | Risk, Treasury and Capital Management, section Risk concentrations | ||
Credit risk information | Risk, Treasury and Capital Management,section Credit risk | ||
Market risk information | Risk, Treasury and Capital Management, section Market risk | ||
Investment risk information | Risk, Treasury and Capital Management, section Investment positions | ||
Liquidity risk information | Risk, Treasury and Capital Management, section Treasury and Capital Management, Liquidity and funding management | ||
Consolidation | Financial Statements, section Critical accounting policies | ||
Fair value measurements, including Level 3 sensitivity and Level 3 impact on the income statement | Financial Statements, Note 26 Fair Value of Financial Instruments | ||
Liquidity facilities and similar obligations
Non-consolidated securitization vehicles and collateralized debt obligations
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Non-consolidated securitization vehicles and Collateralized debt obligations – agency transactions1, 2
Purchased and | ||||||||||||
CHF billion | SPE assets | retained interests | ||||||||||
Original principal | Current principal | |||||||||||
As of 31 December 2007 | outstanding | outstanding | Fair value | |||||||||
Securitizations originated by UBS3 | ||||||||||||
Residential mortgage | 2.1 | 1.9 | 0.6 | |||||||||
Commercial mortgage | 0.4 | 0.3 | 0.1 | |||||||||
Total | 2.5 | 2.2 | 0.7 | |||||||||
Securitizations not originated by UBS | ||||||||||||
Residential mortgage4 | 33.9 | |||||||||||
Non-consolidated securitization vehicles and Collateralized debt obligations – non-agency transactions1
Purchased and | ||||||||||||||||||||
retained interests | Derivatives held by | |||||||||||||||||||
CHF billion | Total SPE assets | held by UBS | UBS | |||||||||||||||||
Original principal | Current principal | Delinquency | ||||||||||||||||||
As of 31 December 2007 | outstanding | outstanding | amounts | Fair value | Fair value | |||||||||||||||
Originated by UBS2 | ||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||
Residential mortgage | 2.8 | 2.8 | 0.0 | 0.8 | (0.1 | ) | ||||||||||||||
Commercial mortgage | 6.0 | 6.0 | 0.0 | 0.2 | 0.0 | |||||||||||||||
Other ABS | 12.8 | 3 | 0.0 | 5.3 | 0.0 | |||||||||||||||
Securitizations | ||||||||||||||||||||
Residential mortgage | 2.9 | 2.6 | 0.2 | 0.4 | 0.0 | |||||||||||||||
Commercial mortgage | 7.8 | 7.8 | 0.0 | 0.5 | 0.0 | |||||||||||||||
Other ABS | 2.1 | 3 | 3 | 0.2 | 0.0 | |||||||||||||||
Total | 34.4 | 3 | 3 | 7.4 | (0.1 | ) | ||||||||||||||
Not originated by UBS | ||||||||||||||||||||
CDOs and CLOs | ||||||||||||||||||||
Residential mortgage | 103.9 | 100.5 | 0.0 | 0.2 | 0.3 | |||||||||||||||
Commercial mortgage | 38.8 | 35.1 | 0.0 | 2.0 | (0.6 | ) | ||||||||||||||
Other ABS | 51.6 | 3 | 0.0 | 11.5 | (3.9 | ) | ||||||||||||||
Securitizations | ||||||||||||||||||||
Residential mortgage | 742.6 | 3 | 16.9 | 21.4 | 0.2 | |||||||||||||||
Commercial mortgage | 224.2 | 206.3 | 0.7 | 5.2 | 0.1 | |||||||||||||||
Other ABS | 182.2 | 3 | 2.8 | 10.7 | 0.0 | |||||||||||||||
Total | 1,343.3 | 3 | 20.4 | 51.0 | (3.9 | ) | ||||||||||||||
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Financial performance
Balance sheet and off balance sheet
Investment funds
Purchase of commercial papers and other securities
Other types of support
Leveraged finance deals
Guarantees and similar obligations
Contingent claims and undrawn credit facilities
31.12.07 | 31.12.06 | |||||||||||||||||||||||
Sub- | Sub- | |||||||||||||||||||||||
CHF million | Gross | participations | Net | Gross | participations | Net | ||||||||||||||||||
Credit guarantees and similar instruments | 13,381 | (593 | ) | 12,788 | 12,142 | (813 | ) | 11,329 | ||||||||||||||||
Performance guarantees and similar instruments | 3,969 | (464 | ) | 3,505 | 3,199 | (333 | ) | 2,866 | ||||||||||||||||
Documentary credits | 3,474 | (517 | ) | 2,957 | 2,567 | (238 | ) | 2,329 | ||||||||||||||||
Total contingent claims | 20,824 | (1,574 | ) | 19,250 | 17,908 | (1,384 | ) | 16,524 | ||||||||||||||||
Undrawn irrevocable credit facilities | 83,980 | (2 | ) | 83,978 | 97,287 | (2 | ) | 97,285 | ||||||||||||||||
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Clearinghouse and future exchange memberships
Swiss deposit insurance
Private equity funding commitments
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Financial performance
Cash flows
Cash flows
2007
At the end of 2007, the level of cash and cash equivalents rose to CHF 149.1 billion, up CHF 13.0 billion from CHF 136.1 billion at end-2006.
Operating activities
Investing activities
Financing activities
2006
At the end of 2006, the level of cash and cash equivalents rose to CHF 136.1 billion, up CHF 45.1 billion from CHF 91.0 billion at end-2005.
Operating activities
Investing activities
Financing activities
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UBS employees
– | UBS invests in its employees – increasing their value to both the firm and its clients | |
– | Business operations are supported by high-quality people management processes | |
– | UBS places importance on skill-development and career-building opportunities | |
– | Employees are appropriately rewarded for their performance, results and commitment |
Strategic focus
UBS relies on the skill and dedication of its employees to deliver the solutions and service its clients demand.
The firm continually invests in its people and ensures organization-wide processes are in place to support this.
Increases in employee skill and productivity over time will support the growth of UBS’s businesses. To drive business growth from within, UBS seeks to retain and develop its own workforce, as illustrated by the firm’s staffing, people management, training and compensation policies and practices. The chart “Investing in employees” on the opposite page illustrates this.
Collaboration and respect underpin the firm-wide culture of valuing individual contributions and excellence. UBS fosters a performance-oriented environment, in which pay is linked to performance and compensation is linked to the achievement of business objectives.
Developments in 2007
– | The UBS workforce (in terms of total full-time equivalents) grew to 83,560, up 5,420, or 7%, from 78,140 on 31 December 2006 | |
– | Global Wealth Management & Business Banking accounted for more than half of the growth, with 3,056 new staff | |
– | Graduate recruiting remained strong; hiring increased about 10% from 2006 | |
– | This growth occurred despite the difficult market conditions and related staff reductions of about 900 in the Investment Bank | |
– | Other significant achievements included: opening the Singapore-based UBS Wealth Management Campus – Asia Pacific, the launch of the “UBS Career Comeback” program, allowing people to resume their career in financial services after a break, and ongoing external recognition as an excellent employer |
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Investing in employees
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UBS employees
UBS employees
Investing in UBS employees
UBS relies on the expertise and commitment of its employees to deliver the solutions and the quality of service demanded by its clients. “Human capital return on investment” is used by UBS as an indicator of the increase in skill and productivity of its workforce, in combination with financial performance. In 2007, UBS’s human capital return on investment showed a decrease for the year. As shown in the graph at the right, following a steady increase from 2002 until the first half of 2007, its return on investment declined in the second half of 2007. This decrease is principally the result of a continued investment in the bank’s workforce despite the quick and steep deterioration in market conditions in the second half of 2007. This investment, however, should prove to be central to UBS’s ability to grow when market conditions stabilize.
Staffing
UBS workforce
ued in growth markets such as Asia Pacific and Europe. The number of client advisors in Switzerland also increased. Staff levels in the US-based wealth management business rose by 790, after the February 2007 integration of the McDonald Investments private client network and related hiring (in support of divisional and home office growth initiatives). This was partly offset by staff reductions in certain business areas, mainly IT and operations. The Swiss commercial and retail banking business increased personnel numbers by 19, as more IT staff were required to support both growing business volumes and new hires in the Swiss domestic banking business. The asset management business raised staff levels across all areas, hiring a total of 189 new employees in the context of business growth and acquisitions. The increase was partly offset by declines re-
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lated to the closure of Dillon Read Capital Management (DRCM) in second quarter 2007. The Investment Bank’s staff levels were essentially flat year-on-year, only increasing by 33. As announced in October, the Investment Bank reduced its personnel levels by 901 people during fourth quarter and informed around 430 employees that they will have to leave the bank in the course of first quarter 2008. This decrease was offset by the annual intake of graduates and reintegration of DRCM staff. In Corporate Center, personnel numbers were up by 2,142, mainly a result of converting former Perot staff members to permanent IT Infrastructure employees. Demand for offshoring services increased as well, driving up staff levels in the UBS Service Centre in Hyderabad.
Recruiting staff
to 830. In total, around 1,900 young people participated in vocational training in Switzerland in 2007.
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UBS employees
Gender distribution by employee category1
Officers | Non-officers | Total | ||||||||||||||||||||||
As of 31.12.07 | Number | % | Number | % | ||||||||||||||||||||
Male | 34,622 | 73.5 | 18,204 | 47.8 | 52,826 | 62.0 | ||||||||||||||||||
Female | 12,496 | 26.5 | 19,886 | 52.2 | 32,382 | 38.0 | ||||||||||||||||||
Total | 47,118 | 100.0 | 38,090 | 100.0 | 85,208 | 100.0 | ||||||||||||||||||
Developing and sustaining a diverse workforce
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Composition of UBS’s workforce by citizenship1
As of 31.12.07 | ||||||||||||
% change | Total % of | |||||||||||
Country | Number | from 2006 | citizenship | |||||||||
USA | 29,019 | (1.5 | ) | 34.1 | ||||||||
Switzerland | 23,412 | (1.6 | ) | 27.5 | ||||||||
United Kingdom | 8,008 | (0.2 | ) | 9.4 | ||||||||
Germany | 3,669 | 0.3 | 4.3 | |||||||||
India | 2,422 | 1.1 | 2.8 | |||||||||
Australia | 1,865 | 0.0 | 2.2 | |||||||||
Italy | 1,794 | 0.0 | 2.1 | |||||||||
Singapore | 1,536 | 0.2 | 1.8 | |||||||||
France | 1,372 | 0.1 | 1.6 | |||||||||
Hong Kong | 1,329 | 0.2 | 1.6 | |||||||||
Japan | 1,163 | 0.1 | 1.4 | |||||||||
China | 921 | 0.5 | 1.1 | |||||||||
Canada | 799 | 0.0 | 0.9 | |||||||||
Spain | 762 | 0.0 | 0.9 | |||||||||
Russia | 452 | 0.0 | 0.5 | |||||||||
Taiwan | 451 | 0.1 | 0.5 | |||||||||
Ireland | 339 | 0.0 | 0.4 | |||||||||
Austria | 298 | 0.0 | 0.4 | |||||||||
Malaysia | 259 | 0.0 | 0.3 | |||||||||
Belgium | 226 | 0.0 | 0.3 | |||||||||
Other countries | 5,112 | 0.6 | 6.0 | |||||||||
Total | 85,208 | 100.0 | ||||||||||
women, and in some instances men, who had left the work-force and now would like to return to professional employment in the financial industry. Participants must have a minimum of five years of relevant work experience and be seeking to return to the workforce after an 18-month to seven-year period away from the industry. In March 2007, the program was launched with the Wharton School (of business) of the University of Pennsylvania. Three months later, 28% of the 60 participants were working either full-time or part-time at various companies, including UBS. The program was expanded to Hong Kong and Sydney in November 2007 and to London in March 2008.
Diversity and clients
Employee retention
Performance management
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UBS employees
– | use carefully selected performance measures, rigorous performance management and a strict pay-for-performance relationship to support UBS’s business strategy; | |
– | support the reward opportunities across the firm by consistently communicating the business strategy and promoting a meritocratic culture; | |
– | provide competitive total compensation opportunities to enable UBS to attract and retain talent; | |
– | balance the components of compensation to meet short-term needs while focusing on mid- to long-term objectives; and | |
– | encourage employee share ownership to strengthen the alignment between employee and shareholder interests. |
è | A full discussion of UBS’s compensation policy is available inCorporate Governance and Compensation Report 2007 |
Employee share ownership
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è | For a full discussion of UBS’s equity plans, see Note 30 “Equity participation and other compensation plans”, inFinancial Statements 2007 |
Learning and development
Leadership development
Asia Pacific has produced UBS’s highest growth rate over the past few years. Between 2004 and 2006, UBS’s wealth management business in Asia Pacific doubled its invested assets to CHF 151 billion. As the leading wealth manager in the region, UBS has drawn accolades from the financial media in 2007 and was named best private bank in Asia for the sixth consecutive year. Additionally,Dealogicfigures confirm UBS as the most profitable investment bank in the region in 2007. This business growth necessitated substantial recruitment, together with strong retention and development efforts for experienced UBS employees in the region. To retain and attract wealth management professionals, the UBS Wealth Management Campus - Asia Pacific was launched in Singapore in April 2007. Following Switzerland, Singapore is UBS’s second largest
wealth management center for international clients, and this campus acts as the regional hub for employee and client education. Developed in close collaboration with Singapore’s government, the campus is accredited by the Singapore Institute of Banking and Finance.
UBS anticipates that 5,000 wealth management staff will be trained at the campus by 2010. In addition to financial education, employees learn about the “UBS Client Experience” (a structured advisory process employed by client advisors), leadership principles, business strategy and values. Internal subject matter experts and external trainers deliver a comprehensive training offering with formal professional accreditation. Open dialog and constructive challenges foster the sharing of work experience and specialist knowledge. The campus
appeals to potential and existing employees who desire career advancement that is supported by well-structured learning pathways and curricula for competency development.
In addition, UBS’s wealth management clients, their children and grandchildren are able to participate in a range of specifically developed programs to enable them to remain well informed in a fast changing market. The most recent event, delivered on campus in December 2007, was the “UBS Young Generation Seminar”. It was the first of four modules designed to enhance clients’ understanding of investment fundamentals and wealth planning in a fun and inspiring way. Clients are thus enabled to take better advantage of UBS’s wealth management expertise and content, which, in turn, can deepen UBS’s relationship with them over time.
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UBS employees
Business training
Commitment
Measuring employee satisfaction
Employee assistance
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Employee representation
Selected 2007 awards
Top 10 Companies for Working Mothers in the US (Working Mother magazine, US)
Top 50 Best Places to Launch a Career (Business Week)
Top 50 Best Workplaces in the UK Top 100 in Europe (Financial Times)
No.2 Employer in Japan (Hewitt Associates)
Top Leadership Award for Learning Programs (Corporate University Xchange)
Corporate Equality Index (Perfect Score) (Human Rights Campaign Foundation, US)
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Corporate responsibility
– | Corporate responsibility is integral to the way UBS does business | |
– | UBS helps clients consider corporate responsibility opportunities and risks, by providing relevant research, advisory services and product offerings | |
– | UBS actively maintains its strong track-record in managing environmental challenges | |
– | The firm seeks to positively influence the well-being of its local communities |
UBS’s commitment
Milestones 2007
– | Socially Responsible Investments (SRI):SRI invested assets increased by 116% (to CHF 38.9 billion) in 2007. UBS launched new SRI products in Japan and Taiwan and launched strategy certificates for climate change, water and demographics | |
– | Climate Change:UBS reduced its own CO2 emissions by 22% from 2004, provided financial and advisory services to companies in renewable energy sectors, published major research reports on the impacts of climate change on companies and sectors and launched the UBS Global Warming Index and the UBS Greenhouse Index | |
– | Wolfsberg Group’s statement against corruption:UBS actively participated in the drafting and release of this statement, which clarifies the link between financial institutions and international corruption fighting efforts and outlines ways financial institutions can prevent both corruption and the misuse of their operations in relation to corruption | |
– | More than CHF 46 million contributed to charitable causes around the globe:nearly 8,000 employees spent over 80,000 hours in volunteering services |
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Corporate responsibility
Corporate responsibility
è | For more on UBS’s workforce, see the “UBS employees” section in this report | ||
è | For more on governance, seeCorporate Governance and Compensation Report 2007 |
Adherence to the UN Global Compact initiative
Labor standards and human rights
è | For more on labor standards and diversity programs, see the “UBS employees” section of this report |
Responsible procurement is a key aspect of UBS’s approach to human rights and the environment. In the past few years, UBS has established processes to manage environmental and human rights issues in key areas of its supply chain (such as client gifts, IT equipment and energy sourcing). For example,
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Environment
è | For more information on the environment, see the end of this section and www.ubs.com/environment |
Fighting corruption
è | For more information on UBS’s AML activities, please see the next page |
External recognition
Corporate responsibility governance
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Corporate responsibility
Corporate responsibility: training and raising awareness
Contributing to society – preventing money laundering, corruption and terrorist financing
Extensive and constant efforts to prevent money laundering, corruption and terrorist financing are important contributions
A particular focus in the last few years has been on enhancing UBS’s controls around dealings with regimes and countries with heightened risks. This included establishing
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Community investment
Client foundation
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Corporate responsibility
In theAsia Pacificregion, UBS supports the Child Welfare and Holistic Organization for Rural Development (CHORD) in Hyderabad, India. The organization provides a bridge education program and emotional support to child workers, helping them to return to normal schooling. As part of a “buddy” program, UBS employees assist the children with their schoolwork, and act as mentors, guiding them in their development and their efforts to return to school. Over the past year, the UBS India Service Centre (ISC) has organized a “Fun Day” for 420 CHORD children, a “Teachers’ Day” at the CHORD school as well as a field visit to the ISC itself, giving many students their first look inside a large corporation. One of the students at the CHORD school said: ”I was working in a shop previously. I have seen many customers and many faces. But no one ever bothered about me and my feelings. After I joined CHORD school I had the privilege of interacting with UBS. They bring smiles back on our sad faces.” In theUK, UBS is working in partnership with two other City firms to support the regeneration of Shoreditch. Situated in East London, Shoreditch is one of the most deprived areas in the UK with 82% of its population living in social housing and more than 30% of school leavers unable to find a job. Working directly with government and non-profit social regeneration agencies, the corporate collaboration known as Project Shoreditch focuses on matching the skills, expertise and enthusiasm of UBS employees to the needs of Shoreditch organizations. Since the project’s inception in April 2005, over 1,500 UBS volunteers have
supported a wide variety of Shoreditch-based community groups, charities and schools, through team challenges, business planning, mentoring, training, web design, workplace visits, the provision of employment advice and fundraising. Volunteers provide direct support for Shoreditch-based organizations while also assisting with the regeneration of the area. In 2007, Project Shoreditch was awarded the “Positive Impact on London” Award from Business in the Community. InSwitzerland, a notable volunteering project is the support of business training for students called “Fit for business”. The training is aimed at young people aged 14 to 16. UBS employees conduct the training sessions and support students with career guidance, help them write job applications and give them advice in managing their own money. UBS makes direct donations to charitable projects such as Swiss mountain aid, an organization that tries to stop the significant population outflows from poor mountainous areas in Switzerland by financing projects and businesses that help alpine communities achieve or maintain sustainable rates of economic subsistence. In addition, UBS helps Swisscontact, a Swiss foundation for technical cooperation, to give young girls and boys in Benin, Africa, training in various professions including carpentry, tailoring and hairdressing. The youths participating in the program learn how to read and write and are informed about important health issues they face, including AIDS and how to prevent it. In theAmericas, the wealth management business launched a new philanthropic focus “Education as a Pathway to a Better Future”, concen-
trating its charitable activities in the US on improving the education of students in kindergarten, elementary and high school in low-income areas. In conjunction with the new focus, a national volunteer initiative, called “Building Brighter Futures”, was launched in October 2007 with the goal of cultivating community, school and civic collaboration to help paint, garden and liven up schools and organizations related to education. During the month, over 2,100 UBS employees, family and friends volunteered in over 90 projects across the country. The Investment Bank launched a pilot education program in conjunction with Earthwatch International, a non- profit organization that engages people worldwide in scientific field research and education to promote the understanding and action necessary for a sustainable environment. Six UBS employees were selected as Earthwatch Fellows together with three public school teachers to participate in climate change expeditions in the northern reaches of Canada and on the coast of central Mexico. After the eight-day expeditions, the Fellows returned to share their experiences with colleagues and students from Medill Elementary school in Chicago, Illinois, the Hart Magnet School in Stamford, Connecticut; and the Manhattan Center for Science and Math in New York City. In 2008, the program will be expanded to include other UBS business areas in the Americas as employees work with their local schools to increase awareness of global environmental issues.
è | For more information on UBS’s community affairs program, see www.ubs.com/corporateresponsibility |
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UBS and the environment
UBS’s commitment to the environment is underpinned by a global environmental management system certified under the ISO 14001 standard since 1999. The system covers both banking activities and in-house operations and was successfully re-certified in 2005 by the firm’s auditor, SGS.
– | seeking to consider environmental risks in all UBS businesses, especially in lending, investment banking, advisory and research, and its own investments; | |
– | seeking to pursue opportunities in the financial market for environmentally friendly products and services, such as socially responsible investments; | |
– | seeking ways to reduce UBS’s direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. UBS will also seek to assess the environmental impact of its suppliers’ products and services; | |
– | ensuring efficient implementation of UBS’s policy through a global environmental management system certified according to ISO 14001 | |
– | the international environmental management standard; and | |
– | integrating environmental considerations into internal communications and training. |
Environmental performance indicators
Every year, UBS provides a detailed description of its environmental performance using key performance indicators (KPIs), which allow for annual comparisons. They are based on in-
dustry standards such as the Global Reporting Initiative (GRI), the Greenhouse Gas Protocol and ISO 14064. The management indicators below provide an overview of the firm’s environmental management system.
Environmental market opportunities
UBS has strong expertise in incorporating environmental and social aspects into its research and advisory activities. A socially responsible investments (SRI) team was established in Global Asset Management as early as 1996. Socially responsible investments are sustainable investments that take ecological and social criteria into account alongside classical financial analysis. Today, SRI teams operate in all business groups and regions, allowing UBS to produce original SRI research and to offer a broad range of SRI investment products. Furthermore, the Investment Bank actively pursues related market opportunities, for example by trading emissions on behalf of clients, or by arranging finance and providing advisory services to re-
Environmental management indicators
For the year ended | % change from | |||||||||||||||||||
Full-time equivalent, except where indicated | GRI1 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||
Financial businesses personnel2 | 83,560 | 78,140 | 69,569 | 7 | ||||||||||||||||
In specialized environmental units3 | 38 | 30 | 25 | 28 | ||||||||||||||||
Environmental awareness raising | ||||||||||||||||||||
Employees trained | F5 | 5,090 | 2,489 | 2,251 | 104 | |||||||||||||||
Training time (hours) | F5 | 2,133 | 1,498 | 1,214 | 42 | |||||||||||||||
Specialized environmental training | ||||||||||||||||||||
Employees trained | F5 | 976 | 977 | 1,010 | 0 | |||||||||||||||
Training time (hours) | F5 | 1,420 | 1,758 | 2,066 | (19 | ) | ||||||||||||||
External environmental audits4 | ||||||||||||||||||||
Employees audited | F6 | 37 | 30 | 147 | 23 | |||||||||||||||
Auditing time (days) | F6 | 8 | 6 | 17 | 40 | |||||||||||||||
Internal environmental audits5 | ||||||||||||||||||||
Employees audited | F6 | 121 | 154 | 216 | (21 | ) | ||||||||||||||
Auditing time (days) | F6 | 38 | 44 | 39 | (15 | ) | ||||||||||||||
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Corporate responsibility
Investment products and advisory
Investment Bank: sell-side research
Socially responsible investments invested assets
For the year ended | % change from | |||||||||||||||||||
CHF billion, except where indicated | GRI1 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||
UBS | 3,189 | 2,989 | 2,652 | 7 | ||||||||||||||||
UBS socially responsible investments (SRI) products and mandates | ||||||||||||||||||||
Positive criteria | F9 | 5.42 | 1.84 | 1.05 | 194 | |||||||||||||||
Exclusion criteria | F9 | 32.06 | 16.17 | 10.73 | 98 | |||||||||||||||
Third-party | F9 | 1.38 | N/A | 0.61 | N/A | |||||||||||||||
Total SRI invested assets | F9 | 38.86 | 18.01 | 12.39 | 116 | |||||||||||||||
Proportion of total invested assets (%)2 | 1.22 | % | 0.60 | % | 0.47 | % | ||||||||||||||
Positive criteria:applies to the active selection of companies, focusing on how a company’s strategies, processes and products impact its financial success, the environment and society. This includes “best-in-class” or thematic investments.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria. For example, companies involved in weapons, tobacco, gambling, or with high negative environmental impacts.
Third-party:UBS’s open product platform gives clients access to SRI products from third-party providers. This includes both positive and exclusion critieria.
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Global Asset Management: buy-side research
Global Wealth Management & Business Banking: secondary research
Engaging investors in climate change issues
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Corporate responsibility
ing city governments and local building owners will retrofit buildings for increased energy efficiency. Participating cities include London, Paris, New York, Mexico City and Tokyo, among others. UBS has committed expertise and other resources to create financial structures capable of delivering capital effectively to public and private projects in this program.
Carbon trading
Environmental risk management
For UBS, it is important to identify, manage and control environmental risks in its business transactions. An example of such a risk is 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 environmentally unsound collateral onto its own books.
Global Wealth Management & Business Banking
Investment Bank
Global Asset Management
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Environmental and CO2 footprints
The firm directly impacts the environment in a number of ways. Its 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 the use of these resources can boost operating margins and enhance environmental performance and, therefore, UBS has a series of measures that manage its environmental impact efficiently.
CO2 strategy and emission reduction
– | in-house energy efficiency measures that reduce energy consumption in buildings it operates in; | |
– | increasing the proportion of renewable energy to avoid emissions at source; and | |
– | offsetting and neutralizing emissions that cannot be reduced by other means. |
Energy consumption and energy efficiency
by the US Green Building Council’s Leadership in Energy and Environmental Design (LEED). The building incorporates many energy optimizing features, such as light harvesting where sensors detect levels of sunshine, and the building automatically adjusts interior lighting depending on the level of exterior light. Going forward, UBS has adopted a technical standard supporting worldwide oversight of measures taken to improve energy efficiency in fields such as building operation, replacement investments and rehabilitations.
Renewable energy
Environmental indicators per full-time employee (FTE)
Unit | 2007 | Trend | 2006 | 2005 | ||||||||||||||||
Total direct and intermediate energy | kWh / FTE | 11,942 | î | 12,736 | 12,925 | |||||||||||||||
Total indirect energy | kWh / FTE | 20,391 | ê | 23,974 | 26,024 | |||||||||||||||
Total business travel | Pkm / FTE | 12,685 | è | 12,544 | 10,659 | |||||||||||||||
Total paper consumption | kg / FTE | 190 | è | 188 | 197 | |||||||||||||||
Total waste | kg / FTE | 299 | è | 303 | 325 | |||||||||||||||
Total water consumption | m3 / FTE | 26.7 | è | 26.0 | 26.0 | |||||||||||||||
Total environmental footprint | kWh / FTE | 32,530 | ê | 38,148 | 41,129 | |||||||||||||||
CO2 footprint | t / FTE | 3.43 | ê | 3.93 | 5.24 | |||||||||||||||
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Corporate responsibility
Business travel and offsetting
Paper and waste
è | More detailed information on UBS’s environmental management system is available at www.ubs.com/ environment |
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Environmental indicators1 | 20072 | 20062 | 20052 | |||||||||||||||||||||
Absolute | Absolute | Absolute | ||||||||||||||||||||||
GRI3 | normalized4 | Data quality5 | Trend6 | normalized4 | normalized4 | |||||||||||||||||||
Total direct and intermediate energy consumption7 | 981 GWh | *** | è | 951 GWh | 918 GWh | |||||||||||||||||||
Total direct energy consumption8 | EN3 | 130 GWh | ** | î | 154 GWh | 169 GWh | ||||||||||||||||||
natural gas | 83.3% | ** | è | 85.5% | 86.0% | |||||||||||||||||||
heating oil | 12.1% | *** | è | 11.8% | 11.0% | |||||||||||||||||||
fuels (petrol, diesel, gas) | 4.6% | *** | é | 2.7% | 3.0% | |||||||||||||||||||
renewable energy (solar power, etc.) | 0.03% | *** | ì | 0.03% | 0.02% | |||||||||||||||||||
Total intermediate energy purchased9 | EN4 | 851 GWh | *** | ì | 797 GWh | 749 GWh | ||||||||||||||||||
electricity from gas-fired power stations | 12.3% | ** | è | 13.2% | 14.3% | |||||||||||||||||||
electricity from oil-fired power stations | 4.2% | *** | è | 4.5% | 4.3% | |||||||||||||||||||
electricity from coal-fired power stations | 18.6% | ** | î | 21.7% | 22.9% | |||||||||||||||||||
electricity from nuclear power stations | 13.6% | ** | ê | 20.5% | 29.9% | |||||||||||||||||||
electricity from hydroelectric power stations | 25.5% | *** | é | 21.4% | 12.1% | |||||||||||||||||||
electricity from other renewable resources | 22.0% | *** | é | 12.7% | 11.1% | |||||||||||||||||||
district heating | 3.8% | *** | ê | 6.0% | 5.4% | |||||||||||||||||||
Total indirect energy consumption10 | EN4 | 1,674 GWh | *** | î | 1,790 GWh | 1,849 GWh | ||||||||||||||||||
Total business travel | EN29 | 1,042 m Pkm | *** | é | 936 m Pkm | 757 m Pkm | ||||||||||||||||||
rail travel11 | 3.3% | ** | î | 4.1% | 3.7% | |||||||||||||||||||
road travel11 | 0.5% | ** | ê | 0.6% | 0.7% | |||||||||||||||||||
air travel | 96.2% | *** | è | 95.3% | 95.6% | |||||||||||||||||||
Number of flights (segments) | 446,274 | *** | é | 402,629 | 358,992 | |||||||||||||||||||
Total paper consumption | EN1 | 15,593 t | *** | é | 14,013 t | 14,020 t | ||||||||||||||||||
post-consumer recycled | EN2 | 10.5% | *** | é | 6.2% | 7.1% | ||||||||||||||||||
new fibers FSC12 | 10.7% | *** | é | 0.0% | 0.0% | |||||||||||||||||||
new fibers ECF + TCF12 | 78.6% | *** | ê | 93.8% | 92.9% | |||||||||||||||||||
new fibers chlorine bleached | 0.2% | ** | é | 0.0% | 0.0% | |||||||||||||||||||
Total waste | EN22 | 24,589 t | *** | ì | 22,631 t | 23,073 t | ||||||||||||||||||
valuable materials separated and recycled | 56.3% | *** | è | 58.2% | 64.8% | |||||||||||||||||||
incinerated | 15.8% | *** | é | 12.7% | 9.3% | |||||||||||||||||||
landfilled | 27.9% | ** | è | 29.1% | 25.9% | |||||||||||||||||||
Total water consumption | EN8 | 2.19 m m | 3 | ** | ì | 1.94 m m | 3 | 1.84 m m | 3 | |||||||||||||||
Total environmental footprint13 | 2,671 GWh | ** | è | 2,848 GWh | 2,922 GWh | |||||||||||||||||||
Total CO2 footprint14 | 281,705 t | *** | è | 293,169 t | 372,184 t | |||||||||||||||||||
Total direct CO2 (GHG scope 1)15 | EN16 | 26,701 t | *** | ê | 31,519 t | 34,556 t | ||||||||||||||||||
Total indirect CO2 (GHG scope 2)15 | EN16 | 218,681 t | ** | è | 230,015 t | 225,854 t | ||||||||||||||||||
Total other indirect CO2 (GHG scope 3)15 | EN17 | 149,323 t | *** | é | 132,635 t | 111,773 t | ||||||||||||||||||
Total CO2e offsets (business air travel)16 | 113,000 t | *** | é | 101,000 t | – | |||||||||||||||||||
Verification by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2007 Environmental Report of UBS AG and, where necessary, have requested that proof be presented. We hereby confirm that the report has been prepared with the necessary care, that its contents are correct with regard to environmental performance, that it describes the essential aspects of the environmental management system at UBS AG and that it reflects the actual practices and procedures at UBS AG.
We have also conducted a third party verification of the CO2 emissions in the years 2004 to 2007 against the principles of ISO 14064-I (2006). In our opinion, the reported CO2 emissions are fair, accurate, transparent and free from material errors or misstatements and meet the materiality threshold.”
Elvira Bieri, Dr Erhard Hug and Dr Jochen Gross, Zurich, February 2008
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Corporate responsibility
The importance UBS attaches to responsible corporate behavior is reflected in the various documents and policies defining the rules and principles the firm applies to the behavior of its employees. These guidelines define the way UBS does business and the firm regularly monitors compliance.
Employment of staff
Whistleblowing protection
Conflicts of interest
Anti-money laundering and bribery of public officials
Memberships and donations
Information security
Environmental management
Human rights
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Global Wealth Management & Business Banking
– | Leading global provider of financial services for wealthy clients | |
– | Top bank for individual and corporate clients in Switzerland | |
– | Record profitability and net new money inflows in 2007 |
Business description
Global Wealth Management & Business Banking comprises the following business units, which are reported separately:
Wealth Management International & Switzerland provides a comprehensive range of products and services, individually tailored for wealthy and affluent clients around the world (except domestic US clients), via its extensive global branch network and through financial intermediaries. An open product platform gives clients access to a wide array of pre-screened, top-quality products from third-party providers that complement UBS’s own lines
Wealth Management USoffers sophisticated products and services specifically designed to address the needs of emerging affluent, affluent, high net worth and ultra-high net worth domestic US clients
Business Banking Switzerlandoffers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions in Switzerland
Performance in 2007 |
Wealth Management International & Switzerland |
– | Record net new money intake of CHF 125.1 billion (CHF 97.6 billion in 2006) leading to an all-time high in invested assets of CHF 1,294 billion (up 14% from 2006) |
– | Record pre-tax profit of CHF 6,306 million (up 21% compared with 2006) |
– | Cost / income ratio improved for the fifth consecutive year to 50.9% |
Wealth Management US |
– | 23% year-on-year increase in performance before tax to CHF 718 million despite weakening of the US dollar. Record recurring income and lower general and administrative expenses |
– | Strong net new money intake of CHF 26.6 billion (CHF 15.7 billion in 2006). Invested assets increased to CHF 840 billion reflecting rising markets, net new money intake and the first-time inclusion of McDonald Investments |
Business Banking Switzerland |
– | Record performance before tax of CHF 2,460 million (CHF 2,356 million in 2006), mainly due to income growth |
– | Continued high level of efficiency with cost / income ratio of 57.3% |
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Business group / business unit reporting
Wealth Management | Global Wealth Management | |||||||||||||||||||||||||||||||
CHF million, except where indicated | International & Switzerland | Wealth Management US | Business Banking Switzerland | & Business Banking | ||||||||||||||||||||||||||||
As of or for the year ended | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Total operating income | 12,866 | 10,798 | 6,659 | 5,863 | 5,489 | 5,270 | 25,014 | 21,931 | ||||||||||||||||||||||||
Total operating expenses | 6,560 | 5,595 | 5,941 | 5,281 | 3,029 | 2,914 | 15,530 | 13,790 | ||||||||||||||||||||||||
Business group / business unit performance before tax | 6,306 | 5,203 | 718 | 582 | 2,460 | 2,356 | 9,484 | 8,141 | ||||||||||||||||||||||||
Additional information | ||||||||||||||||||||||||||||||||
Net new money (CHF billion) | 125.1 | 97.6 | 26.6 | 15.7 | 4.6 | 1.2 | 156.3 | 114.5 | ||||||||||||||||||||||||
Invested assets (CHF billion) | 1,294 | 1,138 | 840 | 824 | 164 | 161 | 2,298 | 2,123 | ||||||||||||||||||||||||
Personnel (full-time equivalents) | 15,811 | 13,564 | 19,347 | 18,557 | 15,932 | 15,913 | 51,090 | 48,034 | ||||||||||||||||||||||||
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UBS’s businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking is the leading global provider of financial services for wealthy clients and the top bank for individual and corporate clients in Switzerland.
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 24,841 | 21,775 | 19,131 | 14 | ||||||||||||
Adjusted expected credit loss1 | 173 | 156 | 107 | 11 | ||||||||||||
Total operating income | 25,014 | 21,931 | 19,238 | 14 | ||||||||||||
Cash components | 10,535 | 9,043 | 8,252 | 16 | ||||||||||||
Share-based components2 | 357 | 306 | 237 | 17 | ||||||||||||
Total personnel expenses | 10,892 | 9,349 | 8,489 | 17 | ||||||||||||
General and administrative expenses | 3,141 | 3,028 | 2,845 | 4 | ||||||||||||
Services (to) / from other business units | 1,171 | 1,118 | 960 | 5 | ||||||||||||
Depreciation of property and equipment | 241 | 232 | 226 | 4 | ||||||||||||
Amortization of intangible assets | 85 | 63 | 56 | 35 | ||||||||||||
Total operating expenses | 15,530 | 13,790 | 12,576 | 13 | ||||||||||||
Business Group performance before tax | 9,484 | 8,141 | 6,662 | 16 | ||||||||||||
Key performance indicators | ||||||||||||||||
Cost / income ratio (%)3 | 62.5 | 63.3 | 65.7 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)4 | 41.9 | 39.3 | 34.7 | |||||||||||||
BIS risk-weighted assets | 169,650 | 155,158 | 147,348 | 9 | ||||||||||||
Goodwill and excess intangible assets5 | 5,828 | 5,978 | 5,407 | (3 | ) | |||||||||||
Allocated regulatory capital6 | 22,793 | 21,494 | 20,142 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 2,298 | 2,123 | 1,887 | 8 | ||||||||||||
Net new money (CHF billion)7 | 156.3 | 114.5 | 98.5 | |||||||||||||
Client assets (CHF billion) | 3,554 | 3,337 | 2,895 | 7 | ||||||||||||
Personnel (full-time equivalents) | 51,090 | 48,034 | 44,612 | 6 | ||||||||||||
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Business
The global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. Global Wealth Management & Business Banking provides all its clients with the advice, financial products and tools that fit their individual needs.
Organizational structure
On 1 July 2005, the business group called Global Wealth Management & Business Banking was formed to encompass UBS’s global wealth management businesses, along with the Swiss corporate and retail banking unit. On this date, UBS also transferred the municipal finance unit, until then a part of the Wealth Management US unit, to the Investment Bank’s fixed income area.
– | Wealth Management International & Switzerland, serving wealthy and affluent clients around the world, except domestic clients in the US; | |
– | Wealth Management US, serving wealthy and affluent domestic US clients; and | |
– | Business Banking Switzerland, serving retail and corporate clients in Switzerland. |
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Wealth Management International & Switzerland
– | One of the leading wealth managers worldwide | |
– | 2007 was a record year in terms of profitability, net new money intake and invested assets | |
– | Global reach, with 5,774 client advisors in 110 offices in Switzerland and 93 offices worldwide | |
– | Further business expansion through successful growth initiatives in Asia Pacific and the European onshore business |
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UBS’s businesses
Global Wealth Management & Business Banking
Wealth Management International & Switzerland
Business description
With more than 140 years of experience, an extensive global network and CHF 1,294 billion in invested assets on 31 December 2007, the 5,774 client advisors of this wealth management business deliver high-quality, individually tailored solutions to clients worldwide.
Business
The Wealth Management International & Switzerland business unit provides a comprehensive range of products and services, individually tailored for wealthy clients around the world, via its global branch network and through financial intermediaries.
Organizational structure
The Wealth Management International & Switzerland business unit comprises the following management areas:
– | Asia Pacific; | |
– | Western Europe, Mediterranean, Middle East & Africa; | |
– | North, East & Central Europe; | |
– | The Americas; and | |
– | Switzerland. |
Competitors
Major competitors for the business unit comprise all globally active wealth managers, such as the wealth management
operations of Credit Suisse, HSBC and Citigroup. Wealth Management International & Switzerland also competes with private banks that operate mainly within their respective domestic markets, such as Julius Baer and Pictet in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany and Unicredito in Italy and Swiss banks focused on international clients (such as Julius Baer and Pictet in Switzerland).
Clients and markets
Wealth management is a market with strong long-term growth prospects. According to an internal UBS estimate, the global growth rate of liquid assets held by wealthy individuals is expected to grow by 5.7% annually between 2006 and 2010.
– | core affluent clients with investable assets of CHF 250,000 to CHF 2 million (international clients only); |
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– | high net worth clients with investable assets of CHF 5 million; | |
– | private wealth management clients with investable assets of up to CHF 5 million to CHF 50 million; and | |
– | ultra-high net worth clients with investable assets of more than CHF 50 million. |
Growth initiatives
Wealth management in Asia Pacific
One of the main challenges for the wealth management business in the next few years will be to enhance its already strong business footprint in the Asia Pacific region. The region is very heterogeneous and, taken together, accounts for more than half the world’s population, while contributing a quarter of total global gross domestic product (GDP).
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UBS’s businesses
Global Wealth Management & Business Banking
Given the strong demand for wealth management services in the region, UBS opened a regional training center for employees located in Singapore in 2007. It is the first institution to be accredited by the Financial Industry Competency Standards (FICS) as a financial training and assessment service provider in wealth management. Clients will also be able to take courses at the facility. UBS considers that its growth in Asia Pacific depends on much more than just hiring client advisors – the training and retaining of them is critical.
European on-shore business
The European wealth management business was launched in early 2001 and is aimed at wealthy clients in the five target countries of France, Germany, Italy, Spain and the UK. Over the past seven years, the number of European domestic branches (now 56) has more than trebled, while invested assets have risen to CHF 167 billion from CHF 16 billion in 2001, corresponding to an annual growth rate of 48%. Much of the rise in invested assets was due to the CHF 93 billion in net new money taken in during the past six years. The European wealth management business currently has a total of 1,056 client advisors, up from 177 advisors at the beginning of 2001. After having successfully established a European physical presence and made the business profit-able, the European wealth management business has been profitable every quarter since first quarter 2006 and now forms an integral part of the business.
Products and services
Clients of Wealth Management International & Switzerland can count on the expertise of 4,000 professionals worldwide dedicated to developing wealth management solutions. In 2007, a new products and services consultancy group was formed to support client advisors in providing optimum solutions and capabilities to clients.
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relative return programs that aim to outperform benchmarks are offered. For discretionary mandates, the business unit also offers absolute return programs that focus on preserving capital while still participating in market upturns. At the end of 2007, around 21% of assets invested with Wealth Management International & Switzerland were discretionary.
Distribution
The extensive wealth management branch network comprises 5,774 client advisors, 110 offices in Switzerland and 93 offices worldwide.
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UBS’s businesses
Global Wealth Management & Business Banking
Business performance
Business unit reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 12,893 | 10,827 | 9,024 | 19 | ||||||||||||
Adjusted expected credit loss1 | (27 | ) | (29 | ) | (13 | ) | (7 | ) | ||||||||
Total operating income | 12,866 | 10,798 | 9,011 | 19 | ||||||||||||
Cash components | 3,704 | 2,999 | 2,491 | 24 | ||||||||||||
Share-based components2 | 147 | 138 | 88 | 7 | ||||||||||||
Total personnel expenses | 3,851 | 3,137 | 2,579 | 23 | ||||||||||||
General and administrative expenses | 1,064 | 885 | 804 | 20 | ||||||||||||
Services (to) / from other business units | 1,531 | 1,479 | 1,371 | 4 | ||||||||||||
Depreciation of property and equipment | 95 | 84 | 89 | 13 | ||||||||||||
Amortization of intangible assets | 19 | 10 | 7 | 90 | ||||||||||||
Total operating expenses | 6,560 | 5,595 | 4,850 | 17 | ||||||||||||
Business unit performance before tax | 6,306 | 5,203 | 4,161 | 21 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 1,294 | 1,138 | 982 | 14 | ||||||||||||
Net new money (CHF billion)3 | 125.1 | 97.6 | 68.2 | |||||||||||||
Gross margin on invested assets (bps)4 | 103 | 103 | 102 | 0 | ||||||||||||
Cost / income ratio (%)5 | 50.9 | 51.7 | 53.7 | |||||||||||||
Cost / income ratio excluding the European wealth management business (%)5 | 46.7 | 47.5 | 47.7 | |||||||||||||
Client advisors (full-time equivalents) | 5,774 | 4,742 | 4,154 | 22 | ||||||||||||
Client advisor productivity | ||||||||||||||||
Revenues per advisor (CHF thousand)6 | 2,424 | 2,441 | 2,272 | (1 | ) | |||||||||||
Net new money per advisor (CHF thousand)7 | 23,516 | 22,008 | 17,173 | 7 | ||||||||||||
Invested assets per advisor (CHF thousand)8 | 234,504 | 236,879 | 222,474 | (1 | ) | |||||||||||
International clients | ||||||||||||||||
Income | 9,739 | 7,907 | 6,476 | 23 | ||||||||||||
Invested assets (CHF billion) | 1,013 | 862 | 729 | 18 | ||||||||||||
Net new money (CHF billion)3 | 115.6 | 90.8 | 64.2 | |||||||||||||
Gross margin on invested assets (bps)4 | 101 | 101 | 100 | 0 | ||||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 1,220 | 1,010 | 722 | 21 | ||||||||||||
Invested assets (CHF billion) | 167 | 144 | 114 | 16 | ||||||||||||
Net new money (CHF billion)3 | 18.4 | 18.2 | 21.8 | |||||||||||||
Client advisors (full-time equivalents) | 1,056 | 870 | 803 | 21 | ||||||||||||
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Business unit reporting (continued)
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 3,154 | 2,920 | 2,548 | 8 | ||||||||||||
Invested assets (CHF billion) | 281 | 276 | 253 | 2 | ||||||||||||
Net new money (CHF billion)1 | 9.5 | 6.8 | 4.0 | |||||||||||||
Gross margin on invested assets (bps)2 | 111 | 110 | 109 | 1 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 80.7 | 81.2 | 78.9 | |||||||||||||
BIS risk-weighted assets | 63,125 | 51,485 | 43,369 | 23 | ||||||||||||
Goodwill and excess intangible assets4 | 1,761 | 1,740 | 1,566 | 1 | ||||||||||||
Allocated regulatory capital5 | 8,074 | 6,889 | 5,903 | 17 | ||||||||||||
Additional information | ||||||||||||||||
Recurring income6 | 9,617 | 8,143 | 6,635 | 18 | ||||||||||||
Client assets (CHF billion) | 1,651 | 1,436 | 1,235 | 15 | ||||||||||||
Personnel (full-time equivalents) | 15,811 | 13,564 | 11,555 | 17 | ||||||||||||
1 Excludes interest and dividend income. 2 Income / average invested assets. 3 Business unit performance before tax / average allocated regulatory capital. 4 Goodwill and intangible assets in excess of 4% of BIS Tier 1 capital. 5 10% of BIS risk-weighted assets plus goodwill and excess intangible assets. 6 Interest, asset-based revenues for portfolio management and account-based, distribution and advisory fees.
Components of operating income
Wealth Management International & Switzerland derives its operating income principally from:
– | fees for financial planning and wealth management services; | |
– | fees for investment management services; | |
– | transaction-related fees; and | |
– | interest income from client loans. |
These revenues are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book. As a result, operating income is affected by factors such as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds and investor activity levels.
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UBS’s businesses
Global Wealth Management & Business Banking
2007
Key performance indicators
In 2007, net new money was a record CHF 125.1 billion, compared with CHF 97.6 billion in 2006, representing an annual growth rate of 11% of the underlying invested asset base at end-2006. This outstanding result reflected increases in all geographical regions throughout the year, particularly in Asia Pacific and Americas, both a result of the growth strategy.
Invested assets, at CHF 1,294 billion on 31 December 2007, were up 14% from CHF 1,138 billion a year earlier, mainly reflecting the strong inflow of net new money and rising financial markets. This increase was partially offset by negative currency effects. The 7% fall of the US dollar against the Swiss franc contributed to this decrease – approximately 36% of invested assets were denominated in US dollars at the end of 2007.
The gross margin on invested assets was 103 basis points in 2007, unchanged from a year earlier, as the increase in non-recurring margin following a sustained level of client
activity was partly offset by a lower recurring margin. Overall, recurring income made up 77 basis points of the margin in 2007, down from 78 basis points in 2006. Non-recurring income comprised 26 basis points of the margin in 2007, up 1 basis point from 2006.
The cost / income ratio improved to 50.9% in 2007 from 51.7% a year earlier. The cost / income ratio has improved for the fifth consecutive year despite the rise in costs in pursuit of the global expansion strategy. This improvement reflects the strong rise in income due to a higher asset base and higher volumes in lombard lending, which more than offset the increase in personnel expenses (mainly headcount increase and performance-related compensation) and general and administrative expenses.
Excluding the European wealth management business, the 2007 cost / income ratio fell to 46.7% from 47.5% a year earlier.
European wealth management
The European wealth management business continued to make good progress. In 2007, net new money intake into the domestic European network totaled CHF 18.4 billion, up
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1% from the 2006 inflow of CHF 18.2 billion, reflecting an annual net new money growth rate of 13% of the underlying asset base at year-end 2006. The strongest inflows were in Germany, the UK and Italy.
The level of invested assets was a record CHF 167 billion on 31 December 2007, a 16% increase compared with CHF 144 billion a year earlier. This reflected strong net new money inflows in all countries as well as positive market performance.
In 2007, income from the European wealth management business was CHF 1,220 million, up 21% from a year earlier, reflecting a growing asset and client base.
Results
In 2007 pre-tax profit, at a record CHF 6,306 million, rose 21% compared with 2006. Total operating income was up 19% in 2007, reflecting a higher asset base and increased collateralized lending volumes and more client activity. Operating expenses, up 17% in 2007 from 2006, also rose as the business expanded.
Operating income
Total operating income in 2007 was CHF 12,866 million, up 19% from CHF 10,798 million a year earlier. This was the highest level ever, reflecting a rise in recurring as well as in non-recurring revenues. Recurring income increased 18% on rising asset-based fees, benefiting from strong net new money inflows. This was accentuated by higher interest income due to the expansion of lombard lending activities. Non-recurring income rose by 22% due to higher brokerage fees, reflecting high client activity levels.
Operating expenses
At CHF 6,560 million, operating expenses in 2007 were up 17% from CHF 5,595 million a year earlier, reflecting higher personnel expenses and general and administrative expenses as a result of ongoing business growth. Personnel expenses rose 23% to CHF 3,851 million in 2007 compared with CHF 3,137 million a year earlier, reflecting the increase in salaries due to business expansion and higher performance-related
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UBS’s businesses
Global Wealth Management & Business Banking
compensation. Share-based expenses in 2007 increased due to higher share and option awards and the increased fair value of options. General and administrative expenses, at CHF 1,064 million, were up 20% in 2007 from CHF 885 million a year earlier due to increased expenses for travel and entertainment, premises and professional fees – all a consequence of continuous business expansion. Expenses for services from other business units, at CHF 1,531 million in 2007, were up 4% from CHF 1,479 million the previous year, mainly reflecting increased consumption. Depreciation was CHF 95 million in 2007, up 13% from CHF 84 million a year earlier because of continued business growth. Amortization of intangible assets was CHF 19 million, up CHF 9 million from 2006.
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2006
Key performance indicators
In 2006, net new money totaled CHF 97.6 billion, compared with CHF 68.2 billion in 2005. This result reflected increases in all geographical regions throughout the year, particularly in Asia Pacific and Europe, both a result of the growth strategy.
European wealth management
In 2006, the European wealth management business made good progress. With a good performance in the UK and Germany, the inflow of net new money totaled CHF 18.2 billion, down 17% from the 2005 intake of CHF 21.8 billion. The result reflected an annual net new money growth rate of 16% of the underlying asset base at year-end 2005.
Results
Wealth Management International & Switzerland’s 2006 pre-tax profit, at CHF 5,203 million, increased 25% compared with 2005. This increase reflected higher asset-based fees as well as rising interest income, a reflection of higher volumes in the lombard lending business. At the same time, the business unit’s expenses, up 15% in 2006 from 2005, reflected its ongoing growth strategy.
Operating income
Total operating income in 2006 was CHF 10,798 million, up 20% from CHF 9,011 million in 2005. Recurring income increased 23% on rising asset-based fees, benefiting from a buoyant market and net new money inflows. This was accentuated by higher interest income due to the expansion of margin lending activities. Non-recurring income rose due to higher brokerage fees, a reflection of high client activity levels. These positive effects were offset by the depreciation of the US dollar against the Swiss franc.
Operating expenses
At CHF 5,595 million, operating expenses in 2006 were up 15% from CHF 4,850 million in 2005. This reflected higher personnel expenses and general and administrative expenses, as well as the ongoing investment in growth initiatives. Personnel expenses rose 22% to CHF 3,137 million in 2006 compared with CHF 2,579 million in 2005, a reflection of the increase in salaries due to business expansion and higher performance-related compensation. General and administrative expenses, at CHF 885 million, were up 10% in 2006 from CHF 804 million in 2005 due to investments in physical and information technology infrastructure, as well as travel and entertainment and marketing costs – all a consequence of continuous business expansion. Expenses for services from other business units, at CHF 1,479 million in 2006, were up 8% from CHF 1,371 million in 2005. Depreciation was CHF 84 million in 2006, down 6% from CHF 89 million in 2005, because of lower charges for information technology equipment. Amortization of intangible assets was CHF 10 million, practically unchanged from CHF 7 million in 2005.
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Wealth Management US
– | One of the leading wealth managers in the US with more than 8,200 financial advisors in over 480 branch and satellite office locations in the US and Puerto Rico | |
– | In 2007, the newly acquired McDonald Investments was successfully integrated | |
– | Financial indicators improved in 2007, e.g. profitability, net new money, cost/income ratio and invested assets |
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Global Wealth Management & Business Banking
Wealth Management US
Business description
As one of the leading wealth managers in the US, the Wealth Management US unit provides a complete set of sophisticated wealth management services to private clients.
Business
Wealth Management US is one of the business units that make up Global Wealth Management & Business Banking. With CHF 840 billion in invested assets, its focus is on providing wealth management services to private clients. The business unit offers sophisticated products and services specifically designed to address the needs of the emerging affluent (less than USD 250,000 in investable assets), core affluent (USD 250,000 to USD 1 million in investable assets), high net worth (USD 1 million to USD 10 million in investable assets) and ultra-high net worth clients (more than USD 10 million in investable assets). More than 8,200 financial advisors in over 480 branch and satellite office locations in the US and Puerto Rico develop, build and maintain consultative relationships with clients.
Organizational structure
The business unit’s organizational structure comprises a national branch network in the US, consisting of financial advisors, branch office managers, market area managers, regional managers and administrative support staff. Most corporate and operational functions of the business unit are located in the home office in Weehawken, New Jersey.
2005
In July, Wealth Management US became part of Global Wealth Management & Business Banking, while the municipal finance unit was transferred to the Investment Bank.
2006
In June, the US-based bank branches of the Wealth Management International unit became part of Wealth Management US, giving clients the option of receiving services from both financial advisors and private bankers. The integration enhanced the Wealth Management US product offering while strengthening and broadening client services, enabling the business unit to further expand its market share within the ultra-high net worth segment. In August, Wealth Management US acquired the private client branch office network of Piper Jaffray. In December, a Delaware trust office was opened to offer clients the strategic benefits of establishing trusts in Delaware that may not be available in other states, including confidentiality, broad investment flexibility and potential tax advantages and asset protection.
2007
In February, the McDonald Investments’ private client branch network was acquired. Following that, in August, Wealth Management US announced it would reorganize and streamline its client-facing organization. The restructuring positioned resources closer to clients, enhancing their relationship with UBS and their financial advisors, ultimately driving business growth. The reorganization, which came into effect on 1 January 2008, reduced the number of US regions from 13 to eight. Regional managers oversee 45 market area managers, who form a new structural level locally, together with the managers of the business unit’s private wealth management offices and several larger, free-standing offices. Each market area manager supervises six to eight branch managers in addition to managing a home branch. With fewer direct reports, regional managers will be more effective in recruiting and leading their regions. Under the new structure, branch managers also have improved access to UBS’s infrastructure and tools.
Legal structure
In the US, the business unit operates through direct and indirect subsidiaries of UBS. Securities activities are conducted primarily through three registered broker-dealers – UBS Financial Services Inc., UBS Financial Services Inc. of Puerto Rico and UBS Services USA LLC. Wealth Management US’s banking services include Federal Deposit Insurance Corporation (FDIC) insured deposit accounts and enhanced collateralized lending services, which are conducted through UBS Bank USA, a federally regulated Utah Bank.
Competitors
Major competitors include Citigroup’s Smith Barney business and the wealth management and private client group businesses of Morgan Stanley, Merrill Lynch and Wachovia. In addition, Wealth Management US competes with domestic and global private banks, regional broker-dealers, independent broker-dealers, registered investment advisors, commercial banks, trust companies and other financial services firms offering wealth management services to US private clients.
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Clients and strategy
UBS is one of the premier US wealth managers. The Wealth Management US unit aims to further increase its market share by improving the client experience and making use of the increased range of products and services available from its integration into Global Wealth Management & Business Banking. Growth will depend on a focused commitment to successfully recruiting, retaining and developing experienced and new financial advisors and providing them with the resources needed for increased asset growth.
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Global Wealth Management & Business Banking
San Francisco (California) – dedicated to the specialized needs of clients and prospects with assets greater than USD 10 million. At these locations, areas of expertise include private planning, trust and estate planning, philanthropic services, concentrated stock management and tax optimization strategies.
Products and services
Wealth Management US offers clients a full array of wealth management services that focus on the individual investment needs of each client. Comprehensive planning supports clients through the various stages of their lives, including retirement, education funding, charitable giving, tax management strategies, estate strategies, insurance, trusts and foundations. Advisors work closely with consultants who are subject matter experts in areas such as: wealth planning, asset allocation, retirement and annuities, alternative investments, structured products, banking and lending. The size of Wealth Management US enables its clients to gain access to investments that would otherwise be available only to institutions.
maintain control over all transactions in the account, clients with discretionary advisory programs direct investment professionals to manage a portfolio on their behalf. Depending on the type of discretionary program, the client can give investment discretion to a qualified financial advisor, a team of UBS investment professionals or to a third-party investment manager. Separately, mutual fund advisory programs are also offered, where a financial advisor works with the client to create a diversified portfolio of mutual funds.
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Industry trends
Industry trends continue to support the development of Wealth Management US and its business. The demographic landscape is changing; the aging of the “baby boom” generation suggests an increased need for retirement and estate planning. The increasing concentration of wealth provides business opportunities with clients in the high-end segments. A shift towards the provision of comprehensive wealth management and financial planning services will increase the importance of fee-based accounts and continue to blur the line between banking and brokerage. Wealth Management US believes it is well positioned to exploit these market trends.
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Global Wealth Management & Business Banking
Business performance
Business unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 6,662 | 5,863 | 5,158 | 14 | ||||||||||||
Adjusted expected credit loss1 | (3 | ) | 0 | (2 | ) | |||||||||||
Total operating income | 6,659 | 5,863 | 5,156 | 14 | ||||||||||||
Cash components | 4,351 | 3,683 | 3,353 | 18 | ||||||||||||
Share-based components2 | 155 | 117 | 107 | 32 | ||||||||||||
Total personnel expenses | 4,506 | 3,800 | 3,460 | 19 | ||||||||||||
General and administrative expenses | 976 | 1,073 | 1,047 | (9 | ) | |||||||||||
Services (to) / from other business units | 314 | 281 | 223 | 12 | ||||||||||||
Depreciation of property and equipment | 79 | 74 | 65 | 7 | ||||||||||||
Amortization of intangible assets | 66 | 53 | 49 | 25 | ||||||||||||
Total operating expenses | 5,941 | 5,281 | 4,844 | 12 | ||||||||||||
Business unit performance before tax | 718 | 582 | 312 | 23 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 840 | 824 | 752 | 2 | ||||||||||||
Net new money (CHF billion)3 | 26.6 | 15.7 | 26.9 | |||||||||||||
Net new money including Interest and dividend income (CHF billion)4 | 51.5 | 37.9 | 45.2 | 36 | ||||||||||||
Gross margin on invested assets (bps)5 | 77 | 76 | 75 | 1 | ||||||||||||
Cost / income ratio (%)6 | 89.2 | 90.1 | 93.9 | |||||||||||||
Recurring income7 | 4,173 | 3,488 | 2,834 | 20 | ||||||||||||
Financial advisor productivity | ||||||||||||||||
Revenues per advisor (CHF thousand)8 | 828 | 776 | 690 | 7 | ||||||||||||
Net new money per advisor (CHF thousand)9 | 3,305 | 2,077 | 3,597 | 59 | ||||||||||||
Invested assets per advisor (CHF thousand)10 | 107,719 | 101,922 | 91,464 | 6 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)11 | 11.8 | 10.2 | 5.8 | |||||||||||||
BIS risk-weighted assets | 18,735 | 18,308 | 18,928 | 2 | ||||||||||||
Goodwill and excess intangible assets12 | 4,067 | 4,238 | 3,841 | (4 | ) | |||||||||||
Allocated regulatory capital13 | 5,941 | 6,069 | 5,734 | (2 | ) | |||||||||||
Additional information | ||||||||||||||||
Client assets (CHF billion) | 917 | 909 | 826 | 1 | ||||||||||||
Personnel (full-time equivalents) | 19,347 | 18,557 | 17,034 | 4 | ||||||||||||
Financial advisors (full-time equivalents) | 8,248 | 7,880 | 7,520 | 5 | ||||||||||||
Components of operating income
Wealth Management US principally derives its operating income from:
– | fees for financial planning and wealth management services; | |
– | fees for investment management services; | |
– | transaction-related fees; and | |
– | interest income from client loans and deposits. |
These revenues are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book and deposits. As a result, operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds and investor activity levels.
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2007
Key performance indicators
The inflow of net new money in 2007 was CHF 26.6 billion, up from CHF 15.7 billion a year earlier, reflecting reduced out-flows from existing clients and the recruitment of experienced advisors. Including interest and dividends, net new money in 2007 was CHF 51.5 billion, up from CHF 37.9 billion in 2006.
Wealth Management US had CHF 840 billion in invested assets on 31 December 2007, up 2% from CHF 824 billion on 31 December 2006. This was a result of rising markets over the year, net new money inflows and the first-time inclusion of former McDonald Investments assets. These increases were partly offset by the negative impact of currency translation. In US dollar terms, invested assets increased 10% compared with a year earlier.
The cost / income ratio was 89.2% for 2007, compared with 90.1% in 2006. The improvement in the cost / income ratio reflects higher operating income due to strong growth in recurring income, partially offset by a rise in expenses mainly reflecting higher personnel expenses in support of growth initiatives and the integration of the McDonald Investments private client branch network.
In 2007, recurring income was a record CHF 4,173 million, up 20% from CHF 3,488 million a year earlier. Excluding the impact of currency fluctuations, recurring income was up 23% in 2007 from 2006. This increase mainly reflects higher levels of managed account fees on a year-end record level of invested assets, higher investment advisory fees and higher net interest income. Recurring income represented 63% of income in 2007, compared with 59% in 2006.
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Global Wealth Management & Business Banking
Revenue per advisor increased in 2007 to CHF 828,000 from CHF 776,000 in 2006 as a higher average number of financial advisors was able to produce significantly higher recurring income than a year earlier. The number of financial advisors rose by 5% compared to 2006, increasing by 368 advisors to 8,248 at the end of 2007, while recurring income increased by 20%.
Results
In 2007, Wealth Management US reported a pre-tax profit of CHF 718 million, compared with CHF 582 million in 2006. Because this business unit is almost entirely conducted in US dollars, comparisons of results with prior periods are affected by the movements of the US dollar against the Swiss franc. In US dollar terms, performance in 2007 was up 26% from 2006. Performance in 2007 benefited from record levels of recurring income and lower general and administrative expenses. This was partly offset by higher personnel expenses.
Operating income
In 2007, total operating income was CHF 6,659 million, up 14% from CHF 5,863 million in 2006. Excluding currency effects, operating income increased by 16% from 2006. The increase in operating income reflects the record recurring income (driven by increased asset levels in managed account products) and increased transactional revenue.
Operating expenses
Total operating expenses rose 12% to CHF 5,941 million in 2007 from CHF 5,281 million in 2006. Excluding currency effects, operating expenses were 15% higher.
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2006
Key performance indicators
Results
In 2006, Wealth Management US reported a pre-tax profit of CHF 582 million, compared with CHF 312 million in 2005. This increase reflected record levels of recurring income, and lower litigation provisions.
Operating income
In 2006, total operating income was CHF 5,863 million, up 14% compared with CHF 5,156 million in 2005. Excluding currency effects, operating income also increased 14% from 2005. The increase in operating income was primarily due to strong growth in recurring income based on higher levels of assets.
Operating expenses
Total operating expenses rose 9% to CHF 5,281 million in 2006 from CHF 4,844 million in 2005. Excluding currency effects, operating expenses were also 9% higher due to higher personnel costs and general and administrative expenses, both related to strategic growth initiatives in support of the business, the inclusion of the Piper Jaffray private client branch network and the New Jersey office provision that was made after the decision to sublet unused office space instead having it be occupied by Wealth Management US itself. This was offset by a lower impact of litigation provisions compared with 2005.
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Business Banking Switzerland
– | UBS is the leading bank in Switzerland with market share ranging between 20% to 35% | |
– | The business unit serves around 2.7 million individual clients in Switzerland through more than 3 million accounts, mortgages and other financial relationships | |
– | It services around 137,000 corporate clients, including institutional investors, public entities and foundations based in Switzerland | |
– | With a total loan book of CHF 145 billion by the end of 2007, UBS leads the Swiss lending and retail mortgage markets |
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UBS’s businesses
Global Wealth Management & Business Banking
Business Banking Switzerland
Business description
Business Banking Switzerland, UBS’s retail and commercial banking unit, is the market leader in Switzerland and provides a complete set of banking and securities services for individual and corporate clients.
Business
UBS is the leading bank in Switzerland. At the end of 2007, clients had CHF 164 billion in invested assets with us. With a total loan book of CHF 145 billion on 31 December 2007, UBS leads the Swiss lending and retail mortgage markets.
Organizational structure
Business Banking Switzerland comprises the firm’s domestic branch network, for corporate and individual clients, and is organized into eight geographical regions.
Competitors
Business Banking Switzerland’s major competitors are banks active in the retail and corporate banking markets in Switzerland This group includes Credit Suisse, the country’s cantonal banks, Raiffeisen Bank, other regional or local Swiss banks and foreign bank branches in Switzerland.
Clients and products
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
Individual clients
Corporate clients
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Financial institutions
Business Banking Switzerland
Swiss market share | ||||||||
in % | 31.12.06 | 31.12.07 | ||||||
Mortgages for individual clients | 23 | 23 | ||||||
Savings for individuals | 23 | 22 | ||||||
Credit card business | 32 | 32 | ||||||
Distribution
The needs of private clients have changed in recent years. Today, they want the flexibility of being able to access their accounts using the full range of modern communication technology when it is convenient for them, without restrictions imposed by regular business hours.
Total lending portfolio, gross
On 31 December 2007, Business Banking Switzerland’s total lending portfolio was CHF 145.5 billion, gross. Of the total, mortgages represented CHF 117 billion, of which 85% were residential mortgages. Continued discipline in implementing the risk-adjusted pricing model has resulted in a strengthened focus of origination efforts on higher quality exposures with an attractive risk / return relationship. Thanks to the introduction of this model, the risk pro-file of the business unit’s portfolio has clearly improved in recent years.
è | The “Credit risk” section ofRisk, Treasury and Capital Management 2007details the UBS credit portfolio |
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Global Wealth Management & Business Banking
Recovery portfolio
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Business performance
Business unit reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Interest income | 3,470 | 3,339 | 3,317 | 4 | ||||||||||||
Non-interest income | 1,816 | 1,746 | 1,632 | 4 | ||||||||||||
Income | 5,286 | 5,085 | 4,949 | 4 | ||||||||||||
Adjusted expected credit loss1 | 203 | 185 | 122 | 10 | ||||||||||||
Total operating income | 5,489 | 5,270 | 5,071 | 4 | ||||||||||||
Cash components | 2,480 | 2,361 | 2,408 | 5 | ||||||||||||
Share-based components2 | 55 | 51 | 42 | 8 | ||||||||||||
Total personnel expenses | 2,535 | 2,412 | 2,450 | 5 | ||||||||||||
General and administrative expenses | 1,101 | 1,070 | 994 | 3 | ||||||||||||
Services (to) / from other business units | (674 | ) | (642 | ) | (634 | ) | (5 | ) | ||||||||
Depreciation of property and equipment | 67 | 74 | 72 | (9 | ) | |||||||||||
Amortization of intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 3,029 | 2,914 | 2,882 | 4 | ||||||||||||
Business unit performance before tax | 2,460 | 2,356 | 2,189 | 4 | ||||||||||||
Key performance indicators | ||||||||||||||||
Invested assets (CHF billion) | 164 | 161 | 153 | 2 | ||||||||||||
Net new money (CHF billion)3 | 4.6 | 1.2 | 3.4 | |||||||||||||
Cost / income ratio (%)4 | 57.3 | 57.3 | 58.2 | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 1.2 | 1.7 | 2.3 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)5 | 28.2 | 27.5 | 25.6 | |||||||||||||
BIS risk-weighted assets | 87,790 | 85,365 | 85,051 | 3 | ||||||||||||
Goodwill and excess intangible assets6 | 0 | 0 | 0 | |||||||||||||
Allocated regulatory capital7 | 8,779 | 8,537 | 8,505 | 3 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss)1 | 489 | 512 | 485 | (4 | ) | |||||||||||
Expected credit loss (included in adjusted expected credit loss)1 | (286 | ) | (327 | ) | (363 | ) | 13 | |||||||||
Client assets (CHF billion) | 986 | 992 | 834 | (1 | ) | |||||||||||
Personnel (full-time equivalents) | 15,932 | 15,913 | 16,023 | 0 | ||||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
– | net interest income from its lending portfolio and customer deposits; | |
– | fees for investment management services; and | |
– | transaction fees. |
As a result, operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance, changes in market conditions and the credit environment.
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UBS’s businesses
Global Wealth Management & Business Banking
2007
Key performance indicators
Net new money was CHF 4.6 billion in 2007, CHF 3.4 billion higher than the inflow of CHF 1.2 billion in 2006. This was due to an increase in inflows from existing clients.
Business Banking Switzerland’s gross lending portfolio was CHF 145.5 billion on 31 December 2007, up 1% from the previous year. This positive development was also reflect-
The return on allocated regulatory capital was 28.2% for 2007, up 0.7 percentage points from 27.5% a year earlier. This reflects the increased profitability of the business unit, outpacing the increase in risk-weighted assets.
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Results
Pre-tax profit in 2007 was a record CHF 2,460 million, CHF 104 million or 4% above the result achieved in 2006. This was mainly due to income growth. In 2007, interest income rose on higher volumes and margin for liabilities, while non-interest income rose due to higher asset-based and brokerage fees.
Operating income
Operating expenses
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UBS’s businesses
Global Wealth Management & Business Banking
2006
Key performance indicators
Net new money was CHF 1.2 billion in 2006, CHF 2.2 billion lower than the inflow of CHF 3.4 billion in 2005.
Results
Pre-tax profit in 2006 was CHF 2,356 million, CHF 167 million or 8% above the result achieved in 2005. This was mainly due to income growth. In 2006, non-interest income rose due to higher asset-based and brokerage fees. The result also showed the tight management of the cost base and an
Operating income
Operating expenses
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Global Asset Management
– | One of the world’s leading investment managers | |
– | Among the largest global institutional asset managers, the world’s largest hedge fund of funds manager, one of the largest mutual fund managers in Europe and the largest in Switzerland | |
– | 2007 fell short of a record only because of closure costs for Dillon Read Capital Management |
Business description
Two principal client segments:
Institutionalincludes: corporate and public pension plans; endowments, municipalities, charities and private foundations; insurance companies; governments and their central banks; and supranationals
Wholesale intermediary:financial intermediaries including Global Wealth Management & Business Banking and third-parties
Broad range of investment capabilities and services:
– | Traditional, alternative, real estate and infrastructure investment solutions | |
– | Over 500 investment funds, exchange-traded funds and others, plus service platform for hedge funds and other investment funds |
Performance in 2007
– | Pre-tax profit of CHF 1,315 million, down 6% from a year earlier. The decrease reflects closure costs of CHF 384 million from Dillon Read Capital Management. This charge offset the positive impact of increased performance and management fees in all business areas coupled with the inclusion of acquisitions in Brazil and Korea | |
– | Total net new money outflow of almost CHF 16 billion due to outflows in primarily equity mandates in the institutional business, while the wholesale business had small net new money inflows | |
– | Past weak investment performance in some capabilities, notably core / value equities and fixed income, are at the root of this development, alongside the generally unsettled market environment. Over the last year, UBS has taken steps to address these issues by reorganizing its equities business. In addition, UBS has made changes to the management in these areas, focused on recruiting high performing candidates and added new investment capabilities |
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Business group reporting
As of or for the year ended | ||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | ||||||
Institutional fees | 2,370 | 1,803 | ||||||
Wholesale intermediary fees | 1,724 | 1,417 | ||||||
Total operating income | 4,094 | 3,220 | ||||||
Total operating expenses | 2,779 | 1,828 | ||||||
Business group performance before tax | 1,315 | 1,392 | ||||||
Additional information | ||||||||
Invested assets (CHF billion) | 891 | 866 | ||||||
Net new money (CHF billion) | (15.7 | ) | 37.2 | |||||
Personnel (full-time equivalents) | 3,625 | 3,436 | ||||||
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UBS’s businesses
Global Asset Management
Global Asset Management
Business description
Global Asset Management is one of the world’s leading investment managers, providing traditional, alternative, real estate and infrastructure investment solutions to private, institutional and corporate clients. The business group also provides services through financial intermediaries.
Business
Global Asset Management offers a wide range of investment capabilities across all major asset classes. This approach combines the expertise of investment professionals with sophisticated risk-management processes and systems, helping the business group provide clients with products and services that meet their needs.
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Clients and distribution
Global Asset Management’s integrated distribution model allows it to deliver an extensive range of investment capabilities to clients through offices in the Americas, Asia Pacific and Europe, Middle East & Africa.
Institutional
– | corporate and public pension plans; | |
– | endowments, municipalities, charities and private foundations; | |
– | insurance companies; | |
– | governments and their central banks; and | |
– | supranationals. |
Wholesale intermediary
Organizational structure
Global Asset Management employs over 3,600 personnel in 25 countries. The main offices are located in Basel, Chicago,
Frankfurt, Grand Cayman, Hartford, Hong Kong, London, Luxembourg, New York, Rio de Janeiro, Sydney, Tokyo, Toronto and Zurich.
Significant recent acquisitions and business transfers
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Global Asset Management
Investment capabilities and services
Alternative and | ||||||||||||
quantitative | Global | Global investment | ||||||||||
Equities | Fixed income | investments | real estate | solutions | Infrastructure | Fund services | ||||||
Core/Value | Global | Single manager hedge funds | Global | Global | Direct investment | Hedge funds | ||||||
Global | Country and regional | Country and regional | Country and regional | Listed securities | Investment funds | |||||||
Country and regional | Sector specific | Multi-manager hedge funds | Private strategies | Asset allocation | Global and regional | |||||||
Emerging markets | Emerging markets | Real estate securities | Currency management | |||||||||
Specialist | High yield | Quantitative | Agriculture | Return and risk targeted | ||||||||
Growth Investors | Structured credit | Infrastructure fund of funds | Structured portfolios | |||||||||
Risk management and advisory services | ||||||||||||
Global | Liquidity/short duration | |||||||||||
Country and regional | Indexed | Private equity fund of funds | ||||||||||
Structured equities | ||||||||||||
DSI | ||||||||||||
Systematic alpha | ||||||||||||
Portfolio construction solutions (including passive) | ||||||||||||
fourth largest asset manager in Brazil, with invested assets of approximately CHF 40 billion on 31 December 2007.
Products and services
Investment management products and services are offered in the form of segregated, pooled and advisory mandates
and a range of registered investment funds across all major asset classes.
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funds, fund of funds, individually managed accounts and publicly traded real estate securities globally.
Investment performance
There was a distinct change in the direction of investment markets during 2007. The strong equities bull market that started in February 2003 faltered in mid-2007 and, after a strong beginning to the year, returns ended up a modest 4.7% for the developed world markets in local currency terms.
offset in part by selection in consumer discretionary. For the global (ex-US) growth capabilities, stock selection in the industrials and materials sectors was the primary contributor to the strong outperformance.
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Global Asset Management
O’Connor hedge fund strategies produced strong positive performance, with attractive volatility, correlation and liquidity attributes. On the multi-manager side, Global Asset Management’s core, broad-based multi-manager funds also generated positive returns for the year despite mixed performance in the third quarter.
Strategic opportunities
The investment environment and markets in which Global Asset Management operates are becoming ever more complex. Clients’ investment requirements are evolving and competition is likely to increase from both new and traditional sources. Key industry trends vary for each location, capability and client segment. There is a constant need to adapt and review products and services to meet future client needs.
Competitors
Global Asset Management has a range of global competitors in active investments, extending from firms organized on a global basis (such as Fidelity Investments, AllianceBernstein Investments, BlackRock, JP Morgan Asset Management, Deutsche Asset Management and Goldman Sachs Asset Management) to firms managed on a regional or local basis or specializing in a particular asset class. In the real estate, hedge funds and infrastructure investment sectors, competitors of the business group tend to be local or regional niche players.
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Business performance
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Institutional fees | 2,370 | 1,803 | 1,330 | 31 | ||||||||||||
Wholesale Intermediary fees | 1,724 | 1,417 | 1,157 | 22 | ||||||||||||
Total operating income | 4,094 | 3,220 | 2,487 | 27 | ||||||||||||
Cash components | 1,632 | 1,305 | 899 | 25 | ||||||||||||
Share-based components1 | 363 | 198 | 89 | 83 | ||||||||||||
Total personnel expenses | 1,995 | 1,503 | 988 | 33 | ||||||||||||
General and administrative expenses | 559 | 399 | 304 | 40 | ||||||||||||
Services (to) / from other business units | 153 | (105 | ) | 116 | ||||||||||||
Depreciation of property and equipment | 53 | 27 | 21 | 96 | ||||||||||||
Amortization of intangible assets | 19 | 4 | 1 | 375 | ||||||||||||
Total operating expenses | 2,779 | 2 | 1,828 | 1,430 | 52 | |||||||||||
Business group performance before tax | 1,315 | 1,392 | 1,057 | (6 | ) | |||||||||||
Key performance indicators | ||||||||||||||||
Cost / income ratio (%)3 | 67.9 | 56.8 | 57.5 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 522 | 519 | 441 | 1 | ||||||||||||
of which: money market funds | 32 | 28 | 16 | 14 | ||||||||||||
Net new money (CHF billion)4 | (16.3 | ) | 29.8 | 21.3 | ||||||||||||
of which: money market funds | 6.7 | 11.0 | (3.0 | ) | ||||||||||||
Gross margin on invested assets (bps)5 | 44 | 38 | 34 | 16 | ||||||||||||
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Global Asset Management
Business group reporting (continued)
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Wholesale Intermediary | ||||||||||||||||
Invested assets (CHF billion) | 369 | 347 | 324 | 6 | ||||||||||||
of which: money market funds | 70 | 59 | 62 | 19 | ||||||||||||
Net new money (CHF billion)1 | 0.6 | 7.4 | 28.2 | |||||||||||||
of which: money market funds | 4.8 | (2.5 | ) | (9.7 | ) | |||||||||||
Gross margin on invested assets (bps)2 | 47 | 43 | 40 | 9 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 60.7 | 84.8 | 69.9 | |||||||||||||
BIS risk-weighted assets | 3,784 | 2,723 | 1,570 | 39 | ||||||||||||
Goodwill and excess intangible assets4 | 2,058 | 1,677 | 1,438 | 23 | ||||||||||||
Allocated regulatory capital5 | 2,436 | 1,949 | 1,595 | 25 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 891 | 866 | 765 | 3 | ||||||||||||
Net new money (CHF billion)1 | (15.7 | ) | 37.2 | 49.5 | ||||||||||||
Personnel (full-time equivalents) | 3,625 | 3,436 | 2,861 | 6 | ||||||||||||
Components of operating income
Global Asset Management generates its revenue from the asset management and fund administration services it provides to financial intermediaries and institutional investors. Fees charged to institutional clients and wholesale intermediary clients are based on the market
value of invested assets and on successful investment performance. As a result, revenues are affected by changes in market and currency valuation levels, as well as flows of client funds, and relative investment performance.
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2007
Key performance indicators
For 2007, the cost / income ratio was 67.9%, an increase of 11.1 percentage points from 2006, primarily due to the CHF 384 million charge related to the closure of Dillon Read Capital Management (DRCM) in second quarter 2007.
Institutional
The gross margin on invested assets for 2007 was 44 basis points, up six basis points from 2006. The increase is due to higher performance fees, mainly in alternative and quantitative investments as well as inflows into higher margin products.
Wholesale intermediary
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Global Asset Management
In 2007, net new money inflows were CHF 0.6 billion, compared with inflows of CHF 7.4 billion for 2006. Inflows, mainly into multi-asset and money market funds, were partly offset by outflows from fixed income funds.
The 2007 gross margin on invested assets was 47 basis points, up by four basis points from a year earlier, largely driven by higher performance fees (mainly in the Brazilian asset management business) as well as inflows into higher margin products.
Results
Pre-tax profit in 2007 was CHF 1,315 million, down from CHF 1,392 million a year earlier. The decrease reflects closure costs of CHF 384 million from DRCM in second quarter. This charge offset the positive impact of increased performance and management fees in all business areas coupled with the inclusion of acquisitions in Brazil and Korea.
Operating income
Operating expenses
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2006
Key performance indicators
For 2006, the cost / income ratio was 56.8%, a decrease of 0.7 percentage points from 2005. A result of improved operating income, this change represented higher management fees across all businesses, combined with significantly higher performance fees in alternative and quantitative investments. This was partly offset by increased operating expenses from increased staff levels and higher variable personnel expenses.
Institutional
Wholesale intermediary
Results
Pre-tax profit in 2006 was CHF 1,392 million, up from CHF 1,057 million a year earlier. This increase reflected higher management fees in all businesses and alternative and quantitative investment performance fees. The result was partly offset by higher operating expenses, which reflected increased staffing, performance-related compensation and investments in strategic initiatives and information technology infrastructure projects.
Operating income
Operating expenses
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Investment Bank
– | Leading investment banking and securities firm for corporate and institutional clients, governments, financial intermediaries and alternative asset managers | |
– | 2007 results were impacted by substantial losses on exposures to the US residential mortgage market | |
– | Repositioning of the Investment Bank based on client-driven businesses and core franchises |
Business description
The Investment Bank comprises the following business units:
Theequitiesbusiness unit distributes, trades, finances and clears cash equity and equity-linked products. It also structures, originates and distributes new equity and equity-linked issues and provides research on companies, industry sectors, geographical markets and macro-economic trends
Thefixed income, currencies and commodities (FICC)business unit services corporate, institutional and public sector clients in all major markets globally. Major business areas include: credit, rates, foreign exchange and money markets, structured products, commodities, debt capital markets and emerging markets
Theinvestment bankingdepartment provides services to corporate clients, financial sponsors and hedge funds. Its advisory group assists on transactions and advises on strategic reviews and corporate restructuring solutions. Its capital markets and leveraged finance teams arrange the execution of primary and secondary equity, as well as debt issues worldwide
Performance in 2007
– | Pre-tax loss of CHF 15,525 million (profit of CHF 5,943 million in 2006), due to losses in FICC on sizeable positions related to the US mortgage market | |
– | Performance in other areas was strong:Record equities revenues,up 13% from 2006, and retained market leadership in secondary equities tradingRecord investment banking revenues,up 39% from 2006, with market share gains exceeding growth of global fee pool |
Recent developments
Repositioning of FICC to: | ||
– | strengthen client-facing businesses | |
– | improve cooperation with other parts of UBS – strengthen risk discipline | |
– | create a workout group for mortgage-backed securities and collateralized debt obligation portfolios, including the positions that caused the 2007 losses |
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Business group reporting
As of or for the year ended | ||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | ||||||
Equities | 10,603 | 9,397 | ||||||
Fixed income, currencies and commodities (FICC) | (15,681 | ) | 9,056 | |||||
Investment banking | 4,540 | 3,273 | ||||||
Adjusted expected credit loss | (19 | ) | 61 | |||||
Total operating income | (557 | ) | 21,787 | |||||
Total operating expenses | 14,968 | 15,844 | ||||||
Business group performance before tax | (15,525 | ) | 5,943 | |||||
Personnel (full-time equivalents) | 21,932 | 21,899 | ||||||
Global fee pool market share
Year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
In % | 5.9 | 4.9 | 5.0 | |||||||||
Rank | 5 | 8 | 7 | |||||||||
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Investment Bank
Investment Bank
Business description
UBS is a leading investment banking and securities firm, providing a broad range of products and services to corporate and institutional clients, governments, financial intermediaries and alternative asset managers.
Business
The Investment Bank is a global investment banking and securities firm. Its investment bankers, salespeople and research analysts, supported by internal risk and logistics teams, deliver advice and execution to clients all over the world. In addition to serving the world’s key corporate and institutional clients, governments and financial intermediaries, the Investment Bank works with financial sponsors and hedge funds and indirectly meets the needs of private investors through both the UBS wealth management business and other private banks.
Organizational structure
The Investment Bank is headquartered in London and New York and employs approximately 22,000 people across 38 countries. The businesses of the Investment Bank are organized into three distinct business units, which are run functionally on a global basis. The business units are:
– | equities; | |
– | fixed income, currencies and commodities (FICC); and | |
– | investment banking (the investment banking department) |
Although a strategy of organic development is pursued in the Investment Bank, its presence is enhanced through acquisitions when appropriate opportunities arise. Major acquisitions or internal transfers made over the last four years:
– | the 2004 acquisition of Charles Schwab SoundView Capital Markets (the capital markets division of Charles Schwab), which made UBS one of the top traders on NASDAQ; | |
– | an internal 2005 transfer of the US-based municipal securities unit into the fixed income area of FICC (from Wealth Management US) better positioned the Investment Bank to serve both investors and issuers; | |
– | the 2005 acquisition of the remaining assets in Prediction Company, which specializes in the development of advanced financial and trading software, resulted in better trading technology for the Investment Bank; | |
– | the September 2006 acquisition of ABN AMRO’s global futures and options business, which increased the Investment Bank’s ability to exploit product commoditization and globalization in exchange-traded derivatives; | |
– | the December 2006 acquisition of the Brazilian financial services firm Banco Pactual, which made the Investment Bank a leader in its field in the significant and growing Brazilian market; | |
– | the May 2007 reintegration of Dillon Read Capital Management’s principal finance and credit arbitrage and commercial real estate businesses into the Investment Bank, which had previously been moved into Global Asset Management in June 2006; and | |
– | the October 2007 combination of the fixed income and the money markets, currencies and commodities businesses to create the FICC area. |
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.
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Vision
“Our goal is to be the Investment Bank with the fastest client-driven growth by building on our unique set of core strengths. We will create sustainable profits and value by prioritizing client service and providing seamless access to the capabilities of the whole firm to generate superior returns on allocated capital for our shareholders.”
Competitors
As UBS is a global investment banking and securities firm, its Investment Bank competes against other major international players such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Products and services
Equities
The Investment Bank’s equities business unit is a leading participant in the global primary and secondary markets for equity, equity-linked and equity derivative products. The business unit distributes, trades, finances and clears cash equity and equity-linked products. It also structures, originates and distributes new equity and equity-linked issues and provides research on companies, industry sectors, geographical markets and macro-economic trends.
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Investment Bank
Fixed income, currencies and commodities
The integrated fixed income, currencies and commodities (FICC) business unit delivers a broad range of products and solutions to corporate, institutional and public sector clients in all major markets. At the end of 2007, the business unit was reorganized to simplify its operating model, improve client service, strengthen risk management and focus on its competitive strengths.
è | Repositioning of the fixed income, currencies and commodities unit is discussed in the “Strategy and development” section of this report |
UBS gross capital market and corporate finance fees
CHF million | 2007 | 2006 | 2005 | |||||||||
M&A and corporate finance fees | 2,768 | 1,852 | 1,460 | |||||||||
Equity underwriting fees | 2,564 | 1,834 | 1,341 | |||||||||
Debt underwriting fees and fees on Global Syndicated Finance positions | 1,712 | 1,704 | 1,516 | |||||||||
debt underwriting fees | 1,178 | 1,279 | 1,264 | |||||||||
fees on Global Syndicated Finance positions1 | 534 | 425 | 252 | |||||||||
Other capital market revenues2 | 702 | 594 | 436 | |||||||||
Gross capital market and corporate finance fees | 7,746 | 5,984 | 4,753 | |||||||||
Capital market fees booked outside investment banking3 | 1,006 | 856 | 943 | |||||||||
Amount shared with equities and fixed income, currencies and commodities | 2,049 | 1,689 | 1,182 | |||||||||
Financing, hedging and risk adjustment costs | 151 | 166 | 122 | |||||||||
Net investment banking area revenues | 4,540 | 3,273 | 2,506 | |||||||||
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Investment banking
The investment banking department provides first-class advice and a range of execution services to corporate clients, financial sponsors and hedge funds. Its advisory group assists both public and private companies in multiple aspects of a transaction, including negotiation, structuring, coordination of due diligence process, company valuation and drafting of both internal and external communication material. The investment banking department also advises on strategic reviews and corporate restructuring solutions. Its capital markets and leveraged finance teams arrange the execution of primary and secondary equity, as well as investment grade and non-investment grade debt issues worldwide.
Selected deals |
Mergers and acquisitions (M&A) |
Sole financial advisor to the Board of Directors of aluminum company Alcan on the USD 44 billion recommended offer from Rio Tinto which followed Alcoa’s earlier USD 33 billion unsolicited takeover bid |
Joint lead financial advisor to ABN AMRO on its EUR 71 billion acquisition through a public offer by a consortium of Fortis, Royal Bank of Scotland and Santander, lead financial advisor to ABN AMRO on the USD 21 billion sale of LaSalle to Bank of America and the EUR 9 billion sale of Banca Antonveneta to Banca Monte dei Paschi di Siena |
Equity capital markets |
Joint bookrunner on the USD 2.9 billion initial public offering of MF Global, a leading broker of exchange-listed futures and options |
Joint lead manager, joint sponsor and joint bookrunner on the USD 8.9 billion IPO of PetroChina on the Shanghai Stock Exchange, the largest IPO ever in China |
Debt capital markets |
Joint book-runner on a EUR 5 billion equivalent dual currency multi-tranche issue for Enel, Italy’s largest utility company. UBS was the only international bank involved in the M&A and in the equity, bond and syndicated loan elements of the financing for Enel’s acquisition of Endesa |
Joint bookrunner on a EUR 3 billion dual tranche offering for GECC, an American financial services company |
Global Syndicated Finance |
Joint lead arranger and underwriter of AUD 3.6 billion senior debt facilities and AUD 600 million subordinated bridge facility in connection with the buyout of PBL Media, the newly established Australian media and entertainment company, in the largest ever leveraged buyout in Australia |
Sole lead arranger on the USD 875 million senior secured credit facilities for Algoma Steel |
Selected awards |
Investment Bank |
Best Global Emerging Markets Investment Bank – Euromoney 2007 |
IBD |
M&A Bank of the Year – Acquisition Monthly 2008 |
IPO House of the Year – The Banker 2007 |
Equities |
Equity House of the Year – IFR 2007 |
No. 1 Global Equity Derivatives for Corporates – Risk 2005–2007 |
Fixed income currencies and commodities |
Best Bank Overall for the last 20 years – EuroWeek 2007 |
Modern Great Currency House for the last 20 years – Risk 2007 |
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Investment Bank
Strategic opportunities
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Business performance
Business group reporting
For the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Equities | 10,603 | 9,397 | 6,980 | 13 | ||||||||||||
Fixed income, currencies and commodities | (15,681 | ) | 9,056 | 7,962 | ||||||||||||
Investment banking | 4,540 | 3,273 | 2,506 | 39 | ||||||||||||
Income | (538 | ) | 21,726 | 17,448 | ||||||||||||
Adjusted expected credit loss1 | (19 | ) | 61 | 36 | ||||||||||||
Total operating income | (557 | ) | 21,787 | 17,484 | ||||||||||||
Cash components | 8,918 | 9,801 | 8,065 | (9 | ) | |||||||||||
Share-based components2 | 1,499 | 1,552 | 1,194 | (3 | ) | |||||||||||
Total personnel expenses | 10,417 | 11,353 | 9,259 | (8 | ) | |||||||||||
General and administrative expenses | 3,423 | 3,260 | 2,215 | 5 | ||||||||||||
Services (to) / from other business units | 746 | 956 | 640 | (22 | ) | |||||||||||
Depreciation of property and equipment | 210 | 203 | 136 | 3 | ||||||||||||
Amortization of intangible assets | 172 | 72 | 53 | 139 | ||||||||||||
Total operating expenses | 14,968 | 15,844 | 12,303 | (6 | ) | |||||||||||
Business group performance before tax | (15,525 | ) | 5,943 | 5,181 | ||||||||||||
Key performance indicators | ||||||||||||||||
Compensation ratio (%)3 | N/A | 4 | 52.3 | 53.1 | ||||||||||||
Cost / income ratio (%)5 | N/A | 4 | 72.9 | 70.5 | ||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 0.4 | 0.1 | 0.2 | |||||||||||||
Average VaR (10-day, 99% confidence, 5 years of historical data) | 537 | 420 | 346 | 28 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)6 | (63.0 | ) | 29.4 | 28.6 | ||||||||||||
BIS risk-weighted assets | 190,763 | 174,599 | 151,313 | 9 | ||||||||||||
Goodwill and excess intangible assets7 | 5,300 | 5,465 | 4,309 | (3 | ) | |||||||||||
Allocated regulatory capital8 | 24,376 | 22,925 | 19,440 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss)1 | 217 | 232 | 155 | (6 | ) | |||||||||||
Expected credit loss (included in adjusted expected credit loss)1 | (236 | ) | (171 | ) | (119 | ) | (38 | ) | ||||||||
Personnel (full-time equivalents) | 21,932 | 21,899 | 18,174 | 0 | ||||||||||||
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 realized on principal transactions; and from the loan portfolio; and | |
– | realized and mark-to-market gains and losses on market making, proprietary, and arbitrage positions. |
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Investment Bank
2007
Key performance indicators
Neither the cost / income ratio nor the compensation ratio are meaningful in 2007 due to the negative total operating income relating to the US sub-prime crisis. In 2006, the cost / income ratio was 72.9% and the full-year compensation ratio 52.3%.
Average Value at Risk (VaR – 10-day, 99% confidence, 5 years of historical data) increased to CHF 537 million, up from CHF 420 million in 2006. Year-end VaR was also higher at CHF 614 million, up from CHF 473 million the previous year, reflecting the exposure to the US residential mortgage market.
è | Market risk developments in 2007 are explained in detail in the respective sections inRisk, Treasury and Capital Management 2007 |
The gross lending portfolio in the Investment Bank was CHF 148 billion, up from CHF 120 billion on 31 December 2006, reflecting the expanding prime brokerage and exchange traded derivatives businesses. The gross impaired lending portfolio to total gross lending portfolio ratio rose to 0.4% in 2007 from 0.1% in 2006.
The return on allocated regulatory capital was negative 63%, a reflection of the losses mentioned previously. The extreme market volatility since the start of third quarter 2007, which pushed up 10-day 99% VaR, has increased market risk regulatory capital requirements. Continuous high volatility, especially in credit markets, resulted in an increase in risk-weighted assets on derivative products.
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Results
In 2007 the Investment Bank recorded a pre-tax loss of CHF 15,525 million compared with a profit of CHF 5,943 million in 2006, primarily due to the losses totaling approximately USD 18.7 billion (CHF 21.3 billion) recorded on positions related to the US residential sub-prime and Alt-A real estate market which more than offset the solid performance in other areas.
è | For more details on these losses, please see Note 3 inFinancial Statements 2007 |
For full-year 2007, equities posted record results with very strong cash commissions, derivatives and prime services revenues. The investment banking department also had a record year in 2007, with all geographical regions showing double-digit growth. Operating expenses for the Investment Bank decreased from 2006, mainly reflecting lower performance-related bonus accruals and a change in the composi-
tion of bonus between cash and shares. This was partially offset by higher salary and general and administrative costs, driven by increased average staff levels over the year.
Operating income
Total operating income in 2007 was negative CHF 557 million, down from CHF 21,787 million a year earlier.
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Investment Bank
business was up, driven by higher results in European derivatives. FICC income was further helped by gains of CHF 397 million on credit default swaps hedging loan exposures, compared with a loss of CHF 245 million the previous year.
Operating expenses
Operating expenses declined by CHF 876 million to CHF 14,968 million in 2007, a 6% decrease from CHF 15,844 million the previous year.
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2006
Key performance indicators
The cost / income ratio rose to 72.9% in 2006 from 70.5% in 2005. The increase in performance-related personnel expenses and higher general and administrative expenses was only partly offset by revenue growth in all three Investment Bank business units.
Results
Pre-tax profit in 2006 was CHF 5,943 million, up 15% from 2005. This result was driven by strong revenues in equities (up 35%) and in the investment banking department (up 31%), which saw strong performances across all regions. The increase in FICC (up 14%) reflected progress in the plan to expand global syndicated finance, asset-backed securities, structured credit and the commodities businesses, as well as strong revenues in foreign exchange and cash and collateral trading. Drum’s business activities managed on behalf of the Investment Bank achieved revenues at a level consistent with 2005. Investments were also made in information technology infrastructure and more professional fees were incurred.
Operating income
Total operating income in 2006 was CHF 21,787 million, up 25% from CHF 17,484 million a year earlier.
Operating expenses
Operating expenses rose by CHF 3,541 million to CHF 15,844 million in 2006, a 29% increase from CHF 12,303 million in 2005.
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Corporate Center
Corporate Center
Business description
Corporate Center partners the business groups to ensure that UBS operates as an effective and integrated firm, according to a common vision and set of values. The functions of Corporate Center encompass risk, financial control, treasury, communication, legal and compliance, human resources, strategy, offshoring and technology.
Aims and objectives
Corporate Center helps UBS to manage its complementary businesses, underpinning the bank’s commitment to the “one-firm” approach. It strives to maintain an appropriate balance between risk and return while establishing and controlling UBS’s corporate governance processes, including compliance with relevant regulations. Each functional head in the Corporate Center has authority across UBS’s businesses for his or her area of responsibility, including the authority to issue Group-wide policies for that area, and is directly reported to by their business group counterpart.
– | financial, tax and capital management; | |
– | risk control, legal and compliance activities; | |
– | communicating with all UBS stakeholders; | |
– | branding; and | |
– | positioning the firm as the employer of choice. |
Organizational structure
The Corporate Center consists of its operational functions plus the information technology infrastructure and offshoring units. It is led by the Chief Operating Officer (COO) of the Corporate Center and its operational functions are managed by the Corporate Center Executive Committee.
Chief Operating Officer of the Corporate Center
The Chief Operating Officer (COO) of the Corporate Center is head of the Corporate Center and responsible for its business planning and forecasting, as well as its human resources core processes. Additionally, the holder of this position is also the Group Executive Board (GEB) member responsible for information technology infrastructure, Group Offshoring and the corporate real estate portfolio for UBS’s own use.
Group Chief Financial Officer
The Group Chief Financial Officer (Group CFO) is responsible for ensuring that presentation of the financial performance of both the Group and its businesses is transparent. The role also entails responsibility for the Group’s financial reporting, planning, forecasting and controlling processes, as well as the provision of advice on financial aspects of strategic plans and mergers and acquisitions transactions. Further responsibilities include overseeing UBS’s tax and capital management. In coordination with the Group General Counsel and Chief Communication Officer, the Group CFO defines the standards for accounting, reporting and disclosure and, together with the Chief Executive Officer, provides external certifications under sections 302 and 404 of the US Sarbanes-Oxley Act of 2002. These duties are in addition to managing relations with investors and coordination of working relationships with internal and external auditors.
Group Chief Risk Officer
The Group Chief Risk Officer (Group CRO) is responsible for developing UBS’s risk management and control principles. The position is also responsible for the independent risk control processes for credit, market and operational risks. The Chief Credit Officer, the Head of Market Risk and the Head of Operational Risk all report to the Group CRO. These four roles work together to manage the following: formulating and implementing risk policies and control processes; developing risk quantification methods and sets; monitoring associated limits and controls; ensuring that risks are completely and consistently recorded and aggregated; and ensuring that exposures are continuously monitored, pro-actively controlled and remain within approved risk profiles. Further, the four positions also work together to ensure that UBS’s approach is consistent with best market practice and that the firm is operating within its agreed risk bearing capacity. Each Risk Officer exercises specific risk control authorities.
Group General Counsel
The Group General Counsel has Group-wide responsibility for legal and compliance matters and for legal and compliance policies and processes, supported by the Head of Group Compliance. The position is responsible for defining the strategy, goals and organizational structure of the legal function, in addition to setting and monitoring the Group-wide quality standards for handling the legal affairs of the Group. Supported
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Corporate Center
by the Head of Group Compliance, the Group General Counsel is responsible for ensuring that UBS meets relevant regulatory and professional standards in the conduct of its business. Other responsibilities include supervision of the General Counsels of the business groups and working closely with the Group CRO with regard to the operational risk aspects of legal and liability risk. Furthermore, the Group General Counsel represents UBS’s interests to the policy-makers and, in close cooperation with the Group CRO and Group CFO as appropriate, establish Group-wide management and control processes for the Group’s relationship with regulators.
Group Treasurer
The Group Treasurer is responsible for the management of UBS’s financial resources and financial infrastructure. The position is responsible for Group-level governance of treasury processes and transactions relating to UBS’s corporate legal structure, regulatory capital, balance sheet, funding and liquidity, and non-trading currency and interest rate risk. Additional responsibilities include the issuance of policies in order to ensure proper management and efficient co-ordination of treasury processes on a Group-wide basis. The Group Treasurer manages the Group’s equity, taking into account financial ratios and regulatory capital requirements, with a view to maintaining strategic flexibility, and adequate capitalization and ratings levels. The position manages UBS’s holdings of its own shares and recommends corporate actions to the GEB and the BoD.
Head of Group Controlling & Accounting
The Head of Group Controlling & Accounting has UBS-wide responsibility for financial control. The position is responsible for the production and analysis of accurate and objective regulatory, financial and management accounts and reports. The Head of Group Controlling & Accounting communicates relevant financial and regulatory information to the BoD, GEB, Group Managing Board (GMB), the Audit Committee, internal and external auditors and the CFOs of the business groups. The position is also responsible for operating the UBS-wide quarterly and annual SOX 302-certification process and supports the Group CFO in the Group’s planning and forecasting process.
Head of Group Accounting Policy
The Head of Group Accounting Policy establishes Group-wide financial accounting policies and supports the business groups and the Corporate Center in their responsibility to implement and enforce the Group accounting policy framework. The position manages relations with external auditors and accounting standards bodies.
Chief Communication Officer
The Chief Communication Officer is responsible for managing UBS’s communication to its various stakeholders, en-
Group Head Human Resources
The Group Head Human Resources has UBS-wide responsibility for human resources. The position is responsible for shaping a meritocratic culture of ambition and performance and promoting UBS’s values for action. The Group Head Human Resources builds UBS’s capacity to attract and retain the best talent, in addition to creating an innovative and flexible work environment to ensure that all employees from different cultures and backgrounds with different perspectives can develop and succeed. Other responsibilities include succession planning for senior executives, designing and administering global compensation and benefits programs and the design, development and delivery of leadership development programs targeted at current and future senior leaders.
Chief Technology Officer (CTO)
The Chief Technology Officer (CTO) is the head of the information technology infrastructure unit (ITI). This unit encompasses all information technology infrastructure teams across UBS, covering management of data networks, telephone and other communications systems, IT security, distributed computing and servers, mainframes and data centers, market data services, user services and desktop computing. The unit focuses on serving all UBS’s businesses in a client-driven and cost-efficient way, as well as building towards a consistent technical architecture across UBS through the execution of the technology infrastructure strategy.
Group Offshoring
The Head Group Offshoring is responsible for delivering offshoring services to the business groups at appropriate and competitive prices. The service centers, which are operated by UBS staff in India and Poland, ensure that physical and technical features meet UBS risk and quality standards and comply with the operational risk framework.
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Financial results
Business group reporting
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Income | 2,873 | 1 | 294 | 455 | 877 | |||||||||||
Credit loss (expense) / recovery2 | (392 | ) | (61 | ) | 232 | (543 | ) | |||||||||
Total operating income | 2,481 | 233 | 687 | 965 | ||||||||||||
Cash components | 1,215 | 1,133 | 1,059 | 7 | ||||||||||||
Share-based components3 | 168 | 131 | 108 | 28 | ||||||||||||
Total personnel expenses | 1,383 | 1,264 | 1,167 | 9 | ||||||||||||
General and administrative expenses | 1,298 | 1,242 | 1,084 | 5 | ||||||||||||
Services (to) / from other business units | (2,194 | ) | (1,978 | ) | (1,730 | ) | (11 | ) | ||||||||
Depreciation of property and equipment | 739 | 783 | 857 | (6 | ) | |||||||||||
Amortization of intangible assets | 0 | 9 | 17 | (100 | ) | |||||||||||
Total operating expenses4 | 1,226 | 1,320 | 1,395 | (7 | ) | |||||||||||
Business group performance from continuing operations before tax | 1,255 | (1,087 | ) | (708 | ) | |||||||||||
Business group performance from discontinued operations before tax | 7 | 4 | 4,564 | 75 | ||||||||||||
Business group performance before tax | 1,262 | (1,083 | ) | 3,856 | ||||||||||||
Additional information | ||||||||||||||||
BIS risk-weighted assets | 7,984 | 8,969 | 8,143 | (11 | ) | |||||||||||
Personnel (full-time equivalents) | 6,913 | 4,771 | 3,922 | 45 | ||||||||||||
Personnel excluding information technology infrastructure (ITI) (full-time equivalents) | 2,570 | 1,716 | 1,370 | 50 | ||||||||||||
Personnel for ITI (full-time equivalents) | 4,343 | 3,055 | 2,552 | 42 | ||||||||||||
2007
Results
Corporate Center recorded a pre-tax profit from continuing operations of CHF 1,255 million in full-year 2007. This improvement, up from a loss of CHF 1,087 million in 2006, was mainly related to the CHF 1,950 million gained from the sale of a 20.7% stake in Julius Baer. In addition, positive cash flow hedges and higher income from the investment of equity also assisted the 2007 result. While all these developments helped operating income to rise, higher levels of credit loss expenses in 2007 moderated the increase.
Operating income
Total operating income increased to CHF 2,481 million in 2007 from CHF 233 million in 2006. This mainly reflects higher income, up from CHF 294 million in 2006 to CHF 2,873 million in 2007, which was boosted by the gains from the sale of UBS’s 20.7% stake in Julius Baer, positive impacts from cash flow hedges and higher proceeds from the invest
Operating expenses
Total operating expenses were CHF 1,226 million in 2007, down CHF 94 million from CHF 1,320 million in 2006. At CHF 1,383 million in 2007, personnel expenses were up 9% from CHF 1,264 million in 2006, mainly reflecting the higher personnel numbers in information technology infrastructure (ITI), driven by higher business demand. Accelerated amortization of share-based compensation to certain terminated
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UBS’s businesses
Corporate Center
Information technology infrastructure
In 2007, the ITI cost per average number of financial business employees was CHF 27,131, a CHF 941 decrease from CHF 28,072 the previous year. This reflects a 12% increase in the average staff levels in financial businesses from 72,885 on 31 December 2006 to 81,715 at the end of 2007. ITI costs only increased by 8% during this period, supporting business growth plans.
2006
Results
Corporate Center recorded a pre-tax loss from continuing operations of CHF 1,087 million in full-year 2006, compared with a loss of CHF 708 million in 2005. The increased loss was mainly driven by a CHF 454 million decline in operating income.
Operating income
Total operating income decreased to CHF 233 million in 2006 from CHF 687 million in 2005. This reflected the credit loss expense recorded in 2006, which contrasted with the credit recovery reported in 2005. It was also a result of lower income from treasury activities.
Operating expenses
Total operating expenses were CHF 1,320 million in 2006, down CHF 75 million from CHF 1,395 million in 2005. At CHF 1,264 million in 2006, personnel expenses were up 8% from CHF 1,167 million in 2005, mainly a reflection of higher personnel numbers in ITI driven by higher business demand and the hiring of people to address the growing complexity of regulatory requirements. Personnel costs increased due to higher performance-related compensation and higher expenses for share-based components as the UBS share price increased compared with 2005. In the same period, general and administrative expenses increased 15% to CHF 1,242 million from CHF 1,084 million. In ITI, expenses for rent and maintenance of IT equipment, occupancy and communications increased with higher staff levels. Costs also increased as a small portion of the provision for sub-leasing office space in the US was booked in Corporate Center. Other businesses were charged CHF 1,978 million compared to CHF 1,730 million, reflecting the business driven cost increases of ITI. Depreciation of property and equipment decreased to CHF 783 million by CHF 74 million, or 9%, as several software components came to the end of their depreciation cycle. Amortization of intangible assets was CHF 9 million in 2006, CHF 8 million below the 2005 level.
Information technology infrastructure
In 2006, the ITI cost per average number of financial business employees was CHF 28,072, up CHF 1,341 from CHF 26,731 in 2005, reflecting the impact of supporting businesses in their growth plans. This was partially offset by cost savings from centrally managing the ITI.
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UBS’s businesses
Industrial Holdings
Industrial Holdings
Income statement
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Continuing operations | ||||||||||||||||
Revenues from Industrial Holdings | 268 | 262 | 229 | 2 | ||||||||||||
Other income | 680 | 303 | 566 | 124 | ||||||||||||
Total operating income | 948 | 565 | 795 | 68 | ||||||||||||
Personnel expenses | 111 | 122 | 164 | (9 | ) | |||||||||||
General and administrative expenses | 44 | 51 | 56 | (14 | ) | |||||||||||
Services (to) / from other business units | 124 | 9 | 14 | |||||||||||||
Depreciation of property and equipment | 8 | 7 | 7 | 14 | ||||||||||||
Amortization of intangible assets | 6 | 5 | 6 | 20 | ||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||
Total operating expenses | 412 | 310 | 344 | 33 | ||||||||||||
Operating profit from continuing operations before tax | 536 | 255 | 451 | 110 | ||||||||||||
Tax expense | 36 | 34 | 169 | 6 | ||||||||||||
Net profit from continuing operations | 500 | 221 | 282 | 126 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 128 | 875 | 530 | (85 | ) | |||||||||||
Tax expense | (8 | ) | (12 | ) | 93 | 33 | ||||||||||
Net profit from discontinued operations | 136 | 887 | 437 | (85 | ) | |||||||||||
Net profit | 636 | 1,108 | 719 | (43 | ) | |||||||||||
Net profit / (loss) attributable to minority interests | 50 | 104 | 207 | (52 | ) | |||||||||||
from continuing operations | 50 | 1 | (24 | ) | ||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | |||||||||||
Net profit attributable to UBS shareholders | 586 | 1,004 | 512 | (42 | ) | |||||||||||
from continuing operations | 450 | 220 | 306 | 105 | ||||||||||||
from discontinued operations | 136 | 784 | 206 | (83 | ) | |||||||||||
Additional information | ||||||||||||||||
Private equity1 | ||||||||||||||||
Investments, at cost2 | 92 | 344 | 744 | (73 | ) | |||||||||||
Gains recognized directly in equity | 76 | 517 | 264 | (85 | ) | |||||||||||
Portfolio fair value | 168 | 861 | 1,008 | (80 | ) | |||||||||||
Cost / income ratio (%)3 | 43.5 | 54.9 | 43.3 | |||||||||||||
BIS risk-weighted assets | 117 | 443 | 2,035 | (74 | ) | |||||||||||
Personnel (full-time equivalents) | 3,843 | 4,241 | 21,636 | (9 | ) | |||||||||||
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UBS’s businesses
Industrial Holdings
Major participations
The private equity investments of UBS were moved to the Industrial Holdings segment in first quarter 2005, matching the strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities as they arise.
2007
In 2007, the Industrial Holdings segment reported a net profit of CHF 636 million, of which CHF 586 million was attributable to UBS shareholders.
2006
In 2006, the Industrial Holdings segment reported a net profit attributable to UBS shareholders of CHF 1,004 million. In 2006, it completed the sale of four fully consolidated investments. The realized divestment gains are presented as discontinued operations for Industrial Holdings.
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More about UBS
Sources of information
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007.They comply with the US disclosure requirements for foreign private issuers as defined by Form 20-F of the Securities and Exchange Commission (SEC) and combine audited and non-audited information. All four reports are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
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Information tools for investors
Website
Our Analysts & Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging service
On the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results 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 webcasts can be found in the financials section of our Analysts & Investors website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are:
+41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
More about UBS
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More about UBS
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 | +41-44-234 4100 | UBS AG | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +41-44-234 3415 | P.O. Box | ||||
CH-8098 Zurich, Switzerland | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. 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 | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all global registered share-related queries in the US. www.melloninvestor.com | Calls from the US | +866-541 9689 | BNY Mellon Shareowner 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 | ||||||
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Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to (1) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2007. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher / Copyright: UBS AG, Switzerland | Languages: English, German
Order number Annual Report 2007: SAP-No. 80531E-0801
Mixed Sources Product group from well-managed forests and other controlled sources www.fsc.org Cert no. SQS-COC-100112 © 1996 Forest Stewardship Council |
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UBS AG P.O. Box, CH-8098 Zurich P.O. Box, CH-4002 Basel | ||
www.ubs.com |
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1 Strategy, Performance and Responsibility UBS Annual Report 2007 |
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Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here.
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
Audited information according to IFRS 7 and IAS 1
Risk disclosures provided in line with the requirements of the International Financial Reporting Standard 7 (IFRS 7),Financial Instruments: Disclosures,and disclosures on capital required by the International Accounting Standard 1 (IAS 1),Financial Statements: Presentation, form part of the financial statements audited by UBS’s independent registered public accounting firm Ernst & Young Ltd., Basel. This information (the audited texts, tables and graphs) is marked by a bar on the left-hand side throughout this report and is incorporated by cross-reference into UBS’sFinancial Statements 2007.
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– | Taking, managing and controlling risk is core to UBS’s businesses. The aim is to achieve an appropriate balance between risk and return | |
– | UBS’s risk management and control frameworks are based on business management accountability and independent risk control for credit, market, liquidity, funding and operational risks | |
– | After its substantial losses in 2007, UBS is taking steps to ensure that the lessons learnt are embedded in its risk management and control framework |
Developments in 2007
Many parts of UBS’s risk management and control framework were resilientin the face of 2007’s stressful market conditions
Credit risk:
– | the quality of Global Wealth Management & Business Banking’s lending portfolio remains high | ||
– | the Investment Bank actively reduced credit risk where possible, in light of its exposure to the US residential mortgage market and in conjunction with its management of balance sheet and risk-weighted assets usage |
Market risk:
– | neither trading management nor market risk controllers foresaw the extreme developments in the previously deep and liquid US residential mortgage market, which revealed the tail risks in UBS’s portfolio | ||
– | with the accompanying drying up of liquidity in parts of the market, the size of UBS’s positions has proved excessive relative to the market |
Recent enhancements to market risk management and control
Risk management:
Repositioning of the Investment Bank’s fixed income, currencies and commodities (FICC) business:
– | creation of a workout group to ensure robust risk management of segregated legacy portfolios and develop orderly exit strategies | |
– | refocusing remaining real estate-related activities towards intermediation of client flows and alignment to needs of investment banking and wealth management clients | |
– | consolidation of flow credit trading management to improve risk aggregation and communication |
Risk management and valuation models for products related to US residential mortgages have been refined and recalibrated to reflect current projections and market prices
Risk control:
– | improvement of measurement of basis risk by increasing granularity of risk representation | |
– | protection against extreme market moves through more extensive use of limits by asset class, based on gross values as well as risk sensitivities | |
– | additional controls to highlight positions which are large relative to market depth | |
– | revision of global stress testing approach to deliver a more diverse range of scenarios, which better differentiate between the source of a stress event and its contagion effect. Stress testing to consider liquidity as well as price sensitivity |
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Disclosed risk concentrations
US sub-prime residential mortgages:
– | residential mortgage-backed securities (RMBS) | |
– | super senior RMBS collateralized debt obligations (CDOs) | |
– | warehouse and retained RMBS CDOs |
US Alt-A residential mortgages:
– | AAA-rated RMBS backed by first lien mortgages | |
– | other |
US commercial real estate exposures:
– | trading assets | |
– | real estate loans |
US reference-linked note program
Monoline insurers
Auction rate certificates
Leveraged finance deals
Disclosure is detailed on pages 11-14 of this report
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Risk management
Risk management and control
Risk management and control
In 2007, UBS suffered significant losses as a result of positions in instruments related to US residential mortgage markets. This experience does not invalidate UBS’s risk management and risk control principles – the high level precepts remain valid – but it has demonstrated that the policies, measures and processes that implement the principles can be strengthened in some ways. UBS is taking steps to ensure that the lessons learned in 2007 are embedded in its risk management and control frameworks and in the structure and processes of its risk control organization. | ||
Risk management and control principles | ||
Taking, managing and controlling risk is core to UBS’s business. The aim is not, therefore, to eliminate all risks but to achieve an appropriate balance between risk and return. UBS’s approach to risk management and control is based on five principles: | ||
– business management throughout the firm is accountablefor all the risks assumed or incurred by their business operations and is responsible for the continuous and active management of risk exposures to ensure that risk and return are balanced; | ||
– anindependent control processis an integral part of the firm’s structure – its goal is to provide an objective check on risk-taking activities and to support senior management in achieving appropriate alignment of the interests of all stakeholders including shareholders, clients and employees; | ||
– comprehensive, transparent and objectiverisk disclosureto senior management, the Board of Directors (BoD), shareholders, regulators, rating agencies and other stakeholders is an essential component of the risk control process; | ||
– earnings protectionis based on limiting the scope for adverse variations in earnings and exposure to stress events – controls are applied at the level of individual exposures and portfolios in each business and to risk in aggregate, across all businesses and major risk types, relative to the firm’s risk capacity (the level of risk UBS is capable of absorbing, based on its anticipated earnings power); and | ||
– protection of UBS’s reputationultimately depends on the effective management and control of the risks incurred in the course of business. | ||
The principles are the foundation upon which the more detailed risk management and control frameworks are built. These frameworks comprise both qualitative elements, including policies and authorities, and quantitative components including limits. They are continually adapted and enhanced as UBS’s business and the market environment evolve. |
The pace of innovation in financial markets makes this challenging, and never more so than when markets undergo major dislocations as they did in 2007. Many parts of UBS’s risk management and control frameworks were resilient in the face of these stressful conditions, but, in a limited area of the Investment Bank, some aspects of risk management assessments and the market risk control framework proved inadequate to identify certain risk concentrations and therefore to prevent losses in the extreme market conditions of the second half of 2007. | ||
è The steps UBS is taking to strengthen its risk management and control frameworks are described in the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report | ||
Risk management and control responsibilities | ||
TheBoDhas a strategic and supervisory function. It is responsible for the firm’s fundamental approach to risk, for approving the risk principles and for determining risk capacity and risk appetite. TheChairman’s Officeacts as the Risk Council of the BoD. In this capacity, it oversees the risk profile of the firm on behalf of the BoD and oversees implementation by the Group Executive Board (GEB) of the risk management and control principles. TheGEB, together with its Risk Sub-Committee, is responsible for implementing the risk principles, including approval of core risk policies, and for managing the risk profile of UBS as a whole. TheGroup Chief Risk Officer (Group CRO)has overall responsibility for the development, implementation and enforcement of UBS’s risk principles. The role is supported by the Group Chief Credit Officer (Group CCO), the Group Head of Market Risk and the Group Head of Operational Risk. Together they establish risk control frameworks, formulate risk policies and determine methodologies for measurement and assessment of risk. They are responsible for monitoring UBS’s risks and its risk / return profile, and have the authority to mandate risk reductions in the light of market conditions and UBS’s financial resources. TheGroup Chief Financial Officer (Group CFO) is responsible for transparency in the financial performance of UBS and its business groups, including high-quality and timely reporting and disclosure in line with regulatory requirements, corporate governance standards and global best practice. The Group CFO is responsible for implementation of the risk principles in the areas of capital management, liquidity, funding and tax. TheGroup General Counselis responsible for implementing the risk principles in the areas of legal and compliance. |
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Risk management and control framework
TheChief Executive Officer (CEO)of each business group has overall responsibility for the business group and its management, and is accountable for its results and risks. Within the business groups,business management is responsible for ensuring that risks are identified and managed. Therisk control functions are responsible for the implementation of independent control processes. They are empowered to enforce the risk principles and frameworks and corrective measures mandated by the Group CRO, the risk function heads and senior management. | ||
All employees, but in particular those involved in risk decisions, must make UBS’s reputation an overriding concern. Responsibility for UBS’s reputation cannot be delegated or syndicated. | ||
The risk control process | ||
There are five key elements in the independent risk control process: | ||
– risk policiesto implement the risk principles, reflecting UBS’s risk capacity and risk appetite, and consistent with evolving business requirements and international best practice. UBS’s risk policies are principle-based, specifying minimum requirements, high-level controls and standards, and broad authorities and responsibilities | ||
– they are never a substitute for the exercise of sound business judgment but, rather, guide and determine actions and decisions; |
– | risk identificationthrough continuous monitoring of portfolios, assessment of risks in new businesses and complex or unusual transactions, and ongoing review of the risk profile in the light of market developments and external events; | |
– | risk measurementusing methodologies and models which are independently verified and approved; | |
– | risk controlby monitoring and enforcing compliance with risk principles, policies and limits, and with regulatory requirements; and | |
– | transparent risk reportingto stakeholders, and to management at all levels, on all relevant aspects of the approved risk control framework, including limits. |
è | For further details, refer to the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report |
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Risk management
Risk management and control
Risk categories | ||
Business risksare the risks associated with a chosen business strategy – it is business management’s responsibility to respond to fundamental changes in the economic environment and the competitive landscape. Business risks are not subject to independent risk control but are factored into the firm’s planning and budgeting process and the assessment of UBS’s risk capacity and overall risk exposure. The primary and operational risks inherent in business activities are subject to independent risk control. | ||
Primary risksare: | ||
– credit risk –the risk of loss resulting from the failure of a client or counterparty to meet its contractual obligations. It arises on traditional banking products, such as loans and commitments, and on derivatives and similar transactions. A form of credit risk also arises on securities and other obligations in tradable form. Their fair values are affected by changing expectations about the probability of failure to meet obligations as well as actual failures. Where these instruments are held in connection with a trading activity, UBS controls the risk as market risk; | ||
– market risk– the risk of loss resulting from changes in market variables of two broad types: general market risk factors and idiosyncratic components. General market risk factors include interest rates, exchange rates, equity market indices, commodity prices and general credit spreads. Idiosyncratic components are specific to individual names and affect the values of their securities and other obligations in tradable form, and derivatives referenced to those names.Investment positionsmay also be affected by market risk factors but they are often not liquid and are generally intended or required to be held beyond a normal trading horizon. For these reasons they are subject to a different control framework; and | ||
– liquidity and funding risk– the risk that UBS might be unable to meet its payment obligations when due, or to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments. | ||
Operational riskis the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. Operational risks must be monitored, and are controlled and mitigated to the extent possible and desirable. | ||
è The control frameworks for these risk categories are described in the following sections of this report: “Credit risk”, “Market risk”, “Investment positions”, “Operational risk” and “Treasury and capital management” | ||
Quantitative controls | ||
In principle, for risks that are quantifiable, UBS measures potential loss at three levels – expected loss, statistical loss and stress loss. |
Expected lossis the loss that is expected to arise on average over time in connection with an activity. It is an inherent cost of such activity, and must be factored into business plans. For financial instruments carried at fair value, expected loss is reflected in valuations and deducted directly from revenues. Statistical loss measures, such as Value at Risk (“VaR”), estimate the amount by which actual loss in a portfolio can exceed expected loss over a specified time horizon, measured to a specified level of confidence (probability). Stress lossis the loss that could arise from extreme events, typically beyond the confidence level of the statistical loss estimate, and is normally a scenario-based measure. Concentration controls complement portfolio risk measures. Controls are generally applied where UBS identifies that positions in different financial instruments or different portfolios are affected by changes in the same risk factor or group of correlated factors and there is the potential for significant loss in the event of extreme but plausible adverse developments. UBS’s concentration controls include credit limits for individual clients, counterparties and counterparty groups, ceilings on exposure to all but the best-rated countries, limits on potential loss from changes in general market risk factors, and thresholds on single name exposures in the trading portfolio. | ||
è These controls are explained in more detail in the “Credit risk” and “Market risk” sections of this report; an analysis of identified risk concentrations is provided in the “Risk concentrations” section of this report | ||
The primary day-to-day quantitative controls are intended to govern normal periodic adverse results and prevent severe losses as a result of stress events. The identification of stress events and scenarios to which UBS is vulnerable and an assessment of their potential impact – in particular the danger of aggregated losses from a single event through concentrated exposures – is a critical component of the risk control process. Risk measures and controls rely on a combination of past experience, available external data, and judgments about likely future developments. Each new stress event is in some way unique, and thus no risk measure can provide complete protection against every possible scenario. Equally, each stress event offers new insights into ways of enhancing risk measures and controls, whether specific to an individual portfolio or risk type or, as is the case with the experience of 2007, a more generic extension from a particular experience, applying the lessons learned more broadly. | ||
è The measures UBS is taking in response to the losses incurred in 2007 are described in the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report | ||
“Earnings-at-risk” and “Capital-at-risk” |
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Risk management and control
to UBS’s minimum regulatory capital requirement, and the second in terms of solvency.
è | Further details are available in the “Capital management” section of this report |
Like Earnings-at-risk, Capital-at-risk relies on the day-to-day risk control measures and will potentially underestimate aggregate exposure if these measures do not fully capture the risks. As the underlying systems are enhanced – a process which is already in hand – the measures of aggregate risk exposure will also improve, and in the meantime supplementary estimates will continue to be incorporated. Furthermore, as a result of the events of 2007, UBS has gained a better understanding of the dynamics of the risk capacity and exposure measures and of the interplay between differ-
ent measures of capacity – in particular the relationship between risk management, treasury management and capital management measures.
Qualitative controls
Although measurement of risk is clearly important, quantification does not always tell the whole story, and not all risks are quantifiable. Due diligence, sound judgment, common sense and an appreciation of a wide range of potential outcomes – including a willingness to challenge assumptions–are key components of a strong risk culture for both risk management and risk control. UBS’s risk measures did not adequately identify risks in the US residential mortgage markets in 2007, and qualitative assessments equally did not fully appreciate the range of potential outcomes and the deep tail risk in the portfolio. UBS will learn from this experience and will strive to strengthen its risk culture accordingly.
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Risk management
Risk concentrations
Risk concentrations
Risk concentrations A concentration of risk exists where positions in financial instruments are affected by changes in the same risk factor or group of correlated factors, and the exposure could, in the event of extreme but plausible adverse developments, result in significant losses. The identification of risk concentrations necessarily entails judgment about potential future developments, which cannot be predicted with certainty. In determining whether a concentration of risk exists, risk controllers consider a number of elements, both individually and in combination. They include the shared characteristics of the instruments; the size of the position; the sensitivity of the position to changes in risk factors and the volatility of those factors; the liquidity of the markets in which the instruments are traded and the availability and effectiveness of hedges or other potential risk mitigants; and the risk reward profile of the positions. If a risk concentration is identified, it is assessed to determine whether it should be reduced or the risk should be mitigated, and the available means to do so. Identified concentrations are subject to increased monitoring. Based on its assessment of the portfolios and asset classes where there is the potential for material loss in a stress scenario relevant to today’s environment, UBS believes that the exposures shown below can be considered risk concentrations according to this definition. There is clearly a possibility that losses could arise on asset classes and positions other than those disclosed, if the correlations that emerge in a stressed environment differ markedly from those envisaged by UBS. The firm has, for example, exposures to other US asset-backed securities (ABS), non-US (both Swiss and non-Swiss) residential and commercial real estate and mortgages, non-US ABS, non-US reference linked note (RLN) programs, corporate collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) globally, and non-US structured credit programs. It is exposed to credit spread and default risk on its fixed income trading inventory, to idiosyncratic risk on both equities and fixed income inventory, and to emerging markets country risk in many of its trading |
activities. It has derivatives transactions and a significant prime services business through which it is exposed to the hedge fund industry. If UBS decided to support a Global Asset Management fund or another investment sponsored by UBS it might, depending on the facts and circumstances, present risks that could increase to material levels. UBS does not currently foresee the likelihood of material losses on such positions but the possibility cannot be ruled out. | ||
è The amount and composition of UBS’s Swiss real estate exposure, which arises from domestic lending by Global Wealth Management & Business Banking, is discussed in the “Credit risk” section of this report | ||
Exposure to US mortgage markets | ||
The area of UBS most severely affected by the progressive market dislocation during 2007 is the fixed income, currencies and commodities (FICC) business of the Investment Bank, which has positions in securities related to the US residential mortgage market in a number of portfolios. The deterioration of this sector was more sudden and severe than any such event in recent market history. As a result, the securitized credit markets became illiquid and UBS’s positions, including securities with high credit ratings, lost substantial value. These difficulties persisted throughout third quarter 2007, with further deterioration in fourth quarter 2007 as increasing homeowner delinquencies fuelled market expectations of future writedowns. During fourth quarter, monoline insurers were adversely affected by their exposure to US residential mortgage-linked products. | ||
è The major losses incurred in 2007 on the positions disclosed below are detailed in Note 3 inFinancial Statements 2007 | ||
In the tables below, the size of the positions held is expressed as “net exposure”. Net exposures for each instrument class are the sum of the long and short positions where hedge effectiveness is considered to be high. UBS’s net exposures will increase |
US sub-prime residential mortgage exposure | ||||||
Net exposures | ||||||
USD billion | as of 31.12.07 | |||||
Total1 | 27.6 | |||||
Of which | ||||||
residential mortgage-backed securities (RMBS) | 14.2 | |||||
super senior RMBS collateralized debt obligations (CDOs)2 | 13.3 | |||||
warehouse and retained RMBS CDOs | 0.1 | |||||
1 The equivalent position at 31 December 2006 was approximately USD 42.5 billion. At this date, positions were not analyzed in the form presented for 31 December 2007. The figure for 31 December 2006 has therefore been estimated based on securities position records, in order to supply the disclosure required by accounting standards. 2 Hedges provided by a single monoline insurer rated non-investment grade on 31 December 2007 were considered to be ineffective. Hedge ineffectiveness is treated as an addition to net exposure and no value is ascribed to the hedge. |
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Risk concentrations
US Alt-A residential mortgage exposures | ||||||
Net exposures | ||||||
USD billion | as of 31.12.07 | |||||
Total1 | 26.6 | |||||
Of which | ||||||
AAA-rated RMBS backed by first lien mortgages | 21.2 | |||||
other | 5.4 | |||||
1 There is no industry standard definition of Alt-A. For 31 December 2007 the classification is based solely on FICO scores, which are a commonly used basis of categorization. The equivalent position at 31 December 2006 was approximately USD 37.6 billion. At this date, positions were not analyzed in the form presented for 31 December 2007. The figure for 31 December 2006 has therefore been estimated based on securities position records, in order to supply the disclosure required by accounting standards. |
US commercial real estate exposures | ||||||
Net exposures | ||||||
USD billion | as of 31.12.07 | |||||
Trading assets1 | 3.6 | |||||
Real estate loans2 | 4.1 | |||||
1 Equivalent position at 31 December 2006 USD 6.5 billion.2Equivalent position at 31 December 2006 USD 3.7 billion. |
US reference-linked notes program exposure | ||||||||||||||
31.12.071 | ||||||||||||||
USD billion | Assets held | Credit protection remaining | Net exposures | |||||||||||
Market value | 13.2 | 2.0 | 11.2 | |||||||||||
Of which | ||||||||||||||
sub-prime and Alt-A | 4.4 | 0.6 | 3.8 | |||||||||||
commercial mortgage-backed securities (CMBS) | 3.6 | 0.6 | 3.0 | |||||||||||
other | 5.2 | 0.8 | 4.4 | |||||||||||
1 Equivalent positions at 31 December 2006 were: assets held USD 20.8 billion, of which sub-prime and Alt-A USD 9.9 billion, commercial mortgage-backed securities (CMBS) USD 3.7 billion; net exposure USD 17.2 billion, of which sub-prime and Alt-A USD 7.9 billion, CMBS USD 3.1 billion. |
if hedges are considered to have become ineffective. From a risk management perspective, it is necessary to look beyond net exposure and consider important factors such as different vintages, delinquency rates, credit ratings and underlying mortgage pools, as well as differences in attachment points, timing of cash flows, control rights, other basis risks and counterparty risk. | ||
Positions related to US residential sub-prime mortgages On 31 December 2007, approximately one-quarter of residential mortgage backed securities (RMBS) referred to mortgage loans of 2005 or earlier vintages, while three-quarters referred to mortgage loans with 2006 and 2007 vintages. On 31 December 2007, the overwhelming majority of these securities were rated AAA and had an expected weighted average life of around three years. At the same date, around one-third of UBS’s positions in super senior RMBS CDOs referred to mortgage loans of vintage 2005 or earlier. The other two-thirds referred to mortgage loans with 2006 and 2007 vintages. These securities have a range of subordination levels, maturities and rights in the event of default. | ||
Positions related to US residential Alt-A mortgages UBS’s Alt-A position can be divided into two categories. The first consists of AAA-rated RMBSs, backed by first lien mortgages, which amounted to USD 21.2 billion at 31 December |
2007. The second category consists of other RMBSs, either non-AAA or RMBSs backed by second lien mortgages, and a small CDO exposure. These positions amounted to USD 5.4 billion at year-end 2007. | ||
Positions related to US commercial real estate UBS has exposure to US commercial real estate from two sources. The first is its trading inventory, which includes commercial mortgage-backed securities (CMBS) and loans held for securitization, amounting to USD 3.6 billion net exposure on 31 December 2007. Approximately 90% of the CMBS and loans are rated AA or better. These positions are exposed to credit spread movements and this risk is actively managed. The second category consists of direct loans and investments totaling USD 4.1 billion on 31 December 2007, of which USD 400 million are classified as equity investments. These assets are diversified by sector and geography. | ||
Positions related to the US reference-linked note program The structure of UBS’s reference-linked note (RLN) program is explained in the sidebar opposite. UBS has created ten US RLNs to date. The maximum permitted face values of the underlying asset pools total USD 16.9 billion face value, and UBS holds total credit protection of USD 3.8 billion (on average about 23%). |
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Exposure1 to monoline insurers, by rating | ||||||||||||||||||||||
31.12.07 | ||||||||||||||||||||||
Fair value of CDSs | ||||||||||||||||||||||
Fair value of CDSs5 | Credit valuation | after credit | ||||||||||||||||||||
Fair value of | prior to credit valu- | adjustment in | valuation | |||||||||||||||||||
USD billion | Notional amount3 | underlying CDOs4 | ation adjustment | 2007 | adjustment | |||||||||||||||||
Credit protection bought from monoline insurers rated2 | Column 1 | Column 2 | Column 3 (=1–2) | Column 4 | Column 5 (=3–4) | |||||||||||||||||
A or higher | ||||||||||||||||||||||
on US sub-prime residential mortgage-backed securities (RMBS) CDOs high grade | 7.1 | 4.7 | 2.4 | 0.2 | 2.2 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 1.1 | 0.6 | 0.5 | 0.0 | 0.5 | |||||||||||||||||
on other US RMBS CDO | 1.0 | 0.8 | 0.2 | 0.0 | 0.2 | |||||||||||||||||
Total | 9.2 | 6.1 | 3.1 | 0.2 | 2.9 | |||||||||||||||||
Non-investment grade or unrated | ||||||||||||||||||||||
on US sub-prime RMBS CDOs high grade | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||
on US sub-prime RMBS CDOs mezzanine | 1.6 | 1.1 | 6 | 0.5 | 0.4 | 0.1 | ||||||||||||||||
on other US RMBS CDO | 0.8 | 0.6 | 6 | 0.2 | 0.2 | 0.0 | ||||||||||||||||
Total | 2.4 | 1.7 | 6 | 0.7 | 0.6 | 0.1 | ||||||||||||||||
Credit protection on US RMBS CDO | 11.6 | 7 | 7.8 | 3.8 | 0.8 | 3.0 | 7 | |||||||||||||||
Credit protection on other than US RMBS CDOs | 12.6 | 7 | 11.9 | 0.7 | 0.1 | 0.6 | 7 | |||||||||||||||
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies. 3 Represents gross notional amount of credit default swaps (CDSs) purchased as credit protection. 4 Collateralized debt obligations (CDOs). 5 Credit default swaps (CDSs). 6 Remaining credit protection from non-investment grade monoline of USD 1.2 billion on sub-prime residential mortgage-backed securities (RMBS) CDOs and USD 0.6 billion on other RMBS CDOs is considered ineffective. 7 As of 31 December 2006, the notional amount of CDSs on US RMBS CDOs bought from monoline insurers was USD 6.7 billion and on other exposures USD 7.8 billion. The fair values of these CDSs were zero at that date. |
On 31 December 2007, the total fair value of assets held by UBS in connection with the US RLN program was USD 13.2 billion. The original credit protection of USD 3.8 billion is still intact. Cumulative fair value gains of USD 1.8 billion have been recognized on this credit protection in the income statement up to 31 December 2007 and the fair value of the remaining credit protection at 31 December 2007 was USD 2 billion. |
Exposure to monoline insurers | ||
The vast majority of UBS’s direct exposure to the monoline sector arises from over-the-counter (OTC) derivative contracts – mainly credit default swaps (CDSs). Across all asset classes, the total fair value of CDS protection purchased from monoline insurers on 31 December 2007 was USD 3.6 billion, after credit valuation adjustments of USD 957 million (CHF 1,091 million) in 2007, all of which were taken in |
Reference-linked note program | ||||||
Reference-linked notes (RLN) are credit-linked notes issued by UBS referenced to an underlying pool of assets which are consolidated on UBS’s balance sheet. The assets consist of a variety of fixed income positions, including corporate bonds, collateralized loan obligations, residential mortgage-backed securities (RMBSs), commercial mortgage-backed securities, collateralized debt obligations (CDOs) and other asset-backed securities. The proceeds of the notes provide UBS with credit protection | against defined default events in the underlying asset pool up to a certain percentage. The notes have a maturity that is generally longer than the life of the instruments included in the underlying pool. Through the lifetime of each RLN, UBS will realize losses if defaults in the underlying asset pool exceed the percentage protection, or if assets which do not ultimately default are sold at a loss. Up to maturity, UBS is subject to revenue volatility as the RLN program is | classified as held for trading under International Financial Reporting Standards (IFRS) and is therefore carried at fair value. Since the inception of the US RLN program, the credit protection has been valued using approaches that UBS considers to be consistent with market standard approaches for tranched credit protection. UBS seeks to actively manage its risk exposures in connection with the US RLN program via derivative and cash market positions. This can also contribute to revenue volatility. | ||||
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Risk management
Risk concentrations
Leveraged finance commitments | ||||||
As of | ||||||
USD billion | 31.12.071 | |||||
Total | 11.4 | |||||
Of which old deals | 5.6 | |||||
funded | 3.2 | |||||
Of which new deals | 5.8 | |||||
funded | 4.2 | |||||
1 The total equivalent position at 31 December 2006 was total USD 12.3 billion, of which the funded component was USD 0.9 billion. |
fourth quarter. Of these totals, USD 2.9 billion represents CDSs bought as protection for portfolios of US RMBS CDO, after credit valuation adjustments of USD 871 million (CHF 993 million) in fourth quarter. Direct exposure to monoline insurers is calculated as the sum of the fair values of individual CDSs. This, in turn, depends on the valuation of the instruments against which protection has been bought. A positive fair value, or a valuation gain, on the CDS is recognized if the fair value of the instrument it is intended to hedge is reduced. The table on the previous page shows the CDS protection bought from monoline insurers. It illustrates the notional amounts of the protection originally bought, the fair value of the underlying CDOs and the fair value of the CDSs both prior to and after credit valuation adjustments taken for these contracts in 2007. In fourth quarter 2007, UBS took credit valuation adjustments of USD 588 million (CHF 670 million) on CDSs on US RMBS CDOs purchased from a monoline insurer whose credit rating was downgraded to “non-investment grade”. These valuation adjustments reflect the degree to which UBS considers its claims against this monoline counterparty to be impaired. For risk management purposes, the underlying US RMBS CDOs are treated as unhedged on 31 December 2007 and are included in the super senior RMBS CDO exposure in the table on page 11. In its trading portfolio, UBS also has indirect exposure to monoline insurers through “monoline wrapped” securities issued by US states and municipalities, student loan programs and other asset-backed securities totaling approximately USD 11 billion on 31 December 2007 (approximately USD 8 billion on 31 December 2006). | ||
Exposure to auction rate certificates | ||
Auction rate certificates (ARCs) are long-term securities structured to allow frequent resetting of their coupon and, at the same time, the possibility for holders to redeem their investment, giving ARCs some of the characteristics of a |
short-term instrument. They are typically issued by US states, student loan programs, municipalities and related agencies and authorities, and may be wrapped by monoline insurers. An auction takes place at the beginning of each interest reset period to determine the coupon for that period. UBS sponsors ARCs programs and although it is not obligated to do so, it has, from time to time, provided liquidity to the auction process by buying securities when there were not enough bids from investors. As a result of the continued deterioration of credit markets and concerns about the financial status of monoline insurers, the demand for ARC securities has been falling since fourth quarter 2007. In first quarter 2008 a number of auctions failed and the market has become illiquid, leading to valuation uncertainties. On 31 December 2007, UBS had ARC positions in its trading inventory totaling USD 5.9 billion, of which USD 4.5 billion related to student loans. USD 1.9 billion of the student loans and USD 1.4 billion of the other ARCs are “monoline wrapped” and are included in the indirect exposures to monolines of USD 11 billion detailed above. There were no material writedowns on ARCs securities up to the end of 2007. On 31 December 2006, UBS had ARC positions totaling USD 1.0 billion, of which USD 0.3 billion related to student loans. USD 0.1 billion of the student loans and USD 0.7 billion of the other ARCs were monoline wrapped. | ||
Exposure to leveraged finance deals | ||
UBS has leveraged finance commitments entered into both before and after the market dislocation in July 2007. Transactions since this dislocation typically have pricing terms and covenant and credit protection that are more favorable to underwriters and investors than those entered into in the first half of 2007. On 31 December 2007, commitments entered into by UBS before the dislocation (“old deals”) amounted to USD 5.6 billion while those entered into subsequent to the dislocation (“new deals”) totaled USD 5.8 billion. |
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Risk management
Credit risk
Credit risk
Credit risk is the risk of financial loss resulting from failure by a client or counterparty to meet its contractual obligations to UBS. This can be caused by factors directly related to the counterparty, such as business or management problems, or from failures in the settlement process, for example on foreign exchange transactions, where UBS has honored its obligation but the counterparty fails to deliver the counter-value (settlement risk). Alternatively, it can be triggered by economic or political difficulties in the country in which the counterparty is based or where it has substantial assets (country risk). | ||
Sources of credit risk | ||
Credit risk is inherent in traditional banking products – loans, commitments to lend and contingent liabilities, such as letters of credit – and in “traded products” – derivative contracts such as forwards, swaps and options, repurchase agreements (repos and reverse repos), and securities borrowing and lending transactions. The risk control processes applied to these products are fundamentally the same, although the accounting treatment varies – they can be carried at amortized cost or fair value, depending on the type of instrument and, in some cases, the nature of the exposure. Many of the business activities of Global Wealth Management & Business Banking and the Investment Bank create credit risk. Global Wealth Management & Business Banking offers private and corporate customers in Switzerland and wealth management clients internationally a variety of credit products, although the majority of credit risks are well secured against financial collateral or other assets. The Investment Bank gives corporate, institutional, intermediary and alternative asset management clients access to the full range of credit and capital markets instruments across all product classes, and engages with other professional counterparties in its trading and risk management activities. | ||
Credit risk control organization and governance | ||
Effective credit risk control is critical to UBS’s safety and soundness. The credit risk control framework is based on the risk management and control principles, supported by credit policies. It has both qualitative and quantitative elements. UBS has established processes to ensure that risks are identified, assessed, pre-approved where necessary, and continuously monitored and reported. Measures and limits are applied to the credit risk of individual counterparties and counterparty groups, and the quality and diversification of portfolios and sub-portfolios are assessed, a key objective being to control risk concentrations. | ||
The Group Chief Credit Officer (Group CCO), who reports to the Group Chief Risk Officer (Group CRO), is responsible for implementing and maintaining this framework, supported by independent credit risk control units in the business groups who report to the Group CCO functionally and who continuously monitor and control credit risk. Their responsibilities include assessing the creditworthiness of individual counterparties and the adequacy and effectiveness of any security or credit hedges, and evaluating credit risk in portfolios, sub-portfolios and other aggregations, including country risk. The Chairman’s Office delegates authority to the Group Executive Board (GEB) and approves delegations by the GEB ad personam to the Group CCO and the business group CCOs. Further delegations are made to credit officers in the business groups. The level of credit authority delegated to holders depends on their seniority and experience and varies according to the quality of the counterparty and any associated security. These authorities encompass all aspects of the approval of credit risk, including settlement risk, and the determination of allowances, provisions and credit valuation adjustments for any impaired claims. | ||
Credit risk control | ||
Limits and controls The primary objective of quantitative controls is to avoid, as far as possible, undue credit risk concentrations. Concentrations of credit risk exist if clients are engaged in similar activities, or are located in the same geographical region or have comparable economic characteristics such that their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. UBS has established limits to constrain exposure to individual counterparties and counterparty groups and at portfolio and sub-portfolio levels, wherever risk concentrations are identified, including exposure to specific industries and countries, where appropriate. At the level of the individual counterparty and counterparty group, credit officers establish limits for all types of banking and traded products exposure, which cover not only the current outstanding amount and replacement values of contractual obligations but also contingent commitments and the potential future development of exposure on traded products. Credit engagements may not be entered into without the appropriate approvals and limits. Limits are applied in a variety of forms to portfolios or sectors, where necessary, to restrict risk concentrations or areas of higher risk, or to control the rate of portfolio growth. In particular for higher risk engagements, such as the Investment |
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Credit risk
Bank’s leveraged lending portfolio, the impact of variations in default rates and asset values is assessed using stress scenarios, taking into account risk concentrations. Stress loss limits are applied to portfolios where considered necessary, including limits on exposures to all but the best-rated countries. In establishing these controls, including the related authorities and approval processes, a distinction is made between those exposures which are to be held to maturity (“take and hold” exposures) and those which will be held only in the short term, pending distribution or risk transfer (“temporary exposures”). An example of temporary exposure is syndicated lending where the bulk of the original commitment will be distributed to other financial institutions or investors. For all exposures, the credit quality and cash flow generation capacity of the counterparty over the full term of the obligation are at the heart of the credit assessment. For temporary exposures, market liquidity and UBS’s distribution capabilities are also key considerations in the approval process. | ||
Risk mitigation UBS employs risk mitigation techniques for most of its credit portfolios, typically by taking security in the form of financial collateral (cash or marketable securities) or other assets, or through risk transfers or the purchase of credit protection. Taking security is the most common form of risk mitigation. Valuation standards are applied in assessing the mitigating effect of security. In lending to affluent private clients (lombard lending) the pledge of securities or cash is required. The Investment Bank also takes financial collateral in the form of marketable securities in much of its over-the-counter (OTC) derivatives activity and in its securities financing (securities lending / borrowing and repurchase / reverse repurchase) business. Where financial collateral is taken, discounts (“haircuts”) are generally applied to the market value, reflecting the quality, liquidity, volatility – and in some cases complexity – of the individual instruments. Exposures and collateral positions are continuously monitored, and margin calls and close-out procedures are enforced when the market value of collateral falls below predefined levels relative to the exposure. Collateral concentrations within individual client portfolios and across clients are also monitored where relevant and may affect the discount applied to specific collateral. For property financing, a mortgage over the relevant property is taken to secure the claim, considering the ability of the borrower to service the debt from income, and in accordance with UBS’s policy on loan to value ratios. OTC derivatives business is conducted almost without exception under bilateral master agreements, which generally allow for the close out and netting of all transactions in the event of default by the other party. UBS has also entered into two-way collateral agreements with market participants, under which either party can be required to provide collateral in the form of cash or marketable securities when exposure exceeds a pre-defined level. The OTC derivatives business with lower-rat- |
ed counterparties is generally conducted under one-way collateral agreements where the counterparty provides collateral to UBS. Under these agreements, only cash or very liquid collateral is accepted. UBS has standards for netting and collateral agreements, including assurance that contracts are legally enforceable in insolvency in the relevant jurisdictions. UBS has also made use of credit hedging, in the form of risk transfers, securitizations and purchase of credit protection, as part of its active management of credit risk to reduce concentrated exposures to individual names or sectors or in specific portfolios. Most of this credit hedging is achieved by transferring underlying credit risk to high-grade market counterparties using single name credit default swaps, executed under bilateral netting agreements and generally also under collateral agreements. Credit-pooling vehicles are also used to transfer risk to outside investors via credit-linked notes. In the internal risk reporting processes, the gross exposure before hedging as well as net exposure is tracked. The benefit of credit hedges is only recognized in credit risk measures if they cover future exposure increases to a high level of confidence, and offer protection against a wide range of credit events, including failure to pay, bankruptcy and insolvency, restructuring and repudiation, and moratorium. Proxy hedges (credit protection on a different but correlated name) and index or macro hedges are not recognized. The effectiveness of credit protection bought from a counterparty depends on the ability of the counterparty to meet any claim. Exposure to credit protection providers is monitored as part of overall credit exposure. Where there is significant correlation between the counterparty and the hedge provider (so-called “wrong-way risk”) UBS’s policy is not to recognize any benefit in credit risk measures. | ||
Reporting An essential element of the credit risk control process is transparent and objective risk reporting. The credit risk control units in the business groups are responsible for risk reporting to business group management covering both exposure to individual counterparties from all products and activities, and portfolio risks. They also supply information to a central unit under the Group CCO, which provides consolidated reports of counterparty and portfolio risk and country risk to senior management, the GEB, the Chairman’s Office, the Board of Directors (BoD) and regulators where applicable. | ||
Credit risk measurement | ||
Credit risk measurement is an essential component of the credit risk control framework. The measurement of credit exposure from a loan which is fully drawn is straightforward. By contrast, the estimation of credit exposure on a traded product, the value of which varies with changes in market variables, interim cash flows and the passage of time, is more complex and requires the use of models. The assessment of |
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portfolio risk also entails estimations of the likelihood of defaults occurring, of the associated loss ratios if they do, and of default correlations between counterparties. UBS has developed tools to support the quantification of credit risk of individual counterparties, applying the three generally accepted parameters: probability of default, loss given default and exposure at default. Models are also used to derive portfolio risk measures – expected loss, statistical loss and stress loss. Models are generally developed by dedicated units within the business groups. In line with UBS’s internal governance standards and the requirements of the new regulatory capital framework (Basel II), the development and maintenance of models conforms to global standards, and the models and their components are subject to independent verification by a specialist team in Corporate Center before implementation. The model owners in the business groups are responsible for monitoring performance once the models are deployed. Models must comply with established measurement standards to ensure consistency and allow meaningful aggregation of credit risk across all businesses. | ||
Credit risk parameters Three parameters are used to measure and control individual counterparty credit risk: | ||
– the“probability of default”,which is an estimate of the likelihood of the client or counterparty defaulting on its contractual obligations. This probability is assessed using rating tools tailored to the various categories of counter-parties. They are also calibrated to the UBS 15-class Masterscale, in order to ensure consistency in the quantification of default probabilities across all counterparties. Besides their use for credit risk measurement, ratings are an important element in setting credit risk authorities; | ||
– the likely recovery ratio on the defaulted claims, which is a function of the type of counterparty and any credit mitigation or support (such as security or guarantee), from which the“loss given default”is determined; | ||
– the current exposure to the counterparty and its possible future development, from which potential“exposure at default”is derived. For traded products such as OTC derivatives, the exposure at default is not a definitive number – it must be derived by modeling the range of possible outcomes. In measuring individual counterparty exposure against credit limits, UBS considers the “maximum likely exposure” measured to a high confidence level over the full life of all outstanding obligations, whereas in aggregating exposures to different counter-parties for portfolio risk measurement, the expected exposure to each counterparty at a given time horizon (usually one year) generated by the same model is used. | ||
These parameters are the basis for most internal measures of credit risk. They are also key inputs to the regulatory capital calculation under the Advanced Internal Rating Based |
approach of the new Basel Capital Accord (Basel II), which UBS has adopted from 1 January 2008, when the Accord came into force. | ||
è For a more detailed description of the three credit risk parameters discussed above, please refer to “Rating system design and estimation of credit risk parameters” on pages 29–30 of this report | ||
Expected loss Credit losses must be expected as an inherent cost of doing business. But the occurrence of credit losses is erratic in both timing and amount, and those that arise usually relate to transactions entered into in previous accounting periods. In order to reflect the fact that future credit losses are implicit in today’s portfolio, UBS uses the concept of “expected loss”. Expected credit loss is a statistically based concept which is used to estimate the annual costs that are expected to arise, on average, from positions in the current portfolio that become impaired. The expected loss for a given credit facility is a function of the three components described above – probability of default, loss given default and exposure at default. The expected loss figures for individual counterparties are aggregated to derive the expected credit loss for the whole portfolio. Expected loss is the foundation of credit risk quantification in all portfolios. It is an input to the valuation or pricing of some products, and the determinant of credit risk costs charged to the business in the management accounts, which differs from the credit loss expense reported under International Financial Reporting Standards (IFRS). Expected loss is also the starting point for the measurement of portfolio statistical loss and stress loss. | ||
è For more information on credit loss expenses, please refer to pages 28–29 of this report and Note 2a inFinancial Statements 2007 | ||
Statistical loss UBS uses a statistical model – Credit Value at Risk (“Credit VaR”) – to estimate the largest potential loss on the portfolio over one year measured to a specified level of confidence. The shape of the modeled loss distribution is driven by systematic default relationships amongst counterparties within and between segments. The results of this analysis provide an indication of the level of risk in the portfolio, and the way it develops over time. It is also an important input to the overall risk measures Earnings-at-risk and Capital-at-risk. | ||
è “Earnings-at-risk” and “Capital-at-risk” are described in the “Risk management and control” section of this report | ||
Stress loss Stress loss is a scenario-based measure which complements the statistical model. It is used to assess potential loss in various extreme but plausible scenarios in which it is assumed that one or more of the three key credit risk parameters deteriorates substantially according to a pattern that is |
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Risk management
Credit risk
typical for the chosen scenario. Stress tests are run regularly, and on an ad hoc basis as necessary, in order to identify adverse portfolio situations, particularly risk concentrations. All scenario results are monitored, and for certain portfolios and segments, stress loss is subject to limits. | ||
Composition of credit risk (Group) | ||
The measures of credit risk differ, depending on the purpose for which exposures are aggregated – financial accounting under IFRS, determination of regulatory capital, or UBS’s own internal management view, i.e. the way credit portfolio risk is managed. The table below starts with the IFRS view (“maximum exposure to credit risk”), and shows the adjustments made to reach the internal view (“gross credit exposure”). The gross credit exposure shown in the table is broadly aligned with the regulatory capital view, but does not include the potential future exposure that can arise on traded products which is an additional component of both the internal and regulatory capital views, as explained below. In general, none of the exposures in the table reflects the benefit of security held or other risk mitigation employed, such as hedging and risk transfers. The main differences between the internal and IFRS views of gross credit exposure are: | ||
– within banking products, cash collateral posted by UBS against negative replacement values on derivatives and other positions is not considered to be credit exposure but, rather, is reflected in the assessment of counterparty risk on the underlying positions. On the other hand, in its internal risk control view UBS considers certain financing which is conducted, |
for legal reasons, under repurchase- / reverse repurchase-like agreements, and shown as such under IFRS, to be loans; | ||
– the derivatives exposure shown under IFRS is the sum of all positive replacement values, offset by negative replacement values with the same counterparty only if the cash flows are intended to be settled on a net basis. Internally, UBS nets positive and negative replacement values with the same counterparty where the business is conducted under a bilateral master agreement which allows for close-out and netting of all transactions in the event of default by either party, and such agreements are judged to be legally enforceable in insolvency; and | ||
– under IFRS, securities lending / borrowing and repurchase / reverse repurchase transactions are shown on the balance sheet as UBS’s full claim on the counterparty without recognizing the counterclaim which the counter-party has for return of cash or securities on the same transactions. By contrast, for internal risk control purposes, the claims on and counterclaims from each counter-party are considered on each transaction on a net basis, and further netted across transactions where such netting is considered to be legally enforceable in insolvency. | ||
Note that under US Generally Accepted Accounting Principles (GAAP) a greater degree of netting is permitted than under IFRS for OTC derivatives replacement values and for securities lending / borrowing and repurchase / reverse repurchase transactions. UBS’s balance sheet figures for these types of transactions are not directly comparable to those of firms which report under US GAAP. |
Exposure to credit risk | ||||||||||||||||||||||||||||||
31.12.2007 | 31.12.2006 | |||||||||||||||||||||||||||||
IFRS1 | Valuation | IFRS1 | ||||||||||||||||||||||||||||
reported | Adjustments: balance sheet | and other | reported | |||||||||||||||||||||||||||
values2 | to regulatory capital view | adjustments | values2 | |||||||||||||||||||||||||||
Maximum | Consolidation | Gross | Maximum | |||||||||||||||||||||||||||
exposure to | scope | Capital view | credit | exposure to | Gross credit | |||||||||||||||||||||||||
CHF million | credit risk | adjustment | adjustments | exposure3 | credit risk | exposure3 | ||||||||||||||||||||||||
Cash and balances with central banks | 18,793 | (1 | ) | 0 | (2,358 | ) | 16,434 | 3,495 | 1,311 | |||||||||||||||||||||
Due from banks | 60,907 | (293 | ) | (1,928 | ) | (32,383 | ) | 26,303 | 50,426 | 25,810 | ||||||||||||||||||||
Loans | 335,864 | (136 | ) | (3,910 | ) | (50,984 | ) | 280,834 | 297,842 | 274,830 | ||||||||||||||||||||
Financial assets designated at fair value | 4,116 | 0 | 0 | 50 | 4,166 | 2,252 | 2,348 | |||||||||||||||||||||||
Contingent claims | 20,824 | 0 | 0 | (384 | ) | 20,440 | 17,908 | 17,654 | ||||||||||||||||||||||
Undrawn irrevocable credit facilities | 83,980 | 51 | 846 | (3,906 | ) | 80,971 | 97,287 | 83,428 | ||||||||||||||||||||||
Banking products | 524,484 | (379 | ) | (4,992 | ) | (89,965 | ) | 429,148 | 469,210 | 405,381 | ||||||||||||||||||||
Derivatives4 | 428,217 | 3,171 | (39 | ) | (292,371 | ) | 138,978 | 292,975 | 110,732 | |||||||||||||||||||||
Securities lending / borrowing5 | 207,063 | 0 | 0 | (184,060 | ) | 23,003 | 351,590 | 37,851 | ||||||||||||||||||||||
Repurchase / reverse repurchase agreements | 376,928 | 0 | 0 | (372,937 | ) | 3,991 | 405,834 | 10,019 | ||||||||||||||||||||||
Traded products | 1,012,208 | 3,171 | (39 | ) | (849,368 | ) | 165,972 | 1,050,399 | 158,602 | |||||||||||||||||||||
Total at the end of the year | 1,536,692 | 2,792 | (5,031 | ) | (939,333 | ) | 595,120 | 1,519,609 | 563,983 | |||||||||||||||||||||
Less: contra assets allowances, provisions and credit valuation adjustments | (1,978 | ) | (1,477 | ) | ||||||||||||||||||||||||||
Net of impairment losses recognized | 593,142 | 562,506 | ||||||||||||||||||||||||||||
1 International Financial Reporting Standards (IFRS). 2 These amounts are considered the best representation of “maximum exposure to credit risk” as defined by IFRS, measured gross, without taking into account collateral held or other credit enhancements and only netting in accordance with IFRS. 3 Gross credit exposure is an internal view of credit risk. 4 Positive replacement values, netted in accordance with IFRS or internal view as applicable. 5 Cash collateral on securities borrowed. |
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As explained in the Credit risk measurement section, UBS also measures, and generally applies limits to, credit exposure to individual counterparties and counterparty groups and measures risk across counterparties at various portfolio and sub-portfolio levels. In these calculations UBS also considers the potential development of replacement values of traded products over time as market risk factors change, interim payments are made and transactions mature, all of which can significantly alter the risk exposure profile over time. These potential developments are not reflected in the tables opposite and below, which reflect only the current exposures. | ||
The credit risk exposure reported in the table opposite also excludes UBS’s participation in the deposit insurance guarantee scheme under Swiss Banking Law, according to which Swiss banks and securities dealers are required to jointly guarantee an amount of up to CHF 4 billion for privileged client deposits in the event that another Swiss bank or securities dealer becomes insolvent. For the period 1 July 2007 to 30 June 2008, the Swiss Federal Banking Commission (SFBC) has established UBS’s share in the deposit insurance as CHF 846 million. |
Gross credit exposure by UBS internal ratings | ||||||||||||||||||||||||||
CHF million | Banking products | Traded products | Total exposure | |||||||||||||||||||||||
UBS internal rating | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||
0–1 | 30,540 | 5,265 | 42,852 | 34,148 | 73,392 | 39,413 | ||||||||||||||||||||
2–3 | 164,476 | 135,149 | 98,454 | 95,449 | 262,930 | 230,598 | ||||||||||||||||||||
4–5 | 113,955 | 119,926 | 15,210 | 19,973 | 129,165 | 139,899 | ||||||||||||||||||||
6–8 | 76,601 | 94,278 | 7,566 | 8,084 | 84,167 | 102,362 | ||||||||||||||||||||
9–12 | 38,875 | 44,711 | 915 | 760 | 39,790 | 45,471 | ||||||||||||||||||||
Total 0–12 (net of past due) | 424,447 | 399,329 | 164,997 | 158,414 | 589,444 | 557,743 | ||||||||||||||||||||
Impaired assets | 2,433 | 2,682 | 975 | 188 | 3,408 | 2,870 | ||||||||||||||||||||
Past due but not impaired | 2,268 | 3,370 | 2,268 | 3,370 | ||||||||||||||||||||||
Total | 429,148 | 405,381 | 165,972 | 158,602 | 595,120 | 563,983 | ||||||||||||||||||||
Gross credit exposure by business groups | ||||||||||||||||||||||||||||||||
Global Wealth Management & | ||||||||||||||||||||||||||||||||
Business Banking | Investment Bank | Other1 | UBS1 | |||||||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Cash and balances with central banks | 9,992 | 900 | 6,441 | 410 | 1 | 1 | 16,434 | 1,311 | ||||||||||||||||||||||||
Due from banks | 8,236 | 6,245 | 17,532 | 18,966 | 535 | 599 | 26,303 | 25,810 | ||||||||||||||||||||||||
Loans | 240,643 | 222,775 | 39,725 | 51,951 | 466 | 104 | 280,834 | 274,830 | ||||||||||||||||||||||||
Financial assets designated at fair value | 0 | 0 | 4,166 | 2,348 | 0 | 0 | 4,166 | 2,348 | ||||||||||||||||||||||||
Contingent claims | 15,929 | 13,138 | 4,500 | 4,516 | 11 | 0 | 20,440 | 17,654 | ||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 2,081 | 2,064 | 78,890 | 81,364 | 0 | 0 | 80,971 | 83,428 | ||||||||||||||||||||||||
Banking products | 276,881 | 245,122 | 151,254 | 159,555 | 1,013 | 704 | 429,148 | 405,381 | ||||||||||||||||||||||||
Derivatives | 2,735 | 1,273 | 136,149 | 109,437 | 94 | 22 | 138,978 | 110,732 | ||||||||||||||||||||||||
Securities lending / borrowing | 63 | 307 | 22,940 | 37,544 | 0 | 0 | 23,003 | 37,851 | ||||||||||||||||||||||||
Repurchase / reverse repurchase | 162 | 234 | 3,829 | 9,785 | 0 | 0 | 3,991 | 10,019 | ||||||||||||||||||||||||
agreements | ||||||||||||||||||||||||||||||||
Traded products | 2,960 | 1,814 | 162,918 | 156,766 | 94 | 22 | 165,972 | 158,602 | ||||||||||||||||||||||||
Total credit exposure, gross | 279,841 | 246,936 | 314,172 | 316,321 | 1,107 | 726 | 595,120 | 563,983 | ||||||||||||||||||||||||
Net of impairment losses recognized | 278,873 | 245,705 | 313,162 | 316,075 | 1,107 | 726 | 593,142 | 562,506 | ||||||||||||||||||||||||
1 Includes Global Asset Management, Corporate Center and Industrial Holdings. |
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Risk management
Credit risk
at fair value CHF 4 billion) which represents 52% of total gross credit exposure and 73% of total banking products exposure. Within this lending portfolio, CHF 249 billion (80%) is attributable to Global Wealth Management & Business Banking. Traded products exposure is incurred predominantly by the Investment Bank. The sections below provide further details of products, industry and rating distributions in the business group portfolios.
Composition of credit risk (business groups)
Global Wealth Management & Business Banking
low risk profile. The 11% of exposure secured by residential multi-family homes consists of rented apartment buildings. Loans and other credit engagements with individual clients, excluding mortgages, amounted to CHF 99 billion and are predominantly extended against the pledge of marketable securities. The volume of collateralized lending to private individuals rose by CHF 15 billion or 24% from the previous year. The increasing demand for this product, as in 2006, reflects the continuing low interest rate environment.
Global Wealth Management & Business Banking: development of impaired loans portfolio
CHF million, except where indicated | 2007 | 2006 | 2005 | 2004 | ||||||||||||
Total lending portfolio, gross, at year-end | 248,878 | 229,021 | 217,327 | 180,718 | ||||||||||||
New impaired loans | 323 | 345 | 532 | 537 | ||||||||||||
New allowances / provisions | 91 | 128 | 138 | 239 | ||||||||||||
New impairments as a % of total lending portfolio, gross | 0.13 | 0.15 | 0.24 | 0.30 | ||||||||||||
New allowances / provisions as a % of total lending portfolio, gross | 0.04 | 0.06 | 0.06 | 0.13 | ||||||||||||
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Global Wealth Management & Business Banking: distribution of banking products
exposure across UBS internal rating and loss given default buckets
As of 31.12.07 | Loss given default (LGD) buckets | Weighted average | ||||||||||||||||||||||
CHF million | Gross exposure | 0–25% | 26–50% | 51–75% | 76–100% | LGD (%) | ||||||||||||||||||
0 | 1,498 | 104 | 1,393 | 1 | 33 | |||||||||||||||||||
1 | 9,741 | 4 | 9,696 | 41 | 40 | |||||||||||||||||||
2 | 52,237 | 48,881 | 3,110 | 246 | 20 | |||||||||||||||||||
3 | 47,473 | 40,476 | 5,083 | 570 | 1,344 | 21 | ||||||||||||||||||
4 | 25,163 | 21,643 | 2,986 | 534 | 18 | |||||||||||||||||||
5 | 58,957 | 53,665 | 3,650 | 1,639 | 3 | 17 | ||||||||||||||||||
6 | 29,307 | 25,222 | 3,851 | 222 | 12 | 19 | ||||||||||||||||||
7 | 19,210 | 16,599 | 1,977 | 613 | 21 | 20 | ||||||||||||||||||
8 | 17,192 | 11,723 | 4,502 | 962 | 5 | 24 | ||||||||||||||||||
9 | 9,019 | 6,883 | 840 | 237 | 1,059 | 27 | ||||||||||||||||||
10 | 2,192 | 1,805 | 266 | 119 | 2 | 23 | ||||||||||||||||||
11 | 1,689 | 1,468 | 194 | 27 | 22 | |||||||||||||||||||
12 | 1,349 | 1,305 | 29 | 15 | 20 | |||||||||||||||||||
Total non-impaired | 275,027 | 229,778 | 37,577 | 5,226 | 2,446 | 21 | ||||||||||||||||||
Investment grade | 195,069 | 164,773 | 25,918 | 3,031 | 1,347 | |||||||||||||||||||
Sub-investment grade | 79,958 | 65,005 | 11,659 | 2,195 | 1,099 | |||||||||||||||||||
Impaired and defaulted1 | 1,854 | |||||||||||||||||||||||
Total banking products | 276,881 | 229,778 | 37,577 | 5,226 | 2,446 | |||||||||||||||||||
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Risk management
Credit risk
Investment Bank
Banking products exposure
into account. Of this net amount, CHF 31.3 billion was considered temporary exposure and CHF 69.4 billion take and hold exposure. The table below shows the composition of the Investment Bank’s gross banking products exposure, the hedges and other risk mitigation and the net exposure in total and for the take and hold portfolio. Compared with the end of 2006, the net take and hold exposure fell by one-third as a result of active risk reduction and management of balance sheet and risk-weighted asset usage.
Investment Bank: banking products
CHF million | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||
Sub- | Impaired | Sub- | Impaired | |||||||||||||||||||||||||||||
Investment | investment | and | Investment | investment | and | |||||||||||||||||||||||||||
grade | grade | defaulted | Total | grade | grade | defaulted | Total | |||||||||||||||||||||||||
Gross banking products exposure | 103,848 | 46,755 | 651 | 151,254 | 98,801 | 60,503 | 251 | 159,555 | ||||||||||||||||||||||||
Risk transfers1 | 2,901 | (2,864 | ) | (37 | ) | 2,576 | (2,551 | ) | (25 | ) | ||||||||||||||||||||||
Less: specific allowances for credit losses and loan loss provisions | 0 | 0 | (126 | ) | (126 | ) | 0 | 0 | (101 | ) | (101 | ) | ||||||||||||||||||||
Net banking products exposure | 106,749 | 43,891 | 488 | 151,128 | 101,377 | 57,952 | 125 | 159,454 | ||||||||||||||||||||||||
Less: credit protection bought (credit default swaps, | (43,012 | ) | (7,391 | ) | (29 | ) | (50,432 | ) | (28,245 | ) | (4,410 | ) | (1 | ) | (32,656 | ) | ||||||||||||||||
credit-linked notes)2 | ||||||||||||||||||||||||||||||||
Net banking products exposure, after application of credit hedges | 63,737 | 36,500 | 459 | 100,696 | 73,132 | 53,542 | 124 | 126,798 | ||||||||||||||||||||||||
Less: temporary exposure | (11,091 | ) | (20,160 | ) | (30 | ) | (31,281 | ) | (6,833 | ) | (21,354 | ) | (28,187 | ) | ||||||||||||||||||
Net take and hold banking products exposure | 52,646 | 16,340 | 429 | 69,415 | 66,299 | 32,188 | 124 | 98,611 | ||||||||||||||||||||||||
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a total of CHF 50 billion in credit hedges in place against banking products exposure.
aggregate reduced by CHF 16 billion (–49%) – decreased mainly in the 0–25% LGD bucket as exposure to US mortgage originators was wound down. At the end of the year UBS had no credit risk exposure to any sub-prime mortgage originators. It should be noted that exposure distributions shown elsewhere in this section refer only to gross or net exposure and do not take recovery expectations into account.
Investment Bank: distribution of net take and hold banking products
exposure across UBS internal rating and loss given default buckets
As of 31.12.07 | Loss given default (LGD) buckets | Weighted | ||||||||||||||||||||||
CHF million | Exposure1 | 0–25% | 26–50% | 51–75% | 76–100% | average LGD (%) | ||||||||||||||||||
0 and 1 | 9,388 | 27 | 8,632 | 617 | 112 | 50 | ||||||||||||||||||
2 | 19,309 | 2,396 | 15,382 | 534 | 997 | 44 | ||||||||||||||||||
3 | 11,894 | 384 | 9,606 | 919 | 985 | 48 | ||||||||||||||||||
4 | 8,059 | 588 | 6,083 | 968 | 420 | 45 | ||||||||||||||||||
5 | 3,996 | 1,004 | 1,686 | 1,140 | 166 | 44 | ||||||||||||||||||
6 | 1,995 | 262 | 1,223 | 425 | 85 | 45 | ||||||||||||||||||
7 | 2,184 | 142 | 1,630 | 379 | 33 | 46 | ||||||||||||||||||
8 | 2,383 | 214 | 1,128 | 771 | 270 | 51 | ||||||||||||||||||
9 | 3,659 | 887 | 2,254 | 514 | 4 | 36 | ||||||||||||||||||
10 | 2,865 | 1,173 | 1,138 | 457 | 97 | 35 | ||||||||||||||||||
11 | 2,579 | 1,256 | 871 | 380 | 72 | 31 | ||||||||||||||||||
12 | 675 | 509 | 117 | 29 | 20 | 20 | ||||||||||||||||||
Total non-impaired | 68,986 | 8,842 | 49,750 | 7,133 | 3,261 | 43 | ||||||||||||||||||
Investment grade | 52,646 | 4,399 | 41,389 | 4,178 | 2,680 | 44 | ||||||||||||||||||
Sub-investment grade | 16,340 | 4,443 | 8,361 | 2,955 | 581 | 39 | ||||||||||||||||||
Impaired and defaulted | 429 | 360 | 54 | 15 | 0 | 12 | ||||||||||||||||||
Net take and hold exposure | 69,415 | 9,202 | 49,804 | 7,148 | 3,261 | 43 | ||||||||||||||||||
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Risk management
Credit risk
Settlement risk
Settlement risk arises in transactions involving exchange of value when UBS must honor its obligation to deliver without first being able to determine that the counter-value has been received. Market volumes have continued to rise year-on-year but UBS has expanded its own transaction volume without increasing settlement risk by the same proportion, through the use of multilateral and bilateral arrangements. In fourth quarter 2007, settlement risk on 78% of gross settlement volumes was eliminated through risk mitigation.
Country risk
UBS assigns ratings to all countries to which it has exposure. Sovereign ratings express the probability of occurrence of a country risk event that would lead to impairment of UBS’s claims. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty rating classes (as described under “Probability of default”). In the case of country rating, the three lowest classes (12 to 14) are designated “distressed”.
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The potential financial impact of severe emerging markets crises is assessed by stress testing. This entails identifying countries that might be subject to a potential crisis event and determining potential loss, making conservative assumptions about potential recovery rates depending on the types of transaction involved and their economic importance to the affected countries.
Country risk exposure
of default of 5% or more, of which CHF 556 million was to those with a probability of default of 8% or more. Only CHF 81 million was to distressed countries, which have a one-year probability of default of 13% or more and where restrictions are highly probable or have already materialized. This represents less than 0.2% of UBS’s emerging markets exposure and the associated risk is immaterial. | ||
Impairment and default – distressed claims | ||
UBS has a number of classifications for distressed claims. A loan carried at amortized cost is considered to be“past due”when a significant payment has been missed. It is classified as“non-performing”where payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that the claim will be settled by later payments or the liquidation of collateral; or when insolvency proceedings have commenced against the borrower; or when obligations have been restructured on concessionary terms. Any claim, regardless of accounting treatment, is classified as“impaired”if UBS considers it probable that it will suffer a loss on that claim as a result of the obligor’s inability to meet its obligations according to the contractual terms, and after realization of any available collateral. “Obligations” in this context include interest payments, principal repayments or other payments due, for example under an OTC derivative contract or a guarantee. The recognition of impairment in the financial statements depends on the accounting treatment of the claim. For products carried at amortized cost, impairment is recognized through the creation of an allowance or provision, which is charged to the income statement as credit loss expense. For products recorded at fair value, impairment is recognized through a credit valuation adjustment, which is charged to the income statement through the net trading income line. UBS has policies and processes to ensure that the carrying values of impaired claims are determined in compliance with IFRS on a consistent and fair basis, especially for those im- |
Emerging markets exposure by major geographical area and product type
CHF million | Total | Banking products | Traded products | Financial investments | Tradable assets | |||||||||||||||||||||||||||||||||||
As of | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||||||||
Emerging Europe | 5,439 | 4,663 | 1,590 | 1,476 | 1,071 | 1,110 | 151 | 104 | 2,627 | 1,973 | ||||||||||||||||||||||||||||||
Emerging Asia | 22,039 | 15,904 | 5,653 | 4,266 | 6,210 | 3,401 | 2,123 | 1,325 | 8,053 | 6,912 | ||||||||||||||||||||||||||||||
Emerging America | 8,778 | 7,282 | 1,486 | 1,024 | 2,288 | 2,267 | 150 | 132 | 4,854 | 3,859 | ||||||||||||||||||||||||||||||
Middle East / Africa | 5,007 | 2,768 | 2,414 | 1,145 | 1,603 | 892 | 0 | 19 | 990 | 712 | ||||||||||||||||||||||||||||||
Total | 41,263 | 30,617 | 11,143 | 7,911 | 11,172 | 7,670 | 2,424 | 1,580 | 16,524 | 13,456 | ||||||||||||||||||||||||||||||
Temporary exposures1 | 3,049 | 2,160 | ||||||||||||||||||||||||||||||||||||||
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Risk management
Credit risk
paired claims for which no market estimate or benchmark for the likely recovery value is available. The credit controls applied to valuation and workout are the same for both amortized cost and fair-valued credit products. Each case is assessed on its merits, and the workout strategy and estimation of cash flows considered recoverable are independently approved by the credit risk control organization. Portfolios of claims carried at amortized cost with similar credit risk characteristics are also assessed for collective impairment. A portfolio is considered impaired on a collective basis if there is objective evidence to suggest that it contains impaired obligations but the individual impaired items cannot yet be identified. | ||
è Note: portfolios considered impaired on a collective basis are not included in the totals of impaired loans in the tables on pages 20, 21 and 23 of this report or in Note 9c inFinancial Statements 2007 | ||
The assessment of collective impairment differs depending on the nature of the underlying obligations. In UBS’s retail businesses, where delayed payments are routinely seen, UBS typically reviews individual positions for impairment only after they have been in arrears for a certain time. To cover the time lag between the occurrence of an impairment event and its identification, collective loan loss allowances are established, based on the expected loss measured for the portfolio over the average period between trigger events and their identification for individual impairments. Collective loan loss allowances of this kind are not required for corporate and investment banking businesses because individual counterparties and exposures are continuously monitored and impairment events are identified at an early stage. Additionally, for all portfolios, UBS assesses each quarter – or on an ad hoc basis if necessary – whether there has been any previously unforeseen development which might result in impairments which cannot be immediately identified individually. Such events could be stress situations such as a natural disaster or a country crisis, or they could result from structural changes in, for example, the legal or regulatory environment. To determine whether an event-driven collective impairment exists, a set of global economic drivers is regularly assessed for the most vulnerable countries and, on a case by case basis, the impact of specific potential impairment events since the last assessment is reviewed. Again, the expected loss parameters of the affected sub-portfolios are the starting point for determining the collective impairment, adjusted as necessary to reflect the severity of the event in question. | ||
Past due but not impaired loans | ||
The table opposite provides an overview of the aging of past due but not impaired loans. These loans have suffered missed payments but are not considered impaired because UBS ex- |
pects ultimately to collect all amounts due under the contractual terms of the loans or with equivalent value. | ||
Compared with 31 December 2006, the past due exposure has decreased by CHF 1.1 billion, primarily as a result of improved processes to identify and settle overdue amounts. | ||
Impaired loans, allowances and provisions The table opposite shows that allowances and provisions for credit losses decreased by 12.6%, to CHF 1,164 million on 31 December 2007 from CHF 1,332 million on 31 December 2006. Note 9b inFinancial Statements 2007provides further details of the changes in allowances and provisions for credit losses during the year. In accordance with International Accounting Standard (IAS) 39, UBS has assessed its portfolios of claims with similar credit risk characteristics for collective impairment. On 31 December 2007, allowances and provisions for collective impairment amounted to CHF 34 million. The gross impaired lending portfolio decreased to CHF 2,392 million on 31 December 2007 from CHF 2,628 million on 31 December 2006. The ratio of the impaired lending portfolio to the total lending portfolio (both measured gross) improved to 0.6% on 31 December 2007 from 0.8% on 31 December 2006. In general, Swiss practice is to write off loans only on final settlement of bankruptcy proceedings, sale of the underlying assets, or formal debt forgiveness. By contrast, US practice is generally to write off non-performing loans, in whole or in part, much sooner, thereby reducing the amount of such loans and corresponding allowances recorded. A consequence of applying the Swiss approach is that, for UBS, recoveries of amounts written off in prior accounting periods tend to be small, and the level of outstanding impaired loans as a percentage of gross loans tends to be higher than for its US peers. | ||
Loans or receivables with a carrying amount of CHF 126 million and CHF 48 million were reclassified from impaired to performing during 2007 and 2006 either because they had been renegotiated and the new terms and conditions met normal market criteria for the quality of the obligor and type of loan, or because there had been an improvement in the financial position of the obligor, enabling it to repay any past due amounts such that future principal and interest are deemed to be fully collectible in accordance with the original contractual terms. Collateral held against the impaired loans portfolio consists in most cases of real estate. It is UBS policy to dispose of foreclosed real estate as soon as practicable. The carrying amount of foreclosed property recorded in the balance sheet under Other assets at the end of 2007 and 2006 amounted to CHF 122 million and CHF 248 million respectively. UBS seeks to liquidate collateral in the form of financial assets in the most expeditious manner, at prices considered fair. This may require that it purchases assets for its own account, where permitted by law, pending orderly liquidation. |
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Past due but not impaired loans | ||||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||||
1–10 days | 515 | 942 | ||||||||
11–30 days | 1,381 | 410 | ||||||||
31–60 days | 74 | 544 | ||||||||
61–90 days | 36 | 463 | ||||||||
> 90 days | 262 | 1,011 | ||||||||
Total | 2,268 | 3,370 | ||||||||
Allowances and provisions for credit losses | ||||||||||||||||||||||||||||||||
Global Wealth Management & | ||||||||||||||||||||||||||||||||
CHF million | Business Banking | Investment Bank1 | Other2 | UBS1 | ||||||||||||||||||||||||||||
As of | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Due from banks | 8,237 | 6,245 | 52,164 | 43,612 | 507 | 506 | 60,908 | 50,363 | ||||||||||||||||||||||||
Loans | 240,641 | 222,776 | 95,760 | 76,188 | 466 | 104 | 336,867 | 299,068 | ||||||||||||||||||||||||
Total lending portfolio, gross | 248,878 | 229,021 | 147,924 | 119,800 | 973 | 610 | 397,775 | 3 | 349,431 | 3 | ||||||||||||||||||||||
Allowances for credit losses | (908 | ) | (1,159 | ) | (123 | ) | (97 | ) | 0 | 0 | (1,031 | ) | (1,256 | ) | ||||||||||||||||||
Total lending portfolio, net | 247,970 | 227,862 | 147,801 | 119,703 | 973 | 610 | 396,744 | 3 | 348,175 | 3 | ||||||||||||||||||||||
Impaired lending portfolio, gross | 1,820 | 2,507 | 572 | 121 | 0 | 0 | 2,392 | 2,628 | ||||||||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | (740 | ) | (1,034 | ) | (364 | ) | (25 | ) | 0 | 0 | (1,104 | ) | (1,059 | ) | ||||||||||||||||||
Impaired lending portfolio, net of collateral | 1,080 | 1,473 | 208 | 96 | 0 | 0 | 1,288 | 1,569 | ||||||||||||||||||||||||
Allocated allowances for impaired lending portfolio | 874 | 1,121 | 123 | 97 | 0 | 0 | 997 | 1,218 | ||||||||||||||||||||||||
Other allowances and provisions | 94 | 110 | 73 | 4 | 0 | 0 | 167 | 114 | ||||||||||||||||||||||||
Total allowances and provisions for credit losses | 968 | 1,231 | 196 | 101 | 0 | 0 | 1,164 | 1,332 | ||||||||||||||||||||||||
Of which collective loan loss provisions and allowances | 34 | 38 | 0 | 0 | 0 | 0 | 34 | 38 | ||||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||||||
Allowances and provisions as a % of total lending portfolio, gross | 0.4 | 0.5 | 0.1 | 0.1 | 0.0 | 0.0 | 0.3 | 0.4 | ||||||||||||||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 0.7 | 1.1 | 0.4 | 0.1 | 0.0 | 0.0 | 0.6 | 0.8 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 48.0 | 44.7 | 21.5 | 80.2 | N/A | N/A | 41.7 | 46.3 | ||||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of Collateral | 80.9 | 76.1 | 59.1 | 101.0 | N/A | N/A | 77.4 | 77.6 | ||||||||||||||||||||||||
1 Figures reflect International Financial Reporting Standards (IFRS) reported values and, for 31 December 2006, the reclassification of prime brokerage as explained Note 1 inFinancial Statements 2007. 2 Includes Global Asset Management and Corporate Center. 3 Excludes CHF 27 million and CHF 93 million gross loans from Industrial Holdings for the years ended 31 December 2007 and 31 December 2006. |
Impaired assets by type of financial instrument | ||||||||||||||||||
Allocated | ||||||||||||||||||
Estimated | allowances, | |||||||||||||||||
liquidation | provisions and | |||||||||||||||||
proceeds of | credit valuation | Net impaired | ||||||||||||||||
CHF million | Impaired exposure | collateral | adjustments | exposure | ||||||||||||||
Impaired loans | 2,392 | (1,104 | ) | (997 | ) | 291 | ||||||||||||
Impaired contingent claims | 41 | 0 | (33 | ) | 8 | |||||||||||||
Defaulted derivatives contracts | 905 | 0 | (814 | ) | 91 | |||||||||||||
Defaulted securities financing transactions | 70 | 0 | (70 | ) | 0 | |||||||||||||
Total 31.12.07 | 3,408 | (1,104 | ) | (1,914 | ) | 390 | ||||||||||||
Total 31.12.06 | 2,870 | (1,059 | ) | (1,399 | ) | 412 | ||||||||||||
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Risk management
Credit risk
Impaired assets by region and time elapsed since impairment1
Time elapsed since impairment | ||||||||||||||||||||||||
CHF million | 0–90 days | 91–180 days | 181 days–1 year | 1 year–3 years | > 3 years | Total | ||||||||||||||||||
Switzerland | 135 | 41 | 89 | 326 | 1,306 | 1,897 | ||||||||||||||||||
Europe | 33 | 11 | 2 | 22 | 80 | 148 | ||||||||||||||||||
North America / Caribbean | 1,221 | 4 | 17 | 1 | 35 | 1,278 | ||||||||||||||||||
Latin America | 12 | 22 | 0 | 14 | 3 | 51 | ||||||||||||||||||
Asia Pacific | 0 | 5 | 0 | 1 | 12 | 18 | ||||||||||||||||||
Middle East / Africa | 0 | 0 | 0 | 0 | 16 | 16 | ||||||||||||||||||
Total 31.12.07 | 1,401 | 83 | 108 | 364 | 1,452 | 3,408 | ||||||||||||||||||
Allocated allowances, provisions and credit valuation adjustments | (813 | ) | (26 | ) | (40 | ) | (154 | ) | (881 | ) | (1,914 | ) | ||||||||||||
Carrying value | 588 | 57 | 68 | 210 | 571 | 1,494 | ||||||||||||||||||
Estimated liquidation proceeds of collateral | (436 | ) | (26 | ) | (55 | ) | (146 | ) | (441 | ) | (1,104 | ) | ||||||||||||
Net impaired assets | 152 | 31 | 13 | 64 | 130 | 390 | ||||||||||||||||||
The table above shows the geographical breakdown and aging of the impaired assets portfolio on 31 December 2007. This portfolio includes not only impaired loans, but also impaired off-balance sheet claims and defaulted derivatives and repurchase / reverse repurchase contracts, which are subject to the same workout and recovery processes.
Credit loss expense
UBS’s financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the income statement in any period is the sum of net allowances and direct write-offs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, for internal management reporting, credit loss expense is based on the expected loss concept described under “Credit risk measurement”. To hold the business groups accountable for credit
losses actually incurred, they are additionally charged or refunded the difference between actual credit loss expense and expected credit loss, amortized over a three-year period. The difference between the amounts charged to the business groups in the management accounts (“adjusted expected credit loss”) and the credit loss expense recorded at Group level is reported in Corporate Center.
è | For further information on adjusted expected credit loss, see Note 2a inFinancial Statements 2007 |
From first quarter 2008, as part of the transition to the new Capital Accord (Basel II), UBS will cease using the adjusted expected credit loss concept in management accounts and will no longer report adjusted expected credit losses in its quarterly reports. Expected loss as a risk measure will, however, continue to be a key part of the overall credit risk framework.
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mortgage market dislocation had no impact on Global Wealth Management & Business Banking figures. | ||
Rating system design and estimation of credit risk parameters | ||
Probability of default UBS assesses the likelihood of default of individual counterparties using rating tools tailored to the various counterparty segments. Probability of default is summarized in a common Masterscale, shown below, which segments clients into 15 rating classes, two being reserved for cases of impairment or default. The UBS Masterscale reflects not only an ordinal ranking of counterparties, but also the range of default probabilities defined for each rating class, and in order to ensure consistency in determining default probabilities, all rating tools must be calibrated to the common Masterscale. This approach means that clients migrate between rating classes as UBS’s assessment of their probability of default changes. The performance of rating tools, including their predictive power with regard to default events, is regularly validated and model parameters are adjusted as necessary. External ratings, where available, are used to benchmark UBS’s internal default risk assessment. The ratings of the major rating agencies shown in the table are linked to the internal rating classes based on the long-term average 1-year default rates for each external grade. Observed defaults per agency rating category vary year-on-year, especially over an economic cycle, and therefore UBS does not expect the actual number of defaults in its equivalent rating band in any given period to equal the rating agency average. UBS monitors the long-term average default rates associated with external rating classes. If these long-term averages were ob- |
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 | ||||||||
served to have changed in a material and permanent way, their mapping to the Masterscale would be adjusted
Loss given default
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Risk management
Credit risk
Exposure at default
For all traded products, the exposure at default is derived from the same Monte Carlo simulation of potential market moves in all relevant risk factors, such as interest rates and exchange rates, based on estimated correlations between the risk factors. This ensures a scenario-consistent estimation of exposure at default across all traded products at counterparty and portfolio level. The randomly simulated sets of risk factors are then used as inputs to product specific valuation models to generate valuation paths, taking into account the impact of maturing contracts and changing collateral values, including the ability to call additional collateral.
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Risk management
Market risk
Market risk
Market risk is the risk of loss from changes in market variables. There are two broad categories of variables – general market risk factors and idiosyncratic components. General market risk factors are variables which are driven by macroeconomic, geopolitical and other market-wide considerations, independent of any instrument or single name. They include the level, slope or shape of yield curves (interest rates), the levels of equity market indices and exchange rates, prices of energy, metals and commodities, and the general level of credit spreads – the yield paid by borrowers above that on risk-free securities. Associated volatilities and correlations between risks factors – which may be unobservable or only indirectly observable – are also considered to be general market risk factors. Idiosyncratic components are those that cannot be explained by general market moves – broadly, elements of the prices of debt and equity instruments and derivatives (including derivative securities and basket products) linked to them, that result from factors and events specific to individual names. UBS discloses its market risk in terms of statistical loss using its proprietary Value at Risk (“VaR”) model, but internally also applies stress measures and a variety of concentration and other quantitative and qualitative controls. | ||
In 2007, the market for US residential mortgage-related products – a previously large and highly liquid market – suffered extreme moves and severe dislocation. Although, conceptually, the market risk framework includes appropriate types of controls, their detailed implementation did not cover all the dimensions of risk measurement and aggregation which, in the extreme events of 2007, proved to be necessary. The Investment Bank had accumulated positions, predominantly in highly rated instruments, which were not identified as concentrations. Enhancements have been made and will continue to be made to reflect the lessons learnt. | ||
è Further detail is provided in the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report | ||
Sources of market risk | ||
UBS takes both general and idiosyncratic market risks in its trading activities, and some non-trading businesses create general market risks. | ||
Trading | ||
Most of UBS’s trading activity is in the Investment Bank. It includes market-making, facilitation of client business and proprietary position taking in the cash and derivative mar- |
kets for equities, fixed income, interest rates, foreign exchange, energy, metals and commodities. | ||
The fixed income trading area of fixed income, currencies and commodities (FICC) carries inventory, including exposures to residential and commercial real estate, corporate and consumer credit, and US municipal and student loan markets. Credit spread exposure from FICC positions is generally the largest contributor to VaR. Exposure to movements in the level and shape of yield curves arises in all the Investment Bank’s trading activities but predominantly in parts of FICC. Exposure to directional interest rate movements varies depending on client flows and traders’ views of the markets. It is often these variations that drive changes in the level of Investment Bank VaR, although the impact of any position or change in position depends on the composition of the whole portfolio at the time. UBS is active in all major equity markets and an increasing number of newer markets. Equity risk is the other major contributor to Investment Bank market risk, partly from index-based transactions but also from individual stocks, giving rise to idiosyncratic as well as general market risk. A significant component of equity VaR is event risk from proprietary positions, which are taken, for example, to capture arbitrage opportunities or price movements resulting from mergers and acquisitions. UBS trades in large volumes in currencies, and to a lesser extent in energy, metals and commodities, but the contribution from these activities to overall market risk has generally been relatively small. | ||
The asset management and wealth management businesses carry small trading positions, principally to support client activity. The market risk from these positions is not material to UBS as a whole. Trading businesses are subject to a variety of market risk limits within which traders manage their risks according to their view of the market, employing a variety of hedging and risk mitigation strategies. Senior management and risk controllers may, however, give instructions for risk to be reduced, even when limits are not exceeded, if particular positions or the general levels of exposure are considered inappropriate. Hedging and mitigation strategies are then discussed and agreed with trading management. | ||
Non-trading | ||
In the Investment Bank, significant non-trading interest rate risk and all non-trading foreign exchange risks are captured, controlled and reported under the same risk management and control framework as trading risk. |
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Risk management
Market risk
In the other business groups, exposures to general market risk factors – primarily interest rates and exchange rates – also arise from non-trading activities. Market risks are generally transferred to the Investment Bank or Treasury, who manage the positions as part of their overall portfolios within their allocated limits. The largest items are the interest rate risks in Global Wealth Management & Business Banking. All risk transfers take place according to approved transfer pricing mechanisms. Market risks that are retained by the other business groups are not significant relative to UBS’s overall risk, and all exposures are subject to market risk measures and controls. With the exception of structural currency exposures, all non-trading currency and commodity positions are subject to market risk regulatory capital and are therefore generally captured in VaR, although such positions do not contribute significantly to overall VaR. Treasury also assumes market risk from its balance sheet and capital management responsibilities. Treasury finances non-monetary balance sheet items such as bank property and equity investments in associated companies; it also manages interest rate and foreign exchange risks resulting from the deployment of UBS’s consolidated equity, from structural foreign exchange positions and from non-Swiss franc revenues and costs. The market risk limits allocated to Treasury cover both the risks resulting from these responsibilities, and those transferred from other business groups. The limits allow them flexibility to pre-hedge or delay hedging if desired, both to manage large flows and to take advantage of market movements. | ||
è Treasury’s risk management activities are explained in more detail in the “Treasury and capital management” section of this report | ||
Exposure to single names arising from debt instruments, such as loans, which are not originated or acquired as part of a trading activity is controlled under the credit risk framework. Neither idiosyncratic nor credit spread risk on these instruments is captured under the market risk framework. Credit spread risk is, however, a material component of the risk on the Investment Bank’s syndicated financing business and the credit spread exposures from this activity are reported to senior management alongside those on the trading inventory. The Investment Bank hedges an increasing proportion of its credit exposure. Specific hedges, such as credit default swaps on the same name, are reflected in credit risk measures, but other types of hedge may also be used for exposure management – for example, credit indices or proxy hedges on other names. Hedges of this type are treated as open positions for risk control purposes and are captured under the market risk framework. Risk on equity investment positions, including private equity, is not controlled under the market risk framework. | ||
è For details on risk control please see the “Investment positions” section of this report |
Risk control organization, governance and structure | ||
The Group Head of Market Risk, reporting to the Group Chief Risk Officer (Group CRO), is responsible for development of the market risk control framework. There is a CRO in each business group and a designated CRO for Treasury. The Group Head of Market Risk, the business group CROs and their teams are responsible for the independent control of market risk. It is the primary responsibility of traders to identify the risks inherent in their activities, including those arising from new businesses and products, and from structured transactions. The independent controllers are responsible for ensuring that identified risks are completely and accurately captured in risk measurement systems and appropriately constrained by portfolio and concentration controls. They are also responsible for assessing the reasonableness of reported risk, particularly in relation to the revenues generated on the risk positions – an important step in identifying risks that are not adequately reflected in risk measures. The Investment Bank CRO organization provides market risk measurement and reporting support to all business groups and, in close cooperation with the Group Head of Market Risk, is responsible for the development and ongoing enhancement of market risk measures, including the models used to measure VaR, stress loss and risk on tradable single name exposures. The Chairman’s Office delegates market risk authority to the GEB and approves delegations by the GEB ad personam to the Group CRO, the Group Head of Market Risk and the business group CROs. Further delegations are also made to market risk officers in the business groups. For many trading businesses, standard transactions within approved business lines and limits do not require prior risk control approval. Rather, risk management and risk control authority holders approve the retention of positions or give instructions for risk to be reduced based on subsequent review. Large transactions such as security underwritings and transactions creating less liquid risks – particularly structured and complex transactions – do, however, require pre-approval, as do temporary increases in limits to accommodate new transactions or positions. Standard forms of market risk measures, limits and controls are applied to portfolios and risk concentrations. Other forms of measurement and control are developed, where necessary, for individual risk types, particular books and specific exposures. The quantitative controls are complemented by qualitative controls geared to the prompt identification, assessment, measurement and monitoring of market risks. Risks that are not well reflected by standard measures are subject to additional controls, potentially including transaction level pre-approval and specific limits. UBS’s policy requires that models used for valuation or which feed risk positions to risk control systems are subject |
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to independent verification by specialist quantitative units in the CRO organization. UBS’s approach to valuation of instruments for which no directly observable market price is available is described in Note 26 inFinancial Statements 2007.Valuation adjustments for model uncertainty are applied where appropriate, consistent with accounting requirements. Reporting is an important component of the qualitative framework and UBS therefore has processes requiring regular reporting to senior managment in the business groups, the Group Head of Market Risk and Group CRO, and the GEB, Chairman’s Office and Board of Directors (BoD). | ||
Utilizations of most limits, including all major portfolio and concentration limits, are reported daily and all excesses are investigated. Daily reports, including commentary, on material risk positions are provided to senior management in the business groups and to the Group Head of Market Risk and Group CRO. Monthly and quarterly reports, including both quantitative and qualitative information, are prepared in the business groups, and these provide the basis for consolidated reports to the GEB, the Chairman’s Office and the BoD. | ||
Risk measures | ||
UBS has two major portfolio measures of market risk – VaR and stress loss – which are common to all business groups. They are complemented by concentration risk measures and supplementary controls. Concentration limits are tailored to the nature of the activities and the risks they create. They therefore differ between, for example, the Investment Bank, where the risks are most varied and complex, and Treasury, which carries market risk in a limited range of risk types and not generally in complex instruments. Supplementary limits are established on portfolios, sub-portfolios, asset classes or products for specific purposes where standard limits are not considered to provide comprehensive control. These “operational limits” are intended to address concerns about, for example, market liquidity or operational capacity. They may also be applied to complex products for which not all model input parameters are observable, and which thus create difficulties in valuation and risk measurement. Operational limits can take a variety of forms including values (market, nominal or notional) or risk sensitivities. The ways in which operational limits are applied have been expanded following the experience of 2007. | ||
è For further information, please see the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report | ||
Value at Risk (VaR) | ||
VaR is a statistically based estimate of the potential loss on the current portfolio from adverse movements in both general and idiosyncratic market risk factors. The same VaR |
model is used for internal risk control (including limits) and as the basis for determining market risk regulatory capital requirements. | ||
è For futher information, please refer to the “Capital management” section of this report | ||
UBS measures VaR using a 10-day time horizon for internal risk measurement and control, and as the basis for market risk regulatory capital, and based on a 1-day horizon for information and for backtesting. VaR is derived from a distribution of potential losses. It expresses the amount that might be lost over the specified time horizon as a result of changes in market variables, but only to a certain level of confidence (99%) and there is therefore a specified statistical probability (1%) that actual loss over the period could be greater than the VaR estimate. VaR is calculated at the end of each trading day, based on positions recorded at that time. Retrospective adjustments to valuations, affecting risk positions, may be booked some days later, particularly at period ends. VaR is not subsequently restated to reflect these later adjustments to positions. VaR models are based on historical data and thus implicitly assume that market moves over the next 10 days or one day will follow a similar pattern to those that have occurred over 10-day and 1-day periods in the past. For general market risk, UBS uses a look-back period of five years – a period which generally captures the cyclical nature of financial markets and is likely to include periods of both high and low volatility. UBS applies these historical changes directly to current positions, a method known as historical simulation. Idiosyncratic risk is measured on all forms of single name risk. For debt instruments the measure includes rating migration risk and prepayment risk – these measures were enhanced during 2007. For equity instruments, the measure is based on the Capital Asset Pricing Model (“CAPM”) supplemented by a “deal break” methodology for equity arbitrage positions, where UBS is typically long in the stock of one company and short in that of another. The deal break measure assesses the probability of collapse of a merger or take-over, and its impact on the two stock prices – a one-off jump move generating the same potential loss for both 10-day and 1-day VaR. | ||
The Chairman’s Office annually approves a 10-day VaR limit for UBS as a whole and allocations to the business groups, the largest being to the Investment Bank. In the business groups, VaR limits are set for lower organizational levels as necessary. In the start-up phase of a business, some market risks may be controlled outside VaR but the level of such risk is deliberately kept small, typically by application of operational limits. |
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Risk management
Market risk
Backtesting Although UBS uses VaR to measure general market risks arising in non-trading books, the results are not formally backtested because these books are not generally marked to market. | ||
VaR based on a 1-day horizon provides an estimate of the likely range of daily mark to market revenues on trading positions under normal market conditions. When 1-day VaR is measured at a 99% confidence level, such an exception can be expected, on average, one in a hundred business days. More frequent backtesting exceptions are likely to occur if market moves are greater than those seen in the look-back period, if the frequency of large moves increases, or if historical correlations and relationships between markets or variables break down (for example, in a period of market disruption or a stress event). Backtesting exceptions are also likely to arise if the way positions are represented in VaR does not adequately capture all their differentiating characteristics and the relationships between them. Such granularity can become particularly important as business grows and as markets evolve or when they experience the sort of dislocation seen in 2007. | ||
UBS experienced many backtesting exceptions as a result of these developments and is responding to them. | ||
è For further details, please refer to the sidebar “Enhancements to market risk management and control” on pages 36–37 of this report | ||
All backtesting exceptions and any exceptional revenues on the profit side of the VaR distribution are investigated, and all backtesting results are reported to senior business management, the Group CRO and business group CROs. As required by regulations, backtesting exceptions are also notified to internal and external auditors and relevant regulators. | ||
Stress loss |
The VaR measure is based on observed historical movements and correlations, whereas stress loss measures are informed but not constrained by past events. UBS’s objectives in stress testing are to explore a wide range of possible outcomes, to understand vulnerabilities, and to provide a control framework that is comprehensive, transparent and responsive to changing market conditions.
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UBS applies country ceilings to limit exposure to all but the best-rated countries and these measures cover market as well as credit risks. | ||
è For details of country risk control please refer to pages 24–25 in the “Credit risk” section of this report | ||
Most major financial institutions employ stress tests, but their approaches differ widely and there is no benchmark or industry standard in terms of scenarios or the way they are applied to an institution’s positions. Furthermore, the impact of a given stress scenario, even if measured in the same way across institutions, depends entirely on the makeup of each institution’s portfolio, and a scenario highly applicable to one institution may have no relevance to another. Comparisons of stress results between institutions can therefore be highly misleading, and for this reason UBS, like most of its peers, does not publish quantitative stress results. | ||
Concentration limits and other controls | ||
UBS applies concentration limits to exposures to general market risk factors and to single name exposures. The limits take account of variations in price volatility and market depth and liquidity. | ||
In the Investment Bank, limits are placed on exposure to individual risk factors. They are applied to general market risk factors or groups of highly correlated factors based on market moves broadly consistent with the basis of VaR, i.e. 10-day, 99% confidence moves. Each limit applies to exposures arising from all instrument types in all trading businesses of the Investment Bank. The market moves are updated in line with the VaR historical time series and the limits are reviewed annually or as necessary to reflect market conditions.The effectiveness of risk factor limits in controlling concentrations of risk depends critically upon the way risk positions are represented. If long and short positions are considered to be sensitive to the same risk factor, potential gains and losses from changes in that factor are netted. The steps UBS is taking to enhance granularity of risk representation in its VaR measure are equally relevant to its risk concentration controls. The Investment Bank carries exposure to single names, and therefore to event – including default - - risk. This risk is measured across all relevant instruments (debt and equity, in physical form and from forwards, options, default swaps and other derivatives including basket securities) as |
the aggregate change in value resulting from an event affecting a single name or group. The maximum amount that could be lost if all underlying debt and equity of each name became worthless is also tracked. Positions are controlled in the context of the liquidity of the market in which they are traded, and all material positions are monitored in light of changing market conditions and specific, publicly available information on individual names – market risk officers do not have access to non-public information and must therefore rely to a significant extent on external ratings. This form of single name exposure measure is most appropriate to corporate clients, financial institutions and other entities, the value of whose equity and debt instruments is dependent on their own assets, liabilities and capital resources. Asset-backed securities are usually issued through special purpose, bankruptcy remote vehicles and it is more important to aggregate risk in other dimensions than the issuer name, in particular the factors affecting the value of the underlying asset pools. UBS monitored underlying exposures by broad asset category but not to the level of granularity that proved neccessary in the case of mortgage-backed securities. It is now enhancing its measures accordingly. | ||
è For further details, please refer to the sidebar “Enhancements to market risk management and control” on the next two pages of this report | ||
Exposures arising from security underwriting commitments are subject to the same measures and controls as secondary market positions. There are also governance processes for the commitments themselves, generally including review by a commitment committee with representation from both the business and the control functions. All firm underwriting commitments are approved under specific delegated risk management and risk control authorities. | ||
Other applications of market risk measures | ||
Market risk measurement tools may be selectively applied to portfolios for which the primary controls are in other forms. VaR can, for example, provide additional insight into the sensitivity of investment positions to market risk factors, even though some of the assumptions of VaR – in particular the relatively short time horizon – may not be representative of their full risk. The results can be used by business management and risk controllers for information or to trigger action or review. |
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Risk management
Market risk
In 2007, UBS’s market risk measures underestimated the potential losses resulting from exposures to the previously deep and liquid US residential mortgage market – neither trading management nor market risk controllers foresaw the extreme rates of delinquency and default and low recovery levels now projected, or the breakdown in correlation within and between asset classes that emerged in the second half of 2007 and revealed the tail risk in UBS’s positions. With the accompanying drying up of liquidity in parts of the market, the size of UBS’s positions has proved excessive relative to the market. The size, frequency and pattern of market moves were exceptional and UBS suffered losses in excess of those predicted by statistical or even stress loss risk measures based on historical market movements. Other market risk management and control processes were, however, intended to identify risk concentrations and sources of potential loss in more extreme circumstances. UBS is therefore taking steps to address the gaps which these events have revealed.
Risk management
– | a workout group has been established to ensure robust risk management of the segregated, legacy portfolios and to develop orderly exit strategies; | |
– | the remaining real estate-related activities are being refocused towards intermediation of client flows and alignment to the needs of investment banking and wealth management clients; and | |
– | management of flow credit trading is being consolidated. This will improve risk aggregation and communication and, over time, will allow consolidation of risk management systems. |
è | For further information, please refer to the sidebar “New funding framework” on page 51 of this report |
The models used in the risk management and valuation of US residential real estate-related products have been refined and recalibrated to reflect projections for lifetime cumulative losses consistent with market prices, where observable, and will continue to be updated as these projections and market parameters change. Even
Risk control
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controlled.
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Risk management
Market risk
Market risk in 2007
The graphs below illustrate the relative calm of the first half of 2007, and the severe dislocation of markets and extreme volatility of the second half. Markets retreated in response to the first fall in the US sub-prime market, but by the end of first quarter the impact appeared to have been contained. Equities markets resumed their upward trend from late March through to May, but by June inflation fears and renewed concerns about wider contagion from the sub-prime market led to increased volatility. A flight to quality and rapid deleveraging by some market participants followed in third quarter, resulting in intra-market dislocations as participants exited “crowded trades”. Spreads between government yields and bank borrowing rates (“TED spread”) widened dramatically and central banks intervened to counter
the general drying up of liquidity. In the US residential mortgage-related markets, credit spreads on the highest rated securities reached unprecedented levels, with associated increases in volatilities. A temporary recovery in September was short-lived – markets fell again in November on further deterioration in US residential mortgage markets, fears of a US recession and uncertainties about the health of the banking sector. Despite a slight recovery in some markets in December many experienced professionals regard trading conditions in fourth quarter as amongst the most difficult for many years. | ||
Value at Risk | ||
In 2007, Investment Bank VaR was higher on average and at year-end than in 2006, with a much greater range between minimum and maximum. |
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The graph of US sub-prime mortgage-backed securities illustrates the scale of market value decline which eroded partial hedges on positions, and increased risk exposure. The extreme volatility of spreads has progressively increased reported VaR on existing positions with each update of the 5-year historical time series. While the illiquidity of large parts of this market has prevented significant reductions in positions, amortizations and writedowns, together with active risk reduction in other areas, resulted in a lower VaR at year end than the peak for the year which occurred in fourth quarter. There were other notable contributors to the fluctuations in Investment Bank VaR during the course of the year. The acquisition of Banco Pactual, completed in December 2006, resulted in more volatile interest rate VaR. In the first half of the year, directional exposure to equity markets not only increased equity VaR but also reduced the offset against interest rate VaR. |
Investment Bank: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 147 | 415 | 210 | 242 | 144 | 360 | 203 | 232 | ||||||||||||||||||||||||
Interest rates (including credit spreads) | 269 | 877 | 475 | 576 | 237 | 607 | 417 | 405 | ||||||||||||||||||||||||
Foreign exchange | 9 | 73 | 28 | 21 | 16 | 65 | 31 | 40 | ||||||||||||||||||||||||
Energy, metals and commodities1 | 24 | 90 | 51 | 41 | 26 | 102 | 49 | 44 | ||||||||||||||||||||||||
Diversification effect | 2 | 2 | (227 | ) | (266 | ) | 2 | 2 | (280 | ) | (248 | ) | ||||||||||||||||||||
Total | 291 | 836 | 537 | 614 | 331 | 559 | 420 | 473 | ||||||||||||||||||||||||
1Includes base metals and soft commodities risk from 15 March 2006. 2 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. |
UBS: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||||
Business groups | ||||||||||||||||||||||||||||||||||
Investment Bank1,2 | 291 | 836 | 537 | 614 | 331 | 559 | 420 | 473 | ||||||||||||||||||||||||||
Global Asset Management3 | 2 | 10 | 4 | 3 | 4 | 16 | 9 | �� | 10 | |||||||||||||||||||||||||
Global Wealth Management & Business Banking | 2 | 5 | 3 | 3 | 4 | 14 | 10 | 5 | ||||||||||||||||||||||||||
Corporate Center | 10 | 92 | 25 | 61 | 25 | 69 | 43 | 27 | ||||||||||||||||||||||||||
Diversification effect | 4 | 4 | (34 | ) | (93 | ) | 4 | 4 | (54 | ) | (52 | ) | ||||||||||||||||||||||
Total | 288 | 833 | 535 | 588 | 336 | 565 | 429 | 464 | ||||||||||||||||||||||||||
1 Includes UBS risk managed by Dillon Read Capital Management from June 2006 to 2 May 2007 and risk transferred from Dillon Read Outside Investor Fund from 3 May 2007. 2 Includes UBS Pactual from 1 December 2006. 3 Only covers UBS positions in alternative and quantitative investments. During first quarter 2007, seed money and coinvestments in these funds were reclassified as financial investments and they are not included in reported Value at Risk from that point. 4 As the minimum and maximum occur on different days for different business groups, it is not meaningful to calculate a portfolio diversification effect. |
UBS: Value at Risk (1-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Investment Bank2 | 124 | 253 | 164 | 149 | 129 | 230 | 172 | 160 | ||||||||||||||||||||||||
UBS | 126 | 254 | 165 | 152 | 131 | 233 | 173 | 162 | ||||||||||||||||||||||||
1 10-day and 1-day Value at Risk (VaR) results are separately calculated from underlying positions and historical market moves. They cannot be inferred from each other. 2 Positions in Investment Bank subject to market risk regulatory capital contributed average VaR of CHF 160 million in 2007 and CHF 169 million in 2006. |
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Risk management
Market risk
Backtesting
As a result of the severe market volatility and dislocation which prevailed from the end of July, UBS experienced 29 backtesting exceptions in 2007, its first since 1998. The multiplier by which the market risk regulatory capital requirement is derived from 10-day VaR has been increased accordingly.
Stress loss
Stress loss for Investment Bank is defined as the worst case outcome from the official stress scenarios, which now include the worst historical loss from each day’s VaR simulation. Stress loss, like VaR, is dominated by US residential mortgage-related positions, with a significant contribution from corporate credit spread exposure. Changing directional exposures to interest rates and equity markets have led to fluctuations in reported stress loss over the course of the year.
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Value at Risk outlook
In its fourth quarter 2007 report, UBS indicated that it was considering changing the internal risk control and / or regulatory capital treatment of some US residential mortgage market-related positions. Decisions have now been taken to reclassify some of the legacy portfolios managed by the FICC workout group. The markets for these positions are not liquid and 10-day VaR is not an adequate measure of their risks or an appropriate risk control tool. They will no longer be subject to internal VaR limits, they will be subject to banking book, rather than trading book, regulatory capital, and they
will be excluded from UBS’s disclosed VaR from first quarter 2008. | ||
The marginal contribution of the legacy positions to Investment Bank VaR at 31 December 2007 is approximately CHF 260 million. Since year-end 2007, the VaR historical time series has been further updated to capture the continued increase in market volatility in November and December. As a result, VaR on existing Investment Bank positions – excluding the legacy positions – increased by approximately 4%. Had the legacy positions remained in VaR their marginal contribution to Investment Bank VaR would have more than trebled. |
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Risk management
Investment positions
Investment positions
UBS makes investments for a variety of purposes. The majority of investment positions are equity holdings, some of which are made for revenue generation or as part of strategic initiatives, while others, such as exchange and clearing house memberships are held in support of UBS’s business activities. Investments are also made in funds managed by UBS to seed them at inception or to demonstrate alignment of UBS’s interests with those of investors. UBS also holds debt investments. | ||
Equity investments | ||
Many equity investments are unlisted and therefore illiquid. Investments in listed stocks are limited in number both by individual market and in total. The fair values of equity investments are generally dominated by factors specific to the individual stocks and the correlation of individual holdings to equity indices varies. Furthermore, equity investments are generally intended to be held medium- or long-term and may be subject to lock-up agreements. For these reasons, they are not directly controlled using the market risk measures applied to trading activities. They are, however, subject to controls, including pre-approval of new investments by business management and risk control, and regular monitoring and reporting. Where investments are made as part of an ongoing business they are also subject to standard controls, including portfolio and concentration limits. Seed money and co-investments in UBS-managed funds made by Global Asset Management are, for example, subject to a portfolio limit. All investments must be explained and justified, approved according to delegated authorities, and monitored and reported to senior management throughout their life. Private equity positions were, in the past, the major component of equity investments but the portfolio is being managed down. While equity investments are not subject to UBS’s Group and business group VaR limits, market risk measurement tools may be selectively applied to them, where appropriate, for internal management information. VaR can, for example, provide additional insight into the sensitivity of investments in UBS-managed funds where the assets and other exposures of the funds are in the form of tradable financial instruments. Although some of the assumptions of VaR – in particular the relatively short time horizon – may not be representative of the full risk on equity investments, the results can be used by business management and risk controllers for information or to trigger action or review. |
Under International Financial Reporting Standards (IFRS), equity investments may be classified as Financial investments available-for-sale, Financial assets designated at fair value through profit and loss, or Investments in associates. | ||
Composition of equity investments At 31 December 2006, equity investments totalled CHF 10,014 million of which CHF 8,062 million were classified as Financial investments available-for-sale, CHF 429 million as Financial assets designated at fair value and CHF 1,523 million as Investments in associates. Within Financial investments available-for-sale, CHF 5,880 million were listed equities. UBS’s largest single equity investment is its 1% stake in Bank of China, which was taken in 2005, as part of a major strategy initiative. The fair value of this investment on 31 December 2007 was CHF 1,644 million, of which CHF 1,084 million is an unrealized gain reported in equity. The fair value at 31 December 2006 was CHF 2,055 million of which CHF 1,450 million was an unrealized gain recorded in equity. Bank of China is a domestic Chinese bank which has a listing on the H-share register in Hong Kong. The fair value at which UBS carries this investment is determined by a valuation technique (level 2) to reflect the lock-up agreement between UBS and Bank of China. The market value of the shares is affected primarily by the performance of the bank itself, which will, in turn, be somewhat influenced by the Chinese economy, but it is not expected that day to day movements in either Chinese or Hong Kong stock market indices will have a long term impact on the value of this investment. Changes in the exchange rate between the Swiss franc and the Chinese renmimbi, in which the assets and liabilities of Bank of China are primarily denominated, will affect the fair value at which the investment is recorded in UBS’s financial statements. At 31 December 2006, UBS held a stake in Bank Julius Baer with a fair value of CHF 3,029 million. This stake was acquired when Private Banks & GAM was sold in 2005. It was sold in June 2007. Within the total of CHF 2,128 million Financial assets designated at fair value, an amount of CHF 1,788 million |
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represents the assets of trust entities associated with employee compensation schemes. They are broadly offset by liabilities to plan participants included in Other liabilities. The equivalent positions at 31 December 2006 amounted to CHF 1,726 million. | ||
è Details of significant associates are provided in Note 33 inFinancial Statements 2007 | ||
Debt investments | ||
Debt investments classified for IFRS as Financial investments available-for-sale can be broadly categorized as money market papers and debt securities, which are mainly held for statutory, regulatory or liquidity reasons, and non-performing loans, which are purchased in the secondary market by the Investment Bank as part of an approved business line. The risk control framework applied to debt instruments classified as Financial investments available-for-sale varies depending on the nature of the instruments and the purpose for which they are held. UBS Bank USA holds debt investments in instruments for which there are liquid markets and of a type which the Investment Bank also carries in its trading inventory (US government sponsored agency securities). They are controlled |
under the market risk framework and for internal risk control purposes are not considered to be investment positions. Non-performing loans are subject to specific limits and controls, including risk management and risk control pre-approval. The fair value of non-performing loans is not highly sensitive to interest rate movements but, rather, depends on the expected recovery rate for each individual loan. Other debt investments are predominantly securities issued by sovereigns of the Organization for Economic Cooperation and Development (OECD) and highly rated financial institutions. Where applicable, debt investments are reflected in reports to senior management of consolidated credit exposures and in large exposure reports to the Swiss Federal Banking Commission (SFBC). | ||
Composition of debt investments At 31 December 2006, the equivalent positions were CHF 354 million money market paper and CHF 521 million other debt investments. |
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Risk Management
Operational risk
Operational risk
Operational risk framework
Operational risk measurement
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Treasury and capital management
– | UBS’s treasury department is responsible for the management of the firm’s financial resources. This includes management of: liquidity and funding; capital and balance sheet; and interest rate and currency risks arising from balance sheet and capital management responsibilities | |
– | UBS aims to maintain sound capital ratios at all times – to ensure strong external credit ratings and to remain one of the best capitalized firms in the international financial sector |
Liquidity management
– | Liquidity riskis the risk of being unable to raise funds to meet payment obligations when they fall due. Liquidity must be continuously managed to ensure that the firm can survive a crisis | |
– | Liquidity managementbecame a challenge during 2007, following the dislocation of the US residential mortgage market | |
– | Liquidity position:in anticipation of an extended period of market turbulence, UBS took several measures to strengthen its liquidity position, including adjustment of short-term funding targets and increased focus on balance sheet management |
Funding management
– | Funding riskis the risk of being unable, on an ongoing basis, to borrow funds in the market at an acceptable price to fund actual or proposed commitments and thereby support UBS’s current business and desired strategy | |
– | Access to funding:despite challenging market conditions in the second half of 2007, UBS was able to maintain access to funding, primarily as a result of its broadly diversified funding base |
Capital management
Risk-weighted assets in 2007
Eligible capital in 2007
Capital improvement program
– | rededication of 36.4 million shares that had previously been bought back for cancellation | |
– | replacement of cash dividend for 2007 with stock dividend |
Effective in first quarter 2008:
– | issuance of CHF 13 billion of mandatory convertible notes to two long-term financial investors |
Introduction of Basel II in 2008
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Capital adequacy | ||||||||||||
As of | ||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
BIS Tier 1 capital | 32,811 | 40,528 | 39,834 | |||||||||
of which hybrid Tier 1 capital | 6,387 | 5,633 | 4,975 | |||||||||
BIS total capital | 44,507 | 50,364 | 43,808 | |||||||||
BIS Tier 1 capital ratio (%) | 8.8 | 11.9 | 12.8 | |||||||||
BIS total capital ratio (%) | 12.0 | 14.7 | 14.1 | |||||||||
Balance sheet assets | 292,988 | 273,588 | 252,364 | |||||||||
Off-balance sheet and other positions | 37,200 | 48,444 | 37,010 | |||||||||
Market risk positions1 | 42,110 | 19,860 | 21,035 | |||||||||
Total BIS risk-weighted assets | 372,298 | 341,892 | 310,409 | |||||||||
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Treasury and capital management
Interest rate and currency management
Interest rate and currency management
Management of non-trading interest rate risk | ||
UBS’s largest non-trading interest rate exposures arise in its wealth management and Swiss-based banking business. These risks are transferred from the originating businesses into one of UBS’s two centralized interest rate risk management units – Treasury or the Investment Bank’s foreign exchange and money market unit (FX&MM). These units manage the risks on an integrated basis, exploiting the full netting potential across risks from different sources. Risks from fixed-maturity, short-term Swiss franc and all non-Swiss franc transactions are generally transferred to FX&MM. These fixed-rate lending products do not contain embedded options such as early prepayment that would allow customers to prepay at par – all prepayments are subject to market-based unwinding costs. Risks from Swiss franc transactions with fixed maturities greater than one year are transferred to Treasury by individual back-to-back transactions. Current and saving accounts and many other retail products of Global Wealth Management & Business Banking have no contractual maturity date or direct market-linked rate, and therefore their interest rate risk cannot be transferred by simple back-to-back transactions. Instead, they are transferred on a pooled basis via “replicating” portfolios. A replicating portfolio is a series of loans or deposits at market rates and fixed terms between the originating business unit and Treasury, structured to approximate – on average – the interest-rate cash flow and repricing behavior of the pooled client transactions. The portfolios are rebalanced monthly. Their structure and parameters are based on long-term market observations and client behavior, and are regularly reviewed and adjusted as necessary. The originating business units are thus immunized as far as possible against market interest rate movements, but retain and manage their product margin. A significant amount of interest rate risk also arises from the financing of non-monetary related balance sheet items, such as the financing of bank property and equity investments in associated companies. These risks are generally transferred to Treasury through replicating portfolios which, in this case, are designed to approximate the funding profile mandated by senior management. Treasury manages its residual open interest rate exposures – taking advantage of any offsets that arise between positions from different sources – within its approved market risk limits (Value at Risk (VaR) and stress loss). The preferred risk management instrument is interest rate swaps, for which |
there is a liquid and flexible market. All transactions are executed via the Investment Bank – Treasury does not directly access the external market. | ||
è For further details on UBS’s market risk measures and controls, please refer to the “Market risk” section of this report | ||
Market risk arising from management of consolidated capital | ||
UBS is required, by international banking regulation (BIS regulations), to hold a minimum level of capital against assets and other exposures (risk-weighted assets). The relationship between UBS’s capital and its risk-weighted assets – the BIS Tier 1 ratio – is monitored by regulators and analysts and is a key indicator of its financial strength. The majority of UBS’s capital and many of its assets are denominated in Swiss francs, but the Group also holds risk-weighted assets and eligible capital in other currencies, primarily US dollar, euro and UK sterling. Following the integration of Banco Pactual in December 2006, UBS now also has material risk-weighted assets in Brazilian real. Any significant depreciation of the Swiss franc against these currencies would adversely impact the Group’s BIS Tier 1 ratio. Treasury’s mandate is therefore to protect this ratio against adverse currency movements and to generate an income flow from the capital. This mandate determines a currency, tenor and product mix – a target profile – against which Treasury manages the Group’s capital. On an overall Group basis, Treasury’s target profile is based on a currency mix which broadly reflects the currency distribution of the consolidated risk-weighted assets, using products and tenors which generate the desired income stream. As the Swiss franc depreciates (or appreciates) against these currencies, the consolidated risk-weighted assets increase (or decrease) relative to UBS’s capital. These currency fluctuations also lead to translation gains (or losses) on consolidation, which are recorded through equity. Thus, UBS’s consolidated equity rises or falls in line with the fluctuations in the risk-weighted assets, protecting the Tier 1 ratio. The capital of the parent bank itself is held predominantly in Swiss francs in order to avoid any significant effects of currency fluctuations on its standalone financial results. The capital of the parent bank and its subsidiaries is placed in the form of interest bearing cash deposits internally within the Group – primarily with the Investment Bank’s FX&MM |
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Treasury: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.07 | Year ended 31.12.06 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.07 | Min. | Max. | Average | 31.12.06 | ||||||||||||||||||||||||
Interest rates | 9 | 55 | 17 | 54 | 19 | 72 | 36 | 19 | ||||||||||||||||||||||||
Foreign exchange | 1 | 87 | 18 | 21 | 4 | 51 | 30 | 20 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (10 | ) | (14 | ) | 1 | 1 | (23 | ) | (12 | ) | ||||||||||||||||||||
Total | 10 | 92 | 25 | 61 | 25 | 69 | 43 | 27 | ||||||||||||||||||||||||
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. |
unit. Where necessary, Treasury also executes derivatives (mainly interest rate swaps) with the Investment Bank’s trading desks to achieve the target profile. FX&MM and the derivative trading units manage the resultant cash and market risk positions as part of their normal business activities and, in the case of FX&MM, within the approved liquidity framework. | ||
è For details on UBS’s liquidity framework please refer to the “Liquidity and funding management” section of this report | ||
For the purposes of measuring and managing Treasury’s market risk position, the Group’s consolidated equity is represented in the Treasury book by replicating portfolios (liabilities) with the target currency and interest rate profile. The interest rate positions created by Treasury’s deposits with FX&MM or other units, and the associated derivatives, generally offset the interest rate risk of the replicating portfolios. Any mismatches between the two are managed, together with other non-trading interest rate risk positions within Treasury’s market risk limits (VaR and stress). The structural foreign currency exposures are controlled by senior management but are not subject to internal market risk limits and are not included in Treasury’s reported VaR. | ||
Treasury interest rate risk development In measuring Treasury’s interest rate risk – expressed as VaR – both the representation of the consolidated equity (replicating portfolios) and the deployment of the equity described above are included in the calculations. Towards the end of December 2007, and as a consequence of the reported writedowns, Treasury had to reduce the amount of shareholders’ equity invested in Swiss francs. On 31 December 2007, UBS’s consolidated equity was deployed as follows: in Swiss francs (including most of the capital of the parent bank) with an average duration of approximately three years and an interest rate sensitivity of CHF 5.1 million per basis point; in US dollar with an average duration of approximately four years and sensitivity of CHF 8.6 million per basis point; in euro with an average duration of approximately three years and a sensitivity of CHF 0.7 million per basis point; and in UK sterling with a duration of approximately three years |
and a sensitivity of CHF 0.5 million per basis point. The interest rate sensitivity of these positions is directly related to the chosen duration – targeting significantly shorter maturities would reduce the apparent interest rate sensitivity but would lead to greater fluctuations in interest income. | ||
Corporate currency management | ||
UBS’s corporate currency management activities are designed to reduce the impact of adverse currency fluctuations on its reported financial results, given regulatory constraints. UBS specifically focuses on three principal areas of currency risk management: match funding/investment of non-Swiss franc assets/liabilities; sell-down of non-Swiss franc profit and loss; and selective hedging of anticipated non-Swiss franc profit and loss. | ||
Match funding and investment of non-Swiss franc assets and liabilities As far as it is practical and efficient to do so, UBS follows the principle of matching the currency of its assets with the currency of the liabilities which fund them – thus a US dollar asset is typically funded in US dollars, a euro liability is offset by an asset in euros, etc. This avoids profits and losses arising from retranslation at the prevailing exchange rates to the Swiss franc at each quarter-end. | ||
Sell-down of reported profits and losses For accounting purposes, reported profits and losses are translated each month from the original transaction currencies into Swiss francs at the exchange rate prevailing at the end of the month. Treasury centralizes profits or losses in foreign currencies that arise in the parent bank, and sells or buys them for Swiss francs in order to eliminate earnings volatility which would arise from retranslation at different exchange rates of previously reported non-Swiss franc profits and losses. Other UBS operating entities follow a similar monthly sell-down process into their own reporting currencies. Profits retained in operating entities with a reporting currency other than Swiss franc are managed as part of UBS’s consolidated equity, as described earlier. |
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Treasury and capital management
Interest rate and currency management
Hedging of anticipated future reported profits The monthly sell-down process cannot protect UBS’s earnings from swings caused by a sustained depreciation against the Swiss franc of one of the main currencies in which UBS earns net revenues or by an appreciation of one in which it incurs significant net costs. The firm’s corporate currency management seeks to mitigate the potential adverse impact of any such development by executing a dynamic and cost-efficient rollover hedge |
strategy on a portion of the profits that UBS anticipates for the next three months, on a rolling one-month basis. Although intended to hedge future earnings, these transactions are considered open currency positions. They are therefore subject to internal market risk VaR and stress loss limits. In public segmental reporting, the profits and losses arising from the hedge strategy are shown as Corporate Center items, while the business group results are fully exposed to exchange rate fluctuations. |
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Treasury and capital management
Liquidity and funding management
Liquidity and funding management
Liquidity risk is the risk of being unable to raise funds to meet payment obligations when they fall due. Funding risk is the risk of being unable, on an ongoing basis, to borrow funds in the market at an acceptable price to fund actual or proposed commitments and thereby support UBS’s current business and desired strategy. Liquidity and funding are not the same, but they are closely related and both 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. During 2007, liquidity management became a challenge following the dislocation of the US residential mortgage market, which led to a sharp reduction in trading volumes in some previously highly liquid markets. In the repo market, certain assets were subject to higher haircuts, and were sometimes not accepted. Despite these challenging conditions, UBS was able to maintain access to funding, primarily as a result of its broadly diversified funding base. In addition, in anticipation of an extended period of market turbulence, several measures were taken to further strengthen UBS’s liquidity position during this period. Short-term funding targets were adjusted accordingly, and increased focus was placed on balance sheet management. |
Liquidity approach | ||
UBS’s approach to liquidity management, which covers all branches and subsidiaries, is to ensure that it will always have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking sustained damage to its various business franchises. Central to the integrated framework is an assessment of all material, known and expected cash flows and the level of high-grade collateral that could be used to raise additional funding. It entails both careful monitoring and control of the daily liquidity position, and regular liquidity stress testing. Risk limits are set by the Group Executive Board (GEB) and monitored by Treasury, and contingency plans for a liquidity crisis are incorporated into UBS’s wider crisis management process. The liquidity position is assessed and managed under a variety of potential scenarios encompassing both normal and stressed market conditions. UBS considers the possibility that its access to markets could be impacted by a stress event affecting some part of its business or, in the extreme case, if it was to suffer a severe rating downgrade combined with a period of general market uncertainty. | ||
UBS’s major sources of liquidity are channeled through entities that are fully consolidated. |
New funding framework
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Treasury and capital management
Liquidity and funding management
Liquidity management | ||
UBS manages its liquidity position in order to be able to ride out a crisis without damaging the ongoing viability of its business. This is complemented by the firm’s funding risk management which aims to achieve the optimal liability structure to finance its businesses cost-efficiently and reliably. The long term stability and security of UBS’s funding in turn helps protect its liquidity position in the event of a UBS-specific crisis. UBS’s business activities generate liability portfolios which are intrinsically highly diversified with respect to market, product and currency. This provides a broad range of investment opportunities for UBS’s clients and thus reduces the firm’s exposure to individual funding sources, which in turn reduces liquidity risk. UBS adopts a centralized approach to liquidity and funding management to exploit these advantages to the full. The liquidity and funding process is undertaken jointly by Treasury and the foreign exchange and money market (FX&MM) unit within Investment Bank fixed income, currencies and commodities (FICC). Treasury establishes a comprehensive control framework, while FX&MM undertakes operational cash and collateral management within the established parameters. | ||
This centralization permits close control of both UBS’s global cash position and its stock of highly liquid securities. The central treasury process also ensures that the firm’s general access to wholesale cash markets is concentrated in FX&MM. Funds raised externally are largely channeled into FX&MM including the proceeds of debt securities issued by UBS, an activity for which Treasury is responsible. FX&MM in turn meets all internal demands for funding by channeling funds from units generating surplus cash to those requiring finance. In this way, UBS minimizes its external borrowing and use of available credit lines, and presents a consistent and coordinated face to the market. | ||
Liquidity modeling and contingency planning | ||
The daily liquidity position – the net cumulative funding requirement for a specific day – is projected under cautious assumptions for each business day from the current day out to one month to produce a cumulative “cash ladder”. The short-term cash ladder is the tool used by FX&MM to manage net daily funding requirements efficiently, while Treasury monitors liquidity exposure against limits set by the GEB. UBS also regularly assesses the impact of a liquidity crisis scenario, combining a firm-specific crisis with market disruption and focusing on a time horizon starting with overnight and extending up to one year. This UBS-specific scenario envisages large draw-downs on otherwise stable client deposits, an inability to renew or replace maturing unsecured wholesale funding and limited capacity to generate liquidity from trading assets. Liquidity crisis scenario analysis supports the liquidity management process so that immediate |
corrective measures, such as the build-up of a liquidity buffer to absorb potential sudden liquidity gaps, can be put into effect. | ||
The starting point for stress testing analyses is a breakdown of the contractual maturity of UBS’s assets and liabilities. One such breakdown is shown in the table at the end of this section. This maturity analysis is an accounting view. It does not fully represent a liquidity risk management perspective which would also include stress analyses and a more detailed breakdown of asset and liability types. | ||
Since a liquidity crisis could have a myriad of causes, UBS focuses on a scenario that encompasses all potential stress effects across all markets, currencies and products. The assessment includes the likelihood of maturing assets and liabilities being rolled over in a UBS-specific crisis, and gauges the extent to which the potential crisis-induced shortfall could be covered by available funding. This would be raised on a secured basis against available collateral, which includes securities eligible for pledging at the major central banks, or by selling liquid inventory. In both cases UBS applies crisis-level discounts to the value of the assets. It assumes that it would be generally unable to renew any of the Group’s wholesale unsecured debt, including all its maturing money market papers (outstanding volume CHF 152.3 billion on 31 December 2007) and that no contingency funding could be raised on an unsecured basis. It also factors in potential liquidity outflows from contingent liabilities, in particular those resulting from the drawdown of committed credit lines. Exposures to other contingent commitments, such as guarantees and letters of credit, are included in this analysis, although they are not as vulnerable since they are generally not unconditional but, rather, are linked to other, independent conditions being fulfilled. | ||
Liquidity needs may also result from commitments and contingencies, including credit lines extended to secure the liquidity needs of customers. UBS regularly monitors undrawn committed credit facilities and other latent liquidity risks. If UBS’s credit rating were to be downgraded, “rating trigger” clauses, especially in derivative contracts, could result in an immediate cash outflow due to the unwinding of derivative positions, or the need to deliver additional collateral. UBS’s contingent exposure arising directly from these rating triggers is judged not to be material compared to its liquidity-generation capacity, even in a crisis situation. UBS also analyzes the potential impact on its net liquidity position of adverse movements in the replacement values of its over-the-counter (OTC) derivative transactions which are subject to collateral arrangements and includes the potential outflows in its crisis scenarios. Given the diversity of UBS’s derivatives business and that of its counterparties, there is not necessarily a direct correlation between the factors influencing net replacement values with each counterparty and a firm-specific crisis scenario. |
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Liquidity limits and controls | ||
While its estimated capacity to generate liquidity when required will naturally vary, UBS generally applies a constant limit structure, which imposes a ceiling on the projected net funding requirement along the cash ladder. Limits are based on the amount of cash UBS believes it could raise in a firm-specific crisis. | ||
The limits vary by time zone since access to liquidity will depend on the time of day – at the beginning of the global trading day, during Asia Pacific trading hours, the limits are less severe since more time is available to mobilize funding sources or, if necessary, initiate asset sales to generate additional liquidity. As the day proceeds and currency zones begin to close, the limits become tighter, with the strictest limits applied later in the day when only the US markets are available. FX&MM’s day-to-day liquidity management is based on global books that are handed over from time zone to time zone, ensuring 24-hour coverage. Compliance with the risk limits and actual credit liquidity exposures are regularly reported to the GEB. To complement and support the limit framework, regional teams monitor the markets in which UBS operates for potential threats and regularly report any significant findings to Treasury. | ||
UBS has also developed detailed contingency plans for liquidity crisis management, the cornerstone of which is the Group’s access to secured funding either from the market or from the major central banks, coupled with the ability to turn sufficient liquid assets into cash within a short time frame. | ||
The liquidity contingency plan is an integral part of the global crisis management concept, which covers all types of crisis events. It would be implemented under a core crisis team with representatives from Treasury, from FX&MM and |
from related areas including the functions responsible for payments and settlements, market and credit risk control, collateral and margin management, and information technology and infrastructure. FX&MM’s centralized global management model lends itself naturally to efficient liquidity crisis management. UBS is continuing to strengthen its relationships with the major central banks, consistent with its general policy, which is to base contingency plans on secured funding against pledges of high-quality collateral, rather than relying on third-party credit lines. | ||
Liquidity ratios In addition to the limits and controls described above, UBS also measures three ratios to monitor liquidity risk – the ratio of trading assets (trading portfolio assets and positive replacement values on derivatives) to total assets, the ratio of “level 1” trading assets to total assets, and the ratio of customer savings and deposits to mortgages. Level 1 trading assets are those for which fair values can be obtained from observable market prices and which are therefore considered to be the most liquid. These ratios are largely driven by UBS’s two largest business groups, the Investment Bank and Global Wealth Management & Business Banking. The first two ratios show the proportion of UBS’s total assets that are of a trading nature and are dominated by the Investment Bank’s activities. The third ratio is mainly driven by Global Wealth Management & Business Banking and shows the extent to which UBS is effectively funding its largest Swiss asset portfolio with customer deposits (savings and deposit accounts only), which are a stable funding source – the higher this percentage, the less the bank is reliant on wholesale funding for these potentially longer-term assets. |
Liquidity ratios | ||||||||||
in % | 31.12.07 | 31.12.06 | ||||||||
Ratio of trading assets to total assets | 52.92 | 49.93 | ||||||||
Ratio of level 1 trading assets to total assets | 15.02 | 20.88 | ||||||||
Ratio of customer savings and deposits to mortgages | 76.10 | 79.10 | ||||||||
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Treasury and capital management
Liquidity and funding management
Funding
UBS’s domestic retail and global wealth management businesses have proven in the past to be valuable, cost-efficient and reliable sources of funding. Furthermore, through the establishment of short-, medium- and long-term funding programs in Europe, the US and Asia, UBS can provide specialized investments to its customers through which it can efficiently raise funds globally from both institutional and private investors, minimizing its dependence on any particular source.
Funding approach
ital” and “secured funding capacity”. UBS complements these analyses with regular assessments of any concentration risks in its main funding portfolios. Cash capital is the excess of UBS’s long-term funding over the total of illiquid assets. “Long-term” and “illiquid” both refer to a time horizon of one year. The secured funding capacity concept ensures that short-term, unsecured (wholesale) funding is effectively only invested in freely marketable assets. UBS seeks to maintain a minimum stock of unencumbered assets and cash that exceeds its outstanding short-term unsecured wholesale borrowings. | ||
Funding position UBS’s secured funding base reduces its exposure to periods of stressed market conditions when the ability to raise unsecured funding could be temporarily restricted. | ||
The charts below show a breakdown by product type and by currency of UBS’s secured and unsecured funding as of 31 December 2007. Of the total, 22% was raised on a secured basis and 78% unsecured. The unsecured funding base is well diversified, with 19% of total funding stemming from savings and demand deposits, 17% from long-term debt, 17% from time deposits, 9% from short-term interbank borrowing, 10% from money market papers and 6% from fiduciary deposits. Around half of UBS’s funding is originated in US dollars, with substantial portions in Swiss francs and euros, roughly mirroring the currency breakdown of its assets. Around 19% of funding was denominated in other currencies (primarily UK sterling and Japanese yen). UBS does not rely on buying committed credit facilities from third-party banks, but instead bases its contingent funding sources on its ability to raise secured funding through the use of high-quality collateral. |
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Maturity analysis of assets and liabilities | ||||||||||||||||||||||||||||||||||||||||||
On demand and trading instruments | ||||||||||||||||||||||||||||||||||||||||||
Instruments | Due | Due | Due | |||||||||||||||||||||||||||||||||||||||
at cost and | Instruments | Instruments | Due | between | between | between | ||||||||||||||||||||||||||||||||||||
at fair | at fair | at fair | Subject to | within 1 | 1 and 3 | 3 and 12 | 1 and 5 | Due after | ||||||||||||||||||||||||||||||||||
CHF billion | value / level 1 | value / level 2 | value / level 3 | notice1 | month | months | months | years | 5 years | Total | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||
Cash and balances with central banks | 18.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 18.8 | ||||||||||||||||||||||||||||||||
Due from banks | 46.4 | 0.0 | 0.0 | 0.0 | 6.7 | 2.1 | 4.1 | 1.4 | 0.2 | 60.9 | ||||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 0.0 | 0.0 | 149.5 | 46.5 | 2.4 | 3.8 | 1.5 | 3.4 | 207.1 | ||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 0.0 | 0.0 | 34.8 | 277.3 | 40.0 | 22.8 | 1.9 | 0.1 | 376.9 | ||||||||||||||||||||||||||||||||
Trading portfolio assets2 | 249.3 | 323.4 | 37.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 610.0 | ||||||||||||||||||||||||||||||||
Trading portfolio assets pledged as collateral2 | 85.3 | 55.8 | 23.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 164.3 | ||||||||||||||||||||||||||||||||
Positive replacement values2 | 6.8 | 407.4 | 14.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 428.2 | ||||||||||||||||||||||||||||||||
Financial assets designated at fair value3 | 1.8 | 0.3 | 0.0 | 0.0 | 1.9 | 1.7 | 0.8 | 2.2 | 3.1 | 11.8 | ||||||||||||||||||||||||||||||||
Loans | 72.5 | 0.0 | 0.0 | 42.0 | 61.5 | 20.0 | 38.6 | 72.7 | 28.6 | 335.9 | ||||||||||||||||||||||||||||||||
Financial investments available-for-sale | 0.4 | 0.5 | 1.0 | 0.0 | 0.3 | 0.0 | 1.8 | 0.3 | 0.7 | 5.0 | ||||||||||||||||||||||||||||||||
Accrued income and prepaid expenses | 0.0 | 0.0 | 0.0 | 0.0 | 12.0 | 0.0 | 0.0 | 0.0 | 0.0 | 12.0 | ||||||||||||||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.0 | 2.0 | ||||||||||||||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 7.2 | 7.2 | ||||||||||||||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 14.5 | 14.5 | ||||||||||||||||||||||||||||||||
Other assets | 0.0 | 0.0 | 0.0 | 0.0 | 18.0 | 0.0 | 0.0 | 0.0 | 0.0 | 18.0 | ||||||||||||||||||||||||||||||||
Total 31.12.07 | 481.3 | 787.4 | 75.5 | 226.3 | 424.2 | 66.2 | 71.9 | 80.0 | 59.8 | 2,272.6 | ||||||||||||||||||||||||||||||||
Total 31.12.06 | 549.9 | 673.9 | 13.1 | 351.4 | 404.6 | 114.3 | 92.3 | 98.9 | 48.0 | 2,346.4 | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||
Due to banks | 39.1 | 0.0 | 0.0 | 1.0 | 77.8 | 15.1 | 11.8 | 0.4 | 0.5 | 145.7 | ||||||||||||||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 0.0 | 0.0 | 30.5 | 1.1 | 0.0 | 0.0 | 0.0 | 0.0 | 31.6 | ||||||||||||||||||||||||||||||||
Repurchase agreements | 0.0 | 0.0 | 0.0 | 17.4 | 186.7 | 46.8 | 54.4 | 0.6 | 0.0 | 305.9 | ||||||||||||||||||||||||||||||||
Trading portfolio liabilities2 | 119.9 | 44.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 164.8 | ||||||||||||||||||||||||||||||||
Negative replacement values2 | 6.6 | 420.1 | 16.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 443.5 | ||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value3 | 0.0 | 0.0 | 0.0 | 0.0 | 4.5 | 35.3 | 28.8 | 68.0 | 55.3 | 191.9 | ||||||||||||||||||||||||||||||||
Due to customers | 179.6 | 0.0 | 0.0 | 124.1 | 252.3 | 49.8 | 23.5 | 0.7 | 11.9 | 641.9 | ||||||||||||||||||||||||||||||||
Accrued expenses and deferred income | 0.0 | 0.0 | 0.0 | 0.0 | 21.8 | 0.0 | 0.0 | 0.0 | 0.0 | 21.8 | ||||||||||||||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 0.0 | 0.0 | 52.2 | 63.6 | 49.0 | 22.6 | 34.7 | 222.1 | ||||||||||||||||||||||||||||||||
Other liabilities | 0.0 | 0.0 | 0.0 | 27.5 | 33.3 | 0.0 | 0.0 | 0.0 | 0.0 | 60.8 | ||||||||||||||||||||||||||||||||
Total 31.12.07 | 345.2 | 465.0 | 16.8 | 200.5 | 629.7 | 210.6 | 167.5 | 92.3 | 102.4 | 2,230.0 | ||||||||||||||||||||||||||||||||
Total 31.12.06 | 386.3 | 290.1 | 9.2 | 254.6 | 843.4 | 169.8 | 150.6 | 97.5 | 89.1 | 2,290.6 | ||||||||||||||||||||||||||||||||
1 Deposits without a fixed term, on which notice of withdrawal or termination has not been given (such funds may be withdrawn by the borrower subject to an agreed period of notice). 2 Trading and derivative positions are presented in the first three columns of this table: “Instruments at cost and fair value / level 1”, “Instruments at fair value / level 2” and “Instruments at fair value / level 3”. Management believes that such presentation most accurately reflects the short-term nature of trading activities. The contractual maturity of the instruments may, however, extend over significantly longer periods. The breakdown of these positions into the fair value measurement categories of levels 1, 2 and 3 indicates the liquidity of the markets in which the financial instruments are traded and the availability of market observable inputs to measure these instruments (refer to Note 26 inFinancial Statements 2007). 3 The contractual redemption amount at maturity of financial assets and liabilities designated at fair value approximates the carrying value as of 31 December 2007 and 31 December 2006. |
Contingent claims and commitments | ||||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||||
Contingent claims | 20,824 | 17,908 | ||||||||
Undrawn irrevocable facilities | 83,980 | 97,287 | ||||||||
The Group enters into commitments to extend credit lines to secure the liquidity needs of customers. From the outstanding undrawn irrevocable credit facilities, approximately one-fifth mature within 12 months while four-fifths mature beyond 12 months. |
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Treasury and capital management
Capital management
Capital management
In managing its capital, UBS considers a variety of requirements and expectations. Sufficient capital must be in place to support current and projected business activities, according to both UBS’s own internal assessment and the requirements of its regulators, in particular its lead regulator the Swiss Federal Banking Commission (SFBC). | ||
Capital is also managed in order to achieve sound capital ratios, to ensure strong external credit ratings and to ensure that UBS remains one of the best capitalized firms in the international banking sector. This is crucial in retaining clients’ confidence in UBS’s financial strength and also supports UBS’s funding position and favorable borrowing costs in the international financial markets. UBS aims to maintain sound capital ratios at all times, and it therefore considers not only the current situation but also projected developments in both its capital base and capital requirements. The main tools by which UBS manages the supply side of its capital ratios are active management of capital instruments and dividend payments. | ||
Capital adequacy management | ||
Ensuring compliance with minimum regulatory capital requirements and targeted capital ratios is central to capital adequacy management. In this ongoing process, UBS manages towards Tier 1 and Total capital target ratios. In the target setting process UBS takes into account the regulatory minimum capital requirements and regulators’ expectations that UBS holds additional capital above the minimum, UBS’s |
internal assessment of aggregate risk exposure in terms of Capital-at-risk, the views of rating agencies, and comparison to peer institutions, considering UBS’s business mix and market presence. | ||
Capital requirements | ||
At year end 2007, UBS was subject to regulatory guidelines based on the original – Basel I – framework established by the Basel Committee on Banking Supervision (“BIS guidelines / ratios”). The capital it is required to hold is determined by its risk-weighted assets – its balance sheet, off-balance sheet and market risk positions, measured and risk-weighted according to criteria defined by its lead regulator, the SFBC. Under BIS guidelines, a financial institution’s eligible capital must be at least 8% of its total risk-weighted assets. UBS’s published capital ratios and risk-weighted assets are determined according to BIS guidelines, which differ in certain respects from the regulations of the SFBC. The most important differences are: | ||
– 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); and | ||
– where the BIS guidelines apply a 20% risk weight to obligations of Organization for Economic Co-operation and Development (OECD) banks, the SFBC applies risk weights of 25% to 75%, depending on maturity. |
Capital improvement program
In fourth quarter 2007, the markets for US residential sub-prime mortgages and related securities, and the US residential housing market in general continued to deteriorate. In December, it became increasingly evident that substantial writedowns would be required.
The reduction in the Tier 1 ratio resulting from the expected substantial overall loss in fourth quarter could, among other consequences, have led to rating agency downgrades of UBS’s top-tier financial ratings. This, in turn, could have damaged client confidence
in UBS’s financial strength and increased the Group’s borrowing costs in the international financial markets. UBS therefore decided to take immediate actions to strengthen its capital position.
The most important element of the capital improvement program was the proposal to issue CHF 13 billion of mandatory convertible notes (MCN), which was approved at the extraordinary general meeting on 27 February 2008.
Since the capital impact of the MCN issue would only become effective in
first quarter 2008, it was also decided in December 2007 to take additional measures that would have an immediate effect on the Tier 1 capital ratio. Firstly, the Board of Directors approved the rededication of 36.4 million shares that had previously been bought back and earmarked for cancellation. Secondly, it proposed to replace the cash dividend for 2007 with a stock dividend.
è | Further details on the mandatory convertible notes can be found in the “Shares and capital instruments” section of this report |
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As a result of the differences in regulatory rules, UBS’s risk-weighted assets are higher and capital ratios (total and Tier 1) are lower when calculated under SFBC regulations than under BIS guidelines. UBS has always had total capital and Tier 1 capital in excess of the minimum requirements of both the BIS and the SFBC. UBS measures on- and off-balance sheet claims according to regulatory formulas. Claims are weighted according to type of counterparty and collateral. The least risky claims, such as claims on OECD governments and claims collateralized by cash, are weighted at 0%, meaning that no regulatory capital support is required, while the claims deemed most risky, including unsecured claims on both corporate and private customers, are weighted at 100%, meaning that 8% capital support is required. Securities not held for trading are treated as claims, based on the net position in the securities of each issuer, including both actual holdings and exposures from derivative instruments. UBS’s investments in entities which are consolidated under International Financial Reporting Standards (IFRS) and which are not active in the field of banking and finance (including consolidated industrial holdings) are treated for regulatory capital purposes as positions in securities not held for trading. Claims arising from derivatives transactions have two components – the current replacement values, and “add-ons” to reflect the potential future exposure. Where UBS has entered into a master netting agreement that is considered legally enforceable in insolvency, positive and negative replacement values with individual counterparties can be netted. |
Off-balance sheet claims arising from contingent commitments and irrevocable facilities are converted into credit equivalent amounts based on percentages of nominal value specified by the regulators. Regulatory capital is required to support market risk arising on all foreign exchange, energy, metal and other commodity positions, and on all positions held for trading purposes, including equities and traded debt obligations held in the trading book. For most market risk positions, UBS derives its regulatory capital requirement from its internal Value at Risk (VaR) model which is approved by the SFBC. It is based on 10-day VaR, which is subject to a multiplier reflecting the regulator’s view of the robustness of the VaR model. This multiplier is increased in response to backtesting exceptions. For some small positions, market risk regulatory capital is computed using the standardized method defined by the regulators. Unlike the calculations for credit risk, the market risk measure produces the capital requirement itself rather than the amount of risk-weighted assets. In order to compute a total capital ratio, the total market risk capital requirement is converted to a “risk-weighted asset equivalent” such that the capital requirement is 8% of this risk-weighted asset equivalent, i.e. the total market risk capital requirement is multiplied by 12.5. Other assets, most notably property and equipment, and intangibles are not subject to credit or market risk, but they represent a risk to the Group in respect of their potential for writedown and impairment and therefore require capital underpinning in accordance with regulatory formulas. |
Risk-weighted assets (BIS) | ||||||||||||||||
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | amount | |||||||||||||
CHF million | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings1 | 463,796 | 7,450 | 452,821 | 10,438 | ||||||||||||
Net positions in securities2 | 12,721 | 9,510 | 10,262 | 8,447 | ||||||||||||
Positive replacement values3 | 138,978 | 34,800 | 110,732 | 24,161 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings1 | 710,564 | 210,493 | 887,694 | 206,359 | ||||||||||||
Accrued income and prepaid expenses | 10,383 | 5,255 | 9,302 | 4,920 | ||||||||||||
Property and equipment | 8,370 | 8,370 | 8,436 | 8,436 | ||||||||||||
Other assets | 27,234 | 17,110 | 15,976 | 10,827 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 20,824 | 7,512 | 17,908 | 7,842 | ||||||||||||
Irrevocable commitments | 84,978 | 13,028 | 98,439 | 23,592 | ||||||||||||
Forward and swap contracts4 | 732,930 | 15,565 | 459,170 | 16,599 | ||||||||||||
Purchased options4 | 9,954 | 1,095 | 8,220 | 411 | ||||||||||||
Market risk positions5 | 42,110 | 19,860 | ||||||||||||||
Total risk-weighted assets | 372,298 | 341,892 | ||||||||||||||
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Treasury and capital management
Capital management
UBS’s capital requirements are generally based on its consolidated financial statements in accordance with IFRS. Under these standards, subsidiaries and special purpose entities that are directly or indirectly controlled by UBS must be consolidated, whereas for regulatory capital purposes, subsidiaries that are not active in the banking and finance business are excluded. On 31 December 2007 risk-weighted assets were CHF 372.3 billion, up 9% from CHF 341.9 billion at year-end 2006. Roughly 55% of the increase was driven by exposures from the Investment Bank, in particular increased capital requirements for market risk resulting from higher market volatility and an increase in the regulatory multiplier, higher positive replacement values of derivatives, and an increase in the syndicated loan portfolio, partially offset by a decrease in risk-weighted assets for undrawn commitments and securities lending and borrowing activities. Global Wealth Management & Business Banking contributed the remainder of the risk-weighted asset increase, mainly related to increased collateralized lending. | ||
Eligible capital | ||
The capital available to support risk-weighted assets – eligible capital – consists of Tier 1 and Tier 2 capital. Tier 1 capital is required to be at least 4% of risk-weighted assets and total capital (Tier 1 plus Tier 2) at least 8%. To determine eligible Tier 1 and total capital, adjustments have to be made to shareholders’ equity as defined under IFRS, most notably by deducting goodwill and investments in unconsolidated entities engaged in banking and finance activities. Eligible capital is the same under BIS guidelines and SFBC regulations. |
Tier 1 capital / UBS shares | ||
The majority of Tier 1 capital comprises retained earnings attributable to UBS shareholders. As of 31 December 2007, total IFRS equity attributable to UBS shareholders amounted to CHF 35,585 million, which serves as the basis for determining the regulatory eligible Tier 1 capital. The mandatory convertible notes (MCNs), which were announced on 10 December 2007 did not contribute to eligible capital as of 31 December 2007, but became eligible capital after the approval of the issue of MCNs at the EGM, which took place on 27 February 2008. | ||
Hybrid Tier 1 capital | ||
Hybrid Tier 1 instruments are perpetual instruments that can only be redeemed if they are called by the issuer. The payment of interest is subject to compliance with minimum capital ratios and any payment missed is non-cumulative. UBS’s hybrid Tier 1 instruments are accounted for under equity attributable to minority interests and amounted to CHF 6,387 million as of 31 December 2007, representing approximately 19.5% of eligible Tier 1 capital. | ||
Tier 2 capital | ||
Tier 2 capital consists mainly of subordinated long-term debt that ranks senior to both UBS shares and hybrid Tier 1 instruments but is subordinated with respect to all senior obligations of UBS. Tier 2 instruments accounted for CHF 14,071 million in total capital as of year-end 2007. | ||
è Further information on UBS’s capital instruments is provided on pages 64–65 of this report |
Capital components | ||||||||||||||
% change from | ||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||||
Gross Tier 1 capital | 50,147 | 57,713 | (13 | ) | ||||||||||
of which paid-in share capital | 207 | 211 | (2 | ) | ||||||||||
of which share premium, retained earnings, currency translation differences | 43,552 | 51,869 | (16 | ) | ||||||||||
of which innovative capital instruments | 6,047 | 5,267 | 15 | |||||||||||
of which non-innovative capital instruments | 340 | 366 | (7 | ) | ||||||||||
Less: goodwill1 | (13,203 | ) | (13,852 | ) | 5 | |||||||||
Less: other Tier 1 deductions2 | (4,133 | ) | (3,333 | ) | (24 | ) | ||||||||
Total eligible Tier 1 capital | 32,811 | 40,528 | (19 | ) | ||||||||||
Upper Tier 2 capital | 301 | 0 | ||||||||||||
Lower Tier 2 capital | 13,770 | 13,093 | 5 | |||||||||||
Tier 3 capital | 0 | 0 | ||||||||||||
Less: deductions3 | (2,375 | ) | (3,257 | ) | 27 | |||||||||
Total eligible capital | 44,507 | 50,364 | (12 | ) | ||||||||||
1 Includes intangible assets exceeding 4% of Tier 1 capital. 2 Consists of: i) net-long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) or for upcoming share awards; iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006. 3 Consists of the net-long position of non-consolidated participations in the finance sector and first loss protections out of securitizations. |
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IFRS Equity to BIS Tier 1 capital
The key adjustments made to IFRS Equity attributable to shareholders to determine Tier 1 eligible capital result from:
– | the ability to net treasury shares held as hedges against obligations from employee stock options granted prior to August 2006 (reducing deductions for treasury shares by CHF 6,230 million); | |
– | the inability to recognize fair value changes recorded directly in equity under IFRS from financial investments available-for-sale and cash flow hedges (reduction of CHF 1,509 million); |
– a reduction in retained earnings relating to the application of the fair value option under International Accounting Standard (IAS) 39 for capital adequacy purposes, which was partially offset by adjustments for differences in the scope of consolidation (reducing retained earnings by net CHF 564 million); and | ||
– removing minority interests other than trust preferred securities, causing a further reduction of CHF 564 million. | ||
Capital ratios | ||
The BIS ratios compare the amount of eligible capital (in total and Tier 1) with the total of risk-weighted assets. | ||
The combination of the 9% risk-weighted assets increase and the 19% reduction in BIS Tier 1 capital resulted in a decrease of BIS Tier 1 ratio by 3.1 percentage points to 8.8% at the end of December 2007, down from 11.9% at year-end 2006. In the same period, the total capital ratio decreased from 14.7% to 12.0%. | ||
è For details of UBS’s issuance of capital securities during 2007, including hybrid Tier 1 instruments and subordinated debt, please see the section “Capital structure” inCorporate Governance and Compensation Report 2007 |
Reconciliation of IFRS1 Equity to BIS Tier 1 capital | ||||||||||||||
31.12.07 | ||||||||||||||
IFRS | Reconciliation | BIS | ||||||||||||
CHF million | view | items | view | |||||||||||
Share capital | 207 | 0 | 207 | |||||||||||
Share premium | 8,884 | (189 | ) | 8,695 | ||||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | (1,509 | ) | (2,697 | ) | ||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 0 | 38 | |||||||||||
Retained earnings | 38,081 | (564 | ) | 37,517 | ||||||||||
Equity classified as obligation to purchase own shares | (74 | ) | 74 | 0 | ||||||||||
Treasury shares / deduction for own shares | (10,363 | ) | 6,230 | 2 | (4,133 | ) | ||||||||
Equity attributable to UBS shareholders / gross Tier 1 net of own shares | 35,585 | 4,042 | 39,627 | |||||||||||
Equity attributable to minority interests | 6,951 | (564 | ) | 6,387 | ||||||||||
Total equity / gross Tier 1 including hybrid Tier 1 instruments | 42,536 | 3,478 | 46,014 | |||||||||||
Less: goodwill | (13,203 | )3 | ||||||||||||
Less: accrual for expected future dividend payment | 0 | |||||||||||||
Eligible Tier 1 capital | 32,811 | |||||||||||||
31.12.06 | ||||||||||||||
IFRS | Reconciliation | BIS | ||||||||||||
CHF million | view | items | view | |||||||||||
Total equity / gross Tier 1 including hybrid Tier 1 instruments | 55,775 | 3,187 | 58,962 | |||||||||||
Less: goodwill | (13,852 | )3 | ||||||||||||
Less: accrual for expected future dividend payment | (4,582 | ) | ||||||||||||
Eligible Tier 1 capital | 40,528 | |||||||||||||
1 International Financial Reporting Standards (IFRS). 2 Generally, treasury shares are fully deducted from Equity under IFRS, whereas for capital purposes only the following positions in own shares are deducted: i) net-long position in own shares held for trading purposes; ii) own shares bought for cancellation (second trading line) or for upcoming share awards and; iii) other treasury share positions net of delta-weighted obligations out of employee stock options granted prior to August 2006. 3 Includes intangible assets exceeding 4% of Tier 1 capital. |
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Treasury and capital management
Capital management
Introduction of Basel II
Upon implementation of Basel II on 1 January 2008, UBS expects the overall impact on its BIS Tier 1 ratio to be negative, depending on the further development of the business mix, in particular the profile of the loan book. This expectation is based on a direct comparison between capital ratios under regulations effective at year-end 2007 and the corresponding ratios at the same date under Basel II rules.
the development of the credit quality of UBS’s obligors and counterparties; future issuances of capital instruments and the management of treasury shares; capital requirements for operational risk; and future changes in the regulatory frameworks.
Credit ratings
Despite significant writedowns in US sub-prime-related securities, UBS remains one of the best-capitalized financial institutions in the world. It believes that this is a key part of its value proposition for both clients and investors.
In November 2007, Moody’s Investors Service downgraded from “A-” to “B+” the Bank Financial Strength Rating (BFSR) of UBS AG and affirmed the “Aaa” senior debt and deposit ratings. “The downgrade of the BFSR reflects Moody’s view that UBS’ sub-prime related exposures have a large loss content which negatively impacts the bank’s earnings stability and our understanding of the quality of their risk management,” Moody’s said in a related media release. At the end of January 2008, Moody’s
Investors Service changed the outlook to negative from stable on the B+ BFSR and Aaa senior debt and deposit ratings of UBS AG. “The change in outlook follows the announcement that UBS will take additional writedowns of approximately USD 4 billion on not only its positions related to the US sub-prime mortgage market, but also on positions related to US residential mortgage securities, contributing to a net loss of approximately CHF 4.4 billion in 2007”. In February 2008, following the fourth quarter 2007 earnings release, Moody’s affirmed the ratings of UBS AG, commenting: “UBS continues to enjoy a very strong and diversified franchise with solid earnings capability in a number of areas outside the affected fixed-income franchise, and
the bank maintains excellent liquidity and good asset quality. Its capitalization levels should be restored to past high levels over a reasonable time frame, benefiting from the planned capital increase of CHF 13 billion”. In October 2007, Standard & Poor’s Ratings Services lowered its long-term counterparty credit rating on UBS AG to “AA” from “AA+”, commenting that: “the downgrade primarily reflects concerns over the effectiveness of the bank’s risk management practices in allowing such a large sub-prime exposure to build”.
In late January 2008, Standard & Poor’s revised UBS’s outlook to negative, commenting: “the outlook was revised to negative in recognition of the challenges to UBS’s future revenue generation from the current economic
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Capital adequacy | ||||||||||||
As of | ||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
BIS Tier 1 capital | 32,811 | 40,528 | 39,834 | |||||||||
of which hybrid Tier 1 capital | 6,387 | 5,633 | 4,975 | |||||||||
BIS total capital | 44,507 | 50,364 | 43,808 | |||||||||
BIS Tier 1 capital ratio (%) | 8.8 | 11.9 | 12.8 | |||||||||
BIS total capital ratio (%) | 12.0 | 14.7 | 14.1 | |||||||||
Balance sheet assets | 292,988 | 273,588 | 252,364 | |||||||||
Off-balance sheet and other positions | 37,200 | 48,444 | 37,010 | |||||||||
Market risk positions1 | 42,110 | 19,860 | 21,035 | |||||||||
Total BIS risk-weighted assets | 372,298 | 341,892 | 310,409 | |||||||||
and market conditions, its large residual sub-prime-related exposure, and the strategic repositioning of the investment bank”. The ratings reflect “UBS’s continued strengths, including its diverse business position, strong liquidity, and robust capitalization once its capital strengthening measures are completed”. In December 2007, Fitch Ratings downgraded UBS AG’s long-term issuer default ratings (IDR) from “AA+” to “AA” and UBS’s Individual rating from “A/B” to “B”, commenting: “the additional writedowns announced by UBS on 10 December are significantly higher than previous guidance from the group and reflect ongoing valuation challenges in a still difficult market environment. UBS AG’s ratings reflect its excellent private
banking/wealth management franchise, diversified revenues, historically consistent profitability, strong liquidity and sound capitalization. The outlook on the long-term IDRs remains negative, reflecting continued uncertainty over future earnings, together with the challenges faced by a new management team in reshaping the group’s investment bank.”
At the end of January 2008, Fitch Ratings affirmed UBS’s long-term issuer default rating at “AA” with negative outlook, and the individual rating at “B”.
UBS’s long-term credit ratings are shown in the table. Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any
explanation of the significance of a rating may be obtained only from the rating agency. A security rating is not a recommendation to buy, sell or hold securities and each rating should be evaluated independently of any other rating. There is no assurance that any credit rating will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the rating agency if, in the rating agency’s judgment, circumstances so warrant.
Long-term ratings | ||||||||||||
As of | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Fitch, London | AA | AA+ | AA+ | |||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | |||||||||
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Treasury and capital management
Shares and capital instruments
Shares and capital instruments
Shares
UBS shares and Tier 1 capital
The majority of Tier 1 capital comprises retained earnings attributed to UBS shareholders. As per 31 December 2007, total International Financial Reporting Standard (IFRS) equity attributable to UBS amounted to CHF 35,585 million and was represented by a total of 2,073,547,344 issued UBS shares, of which 158,105,524 shares (7.6 %) were held by UBS. Each outstanding share has a par value of CHF 0.10 and entitles the holder to one vote at the shareholders’ meeting and to receive a proportionate share of the dividend that is distributed. There are no preferential rights for individual shareholders and no other classes of shares are issued by the parent bank (UBS AG) directly.
Additional future issuance of shares for mandatory convertible notes and stock dividend
As part of the measures to strengthen its capital base following the substantial writedowns related to the US residential sub-prime mortgage market, on 10 December 2007 UBS announced the issuance of mandatory convertible notes
Shares | ||||
For the year ended | ||||
Number of shares | 31.12.07 | |||
Balance at the beginning of the year | 2,105,273,286 | |||
Issue of share capital (exercise of employee options) | 1,294,058 | |||
Cancellation of second trading line treasury shares | (33,020,000 | ) | ||
Balance at the end of the year | 2,073,547,344 | |||
(MCNs) and the distribution of a stock dividend for 2007 instead of a cash dividend – see the “Capital management” section and pages 64, 65 and 67 of this report.
Capital dilution
Whether earnings per share will be higher or lower as a result of these measures depends on the effect they have in maintaining the strength, and therefore profits, of UBS in general and the wealth management business in particular. When there is excess capital available, UBS expects to also return to its normal policy, subject to regulatory requirements, of returning excess capital – that is, capital that
Shareholder approved issuance of shares | ||||||||||||
Year approved | ||||||||||||
Maximum number of | by shareholders' | % of shares issued | ||||||||||
shares to be issued | general meeting | 31.12.07 | ||||||||||
Authorized capital | ||||||||||||
Stock dividend 2007 | 103,700,000 | 2008 | 5.00 | |||||||||
Conditional capital | ||||||||||||
Mandatory convertible note | 277,750,000 | 2008 | 13.39 | |||||||||
Employee equity participation plans of UBS AG | 149,994,296 | 2006 | 7.23 | |||||||||
Employee stock ownership plan of the former PaineWebber | 144,338 | 2000 | ||||||||||
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exceeds the level that UBS believes to be reasonably appropriate in the context of its portfolio and business growth – to shareholders, through buyback and cash dividends.
Holding of UBS shares
UBS holds its own shares for three main purposes. Treasury repurchases shares on a second trading line, where they are earmarked for cancellation purposes. Shares are bought back by Treasury to cover employee share and option programs; and the Investment Bank holds shares, to a limited extent, for trading purposes where it engages in market-making activities in UBS shares and its related derivative products.
Share buyback programs
Under Swiss regulations, a company wishing to cancel shares must purchase them on the stock exchange under a special security code that clearly identifies to the market the time and quantity of shares repurchased for that specific purpose (the so-called second trading line). For each buy-back program to date, UBS has announced a maximum Swiss franc amount to be used for share purchases. The level of actual repurchases is determined by the capital management plan, which is adjusted throughout the year to reflect changes in business plans or acquisition opportunities. UBS publishes the number of shares repurchased and the average price paid on a weekly basis on the internet at www.ubs.com/investors.
Treasury shares earmarked for cancellation (share buyback program 2006 / 2007)
As part of the 2006 / 2007 share buyback program ending on 7 March 2007, 33,020,000 shares representing a total value of CHF 2.4 billion were cancelled on 29 June 2007.
were purchased for cancellation. As part of the capital measures announced on 10 December 2007, the BoD has used its discretion to rededicate for further use the 36.4 million treasury shares previously intended for cancellation. At year-end, no shares were held under the buyback program earmarked for cancellation.
Effect of second trading line program on basic earnings per share | ||||||||||||
For the year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Weighted average shares for basic earnings per share (EPS) after treasury shares | 1,926,328,078 | 1,976,405,800 | 2,013,987,754 | |||||||||
Weighted average second trading line treasury shares1 | 625,684,926 | 598,982,426 | 544,339,510 | |||||||||
Basic EPS (CHF) | (2.28 | ) | 6.20 | 6.97 | ||||||||
Cumulative impact of treasury shares on basic EPS (CHF)1 | (0.56 | ) | 1.44 | 1.49 | ||||||||
Cumulative impact of treasury shares on basic EPS (%)1 | 24.6 | 23.2 | 21.4 | |||||||||
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Treasury and capital management
Shares and capital instruments
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the equity index futures market and as a market maker in UBS shares and derivatives, has issued derivatives linked to UBS stock. Most of these instruments are classified as cash-settled derivatives and are held for trading purposes only. To hedge the economic exposure, a limited number of UBS shares are held by the Investment Bank.
Capital Instruments
Mandatory convertible notes
On the 27 February 2008 the extraordinary general meeting (EGM) of shareholders approved the issuance of a maximum of 277,750,000 shares (corresponding approximately to 13.4% of the current share capital) to two long-term financial investors, Government of Singapore Investment Corporation Pte Ltd (GIC) and an investor from the Middle East without future dilutive effects. UBS expects to use a maximum of 252,525,253 shares of the available conditional capital. The share capital will be increased upon voluntary or
Treasury share activities | ||||||||||||||||||||||||||||||||
Treasury shares purchased | ||||||||||||||||||||||||||||||||
for employee share | ||||||||||||||||||||||||||||||||
and option participation | ||||||||||||||||||||||||||||||||
Share buyback program | plans and acquisitions1 | Total number of shares | ||||||||||||||||||||||||||||||
Remaining volume of | Remaining volume of | |||||||||||||||||||||||||||||||
2006/2007 share | 2007/2010 share | |||||||||||||||||||||||||||||||
Number of | Average | buyback program in | buyback program in | Average | Number of | Average | ||||||||||||||||||||||||||
Month of purchase | shares | price in CHF | CHF million | millions of shares | Number of shares | price in CHF | shares | price in CHF | ||||||||||||||||||||||||
January 2007 | 9,900,000 | 76.72 | 2 626 | 24,438 | 74.92 | 9,924,438 | 76.72 | |||||||||||||||||||||||||
February 2007 | 520,000 | 78.06 | 2 585 | 1,803,391 | 78.18 | 2,323,391 | 78.15 | |||||||||||||||||||||||||
March 2007 | 7,210,000 | 69.35 | 203 | 2 | 19,465,000 | 71.64 | 26,675,000 | 71.02 | ||||||||||||||||||||||||
April 2007 | 3,380,000 | 74.04 | 200 | 2,400,000 | 72.02 | 5,780,000 | 73.20 | |||||||||||||||||||||||||
May 2007 | 2,590,000 | 77.24 | 197 | 6,600,000 | 76.48 | 9,190,000 | 76.69 | |||||||||||||||||||||||||
June 2007 | 5,850,000 | 75.96 | 191 | 2,750,000 | 77.89 | 8,600,000 | 76.58 | |||||||||||||||||||||||||
July 2007 | 11,970,000 | 72.24 | 180 | 0 | 0.00 | 11,970,000 | 72.24 | |||||||||||||||||||||||||
August 2007 | 950,000 | 64.06 | 179 | 0 | 0.00 | 950,000 | 64.06 | |||||||||||||||||||||||||
September 2007 | 4,450,000 | 62.73 | 174 | 0 | 0.00 | 4,450,000 | 62.73 | |||||||||||||||||||||||||
October 2007 | 0 | 0.00 | 174 | 0 | 0.00 | 0 | 0.00 | |||||||||||||||||||||||||
November 2007 | 0 | 0.00 | 174 | 500,000 | 58.77 | 500,000 | 58.77 | |||||||||||||||||||||||||
December 2007 | 0 | 0.00 | 174 | 3 | 4,500,000 | 55.30 | 4,500,000 | 55.30 | ||||||||||||||||||||||||
Maximum | Unutilized | Unutilized | ||||||||||||||||||||||||||||||||||||||||||
Maximum | volume | Amount | Average | volume | volume | |||||||||||||||||||||||||||||||||||||||
Cancella- | volume (in | (in millions | (CHF | Total shares | price | (CHF | (in millions | |||||||||||||||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | tion | CHF billion) | of shares) | billion) | purchased | (in CHF) | billion) | of shares) | |||||||||||||||||||||||||||||||||
2000/2001 | 14/12/1999 | 17/01/2000 | 02/03/2001 | 13/07/2001 | 4.0 | 4.0 | 110,530,698 | 1,2 | 36.18 | 1,2 | 0 | |||||||||||||||||||||||||||||||||
2001/2002 | 22/02/2001 | 05/03/2001 | 05/03/2002 | 05/07/2002 | 5.0 | 2.3 | 57,637,380 | 2 | 39.73 | 2 | 2.7 | |||||||||||||||||||||||||||||||||
2002/2003 | 14/02/2001 | 06/03/2002 | 08/10/2002 | 10/07/2003 | 5.0 | 5.0 | 135,400,000 | 2 | 36.92 | 2 | 0 | |||||||||||||||||||||||||||||||||
2002/2003 | 09/10/2002 | 11/10/2002 | 05/03/2003 | 10/07/2003 | 3.0 | 0.5 | 16,540,160 | 2 | 32.04 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2003/2004 | 18/02/2003 | 06/03/2003 | 05/03/2004 | 30/06/2004 | 5.0 | 4.5 | 118,964,000 | 2 | 37.97 | 2 | 0.5 | |||||||||||||||||||||||||||||||||
2004/2005 | 10/02/2004 | 08/03/2004 | 07/03/2005 | 08/07/2005 | 6.0 | 3.5 | 79,870,188 | 2 | 44.36 | 2 | 2.5 | |||||||||||||||||||||||||||||||||
2005/2006 | 08/02/2005 | 08/03/2005 | 07/03/2006 | 13/07/2006 | 5.0 | 4.0 | 74,200,000 | 2 | 54.26 | 2 | 1 | |||||||||||||||||||||||||||||||||
2006/2007 | 14/02/2006 | 08/03/2006 | 07/03/2007 | 29/06/2007 | 5.0 | 2.4 | 33,020,000 | 2 | 73.14 | 2 | 2.6 | |||||||||||||||||||||||||||||||||
2007/2010 | 13/02/2007 | 08/03/2007 | 08/03/2010 | 210.5 | 3 | 2.6 | 4 | 36,400,000 | 4 | 71.41 | 4 | 174.1 | 3 | |||||||||||||||||||||||||||||||
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mandatory conversion of the MCNs due 2010. The future mandatory capital increase allows the full proceeds of CHF 13 billion to be counted as Tier 1 capital for regulatory capital purposes for the first time in first quarter 2008.
price” of CHF 51.48. (This, in turn, was determined by the average of (i) CHF 57.2 and (ii) the average of the three daily volume-weighted average price on virt-x for the three days prior to the EGM, subject to a minimum of CHF 51.48 and a maximum of CHF 62.92). The total amount of shares that the MCN holders receive is then calculated by dividing CHF 13 billion by the conversion price. There are basically three different scenarios for conversion at maturity. The conversion price will be set at:
– | CHF 60.23, corresponding to 117% of the reference price, if at maturity the UBS share price is at or above CHF 60.23. In this case, the MCN holders will receive approximately 215,839,283 shares (CHF 13 billion / CHF 60.23), which is theminimum amountof shares; | |
– | the prevailing UBS share price if it is between CHF 51.48 and CHF 60.23 (corresponding respectively to 100% and 117% of the reference price) at maturity; and | |
– | CHF 51.48, corresponding to 100% of the reference price, if the prevailing UBS share price is at or below CHF 51.48 at maturity. In this case, the MCN holders will receive approximately 252,525,253 shares (CHF 13 billion/CHF 51.48), which is themaximum amountof shares; | |
– | If either UBS or the MCN holders choose to convert the MCNs prior to maturity, the maximum conversion price (and hence minimum amount of shares) is applied in case the early conversion occurs at the request of the MCN holders, while the minimum conversion price (and hence maximum amount of shares) is applied if converted at the request of UBS. |
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Treasury and capital management
Shares and capital instruments
Hybrid Tier 1 capital
Hybrid Tier 1 instruments represent innovative and non-innovative perpetual instruments and accounted for approximately 19.5% of eligible Tier 1 capital on 31 December 2007. They are accounted for under minority interest in the bank’s equity. In 2007 UBS raised EUR 600 million in the form of preferred securities issued by UBS Capital Securities (Jersey) Ltd. The instrument bears a 7.152% coupon and is callable in 2017. As per December 31, 2007 UBS had issued in various currencies a total of CHF 6,387 million of such instruments. Hybrid Tier 1 instruments are perpetual instruments which can only be redeemed if they are called by the issuer. If such a call is not exercised at the respective call date, the terms might include a change from fixed to floating coupon payments and, in the case of innovative instruments only, a limited step-up of the interest rate. Non-innovative instruments do not have a step-up of the interest rate and are therefore viewed as having a higher equity characteristic for regulatory capital purposes. The instruments are issued either through trusts or subsidiaries of UBS and rank senior to UBS shares in dissolution. Payments under the instruments are subject to the adherence to minimal capital ratios by UBS. Any payment missed is non-cumulative.
Tier 2 capital
The major element in Tier 2 capital consists of subordinated long-term debt. Tier 2 instruments have been issued in various currencies and with a range of maturities across capital markets globally. They account for CHF 13,770 million in total capital as per year-end 2007, representing 3.7 percentage points of the total capital ratio of 12.0%. Tier 2 instruments rank
senior to both UBS shares and to hybrid Tier 1 instruments but are subordinated with respect to all senior obligations of UBS. In 2007 UBS raised GBP 250 million with a coupon of 6.375% maturing in 2024 callable by the issuer in 2019 and CHF 350 million with a 4.125% coupon maturing in 2017.
Distributions to shareholders
UBS normally pays an annual dividend to shareholders registered as of the date of the AGM (the record date). Payment is usually scheduled three business days thereafter.
Total distributions in 2007
From the results of ordinary business, UBS transferred a total of CHF 5.1 billion in equity to its shareholders in 2007. This included CHF 0.8 billion in shares the bank repurchased during 2007 for purposes of cancellation and a total payout to shareholders for the 2006 financial year of CHF 4.3 billion or CHF 2.20 per share with payment on 23 April 2007.
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Distributions to shareholders in 2008
Stock dividend
At the extraordinary shareholders’ meeting held on 27 February 2008, the shareholders approved distribution of a stock dividend to shareholders. The stock dividend is designed to provide shareholders with the opportunity to obtain proceeds comparable to the cash dividend paid in previous years. There will be one entitlement allocated to each share outstanding on the record date on 25 April 2008 after close of business. A certain number of entitlements will give the holder the right to receive one additional UBS share for free. The entitlements are expected to be tradable for nine business days and will then be exchanged into UBS shares. For the stock dividend shareholders approved the creation of authorized capital at the EGM on 27 February 2008. The stock dividend will not exceed 5% of the share capital at year-end 2007 or a ratio of one free new share for a minimum of every 20 shares already owned. This corresponds to a maximum amount of authorized capital of CHF 10,370,000 or 103,700,000 shares. The final exchange ratio will be determined by the BoD and the shareholders will be informed on or by the day of the AGM on 23 April 2008. After expiration of the entitlement trading period on 9 May 2008, all entitlements will automatically be exchanged into new shares, which will settle on 19 May 2008. Fractions that have not been sold or aggregated during the entitlement trading period will not be compensated by UBS in its capacity as issuer.
of Swiss withholding tax. For Swiss income tax purposes, the taxable value of the stock dividend will approximately be equal to the par value of CHF 0.10 per share of the shares distributed as a stock dividend proportionately allocated to the entitlement distributed. For Swiss shareholders, this is a very small fraction of the taxable value of an equivalent cash dividend. The taxation of shareholders not resident in Switzerland depends on the laws in their tax jurisdiction. In many cases, the distribution of entitlements and the exercise thereof should be tax-free. Shareholders should consult with their own tax advisors to determine the tax treatment applicable to them.
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Treasury and capital management
UBS shares in 2007
UBS shares in 2007
UBS shares are listed on the Swiss stock exchange (SWX), where they are traded on virt-x (SWX Europe), and on the New York and Tokyo stock exchanges.
è | For a detailed definition of UBS shares (including par value, type and rights of security), please refer to the section “Capital structure” inCorporate Governance and Compensation Report 2007 |
In 2007, despite continued deterioration in the US housing market, dollar weakness and oil price inflation, global equity markets posted modest gains for the first half of the year buoyed by the continued high corporate earnings and high levels of mergers and acquisitions activity, particularly in the leveraged finance space. Emerging markets outperformed on high commodity prices and strong economic activity. The S&P 500 and MSCI World indices were up 6% and 8% respectively.
significant dislocation in the US sub-prime market led to concerns of contagion and a worldwide credit crunch. In response, many banks and financial institutions began to hoard liquidity, leading to an almost complete cessation of activity in the world’s credit markets.
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 | 8657.T | ||
Security identification codes | ||
ISIN | CH0024899483 | |
Valoren | 2.489.948 | |
Cusip | CINS H89231 33 8 | |
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UBS share data | ||||||||||||
As of | ||||||||||||
Registered shares | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Total shares outstanding | 1,915,441,820 | 1,940,797,587 | 1,968,745,296 | |||||||||
Total shares ranking for dividend | 2,073,547,344 | 2,082,673,286 | 2,109,495,044 | |||||||||
Treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | |||||||||
Weighted average shares (for basic earnings per share (EPS) calculations) | 1,926,328,078 | 1,976,405,800 | 2,013,987,754 | |||||||||
Weighted average shares (for diluted EPS calculations) | 1,927,698,732 | 2,058,834,812 | 2,097,191,540 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | (2.28 | ) | 6.20 | 6.97 | ||||||||
Basic EPS from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||
Diluted EPS | (2.28 | ) | 5.95 | 6.68 | ||||||||
Diluted EPS from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||
UBS shares and market capitalization | ||||||||||||||||
As of | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Total ordinary shares issued | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2005 program | (67,770,000 | ) | ||||||||||||||
2006 program | (22,600,000 | ) | ||||||||||||||
Shares outstanding for market capitalization | 2,073,547,344 | 2,082,673,286 | 2,109,495,044 | 0 | ||||||||||||
Share price (CHF) | 52.40 | 74.05 | 62.55 | (29 | ) | |||||||||||
Market capitalization (CHF million) | 108,654 | 154,222 | 131,949 | (30 | ) | |||||||||||
Total treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
Trading volumes | ||||||||||||
For the year ended | ||||||||||||
1000 shares | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
SWX total (virt-x) | 4,079,863 | 2,731,841 | 2,568,531 | |||||||||
SWX daily average (virt-x) | 16,451 | 10,884 | 10,073 | |||||||||
NYSE total | 304,446 | 214,912 | 167,231 | |||||||||
NYSE daily average | 1,213 | 853 | 664 | |||||||||
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Treasury and capital management
UBS shares in 2007
First quarter 2007
Equity markets got off to a positive start in 2007, but corrected downwards in later February and early March. After the US Federal Bank’s decision to leave its interest rates unchanged, investor confidence stabilized and markets closed the quarter slightly higher than they began.
Second quarter 2007
During the quarter stock markets recovered from the lows reached in mid-March. However, credit conditions deteriorated sharply from the middle of June onwards. UBS reported its first quarter results which were strong and consistent with record profits in each business group and for the business as a whole. During the period UBS disposed of stake in Julius Baer, recording a post tax gain of CHF 1,926 million. UBS shares recovered by 2% in the quarter compared with a flat performance in the DJ Stoxx Banks Index.
Third quarter 2007
Credit conditions deteriorated sharply from the middle of June onwards leading to extreme volatility in equity and credit markets over the course of the summer. Concerns over counterparty credit risk led banks to hoard liquidity leading to an almost complete cessation of credit market activity in late August.
results in the second half of 2007 if difficult markets conditions prevailed. UBS shares fell by 15% in the quarter compared with the broader banking sector (DJ Stoxx Banks Europe) which lost 10%.
Fourth quarter 2007
Credit markets remained closed for large part of the quarter and only reopened after significant persistent injections of liquidity by many of the world’s central banks. Losses in the US sub-prime sector mounted for the banks, financial institutions and financial guarantors, putting capital ratios under strain and prompting capital raising.
Share liquidity
During 2007, daily average volume in UBS shares on virt-x was 13.1 million shares. On the New York Stock Exchange (NYSE), it was 2.4 million shares.
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Stock exchange prices | ||||||||||||||||||||||||
SWX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High (CHF) | Low (CHF) | Period end (CHF) | High (USD) | Low (USD) | Period end (USD) | |||||||||||||||||||
2007 | 80.90 | 48.00 | 52.40 | 66.26 | 43.50 | 46.00 | ||||||||||||||||||
Fourth quarter 2007 | 68.65 | 48.00 | 52.40 | 58.01 | 43.50 | 46.00 | ||||||||||||||||||
December | 59.10 | 51.85 | 52.40 | 51.89 | 44.73 | 46.00 | ||||||||||||||||||
November | 61.70 | 48.00 | 57.20 | 51.26 | 43.50 | 50.48 | ||||||||||||||||||
October | 68.65 | 59.90 | 61.95 | 58.01 | 52.19 | 53.69 | ||||||||||||||||||
Third quarter 2007 | 75.20 | 60.35 | 62.60 | 62.34 | 49.84 | 53.25 | ||||||||||||||||||
September | 65.85 | 60.35 | 62.60 | 55.18 | 50.85 | 53.25 | ||||||||||||||||||
August | 68.85 | 61.25 | 63.00 | 57.72 | 49.84 | 52.24 | ||||||||||||||||||
July | 75.20 | 64.55 | 67.55 | 62.34 | 53.34 | 55.07 | ||||||||||||||||||
Second quarter 2007 | 80.45 | 71.65 | 73.60 | 66.26 | 58.73 | 60.01 | ||||||||||||||||||
June | 80.45 | 71.95 | 73.60 | 65.18 | 58.73 | 60.01 | ||||||||||||||||||
May | 80.45 | 74.60 | 79.90 | 65.75 | 61.75 | 65.24 | ||||||||||||||||||
April | 79.95 | 71.65 | 79.15 | 66.26 | 59.01 | 64.90 | ||||||||||||||||||
First quarter 2007 | 80.90 | 67.20 | 72.20 | 64.30 | 55.40 | 59.43 | ||||||||||||||||||
March | 73.80 | 67.20 | 72.20 | 60.74 | 55.40 | 59.43 | ||||||||||||||||||
February | 80.90 | 70.30 | 72.25 | 64.30 | 57.65 | 59.04 | ||||||||||||||||||
January | 78.95 | 73.85 | 77.80 | 63.33 | 59.35 | 63.01 | ||||||||||||||||||
2006 | 79.90 | 59.85 | 74.05 | 63.39 | 48.34 | 60.33 | ||||||||||||||||||
Fourth quarter | 79.90 | 70.70 | 74.05 | 63.39 | 58.50 | 60.33 | ||||||||||||||||||
Third quarter | 74.80 | 59.85 | 74.80 | 59.77 | 48.34 | 59.31 | ||||||||||||||||||
Second quarter | 75.65 | 61.35 | 67.00 | 61.70 | 49.36 | 54.85 | ||||||||||||||||||
First quarter | 72.35 | 62.80 | 71.60 | 55.55 | 48.66 | 54.99 | ||||||||||||||||||
2005 | 63.50 | 46.75 | 62.55 | 49.02 | 38.60 | 47.58 | ||||||||||||||||||
Fourth quarter | 63.50 | 52.75 | 62.55 | 49.02 | 41.22 | 47.58 | ||||||||||||||||||
Third quarter | 56.15 | 50.40 | 55.00 | 43.40 | 38.92 | 42.75 | ||||||||||||||||||
Second quarter | 51.40 | 47.23 | 50.00 | 42.93 | 38.60 | 38.93 | ||||||||||||||||||
First quarter | 52.30 | 46.75 | 50.50 | 44.71 | 39.70 | 42.20 | ||||||||||||||||||
2004 | 49.18 | 40.80 | 47.68 | 42.19 | 32.47 | 41.92 | ||||||||||||||||||
Fourth quarter | 48.18 | 42.00 | 47.68 | 42.19 | 35.05 | 41.92 | ||||||||||||||||||
Third quarter | 45.50 | 40.80 | 43.95 | 36.19 | 32.47 | 35.17 | ||||||||||||||||||
Second quarter | 49.18 | 44.13 | 44.13 | 38.03 | 34.45 | 35.53 | ||||||||||||||||||
First quarter | 48.53 | 42.85 | 47.05 | 39.63 | 33.96 | 37.25 | ||||||||||||||||||
2003 | 42.70 | 24.90 | 42.35 | 34.08 | 19.00 | 34.00 | ||||||||||||||||||
Fourth quarter | 42.70 | 37.43 | 42.35 | 34.08 | 28.77 | 34.00 | ||||||||||||||||||
Third quarter | 40.25 | 36.75 | 37.05 | 29.63 | 27.19 | 28.12 | ||||||||||||||||||
Second quarter | 37.88 | 29.45 | 37.68 | 29.18 | 21.79 | 27.70 | ||||||||||||||||||
First quarter | 36.05 | 24.90 | 28.75 | 25.93 | 19.00 | 21.35 | ||||||||||||||||||
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More about UBS
Sources of information
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007.They comply with the US disclosure requirements for foreign private issuers as defined by Form 20-F of the Securities and Exchange Commission (SEC) and combine audited and non-audited information. All four reports are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
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Information tools for investors
Website
Our Analysts & Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging service
On the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results 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 webcasts can be found in the financials section of our Analysts & Investors website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
Corporate information
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are:
Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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More about UBS
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 | +41-44-234 4100 | UBS AG | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +41-44-234 3415 | P.O. Box | ||||
CH-8098 Zurich, Switzerland | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. 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 | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all global registered share-related queries in the US. www.melloninvestor.com | Calls from the US | +866-541 9689 | BNY Mellon Shareowner 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 | ||||||
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Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to (1) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2007. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher / Copyright: UBS AG, Switzerland | Languages: English, German
Order numberAnnual Report 2007:SAP-No. 80531E-0801
Mixed Sources Product group from well-managed forests and other controlled sources www.fsc.org Cert no. SQS-COC-100112 © 1996 Forest Stewardship Council |
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UBS AG P.O. Box, CH-8098 Zurich P.O. Box, CH-4002 Basel | ||
www.ubs.com |
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Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007
Risk, Treasury and Capital Management 2007
Corporate Governance and Compensation Report 2007
Financial Statements 2007
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
Information according to Art. 663bbisand Art. 663c paragraph three of the Swiss Code of Obligations
Disclosures provided in line with the requirements of Art. 663bbis and Art. 663c paragraph three of the Swiss Code of Obligations’ “Supplementary disclosures for companies whose shares are listed on a stock exchange: Compensations and Participations” are also included in the audited reportFinancial Statements 2007.This information is marked by a bar on the left-hand side throughout this report.
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Corporate governance
– | Aims to lead UBS towards sustainable growth, protect the interests of its shareholders and create value for them and all stakeholders of the firm | |
– | Checks and balances through a strict dual board structure | |
– | Shareholders’ rights encourage their participation in decision-making processes |
Key features
Strict dual board structure
TheBoard of Directors (BoD)is the most senior body in the firm, with ultimate responsibility for its mid- and long-term strategic direction and supervision of executive management. The majority of its members are independent
TheGroup Executive Board (GEB)has business management responsibility for UBS. Its members account to the BoD for the firm’s results
Separation of powersis achieved by limiting membership to one board and assigning the functions of Chairman of the BoD and Group Chief Executive Officer to different people
Shareholder participation rights
– | No restrictions on share ownership and voting rights | |
– | Shareholders (individually or jointly) representing shares with an aggregate par value of CHF 62,500 can submit proposals for the agendas of shareholders’ meetings |
Recent developments
Extraordinary general meeting on 27 February 2008 approved capital strengthening program
– | Creation of conditional capital to issue CHF 13 billion of mandatory convertible notes to financial investors |
– | Creation of authorized capital of maximum CHF 10.4 million to replace cash dividend with stock dividend |
Annual general meeting on 23 April 2008 to vote on reduced terms of office for members of the Board of Directors
– | Proposed reduction of the terms of office from three years (current terms) to one year |
– | As a result, by 2010 at the latest, the entire BoD will have to be confirmed on a yearly basis |
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Corporate Governance
Introduction and principles
Introduction and principles
Corporate governance – the way that the leadership and management of a firm are organized and how they operate in practice – ultimately aims to lead UBS towards sustainable growth, protect the interests of its shareholders and create value for both them and all stakeholders. Good corporate governance seeks to balance entrepreneurship, control and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.
– | SWX “Directive on Information Relating to Corporate Governance” (revised directive as of 1 January 2007) with regard to Group structure and shareholders, capital structure, Board of Directors, Group Executive Board, compensation, shareholdings and loans (revised), shareholders’ participation rights, change of control and defense measures, auditors and information policy; | |
– | Art. 663bbis and Art. 663c paragraph three of the CO “Supplementary disclosures for companies whose shares are listed on a stock exchange: Compensations and Participations”, with regard to share and option ownership and loans; and | |
– | NYSE “Corporate Governance Listing Standards” with regard to foreign listed companies, independence of directors, board committees and differences from NYSE standards. |
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Corporate Governance
Group structure and shareholders
Group structure and shareholders
Under Swiss company law, UBS is organized as a limited company, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure
The legal entity structure of UBS is designed to support its businesses within an efficient legal, tax, regulatory and funding framework. Neither the business groups of UBS nor its Corporate Center are separate legal entities: they operate out of the parent bank, UBS AG, through its branches worldwide. This structure is designed to capitalize on the increased business opportunities and cost efficiencies offered by the use of a single legal platform and to enable the flexible and efficient use of capital.
Operational group structure
The three business groups – Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank – together with Corporate Center form the operational structure of the Group’s financial businesses. Performance is reported according to this structure.
è | The “UBS’s businesses” section inStrategy, Performance and Responsibility 2007details each business group and its strategy, structure, organization, products and services |
Listed and non-listed companies belonging to the Group (consolidated entities)
The UBS Group includes a great number of subsidiaries, none of which, however, are listed companies. For details of significant operating subsidiary companies of the Group, see Note 35 inFinancial Statements 2007.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 7.99% of all shares issued as of 31 December 2007, compared to 8.81% at year-end 2006 and 8.55% at year-end 2005. DTC (Cede & Co.), New York, The Depository Trust Company, a US securities clearing organization, was registered as a shareholder for a great number of beneficial owners with 14.15% of all shares
issued as of 31 December 2007 (13.21% as of 31 December 2006). According to “UBS’s Regulation on the Registration of Shares”, voting rights of nominees are restricted to 5%, while clearing and settlement organizations are exempt from this restriction. As of 31 December 2007, no other shareholders had reported holding 3% or more of all voting rights. Ownership of UBS shares is widely spread. The tables on the next page provide information about the distribution of shareholders by category and geography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only shareholders registered in the share register as shareholders with voting rights are entitled to exercise voting rights.
Cross shareholdings
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
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Corporate Governance
Group structure and shareholders
Distribution of UBS shares | ||||||||||||||||
As of 31.12.07 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1–100 | 33,819 | 16.2 | 1,982,968 | 0.1 | ||||||||||||
101–1,000 | 124,749 | 59.6 | 52,269,332 | 2.5 | ||||||||||||
1,001–10,000 | 46,603 | 22.3 | 123,861,673 | 6.0 | ||||||||||||
10,001–100,000 | 3,577 | 1.7 | 87,704,010 | 4.2 | ||||||||||||
100,001–1,000,000 | 384 | 0.2 | 112,916,436 | 5.5 | ||||||||||||
1,000,001–5,000,000 | 70 | 0.0 | 148,229,789 | 7.2 | ||||||||||||
5,000,001–20,735,473 (1%) | 18 | 0.0 | 147,702,880 | 7.1 | ||||||||||||
1–2% | 6 | 0.0 | 194,124,566 | 9.4 | ||||||||||||
2–3% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
3–4% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
4–5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 2 | 1 | 0.0 | 459,135,393 | 22.0 | |||||||||||
Total registered | 209,228 | 100.0 | 1,327,927,047 | 64.0 | ||||||||||||
Unregistered2 | 745,620,297 | 36.0 | ||||||||||||||
Total shares issued | 2,073,547,344 | 3 | 100.0 | |||||||||||||
Shareholders: category and geographical location | ||||||||||||||||
Shareholders | Shares | |||||||||||||||
As of 31.12.07 | Number | % | Number | % | ||||||||||||
Individual shareholders | 202,019 | 96.6 | 244,744,640 | 11.8 | ||||||||||||
Legal entities | 6,713 | 3.2 | 247,068,373 | 11.9 | ||||||||||||
Nominees, fiduciaries | 496 | 0.2 | 836,114,034 | 40.3 | ||||||||||||
Unregistered | 745,620,297 | 36.0 | ||||||||||||||
Total | 209,228 | 100.0 | 2,073,547,344 | 100.0 | ||||||||||||
Switzerland | 186,725 | 89.2 | 460,203,410 | 22.2 | ||||||||||||
Europe | 15,205 | 7.3 | 425,716,963 | 20.5 | ||||||||||||
North America | 2,390 | 1.1 | 398,561,800 | 19.2 | ||||||||||||
Other countries | 4,908 | 2.4 | 43,444,874 | 2.1 | ||||||||||||
Unregistered | 745,620,297 | 36.0 | ||||||||||||||
Total | 209,228 | 100.0 | 2,073,547,344 | 100.0 | ||||||||||||
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Corporate Governance
Capital structure
Capital structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to maintaining its strong capital position.
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 2007, the ordinary share capital was CHF 207,354,734.40 (including shares issued out of conditional capital during 2007).
Conditional share capital
At year-end 2007, total conditional share capital amounted to CHF 15,013,863.40, corresponding to a maximum of 150,138,634 shares.
Authorized share capital
At the EGM on 27 February 2008, UBS shareholders approved the creation of authorized capital for a maximum amount of CHF 10,370,000, or 103, 700,000 new shares (approximately 5% of the issued share capital at year-end 2007). The issue price of new shares will be CHF 0.10. The authorized capital created will be used to replace the cash dividend for the 2007 financial year with a stock dividend. UBS shareholders will receive one tradable entitlement for each UBS share held on 25 April 2008. Entitlements will be tradable on SWX Europe (formerly known as virt-x) from 28 April to 9 May 2008. The maximum exchange ratio will be at least 20:1, i. e. no fewer than 20 entitlements will enable a holder to receive one new share for free. The exchange ratio will be determined by the BoD and communicated to shareholders on or by the day of the AGM on 23 April 2008.
Changes of shareholders’ equity
According to International Financial Reporting Standards (IFRS), equity attributable to UBS shareholders amounted to CHF 35.5 billion on 31 December 2007.
è | Changes in shareholders equity over the last three years are detailed inFinancial Statements 2007 |
Shares, participation and bonus certificates, capital securities
UBS shares are issued in registered form, traded and settled as so-called global registered shares. Each registered share
Ordinary share capital | ||||||||||||
Share capital | Number | Par value | ||||||||||
in CHF | of shares | in CHF | ||||||||||
As of 31 December 2006 | 210,527,329 | 2,105,273,286 | 0.10 | |||||||||
Share repurchase programs 2006 / 2007: | ||||||||||||
cancellation of shares upon annual general meeting decision of 18 April 2007 | (3,302,000 | ) | (33,020,000 | ) | 0.10 | |||||||
options excercised from conditional capital | 129,405 | 1,294,058 | 0.10 | |||||||||
As of 31 December 2007 | 207,354,734 | 2,073,547,344 | 0.10 | |||||||||
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Corporate Governance
Capital structure
has a par value of CHF 0.10 and carries one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his or her own name and for his or her own account. Global registered shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange they are traded at.
è | For details, see the “Shareholders’ participation rights” section in this report |
On 31 December 2007, 1,128,382,764 shares carried voting rights, 199,544,283 shares were entered in the share register without voting rights, and 745,620,297 shares were not registered. All 2,073,547,344 shares were fully paid up and 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 in the share register with voting rights according to the provisions of the “Articles of Association UBS AG” (which require an express declaration of beneficial ownership) may be voted without any limit in scope.
Convertible bonds and options
On 31 December 2007, employee options outstanding amounted to 185,993,330, of which a total of 90,453,625 were exercisable. UBS satisfies share delivery obligations under its option-based participation plans either by purchasing UBS shares in the market on grant date or shortly thereafter or through the issuance of new shares out of conditional capital. At exercise, shares held in treasury or newly issued shares are delivered to the employee against receipt of the strike price. As of 31 December 2007, UBS was holding approximately 141 million shares in treasury and an additional 150 million unissued shares in conditional share capital which are available and can be used for future employee option exercises. The shares available cover all vested (i.e. exercisable) employee options.
è | Details on the MCN can be found in the section “Shares and capital instruments” inRisk, Treasury and Capital Management 2007 |
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Corporate Governance
Board of Directors
Board of Directors
The Board of Directors is the most senior body with ultimate responsibility for the strategy and management of the company and for the supervision of its executive management. The shareholders elect each member of the Board of Directors, which appoints its Chairman, at least one Vice Chairman and the members of its various committees.
Members of the Board of Directors
The text in the boxes below provides information on the composition of the Board of Directors (BoD) as of 31 December 2007. It shows each member’s functions in UBS, nationality, year of initial appointment to the BoD and current term of office, professional history and education, date of birth and other activities and functions, such as mandates on boards of important corporations, organizations and foundations, permanent functions for important interest groups and official functions and political mandates.
Marcel Ospel
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 (proposed for re-election at the 2008 AGM) | |
Professional history, education and date of birth
Marcel Ospel has been Chairman of the Board of Directors (BoD) of UBS AG since 2001. Prior to this, he served as Group Chief Executive Officer (Group CEO) of UBS. He was the President and Group CEO of Swiss Bank Corporation (SBC) from 1996 to 1998. He was appointed CEO of SBC Warburg in 1995, having been a member of the Executive Board of SBC since 1990. From 1987 to 1990, he was in charge of Securities Trading and Sales at SBC. From 1984 to 1987, Mr Ospel was a Managing Director with Merrill Lynch Capital Markets, and from 1980 to 1984, he worked at SBC International London and New York in the Capital Markets division. He began his career at SBC in the Central Planning and Marketing Division in 1977. Mr Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel and holds an “Honorary Doctor of Laws Degree” of the University of Rochester. He was born on 8 February 1950.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Marcel Ospel is a member of the Monetary Authority of Singapore’s International Advisory Panel. He is a trustee of the Foundation Board of the Patronate Committee for the Basel Museums of Art and of the Committee for the Museum of Antiques, Basel, and is the Chairman of the “Optimus Foundation”, a charitable foundation administered by UBS.
Permanent functions for important interest groups:
Marcel Ospel is the treasurer of “Economiesuisse”, the Swiss business federation, Zurich, and is a member of the European Financial Services Round Table, Brussels.
Stephan Haeringer
Address | UBS AG Bahnhofstrasse 45 CH-8098 Zurich | |
Functions in UBS | Executive Vice Chairman /Chairman of the Corporate Responsibility Committee | |
Nationality | Swiss | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2010 | |
Professional history, education and date of birth
Before being elected to the BoD in 2004, Stephan Haeringer was Deputy President of the Group Executive Board (GEB), 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 CEO 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 functionsMandates 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, a member of the German-Swiss Chamber of Commerce, a member of the “Institut International D’Etudes Bancaires” and a member of the Board of Trustees of the Goethe Business School, Frankfurt.
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Corporate Governance
Board of Directors
Ernesto Bertarelli
Address | Bemido SA 2, chemin des Mines 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 | 2009 | |
Professional history, education and date of birth
Ernesto Bertarelli was CEO of Serono International SA, Geneva between 1996 and 2007. 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 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 is the Chairman 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.
Gabrielle Kaufmann-Kohler
Address | Lévy Kaufmann-Kohler 3-5, rue du Conseil- Général CH-1205 Geneva | |
Functions in UBS | Member of the Nominating Committee /member of the Corporate Responsibility Committee | |
Nationality | Swiss | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Gabrielle Kaufmann-Kohler has been a partner with Lévy Kaufmann-Kohler since 1 January 2008 and has also been a professor of international private law at the University of Geneva since 1997. Between 1996 and 2007 she was a partner at the Schellenberg Wittmer law firm. From 1985 to 1995 she was a partner at Baker & McKenzie law firm. She is a member of the Geneva Bar (since 1976) and of the New York State Bar (since 1981) and is known worldwide for her expertise in international arbitration. Ms Kaufmann-Kohler completed her legal studies at the University of Basel in 1977 and received her doctorate from the same institution in 1979. She was born on 3 November 1952.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Gabrielle Kaufmann-Kohler is a member of the American Arbitration Association.
Sergio Marchionne
Address | Fiat S.p.A Via Nizza 250 I-10126 Torino | |
Function in UBS | Member of the Compensation Committee | |
Nationality | Canadian and Italian | |
Year of initial appointment | 2007 | |
Current term of office runs until | 2010 | |
Professional history, education and date of birth
Sergio Marchionne serves as CEO of Fiat S.p.A., Turin, and Fiat Group Automobiles. Sergio Marchionne began his professional career in 1983 as a Chartered Accountant and Tax Specialist for Deloitte & Touche in Canada. Two years later, he became Group Controller and then Director of Corporate Development at Lawson Mardon Group of Toronto. In 1989 and 1990, he served as Executive Vice President of Glenex Industries. In the following two years Sergio Marchionne acted as Vice President of Finance and Chief Financial Officer (CFO) at Acklands Ltd. He returned to Lawson Mardon Group in 1992 as Vice President of Legal and Corporate Development and CFO. The company was acquired by Alusuisse Lonza (Algroup) in 1994. After the acquisition he held various positions of increasing responsibility until 2000, after having become CEO in 1996. After completing the merger of Alusuisse with Alcan, he acted as CEO and Chairman of the spin-off Lonza Group Ltd. In 2002, Sergio Marchionne was appointed CEO of the Société Générale de Surveillance (SGS) Group of Geneva, and in early 2006 he became Chairman of the same company. He has been a member of the BoD of Fiat S.p.A. since 2003 and served as CEO of the company from June 2004 onwards. Sergio Marchionne studied philosophy at the University of Toronto, Canada, business at the University of Windsor, Canada, and law at Osgoode Hall Law School in Toronto, Canada, and is a lawyer and chartered accountant. He was born on 17 June 1952.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Sergio Marchionne is a member of the Supervisory Board of Hochtief AG.
Rolf A. Meyer
Address | Heiniweidstrasse 18 CH-8806 Bäch | |
Functions in UBS | Chairman of the Compensation Committee / member of the Audit Committee | |
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Rolf A. Meyer has been a member of the BoD of UBS and its predecessor, Union Bank of Switzerland, since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. Today, he holds several board memberships. He first joined Ciba-Geigy Group in 1973 as a financial analyst and subsequently became Group Company Controller in Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Information Systems in Ardsley, N.Y., and later CFO of the Group. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. Mr Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administration (lic. oec. HSG). He was born on 31 October 1943.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Rolf A. Meyer is a member of the Board of Directors of DKSH AG (Diethelm Keller Siber Hegner), Zurich, and is the Chairman of its Audit and Finance Committee. He is also a member of the Board of Directors of Ascom (Switzerland) Ltd., Bern.
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Helmut Panke
Address | BMW AG Petuelring 130 D-80788 Munich | |
Function in UBS | Chairman of the Nominating Committee | |
Nationality | German | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2010 | |
Professional history, education and date of birth
Helmut Panke was Chairman of the Board of Management of BMW AG, Munich, between 2002 and September 2006. In 1982, 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. Today, he holds several board memberships. 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 Dusseldorf 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).
Permanent functions for important interest groups:
Helmut Panke is a member of the Board of Directors of American Chamber of Commerce in Germany and a member of the International Advisory Board for Dubai International Capital’s “Global Strategic Equities Fund”.
Peter Spuhler
Address | Stadler Bussnang AG Bahnhofplatz CH-9565 Bussnang | |
Function in UBS | Member of the Compensation Committee | |
Nationality | Swiss | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2010 | |
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 2,500 staff and is an internationally successful light railway car 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 functionsMandates 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. In addition, he is a member of the Board of Directors of Kühne Holding, Switzerland, and Walo Bertschinger Central AG, Switzerland.
Permanent functions for important interest groups:
He is Vice President of LITRA, a Swiss organization based in Berne that provides informational services in the interests of public transport.
Official functions and political mandates:
Peter Spuhler is a member of the National Council of the Swiss Parliament (lower house).
Peter Voser
Address | Royal Dutch Shell plc 2501 AN NL-The Hague | |
Function in UBS | Member of the Audit Committee | |
Nationality | Swiss | |
Year of initial appointment | 2005 | |
Current term of office runs until | 2008 (proposed for re-election at the AGM 2008) | |
Professional history, education and date of birth
Peter Voser has been Chief Financial Officer of Royal Dutch Shell plc in London since 2004. Between 2002 and 2004, he was CFO 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 board member of the Federal Auditor Oversight Authority.
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Corporate Governance
Board of Directors
Lawrence A. Weinbach
Address | Yankee Hill Capital Management 300 East 42nd Street USA-New York, NY 10017 | |
Function in UBS | Chairman of the Audit Committee | |
Nationality | American (US) | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2008 (proposed for re-election at the 2008 AGM) | |
Professional history, education and date of birth
Lawrence A. Weinbach is a partner of the Yankee Hill Capital Management LLC, a private equity firm based in Southport, CT (USA). He was Executive Chairman of Unisys Corporation until January 2006. From 1997 to 2004 he was Chairman, President and CEO of Unisys Corporation. From 1961 to 1997 he was with Arthur Andersen / Andersen Worldwide as Managing Partner and was Chief Executive of Andersen Worldwide from 1989 to 1997, Chief Operating Officer from 1987 to 1989, and Managing Partner of the New York office from 1983. He was elected to partnership at Arthur Andersen in 1970 and became Managing Partner of the Stamford, Connecticut, office in 1974 and Partner in charge of the accounting and audit practice in New York from 1980 to 1983. Mr Weinbach is a Certified Public Accountant and holds a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania. He was born on 8 January 1940.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Lawrence A. Weinbach is a member of the Board of Directors of Avon Products Inc., New York, where he is the Chairman of the Audit Committee. He is a trustee and member of the audit committee of Carnegie Hall, New York and a member of the Board of Directors of Quadra Realty Trust, Inc., New York and Discover Financial Services, Riverwoods, Illinois.
Permanent functions for important interest groups:
Lawrence A. Weinbach is a member of the New York Stock Exchange Listed Company Advisory Committee and of the National Security Telecommunications Advisory Committee.
Joerg Wolle
Address | DKSH Holding AG Wiesenstrasse 8 CH-8034 Zurich | |
Function in UBS | Member of the Nominating Committee | |
Nationality | German | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Since 2002, Joerg Wolle has been President and CEO of DKSH Holding Ltd. From 2000 until the merger with Diethelm Keller in 2002, he was President and CEO of SiberHegner Holding AG. He completed his studies in engineering in 1983 and received his doctorate in 1987 from the Technical University of Chemnitz in Germany. Joerg Wolle was born on 19 April 1957.
Elections and terms of office
All the members of the BoD are elected individually by the AGM for a term of office of three years. The initial term of each member is fixed in such a way as to ensure that about one-third of the membership have to be newly elected or reelected every year.
è | The boxes on pages 9–12 lists the following for each BoD member: year of first appointment to the BoD and the expiry of their current mandate |
Changes in 2008
The BoD will propose to the AGM on 23 April 2008 that Marcel Ospel, Peter Voser and Larry Weinbach, whose terms expire on the date of the AGM, be re-elected for a one-year term.
Organizational principles
The BoD has ultimate responsibility for the mid- and long-term strategic direction of the Group, for appointments and
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dismissals at top management levels and the definition of the firm’s risk principles and risk capacity. While the majority of members are always non-executive and independent, the Chairman of the BoD and at least one Vice Chairman have executive roles, in line with Swiss banking laws, and assume supervisory and leadership responsibilities.
Internal organization, Board of Directors’
committees and meetings in 2007
After each AGM, the BoD 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 2007, seven meetings were held together with the members of the GEB, as well as one telephone conference and a full-day strategy seminar. The BoD met nine times without participation of executive management. On average, 96% of the BoD members were present at the meetings and 91% at private board meetings (i.e. without participation of executive management). In addition, the BoD held five ad-hoc meetings with individual GEB members. Participation at these meetings was 91%. The BoD, without executive management, was also asked to take one decision by written consent (circular decision).
The BoD is organized as follows:
Chairman’s Office
The Chairman operates a Chairman’s Office, including the Vice Chairman (or Vice Chairmen if more than one), which meets to address issues that are fundamental for UBS, such as overall strategy, mid-term succession plans at GEB level, compensation systems and principles and the risk profile of the firm. The Group CEO normally participates in formal meetings of the Chairman’s Office in an advisory capacity. The Chairman’s Office acts as the Risk Committee of the BoD. In this capacity it has the highest approval authority for the following (within the risk capacity and principles approved by the BoD): allocation of responsibility for credit, market and other risk-related matters; setting of standards, concepts and methodologies for risk control; and allocation of the major risk limits to the business groups. It also acts as the supervisory body for Group Internal Audit. The Chairman’s Office is responsible for shaping the corporate governance of the firm and formulates appropriate principles, which it submits to the Nominating Committee for review and subsequent submission to the full BoD for approval. It also assumes responsibility for long-term succession planning at BoD level and reviews, upon proposal by the Chairman of the BoD and the Group CEO, GEB candidates for appointment or dismissal by
the full BoD. In exceptional cases, and in consideration of the non-transferable and inalienable duties of the BoD under mandatory corporate law, urgent decisions falling within the authority of the BoD may be taken by the Chairman’s Office. Such decisions have to be reported to the full BoD as soon as possible.
Audit Committee
The BoD appoints an Audit Committee with at least three members from among the non-executive, independent directors. The Audit Committee assists the BoD in monitoring the integrity of the financial statements of the firm, compliance with legal and regulatory requirements, the qualification, independence and performance of UBS’s external auditors and their lead partners, and the integrity of the systems of internal controls for financial reporting. All members of the Audit Committee have been determined by the BoD as being fully independent and financially literate. Lawrence A. Weinbach, the Audit Committee’s Chairman, as well as Rolf A. Meyer and Peter Voser have accounting or financial management expertise and are therefore considered “financial experts”, according to the rules established by the US Sarbanes-Oxley Act of 2002. The Audit Committee does not itself perform audits, but supervises the work of the auditors. Its primary responsibility is thereby to monitor and review the organization and efficiency of internal control procedures and the financial reporting process. The Audit Committee plays an important role in ensuring the independence of the external auditors and therefore has to authorize all mandates assigned to them. It also has responsibility for the treatment of complaints regarding accounting and auditing matters (“whistleblowing”).
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Corporate Governance
Board of Directors
In addition, the Group General Counsel attended one meeting. A special session was organized with the Group CEO to discuss the annual financial results. All three members of the committee were present at all the meetings.
Compensation Committee
The Compensation Committee, comprising at least three non-executive, independent members of the BoD, has a specific responsibility to review the Group compensation policy for submission to the BoD and for approving the design of the compensation system for the members of the GEB and the executive members of the BoD (senior executives). It determines the individual salaries and incentive awards for the executive members of the BoD, the Group CEO and the members of the GEB. It reviews and approves contracts and employment agreements with executive BoD members and the GEB, as well as termination agreements with GEB members relinquishing their positions. The Compensation Committee also reviews the compensation disclosure included in this report.
è | Please refer to pages 26–28 for details on the Compensation Committee’s decision-making procedures |
Nominating Committee
The Nominating Committee comprises at least three non- executive, independent directors. It assumes responsibility for defining the principles governing the selection of candidates for BoD membership, reviewing possible candidates and proposing to the full BoD those to be submitted for election to the BoD by the AGM. The committee supports the Chairman’s Office and the full BoD in evaluating the performance of the BoD and executive management.
Corporate Responsibility Committee
UBS has a Corporate Responsibility Committee, normally consisting of six to ten members appointed by the BoD from among its members, the members of the GEB and the Group Managing Board (GMB). On an exceptional basis, external specialists may also be appointed as members of the committee.
The committee’s mandate is to discuss and judge the relevance of current or anticipated developments in stakeholder expectations related to responsible corporate conduct and their possible consequences for UBS. The committee suggests appropriate action to the GEB or other bodies in UBS. As of 31 December 2007, Stephan Haeringer chaired the committee. Additional members were Gabrielle Kaufmann-Kohler, representing the BoD, Peter Kurer, Group General Counsel, Marco Suter, Group CFO, Maria Bentley, Global Head Human Resources, Investment Bank, Gabriel Herrera, Head of Europe, Middle East & Africa, Global Asset Management, Thomas R. Hill, Chief Communication Officer, Corporate Center, Marten Hoekstra, Head Wealth Management Americas, Global Wealth Management & Business Banking, Jeremy Palmer, CEO Investment Bank in Europe, Middle East & Africa, Investment Bank and Kathryn Shih, Head Wealth Management Asia Pacific and CEO UBS Hong Kong, Global Wealth Management & Business Banking. The Corporate Responsibility Committee met twice during 2007 with an average participation of 78%.
è | For additional information on corporate responsibility, please refer to the specific section inStrategy, Perfomance and Responsibility 2007 | |
è | The charters of the BoD, of the Chairman’s Office and of all BoD committees are available at www.ubs.com/boards |
Roles and responsibilities of executive members of
the Board of Directors
Marcel Ospel and Stephan Haeringer, the Chairman of the BoD and the executive Vice Chairman, have entered into employment contracts with UBS AG in connection with their services on the BoD and are entitled to receive pension benefits upon retirement. They assume clearly defined management responsibilities.
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Non-executive members of the Board of Directors
Important business connections of non-executive members of the Board of Directors with UBS
UBS, as a global financial services provider and the major bank in Switzerland, has business relationships with many large companies including those in which UBS BoD members assume management or non-executive board responsibilities. None of the relationships with companies represented on the BoD by their chairman or chief executive is of a magnitude that jeopardizes the BoD members’ independent judgment; furthermore, no non-executive director has personal business relationships with UBS that could infringe on his or her independence.
Checks and balances: Board of Directors and Group Executive Board
UBS operates under a strict dual board structure, as mandated by Swiss banking law. The functions of Chairman of the BoD and Group Chief Executive Officer (Group CEO) are assigned to two different people, thus providing separation of powers. This structure establishes checks and balances and creates an institutional independence of the BoD from the day-to-day management of the firm, for which responsibility is delegated to the GEB. No member of one board may be a member of the other.
è | Please refer to www. ubs.com/corporate-governance for more information |
Information and control instruments vis-à-vis the Group Executive Board
The BoD is kept informed of the activities of the GEB in various ways. The Chairman or the executive Vice Chairman participates in each meeting of the GEB in an advisory capacity, thus keeping the Chairman’s Office appraised of all current developments. The minutes of the GEB meetings are filed with the executive BoD members and made available for inspection to the non-executive members. At BoD meetings, the Group CEO and the members of the GEB regularly update the BoD on important issues.
è | Details on risk management and control can be found inRisk, Treasury and Capital Management 2007 |
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Corporate Governance
Group Executive Board
Group Executive Board
The Group Executive Board has business management responsibility for UBS. Its members, including the Group Chief Executive Officer, are appointed by the Chairman and members of the Board of Directors – to whom they must also account for the firm’s results.
Members of the Group Executive Board
The text in the boxes below provides information on the composition of the Group Executive Board (GEB) as of 31 December 2007. 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.
Marcel Rohner | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Functions in UBS | Group Chief | |
Executive Officer / | ||
Chairman and Chief | ||
Executive Officer | ||
Investment Bank | ||
Nationality | Swiss | |
Year of initial | ||
appointment to the GEB | 2002 | |
Professional history, education and date of birth
Marcel Rohner was appointed Group Chief Executive Officer (Group CEO) on 6 July 2007 and Chairman & CEO Investment Bank on 1 October 2007. He became a member of the Group Executive Board (GEB) in 2002. Between 2002 and 2007, he was CEO of Wealth Management & Business Banking and additionally named Chairman in 2004. Before that, in 2001 and 2002, he was Chief Operating Officer (COO) and Deputy CEO of the Private Banking unit of UBS Switzerland. In 1999, he was named Group Chief Risk Officer (Group CRO), after being appointed Head of Market Risk Control of Warburg Dillon Read in 1998. Between 1993 and 1998, Mr Rohner was with Swiss Bank Corporation’s investment banking arm and in 1995 he was appointed Head of Market Risk Control Europe. Mr Rohner graduated with a Ph.D. in economics from the University of Zurich and was a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from 1990 to 1992. He was born on 4 September 1964.
Other activities and 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.
John A. Fraser | ||
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 | |
Professional history, education and date of birth
John A. Fraser was appointed as Chairman and CEO of the Global Asset Management Business Group in late 2001. Prior to that, he was President and COO of UBS Asset Management and Head of Asia Pacific. From 1994 to 1998 he was Executive Chairman and CEO of SBC Australia Funds Management Ltd. Before joining UBS, Mr Fraser held various positions at the Australian Treasury, including two international postings to Washington DC – first, at the International Monetary Fund and, second, as Minister (Economic) at the Australian Embassy. From 1990 to 1993, he was Deputy Secretary (Economic) of the Australian Treasury. Mr Fraser graduated from Monash University in Australia in 1972 and holds a first-class honors degree in economics. He was born on 8 August 1951.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
John A. Fraser is a member of the board of the Marymount International School at Kingston-upon-Thames.
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Peter Kurer | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Functions in UBS | Group General Counsel / | |
member of the | ||
Corporate Responsibility | ||
Committee | ||
Nationality | Swiss | |
Year of initial | ||
appointment to the GEB | 2002 | |
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 the Zurich office of Baker & McKenzie law firm, first as associate, later as partner, having been a law clerk at the District Court of Zurich. Mr Kurer graduated as a doctor iuris from the University of Zurich and was admitted as attorney-at-law in Zurich. He holds an LL.M. from the University of Chicago and was born on 28 June 1949.
Other activities and 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, a member of the Board of Trustees of a foundation which acts as an advisory board to the University of St. Gallen Program for law and economics, and a member of the Committee of Continuing Education, Executive School of Management, Technology and Law, University of St. Gallen.
Joe Scoby | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group Chief Risk Officer | |
Nationality | American (US) | |
Year of initial | ||
appointment to the GEB | 2007 | |
Professional history, education and date of birth
Joe Scoby was appointed Group CRO and became a member of the GEB in October 2007. Prior to this appointment, he was Global Head of Alternative and Quantitative Investments (A&Q), an alternative investment platform in UBS’s asset management business between 2003 and 2007. Previously, between 2000 and 2003, he headed O’Connor, a specialist hedge fund provider within the same alternative investment platform. From 1995-1999, he was the Joint Head of US Equities at UBS’s Investment Bank. Joseph Scoby began his career with O’Connor and Associates in 1987 and became a Managing Director in 1993. He has a Bachelor’s degree in Finance from Wharton School and a Master’s degree in Regional Science from the University of Pennsylvania. He was born on 23 April 1965.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Joe Scoby is a member of the Wharton School Undergraduate Executive Board, a member of the Board of Chicago’s After School Matters and a member of the Board of Children’s Memorial Hospital. He was the founder of St. Joseph Club in Chicago.
Walter Stuerzinger | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chief Operating Officer, | |
Corporate Center | ||
Nationality | Swiss | |
Year of initial | ||
appointment to the GEB | 2005 | |
Professional history, education and date of birth
Walter Stuerzinger became a member of the GEB in 2005. He was appointed COO, Corporate Center in October 2007. Prior to that, he was Group CRO from 2001 until 2007 and Head Group Internal Audit from 1998 until 2001. Before the merger, he was Head Group Internal Audit at the former Union Bank of Switzerland. Previously, he worked with Credit Suisse on various assignments in the controlling and auditing areas. Walter Stuerzinger holds a Swiss banking diploma and is a member of the Institute of Chartered Accountants. He was born on 6 July 1955.
Other activities and functions
Permanent functions for important interest groups:
Walter Stuerzinger is a member of the Foundation Board of the UBS Pension Fund.
Marco Suter | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Functions in UBS | Group Chief | |
Financial Officer / | ||
member of the | ||
Corporate Responsibility | ||
Committee | ||
Nationality | Swiss | |
Year of initial | ||
appointment to the GEB | 2007 | |
Professional history, education and date of birth
Marco Suter was appointed Group Chief Financial Officer and became a member of the GEB in October 2007. Prior to this appointment, he was elected as a member of the Board of Directors at the annual general meeting in April 2005 and thereafter appointed as Executive Vice Chairman. Marco Suter has been with UBS and its predecessor, Swiss Bank Corporation (SBC), since 1974. Between 1999 and 2005, he was Group Chief Credit Officer and a member of the Group Managing Board. From 1996 until the merger of SBC and Union Bank of Switzerland in 1998 he served as regional manager of the Zurich-Eastern Switzerland-Ticino area for the corporate and commercial banking activities of SBC. Prior to that, he held various management positions in SBC’s investment banking operations, first as the Continental European Head of Merchant Banking and later as the Chief Credit Officer for EMEA. Mr Suter graduated from the Commercial School in St. Gallen. He was born on 7 May 1958.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Marco Suter is a member of the Swiss Institute of International Studies (SIAF), the Latin-American Chamber of Commerce (Switzerland), the Swiss-Chinese Chamber of Commerce and the IIF Special Committee on Crises Prevention and Resolution in Emerging Markets.
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Corporate Governance
Group Executive Board
Rory Tapner | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and | |
Chief Executive Officer | ||
Asia Pacific | ||
Nationality | British | |
Year of initial | ||
appointment to the GEB | 2006 | |
Professional history, education and date of birth
Rory Tapner became a member of the GEB in January 2006. He was appointed Chairman and CEO Asia Pacific in May 2004. Previously, he was Joint Global Head of Investment Banking. From 1983 to 1998, he was with S.G. Warburg and Warburg Dillon Read as Global Head of Equity Capital Markets, Joint Head of UK Corporate Finance and Head of UK Capital Markets Team. He also was a member of the Warburg Dillon Read Executive Board. Rory Tapner has a law degree from Kings College, London University and went to Lancaster Gate Law School. Mr Tapner was born on 30 September 1959.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Rory Tapner is the treasurer and Chairman of the Financial Committee of Council of Kings College University, London.
Raoul Weil | ||
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 | 2005 | |
Professional history, education and date of birth
Raoul Weil was appointed Chairman and CEO Global Wealth Management & Business Banking on 6 July 2007. He was Head of Wealth Management International between 2002 and 2007 and was appointed to the GEB in July 2005. Previous to that, he assumed different management roles in the Private Banking Division in Asia and Europe. Between 1984 and 1998, Mr Weil was with SBC, holding various assignments within the Private Banking Division in Basel, Zurich, Monaco and New York. He graduated with a degree in economics from the University of Basel and was born on 13 November 1959.
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Changes in 2008
Jerker Johannsson has been appointed as Chairman and CEO of the Investment Bank. He took on the role on 17 March 2008, joining UBS from Morgan Stanley, where he was Vice Chairman Europe. He will become a member of the GEB at this date.
– | Marten Hoekstra, Deputy CEO, Global Wealth Management & Business Banking and Head of Wealth Management, Americas; | |
– | Alexander Wilmot-Sitwell, Joint Global Head Investment Banking Department, UBS Investment Bank, and Chairman and CEO, UBS Group Europe, Middle East & Africa; and | |
– | Robert Wolf, Chairman and CEO, UBS Group Americas and President and COO, Investment Bank. |
Responsibilities, authorities and organizational principles
The GEB has executive management responsibility for the Group and is accountable to the BoD for the firm’s results. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The GEB, 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.
è | The authorities of the GEB are defined in the “The Organization Regulations of UBS AG”, which are available at www.ubs.com/corporate-governance |
Management contracts
UBS has not entered into management contracts with any third parties.
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UBS’s senior executive compensation policy | ||
– | is aligned with the creation of sustainable shareholder returns | |
– | promotes a performance-driven culture and adherence to ethical values | |
– | supports the firm’s integrated business strategy |
Principles
Rigorous governance and approval processto ensure that no one participates in any decision affecting his or her own compensation
Shareholder alignment:a minimum of half of the annual incentive compensation is paid in the form of UBS shares. Stock options are awarded with a 10% price hurdle. In addition, UBS has the highest share ownership requirements for senior executives in its peer group
Pay-for-performance:performance is the primary driver of compensation decisions
Transparent decision-making process,based on Group and business group performance as well as individual performance and contribution to pre-defined targets
Compensation in 2007
67% decrease in total senior executive compensation.
This reflects the losses occurred on specific trading positions in 2007, which led to an overall net loss for the Group as a whole, but also the strong performance in UBS’s client-driven businesses
No stock optionswere awarded to senior executives for the 2007 performance year
No incentive awardwas granted to executive members of the Board of Directors as their incentive award is dependent on overall Group financial performance
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Corporate Governance
Compensation, shareholdings and loans
Compensation, shareholdings and loans
UBS’s competitive strength depends on its ability to attract, retain and motivate the most talented people in financial services. The policies established by the Board of Directors’ Compensation Committee create incentives to promote a performance-driven culture, adhere to ethical values and support the firm’s integrated business strategy. Compensation of senior executives is linked to the creation of long-term value and sustainable shareholder returns.
Compensation Committee
The Compensation Committee is made up of three non-executive, independent members of the Board of Directors (BoD). As of 31 December 2007, these were Rolf A. Meyer (Chairman of the Compensation Committee), Sergio Marchionne and Peter Spuhler.
Governance, authorities and responsibilities
UBS has long been committed to the highest standards of corporate governance. The approval of senior executive compensation follows a rigorous process designed to ensure that no one participates in any decision affecting his or her own compensation.
members of the Group Executive Board (GEB) (senior executives) – the Compensation Committee has responsibilities in five key areas:
– | reviewing and approving the design of the total compensation framework, including compensation programs and plans; | |
– | determining the relationship between pay and performance; | |
– | approving base salaries and annual incentive awards for senior executives; | |
– | reviewing and approving individual employment agreements; and | |
– | reviewing and approving the terms and conditions for GEB members relinquishing their positions. |
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Activities
During 2007, the Compensation Committee carried out:
– | a review of best practice in compensation governance, design, pay-mix and disclosure, which combined publicly-available information on key competitors with market data provided by UBS’s principal executive compensation consultant (Towers Perrin MGMC); | |
– | a review of pay and performance to ensure that senior executive compensation levels were appropriate compared with counterparts of competitors; and | |
– | a review of the compensation plan rules for senior executives to ensure they clearly reflect shareholders’ interests and provide appropriate incentives for long-term value creation. |
Senior executive compensation policy
Principles
Two related principles govern the firm’s senior executive compensation framework (and, indeed, the compensation of all UBS employees): creation of shareholder value and pay-for-performance. Specifically:
– | all elements of compensation are managed in a globally consistent and integrated fashion, with clear recognition of pay-for-performance; | |
– | compensation levels and practices are benchmarked against competitors and global best practice; and | |
– | significant exposure to UBS shares through equity-based awards serves to align senior executive and shareholder interests. |
quired to execute UBS’s integrated business strategy. In addition, the Compensation Committee verifies whether the senior executive fulfilled their objectives and key performance indicators (KPIs), including the importance of maintaining and spreading UBS’s ethical values throughout the firm.
Shareholder alignment
The Compensation Committee structures senior executive compensation to ensure alignment with shareholder interests and long-term value creation. Specifically:
– | it rewards the achievement of personal and corporate objectives that balance individual performance and long-term business growth; | |
– | a minimum of half of the annual incentive compensation awarded to senior executives takes the form of UBS shares that vest or become unrestricted over five years, ensuring focus on long-term decisions and actions and aiding retention of executive talent; | |
– | in addition to this significant mandatory deferral of compensation, all senior executives are required to accumulate and hold five times their cash compensation (average of last three years) in UBS shares after five years in their position; | |
– | the strike price of stock options is set at 110% of the average high and low sale price of UBS shares on the grant date resulting in a 10% performance hurdle – significant |
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Corporate Governance
Compensation, shareholdings and loans
share price growth is thus required before the exercise price becomes meaningful; | ||
– | in certain circumstances, share and stock option plans are forfeited at termination or thereafter; | |
– | no additional severance payments are offered in instances of termination, although obligations earned up to and including the notice period are honored in line with the contractual arrangements; and | |
– | all senior executives are offered the opportunity to invest voluntarily in additional UBS shares from their cash compensation. |
Employment agreements and contractual payments
The Compensation Committee regularly reviews the individual employment agreements of senior executives. To protect UBS’s franchise and competitive position, these contracts provide for a general 12-month notice period, in compliance with leading corporate governance guidelines and international best-practice procedures. During the notice period, the senior executive is generally prohibited from working in any competitive position in the financial services industry and from soliciting UBS staff or clients. In recognition of these restrictions, the senior executive is entitled to receive base salary, pro rata incentive and certain employment benefits until expiry of the notice period, unless the senior executive has been terminated for cause.
Pay-for-performance
Performance is the primary driver of compensation decisions. UBS is committed to providing superior compensation in return for superior performance and continually develops the benchmarks and processes that support informed compensation decision-making.
focus on clients, economics, technical expertise, leadership, cross-business cooperation, strategic impact, risk management and personal contribution. KPIs vary by business and by individual and typically include such measures as revenue growth, net profit, return on equity, return on assets, cost / income ratio, net new money, progress on strategic initiatives and adherence to UBS values.
è | The relationship between performance and pay determination is described in more detail in the section “Key elements for decision-making process within the Compensation Committee” on pages 26–28 |
Elements of compensation
The total compensation framework for senior executives comprises four elements: base salary, annual incentive, discretionary stock option awards and benefits.
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Base salaries
Base salaries are established in a manner consistent with the role of each senior executive. Base salary adjustments are limited to significant changes in job responsibility.
Annual incentive awards
Each annual incentive award is assessed according to the individual’s achievement of his or her personal objectives and key performance indicators. All senior executives are considered for an annual incentive award provided performance targets are achieved, but with a few rare exceptions (for example, competitive practice or business strategy), annual incentives are completely discretionary and can vary considerably, both from individual-to-individual and from year-to-year.
Discretionary stock option awards
Stock options help align executive performance with long-term shareholder interests, since they deliver value only to the degree the share price appreciates more than 10% after grant.
At UBS, discretionary stock option awards reward the individual’s contribution to the overall success of the firm. They are complementary to the annual incentive award, a reflection of the success of UBS’s integrated business model.
Benefits
UBS provides benefits to help attract and retain the best employees in each local market. Changes, terminations and the introduction of new benefits are governed by the procedures contained in the “Organization Regulations of UBS AG”. Benefits are a supplemental element of total compensation and vary substantially from location to location. Retirement plan benefits: in Switzerland, senior executives participate in the firm’s general pension plan made up of three elements: (1) a basic component operated on the defined contribution principle; (2) a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments; and (3) a defined contribution bonus plan.
è | Note 30 inFinancial Statements 2007details the various retirement benefit plans established in Switzerland and in major foreign markets |
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Corporate Governance
Compensation, shareholdings and loans
Senior executive equity ownership plan (SEEOP)
Under SEEOP, senior executives typically receive a minimum of 50% of their annual incentive award in the form of UBS shares. (The amount is subject to the discretion of the Compensation Committee). Wherever practical, senior executives receive actual UBS shares with the same rights as ordinary shareholders. Shares are denominated either in Swiss francs or US dollars depending on the currency of the executive’s incentive.
Senior executive stock option plan (SESOP)
Discretionary stock option awards are a long-term incentive recognizing individual contributions to Group and business group performance, exceptional contribution to cross-business cooperation and integration, outstanding achievement, personal performance or commitment to UBS, outstanding professional and technical expertise and Group-wide strategic leadership skills and potential.
Key elements for decision-making process
within the Compensation Committee
Actual process and decisions taken
The Compensation Committee makes decisions on individual senior executive compensation based on:
– | Group and business group performance; | |
– | the individual performance and personal contributions of each member; | |
– | actual UBS compensation in prior periods; | |
– | an assessment submitted by the Chairman of the BoD; and | |
– | market data of competitors. |
Key competitors
Compensation and benefit levels are primarily result-driven and further benchmarked against appropriate key competitors. These companies are selected for the similarity of their core business to that of UBS, as well as for comparable size, geographic distribution, business strategy and performance.
Comparison by business activities (key peers) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Key competitors | Others | |||||||||||||||||||||||||||||||||||||||||||||||||||
UBS | BS | Citi | CS | DB | GS | JPM | LB | ML | MS | HSBC | ING | BofA | ||||||||||||||||||||||||||||||||||||||||
Global WM&BB | ||||||||||||||||||||||||||||||||||||||||||||||||||||
WM CH | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||
WM Int. | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||
WM US | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||
BB / retail CH | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||||||
Investment Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equities | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||
Fixed income | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||
Foreign exchange | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||
Corporate finance | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||
Global AM | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Core | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||
Alternatives | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||
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Typically, these are also the companies from which UBS is most likely to hire and to which it is most likely to lose senior employees. Competitive compensation at a senior level is therefore a vital element in preventing the loss of leadership talent and experience from UBS to its competitors. Generally nine key competitors are considered to represent the most relevant labor market for senior executive compensation: Credit Suisse, Deutsche Bank, Bear Stearns, Citigroup, Gold-man Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley. In the view of the Compensation Committee, UBS’s compensation systems are positioned appropriately relative to these nine key competitors. For certain positions and for purposes of other analysis (including the best practice review), additional competitors may be taken into account (such as other major international banks, the large Swiss private banks, private equity firms and hedge funds, which are increasingly becoming attractive alternatives for UBS employees).
Determination of 2007 incentive targets
In February 2007, the Compensation Committee defined personal incentive targets for each senior executive. Beginning with the individual incentive award for 2006, the Compensation Committee then applied the following steps:
1) | afixed percentage(increase or decrease) representing the difference between the 2007 financial forecast and the 2006 actual results – the 2006 results used were net profit attributable to UBS shareholders at the UBS Group level, and, where applicable, profit before tax adjusted for goodwill funding and impairment charges at the business group level; | |
2) | afixed reductionaveraging 5% of the amount resulting from step one, being a productivity gain to sharehold- |
ers – this means an overall increase of 5% in 2007 business performance would be required relative to 2006 in order to achieve the same level of compensation in both years (if 2007 business results had remained at the same level as 2006, the target incentive awards to senior executives would have been on average 5% lower, before the application of the final discretionary adjustment); and | ||
3) | an individualdiscretionaryincrease or decrease, taking into account future potential, any change in role, and competitive positioning. |
Determination of 2007 actual incentives
In early February 2008, actual 2007 results were assessed against the 2007 forecast (UBS’s Group and business group financial targets) as well as against similar metrics of key competitors. Incentive awards of senior executives in Global Wealth Management & Business Banking, Global Asset Management and the Investment Bank were based equally on the financial performance of the Group overall and the results of the respective business group (on a 50:50 ratio). Incentive awards for executives at Group level and in Corporate Center were based fully on Group performance. These measurements and assessments resulted in afixed theoreticalincentive award for each senior executive.
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Corporate Governance
Compensation, shareholdings and loans
Performance factors used to determine 2007
senior executive compensation
The Compensation Committee considered the following factors when determining incentive awards for senior executives:
Performance factors exceeding 2007 target
– | results in all businesses of Global Wealth Management & Business Banking were at an all-time high, with net new money inflows in this business group 37% above 2006 levels; | |
– | in 2007, investment banking (corporate finance) net revenues rose 39% from 2006 to the highest level ever recorded, driven by double-digit growth in Asia Pacific and Europe, Middle East & Africa; and | |
– | during 2007, UBS’s businesses in Asia Pacific made a record contribution to the Group’s global revenues. |
Performance factors below target
– | for the full-year 2007, UBS recorded a Group net loss attributable to its shareholders of CHF 4,384 million, entirely due to very weak trading results and writedowns in its fixed income, currencies and commodities (FICC) area; | |
– | overall, UBS’s net new money also fell, by 7.3% to CHF 140.6 billion for full-year 2007, driven by net new money outflows in Global Asset Management; | |
– | return on equity for full-year 2007 was negative 10.2% compared to 26.4% in 2006, despite strong results posted by UBS’s wealth and asset management businesses; | |
– | earnings per share for 2007 were negative CHF 2.49, compared with positive CHF 5.57 for 2006; and | |
– | UBS’s return on equity and total shareholder returns are below the median achieved by its key competitors. Since third quarter 2007, UBS’s share price has underperformed that of its peers. It has also significantly underperformed the SMI and DJ indices. |
Other performance factors taken into account
– | Global Asset Management’s pre-tax profits were down 5.5% on 2006. Excluding the costs for the closure of Dillon Read Capital Management of CHF 384 million, however, the business group results would have been at record level and 22% higher than in 2006. |
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Corporate Governance
Compensation, shareholdings and loans
Actual 2007 compensation for members of the Board of Directors and the Group Executive Board
Actual 2007 compensation for members of the
Board of Directors
Compensation of the Chairman of the Board of Directors
Total compensation for Chairman of the BoD, Marcel Ospel, the highest-paid member of the BoD, amounted to CHF 2,568,379 for the 2007 financial year, a decrease of 90% over his total compensation in 2006.
Compensation for executive members of the
Board of Directors
Compensation details and additional information for executive members of the Board of Directors1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual incentive | award (shares; | award (options; | Benefits | to retirement | ||||||||||||||||||||||||||||
Name, function2 | For the year | Base salary | award (cash) | fair value)b | fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | ||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
Remuneration details and additional information for non-executive members of the Board of Directors1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | For the | |||||||||||||||||||||||||||||||||||||||||||||||
Audit | Compensation | Nominating | Responsibility | period AGM | Committee | Benefits | Additional | Share | Number of | |||||||||||||||||||||||||||||||||||||||
Name, function2 | Committee | Committee | Committee | Committee | 2007 / 2008 | Base fee | retainer | in kind | payments | Total | percentage | shares3 | ||||||||||||||||||||||||||||||||||||
Ernesto Bertarelli, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | |||||||||||||||||||||||||||||||||||||||
Gabrielle Kaufmann- Kohler, member | M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||||||||||||
Sergio Marchionne, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | |||||||||||||||||||||||||||||||||||||||
Rolf A. Meyer, member | M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | ||||||||||||||||||||||||||||||||||||||
Helmut Panke, member | C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||||||||||||||
Peter Spuhler, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | |||||||||||||||||||||||||||||||||||||||
Peter Voser, member | M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | |||||||||||||||||||||||||||||||||||||||
Lawrence A. Weinbach, member | C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | |||||||||||||||||||||||||||||||||||||||
Joerg Wolle, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | |||||||||||||||||||||||||||||||||||||||
Legend:C = Chairman of the respective committee; M = Member of the respective committee
1 Individual compensation figures for the previous period will be disclosed from 2008 onwards. 2 There are nine non-executive members of the Board of Directors in office as of 31 December 2007. Sergio Marchionne was appointed to the Board of Directors at the 2007 annual general meeting. 3 Number of shares is reduced in case of the 100% election to deduct social security contribution. All remuneration payments are submitted to social security contribution / taxes at source.
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Total payments to all members of the Board of Directors1
CHF, except where indicateda | For the year2 | Total | ||||||
Aggregate of all (executive and non-executive) members of the Board of Directors | 2007 | 11,467,328 | ||||||
Payments to non-executive members of the
Board of Directors
Explanations: | ||
– | non-executive BoD members receive a base fee of CHF 325,000, including a fixed reimbursement of expenses which was previously paid separately; | |
– | fees are paid 50% in cash and 50% in restricted UBS shares, however, members can elect to have 100% of their remuneration paid in restricted UBS shares (shares are attributed with a price discount of 15% and are restricted from sale for four years); | |
– | 2007 shares valued at CHF 36.15 (average price of UBS shares on virt-x over the last ten trading days of February 2008), discount price CHF 30.75; and | |
– | the non-executive chairmen and members of the Audit, Compensation, Nominating and Corporate Responsibility Committees receive additional retainers between CHF 100,000 and CHF 600,000 per mandate, commensurate with the associated workload. |
Actual 2007 compensation for members of the
Group Executive Board
ner was appointed Group CEO with effect from 6 July 2007, while Raoul Weil became Chairman and CEO of Global Wealth Management & Business Banking on the same date. On 1 October 2007, Walter Stuerzinger was appointed Chief Operating Officer of Corporate Center, Marco Suter stepped down from the BoD to take up the position of Chief Financial Officer, and Joseph Scoby was appointed to the GEB as Group Chief Risk Officer.
Highest total compensation for a Group Executive
Board member
Total compensation for all members of the Group Executive Board1
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | incentive | award | to retirement | |||||||||||||||||||||||||||||
incentive | award (shares; | (options; | Benefits in | benefits | ||||||||||||||||||||||||||||
Name, function | For the year | Base salary | award (cash) | fair value)b | fair value)c | kindd | planse | Total | ||||||||||||||||||||||||
Rory Tapner, Chairman and Chief Executive | ||||||||||||||||||||||||||||||||
Officer Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the Group Executive Board (GEB) who were in office as of 31 December 20072 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20073 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
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Corporate Governance
Compensation, shareholdings and loans
Under Rory Tapner’s leadership, UBS has become a dominant participant in the Asia Pacific financial sector. In 2007, UBS’s businesses in Asia Pacific made a record contribution to the Group’s global revenues. UBS is the pre-eminent wealth manager in the region and won a number of significant regional awards during 2007. The level of compensation awarded, which is appropriately positioned relative to key competitors in the region, reflects his exceptional ambassadorial skills, strong cross-business group leadership and cooperation and the unique skills needed to continue to grow UBS’s substantial presence in Asia Pacific, while maintaining high standards of corporate governance and managing a complex risk profile.
Actual 2007 compensation for former members of the Board of Directors and Group Executive Board
Compensation paid to former members of the Board of Directors and Group Executive Board1
CHF, except where indicateda | ||||||||||||
Name, function | Compensation | Benefits in kind | Total | |||||||||
Alberto Togni, former member of the Board of Directors (BoD) | 318,401 | 502,478 | 820,879 | |||||||||
Philippe de Weck, former member of the BoD (Union Bank of Switzerland) | 0 | 129,701 | 129,701 | |||||||||
Robert Studer, former member of the BoD (Union Bank of Switzerland) | 0 | 260,162 | 260,162 | |||||||||
Georges Blum, former member of the BoD (Swiss Bank Corporation) | 0 | 90,803 | 90,803 | |||||||||
Aggregate of all former members of the Group Executive Board (GEB)2 | 0 | 257,791 | 257,791 | |||||||||
Aggregate of all former members of the BoD and GEB | 318,401 | 1,240,935 | 1,559,336 | |||||||||
Explanations of compensation details for executive members of the BoD and members of the GEB:
a) | Local currencies are converted into CHF using the exchange rates as detailed in Note 31 ofFinancial Statements 2007. | |
b) | Values per share at grant: CHF 36.15/USD 33.55 for shares granted in 2008 related to the performance year 2007. CHF prices are average price of UBS shares at virt-x over the last ten trading days of February, and USD prices are average price of UBS shares at the New York Stock Exchange (NYSE) over the last ten trading days of February in the year in which they are granted. Share awards in this report are disclosed at fair value for the performance year for which they were granted. This differs from the recognition of share-based compensation expense in UBS’s financial statements, which is based on International Financial Reporting Standards (IFRS). Until 2007, IFRS required the recognition of the fair value of share-based payments to employees as a compensation expense over the service period (typically equivalent to the vesting period). | |
c) | For the performance year 2007, no options were granted in 2008. In line with the “accrual principle” outlined by the SWX Swiss Exchange (SWX) in September 2007, UBS has amended its reporting of basic stock option grants in this report to align them with the performance year for which they were awarded, rather than show them in the year in which they were actually granted. According to UBS’s previous disclosure, total compensation of the executive members of the Board of Directors (BoD) and the Group Executive Board (GEB) would have been down by 60% compared to 2006, and the Chairman of the BoD’s compensation would have decreased 81%. This presentation differs from previous years, where options were included in the grant year. It also differs from the recognition of share-based compensation expense in UBS’s financial statements (see Note 30 inFinancial Statements 2007). | |
d) | Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits and general expense allowances all valued at market price. | |
e) | In 2007, the Swiss pension plan converted to a Swiss defined contribution model. Swiss senior executives participate in the same plan as all other employees. Under this plan, employees receive a company contribution to the plan which covers compensation up to CHF 795,600. The retirement benefits consist of a pension, a bridging pension and a one-off payout of accumulated capital from the bonus plan. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV) but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award components. In both the US and the UK, senior executives participate in the same plans as all other employees. In the US there are two different plans, one of which operates on a cash balance basis and entitles the participant to receive a company contribution based on compensation limited to USD 250,000. US senior executives may also participate in the UBS 401K defined contribution plan (open to all employees), which provides a company matching contribution for employee contributions. In the UK, senior executives participate in either the principal pension plan, which is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension on retirement based on career average base salary (uncapped). |
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Share and option ownership
Senior executive share ownership policy
gets. Missed targets may lead the Compensation Committee to deny the grant of discretionary stock option awards.
Share and option ownership of members of the Board of Directors as of 31 December 2007
Potentially | ||||||||||||||||||||||||||||
conferred | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | voting rights | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | in %2 | of options3 | ||||||||||||||||||||||
xii: | 390,000 | |||||||||||||||||||||||||||
xiv: | 300,000 | |||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 769,483 | 0.068 | 940,000 | 0.083 | xv: | 250,000 | |||||||||||||||||||||
vii: | 80,000 | |||||||||||||||||||||||||||
ix: | 80,000 | |||||||||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 487,053 | 0.043 | 535,000 | 0.047 | xv: | 75,000 | |||||||||||||||||||||
Ernesto Bertarelli, member | 2007 | 48,411 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2007 | 3,303 | 0.000 | 0 | 0 | |||||||||||||||||||||||
Sergio Marchionne, member | 2007 | 45,800 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Rolf A. Meyer, member | 2007 | 50,562 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Helmut Panke, member | 2007 | 13,206 | 0.001 | 0 | 0 | |||||||||||||||||||||||
Peter Spuhler, member | 2007 | 67,092 | 0.006 | 0 | 0 | |||||||||||||||||||||||
Peter Voser, member | 2007 | 11,580 | 0.001 | 0 | 0 | |||||||||||||||||||||||
Lawrence A. Weinbach, member | 2007 | 45,520 | 0.004 | 0 | 0 | |||||||||||||||||||||||
Joerg Wolle, member | 2007 | 7,709 | 0.001 | 0 | 0 | |||||||||||||||||||||||
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Corporate Governance
Compensation, shareholdings and loans
Share and option ownership of members of the Group Executive Board as of 31 December 2007
Potentially | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | conferred voting | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | rights in %2 | of options3 | ||||||||||||||||||||||
ix: | 30,000 | |||||||||||||||||||||||||||
x: | 200,000 | |||||||||||||||||||||||||||
xii: | 260,000 | |||||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer | xiv: | 300,000 | ||||||||||||||||||||||||||
(CEO) and Chairman & CEO Investment Bank | 2007 | 501,846 | 0.044 | 990,000 | 0.088 | xv: | 200,000 | |||||||||||||||||||||
i: | 52,560 | |||||||||||||||||||||||||||
iv: | 71,672 | |||||||||||||||||||||||||||
vi: | 120,000 | |||||||||||||||||||||||||||
viii: | 120,000 | |||||||||||||||||||||||||||
xi: | 160,000 | |||||||||||||||||||||||||||
xiii: | 190,000 | |||||||||||||||||||||||||||
John A. Fraser, Chairman and | xiv: | 200,000 | ||||||||||||||||||||||||||
CEO Global Asset Management | 2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | xv: | 160,000 | |||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 90,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Peter Kurer, Group General Counsel | 2007 | 292,762 | 0.026 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
ii: | 4,000 | |||||||||||||||||||||||||||
iv: | 57,590 | |||||||||||||||||||||||||||
v: | 40,000 | |||||||||||||||||||||||||||
viii: | 100,000 | |||||||||||||||||||||||||||
xi: | 133,092 | |||||||||||||||||||||||||||
xiii: | 52,000 | |||||||||||||||||||||||||||
xiv: | 66,000 | |||||||||||||||||||||||||||
Joseph Scoby, Group Chief Risk Officer | 2007 | 509,571 | 0.045 | 533,682 | 0.047 | xv: | 81,000 | |||||||||||||||||||||
vii: | 30,000 | |||||||||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 80,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Walter Stuerzinger, Chief Operating Officer Corporate Center | 2007 | 209,442 | 0.019 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Marco Suter, Group Chief Financial Officer | 2007 | 235,757 | 0.021 | 355,000 | 0.031 | xv: | 75,000 | |||||||||||||||||||||
iii: | 264,486 | |||||||||||||||||||||||||||
vi: | 200,000 | |||||||||||||||||||||||||||
ix: | 200,000 | |||||||||||||||||||||||||||
x: | 160,000 | |||||||||||||||||||||||||||
xii: | 150,000 | |||||||||||||||||||||||||||
xiv: | 160,000 | |||||||||||||||||||||||||||
Rory Tapner, Chairman and CEO Asia Pacific | 2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | xv: | 160,000 | |||||||||||||||||||||
vi: | 50,000 | |||||||||||||||||||||||||||
xii: | 95,976 | |||||||||||||||||||||||||||
Raoul Weil, Chairman and CEO Global | xiv: | 120,000 | ||||||||||||||||||||||||||
Wealth Management & Business Banking | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 139,776 | |||||||||||||||||||||
Total of all vested and unvested shares held by executive members of the Board of Directors
and members of the Group Executive Board1
Shares held as of 31 December 2007 | 6,396,479 | |||||||||||||||||||
Of which | ||||||||||||||||||||
vested | vesting 2008 | vesting 2009 | vesting 2010 | vesting 2011 | vesting 2012 | |||||||||||||||
3,831,550 | 796,533 | 653,726 | 526,425 | 362,709 | 225,536 | |||||||||||||||
No individual BoD or GEB member holds 1% or more of all shares issued.
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Total of all blocked and unblocked shares held by non-executive members of the Board of Directors1
Shares held as of 31 December 2007: | 296,533 | |||||||||||||||
Of which | ||||||||||||||||
non-restricted | blocked until 2008 | blocked until 2009 | blocked until 2010 | blocked until 2011 | ||||||||||||
134,808 | 30,602 | 43,096 | 35,874 | 52,153 | ||||||||||||
No individual board member holds 1% or more of all shares issued.
Vested and unvested options held by executive members of the Board of Directors
and by members of the Group Executive Board as of 31 December 2007
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||
i | 52,560 | 2001 | 20/02/2004 | 20/02/2009 | 1:1 | CHF 50.00 | ||||||||||||||||||
ii | 4,000 | 2002 | 28/02/2005 | 28/02/2012 | 1:1 | USD 23.12 | ||||||||||||||||||
iii | 264,486 | 2002 | 20/02/2005 | 31/01/2012 | 1:1 | CHF 38.88 | ||||||||||||||||||
iv | 129,262 | 2002 | 31/01/2005 | 31/01/2012 | 1:1 | USD 22.63 | ||||||||||||||||||
v | 40,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | USD 24.85 | ||||||||||||||||||
vi | 370,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
vii | 110,000 | 2002 | 28/06/2005 | 28/12/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
viii | 220,000 | 2003 | 31/01/2006 | 31/01/2013 | 1:1 | USD 24.00 | ||||||||||||||||||
ix | 310,000 | 2003 | 31/01/2006 | 31/07/2013 | 1:1 | CHF 32.50 | ||||||||||||||||||
x | 640,000 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | CHF 51.88 | ||||||||||||||||||
xi | 293,092 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | USD 40.63 | ||||||||||||||||||
xii | 1,305,976 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | CHF 55.75 | ||||||||||||||||||
xiii | 242,000 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | USD 47.75 | ||||||||||||||||||
xiv | 1,526,000 | 2006 | 01/03/2009 | 28/02/2016 | 1:1 | CHF 77.33 | ||||||||||||||||||
xv | 1,320,776 | 2007 | 01/03/2010 | 28/02/2017 | 1:1 | CHF 78.50 | ||||||||||||||||||
Unvested shares and options as well as vested options are at risk of forfeiture in the event that a senior executive’s employment is terminated.
Disclosure of management transactions
chases. Blackout periods and synchronized dates for unblocking or vesting of shares or options granted as compensation may lead to transactions being concentrated in short periods.
Loans
UBS – as a global financial services provider as well as the major bank in Switzerland – typically has business relationships with most large companies. In many of these companies, members of the UBS BoD often assume management or non-executive board responsibilities. Moreover granting loans – both to individuals and to companies – is part of the ordinary business of UBS. Executive members of the BoD and the members of the GEB are granted loans, fixed advances and mortgages on the same terms and conditions as other employees, based on third-party conditions adjusted for reduced credit risk.
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Corporate Governance
Compensation, shareholdings and loans
Loans granted to members of the Board of Directors as of 31 December 2007
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | Total | |||||||||
Marcel Ospel, Chairman | 11,000,000 | 0 | 11,000,000 | |||||||||
Stephan Haeringer, Executive Vice Chairman | 0 | 0 | 0 | |||||||||
Ernesto Bertarelli, member | 0 | 0 | 0 | |||||||||
Gabrielle Kaufmann-Kohler, member | 0 | 0 | 0 | |||||||||
Sergio Marchionne, member | 0 | 0 | 0 | |||||||||
Rolf A. Meyer, member | 480,000 | 0 | 480,000 | |||||||||
Helmut Panke, member | 0 | 0 | 0 | |||||||||
Peter Spuhler, member | 0 | 0 | 0 | |||||||||
Peter Voser, member | 0 | 0 | 0 | |||||||||
Lawrence A. Weinbach, member | 0 | 0 | 0 | |||||||||
Joerg Wolle, member | 0 | 0 | 0 | |||||||||
Aggregate of all members of the Board of Directors | 11,480,000 | 0 | 11,480,000 | |||||||||
Loans granted to members of the Group Executive Board
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | 2 | Total | ||||||||
Joseph Scoby, Group Chief Risk Officer | 0 | 3,145,796 | 3,145,796 | |||||||||
Aggregate of all members of the Group Executive Board | 3,487,000 | 3,145,796 | 6,632,796 | |||||||||
Loans and advances to non-executive BoD members and related parties are made on terms comparable to those prevailing at the time for transactions with non-affiliated persons.
Loans granted to former members of the Board of Directors and Group Executive Board
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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. More than 200,000 directly registered shareholders and some 75,000 US shareholders registered via nominee companies regularly receive written information about the firm’s activities and performance and are personally invited to shareholder meetings.
Relationships 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 hold an unlimited number of shares, but voting rights are limited to a maximum of 5% of outstanding UBS shares in order to avoid the risk of unknown shareholders with large stakes being entered into the share register. Securities clearing organizations, such as The Depository Trust Company in New York, are exempt from the 5% voting limit.
Statutory quorums
Shareholder resolutions, the election and re-election of members of the BoD, and the appointment of the Group and statutory auditors are decided at the AGM by an absolute majority of the votes cast, excluding blank and invalid ballots. Swiss company law requires that for certain specific issues a majority of two-thirds of the votes represented at the meeting vote in favor of the resolution. These issues include 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 normally takes place in April, but in any case within six months of the close of the financial year. A personal invitation including a detailed agenda and explanation of each motion is sent to every registered shareholder at least 20 days ahead of the scheduled meeting. The meeting agenda is also published in various Swiss and international newspapers and on the internet at www.ubs.com/shareholder-meeting.
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Corporate Governance
Shareholders’ participation rights
Extraordinary general meetings (EGMs) may be convened whenever the BoD or the statutory auditors consider it necessary. Shareholders individually or jointly representing at least 10% of the share capital may, at any time, ask in writing that an EGM be convened to deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of CHF 62,500 may submit proposals for matters to be placed on the agenda for consideration by the shareholders’ meeting.
Registrations in share register
The general rules for being entered with voting rights in the Swiss or US Share Register of UBS also apply before general meetings of shareholders (for details see previous page). There is no “closing of the share register” in the days ahead of the meeting. Registrations including the transfer of voting rights are processed for as long as technically possible, normally until two days before the meeting.
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Corporate Governance
Change of control and defense measures
Change of control and defense measures
UBS refrains from restrictions that would hinder developments initiated in or supported by the financial markets. It also does not have any specific defenses in place to prevent hostile takeovers.
Duty to make an offer
An investor who acquires more than 331/3% of all voting rights (directly, indirectly or in concert with third parties), whether they are exercisable or not, has to submit a take-over offer for all shares outstanding, according to Swiss stock exchange law. UBS has not elected to change or opt out of this rule.
Clauses on changes of control
The service agreements and employment contracts of the executive Board of Director (BoD) members, of the members of the Group Executive Board (GEB) and of the Group Managing Board (GMB) do not contain clauses triggered by a change of control. UBS does not offer “golden parachutes” to its senior executives. Employment contracts contain notice of termination periods of 12-months for GEB members and six to 12-months for GMB members, depending on local market practice. During this notice period they are entitled to salary and bonuses.
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Corporate Governance
Auditors
Auditors
Audit plays an important role in corporate governance. While putting high priority on remaining independent, the external auditors and Group Internal Audit closely coordinate their work, thereby ensuring the most effective performance of their responsibilities. The Chairman’s Office, the Audit Committee and ultimately the Board of Directors supervise the functioning of audit work.
External, independent auditors
Ernst & Young Ltd., Basel, (Ernst & Young) 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 “Articles of Association UBS AG” (“Articles of Association”; see also the paragraph about auditors’ responsibilities in the regulation and supervision section on pages 44–46). The Audit Committee of the Board of Directors (BoD) annually assesses the independence of Ernst & Young and has determined that they meet all independence requirements established by the US Securities and Exchange Commission (SEC). Authority for pre-approval of all additional audit, audit-related and non-audit mandates to the principal auditors lies with the Audit Committee, ensuring that independence of the auditors is not jeopardized by conflicts of interest through additional mandates. Ernst & Young 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 BoD and informs the BoD accordingly.
Duration of the mandate and term of
office of the lead partners
Fees paid to principal external auditors
UBS paid the fees (including expenses) listed in the table below to its principal external auditors Ernst & Young.
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 | 31.12.07 | 31.12.06 | ||||||
Audit | ||||||||
Global audit fees | 49,000 | 48,925 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 12,718 | 14,766 | ||||||
Total audit | 61,718 | 63,691 | ||||||
Non-audit | ||||||||
Audit-related fees | 9,779 | 7,843 | ||||||
Tax advisory | 1,892 | 1,249 | ||||||
Other | 1,699 | 3,043 | ||||||
Total non-audit | 13,370 | 12,135 | ||||||
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agreed upon procedures reports required by contract and audits performed at the request of management. It also includes due diligence work on acquisitions and initial work relating to the eventual attestation as to UBS’s compliance with section 404 of the US Sarbanes-Oxley Act of 2002.
Pre-approval procedures and policies
All services provided by Ernst & Young have to be pre-approved by the Audit Committee of the BoD. A pre-approval may be granted either for a specific mandate or in the form of a general pre-approval authorizing a limited and well-defined type and amount of services. The Audit Committee has delegated pre-approval authority to its Chairman. After endorsement by the Group Chief Financial Officer (Group CFO), requests for mandates are routed to the Company Secretary, who submits them to the Chairman of the Audit Committee for approval. At each quarterly meeting, the Audit Committee is informed on the approvals granted by its Chairman.
Group Internal Audit
With 314 staff members worldwide at 31 December 2007, Group Internal Audit supports the BoD and its committees by independently assessing the effectiveness of UBS’s system of internal controls and compliance of the firm with statutory, legal and regulatory requirements. All key issues raised by Group Internal Audit are communicated to the management responsible, to the Group Chief Executive Officer (Group CEO) and to the executive members of the BoD via formal audit reports. The Chairman’s Office and the Audit Committee of the BoD 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 BoD, monitors the qualification, independence and performance of the Group Auditors and their lead partners. It prepares proposals for appointment or removal of the external auditors for review by the full BoD, which then submits the proposal to the AGM.
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Corporate Governance
Information policy
Information policy
UBS’s financial disclosure policies aim at achieving a fair market value for UBS shares through open, transparent and consistent communication with investors and financial markets.
UBS provides regular information to its shareholders and to the financial community.
Financial results will be published as follows
First Quarter | 6 May 2008 | |||
Second Quarter | 12 August 2008 | |||
Third Quarter | 4 November 2008 | |||
Fourth Quarter | 10 February 2009 | |||
The annual general meeting of shareholders will take place as follows
2008 | 23 April 2008 | |||
2009 | 15 April 2009 | |||
UBS meets with institutional investors worldwide throughout the year. It regularly holds results presentations, specialist investor seminars, road shows, individual and group meetings. Where possible, meetings involve senior management as well as members of the Investor Relations team. UBS makes use of diverse technologies such as webcasting, audio links and cross-location video-conferencing to widen its audience and maintain contact with shareholders around the world.
Financial disclosure principles
Based on discussions with analysts and investors, UBS believes that the market rewards companies that provide clear, consistent and informative disclosure about their business. Therefore, UBS aims to communicate its strategy and results in a manner that allows shareholders and investors to gain a full and accurate understanding of how the company works, what its growth prospects are and what risks the strategy and results might entail.
– | transparencyin disclosure is designed to enhance understanding of the economic drivers and detailed results of the business, building trust and credibility; | |
– | consistencyin disclosure within each reporting period and between reporting periods; | |
– | simplicityin disclosure allows readers to gain the appropriate level of understanding of the firm’s businesses’ performance; | |
– | relevancein disclosure avoids information overload by focusing on what is relevant to UBS’s stakeholders, or required by regulation or statute; and | |
– | best practicein line with industry norms, leading the way to improved standards where possible. |
Financial reporting policies
UBS reports its results after the end of every quarter, including a breakdown of results by business groups and business units and extensive disclosures relating to credit and market risk.
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are restated for previous periods to show how they would have been reported according to the new basis and provide clear explanations of all changes.
US regulatory disclosure requirements
As a Swiss company listed on the New York Stock Exchange (NYSE), UBS complies with the disclosure requirements of the Securities and Exchange Commission (SEC) and the NYSE for foreign private issuers. These include the requirement to make certain filings with the SEC. As a foreign private issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to UBS. UBS’s regular quarterly reports are provided to the SEC under cover of Form 6-K, and UBS files an annual report on Form 20-F. These reports, as well as materials sent to shareholders in connection with annual and special shareholder meetings, are all available 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 management, including
the Group Chief Executive Officer (CEO) and Group Chief Financial Officer (CFO), of the effectiveness of UBS’s disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934. Based upon that evaluation, the Group CEO and Group CFO concluded that these disclosure controls and procedures were effective as of the end of the period covered by this annual report. No significant changes were made in UBS’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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Corporate Governance
Regulation and supervision
Regulation and supervision
UBS aims to comply with all applicable provisions and to work closely and maintain good relations with regulators in all jurisdictions where the firm conducts business.
As a Swiss-registered company, UBS’s home country regulator is the Swiss Federal Banking Commission (SFBC).
Regulation and supervision in Switzerland
General
UBS is regulated in Switzerland under a system established by the Swiss Federal Law relating to Banks and Savings Banks of 8 November 1934, as amended, and the related Implementing Ordinance of 17 May 1972, as amended, which are together known as the Federal Banking Law. Depending on the license obtained under this law, banks in Switzerland may engage in a full range of financial services activities, including commercial banking, investment banking and asset management. Banking groups may also engage in insurance activities, but these must be undertaken through a separate subsidiary. The Federal Banking Law establishes a framework for supervision by the SFBC.
Regulatory policy
Swiss regulatory policies are formulated on three levels. The first two are the statutory levels of primary and secondary legislation issued by Parliament and the Swiss Federal Council. The SFBC has substantial influence on the drafting of these regulatory statutes (for example, the specific ordinance concerning the prevention of money laundering of 18 December 2002, amended in 2003). On a more technical level, the SFBC is empowered to issue so-called circulars, 27 of which are presently effective. These include a circular ruling on the supervision and internal controls at banks, issued on 27 September 2006, and a circular ruling on the supervision of large banking groups, issued on 21 April 2004. The latter prescribes what information UBS is required to provide to the SFBC, the structure of UBS’s regular interaction with them and the scope of on-site reviews (prudential independent controls) and extended audits by the SFBC. In an effort to streamline regulation, the SFBC decided on 1 December 2006, in consultation with the industry, to rescind five circulars. In certain fields, the 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:
– | Guidelines on the simplified prospectus for structured products, 2007; | |
– | Agreement of Swiss Banks on Deposit Insurance, 2005; | |
– | 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, 2008; and | |
– | Guidelines on the handling of dormant accounts, custody accounts and safe-deposit boxes held in Swiss banks, 2000. |
Self regulation
Certain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange (SWX) (for example, the Listing regulation of 24 January 1996, as amended and the General Conditions dated 7 September 2007) and the Swiss Bankers’ Association (for example, the code of conduct for securities brokers, 1997), under the overall supervision of the SFBC. As
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a means of improving information flows to investors, the SWX enacted an amendment on 1 July 2005 requiring the disclosure of management transactions.
Role of external auditors and direct supervision
of large banking groups
Reporting requirements and capital requirements
UBS reports financial, capital, legal and risk information to the SFBC. The SFBC also reviews the bank’s risk management and control principles and procedures in all areas of risk, including “know your customer” rules and anti-money laundering practices.
Disclosures to the Swiss National Bank
Switzerland’s banks, according to Swiss banking law, are primarily supervised by the SFBC while compliance with liquidity rules is monitored by the Swiss National Bank (SNB). UBS sends the SNB detailed monthly interim balance sheets, capital adequacy and liquidity statements. UBS also submits an annual statement of condition and quarterly stress testing results and cooperates with the Financial Stability and Oversight unit of the SNB whenever required. The SNB can also
require UBS to make additional disclosures of financial condition and other information relevant to its regulatory oversight.
Regulation and supervision in the US
Banking regulation
UBS’s operations in the US are subject to a variety of regulatory regimes. It maintains branches in California, Connecticut, Illinois, New York and Florida. UBS’s branches located in California, New York and Florida are federally licensed by the Office of the Comptroller of the Currency. US branches located in Connecticut and Illinois are licensed by the state banking authority of the state in which the branch is located. Each US branch is subject to regulation and examination by its licensing authority. In addition, the Board of Governors of the Federal Reserve System exercises examination and regulatory authority over UBS’s state-licensed US branches. The firm also maintains state and federally chartered trust companies and other limited purpose banks, which are regulated by state regulators or the Office of the Comptroller of the Currency. Only the deposits of UBS’s subsidiary bank located in the state of Utah are insured by the Federal Deposit Insurance Corporation. The regulation of the firm’s US branches and subsidiaries imposes restrictions on the activities of those branches and subsidiaries, as well as prudential restrictions, such as limits on extensions of credit to a single borrower, including UBS subsidiaries and affiliates.
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Corporate Governance
Regulation and supervision
US regulation of other US operations
In the US, UBS Securities LLC and UBS Financial Services Inc., as well as UBS’s other US registered broker-dealer entities, are subject to regulations that cover all aspects of the securities business, including:
– | sales methods; | |
– | trade practices among broker-dealers; | |
– | use and safekeeping of customers’ funds and securities; | |
– | capital structure; | |
– | record-keeping; | |
– | the financing of customers’ purchases; and | |
– | the conduct of directors, officers and employees. |
Regulation and supervision in the UK
UBS’s operations in the UK are regulated by the Financial Services Authority (FSA), the UK’s single regulator, which establishes a regime of rules and guidance governing all relevant aspects of financial services businesses.
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Corporate Governance
Compliance with NYSE listing standards on corporate governance
Compliance with New York Stock Exchange
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, the firm is only required to comply with the rules relating to audit committees and annual certifications. UBS, however, has voluntarily adopted the overwhelming majority of the New York Stock Exchange rules for US companies.
Introduction
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange (NYSE) corporate governance rules. Foreign private issuers – such as UBS – were required to comply with the rules on Audit Committees by 31 July 2005 and had to also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 January 2004. UBS fully complies with the SEC requirements relating to Audit Committees and fulfills the overwhelming majority of the NYSE listing standards on corporate governance. The few exceptions are mainly due to the different legal system in Switzerland and are explained in detail in this section.
Independence of directors
The Board of Directors (BoD), 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 or her compliance with the criteria. The BoD, at its meeting of 7 February 2008, affirmatively determined that Ernesto Bertarelli, Gabrielle Kaufmann-Kohler, Sergio Marchionne, Rolf A. Meyer, Helmut Panke, Peter Spuhler, Peter Voser, Lawrence A. Weinbach and Joerg Wolle 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 other requirements of the BoD and of the NYSE with respect to independence, with the exception of Ernesto Bertarelli. He does not satisfy one of the independence requirements because UBS is the main sponsor to Team Alinghi and Ernesto Bertarelli is the owner of Team Alinghi SA. Otherwise he fully satisfies the NYSE independence requirements. The BoD does not believe that UBS’s sponsorship of Team Alinghi impairs Ernesto Bertarelli’s independence in any way.
ity as directors. They do not hold directly or indirectly UBS shares in excess of 5% of the outstanding capital, and none of them serves on the audit committees of more than two other public companies. The BoD determined that all three Audit Committee members are financially literate and that Lawrence A. Weinbach, Rolf A. Meyer and Peter Voser are “financial experts” according to the definitions established by the US Sarbanes-Oxley Act of 2002, Lawrence A. Weinbach being a certified public accountant and having been in the audit and accounting business during most of his professional career, Rolf A. Meyer through his former responsibility as Chief Financial Officer (CFO) of a large listed company, and Peter Voser being the CFO of Royal Dutch Shell plc.
Board committees
UBS has established audit, compensation, nominating and corporate responsibility committees. The charters for all BoD committees are published on www.ubs.com/corporate-governance. Additional information on the BoD committees’ mandates, responsibilities and authorities and their activities during 2007 can be found on pages 9–15 of this report.
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Corporate Governance
Compliance with NYSE listing standards on corporate governance
Differences from NYSE standards
According to Rule 303A.11 of the NYSE Corporate Governance listing standards, foreign private issuers have to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies. The UBS BoD has determined the following differences:
Responsibility of the Audit Committee for appointment,
compensation, retention and oversight of the independent
auditors
Discussion of risk assessment and risk management policies
by Audit Committee
viewing 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
Responsibility of the Nominating Committee for oversight
of management and evaluation by the Board of Directors
Proxy statement reports of the Audit and Compensation
Committees
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Shareholders’ votes on equity compensation plans
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
Committee requirements and the requirement to provide a statement of significant corporate governance differences. UBS filed the requested affirmation forms and exhibits in mid-July 2005 for the first time. Since 2006, the annual written affirmation has been submitted no later than 30 days after filing the annual report on Form 20-F with the SEC.
“Corporate Governance Guidelines”, “Code
of Business Conduct and Ethics” and
“Whistleblowing Protection for Employees”
The BoD has adopted corporate governance guidelines, which are published on the UBS website at www.ubs.com/corporate-governance.
è | The code is available on the UBS website at www.ubs.com/corporate-governance |
The Audit Committee of the BoD has established rules for the handling of complaints related to accounting and auditing matters in addition to the internal policies on “Whistle-blowing Protection for Employees” and on “Compliance with Attorney Standards of Professional Conduct”.
è | The Audit Committee procedures are available at www.ubs.com/corporate-governance |
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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 and the Vice Chairmen of the business groups.
Group Managing Board
The members of the Group Managing Board (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 onefirm 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 2007 and announced changes
Global Wealth Management & Business Banking | ||
Michel Adjadj | Head Wealth Management Eastern Mediterranean, Middle East & Africa | |
Matthew J. Brumsen | Head Business Unit UK, Northern and Eastern Europe | |
Bernhard Buchs | Chief Risk Officer | |
Robert J. (Bob) Chersi | Deputy Chief Financial Officer (until 31 January 2008) | |
Diane Frimmel | Regional Chief Operations Officer, Americas | |
Marten Hoekstra | Head Wealth Management Americas | |
Dieter Kiefer | Head Wealth Management Western Europe | |
Martin Liechti | Head Wealth Management Americas International | |
Francesco Morra | Head Wealth Management Western Europe, Mediterranean, Middle East & Africa | |
Tom Naratil | Head Marketing, Segment & Client Development | |
Rolf Olmesdahl | Head Information Technology | |
Gabriela Payer | Head Human Resources & Education | |
Niklaus Pfau | Head Global Segment & Sales Management | |
James M. Pierce | Co-Head Wealth Management Advisor Group US | |
James D. Price | Co-Head Wealth Management Advisor Group US | |
Joe Rickenbacher | Chief Credit Officer | |
Alain Robert | Head Wealth Management & Business Banking Switzerland | |
Felix B. Ronner | Global Head Transaction Products and Head Products & Services Europe / Latin America | |
Kathryn Shih | Head Wealth Management Asia Pacific and Chief Executive Officer (CEO) UBS Hong Kong | |
Anton Stadelmann | Chief Financial Officer (Chief Financial Officer Wealth Management Americas as of 1 February 2008) | |
Michael Strobaek | Global Head Investment Solutions | |
Michael A. Weisberg | Global Head Products & Services | |
Klaus W. Wellershoff | Global Head Wealth Management Research | |
Juerg Zeltner | Head Wealth Management North, East & Central Europe and CEO UBS Deutschland AG | |
Stephan Zimmermann | Chief Operations Officer | |
Global Wealth Management & Business Banking (continued) | ||
New members as of 1 March 2008 | ||
Allen Chun Lun Lo | Head Wealth Management Greater China, Deputy Head Wealth Management Asia Pacific | |
John B. Hannasch | Head Market Strategy & Development Americas | |
Mark Shelton | General Counsel Americas | |
Karl Spielberger | Head Large Corporates and Institutional Clients Switzerland | |
Ursula Suter | General Counsel (excl. US) | |
Investment Bank | ||
Andy Amschwand | Head Investment Bank Switzerland | |
David Aufhauser | Global General Counsel | |
David A. Bawden | Chief Credit Officer | |
Maria Bentley | Global Head Human Resources | |
Mark Branson | CEO UBS Securities Japan Ltd. (Chief Financial Officer Global WM&BB as of 1 February 2008) | |
Peter W. Burnett | Executive Chairman, Middle East | |
Daniel Coleman | Joint Global Head Equities | |
Regina A. Dolan | Chief Financial Officer | |
Andre Esteves | Global Head Fixed Income, Currencies and Commodities Chairman and CEO, UBS Latin America | |
Juerg Haller | Chief Operating Officer UBS Latin America | |
Suneel Kamlani | Chief of Staff and Chief Administrative Officer | |
J. Richard Leaman III | Joint Global Head Investment Banking Department | |
Richard B. Metcalf | Chief Risk Officer, Investment Bank | |
Brad Orgill | CEO and Chairman, Australasia | |
Jeremy Palmer | CEO Investment Bank in Europe, Middle East & Africa | |
John Pius Wall | Joint Global Head Equities | |
Alexander Wilmot-Sitwell | Joint Global Head Investment Banking Department | |
Robert Wolf | President and Chief Operating Officer / Chairman and Chief Executive Officer UBS Group Americas | |
Global Asset Management | ||
Mario Cueni | General Counsel and Chief Risk Officer | |
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Christof Kutscher | Head Asia Pacific | |
Thomas Madsen | Co-Head Equities (stepped down on 25 February 2008) | |
John A. Penicook Jr. | Co-Head Global Fixed Income | |
Markus Ronner | Chief Operating Officer | |
Paresh Sodha | Chief Financial Officer | |
Kai Sotorp | Head Americas | |
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Global Asset Management (continued) | ||
New members as of 1 March 2008 | ||
William J. Ferri | Global Head of Alternative & Quantitative Investments | |
John C. Leonard | Co-Head Equities and Head of Core /Value Equities | |
Paul W. Marcuse | Head of Global Real Estate | |
Corporate Center | ||
Scott G. Abbey | Chief Technology Officer | |
Charles Nicholas Bolton | Group Head Operational Risk | |
Gerhard Bruederlin | Group Head Human Resources | |
Seth F. Cohen | Head of Offshoring | |
Thomas R. Hill | Chief Communication Officer | |
Stephan Keller | Group Treasurer | |
Philip J. Lofts | Group Chief Credit Officer | |
Robert W. Mann | Head, Leadership Institute | |
Neil R. Stocks | Head Group Compliance | |
M. Andrew Threadgold | Group Head Market Risk | |
Peter Thurneysen | Head Group Controlling and Accounting | |
William Widdowson | Head Group Accounting Policy | |
New member as of 1 March 2008 | ||
Oliver Bartholet | Head Group Tax | |
Chairman’s Office | ||
Luzius Cameron | Company Secretary | |
Ian Overton | Head 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 GMB.
Members as of 31 December 2007
Global Wealth Management & Business Banking | ||
Arthur Decurtins | ||
Thomas K. Escher | ||
Carlo Grigioni | ||
Werner H. Peyer | ||
Investment Bank | ||
Chris Brodie | ||
Lord Brittan of Spennithorne, QC | ||
Robert Gillespie | ||
Phil Gramm | ||
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More about UBS
Sources of information
Annual report 2007
Four reports make up UBS’s fullAnnual Report 2007. They comply with the US disclosure requirements for foreign private issuers as defined by Form 20-F of the Securities and Exchange Commission (SEC) and combine audited and non-audited information. All four reports are available in English and German (SAP no.80531). The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here. This report can be ordered separately (SAP no. 82307).
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investors/topicsin the reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
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Information tools for investors
Website
Our Analysts & Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging service
On the Analysts & Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results 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 webcasts can be found in the financials section of our Analysts & Investors website.
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
Corporate information
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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More about UBS
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 | +41-44-234 4100 | UBS AG | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +41-44-234 3415 | P.O. Box | ||||
CH-8098 Zurich, Switzerland | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. 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 | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all global registered share-related queries in the US. www.melloninvestor.com | Calls from the US | +866-541 9689 | BNY Mellon Shareowner 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 | ||||||
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Cautionary statement regarding forward-looking statements |This report contains statements that constitute “forward-looking statements”, including but not limited to statements relating to the risks arising from the current market crisis, other risks specific to our business and the implementation of strategic initiatives, as well as other statements relating to our future business development and economic performance and our intentions with respect to future returns of capital. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to (1) the extent and nature of future developments in the US sub-prime market and in other market segments that have been affected by the current market crisis; (2) other market and macro-economic developments, including movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current market crisis; (3) the impact of these developments on other markets and asset classes; (4) changes in internal risk control and in the regulatory capital treatment of UBS’s positions, in particular those affected by the current market crisis; (5) limitations in the effectiveness of our internal risk management processes, of our risk measurement, control and modeling systems, and of financial models generally; (6) developments relating to UBS’s access to capital and funding, including any changes in our credit ratings; (7) changes in the financial position or creditworthiness of our customers, obligors and counterparties, and developments in the markets in which they operate; (8) management changes and changes to the structure of our Business Groups; (9) the occurrence of operational failures, such as fraud, unauthorized trading, systems failures; (10) legislative, governmental and regulatory developments; (11) competitive pressures; (12) technological developments; and (13) the impact of all such future developments on positions held by UBS, on our short-term and longer-term earnings, on the cost and availability of funding and on our BIS capital ratios. In addition, these results could depend on other factors that we have previously indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2007. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 82307E-0801
Mixed Sources Product Group from well-managed forests and other controlled sources www.fsc.org Cert. no. SQS-COC-100112 © 1996 Forest Stewardship Council |
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UBS AG | ||
P.O. Box, CH-8098 Zurich | ||
P.O. Box, CH-4002 Basel | ||
www.ubs.com |
Table of Contents
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Contents
1
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Introduction
Introduction
This year we have changed the structure of our annual report. Based on feedback from users, our annual report now consists of four themed reports. These combine audited and non-audited information.
The four reports are:
Strategy, Performance and Responsibility 2007
This provides a description of our firm, its strategy, organizational structure and financial performance for the last two years. It also discusses our standards for corporate behavior and responsibility, outlines demographic trends in our workforce and describes the way our people learn and are led.
Risk, Treasury and Capital Management 2007
In addition to outlining the principles by which we manage and control risk, this report provides an account of developments in credit risk, market risk, operational risk and treasury management during 2007. It also provides information on UBS shares.
Corporate Governance and Compensation Report 2007
Comprehensive information on our governance arrangements is included in this report, which also explains how we manage our relationships with regulators and shareholders. Compensation of senior management and the Board of Directors (executive and non-executive members) is discussed here.
Financial Statements 2007
This comprises the audited financial statements of UBS for 2007, 2006 and 2005, prepared according to the International Financial Reporting Standards (IFRS). It also includes the audited financial statements of UBS AG (the parent bank) for 2007 and 2006, prepared according to Swiss banking law. Additional disclosure required by Swiss and US regulations is included where appropriate.
In addition to the four reports,Review 2007is distributed broadly to UBS shareholders and contains key information on our strategy and financials. This booklet summarizes the information in the four-part annual report.
If you only ordered specific reports in prior years, please note that the former Compensation Report is now calledCorporate Governance and Compensation Report 2007,and the former Annual Review is now calledReview 2007. Our contact details are listed in the final pages of this report – please be in contact with us so that we can arrange delivery of the reports you require.
This report contains information that is current as of the date of this report. We undertake no obligation to update this information or notify you if it should change or if new information should become available.
Our aim is to provide publications that are useful and informative. In order to ensure that UBS remains among the leading providers of corporate disclosure, we would like to hear your opinions on how we can improve the content and presentation of our products (see contact details on the final pages of this report).
UBS
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Accounting Standards and Policies
Accounting Principles
Accounting Principles
UBS Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Until 2006, UBS also reconciled its Financial Statements to US Generally Accepted Accounting Principles (US GAAP). It will now no longer do so after the SEC released a final rule on 21 December 2007 under which financial statements from foreign private issuers in the US will be accepted without reconciliation to GAAP if they are prepared in accordance with IFRS as issued by the International Accounting Standards Board. As a US listed company, we had provided in the Annual Financial Statements until and including 31 December 2006 a description of the significant differences which would have arisen if our accounts had been presented under US GAAP, a detailed reconciliation of equity and net profit attributable to UBS shareholders under IFRS to US GAAP, and additional disclosures required under US GAAP.
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. The presentation of the business segments reflects UBS’s organizational structure and management responsibilities. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
revenues to business units on a reasonable basis. Inter-business unit charges are predominantly reported in the line “Services (to) / from other business units” for both Business units concerned. Transactions between Business units are conducted at internally agreed transfer prices or at arm’s length. Corporate Center expenses are allocated to the operating Business units to the extent appropriate.
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Accounting Standards and Policies
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare our Financial Statements in accordance with IFRS as issued by the International Accounting Standards Board. The application of certain of these accounting principles requires considerable judgment based upon estimates and assumptions that involve significant uncertainty at the time they are made. Changes in assumptions may have a significant impact on the Financial Statements in the periods where assumptions are changed. Accounting treatments where significant assumptions and estimates are used are discussed in this section, as a guide to understanding how their application affects 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
Financial assets and financial liabilities in our trading portfolio, financial assets and liabilities designated 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.
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Accounting Standards and Policies
Critical accounting policies
– | Scaling the model reserve amounts upward in line with less favorable assumptions would reduce fair value by approximately CHF 2,710 million at 31 December 2007, by approximately CHF 1,038 million at 31 December 2006 and approximately CHF 1,094 million at 31 December 2005. | |
– | Scaling the model reserve amounts downward in line with more favorable assumptions would increase fair value by approximately CHF 2,160 million at 31 December 2007, approximately CHF 955 million at 31 December 2006, and approximately CHF 1,176 million at 31 December 2005. |
Recognition of deferred day 1 profit or loss
A closely related issue to determining fair value of financial instruments is the recognition of deferred day 1 profit or loss. We have entered into transactions, some of which will mature in the long-term, where we determine fair value using valuation models for which not all material inputs are market observable prices or rates. We initially recognize such 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 P / L”. We do not immediately recognize that initial difference, usually a gain, in profit or loss because the applicable accounting literature prohibits immediate recognition of day 1 profit. The accounting literature does not, however, address its subsequent recognition 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.
Consolidation of Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments in separate legal entities, to allow clients to jointly invest in alternative assets, for asset securitization transactions and for buying or selling credit protection. In accordance with IFRS, we do not consolidate SPEs that we do not control. In order to determine whether we control an SPE or not, we have to make judgments about risks and rewards and assess our ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. When assessing whether we have to consolidate an SPE we evaluate a range of factors, including whether (a) 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, or (b) we have decision-making powers to obtain the majority of the benefits of the activities of the SPE, or UBS has delegated these decision-making powers by setting up an autopilot mechanism, or (c) we have the rights to obtain the majority of the benefits of the activities of an SPE and therefore may be exposed to risks arising from the activities of the SPE, or (d) we retain the majority of the residual or ownership risks related to the SPE or its assets in order to obtain the benefits from its activities. We consolidate an SPE if our assessment of the relevant factors indicates that we control the SPE.
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rewards of the assets held by the SPE reside with the clients. Typically, we will receive service and commission fees for creation of the SPE, or because we act as investment manager, custodian or in some other function. Many of these SPEs are single-investor or family trusts while others allow a broad number of investors to invest in a diversified asset base through a single share or certificate. These latter SPEs range from mutual funds to trusts investing in real estate. The majority of our SPEs is created for client investment purposes and is not consolidated. However, we consolidate investment funds in cases where we provide or have a moral obligation to provide financial support to a fund. In these instances we generally assume the majority or a significant portion of the risks of the fund, which, combined with our role as investment manager, makes us the party that can exercise control over the entity.
Equity compensation
IFRS 2Share-based Paymentsaddresses the accounting for share-based employee compensation and was adopted by UBS on 1 January 2005 on a fully retrospective basis. The effect of applying IFRS 2 is disclosed in Note 1b) to the Financial Statements, and further information on UBS equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 30 to the Financial Statements.
Deferred taxes
Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized in the books but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are taxable only when the valuation change is realized.
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Accounting Standards and Policies
Critical accounting policies
tax asset recognition is influenced by management’s assessment of UBS’s historic and future profitability profile. At each balance sheet date, existing assessments are reviewed and, if necessary, revised to reflect changed circumstances. In a situation where recent losses have been incurred, the relevant accounting standards require convincing evidence that there will be sufficient future tax capacity. In 2007, we have
not recognized a significant amount of the potential deferred tax assets relating to the losses that we incurred and which are available to offset against future taxable income, due to the recognition criteria set by the accounting standards. See Note 22 to the Financial Statements for further details.
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Financial Statements
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control
over Financial Reporting
– | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; | |
– | Provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and | |
– | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Financial Statements
Report of Independent Registered Public Accounting
Firm – Internal Control over Financial Reporting
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Financial Statements
Financial Statements
Income Statement | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
CHF million, except per share data | Note | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||||
Continuing operations | ||||||||||||||||||||
Interest income | 3 | 109,112 | 87,401 | 59,286 | 25 | |||||||||||||||
Interest expense | 3 | (103,775 | ) | (80,880 | ) | (49,758 | ) | 28 | ||||||||||||
Net interest income | 3 | 5,337 | 6,521 | 9,528 | (18 | ) | ||||||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | ||||||||||||||||
Net interest income after credit loss expense | 5,099 | 6,677 | 9,903 | (24 | ) | |||||||||||||||
Net fee and commission income | 4 | 30,634 | 25,456 | 21,184 | 20 | |||||||||||||||
Net trading income | 3 | (8,353 | ) | 13,743 | 8,248 | |||||||||||||||
Other income | 5 | 4,332 | 1,598 | 1,127 | 171 | |||||||||||||||
Revenues from industrial holdings | 268 | 262 | 229 | 2 | ||||||||||||||||
Total operating income | 31,980 | 47,736 | 40,691 | (33 | ) | |||||||||||||||
Personnel expenses | 6 | 24,798 | 23,591 | 20,067 | 5 | |||||||||||||||
General and administrative expenses | 7 | 8,465 | 7,980 | 6,504 | 6 | |||||||||||||||
Depreciation of property and equipment | 15 | 1,251 | 1,252 | 1,247 | 0 | |||||||||||||||
Amortization of intangible assets | 16 | 282 | 153 | 133 | 84 | |||||||||||||||
Goods and materials purchased | 119 | 116 | 97 | 3 | ||||||||||||||||
Total operating expenses | 34,915 | 33,092 | 28,048 | 6 | ||||||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | ||||||||||||||||
Tax expense | 22 | 1,311 | 2,785 | 2,465 | (53 | ) | ||||||||||||||
Net profit from continuing operations | (4,246 | ) | 11,859 | 10,178 | ||||||||||||||||
Discontinued operations | ||||||||||||||||||||
Operating profit from discontinued operations before tax | 36 | 135 | 879 | 5,094 | (85 | ) | ||||||||||||||
Tax expense | 22 | (266 | ) | (12 | ) | 582 | ||||||||||||||
Net profit from discontinued operations | 401 | 891 | 4,512 | (55 | ) | |||||||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | ||||||||||||||||
Net profit attributable to minority interests | 539 | 493 | 661 | 9 | ||||||||||||||||
from continuing operations | 539 | 390 | 430 | 38 | ||||||||||||||||
from discontinued operations | 0 | 103 | 231 | (100 | ) | |||||||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | ||||||||||||||||
from continuing operations | (4,785 | ) | 11,469 | 9,748 | ||||||||||||||||
from discontinued operations | 401 | 788 | 4,281 | (49 | ) | |||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic earnings per share (CHF) | 8 | (2.28 | ) | 6.20 | 6.97 | |||||||||||||||
from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||||||||||
from discontinued operations | 0.21 | 0.40 | 2.13 | (48 | ) | |||||||||||||||
Diluted earnings per share (CHF) | 8 | (2.28 | ) | 5.95 | 6.68 | |||||||||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||||||||||
from discontinued operations | 0.21 | 0.38 | 2.03 | (45 | ) | |||||||||||||||
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Balance Sheet | ||||||||||||||||
% change from | ||||||||||||||||
CHF million | Note | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
Assets | ||||||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 438 | |||||||||||||
Due from banks | 9 | 60,907 | 50,426 | 21 | ||||||||||||
Cash collateral on securities borrowed | 10 | 207,063 | 351,590 | (41 | ) | |||||||||||
Reverse repurchase agreements | 10 | 376,928 | 405,834 | (7 | ) | |||||||||||
Trading portfolio assets | 11 | 610,061 | 627,036 | (3 | ) | |||||||||||
Trading portfolio assets pledged as collateral | 11 | 164,311 | 251,478 | (35 | ) | |||||||||||
Positive replacement values | 23 | 428,217 | 292,975 | 46 | ||||||||||||
Financial assets designated at fair value | 12 | 11,765 | 5,930 | 98 | ||||||||||||
Loans | 9 | 335,864 | 297,842 | 13 | ||||||||||||
Financial investments available-for-sale | 13 | 4,966 | 8,937 | (44 | ) | |||||||||||
Accrued income and prepaid expenses | 11,953 | 10,361 | 15 | |||||||||||||
Investments in associates | 14 | 1,979 | 1,523 | 30 | ||||||||||||
Property and equipment | 15 | 7,234 | 6,913 | 5 | ||||||||||||
Goodwill and intangible assets | 16 | 14,538 | 14,773 | (2 | ) | |||||||||||
Other assets | 17, 22 | 18,000 | 17,249 | 4 | ||||||||||||
Total assets | 2,272,579 | 2,346,362 | (3 | ) | ||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 18 | 145,762 | 203,689 | (28 | ) | |||||||||||
Cash collateral on securities lent | 10 | 31,621 | 63,088 | (50 | ) | |||||||||||
Repurchase agreements | 10 | 305,887 | 545,480 | (44 | ) | |||||||||||
Trading portfolio liabilities | 11 | 164,788 | 204,773 | (20 | ) | |||||||||||
Negative replacement values | 23 | 443,539 | 297,063 | 49 | ||||||||||||
Financial liabilities designated at fair value | 19 | 191,853 | 145,687 | 32 | ||||||||||||
Due to customers | 18 | 641,892 | 555,886 | 15 | ||||||||||||
Accrued expenses and deferred income | 21,848 | 21,527 | 1 | |||||||||||||
Debt issued | 19 | 222,077 | 190,143 | 17 | ||||||||||||
Other liabilities | 20, 21, 22 | 60,776 | 63,251 | (4 | ) | |||||||||||
Total liabilities | 2,230,043 | 2,290,587 | (3 | ) | ||||||||||||
Equity | ||||||||||||||||
Share capital | 207 | 211 | (2 | ) | ||||||||||||
Share premium | 8,884 | 9,870 | (10 | ) | ||||||||||||
Net income recognized directly in equity, net of tax | (1,188 | ) | 815 | |||||||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 38 | 0 | |||||||||||||
Retained earnings | 38,081 | 49,151 | (23 | ) | ||||||||||||
Equity classified as obligation to purchase own shares | (74 | ) | (185 | ) | 60 | |||||||||||
Treasury shares | (10,363 | ) | (10,214 | ) | (1 | ) | ||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | (28 | ) | ||||||||||||
Equity attributable to minority interests | 6,951 | 6,089 | 14 | |||||||||||||
Total equity | 42,536 | 55,775 | (24 | ) | ||||||||||||
Total liabilities and equity | 2,272,579 | 2,346,362 | (3 | ) | ||||||||||||
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Financial Statements
Statement of Changes in Equity | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Share capital | ||||||||||||
Balance at the beginning of the year | 211 | 871 | 901 | |||||||||
Issue of share capital | 0 | 1 | 2 | |||||||||
Capital repayment by par value reduction | 0 | (631 | ) | 0 | ||||||||
Cancellation of second trading line treasury shares | (4 | ) | (30 | ) | (32 | ) | ||||||
Balance at the end of the year attributable to UBS shareholders | 207 | 211 | 871 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 9,870 | 9,992 | 9,231 | |||||||||
Premium on shares issued and warrants exercised | 12 | 46 | 36 | |||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (560 | ) | (271 | ) | (309 | ) | ||||||
Employee share and share option plans | 139 | (508 | ) | 768 | ||||||||
Tax benefits from deferred compensation awards | (577 | ) | 611 | 266 | ||||||||
Balance at the end of the year attributable to UBS shareholders | 8,884 | 9,870 | 9,992 | |||||||||
Balance at the end of the year attributable to minority interests | 556 | 461 | 2,415 | |||||||||
Balance at the end of the year | 9,440 | 10,331 | 12,407 | |||||||||
Net income recognized directly in equity, net of tax | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (1,618 | ) | (432 | ) | (2,520 | ) | ||||||
Movements during the year | (1,009 | ) | (1,186 | ) | 2,088 | |||||||
Subtotal – balance at the end of the year attributable to UBS shareholders1 | (2,627 | ) | (1,618 | ) | (432 | ) | ||||||
Balance at the end of the year attributable to minority interests | (480 | ) | (208 | ) | (26 | ) | ||||||
Subtotal – balance at the end of the year | (3,107 | ) | (1,826 | ) | (458 | ) | ||||||
Net unrealized gains / (losses) on financial investments available-for-sale, net of tax | ||||||||||||
Balance at the beginning of the year | 2,876 | 931 | 761 | |||||||||
Net unrealized gains / (losses) on financial investments available-for-sale | 1,213 | 2,574 | 463 | |||||||||
Impairment charges reclassified to the income statement | 14 | 19 | 96 | |||||||||
Realized gains reclassified to the income statement | (2,638 | ) | (649 | ) | (396 | ) | ||||||
Realized losses reclassified to the income statement | 6 | 1 | 7 | |||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | 1,471 | 2,876 | 931 | |||||||||
Balance at the end of the year attributable to minority interests | 32 | 30 | 21 | |||||||||
Subtotal – balance at the end of the year | 1,503 | 2,906 | 952 | |||||||||
Changes in fair value of derivative instruments designated as cash flow hedges, net of tax | ||||||||||||
Balance at the beginning of the year | (443 | ) | (681 | ) | (322 | ) | ||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | 239 | 1 | (474 | ) | ||||||||
Net realized (gains) / losses reclassified to the income statement | 172 | 237 | 115 | |||||||||
Subtotal – balance at the end of the year attributable to UBS shareholders | (32 | ) | (443 | ) | (681 | ) | ||||||
Balance at the end of the year attributable to minority interests | 0 | 0 | 0 | |||||||||
Subtotal – balance at the end of the year | (32 | ) | (443 | ) | (681 | ) | ||||||
Net income recognized directly in equity, net of tax – attributable to UBS shareholders | (1,188 | ) | 815 | (182 | ) | |||||||
Net income recognized directly in equity – attributable to minority interests | (448 | ) | (178 | ) | (5 | ) | ||||||
Balance at the end of the year | (1,636 | ) | 637 | (187 | ) | |||||||
Revaluation reserve from step acquisitions, net of tax | ||||||||||||
Balance at the beginning of the year | 38 | 101 | 90 | |||||||||
Movements during the year | 0 | (63 | ) | 11 | ||||||||
Balance at the end of the year attributable to UBS shareholders | 38 | 38 | 101 | |||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 49,151 | 44,105 | 36,692 | |||||||||
Net profit attributable to UBS shareholders for the year | (4,384 | ) | 12,257 | 14,029 | ||||||||
Dividends paid2 | (4,275 | ) | (3,214 | ) | (3,105 | ) | ||||||
Cancellation of second trading line treasury shares | (2,411 | ) | (3,997 | ) | (3,511 | ) | ||||||
Balance at the end of the year attributable to UBS shareholders | 38,081 | 49,151 | 44,105 | |||||||||
Balance at the end of the year attributable to minority interests | 16 | (25 | ) | 170 | ||||||||
Balance at the end of the year | 38,097 | 49,126 | 44,275 | |||||||||
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Statement of Changes in Equity (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Equity classified as obligation to purchase own shares | ||||||||||||
Balance at the beginning of the year | (185 | ) | (133 | ) | (96 | ) | ||||||
Movements during the year | 111 | (52 | ) | (37 | ) | |||||||
Balance at the end of the year attributable to UBS shareholders | (74 | ) | (185 | ) | (133 | ) | ||||||
Treasury shares | ||||||||||||
Balance at the beginning of the year | (10,214 | ) | (10,739 | ) | (11,105 | ) | ||||||
Acquisitions | (7,169 | ) | (8,314 | ) | (8,375 | ) | ||||||
Disposals | 4,605 | 4,812 | 5,198 | |||||||||
Cancellation of second trading line treasury shares | 2,415 | 4,027 | 3,543 | |||||||||
Balance at the end of the year attributable to UBS shareholders | (10,363 | ) | (10,214 | ) | (10,739 | ) | ||||||
Minority interests – preferred securities | 6,827 | 5,831 | 5,039 | |||||||||
Total equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | |||||||||
Total equity attributable to minority interests | 6,951 | 6,089 | 7,619 | |||||||||
Total equity | 42,536 | 55,775 | 51,634 | |||||||||
Additional information: Equity attributable to minority interests | ||||||||||||||||
For the year ended | ||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||
Balance at the beginning of the year | 6,089 | 7,619 | 5,426 | |||||||||||||
Issuance of preferred securities | 996 | 1,219 | 1,539 | |||||||||||||
Other increases | 101 | 131 | 44 | |||||||||||||
Decreases and dividend payments | (502 | ) | (3,191 | ) | (595 | ) | ||||||||||
Foreign currency translation | (272 | ) | (182 | ) | 544 | |||||||||||
Minority interest in net profit | 539 | 493 | 661 | |||||||||||||
Balance at the end of the year | 6,951 | 6,089 | 7,619 | |||||||||||||
Shares issued | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Balance at the beginning of the year | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | (3 | ) | |||||||||||
Issuance of share capital | 1,294,058 | 2,208,242 | 3,418,878 | (41 | ) | |||||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | (79,870,188 | ) | 55 | |||||||||
Balance at the end of the year | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Treasury shares | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Balance at the beginning of the year | 164,475,699 | 208,519,748 | 249,326,620 | (21 | ) | |||||||||||
Acquisitions | 102,074,942 | 117,160,339 | 156,436,070 | (13 | ) | |||||||||||
Disposals | (75,425,117 | ) | (87,004,388 | ) | (117,372,754 | ) | 13 | |||||||||
Cancellation of second trading line treasury shares | (33,020,000 | ) | (74,200,000 | ) | (79,870,188 | ) | 55 | |||||||||
Balance at the end of the year | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
During the year a total of 33,020,000 shares acquired under the second trading line buyback program 2006 were cancelled. The 36,400,000 shares purchased under the buy back program 2007 (CHF 2,599 million) previously intended for cancellation have been rededicated for further use.
are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. In addition, during 2006, shareholders approved the creation of conditional capital of up to a maximum of 150 million shares to fund UBS’s employee share option programs. As of 31 December 2007 and 31 December 2006, 5,704 shares and zero shares, respectively, have been issued under this program.
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Financial Statements
Statement of Recognized Income and Expense | ||||||||||||||||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||||||||||||||||
Attributable to | Attributable to | Attributable to | ||||||||||||||||||||||||||||||||||
UBS | UBS | UBS | ||||||||||||||||||||||||||||||||||
share- | Minority | share- | Minority | share- | Minority | |||||||||||||||||||||||||||||||
CHF million | holders | interests | Total | holders | interests | Total | holders | interests | Total | |||||||||||||||||||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale, before tax | (1,825 | ) | 2 | (1,823 | ) | 2,610 | 9 | 2,619 | 152 | (58 | ) | 94 | ||||||||||||||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges, before tax | 541 | 0 | 541 | 332 | 0 | 332 | (479 | ) | 0 | (479 | ) | |||||||||||||||||||||||||
Foreign currency translation | (1,009 | ) | (272 | ) | (1,281 | ) | (1,186 | ) | (182 | ) | (1,368 | ) | 2,088 | 544 | 2,632 | |||||||||||||||||||||
Tax on items transferred to / (from) equity | 290 | 0 | 290 | (759 | ) | 0 | (759 | ) | 138 | 0 | 138 | |||||||||||||||||||||||||
Net income recognized directly in equity | (2,003 | ) | (270 | ) | (2,273 | ) | 997 | (173 | ) | 824 | 1,899 | 486 | 2,385 | |||||||||||||||||||||||
Net income recognized in the income statement | (4,384 | ) | 539 | (3,845 | ) | 12,257 | 493 | 12,750 | 14,029 | 661 | 14,690 | |||||||||||||||||||||||||
Total recognized income and expense | (6,387 | ) | 269 | (6,118 | ) | 13,254 | 320 | 13,574 | 15,928 | 1,147 | 17,075 | |||||||||||||||||||||||||
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Statement of Cash Flows | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | ||||||||
Adjustments to reconcile net profit to cash flow from / (used in) operating activities | ||||||||||||
Non-cash items included in net profit and other adjustments: | ||||||||||||
Depreciation of property and equipment | 1,253 | 1,325 | 1,556 | |||||||||
Amortization of intangible assets | 282 | 196 | 340 | |||||||||
Credit loss expense / (recovery) | 238 | (156 | ) | (374 | ) | |||||||
Equity in income of associates | (120 | ) | (117 | ) | (152 | ) | ||||||
Deferred tax expense / (benefit) | (437 | ) | (517 | ) | (382 | ) | ||||||
Net loss / (gain) from investing activities | (4,085 | ) | (2,092 | ) | (5,062 | ) | ||||||
Net loss / (gain) from financing activities | 3,779 | 3,659 | 4,025 | |||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | (60,762 | ) | 80,269 | (1,690 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | 173,433 | (61,382 | ) | (125,097 | ) | |||||||
Trading portfolio, net replacement values and financial assets designated at fair value | 60,729 | (177,087 | ) | (74,799 | ) | |||||||
Loans / due to customers | 47,955 | 64,029 | 47,265 | |||||||||
Accrued income, prepaid expenses and other assets | (2,467 | ) | (4,536 | ) | (1,227 | ) | ||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements, cash collateral on securities lent | (271,060 | ) | 66,370 | 64,558 | ||||||||
Accrued expenses and other liabilities | 7,494 | 14,975 | 15,536 | |||||||||
Income taxes paid | (3,663 | ) | (2,607 | ) | (2,394 | ) | ||||||
Net cash flow from / (used in) operating activities | (51,276 | ) | (4,921 | ) | (63,207 | ) | ||||||
Cash flow from / (used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | (2,337 | ) | 2,856 | (1,540 | ) | |||||||
Disposal of subsidiaries and associates | 885 | 1,154 | 3,240 | |||||||||
Purchase of property and equipment | (1,910 | ) | (1,793 | ) | (1,892 | ) | ||||||
Disposal of property and equipment | 134 | 499 | 270 | |||||||||
Net (investment in) / divestment of financial investments available-for-sale | 5,981 | 1,723 | (2,487 | ) | ||||||||
Net cash flow from / (used in) investing activities | 2,753 | 4,439 | (2,409 | ) | ||||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market paper issued / (repaid) | 32,672 | 16,921 | 23,221 | |||||||||
Net movements in treasury shares and own equity derivative activity | (3,550 | ) | (3,624 | ) | (2,416 | ) | ||||||
Capital issuance | 0 | 1 | 2 | |||||||||
Capital repayment by par value reduction | 0 | (631 | ) | 0 | ||||||||
Dividends paid | (4,275 | ) | (3,214 | ) | (3,105 | ) | ||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 110,874 | 97,675 | 76,307 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (62,407 | ) | (59,740 | ) | (30,457 | ) | ||||||
Increase in minority interests1 | 1,094 | 1,331 | 1,572 | |||||||||
Dividend payments to / purchase from minority interests | (619 | ) | (1,072 | ) | (575 | ) | ||||||
Net cash flow from / (used in) financing activities | 73,789 | 47,647 | 64,549 | |||||||||
Effects of exchange rate differences | (12,251 | ) | (2,117 | ) | 5,018 | |||||||
Net increase / (decrease) in cash and cash equivalents | 13,015 | 45,048 | 3,951 | |||||||||
Cash and cash equivalents, beginning of the year | 136,090 | 91,042 | 87,091 | |||||||||
Cash and cash equivalents, end of the year | 149,105 | 136,090 | 91,042 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 18,793 | 3,495 | 5,359 | |||||||||
Money market paper2 | 77,215 | 87,144 | 57,826 | |||||||||
Due from banks with original maturity of less than three months | 53,097 | 45,451 | 27,857 | |||||||||
Total | 149,105 | 136,090 | 91,042 | |||||||||
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Financial Statements
Statement of Cash Flows (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Additional information | ||||||||||||
Cash received as interest | 103,828 | 79,805 | 53,117 | |||||||||
Cash paid as interest | 97,358 | 76,109 | 44,392 | |||||||||
Cash received as dividends on equities (including associates, see Note 14) | 5,313 | 4,839 | 3,869 | |||||||||
Significant non-cash investing and financing activities | ||||||||||||
Private Banks and GAM, deconsolidation | ||||||||||||
Financial investments available-for-sale | 60 | |||||||||||
Property and equipment | 180 | |||||||||||
Goodwill and intangible assets | 362 | |||||||||||
Debt issued | 5 | |||||||||||
Private equity investments, deconsolidation | ||||||||||||
Property and equipment | 24 | 264 | 248 | |||||||||
Goodwill and intangible assets | 3 | |||||||||||
Minority interests | 62 | 27 | ||||||||||
Acquisitions of businesses | ||||||||||||
Financial investments available-for-sale | 35 | |||||||||||
Property and equipment | 112 | |||||||||||
Goodwill and intangible assets | 377 | |||||||||||
Minority interests | 6 | |||||||||||
Motor-Columbus , deconsolidation | ||||||||||||
Financial investments available-for-sale | 178 | |||||||||||
Property and equipment | 2,229 | |||||||||||
Goodwill and intangible assets | 951 | |||||||||||
Debt issued | 718 | |||||||||||
Minority interests | 2,057 | |||||||||||
Acquisition of ABN AMRO’s Global Futures and Options Business | ||||||||||||
Property and equipment | 13 | |||||||||||
Goodwill and intangible assets | 428 | |||||||||||
Acquisition of Banco Pactual | ||||||||||||
Financial investments available-for-sale | 36 | |||||||||||
Property and equipment | 9 | |||||||||||
Goodwill and intangible assets | 2,218 | |||||||||||
Debt issued | 1,496 | |||||||||||
Acquisition of Piper Jaffray | ||||||||||||
Goodwill and intangible assets | 605 | |||||||||||
Acquisition of McDonald Investments branch network | ||||||||||||
Property and equipment | 3 | |||||||||||
Goodwill and intangible assets | 262 | |||||||||||
Acquisition of Daehan Investment Trust Management Company | ||||||||||||
Property and equipment | 2 | |||||||||||
Goodwill and intangible assets | 224 | |||||||||||
Minority interests | 60 | |||||||||||
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Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Significant Accounting Policies
1) Basis of accounting
UBS AG and subsidiaries (“UBS” or the “Group”) provide a broad range of financial services including advisory ser- vices, underwriting, financing, market making, asset management and brokerage on a global level, and retail banking in Switzerland. The Group was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzer-land merged. The merger was accounted for using the uniting of interests method of accounting.
2) Use of estimates in the preparation of
Financial Statements
In preparing the Financial Statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgment are inherent in the formation of estimates. Actual results in the future could differ from such estimates, and the differences may be material to the Financial Statements.
3) Subsidiaries, associates and jointly controlled entities
The Financial Statements comprise those of the parent company (UBS AG) and its subsidiaries including certain special purpose entities, presented as a single economic entity. The effects of intra-group transactions are eliminated in preparing the Financial Statements. Subsidiaries including special purpose entities that are directly or indirectly controlled by the Group are consolidated. UBS controls an entity if it has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Subsidiaries acquired are consolidated from the date control is transferred to the Group. Subsidiaries to be
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Financial Statements
Notes to the Financial Statements
4) Recognition and derecognition of financial instruments
UBS recognizes financial instruments on its balance sheet when the Group becomes a party to the contractual provisions of the instrument.
5) Determination of fair value
For an overview of financial assets and financial liabilities accounted for at fair value, refer to the IAS 39 measurement categories presented in Note 28: financial assets and financial liabilities held for trading, financial assets and financial liabilities designated at fair value through profit or loss, and financial investments available-for-sale. For details on the determination of fair value, including those on fair value measurements for instruments linked to the US residential mortgage market, refer to Note 26.
6) Trading portfolio assets and liabilities
Trading portfolio assets consist of money market paper, other debt instruments, including traded loans, equity instruments, precious metals and other commodities owned by the Group (“long” positions). Trading portfolio liabilities consist of obli-
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gations to deliver financial instruments such as money market paper, other debt instruments and equity instruments which the Group has sold to third parties but does not own (“short” positions).
7) Financial assets and Financial liabilities designated at fair value through profit or loss (“Fair Value Option”)
A financial instrument may only be designated at fair value through profit or loss at inception and this designation cannot subsequently be changed. Financial assets and financial liabilities designated at fair value are presented in separate lines on the face of the balance sheet.
a) | they are hybrid instruments which consist of a debt host and an embedded derivative component, or | |
b) | they are items that are part of a portfolio which is risk managed on a fair value basis and reported to senior management on that basis, or | |
c) | the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise. |
bedded derivative components which refer to an underlying, e. g. equity price, interest rate, commodities price or index. UBS has designated almost all of its issued hybrid debt instruments as Financial liabilities designated at fair value through profit or loss.
8) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative financial assets that are not classified as held for trading, designated at fair value through profit or loss, or loans and receivables. They are recognized on a settlement date basis. Financial investments available-for-sale include strategic equity investments as well as instruments that, in management’s opinion, may be sold in response to or in anticipation of needs for liquidity or changes in interest rates, foreign exchange rates or equity prices. Financial investments available-for-sale consist mainly of equity instruments, including certain private equity investments. In addition, certain debt instruments and non-performing loans acquired in the secondary market are classified as financial investments available-for-sale.
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Financial Statements
Notes to the Financial Statements
9) Loans and receivables
For an overview of financial assets and financial liabilities accounted for as loans and receivables, refer to the IAS 39 measurement categories presented in Note 28.
Commitments
Letters of credit, guarantees and similar instruments commit UBS to make payments on behalf of third parties under specific circumstances. These instruments, as well as undrawn irrevocable credit facilities, carry credit risk and are included in the exposure to credit risk table, in the audited “Credit risk” section ofRisk, Treasury and Capital Management 2007,with their gross maximum exposure to credit risk.
10) Allowance and provision for credit losses
An allowance or provision for credit losses is established if there is objective evidence that the Group will be unable to collect all amounts due on a claim according to the original contractual terms or the equivalent value. A “claim” means a loan or receivable carried at amortized cost, or a commitment such as a letter of credit, a guarantee, a commitment to extend credit or other credit products.
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11) Securitizations
UBS securitizes various financial assets, which generally results in the sale of these assets to special purpose entities, which in turn issue securities to investors. UBS applies the policies set out in part 4) in determining whether the respective special purpose entity must be consolidated and those set out in part 3) in determining whether derecognition of transferred financial assets is appropriate. The following statements mainly apply to financial asset transfers which are considered true sales to non-consolidated entities.
12) Securities borrowing and lending
Securities borrowing and securities lending transactions are generally entered into on a collateralized basis. In such transactions, UBS typically lends or borrows securities in exchange for securities or cash collateral. Additionally, UBS borrows securities from its clients’ custody accounts in exchange for a fee. The majority of securities lending and borrowing agreements involve shares, and the remainder typically involve bonds and notes. The transactions are conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. UBS monitors the market value of the securities received or delivered on a daily basis and requests or provides additional collateral or returns or recalls surplus collateral in accordance with the underlying agreements.
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Financial Statements
Notes to the Financial Statements
13) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (Reverse repurchase agreements) and securities sold under agreements to repurchase (Repurchase agreements) are generally treated as collateralized financing transactions. Nearly all repurchase and reverse repurchase agreements involve debt instruments, such as bonds, notes or money market paper. The transactions are conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. UBS monitors the market value of the securities received or delivered on a daily basis and requests or provides additional collateral or returns or recalls surplus collateral in accordance with the underlying agreements.
14) Derivative instruments and hedge accounting
All derivative instruments are carried at fair value on the balance sheet and are reported as Positive replacement values or Negative replacement values. Where the Group enters into derivatives for trading purposes, realized and unrealized gains and losses are recognized in Net trading income.
Hedge accounting
The Group also uses derivative instruments as part of its asset and liability management activities to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions. The Group applies either fair value or cash flow hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment.
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Fair value hedges
For qualifying fair value hedges, the change in fair value of the hedging derivative is recognized in the income statement. Those changes in fair value of the hedged item that are attributable to the risks hedged with the derivative instrument are reflected in an adjustment to the carrying value of the hedged item, which is also recognized in the income statement. The fair value change of the hedged item in a portfolio hedge of interest rate risks is reported separately from the hedged portfolio in Other assets or Other liabilities as appropriate. If the hedge relationship is terminated for reasons other than the derecognition of the hedged item, the difference between the carrying value of the hedged item at that point and the value at which it would have been carried had the hedge never existed (the “unamortized fair value adjustment”) is, in the case of interest-bearing instruments, amortized to the income statement over the remaining term of the original hedge, while for non-interest-bearing instruments that amount is immediately recognized in earnings. If the hedged item is derecognized, e. g. due to sale or repayment, the unamortized fair value adjustment is recognized immediately in the income statement.
Cash flow hedges
A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognized initially in Equity. When the cash flows that the derivative is hedging materialize, resulting in income or expense, then the associated gain or loss on the hedging derivative is simultaneously transferred from Equity to the corresponding income or expense line item.
Economic hedges which do not qualify for hedge accounting
Derivative instruments which are transacted as economic hedges but do not qualify for hedge accounting are treated in the same way as derivative instruments used for trading purposes, i. e. realized and unrealized gains and losses are recognized in Net trading income except that, in certain cases, the forward points on short duration foreign exchange contracts are reported in Net interest income. Additionally, the Group has entered into economic hedges of credit risk within the loan portfolio using credit default swaps to which it cannot apply hedge accounting. In the event that the Group recognizes an impairment on a loan that is economically hedged in this way, the impairment is recognized in Credit loss expense, whereas any gain on the credit default swap is recorded in Net trading income. See Note 23 for additional information. Where UBS designates an economically hedged item at fair value through profit or loss, all fair value changes, including impairments, on both the hedged item and the hedging instrument are reflected in Net trading income (refer to part 7)). Credit losses incurred on over- the-counter (OTC) derivatives are reported in Net trading income.
Embedded derivatives
A derivative may be embedded in a “host contract”. Such combinations are known as hybrid instruments and arise predominantly from the issuance of certain structured debt instruments. If the host contract is not carried at fair value with changes in fair value reported in the income statement, the embedded derivative is generally required to be separated from the host contract and accounted for as a stand-alone derivative instrument at fair value through profit or loss if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract and the embedded derivative actually meets the definition of a derivative. Bifurcated embedded derivatives are presented on the same balance sheet line as the host contract, and are shown in Note 28 in the “Held for trading” category, reflecting the measurement and recognition principles applied.
15) Cash and cash equivalents
Cash and cash equivalents consist of Cash and balances with central banks, balances included in Due from banks with original maturity of less than three months, and Money market paper included in Trading portfolio assets and Financial investments available-for-sale.
16) Physical commodities
Physical commodities (precious metals, base metals, energy and other commodities) held by UBS as a result of its broker-
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Financial Statements
Notes to the Financial Statements
17) Property and equipment
Property and equipment includes own-used properties, investment properties, leasehold improvements, IT, software and communication, plant and manufacturing equipment, and other machines and equipment.
Classification for own-used property
Own-used property is defined as property held by the Group for use in the supply of services or for administrative purposes, whereas investment property is defined as property held to earn rental income and / or for capital appreciation. If a property of the Group includes a portion that is own-used and another portion that is held to earn rental income or for capital appreciation, the classification is based on whether or not these portions can be sold separately. If the portions of the property can be sold separately, they are separately accounted for as own-used property and investment property. If the portions cannot be sold separately, the whole property is classified as own-used property unless the portion used by the Group is minor. The classification of property is reviewed on a regular basis to account for major changes in its usage.
Leasehold improvements
Leasehold improvements are investments made to customize buildings and offices occupied under operating lease contracts to make them suitable for the intended purpose. The present value of estimated reinstatement costs to bring a leased property into its original condition at the end of the lease, if required, is capitalized as part of the total leasehold improvements costs. At the same time, a corresponding liability is recognized to reflect the obligation incurred. Reinstatement costs are recognized in profit and loss through depreciation of the capitalized leasehold improvements over their estimated useful life.
Software
Software development costs are capitalized when they meet certain criteria relating to identifiability, it is probable that future economic benefits will flow to the enterprise, and the cost can be measured reliably. Internally developed software meeting these criteria and purchased software are classified within IT, software and communication.
Properties, excluding land | Not exceeding 50 years | |
Leasehold improvements | Residual lease term, but not exceeding 10 years | |
Other machines and equipment | Not exceeding 10 years | |
IT, software and communication | Not exceeding 5 years | |
Property held for sale
Non-current property formerly own-used or leased to third parties under an operating lease and equipment the Group has decided to sell are classified as non-current 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 properties and other properties classified as current assets are included in Properties held for sale and recorded in Other assets. They are carried at the lower of cost and net realizable value.
Investment property
Investment property is carried at fair value with changes in fair value recognized in the income statement in the period of change. UBS employs internal real estate experts to determine the fair value of investment property by applying recognized valuation techniques. In cases where prices of recent market transactions of comparable properties are available, fair value is determined by reference to these transactions.
18) Goodwill and intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired entity at the date of acquisition. Goodwill is not amortized; it is tested yearly for impairment, and, additionally, when a reasonable indication of impairment exists. The impairment test is conducted at the segment level as reported in Note 2a. The segment has been determined as the cash generating unit for impairment testing purposes as this is the level at which the performance of investments is reviewed and assessed by management. Refer to Note 16 for details.
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whether their carrying amount is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount.
19) Income taxes
Income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognized as a deferred tax asset if it is probable that future taxable profit will be available against which those losses can be utilized.
20) Debt issued
Debt issued is initially measured at fair value, which is the consideration received, net of transaction costs incurred.
Subsequent measurement is at amortized cost, using the effective interest rate method to amortize cost at inception to the redemption value over the life of the debt. Refer to Note 28.
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Financial Statements
Notes to the Financial Statements
21) Retirement benefits
UBS sponsors a number of retirement benefit plans for its employees worldwide. These plans include both defined benefit and defined contribution plans and various other retirement benefits such as post-employment medical benefits. Contributions to defined contribution plans are expensed when employees have rendered services in exchange for such contributions, generally in the year of contribution.
a) 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and |
b) 10% of the fair value of any plan assets at that date. |
The unrecognized actuarial gains and losses exceeding the greater of these two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.
22) Equity participation plans
UBS provides various equity participation plans in the form of share plans and share option plans. UBS recognizes the fair value of share and share option awards determined at the date of grant as compensation expense over the required service period, which generally is equal to the vesting period. The fair value of share awards is equal to the average UBS share price at the date of grant. For share option awards, fair value is determined using a Monte Carlo valuation model which takes into account the specific terms and conditions under which the share options are granted. Equity settled awards are classified as equity instruments and are not remeasured subsequent to the grant date, unless an award is modified such that its fair value immediately after modification exceeds its fair value immediately
23) Amounts due under unit-linked investment contracts UBS Global Asset Management’s financial liabilities from unit-linked contracts are presented as Other Liabilities (refer to Note 20) on the balance sheet. These contracts allow investors to invest in a pool of assets through investment units issued by a UBS subsidiary. The unit holders receive all rewards and bear all risks associated with the reference asset pool. The financial liability represents the amount due to unit holders and is equal to the fair value of the reference asset pool.
24) Provisions
Provisions are recognized when UBS has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reflected under Other liabilities on the balance sheet. Refer to Note 21.
25) Equity, treasury shares and contracts on UBS shares
UBS AG shares held
UBS AG shares held by the Group are classified in Equity as Treasury shares and accounted for at weighted average cost. The difference between the proceeds from sales of Treasury shares and their cost (net of tax, if any) is classified as Share premium.
Contracts with gross physical settlement
Contracts that require gross physical settlement in UBS AG shares are classified as Equity (provided a fixed amount of shares is exchanged against a fixed amount of cash) and reported as Share premium. Upon settlement of such contracts, the proceeds received – less cost (net of tax, if any) – are reported as Share premium.
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Contracts with net cash settlement or settlement option for counterparty
Contracts on UBS AG shares that require net cash settlement or provide the counterparty with a choice of settlement are generally classified as trading instruments, with changes in fair value reported in the income statement.
Physically settled written put options and forward share purchase contracts
Exceptions to the accounting treatments described on this and previous page are physically settled written put options and forward share purchase contracts, including contracts where physical settlement is a settlement alternative. In both cases, the present value of the obligation to purchase own shares in exchange for cash is transferred out of Equity and recognized as a liability at inception of a contract. The liability is subsequently accreted, using the effective interest rate method, over the life of the contract to the nominal purchase obligation by recognizing interest expense. Upon settlement of a contract, the liability is derecognized, and the amount of equity originally transferred to liability is reclassified within Equity to Treasury shares. The premium received for writing put options is recognized directly in Share premium.
Minority interests
Net profit and Equity are presented including minority interests. Net profit is split into Net profit attributable to UBS shareholders and Net profit attributable to minority interests.
Trust preferred securities issued
UBS has issued trust preferred securities through consolidated preferred funding trusts which hold debt issued by UBS. UBS AG has fully and unconditionally guaranteed all of these securities. UBS’s obligations under these guarantees are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. The trust preferred securities represent equity instruments which are owned by third parties. They are presented as minority interests in UBS’s consolidated financial statements with dividends paid also reported under Equity attributable to minority interests. UBS bonds held by preferred funding trusts are eliminated in consolidation.
26) Discontinued operations and non-current assets held for sale
UBS classifies individual non-current non-financial assets and disposal groups as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use – see part 17). Such assets or disposal groups are available for immediate sale in their present condition subject to terms that are usual and customary for sales of such assets or disposal groups and their sale is considered highly probable. These assets (and liabilities in the case of disposal groups) are measured at the lower of their carrying
amount and fair value less costs to sell and presented in Other assets and Other liabilities (see Notes 17 and 20). Netting of assets and liabilities is not permitted.
27) Leasing
UBS enters into lease contracts, predominately of premises and equipment, as a lessor as well as a lessee. The terms and conditions of these contracts are assessed and the leases are classified as operating leases or finance leases according to their economic substance. When making such an assessment, the Group focuses on the following aspects: a) transfer of ownership of the asset to the lessee at the end of the lease term; b) existence of a bargain purchase option held by the lessee; c) whether the lease term is for the major part of the economic life of the asset; d) Whether the present value of the minimum lease payments is substantially equal to the fair value of the leased asset at inception of the lease term. If one or more of the these conditions is met, the lease is generally classified as a finance lease, while the non-existence of such conditions normally leads to a classification as an operating lease.
28) Fee income
UBS earns fee income from a diverse range of services it provides to its customers. Fee income can be divided into two broad categories: income earned from services that are provided over a certain period of time, for which customers are generally billed on an annual or semi-annual
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Financial Statements
Notes to the Financial Statements
basis, and income earned from providing transaction-type services. Fees earned from services that are provided over a certain period of time are recognized ratably over the service period. Fees earned from providing transaction-type services are recognized when the service has been completed. Performance-linked fees or fee components are recognized when the recognition criteria are fulfilled.
29) Foreign currency translation
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, as well as unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognized in the income statement.
30) Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
warrants, convertible debt securities or other contracts to issue ordinary shares were converted or exercised into ordinary shares.
31) Segment reporting
UBS’s financial businesses are organized on a worldwide basis into three Business Groups and the Corporate Center. Global Wealth Management & Business Banking consists of three segments: Wealth Management International & Switzerland, Wealth Management US and Business Banking Switzerland. The Business Groups Investment Bank and Global Asset Management constitute one segment each. The Industrial Holdings segment holds all industrial operations controlled by the Group. In total, UBS reports six business segments in 2007. Corporate Center includes all corporate functions and elimination items, and is not considered a business segment.
32) Revenues from Industrial Holdings and Goods and materials purchased
Revenues from Industrial Holdings include sales of goods and services from one consolidated entity. Revenue is generally recognized upon customer acceptance of goods delivered and when services have been rendered. Expenses from Goods and materials purchased include costs for raw materials, parts and finished goods purchased from third-party suppliers to produce the goods and services sold.
b) Changes in accounting policies, comparability and other adjustments
Effective in 2007
IFRS 7 Financial Instruments: Disclosures
On 1 January 2007, UBS adopted the disclosure requirements for financial instruments under IFRS 7. The new standard has no impact on recognition, measurement and presentation of financial instruments. Accordingly, the first-time adoption of IFRS 7 had no effect on Net profit and Equity. Rather, it requires UBS to provide disclosures in its financial statements that enable users to evaluate: a) the significance of financial instruments for the entity’s financial position and performance (refer to the notes to the Financial Statements), and b) the nature and extent of credit, market and liquidity risks arising from financial instruments (including details about concentrations of such risks) during the period and at the reporting date, and how UBS manages those risks (refer to the audited sections inRisk, Treasury and Capital Management 2007). The disclosure principles of IFRS 7 complement the principles for recognizing, measuring and presenting financial assets and financial liabilities in IAS 32
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Financial Instruments: Presentationand IAS 39Financial Instruments: Recognition and Measurement.
Netting
In second quarter 2007, UBS concluded that it meets the criteria to offset Positive and Negative replacement values of OTC interest rate swaps transacted with London Clearing House (LCH). Under IFRS, positions are netted by currency and across maturities. The amount of replacement values netted was CHF 35,470 million at 31 December 2006. Furthermore, amounts included in Loans and Due to customers related to the Prime Brokerage business have been netted. At 31 December 2006, amounts netted were CHF 14,679 million. In both cases, the application of netting had no impact on UBS’s income statement, Earnings per share, credit exposure and regulatory capital.
Syndicated finance revenues
In fourth quarter 2007, UBS revised the presentation of certain syndicated finance revenues in its income statement. Revenues which relate to syndicated loan commitments designated at fair value through profit or loss are now presented in Net trading income rather than as Debt underwriting fees in Net fee and commission income. Prior periods have been adjusted to conform to this presentation. The adjustments resulted in a reduction of Net fee and commission income of CHF 425 million and CHF 252 million for 2006 and 2005 respectively and a corresponding increase in Net trading income in these periods. The change in presentation had no impact on UBS’s Net profit and Earnings per share for all periods presented.
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
This Interpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity (this could be a subsidiary) identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with IAS 29. UBS has no subsidiaries operating in a hyperinflationary economy.
IFRIC 8 Scope of IFRS 2
This IFRIC addresses whether IFRS 2 applies to transactions in which the entity cannot identify specifically some or all of the goods or services received. The Interpretation requires that IFRS 2 be applied to transactions in which goods or services are received, such as transactions in which an entity receives goods or services as consideration for equity instruments of the entity. This includes transactions in which the
entity cannot identify specifically some or all of the goods or services received. The unidentifiable goods or services received (or to be received) should be measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received (or to be received). Measurement of the unidentifiable goods or services received should take place at the grant date. However, for cash-settled transactions, the liability should be remeasured at each reporting date until it is settled.
IFRIC 9 Reassessment of Embedded Derivatives
The Interpretation clarifies that an entity should not reassess whether an embedded derivative needs to be separated from the host contract after the initial hybrid contract is recognized, unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required.
IFRIC 10 Interim Financial Reporting and Impairment
The new Interpretation of IAS 39 requires that impairment losses recognized in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost must not be reversed at a subsequent balance sheet date.
IFRIC 11 IFRS 2: Group and Treasury Share Transactions
IFRIC 11 provides guidance on (a) how to account for share-based payment arrangements between entities within the same group; (b) determining whether a transaction should be accounted for as equity-settled or cash-settled when an entity either chooses or is required to buy equity instruments (i. e. treasury shares) from another party, to satisfy its obligations to its employees; and (c) determining whether a transaction should be accounted for as equity-settled or cash-settled when an entity’s employees are granted rights to equity instruments of the entity (e. g. share options), either by the entity itself or by its shareholders, and the shareholders of the entity provide the equity instruments needed. The Interpretation requires that share-based payment transactions in which an entity receives services as consideration for its own equity instruments be accounted for as an equity-settled transaction. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement.
Effective in 2006 and earlier
IAS 39 Financial Instruments: Recognition and Measurement – Amendment to the Fair Value Option
UBS adopted the revised IAS 39 fair value option on 1 January 2006. Under the amended guidance, the use of the fair value option requires that at least one of three defined criteria is satisfied, which is more restrictive than the previous
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Financial Statements
Notes to the Financial Statements
guidance. All financial instruments designated at fair value through profit or loss at 31 December 2005 continued to qualify for the use of the fair value option under the revised fair value option. On the transition date of the revised standard, 1 January 2006, UBS did not apply the fair value option to any previously recognized financial asset or financial liability for which the fair value option had not been used under the previous fair value option guidance. Therefore, the initial adoption of the revised standard did not have an impact on UBS’s Financial Statements. See part 7) for details on the use of the revised fair value option during 2006 and 2007. In addition, effective 1 January 2006, the disclosure requirements for financial instruments designated at fair value through profit or loss (refer to Notes 12 and 19) have been amended due to the revision of IAS 32Financial Instruments: Presentation.
Staff Accounting Bulletin (SAB) 108
In response to the release of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,UBS elected to adopt a modified quantitative framework for assessing whether the financial statement effect of a misstatement is material because it renders a better evaluation of those effects. This method, which UBS adopted in December 2006, uses a dual approach for quantifying the effect of a misstatement. Prior to 2006, UBS applied only one of those methods, the “roll-over” method, which focused on the current year income-statement impact of a misstatement. Under this policy, UBS applies a dual approach that considers both the carryover and reversing effects of prior year misstatements. As a result of this policy, the opening balance of Accrued expenses and deferred income at 1 January 2002 was increased by CHF 399 million, Retained earnings were reduced by CHF 309 million and Deferred taxes of CHF 90 million were recognized on the balance sheet. The adjustments relate to the under-accrual of unused vacation, sabbatical leave and service anniversary awards. The restatement impact of adopting this policy was immaterial to all quarterly and annual income statements, earnings per share amounts, and balance sheets since 1 January 2002.
Private equity investments
On 1 January 2005, UBS adopted revised IAS 27Consolidated and Separate Financial Statementsand revised IAS 28Investments in Associates.IAS 27 was amended to eliminate the exemption from consolidating a subsidiary where control is exercised temporarily. UBS has several private equity investments where it owns a controlling interest that used to be classified and accounted for as Financial investments available-for-sale.
IFRS 2 Share-based Payment
UBS adopted IFRS 2Share-based Paymenton 1 January 2005 and fully restated the two comparative prior years. IFRS 2 requires share-based payments made to employees and non-employees to be recognized in the financial statements based on the fair value of these awards measured at the date of grant.
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Goodwill and Intangible Assets
On 31 March 2004, the IASB issued IFRS 3Business Combinations,revised IAS 36Impairment of Assetsand revised IAS 38Intangible Assets.UBS prospectively adopted the standards for goodwill and intangible assets existing at 31 March 2004 on 1 January 2005, whereas goodwill and intangible assets recognized from business combinations entered into after 31 March 2004 were accounted for immediately in accordance with IFRS 3. Refer to a18) for details.
Non-current Assets Held for Sale and Discontinued Operations
UBS adopted IFRS 5Non-current Assets Held for Sale and Discontinued Operationson 1 January 2005. Refer to a26) for details.
Presentation of minority interests and earnings per share
With the adoption of revised IAS 1Presentation of Financial Statementson 1 January 2005, Net profit and Equity were presented including minority interests. Refer to a3) and a25) for details.
c) International Financial Reporting Standards and Interpretations to be adopted in 2008 and later
IFRS 2 Share-based Payment
In January 2008, the International Accounting Standards Board (IASB) issued an amendment to IFRS 2Share-based Payment.The amended standard, entitled IFRS 2Share-based Payment: Vesting Conditions and Cancellations,is effective 1 January 2009 (early adoption permitted). The new standard clarifies the definition of vesting conditions and the accounting treatment of cancellations. UBS has early adopted this amended standard as of 1 January 2008. Under the amended standard, UBS is required to distinguish between vesting conditions (such as service and performance conditions) and non-vesting conditions. The amended standard no longer considers vesting conditions to include certain non-compete provisions and transfer restrictions. Prior to adopting this amendment, UBS treated non-compete provisions as vesting conditions. The impact of this change will be that, from 1 January 2008, most of UBS’s share and certain option awards will be expensed in the performance year rather than over the period through
which the non-compete conditions are applicable. Restrictions remaining effective after the employee becomes entitled to the share-based award will be considered when determining grant date fair value. Following adoption of this amendment, UBS will fully restate the two comparative prior years (2006 and 2007).
IFRS 8 Operating Segments
The new standard on segment reporting, IFRS 8Operating Segments,comes into force on 1 January 2009, replacing IAS 14Segment Reporting.It sets out requirements for disclosure of information about a firm’s operating segments, its products and services, the geographical areas in which it operates, and its major customers. The new standard introduces changes to previous requirements for identification of segments, measurement of segment information and disclosures. Specifically, it requires a firm to provide financial and descriptive information about its reportable segments – the operating segments or aggregations of operating segments based on which the senior management of the firm (the “chief operating decision maker”) regularly evaluates separate financial information in deciding how to allocate resources and how to assess performance. Generally, under IFRS 8, the information to be reported will be the same information that is used internally, which might differ from amounts reported in the financial statements. The new standard therefore requires an explanation of the basis on which the segment information is prepared, and recon-
39
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Financial Statements
Notes to the Financial Statements
ciliations to the amounts presented in the income statement and the balance sheet. UBS is currently assessing the impact of IFRS 8 on the structure and content of the segment reporting in its Financial Statements.
IAS 1 (revised) Presentation of Financial Statements and IAS 32 (revised) Financial Instruments: Presentation
IAS 1 (revised),Presentation of Financial Statements,was issued in September 2007 and is effective on 1 January 2009. The revised standard affects the presentation of owner changes in equity and of comprehensive income: UBS will continue presenting owner changes in equity in the statement of changes in equity, but the detailed information related to non-owner changes in equity will be removed from the statement of changes in equity and presented in the statement of comprehensive income. The revised standard does not change the recognition, measurement or disclosure of specific transactions addressed in other IFRSs. The amended requirements will have an impact on the presentation and disclosure of the items in UBS’s Financial Statements.
IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements
In January 2008, the IASB issued a revised Standard of IFRS 3Business Combinationsand amendments to IAS 27Consolidated and Separate Financial Statements.The most significant changes under revised IFRS 3 are as follows:
– | Contingent consideration will be recognized at fair value as part of the consideration transferred at the acquisition date. Currently contingent consideration is only recognized once it meets the probability and reliably measurable criteria. | |
– | Non-controlling interests in an acquiree will either be measured at fair value or as the non-controlling interest’s proportionate share of the fair value of net identifiable assets of the entity acquired. The option is available on a transaction-by-transaction basis. |
– | Transaction costs incurred by the acquirer will no longer be part of the acquisition cost but have to be expensed as incurred. |
IFRIC 13 Customer Loyalty Programmes
IFRIC 13 was issued on 28 June 2007 and is effective for annual periods beginning on or after 1 July 2008. IFRIC 13 addresses how companies that grant their customers loyalty award credits when buying goods or services should account for their obligation to provide free or discounted goods and services, if and when the customers redeem the points. IFRIC 13 requires entities to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue only when they have fulfilled their obligations to provide goods or services. UBS is currently assessing the impact of this interpretation on its Financial Statements.
IFRIC 14 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction – IAS 19
IFRIC 14 was issued on 5 July 2007 and is effective for annual periods beginning on or after 1 January 2008. IFRIC 14 provides guidance regarding the circumstances under which refunds and future reductions in contributions from a defined benefit plan can be regarded as available to an entity for the purpose recognizing a net defined benefit asset. Additionally, in jurisdictions where there is both a minimum funding requirement and restrictions over the amounts that companies can recover from the plan, either as refunds or reductions in contributions, additional liabilities may need to be recognized. UBS is currently assessing the impact of this interpretation on its Financial Statements.
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Note 2a Segment Reporting by Business Group
UBS’s financial businesses are organized on a worldwide basis into three Business Groups and the Corporate Center. Global Wealth Management & Business Banking consists of three segments: Wealth Management International & Switzerland, Wealth Management US and Business Banking Switzerland. The Business Groups Investment Bank and Global Asset Management constitute one segment each. In addition, the Industrial Holdings segment holds all industrial operations controlled by the Group. In total, UBS now reports six business segments and Corporate Center. Corporate Center includes all corporate functions and elimination items and is not considered a business segment.
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking comprises three segments. Wealth Management International & Switzerland offers a comprehensive range of products and services individually tailored to affluent international and Swiss clients and operates from offices around the world. Wealth Management US is a US financial services firm providing sophisticated wealth management services to affluent US clients through a highly trained financial advisor network. Business Banking Switzerland provides individual and corporate clients in Switzerland with a complete portfolio of banking and securities services, focused on customer service excellence, profitability and growth, using a multi-channel distribution. The segments share technological and physical infrastructure, and have joint departments supporting major functions such as e-commerce, financial planning and wealth management, investment policy and strategy.
Global Asset Management
Global Asset Management provides investment products and services to institutional investors and wholesale intermediaries around the globe. Clients include corporate and public pension plans, financial institutions and advisors, central banks, charities, foundations and individual investors.
Investment Bank
The Investment Bank operates globally as a client-driven investment banking and securities firm providing innovative products, research, advice and complete access to the world’s capital markets for intermediaries, governments, corporate and institutional clients and other parts of UBS. In addition, UBS is active in market-making and proprietary trading.
Industrial Holdings
The Industrial Holdings segment comprises the non-financial businesses of UBS, including the private equity business which primarily invests UBS and third-party funds in unlisted companies. The most significant business in this segment, Motor-Columbus, was sold on 23 March 2006 and is presented as discontinued operations. Additionally, certain private equity investments sold in 2007 and prior years are presented as discontinued operations.
Corporate Center
Corporate Center ensures that the Business Groups operate as a coherent and effective whole with a common set of values and principles in such areas as risk management and control, financial reporting, marketing and communications, funding, capital and balance sheet management, management of foreign currency earnings, information technology infrastructure and service centers. Private Banks & GAM, which was shown as a separate segment within Corporate Center prior to 2006, was sold on 2 December 2005 and is presented as discontinued operations.
DRCM closure
Global Asset Management performance from continuing operations before tax in 2007 includes costs of CHF 384 million for the DRCM closure. These costs are reflected in Personnel expenses (CHF 318 million), General and administrative expenses (CHF 38 million) and impairments reflected in Depreciation of property and equipment (CHF 28 million). More than 50% of the Personnel expenses recorded relate to accelerated recognition of deferred compensation of former DRCM employees leaving UBS.
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Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2007
CHF million
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at internally agreed transfer prices or at arm’s length.
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets3 | ||||
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
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 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 |
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Financial Businesses | Industrial Holdings | UBS | ||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | ||||||||||||||||||||||||||||||
12,893 | 6,662 | 5,286 | 4,094 | (538 | ) | 2,873 | 948 | 32,218 | ||||||||||||||||||||||||
(1 | ) | (2 | ) | 31 | 0 | (266 | ) | 0 | 0 | (238 | ) | |||||||||||||||||||||
12,892 | 6,660 | 5,317 | 4,094 | (804 | ) | 2,873 | 948 | 31,980 | ||||||||||||||||||||||||
3,851 | 4,506 | 2,535 | 1,995 | 10,417 | 1,383 | 111 | 24,798 | |||||||||||||||||||||||||
1,064 | 976 | 1,101 | 559 | 3,423 | 1,298 | 44 | 8,465 | |||||||||||||||||||||||||
1,531 | 314 | (674 | ) | 153 | 746 | (2,194 | ) | 124 | 0 | |||||||||||||||||||||||
95 | 79 | 67 | 53 | 210 | 2 | 739 | 8 | 1,251 | ||||||||||||||||||||||||
19 | 66 | 0 | 19 | 172 | 0 | 6 | 282 | |||||||||||||||||||||||||
119 | 119 | |||||||||||||||||||||||||||||||
6,560 | 5,941 | 3,029 | 2,779 | 14,968 | 1,226 | 412 | 34,915 | |||||||||||||||||||||||||
6,332 | 719 | 2,288 | 1,315 | (15,772 | ) | 1,647 | 536 | (2,935 | ) | |||||||||||||||||||||||
7 | 128 | 135 | ||||||||||||||||||||||||||||||
6,332 | 719 | 2,288 | 1,315 | (15,772 | ) | 1,654 | 664 | (2,800 | ) | |||||||||||||||||||||||
1,311 | ||||||||||||||||||||||||||||||||
(266 | ) | |||||||||||||||||||||||||||||||
(3,845 | ) | |||||||||||||||||||||||||||||||
349,731 | 71,560 | 295,657 | 51,471 | 1,984,045 | (480,386 | ) | 501 | 2,272,579 | ||||||||||||||||||||||||
344,661 | 66,334 | 290,999 | 49,049 | 1,965,465 | (488,124 | ) | 1,659 | 2,230,043 | ||||||||||||||||||||||||
106 | 254 | 26 | 319 | 88 | 1,326 | 19 | 2,138 | |||||||||||||||||||||||||
12,893 | 6,662 | 5,286 | 4,094 | (538 | ) | 2,873 | 948 | 32,218 | ||||||||||||||||||||||||
(27 | ) | (3 | ) | 203 | 0 | (19 | ) | (392 | ) | 0 | (238 | ) | ||||||||||||||||||||
12,866 | 6,659 | 5,489 | 4,094 | (557 | ) | 2,481 | 948 | 31,980 | ||||||||||||||||||||||||
3,851 | 4,506 | 2,535 | 1,995 | 10,417 | 1,383 | 111 | 24,798 | |||||||||||||||||||||||||
1,064 | 976 | 1,101 | 559 | 3,423 | 1,298 | 44 | 8,465 | |||||||||||||||||||||||||
1,531 | 314 | (674 | ) | 153 | 746 | (2,194 | ) | 124 | 0 | |||||||||||||||||||||||
95 | 79 | 67 | 53 | 210 | 2 | 739 | 8 | 1,251 | ||||||||||||||||||||||||
19 | 66 | 0 | 19 | 172 | 0 | 6 | 282 | |||||||||||||||||||||||||
119 | 119 | |||||||||||||||||||||||||||||||
6,560 | 5,941 | 3,029 | 2,779 | 14,968 | 1,226 | 412 | 34,915 | |||||||||||||||||||||||||
6,306 | 718 | 2,460 | 1,315 | (15,525 | ) | 1,255 | 536 | (2,935 | ) | |||||||||||||||||||||||
7 | 128 | 135 | ||||||||||||||||||||||||||||||
6,306 | 718 | 2,460 | 1,315 | (15,525 | ) | 1,262 | 664 | (2,800 | ) | |||||||||||||||||||||||
1,311 | ||||||||||||||||||||||||||||||||
(266 | ) | |||||||||||||||||||||||||||||||
(3,845 | ) | |||||||||||||||||||||||||||||||
43
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2006
CHF million
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets3 | ||||
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
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 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 |
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Financial Businesses | Industrial Holdings | UBS | ||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | ||||||||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 565 | 47,580 | |||||||||||||||||||||||||
1 | (1 | ) | 109 | 0 | 47 | 0 | 0 | 156 | ||||||||||||||||||||||||
10,828 | 5,862 | 5,194 | 3,220 | 21,773 | 294 | 565 | 47,736 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 122 | 23,591 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 51 | 7,980 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 2 | 783 | 7 | 1,252 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
116 | 116 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 310 | 33,092 | |||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,026 | ) | 255 | 14,644 | ||||||||||||||||||||||||
4 | 875 | 879 | ||||||||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,022 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,785 | ||||||||||||||||||||||||||||||||
(12 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
286,241 | 63,249 | 211,123 | 48,616 | 2,058,679 | (323,434 | ) | 1,888 | 2,346,362 | ||||||||||||||||||||||||
281,327 | 57,681 | 205,747 | 46,589 | 2,038,991 | (343,152 | ) | 3,404 | 2,290,587 | ||||||||||||||||||||||||
257 | 273 | 14 | 498 | 593 | 1,385 | 97 | 3,117 | |||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 565 | 47,580 | |||||||||||||||||||||||||
(29 | ) | 0 | 185 | 0 | 61 | (61 | ) | 0 | 156 | |||||||||||||||||||||||
10,798 | 5,863 | 5,270 | 3,220 | 21,787 | 233 | 565 | 47,736 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 122 | 23,591 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 51 | 7,980 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 2 | 783 | 7 | 1,252 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
116 | 116 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 310 | 33,092 | |||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,087 | ) | 255 | 14,644 | ||||||||||||||||||||||||
4 | 875 | 879 | ||||||||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,083 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,785 | ||||||||||||||||||||||||||||||||
(12 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
45
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 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
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 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 |
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Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||||||
International & | Management | Business Banking | Private Banks | Corporate | ||||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | & GAM | Functions | ||||||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 795 | 40,316 | |||||||||||||||||||||||||||||
(8 | ) | 0 | 231 | 0 | 152 | 0 | 0 | 375 | ||||||||||||||||||||||||||||
9,016 | 5,158 | 5,180 | 2,487 | 17,600 | 455 | 795 | 40,691 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 164 | 20,067 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 56 | 6,504 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 7 | 1,247 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 6 | 133 | |||||||||||||||||||||||||||||
97 | 97 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 344 | 28,048 | |||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | (940 | ) | 451 | 12,643 | ||||||||||||||||||||||||||||
4,556 | 8 | 530 | 5,094 | |||||||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | 4,556 | (932 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,465 | ||||||||||||||||||||||||||||||||||||
582 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
223,790 | 64,896 | 176,837 | 40,782 | 1,706,670 | (226,069 | ) | 11,549 | 1,998,455 | ||||||||||||||||||||||||||||
219,140 | 59,567 | 170,668 | 39,191 | 1,689,041 | (242,600 | ) | 11,814 | 1,946,821 | ||||||||||||||||||||||||||||
81 | 84 | 58 | 16 | 138 | 25 | 1,264 | 299 | 1,965 | ||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 795 | 40,316 | |||||||||||||||||||||||||||||
(13 | ) | (2 | ) | 122 | 0 | 36 | 232 | 0 | 375 | |||||||||||||||||||||||||||
9,011 | 5,156 | 5,071 | 2,487 | 17,484 | 687 | 795 | 40,691 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 164 | 20,067 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 56 | 6,504 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 7 | 1,247 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 6 | 133 | |||||||||||||||||||||||||||||
97 | 97 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 344 | 28,048 | |||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | (708 | ) | 451 | 12,643 | ||||||||||||||||||||||||||||
4,508 | 56 | 530 | 5,094 | |||||||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | 4,508 | (652 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,465 | ||||||||||||||||||||||||||||||||||||
582 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
47
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
For the year ended 31 December 2007 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 18,787 | 59 | 222,539 | 10 | 436 | 20 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 1,042 | 3 | 776,882 | 34 | 380 | 18 | ||||||||||||||||||
Americas | 5,758 | 18 | 1,015,167 | 45 | 1,004 | 47 | ||||||||||||||||||
Asia Pacific | 6,393 | 20 | 257,991 | 11 | 318 | 15 | ||||||||||||||||||
Total | 31,980 | 100 | 2,272,579 | 100 | 2,138 | 100 | ||||||||||||||||||
For the year ended 31 December 2006 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 12,964 | 27 | 211,565 | 9 | 650 | 21 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 12,512 | 26 | 699,516 | 30 | 385 | 12 | ||||||||||||||||||
Americas | 17,272 | 36 | 1,229,254 | 52 | 1,754 | 56 | ||||||||||||||||||
Asia Pacific | 4,988 | 11 | 206,027 | 9 | 328 | 11 | ||||||||||||||||||
Total | 47,736 | 100 | 2,346,362 | 100 | 3,117 | 100 | ||||||||||||||||||
For the year ended 31 December 2005 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,798 | 34 | 203,907 | 10 | 973 | 49 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 8,976 | 22 | 628,070 | 32 | 467 | 24 | ||||||||||||||||||
Americas | 14,284 | 35 | 1,004,230 | 50 | 386 | 20 | ||||||||||||||||||
Asia Pacific | 3,633 | 9 | 162,248 | 8 | 139 | 7 | ||||||||||||||||||
Total | 40,691 | 100 | 1,998,455 | 100 | 1,965 | 100 | ||||||||||||||||||
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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 tables on this and the next page). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different businesses. In many cases, a particular business can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading income according to the businesses that drive
it. The second table below (labeled Breakdown by businesses) provides information that corresponds to this management view. Net income from trading businesses includes both interest and trading income generated by the Group’s trading businesses and the Investment Bank’s lending activities. Net income from interest margin businesses comprises interest income from the Group’s loan portfolio. Net income from treasury and other activities reflects all income from the Group’s centralized treasury function.
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Breakdown by businesses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Net income from trading businesses1 | (10,658 | ) | 13,730 | 11,795 | ||||||||||||
Net income from interest margin businesses | 6,230 | 5,718 | 5,292 | 9 | ||||||||||||
Net income from treasury activities and other | 1,412 | 816 | 689 | 73 | ||||||||||||
Total net interest and trading income | (3,016 | ) | 20,264 | 17,776 | ||||||||||||
Net interest income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances2 | 21,263 | 15,266 | 11,678 | 39 | ||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 48,274 | 39,771 | 23,362 | 21 | ||||||||||||
Interest and dividend income from trading portfolio | 39,101 | 32,211 | 24,134 | 21 | ||||||||||||
Interest income on financial assets designated at fair value | 298 | 25 | 26 | |||||||||||||
Interest and dividend income from financial investments available-for-sale | 176 | 128 | 86 | 38 | ||||||||||||
Total | 109,112 | 87,401 | 59,286 | 25 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 29,318 | 20,024 | 11,226 | 46 | ||||||||||||
Interest on securities lent and repurchase agreements | 40,581 | 34,021 | 20,480 | 19 | ||||||||||||
Interest and dividend expense from trading portfolio | 15,812 | 14,533 | 10,736 | 9 | ||||||||||||
Interest on financial liabilities designated at fair value | 7,659 | 4,757 | 2,390 | 61 | ||||||||||||
Interest on debt issued | 10,405 | 7,545 | 4,926 | 38 | ||||||||||||
Total | 103,775 | 80,880 | 49,758 | 28 | ||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | (18 | ) | |||||||||||
49
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Financial Statements
Notes to the Financial Statements
Note 3 Net Interest and Trading Income (continued) | ||||||||||||||||
Net trading income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Equities | 9,048 | 7,064 | 3,900 | 28 | ||||||||||||
Fixed income | (20,949 | ) | 2,755 | 1,240 | ||||||||||||
Foreign exchange and other2 | 3,548 | 3,924 | 3,108 | (10 | ) | |||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | ||||||||||||
thereof net gains / (losses) from financial assets designated at fair value | (30 | ) | (397 | ) | 70 | |||||||||||
thereof net gains / (losses) from financial liabilities designated at fair value | (3,779 | ) | (3,659 | ) | (4,024 | ) | ||||||||||
For the year ended 31 December 2007, the Group recorded a gain of CHF 659 million in Net trading income from changes in the fair value of financial liabilities designated at fair value attributable to changes in the Group’s own credit risk. The change applies to those financial liabilities designated at fair value where the Group’s own credit risk would be con-
sidered by market participants and excludes fully collateralized transactions and other instruments for which it is established market practice not to include an entity-specific adjustment for own credit. It was calculated based on a yield curve generated from observed external pricing for funding associated with new senior debt issued by the Group.
Positions with significant impact on net trading income1,2 | ||||||||
For the year ended 31 December 2007 | USD billion | CHF billion3 | ||||||
US Super Senior RMBS CDO | (9.2 | ) | (10.5 | ) | ||||
US Residential mortgage-backed securities (RMBS) | (2.6 | ) | (2.9 | ) | ||||
US Warehouse and retained RMBS CDO | (2.8 | ) | (3.2 | ) | ||||
US Reference linked notes (RLN)4 | (1.3 | ) | (1.5 | ) | ||||
US Alt-A, AAA – rated RMBS backed by first lien mortgages | (0.8 | ) | (0.9 | ) | ||||
US Alt-A residental mortgage instruments, other | (1.2 | ) | (1.4 | ) | ||||
Credit valuation adjustments for monoline credit protection on US RMBS CDO | (0.8 | ) | (0.9 | ) | ||||
Total | (18.7 | ) | (21.3 | ) | ||||
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Table of Contents
Note 4 Net Fee and Commission Income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Equity underwriting fees | 2,564 | 1,834 | 1,341 | 40 | ||||||||||||
Debt underwriting fees | 1,178 | 1,279 | 1,264 | (8 | ) | |||||||||||
Total underwriting fees | 3,742 | 3,113 | 2,605 | 20 | ||||||||||||
M & A and corporate finance fees | 2,768 | 1,852 | 1,460 | 49 | ||||||||||||
Brokerage fees | 10,281 | 8,053 | 6,718 | 28 | ||||||||||||
Investment fund fees | 7,422 | 5,858 | 4,750 | 27 | ||||||||||||
Fiduciary fees | 297 | 252 | 212 | 18 | ||||||||||||
Custodian fees | 1,367 | 1,266 | 1,176 | 8 | ||||||||||||
Portfolio and other management and advisory fees | 7,790 | 6,622 | 5,310 | 18 | ||||||||||||
Insurance-related and other fees | 423 | 449 | 372 | (6 | ) | |||||||||||
Total securities trading and investment activity fees | 34,090 | 27,465 | 22,603 | 24 | ||||||||||||
Credit-related fees and commissions | 279 | 269 | 306 | 4 | ||||||||||||
Commission income from other services | 1,017 | 1,064 | 1,027 | (4 | ) | |||||||||||
Total fee and commission income | 35,386 | 28,798 | 23,936 | 23 | ||||||||||||
Brokerage fees paid | 2,610 | 1,904 | 1,631 | 37 | ||||||||||||
Other | 2,142 | 1,438 | 1,121 | 49 | ||||||||||||
Total fee and commission expense | 4,752 | 3,342 | 2,752 | 42 | ||||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 20 | ||||||||||||
Note 5 Other Income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Associates and subsidiaries | ||||||||||||||||
Net gains from disposals of consolidated subsidiaries | (70 | ) | (11 | ) | 1 | (536 | ) | |||||||||
Net gains from disposals of investments in associates | 28 | 21 | 26 | 33 | ||||||||||||
Equity in income of associates | 145 | 106 | 57 | 37 | ||||||||||||
Total | 103 | 116 | 84 | (11 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gains from disposals | 3,338 | 921 | 231 | 262 | ||||||||||||
Impairment charges | (71 | ) | (12 | ) | (26 | ) | (492 | ) | ||||||||
Total | 3,267 | 909 | 205 | 259 | ||||||||||||
Net income from investments in property1 | 108 | 61 | 42 | 77 | ||||||||||||
Net gains from investment properties2 | 31 | 5 | 12 | 520 | ||||||||||||
Other | 143 | 204 | 218 | (30 | ) | |||||||||||
Total other income from Financial Businesses | 3,652 | 1,295 | 561 | 182 | ||||||||||||
Other income from industrial holdings | 680 | 303 | 566 | 124 | ||||||||||||
Total other income | 4,332 | 1,598 | 1,127 | 171 | ||||||||||||
Additional information about Net gains from disposals on Financial investments available-for-sale
In late June 2007, UBS disposed of its 20.7% stake in Julius Baer for a total consideration of CHF 3,951 million. UBS received the Julius Baer shares as part of the consideration in connection with the sale of Private Banks & GAM to Julius Baer in December 2005. UBS had agreed to certain lock-up obligations which expired on 25 May 2007. The
interest in Julius Baer was accounted for as a Financial investment available-for-sale, and the sale resulted in a realized gain, which was previously deferred in Equity, of CHF 1,950 million pre-tax in 2007. On a post-tax basis, the gain on sale was CHF 1,926 million.
51
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 6 Personnel Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Salaries and bonuses | 20,057 | 19,011 | 15,867 | 6 | ||||||||||||
Contractors | 630 | 822 | 823 | (23 | ) | |||||||||||
Insurance and social security contributions | 1,221 | 1,376 | 1,257 | (11 | ) | |||||||||||
Contribution to retirement plans | 922 | 802 | 712 | 15 | ||||||||||||
Other personnel expenses | 1,968 | 1,580 | 1,408 | 25 | ||||||||||||
Total personnel expenses | 24,798 | 23,591 | 20,067 | 5 | ||||||||||||
Note 7 General and Administrative Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | ||||||||||||
Occupancy | 1,583 | 1,429 | 1,271 | 11 | ||||||||||||
Rent and maintenance of IT and other equipment | 702 | 650 | 601 | 8 | ||||||||||||
Telecommunications and postage | 950 | 907 | 839 | 5 | ||||||||||||
Administration | 1,002 | 794 | 716 | 26 | ||||||||||||
Marketing and public relations | 587 | 603 | 517 | (3 | ) | |||||||||||
Travel and entertainment | 1,032 | 937 | 731 | 10 | ||||||||||||
Professional fees | 1,108 | 922 | 622 | 20 | ||||||||||||
Outsourcing of IT and other services | 1,234 | 1,090 | 869 | 13 | ||||||||||||
Other | 267 | 648 | 338 | (59 | ) | |||||||||||
Total general and administrative expenses | 8,465 | 7,980 | 6,504 | 6 | ||||||||||||
52
Table of Contents
Note 8 Earnings per Share (EPS) and Shares Outstanding | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
from continuing operations | (4,785 | ) | 11,469 | 9,748 | ||||||||||||
from discontinued operations | 401 | 788 | 4,281 | (49 | ) | |||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | ||||||||||||
Less: (Profit) / loss on equity derivative contracts | (16 | ) | (8 | ) | (22 | ) | (100 | ) | ||||||||
Net profit attributable to UBS shareholders for diluted EPS | (4,400 | ) | 12,249 | 14,007 | ||||||||||||
from continuing operations | (4,801 | ) | 11,461 | 9,749 | ||||||||||||
from discontinued operations | 401 | 788 | 4,258 | (49 | ) | |||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding1 | 1,926,328,078 | 1,976,405,800 | 2,013,987,754 | (3 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from unvested exchangeable shares, options and warrants outstanding2 | 1,370,654 | 82,429,012 | 83,203,786 | (98 | ) | |||||||||||
Weighted average shares outstanding for diluted EPS | 1,927,698,732 | 2,058,834,812 | 2,097,191,540 | (6 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | (2.28 | ) | 6.20 | 6.97 | ||||||||||||
from continuing operations | (2.49 | ) | 5.80 | 4.84 | ||||||||||||
from discontinued operations | 0.21 | 0.40 | 2.13 | (48 | ) | |||||||||||
Diluted | (2.28 | ) | 5.95 | 6.68 | ||||||||||||
from continuing operations | (2.49 | ) | 5.57 | 4.65 | ||||||||||||
from discontinued operations | 0.21 | 0.38 | 2.03 | (45 | ) | |||||||||||
Shares outstanding | ||||||||||||||||
As of | % change from | |||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.06 | |||||||||||||
Total ordinary shares issued | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | (2 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2005 program | 67,770,000 | |||||||||||||||
2006 program | 22,600,000 | |||||||||||||||
Other treasury shares | 158,105,524 | 141,875,699 | 140,749,748 | 11 | ||||||||||||
Total treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | (4 | ) | |||||||||||
Shares outstanding | 1,915,441,820 | 1,940,797,587 | 1,968,745,296 | (1 | ) | |||||||||||
53
Table of Contents
Financial Statements
Notes to the Financial Statements
Balance Sheet: Assets
Note 9a Due from Banks and Loans (Held at Amortized Cost) | ||||||||
By type of exposure | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Banks1 | 60,935 | 50,456 | ||||||
Allowance for credit losses | (28 | ) | (30 | ) | ||||
Net due from banks | 60,907 | 50,426 | ||||||
Loans1 | ||||||||
Residential mortgages | 122,435 | 124,548 | ||||||
Commercial mortgages | 21,058 | 19,989 | ||||||
Other loans | 193,374 | 154,531 | ||||||
Subtotal | 336,867 | 299,068 | ||||||
Allowance for credit losses | (1,003 | ) | (1,226 | ) | ||||
Net loans | 335,864 | 297,842 | ||||||
Net due from banks and loans (held at amortized cost) | 396,771 | 348,268 | ||||||
Additional information about due from banks, loans (held at amortized cost) and loans designated at fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Net due from banks and loans (held at amortized cost) | 396,771 | 348,268 | ||||||
Loans designated at fair value2 | 4,116 | 2,252 | ||||||
Total | 400,887 | 350,520 | ||||||
By geographical region (based on the location of the borrower) | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Switzerland | 166,435 | 163,090 | ||||||
Rest of Europe / Middle East / Africa | 79,322 | 67,584 | ||||||
Americas | 128,318 | 102,768 | ||||||
Asia Pacific | 27,843 | 18,334 | ||||||
Subtotal | 401,918 | 351,776 | ||||||
Allowance for credit losses | (1,031 | ) | (1,256 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 400,887 | 350,520 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Secured by real estate | 145,927 | 146,518 | ||||||
Collateralized by securities | 133,912 | 85,200 | ||||||
Guarantees and other collateral | 42,330 | 27,000 | ||||||
Unsecured | 79,749 | 93,058 | ||||||
Subtotal | 401,918 | 351,776 | ||||||
Allowance for credit losses | (1,031 | ) | (1,256 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 400,887 | 350,520 | ||||||
54
Table of Contents
Note 9b Allowances and Provisions for Credit Losses | ||||||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.07 | Total 31.12.06 | ||||||||||||
Balance at the beginning of the year | 1,294 | 38 | 1,332 | 1,776 | ||||||||||||
Write-offs | (321 | ) | 0 | (321 | ) | (363 | ) | |||||||||
Recoveries | 55 | 0 | 55 | 62 | ||||||||||||
Increase / (decrease) in credit loss allowances and provisions | 242 | (4 | ) | 238 | (156 | ) | ||||||||||
Disposals | (131 | ) | 0 | (131 | ) | 0 | ||||||||||
Foreign currency translation and other adjustments | (9 | ) | 0 | (9 | ) | 13 | ||||||||||
Balance at the end of the year | 1,130 | 34 | 1,164 | 1,332 | 1 | |||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.07 | Total 31.12.06 | ||||||||||||
As a reduction of Due from banks | 28 | 0 | 28 | 30 | ||||||||||||
As a reduction of Loans | 969 | 34 | 1,003 | 1,226 | ||||||||||||
As a reduction of other balance sheet positions | 70 | 0 | 70 | 0 | ||||||||||||
Subtotal | 1,067 | 34 | 1,101 | 1,256 | ||||||||||||
Included in Other liabilities related to provisions for contingent claims | 63 | 0 | 63 | 76 | ||||||||||||
Total allowances and provisions for credit losses | 1,130 | 34 | 1,164 | 1,332 | ||||||||||||
Note 9c Impaired Due from Banks and Loans | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross impaired due from banks and loans1 | 2,392 | 2,628 | ||||||
Allowance for impaired due from banks | 28 | 30 | ||||||
Allowance for impaired loans | 969 | 1,188 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 997 | 1,218 | ||||||
Average total gross impaired due from banks and loans2 | 2,483 | 3,003 | ||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross impaired due from banks and loans | 2,392 | 2,628 | ||||||
Estimated liquidation proceeds of collateral | (1,104 | ) | (1,059 | ) | ||||
Net impaired due from banks and loans | 1,288 | 1,569 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 997 | 1,218 | ||||||
55
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 9d Non-Performing Due from Banks and Loans
A loan (included in Due from banks or Loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that it will be made good by later payments or the
liquidation of collateral; or 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.07 | 31.12.06 | ||||||
Total gross non-performing due from banks and loans | 1,481 | 1,918 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 873 | 1,112 | ||||||
Average total gross non-performing due from banks and loans1 | 1,820 | 2,135 | ||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Non-performing due from banks and loans at the beginning of the year | 1,918 | 2,363 | ||||||
Net additions / (reductions) | (165 | ) | (157 | ) | ||||
Write-offs and disposals | (272 | ) | (288 | ) | ||||
Non-performing due from banks and loans at the end of the year | 1,481 | 1,918 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Banks | 26 | 29 | ||||||
Loans | ||||||||
Secured by real estate | 428 | 561 | ||||||
Other | 1,027 | 1,328 | ||||||
Total loans | 1,455 | 1,889 | ||||||
Total non-performing due from banks and loans | 1,481 | 1,918 | ||||||
By geographical region (based on the location of borrower) | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Switzerland | 1,349 | 1,744 | ||||||
Rest of Europe / Middle East / Africa | 78 | 106 | ||||||
Americas | 51 | 62 | ||||||
Asia Pacific | 3 | 6 | ||||||
Total non-performing due from banks and loans | 1,481 | 1,918 | ||||||
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 | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 48,480 | 221,575 | 53,538 | 209,606 | ||||||||||||
Customers | 158,583 | 155,353 | 298,052 | 196,228 | ||||||||||||
Total | 207,063 | 376,928 | 351,590 | 405,834 | ||||||||||||
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Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements (continued) | ||||||||||||||||
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.07 | 31.12.07 | 31.12.06 | 31.12.06 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 29,512 | 139,156 | 44,118 | 274,910 | ||||||||||||
Customers | 2,109 | 166,731 | 18,970 | 270,570 | ||||||||||||
Total | 31,621 | 305,887 | 63,088 | 545,480 | ||||||||||||
Note 11 Trading Portfolio
The Group trades in debt instruments (including money market paper and tradable loans), equity instruments, precious metals, other commodities and derivatives to meet the
financial needs of its customers and to generate revenue. Note 23 provides a description of the various classes of derivative instruments.
CHF million | 31.12.07 | 31.12.06 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 76,866 | 86,790 | ||||||
thereof pledged as collateral with central banks | 198 | 20,053 | ||||||
thereof pledged as collateral (excluding central banks) | 35,604 | 45,356 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty | 32,239 | 38,173 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 304 | 340 | ||||||
US Treasury and government agencies | 75,137 | 114,714 | ||||||
Other government agencies | 57,864 | 71,170 | ||||||
Corporate listed | 127,990 | 214,129 | ||||||
Other – unlisted | 152,669 | 111,001 | ||||||
Total | 413,964 | 511,354 | ||||||
thereof pledged as collateral | 170,276 | 244,697 | ||||||
thereof can be repledged or resold by counterparty | 106,747 | 158,549 | ||||||
Equity instruments | ||||||||
Listed | 181,034 | 183,731 | ||||||
Unlisted | 25,968 | 27,938 | ||||||
Total | 207,002 | 211,669 | ||||||
thereof pledged as collateral | 26,870 | 56,760 | ||||||
thereof can be repledged or resold by counterparty | 25,325 | 54,756 | ||||||
Traded loans | 47,122 | 47,630 | ||||||
Precious metals and other commodities1 | 29,418 | 21,071 | ||||||
Total trading portfolio assets | 774,372 | 878,514 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 85 | 129 | ||||||
US Treasury and government agencies | 50,187 | 81,385 | ||||||
Other government agencies | 40,610 | 58,538 | ||||||
Corporate listed | 24,722 | 21,788 | ||||||
Other – unlisted | 4,822 | 2,101 | ||||||
Total | 120,426 | 163,941 | ||||||
Equity instruments | 44,362 | 40,832 | ||||||
Total trading portfolio liabilities | 164,788 | 204,773 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 12 Financial Assets Designated at Fair Value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Loans | 3,633 | 2,104 | ||||||
Structured loans | 483 | 148 | ||||||
Reverse repurchase and securities borrowing agreements | ||||||||
Banks | 4,289 | 2,942 | ||||||
Customers | 1,232 | 307 | ||||||
Other financial assets | 2,128 | 429 | ||||||
Total financial assets designated at fair value | 11,765 | 5,930 | ||||||
The maximum exposure to credit loss of all items in the above table except for Other financial assets is equal to the fair value (CHF 9,637 million at 31 December 2007 and CHF 5,501 million at 31 December 2006). Other financial assets are generally comprised of equity investments and are not directly exposed to credit risk. The maximum exposure to
credit loss at 31 December 2007 and 31 December 2006 is mitigated by collateral of CHF 5,830 million and CHF 3,712 million, respectively.
CHF million | 31.12.07 | 31.12.06 | ||||||
Notional amount of loans and structured loans | 4,166 | 2,348 | ||||||
Credit derivatives related to loans and structured loans – notional amounts1 | 3,351 | 663 | ||||||
Credit derivatives related to loans and structured loans – fair value1 | 59 | 2 | ||||||
Additional Information | ||||||||||||
Cumulative from | ||||||||||||
inception until | ||||||||||||
For the year ended | the year ended | |||||||||||
CHF million | 31.12.07 | 31.12.06 | 2 | 31.12.07 | ||||||||
Change in fair value of loans and structured loans designated at fair value, attributable to changes in credit risk3 | (87 | ) | (8 | ) | (98 | ) | ||||||
Change in fair value of credit derivatives and similar instruments which mitigate the maximum exposure to credit loss of loans and structured loans designated at fair value3 | 58 | 2 | 59 | |||||||||
Note 13 Financial Investments Available-for-Sale | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Money market paper | 349 | 354 | ||||||
Other debt instruments | ||||||||
Listed | 317 | 260 | ||||||
Unlisted | 717 | 261 | ||||||
Total | 1,034 | 521 | ||||||
Equity instruments | ||||||||
Listed | 1,865 | 5,880 | ||||||
Unlisted | 1,718 | 2,182 | ||||||
Total | 3,583 | 8,062 | ||||||
Total financial investments available-for-sale | 4,966 | 8,937 | ||||||
Net unrealized gains / (losses) – before tax | 1,900 | 3,723 | ||||||
Net unrealized gains / (losses) – after tax | 1,503 | 2,906 | ||||||
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Note 14 Investments in Associates | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Carrying amount at the beginning of the year | 1,523 | 2,956 | ||||||
Additions | 1,656 | 542 | ||||||
Disposals | (846 | ) | (2,043 | ) | ||||
Transfers | (367 | ) | 13 | |||||
Income1 | 137 | 156 | ||||||
Impairments2 | (17 | ) | (27 | ) | ||||
Dividends paid | (42 | ) | (33 | ) | ||||
Foreign currency translation | (65 | ) | (41 | ) | ||||
Carrying amount at the end of the year | 1,979 | 1,523 | ||||||
Significant associated companies of the Group had the following balance sheet and income statement totals on an aggregated basis, not adjusted for the Group’s proportionate interest. See Note 33 for a list of significant associates.
CHF million | 31.12.07 | 31.12.06 | ||||||
Assets | 9,189 | 27,299 | ||||||
Liabilities | 2,524 | 22,831 | ||||||
Revenues | 1,228 | 1,888 | ||||||
Net profit | 321 | 318 | ||||||
Note 15 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 | 31.12.07 | 31.12.06 | ||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,286 | 3,210 | 4,477 | 893 | 53 | 558 | 18,477 | 21,670 | ||||||||||||||||||||||||
Additions | 90 | 287 | 477 | 205 | 2 | 666 | 1,727 | 1,793 | ||||||||||||||||||||||||
Additions from acquired companies | 0 | 4 | 0 | 2 | 0 | 0 | 6 | 29 | ||||||||||||||||||||||||
Disposals / write-offs1 | (80 | ) | (382 | ) | (317 | ) | (204 | ) | (25 | ) | 0 | (1,008 | ) | (4,915 | ) | |||||||||||||||||
Reclassifications | (28 | ) | 314 | 136 | 31 | 0 | (529 | ) | (76 | ) | (26 | ) | ||||||||||||||||||||
Foreign currency translation | (26 | ) | (136 | ) | (169 | ) | (42 | ) | (1 | ) | (29 | ) | (403 | ) | (74 | ) | ||||||||||||||||
Balance at the end of the year | 9,242 | 3,297 | 4,604 | 885 | 29 | 666 | 18,723 | 18,477 | ||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,930 | 2,096 | 3,887 | 623 | 42 | 0 | 11,578 | 12,275 | ||||||||||||||||||||||||
Depreciation2,3 | 231 | 299 | 608 | 110 | 5 | 0 | 1,253 | 1,325 | ||||||||||||||||||||||||
Disposals / write-offs1 | (28 | ) | (342 | ) | (310 | ) | (174 | ) | (19 | ) | 0 | (873 | ) | (1,942 | ) | |||||||||||||||||
Reclassifications | (10 | ) | 0 | (4 | ) | 0 | 0 | 0 | (14 | ) | (10 | ) | ||||||||||||||||||||
Foreign currency translation | (2 | ) | (85 | ) | (159 | ) | (19 | ) | (1 | ) | 0 | (266 | ) | (70 | ) | |||||||||||||||||
Balance at the end of the year | 5,121 | 1,968 | 4,022 | 540 | 27 | 0 | 11,678 | 11,578 | ||||||||||||||||||||||||
Net book value at the end of the year4 | 4,121 | 1,329 | 582 | 345 | 2 | 666 | 7,045 | 6,899 | ||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 15 Property and Equipment (continued) | ||||||||
At fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Balance at the beginning of the year | 14 | 28 | ||||||
Additions | 182 | 0 | ||||||
Sales | 0 | (14 | ) | |||||
Revaluations | 7 | 0 | ||||||
Foreign currency translation | (14 | ) | 0 | |||||
Balance at the end of the year | 189 | 14 | ||||||
Note 16 Goodwill and Intangible Assets
At year-end 2007, five out of six segments carry goodwill, of which Industrial Holdings has less than 1% of the total balance. Business Banking Switzerland carries 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.
return on equity, the underlying equity, the cost of equity and to changes in the long-term growth rate. The applied long-term growth rate is based on long-term risk-free interest rates. Earnings available to shareholders are estimated based on forecast results, business initiatives and planned capital investments and returns to shareholders. Valuation parameters used within the Group’s impairment test model are linked to external market information, where applicable. Discount rates applied are 9% for Wealth Management International & Switzerland and for Business Banking Switzer-land, 10.5% for Wealth Management US and Global Asset Management and 11.5% for Investment Bank.
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Note 16 Goodwill and Intangible Assets (continued) | ||||||||||||||||||||||||
Goodwill | Intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relationships, | ||||||||||||||||||||||||
contractual | ||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.07 | 31.12.06 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 12,464 | 942 | 2,087 | 3,029 | 15,493 | 14,385 | ||||||||||||||||||
Additions and reallocations | 940 | 0 | (328 | ) | (328 | ) | 612 | 3,336 | ||||||||||||||||
Disposals | 0 | 0 | (3 | ) | (3 | ) | (3 | ) | (1,373 | ) | ||||||||||||||
Write-offs1 | 0 | 0 | (175 | ) | (175 | ) | (175 | ) | (28 | ) | ||||||||||||||
Foreign currency translation | (575 | ) | (66 | ) | 38 | (28 | ) | (603 | ) | (827 | ) | |||||||||||||
Balance at the end of the year | 12,829 | 876 | 1,619 | 2,495 | 15,324 | 15,493 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance at the beginning of the year | 291 | 429 | 720 | 720 | 899 | |||||||||||||||||||
Amortization2 | 46 | 236 | 282 | 282 | 196 | |||||||||||||||||||
Disposals | 0 | (3 | ) | (3 | ) | (3 | ) | (301 | ) | |||||||||||||||
Write-offs1 | 0 | (175 | ) | (175 | ) | (175 | ) | (28 | ) | |||||||||||||||
Foreign currency translation | (22 | ) | (16 | ) | (38 | ) | (38 | ) | (46 | ) | ||||||||||||||
Balance at the end of the year | 315 | 471 | 786 | 786 | 720 | |||||||||||||||||||
Net book value at the end of the year | 12,829 | 561 | 1,148 | 1,709 | 14,538 | 14,773 | ||||||||||||||||||
The following table presents the disclosure of goodwill and intangible assets by Business unit for the year ended 31 December 2007.
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Foreign currency | the end | |||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 1,645 | 125 | 0 | (73 | ) | 1,697 | ||||||||||||||||||
Wealth Management US | 4,006 | 193 | 0 | (292 | ) | 3,907 | ||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Global Asset Management | 1,531 | 495 | 0 | (26 | ) | 2,000 | ||||||||||||||||||
Investment Bank | 5,262 | 127 | 0 | (182 | ) | 5,207 | ||||||||||||||||||
Corporate Center | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Industrial Holdings | 20 | 0 | 0 | (2 | ) | 18 | ||||||||||||||||||
UBS | 12,464 | 940 | 0 | (575 | ) | 12,829 | ||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 325 | (22 | ) | 0 | (19 | ) | 4 | 288 | ||||||||||||||||
Wealth Management US | 793 | 58 | 0 | (66 | ) | (56 | ) | 729 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 498 | (262 | ) | 0 | (19 | ) | 47 | 264 | ||||||||||||||||
Investment Bank | 688 | (110 | ) | 0 | (172 | ) | 16 | 422 | ||||||||||||||||
Corporate Center | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Industrial Holdings | 5 | 8 | 0 | (6 | ) | (1 | ) | 6 | ||||||||||||||||
UBS | 2,309 | (328 | ) | 0 | (282 | ) | 10 | 1,709 | ||||||||||||||||
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Table of Contents
Financial Statements
Notes to the Financial Statements
Note 16 Goodwill and Intangible Assets (continued)
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million | Intangible assets | |||
Estimated, aggregated amortization expenses for: | ||||
2008 | 198 | |||
2009 | 195 | |||
2010 | 179 | |||
2011 | 166 | |||
2012 | 141 | |||
2013 and thereafter | 830 | |||
Total | 1,709 | |||
Note 17 Other Assets
CHF million | Note | 31.12.07 | 31.12.06 | |||||||||
Deferred tax assets | 22 | 3,031 | 3,686 | |||||||||
Settlement and clearing accounts | 6,370 | 3,159 | ||||||||||
VAT and other tax receivables | 454 | 318 | ||||||||||
Prepaid pension costs | 886 | 814 | ||||||||||
Properties held for sale | 1,145 | 1,254 | ||||||||||
Accounts receivable trade | 28 | 114 | ||||||||||
Inventory – industrial holdings | 44 | 68 | ||||||||||
Other receivables | 6,042 | 7,836 | ||||||||||
Total other assets | 18,000 | 17,249 | ||||||||||
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Balance Sheet: Liabilities
Note 18 Due to Banks and Customers | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Due to banks | 145,762 | 203,689 | ||||||
Due to customers in savings and investment accounts | 109,128 | 114,264 | ||||||
Other amounts due to customers | 532,764 | 441,622 | ||||||
Total due to customers | 641,892 | 555,886 | ||||||
Total due to banks and customers | 787,654 | 759,575 | ||||||
Note 19 Financial Liabilities Designated at Fair Value and Debt Issued
Financial liabilities designated at fair value | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Bonds and compound debt instruments issued | 183,143 | 135,646 | ||||||
Compound debt instruments – OTC | 8,251 | 9,967 | ||||||
Loan commitments1 | 459 | 74 | ||||||
Total | 191,853 | 145,687 | ||||||
The contractual redemption amount at maturity of Financial liabilities designated at fair value through profit or loss approximates the carrying value at 31 December 2007 and 31 December 2006. Refer to Note 1a7) for details.
Debt issued (held at amortized cost) | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Short-term debt: Money market paper issued | 152,256 | 119,584 | ||||||
Long-term debt: | ||||||||
Bonds | ||||||||
Senior | 52,265 | 53,509 | ||||||
Subordinated | 14,129 | 14,774 | ||||||
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | 199 | 38 | ||||||
Medium-term notes | 3,228 | 2,238 | ||||||
Subtotal long-term debt | 69,821 | 70,559 | ||||||
Total | 222,077 | 190,143 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 19 Financial Liabilities Designated at Fair Value and Debt Issued (continued)
The Group uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt issues (held at amortized cost). In the case of interest rate risk management, the Group applies hedge accounting as discussed in Note 1 a14) and Note 23 – Derivative Instruments and Hedge Accounting. As a result of applying hedge accounting, at 31 December 2007 and 31 December 2006, the carrying value of debt issued was CHF 138 million higher and CHF 256 million higher, respectively, reflecting changes in fair value due to interest rate movements.
Contractual maturity dates | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2008 | 2009 | 2010 | 2011 | 2012 | 2013–2017 | Thereafter | 31.12.07 | 31.12.06 | |||||||||||||||||||||||||||
UBS AG (Parent Bank) | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 94,098 | 12,357 | 14,030 | 8,136 | 10,835 | 11,969 | 4,007 | 155,432 | 109,987 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–36.5 | 0–13.5 | 0–13.25 | 0–10.25 | 0–10 | 0–11.55 | 0–15 | |||||||||||||||||||||||||||||
Floating rate | 64,189 | 15,526 | 13,456 | 2,276 | 7,205 | 8,217 | 20,845 | 131,714 | 93,904 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 515 | 0 | 0 | 0 | 6,109 | 3,165 | 9,789 | 9,414 | |||||||||||||||||||||||||||
Interest rates (range in %) | 5.875 | 2.375–7.375 | 3.385–8.75 | |||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 4,340 | 0 | 4,340 | 5,360 | |||||||||||||||||||||||||||
Subtotal | 158,287 | 28,398 | 27,486 | 10,412 | 18,040 | 30,635 | 28,017 | 301,275 | 218,665 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 46,259 | 887 | 1,802 | 1,166 | 412 | 1,913 | 24,424 | 76,863 | 86,862 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–12.25 | 0–10.5 | 0–12 | 0–20 | 0–11.885 | 0–35 | 0–35 | |||||||||||||||||||||||||||||
Floating rate | 5,945 | 4,006 | 6,511 | 4,312 | 1,454 | 6,394 | 7,170 | 35,792 | 30,303 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Interest rates (range in %) | ||||||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Subtotal | 52,204 | 4,893 | 8,313 | 5,478 | 1,866 | 8,307 | 31,594 | 112,655 | 117,165 | |||||||||||||||||||||||||||
Total | 210,491 | 33,291 | 35,799 | 15,890 | 19,906 | 38,942 | 59,611 | 413,930 | 335,830 | |||||||||||||||||||||||||||
The table above indicates fixed interest rate coupons ranging from 0 up to 36.5% on the Group’s bonds. The high or low coupons generally relate to structured debt issues prior to the separation of embedded derivatives. As a result, the stated
interest rate on such debt issues generally does not reflect the effective interest rate the Group is paying to service its debt after the embedded derivative has been separated and, where applicable, the application of hedge accounting.
64
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Note 20 Other Liabilities | ||||||||||||
CHF million | Note | 31.12.07 | 31.12.06 | |||||||||
Provisions | 21 | 1,673 | 1,672 | |||||||||
Provisions for contingent claims | 9b | 63 | 76 | |||||||||
Current tax liabilities | 2,000 | 4,258 | ||||||||||
Deferred tax liabilities | 22 | 2,069 | 2,674 | |||||||||
VAT and other tax payables | 1,079 | 931 | ||||||||||
Settlement and clearing accounts | 7,476 | 3,715 | ||||||||||
Amounts due under unit-linked investment contracts | 27,455 | 33,645 | ||||||||||
Accounts payable | 15 | 91 | ||||||||||
Other payables | 18,946 | 16,189 | ||||||||||
Total other liabilities | 60,776 | 63,251 | ||||||||||
Note 21 Provisions | ||||||||||||||||||||
Total | Total | |||||||||||||||||||
CHF million | Operational1 | Litigation2 | Other3 | 31.12.07 | 31.12.063 | |||||||||||||||
Balance at the beginning of the year | 185 | 699 | 788 | 1,672 | 2,072 | |||||||||||||||
Additions from acquired companies | 0 | 0 | 0 | 0 | 26 | |||||||||||||||
Increase in provisions recognized in the income statement | 302 | 318 | 110 | 730 | 630 | |||||||||||||||
Release of provisions recognized in the income statement | (41 | ) | (117 | ) | (58 | ) | (216 | ) | 5 | |||||||||||
Provisions used in conformity with designated purpose | (123 | ) | (386 | ) | (61 | ) | (570 | ) | (466 | ) | ||||||||||
Capitalized reinstatement costs | 0 | 0 | 6 | 6 | 22 | |||||||||||||||
Disposal of subsidiaries | 0 | 0 | (16 | ) | (16 | ) | (607 | ) | ||||||||||||
Reclassifications | (6 | ) | 6 | 155 | 155 | 36 | ||||||||||||||
Foreign currency translation | (19 | ) | (46 | ) | (23 | ) | (88 | ) | (46 | ) | ||||||||||
Balance at the end of the year | 298 | 474 | 901 | 1,673 | 1,672 | |||||||||||||||
Litigation
ment, it is probable that a liability exists, and the amount can be reasonably estimated (see table above). No provision is made for claims asserted against the Group that in the opinion of management are without merit and where it is not likely that UBS will be found liable.
65
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Financial Statements
Notes to the Financial Statements
Note 21 Provisions (continued)
At 31 December 2007, UBS is involved in the following legal proceedings which could be material to the Group in a given reporting period:
a) | Tax Shelter: In connection with a criminal investigation of tax shelters, the United States Attorney’s Office for the Southern District of New York (“US Attorney’s Office”) is examining UBS’s conduct in relation to certain tax-oriented transactions in which UBS and others engaged during the years 1996–2000. Some of these transactions were the subject of the Deferred Prosecution Agreement which the accounting firm KPMG LLP entered into with the US Attorney’s Office in August 2005, and are at issue inUnited States v. Stein, S1 05 Cr. 888 (LAK).UBS is cooperating in the government’s investigation. | ||
b) | Municipal Bonds: In November 2006, UBS and others received subpoenas from the US Department of Justice, Antitrust Division, and the SEC relating to derivative transactions entered into with municipal bond issuers and to the investment of proceeds of municipal bond issuances. Both investigations are ongoing, and UBS is cooperating. In the SEC investigation, on 4 February 2008, UBS received a “Wells notice” advising that the SEC staff is considering recommending that the SEC bring a civil action against UBS AG in connection with the bidding of various financial instruments associated with municipal securities. Under the SEC’s Wells process, UBS will have the opportunity to set forth reasons of law, policy or fact why such an action should not be brought. | ||
c) | HealthSouth: UBS is defending itself in two purported securities class actions brought in the US District Court of the Northern District of Alabama by holders of stock and bonds in HealthSouth Corp. UBS also is a defendant in HealthSouth derivative litigation in Alabama State Court and has responded to an SEC investigation relating to UBS’s role as a banker for HealthSouth. | ||
d) | Parmalat: UBS is involved in a number of proceedings in Italy related to the bankruptcy of Parmalat. These proceedings include, inter alia, clawback proceedings against UBS Limited in connection with a structured finance transaction. Further, UBS is a defendant in two civil damages claims brought by Parmalat, one of which relates to the same structured finance transaction against UBS Limited, while the other against UBS AG relates to certain |
derivative transactions. In addition, UBS Limited and one current and one former UBS employee are the subject of criminal proceedings in Milan. UBS AG and UBS Limited are defendants in civil actions brought by Parmalat investors in parallel with the criminal proceedings in Milan. Furthermore, four current or former UBS employees are defendants in relation to criminal proceedings in Parma. Civil claims have also been recently filed in parallel with the criminal proceedings by Parmalat against the individuals and UBS Limited and also by Parmalat investors against the individuals, UBS AG and UBS Limited. UBS AG and UBS Limited deny the allegations made against them and against the individuals in these matters and are vigorously defending themselves in these proceedings. | |||
e) | Insight One: In early July 2007, UBS agreed to a settlement of the InsightOne case after the New York State Attorney General filed a civil complaint regarding UBS’s fee-based brokerage program for private clients in the United States in December 2006. UBS denied that the program was part of a scheme to disadvantage clients, but chose to settle to bring the proceedings to an end. Under the settlement, UBS paid a total of USD 23.3 million, of which USD 21.3 million was paid to certain current and former InsightOne customers pursuant to an agreed-upon remediation plan, and USD 2 million was paid in penalties. In 2006, UBS established provisions sufficient to cover the settlement, and therefore the settlement did not impact UBS’s Net profit in 2007. | ||
f) | Bankruptcy Estate of Enron: In June 2007, UBS and Enron settled adversarial proceedings in the US Bankruptcy Court for the Southern District of New York brought by Enron to avoid and recover payments made prior to filing for bankruptcy in connection with equity forward and swap transactions. UBS believed it had valid defences to all of Enron’s claims, but chose to settle to eliminate the uncertainty created by the proceeding. Under the terms of the settlement, UBS paid Enron USD 115 million and waived a proof of claim for approximately USD 5.5 million that UBS filed in Enron’s bankruptcy case. In 2006, UBS recognized a provision for more than half of the settlement amount, with the difference recognized in 2007. Therefore, the settlement did not materially impact UBS’s Net profit in 2007. |
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Note 22 Income Taxes | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Tax expense from continuing operations | ||||||||||||
Domestic | ||||||||||||
Current | 409 | 1,759 | 1,403 | |||||||||
Deferred | 2 | (87 | ) | 86 | ||||||||
Foreign | ||||||||||||
Current | 1,064 | 1,534 | 1,427 | |||||||||
Deferred | (164 | ) | (421 | ) | (451 | ) | ||||||
Total income tax expense from continuing operations | 1,311 | 2,785 | 2,465 | |||||||||
Tax expense from discontinued operations | ||||||||||||
Domestic | (258 | ) | (12 | ) | 554 | |||||||
Foreign | (8 | ) | 0 | 28 | ||||||||
Total income tax expense from discontinued operations | (266 | ) | (12 | ) | 582 | |||||||
Total income tax expense | 1,045 | 2,773 | 3,047 | |||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 3,663 million, CHF 2,607 million and CHF 2,394 million in 2007, 2006 and 2005 respectively.
The current tax expense for 2007 includes expenses related to prior years of CHF 493 million, of which CHF 517 million was offset by related deferred tax movements.
The components of operating profit before tax, and the differences between income tax expense reflected in the Financial Statements and the amounts calculated at the Swiss statutory rate, are as follows:
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | ||||||||
Domestic | 10,379 | 5,564 | 5,854 | |||||||||
Foreign | (13,314 | ) | 9,080 | 6,789 | ||||||||
Income taxes at Swiss statutory rate of 22% for 2007, 2006 and 2005 | (646 | ) | 3,222 | 2,781 | ||||||||
Increase / (decrease) resulting from: | ||||||||||||
Applicable tax rates differing from Swiss statutory rate | (3,019 | ) | 829 | 388 | ||||||||
Tax effects of losses not recognized | 6,327 | 21 | 71 | |||||||||
Previously unrecorded tax losses now recognized | (257 | ) | (676 | ) | (97 | ) | ||||||
Lower taxed income | (1,587 | ) | (941 | ) | (551 | ) | ||||||
Non-deductible intangible asset amortization | 15 | 21 | 20 | |||||||||
Other non-deductible expenses | 227 | 183 | 212 | |||||||||
Adjustments related to prior years | (72 | ) | 316 | (283 | ) | |||||||
Change in deferred tax valuation allowance | 5 | (548 | ) | (156 | ) | |||||||
Other items | 318 | 358 | 80 | |||||||||
Income tax expense from continuing operations | 1,311 | 2,785 | 2,465 | |||||||||
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Financial Statements
Notes to the Financial Statements
Note 22 Income Taxes (continued)
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.07 | 31.12.06 | ||||||
Deferred tax assets | ||||||||
Compensation and benefits | 2,223 | 2,611 | ||||||
Net operating loss carry-forwards | 10,385 | 1,508 | ||||||
Trading assets | 163 | 768 | ||||||
Other | 859 | 598 | ||||||
Total | 13,630 | 5,485 | ||||||
Valuation allowance | (10,599 | ) | (1,799 | ) | ||||
Deferred tax assets recognized | 3,031 | 3,686 | ||||||
Deferred tax liabilities | ||||||||
Compensation and benefits | 109 | 122 | ||||||
Property and equipment | 175 | 201 | ||||||
Financial investments and associates | 690 | 1,221 | ||||||
Trading assets | 498 | 684 | ||||||
Goodwill and intangible assets | 173 | 55 | ||||||
Other | 424 | 391 | ||||||
Deferred tax liabilities | 2,069 | 2,674 | ||||||
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is mainly due to the effects of exchange rate changes on tax assets and liabilities denominated in currencies other than CHF and the booking of some of the tax benefits related to deferred compensation through Equity. For the above purposes, the valuation allowance represents amounts that are not expected to provide future benefits, either because they are offset against potential tax adjustments or due to insufficiency of future taxable income. The deferred tax assets recognized at 31 December 2007 were as follows: Compensation and benefits: CHF 385 million, Net operating loss carry-forwards: CHF 2,419 million, Trading assets: CHF 77 million and Other: CHF 150 million.
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry-for-
wards and other items. Because realization of these assets is uncertain, the Group has established valuation allowances of CHF 10,599 million (CHF 1,799 million at 31 December 2006). For companies that suffered tax losses in either the current or preceding year, an amount of CHF 2,363 million (CHF 212 million at 31 December 2006) has been recognized as deferred tax assets based on expectations from profit forecasts and historical performance that sufficient taxable income will be generated in future years to utilize the tax loss carry-forwards.
The carry-forwards expire as follows: | 31.12.07 | |||
Within 1 year | 1 | |||
From 2 to 4 years | 38 | |||
After 4 years | 19,244 | |||
Total | 19,283 | |||
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Note 23 Derivative Instruments and Hedge Accounting
A derivative is a financial instrument, the value of which is derived from the value of another (“underlying”) financial instrument, an index or some other variable. Typically, the underlying is a share, commodity or bond price, an index value or an exchange or interest rate.
Types of derivative instruments
at a specified price. Forward contracts are tailor-made agreements that are transacted between counterparties on the OTC market, whereas futures are standardized contracts transacted on regulated exchanges.
– | Interest rate swap contracts generally entail the contractual exchange of fixed-rate and floating-rate interest payments in a single currency, based on a notional amount and a reference interest rate, e. g. LIBOR. | ||
– | Cross-currency swaps involve the exchange of interest payments based on two different currency principal balances and reference interest rates and generally also entail exchange of principal amounts at the start and / or end of the contract. | ||
– | Credit default swaps (CDSs) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection in exchange for an undertaking by the seller to make a payment to the buyer following a credit event (as defined in the contract) with respect to a third-party 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. | ||
– | Options are contractual agreements under which, typically, the seller (writer) grants the purchaser the right, but not the obligation, either to buy (call option) or to sell (put option) by or at a set date, a specified quantity of a financial instrument or commodity at a predetermined price. The purchaser pays a premium to the seller for this right. Options involving more complex payment structures are also transacted. Options may be traded OTC or on a regulated exchange and may be traded in the form of a security (warrant). |
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Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments and Hedge Accounting (continued)
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
sponding headings in this note. The Group’s accounting policies for derivatives designated and accounted for as hedging instruments are explained in Note 1a14) Derivative instruments and hedge accounting, where terms used in the following sections are explained.
Fair value hedges
Fair value hedges of interest rate risk
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Gains / (losses) on hedging instruments | 15 | (28 | ) | |||||
Gains / (losses) on hedged items attributable to the hedged risk | (11 | ) | (11 | ) | ||||
Net gains / (losses) representing ineffective portions of fair value hedges | 4 | (17 | ) | |||||
In addition, the Group has entered into a fair value hedge accounting relationship using foreign exchange derivatives to protect a certain portion of equity investments available-for-sale from foreign currency exposure. The time value associated with the FX derivatives is excluded from the evalua-
tion of hedge ineffectiveness. The fair value of outstanding FX derivatives designated as fair value hedges was a CHF 0 million at 31 December 2007 and CHF 1 million net positive replacement value at 31 December 2006.
Fair value hedges of foreign exchange risk
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Gains / (losses) on hedging instruments | 42 | 49 | ||||||
Gains / (losses) on hedged items attributable to the hedged risk | (44 | ) | (44 | ) | ||||
Net gains / (losses) representing ineffective portions of fair value hedges | (2 | ) | 5 | |||||
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Note 23 Derivative Instruments and Hedge Accounting (continued)
Fair value hedges of portfolio interest rate risk
balance sheet. The fair value of derivatives designated for this hedge method at 31 December 2007 was a CHF 58 million net positive replacement value and at 31 December 2006 was a CHF 21 million net positive replacement value.
Fair value hedges of portfolio interest rate risk
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Gains / (losses) on hedging instruments | 37 | 15 | ||||||
Gains / (losses) on hedged items attributable to the hedged risk | (30 | ) | (23 | ) | ||||
Net gains / (losses) representing ineffective portions of fair value hedges | 7 | (8 | ) | |||||
Cash flow hedges of forecast transactions
mates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying the non-trading interest rate risk of the Group, which is hedged with interest rate swaps, the maximum maturity of which is 22 years.
Forecast cash flows | ||||||||||||||||||||
CHF billion | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | |||||||||||||||
Cash inflows (assets) | 218 | 395 | 285 | 273 | 15 | |||||||||||||||
Cash outflows (liabilities) | 84 | 147 | 106 | 102 | 2 | |||||||||||||||
Net cash flows | 134 | 248 | 179 | 171 | 13 | |||||||||||||||
Gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions are initially recorded in Equity as Net income recognized directly in equity and are transferred to current period earnings when the forecast cash flows affect net profit or loss. The gains and losses on ineffective portions of such derivatives are recognized immediately in the income statement. A CHF 443 million gain, a CHF 36 million loss and a CHF 35 million gain were recognized in 2007, 2006 and 2005, respectively, due to hedge ineffectiveness.
replacement value and a CHF 462 million net negative replacement value, respectively. No Swiss franc hedging interest rate swaps were terminated during 2007 or 2006. At the end of 2007 and 2006, unrecognized income of CHF 135 million and CHF 214 million associated with terminated swaps remained deferred in Equity. It will be removed from Equity when the hedged cash flows have an impact on net profit or loss. Amounts reclassified from Net income recognized directly in Equity to current period earnings due to discontinuation of hedge accounting were a CHF 79 million net gain in 2007, a CHF 132 million net gain in 2006 and a CHF 243 million net gain in 2005. These amounts were recorded in Net interest income.
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Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments and Hedge Accounting (continued)
Risks of derivative instruments
tional capital requirements shown in the in the Risk-weighted assets (BIS) table in the “Capital management” section inRisk, Treasury and Capital Management 2007under Off-balance sheet exposures as Forward and swap contracts and Purchased options, which reflect the additional potential future exposure.
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Note 23 Derivative Instruments and Hedge Accounting1 (continued) | ||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2007 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | notional | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 686 | 760 | 129 | 131 | 31 | 48 | 846 | 939 | 1,534.8 | |||||||||||||||||||||||||||||||||||
Swaps | 4,852 | 5,351 | 7,864 | 8,137 | 52,447 | 55,061 | 77,270 | 69,027 | 142,433 | 137,576 | 28,363.5 | |||||||||||||||||||||||||||||||||
Options | 410 | 289 | 204 | 622 | 3,416 | 4,753 | 15,770 | 17,280 | 19,800 | 22,944 | 1,405.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,072.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 568 | 622 | 265 | 263 | 28 | 27 | 861 | 912 | 89.9 | |||||||||||||||||||||||||||||||||||
Total | 6,516 | 7,022 | 8,462 | 9,153 | 55,922 | 59,889 | 93,040 | 86,307 | 163,940 | 162,371 | 33,465.9 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 207 | 248 | 6,471 | 5,951 | 60,864 | 62,495 | 26,822 | 30,905 | 94,364 | 99,599 | 5,172.3 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 412 | 313 | 143 | 243 | 2,457 | 2,814 | 7,922 | 3,235 | 10,934 | 6,605 | 188.3 | |||||||||||||||||||||||||||||||||
Total | 619 | 561 | 6,614 | 6,194 | 63,321 | 65,309 | 34,744 | 34,140 | 105,298 | 106,204 | 5,360.6 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 8,248 | 8,792 | 2,554 | 2,867 | 888 | 623 | 14 | 33 | 11,704 | 12,315 | 1,322.2 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 26,887 | 28,169 | 15,780 | 13,616 | 19,412 | 21,934 | 12,467 | 11,605 | 74,546 | 75,324 | 4,871.9 | |||||||||||||||||||||||||||||||||
Options | 4,807 | 4,396 | 5,887 | 5,519 | 1,316 | 1,313 | 52 | 76 | 12,062 | 11,304 | 1,506.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 12.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 66 | 57 | 9 | 9 | 75 | 66 | 4.5 | |||||||||||||||||||||||||||||||||||||
Total | 40,008 | 41,414 | 24,230 | 22,011 | 21,616 | 23,870 | 12,533 | 11,714 | 98,387 | 99,009 | 7,717.5 | |||||||||||||||||||||||||||||||||
Equity/index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,384 | 2,006 | 1,736 | 1,047 | 550 | 738 | 87 | 63 | 4,757 | 3,854 | 175.8 | |||||||||||||||||||||||||||||||||
Options | 3,134 | 4,163 | 4,689 | 9,103 | 5,412 | 12,054 | 1,216 | 3,548 | 14,451 | 28,868 | 291.4 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 55.6 | |||||||||||||||||||||||||||||||||||||||||||
Options | 6,114 | 6,193 | 7,909 | 8,727 | 6,520 | 7,173 | 221 | 315 | 20,764 | 22,408 | 325.5 | |||||||||||||||||||||||||||||||||
Total | 11,632 | 12,362 | 14,334 | 18,877 | 12,482 | 19,965 | 1,524 | 3,926 | 39,972 | 55,130 | 848.3 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 463 | 993 | 864 | 659 | 1,007 | 489 | 47 | 71 | 2,381 | 2,212 | 39.9 | |||||||||||||||||||||||||||||||||
Options | 488 | 1,020 | 1,107 | 1,116 | 1,842 | 1,691 | 170 | 130 | 3,607 | 3,957 | 79.1 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 0.2 | |||||||||||||||||||||||||||||||||||||||||||
Options | 145 | 127 | 226 | 233 | 43 | 41 | 414 | 401 | 28.0 | |||||||||||||||||||||||||||||||||||
Total | 1,096 | 2,140 | 2,197 | 2,008 | 2,892 | 2,221 | 217 | 201 | 6,402 | 6,570 | 147.2 | |||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,421 | 2,425 | 1,580 | 1,567 | 1,886 | 1,751 | 1,065 | 1,157 | 6,952 | 6,900 | 111.5 | |||||||||||||||||||||||||||||||||
Options | 469 | 459 | 896 | 1,187 | 878 | 1,048 | 117 | 134 | 2,360 | 2,828 | 24.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 170.3 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,606 | 1,453 | 2,284 | 2,342 | 1,016 | 732 | 4,906 | 4,527 | 181.3 | |||||||||||||||||||||||||||||||||||
Total | 4,496 | 4,337 | 4,760 | 5,096 | 3,780 | 3,531 | 1,182 | 1,291 | 14,218 | 14,255 | 488.0 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 64,367 | 67,836 | 60,597 | 63,339 | 160,013 | 174,785 | 143,240 | 137,579 | 428,217 | 5 | 443,539 | 6 | ||||||||||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments and Hedge Accounting1 (continued) | ||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2006 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | notional | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV2 | NRV3 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,001 | 764 | 172 | 177 | 38 | 34 | 1,211 | 975 | 1,848.0 | |||||||||||||||||||||||||||||||||||
Swaps | 5,629 | 4,784 | 9,891 | 10,134 | 46,690 | 47,128 | 51,609 | 46,249 | 113,819 | 108,295 | 22,643.4 | |||||||||||||||||||||||||||||||||
Options | 273 | 308 | 127 | 440 | 2,252 | 3,563 | 13,529 | 15,148 | 16,181 | 19,459 | 1,432.5 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,904.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 406 | 438 | 474 | 485 | 96 | 96 | 976 | 1,019 | 34.7 | |||||||||||||||||||||||||||||||||||
Total | 7,309 | 6,294 | 10,664 | 11,236 | 49,076 | 50,821 | 65,138 | 61,397 | 132,187 | 129,748 | 28,863.0 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 35 | 54 | 363 | 673 | 12,874 | 14,035 | 7,425 | 7,953 | 20,697 | 22,715 | 2,536.6 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 54 | 63 | 100 | 74 | 583 | 1,606 | 4,284 | 3,512 | 5,021 | 5,255 | 103.0 | |||||||||||||||||||||||||||||||||
Total | 89 | 117 | 463 | 747 | 13,457 | 15,641 | 11,709 | 11,465 | 25,718 | 27,970 | 2,639.6 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 4,565 | 4,322 | 1,765 | 1,968 | 827 | 531 | 17 | 103 | 7,174 | 6,924 | 784.0 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,724 | 22,977 | 10,363 | 10,599 | 14,641 | 12,366 | 12,821 | 11,831 | 62,549 | 57,773 | 4,064.6 | |||||||||||||||||||||||||||||||||
Options | 2,877 | 2,624 | 2,987 | 3,042 | 828 | 1,041 | 51 | 49 | 6,743 | 6,756 | 1,276.2 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 20.8 | |||||||||||||||||||||||||||||||||||||||||||
Options | 12 | 16 | 2 | 2 | 14 | 18 | 0.1 | |||||||||||||||||||||||||||||||||||||
Total | 32,178 | 29,939 | 15,117 | 15,611 | 16,296 | 13,938 | 12,889 | 11,983 | 76,480 | 71,471 | 6,145.7 | |||||||||||||||||||||||||||||||||
Equity/index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,179 | 1,464 | 386 | 1,217 | 506 | 8 | 14 | 103 | 2,085 | 2,792 | 107.8 | |||||||||||||||||||||||||||||||||
Options | 1,073 | 3,485 | 3,702 | 5,655 | 6,121 | 8,821 | 1,605 | 2,795 | 12,501 | 20,756 | 258.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 72.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 4,277 | 4,602 | 8,238 | 8,396 | 9,978 | 10,458 | 22,946 | 23,889 | 270.7 | |||||||||||||||||||||||||||||||||||
Total | 6,529 | 9,551 | 12,326 | 15,268 | 16,605 | 19,287 | 2,072 | 3,331 | 37,532 | 47,437 | 708.9 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 348 | 339 | 573 | 355 | 757 | 371 | 37 | 48 | 1,715 | 1,113 | 25.6 | |||||||||||||||||||||||||||||||||
Options | 293 | 580 | 676 | 784 | 1,554 | 1,281 | 118 | 68 | 2,641 | 2,713 | 70.6 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 75 | 142 | 242 | 196 | 332 | 369 | 649 | 707 | 23.9 | |||||||||||||||||||||||||||||||||||
Total | 716 | 1,061 | 1,491 | 1,335 | 2,643 | 2,021 | 155 | 116 | 5,005 | 4,533 | 121.1 | |||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,254 | 3,223 | 2,894 | 3,155 | 1,724 | 1,579 | 766 | 840 | 8,638 | 8,797 | 86.3 | |||||||||||||||||||||||||||||||||
Options | 221 | 236 | 447 | 368 | 595 | 654 | 1 | 27 | 1,264 | 1,285 | 13.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts4 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 236.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,884 | 1,895 | 2,349 | 2,152 | 1,918 | 1,775 | 6,151 | 5,822 | 67.1 | |||||||||||||||||||||||||||||||||||
Total | 5,359 | 5,354 | 5,690 | 5,675 | 4,237 | 4,008 | 767 | 867 | 16,053 | 15,904 | 403.1 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 52,180 | 52,316 | 45,751 | 49,872 | 102,314 | 105,716 | 92,730 | 89,159 | 292,975 | 5 | 297,063 | 6 | ||||||||||||||||||||||||||||||||
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Off-Balance Sheet Information
Note 24 Pledgeable Off-Balance Sheet Securities | ||||
The Group obtains securities which are not recorded on the balance sheet with the right to sell or repledge them as shown in the table below.
CHF million | 31.12.07 | 31.12.06 | ||||||
Fair value of securities received which can be sold or repledged | 1,491,567 | 1,436,827 | ||||||
as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions | 1,396,768 | 1,342,733 | ||||||
in unsecured borrowings | 94,799 | 94,094 | ||||||
thereof sold or repledged | 1,011,090 | 1,069,795 | ||||||
in connection with financing activities | 924,329 | 969,608 | ||||||
to satisfy commitments under short sale transactions | 58,039 | 87,288 | ||||||
in connection with derivative and other transactions | 28,722 | 12,899 | ||||||
Note 25 Operating Lease Commitments | ||||
At 31 December 2007, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease
agreements do not contain contingent rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.07 | |||
Operating leases due | ||||
2008 | 1,085 | |||
2009 | 1,009 | |||
2010 | 920 | |||
2011 | 833 | |||
2012 | 762 | |||
2013 and thereafter | 3,769 | |||
Subtotal commitments for minimum payments under operating leases | 8,378 | |||
Less: Sublease rentals under non-cancellable leases | 742 | |||
Net commitments for minimum payments under operating leases | 7,636 | |||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Gross operating lease expense | 1,251 | 1,170 | 1,232 | |||||||||
from continuing operations | 1,248 | 1,150 | 1,084 | |||||||||
from discontinued operations | 3 | 20 | 148 | |||||||||
Sublease rental income from continuing operations | 54 | 56 | 51 | |||||||||
Net operating lease expense | 1,197 | 1,114 | 1,181 | |||||||||
from continuing operations | 1,194 | 1,094 | 1,033 | |||||||||
from discontinued operations | 3 | 20 | 148 | |||||||||
Operating lease contracts include non-cancellable long-term leases of office buildings in most UBS locations. At 31 December 2007, the minimum lease commitments for 17 office lo-
cations each exceeded CHF 100 million. Non-cancellable minimum lease commitments for three office locations in New Jersey, London and Zurich each exceeded CHF 500 million.
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Financial Statements
Notes to the Financial Statements
Additional Information
Note 26 Fair Value of Financial Instruments a) Fair Value of Financial Instruments | ||||
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. For financial instruments carried at fair value, market prices or rates are used to determine fair value where an active market exists (such as a recognized stock exchange), as it is the best evidence of the fair value of a financial instrument (level 1). Refer to Note 1a5) for an overview on the determination of fair value.
a) | Trading portfolio assets and liabilities, trading portfolio assets pledged as collateral, financial assets and liabilities designated at fair value through profit or loss, derivatives, |
credit commitments held for trading and designated at fair value, and other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or other recognized valuation techniques. Accrued interest is recognized as part of the fair value of such instruments. | |||
The Group’s own credit risk is included in the determination of fair value of financial liabilities accounted for at fair value, including derivative liabilities, in cases where market participants would consider it relevant to pricing. It was calculated based on a yield curve generated from observed external pricing for funding associated with new senior debt issued by the Group. For fully collateralized transactions and other instruments for which market participants do not include an entity-specific adjustment for own credit, no adjustment for own credit changes is made. For the deferral and recognition of day 1 profit or loss, refer to Note 26e. | |||
Fair value is equal to the carrying amount for these items. For financial instruments linked to the US residential mortgage market, refer to the section on the next page. | |||
b) | Financial investments 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. Lock-in periods for equity investments are considered when determining fair value. Fair value is equal to the carrying amount for these items, and unrealized gains and losses, excluding impairment write-downs, 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 accounted for at amortized cost is assumed to be approximated by their carrying amounts and, in the case of loans, does not reflect changes in their credit quality, as the impact of impairment is recognized separately by deducting any allowances for credit losses from the carrying 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 |
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Note 26 Fair Value of Financial Instruments (continued) a) Fair Value of Financial Instruments (continued) | ||||
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 any allowances for credit losses from the carrying values. |
Positions related to the US residential mortgage market Where possible, holdings are marked at the quoted market price in an active market. In the current market environment, such price information is typically not available for instruments linked to the US sub-prime residential mortgage market, and UBS applies valuation techniques to measure such instruments. Valuation techniques use “market observable inputs”, where available, derived from similar assets in similar and active markets, from recent transaction prices for comparable items or from other observable
market data. For positions where observable reference data is not available, UBS uses valuation models with non-market observable inputs.
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Financial Statements
Notes to the Financial Statements
Note 26 Fair Value of Financial Instruments (continued) a) Fair Value of Financial Instruments (continued) | ||||
RMBS positions, a consistent approach is used to value related hedge positions with monoline insurers.
rities, mortgage loans and derivatives linked to the US mortgage market. Such instruments were either purchased in transactions with third parties or retained in structures such as securitizations originated by UBS. The parameters to measure such instruments generally include expected credit default rates, weighted average life, prepayment speed and discount rates. Information about the risks and exposures of such items is included in the “Risk concentrations” section inRisk, Treasury and Capital Management 2007.
b) Determination of Fair Values from Quoted Market Prices or Valuation Techniques | ||||
For trading portfolio assets and liabilities, financial assets and liabilities designated at fair value and financial investments available-for-sale which are listed or other- wise traded in an active market, for exchange-traded derivatives, and for other financial instruments for which quoted prices in an active market are available, fair value is determined directly from those quoted market prices (level 1).
For some types of financial instruments, fair values cannot be obtained directly from quoted market prices, or indirectly using valuation techniques or models supported by observable market prices or rates. This is generally the case for private equity investments in unlisted securities, and for certain complex or structured financial instruments. In these cases, fair value is estimated indirectly using valuation techniques or models for which the inputs are reasonable assumptions, based on market conditions (level 3). The illiquidity of a broad range of financial instruments linked to the US residential mortgage market required an extended use of valuations based on partially or fully non-market observable market inputs in the second half of 2007.
Determination of fair values from quoted market prices or valuation techniques | ||||||||||||||||||||||||||||||||
31.12.07 | 31.12.06 | |||||||||||||||||||||||||||||||
Valuation | Valuation | Valuation | Valuation | |||||||||||||||||||||||||||||
technique – | technique – | technique – | technique – | |||||||||||||||||||||||||||||
Quoted | market | non-market | Quoted | market | non-market | |||||||||||||||||||||||||||
market | observable | observable | market | observable | observable | |||||||||||||||||||||||||||
CHF billion | price | inputs | inputs | Total | price | inputs | inputs | Total | ||||||||||||||||||||||||
Trading portfolio assets | 249.3 | 323.4 | 37.3 | 610.0 | 215.1 | 411.8 | 0.1 | 627.0 | ||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 85.3 | 55.8 | 23.2 | 164.3 | 243.5 | 8.0 | 0.0 | 251.5 | ||||||||||||||||||||||||
Positive replacement values | 6.8 | 407.4 | 14.0 | 428.2 | 31.3 | 250.2 | 11.5 | 293.0 | ||||||||||||||||||||||||
Financial assets designated at fair value | 1.8 | 10.0 | 0.0 | 11.8 | 0.0 | 5.1 | 0.8 | 5.9 | ||||||||||||||||||||||||
Financial investments available-for-sale | 1.2 | 2.4 | 1.4 | 5.0 | 2.5 | 4.6 | 1.8 | 8.9 | ||||||||||||||||||||||||
Total assets | 344.4 | 799.0 | 75.9 | 1,219.3 | 492.4 | 679.7 | 14.2 | 1,186.3 | ||||||||||||||||||||||||
Trading portfolio liabilities | 119.9 | 44.9 | 0.0 | 164.8 | 169.9 | 34.9 | 0.0 | 204.8 | ||||||||||||||||||||||||
Negative replacement values | 6.6 | 420.1 | 16.8 | 443.5 | 32.7 | 255.2 | 9.2 | 297.1 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 149.5 | 42.4 | 191.9 | 0.0 | 113.0 | 32.7 | 145.7 | ||||||||||||||||||||||||
Total liabilities | 126.5 | 614.5 | 59.2 | 800.2 | 202.6 | 403.1 | 41.9 | 647.6 | ||||||||||||||||||||||||
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Note 26 Fair Value of Financial Instruments (continued) c) Sensitivity of Fair Values to Changing Significant Assumptions to Reasonably Possible Alternatives | ||||
Included in the fair value of financial instruments carried at fair value on the balance sheet are those estimated in full or in part using valuation techniques based on assumptions that are not supported by market observable prices or rates (level 3).
and inputs used. In arriving at these estimates, UBS considers the range of market practice and how it believes other market participants would assess these uncertainties. Model reserves are periodically reassessed in light of information from market transactions, pricing utilities, and other relevant sources. The level of these model reserves is, nevertheless, to a large extent judgmental.
– | Scaling the model reserve amounts upward in line with less favorable assumptions would reduce fair value by approximately CHF 2,710 million at 31 December 2007, by approximately CHF 1,038 million at 31 December 2006 and approximately CHF 1,094 million at 31 December 2005. | |
– | Scaling the model reserve amounts downward in line with more favorable assumptions would increase fair value by approximately CHF 2,160 million at 31 December 2007, approximately CHF 955 million at 31 December 2006, and approximately CHF 1,176 million at 31 December 2005. |
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Table of Contents
Financial Statements
Notes to the Financial Statements
Note 26 Fair Value of Financial Instruments (continued) d) Changes in Fair Value Recognized in Profit or Loss during the Period which were Estimated using Valuation Techniques with Non-market Observable Inputs | ||||
Total Net trading income / (loss) for the years ended 31 December 2007, 31 December 2006 and 31 December 2005 was CHF (8,353) million, CHF 13,743 million and CHF 8,248 million, respectively, which represents the net result from a range of products traded across different business activities, including the effect of the foreign currency translation of monetary assets and liabilities and including both realized and unrealized income. Unrealized income is determined from changes in fair values, using quoted prices in active markets when available, and otherwise estimated using valuation techniques with market observable and / or non-market observable inputs.
e) Deferred Day 1 Profit or Loss | ||||
The table reflects financial instruments for which fair value is determined using valuation models where not all inputs are market observable. Such financial instruments are initially recognized at their transaction price although the values obtained from the relevant valuation model on day 1
may differ. The table shows the aggregate difference yet to be recognized in profit or loss at the beginning and end of the period and a reconciliation of changes in the balance of this difference (movement of deferred day 1 profit or loss).
For the year ended | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Balance at the beginning of the year | 951 | 1,343 | ||||||
Deferred profit / (loss) on new transactions | 1,259 | 890 | ||||||
Recognized (profit) / loss in the income statement | (1,383 | ) | (1,200 | ) | ||||
Revision to fair value estimates | (224 | ) | ||||||
Foreign currency translation | (53 | ) | (82 | ) | ||||
Balance at the end of the year | 550 | 951 | ||||||
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Table of Contents
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions and for security deposits relating to stock exchange and clearinghouse memberships.
Pledged assets | ||||||||
Carrying amount | ||||||||
CHF million | 31.12.07 | 31.12.06 | ||||||
Financial assets pledged: | ||||||||
Financial assets pledged to third parties for liabilities with and without the right of rehypothecation | 232,948 | 366,866 | ||||||
thereof: Financial assets pledged to third parties with right of rehypothecation | 164,311 | 251,478 | ||||||
Mortgage loans | 200 | 81 | ||||||
Total financial assets pledged | 233,148 | 366,947 | ||||||
Other assets pledged | ||||||||
Precious metals and other commodities | 8,628 | 5,432 | ||||||
The following table presents details of financial assets which have been sold or otherwise transferred, but which do not qualify for derecognition. Criteria for derecognition are discussed in Note 1a4).
Transfer of financial assets which do not qualify for derecognition | ||||||||
Continued asset recognition in full — | ||||||||
Total assets | ||||||||
CHF billion | 31.12.07 | 31.12.06 | ||||||
Nature of transaction | ||||||||
Securities lending agreements | 87.7 | 98.9 | ||||||
Repurchase agreements | 73.5 | 146.5 | ||||||
Other financial asset transfers | 75.9 | 69.8 | ||||||
Total | 237.1 | 315.2 | ||||||
The transactions are mostly conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. The resulting credit exposures are controlled by daily monitoring and collateralization of the positions. The financial assets which continue to be recognized are typically transferred in exchange for cash or other financial assets. The associated liabilities can therefore be assumed to be approximately the carrying amount of the transferred financial assets.
full. These include credit risk, settlement risk, country risk and market risk.
81
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Financial Statements
Notes to the Financial Statements
31.12.07 | 31.12.06 | |||||||
Financial Assets | ||||||||
Held for trading | ||||||||
Trading portfolio assets | 580,643 | 605,965 | ||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | ||||||
Positive replacement values | 428,217 | 292,975 | ||||||
Total | 1,173,171 | 1,150,418 | ||||||
Fair value through profit or loss, other | ||||||||
Financial assets designated at fair value | 11,765 | 5,930 | ||||||
Cash, loans and receivables | ||||||||
Cash and balances with central banks | 18,793 | 3,495 | ||||||
Due from banks | 60,907 | 50,426 | ||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | ||||||
Reverse repurchase agreements | 376,928 | 405,834 | ||||||
Loans | 334,367 | 296,592 | ||||||
Accrued income and prepaid expenses | 9,200 | 8,685 | ||||||
Other assets | 12,874 | 11,412 | ||||||
Total | 1,020,132 | 1,128,034 | ||||||
Available-for-sale | ||||||||
Financial investments available-for-sale | 4,966 | 8,937 | ||||||
Total Financial Assets | 2,210,034 | 2,293,319 | ||||||
Financial Liabilities | ||||||||
Held for trading | ||||||||
Trading portfolio liabilities | 164,788 | 204,773 | ||||||
Debt issued1 | 74 | 463 | ||||||
Negative replacement values | 443,539 | 297,063 | ||||||
Total | 608,401 | 502,299 | ||||||
Fair value through profit or loss, other | ||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | ||||||
Amounts due under unit-linked contracts | 27,455 | 33,645 | ||||||
Total | 219,308 | 179,332 | ||||||
Financial liabilities at amortized cost | ||||||||
Due to banks | 145,762 | 203,689 | ||||||
Cash collateral on securities lent | 31,621 | 63,088 | ||||||
Repurchase agreements | 305,887 | 545,480 | ||||||
Due to customers | 641,892 | 555,886 | ||||||
Accrued expenses and deferred income | 21,665 | 21,353 | ||||||
Debt issued | 222,003 | 189,680 | ||||||
Other liabilities | 25,302 | 20,349 | ||||||
Total | 1,394,132 | 1,599,525 | ||||||
Total Financial Liabilities | 2,221,841 | 2,281,156 | ||||||
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a) Defined benefit plans
The Group has established various pension plans inside and outside of Switzerland. The major plans are located in Switzerland, the UK, the US and Germany. Independent actuarial valuations are performed for the plans in these locations. The measurement date of these plans is 31 December for each year presented.
Swiss pension plans
The pension plan of UBS covers practically all UBS employees in Switzerland and exceeds the minimum benefit requirements under Swiss law. The Swiss plan was amended on 1 January 2007 to change the definition of retirement benefits from a final covered salary to a retirement savings approach. The pension plan provides benefits which are based on an-
nual contributions as a percentage of salary and accrue at an interest rate that is defined annually by the plan trustees.
Foreign pension plans
The foreign locations of UBS operate various pension plans in accordance with local regulations and practices. Among these plans are defined contribution plans as well as defined benefit plans. The locations with defined benefit plans of a material nature are in the UK, the US and Germany. The UK and the US defined benefit plans are closed to new entrants who are covered by defined contribution plans. The amounts shown for foreign plans reflect the net funded positions of the major foreign plans.
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Table of Contents
Financial Statements
Notes to the Financial Statements
a) Defined benefit plans | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (21,506 | ) | (20,972 | ) | (20,225 | ) | (5,207 | ) | (5,020 | ) | (4,142 | ) | ||||||||||||
Service cost | (367 | ) | (347 | ) | (353 | ) | (88 | ) | (76 | ) | (82 | ) | ||||||||||||
Interest cost | (633 | ) | (611 | ) | (660 | ) | (264 | ) | (242 | ) | (236 | ) | ||||||||||||
Plan participant contributions | (236 | ) | (221 | ) | (219 | ) | ||||||||||||||||||
Amendments | (414 | ) | (125 | ) | 0 | |||||||||||||||||||
Actuarial gain / (loss) | 1,508 | (265 | ) | (713 | ) | 236 | (120 | ) | (416 | ) | ||||||||||||||
Foreign currency translation | 298 | (84 | ) | (280 | ) | |||||||||||||||||||
Benefits paid | 792 | 723 | 866 | 151 | 149 | 144 | ||||||||||||||||||
Special termination benefits | (21 | ) | (17 | ) | (37 | ) | 0 | 0 | (2 | ) | ||||||||||||||
Acquisitions | (54 | ) | 0 | (6 | ) | |||||||||||||||||||
Settlements | 0 | 329 | 369 | 0 | 186 | 0 | ||||||||||||||||||
Defined benefit obligation at the end of the year | (20,877 | ) | (21,506 | ) | (20,972 | ) | (4,928 | ) | (5,207 | ) | (5,020 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 21,336 | 20,229 | 18,575 | 4,602 | 4,288 | 3,580 | ||||||||||||||||||
Expected return on plan assets | 1,067 | 998 | 925 | 313 | 283 | 263 | ||||||||||||||||||
Actuarial gain / (loss) | (250 | ) | 447 | 1,284 | (97 | ) | 40 | 247 | ||||||||||||||||
Foreign currency translation | (288 | ) | 74 | 253 | ||||||||||||||||||||
Employer contributions | 584 | 492 | 468 | 200 | 66 | 89 | ||||||||||||||||||
Plan participant contributions | 236 | 221 | 219 | |||||||||||||||||||||
Benefits paid | (792 | ) | (723 | ) | (866 | ) | (151 | ) | (149 | ) | (144 | ) | ||||||||||||
Settlements | 0 | (328 | ) | (376 | ) | |||||||||||||||||||
Fair value of plan assets at the end of the year | 22,181 | 21,336 | 20,229 | 4,579 | 4,602 | 4,288 | ||||||||||||||||||
Funded status | 1,304 | (170 | ) | (743 | ) | (349 | ) | (605 | ) | (732 | ) | |||||||||||||
Unrecognized net actuarial (gains) / losses | 865 | 2,123 | 2,334 | 975 | 1,237 | 1,222 | ||||||||||||||||||
Unrecognized past service cost | 414 | 0 | 0 | 0 | 1 | 1 | ||||||||||||||||||
Unrecognized asset | (2,583 | ) | (1,953 | ) | (1,591 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 633 | 491 | 485 | |||||||||||||||||||||
Net periodic pension cost | (584 | ) | (492 | ) | (468 | ) | (97 | ) | (103 | ) | (125 | ) | ||||||||||||
Employer contributions | 584 | 492 | 468 | 200 | 66 | 89 | ||||||||||||||||||
Acquisitions | (54 | ) | 0 | (6 | ) | |||||||||||||||||||
Settlement | 0 | 170 | 0 | |||||||||||||||||||||
Foreign currency translation | (56 | ) | 9 | 48 | ||||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||
�� | ||||||||||||||||||||||||
Amounts recognized in the balance sheet | ||||||||||||||||||||||||
Prepaid pension cost | 887 | 815 | 832 | |||||||||||||||||||||
Accrued pension liability | (261 | ) | (182 | ) | (341 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 626 | 633 | 491 | ||||||||||||||||||
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a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 367 | 347 | 353 | 88 | 76 | 82 | ||||||||||||||||||
Interest cost | 633 | 611 | 660 | 264 | 242 | 236 | ||||||||||||||||||
Expected return on plan assets | (1,067 | ) | (998 | ) | (925 | ) | (313 | ) | (283 | ) | (263 | ) | ||||||||||||
Amortization of unrecognized past service cost | 0 | 125 | (3 | ) | ||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 0 | 25 | 101 | 58 | 68 | 68 | ||||||||||||||||||
Special termination benefits | 21 | 17 | 37 | 0 | 0 | 2 | ||||||||||||||||||
Settlements | 0 | 0 | 10 | |||||||||||||||||||||
Increase / (decrease) of unrecognized asset | 630 | 365 | 235 | |||||||||||||||||||||
Net periodic pension cost | 584 | 492 | 468 | 97 | 103 | 125 | ||||||||||||||||||
Funded and unfunded plans | Swiss | |||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||
Defined benefit obligation from funded plans | (20,877 | ) | (21,506 | ) | (20,972 | ) | (20,225 | ) | (18,216 | ) | ||||||||||||||
Plan assets | 22,181 | 21,336 | 20,229 | 18,575 | 17,619 | |||||||||||||||||||
Surplus/(deficit) | 1,304 | (170 | ) | (743 | ) | (1,650 | ) | (597 | ) | |||||||||||||||
Experience gains / (losses) on plan liabilities | 0 | (265 | ) | (77 | ) | |||||||||||||||||||
Experience gains / (losses) on plan assets | (250 | ) | 447 | 1,284 | ||||||||||||||||||||
Foreign | ||||||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||||||
Defined benefit obligation from funded plans | (4,654 | ) | (5,002 | ) | (4,635 | ) | (3,815 | ) | (3,509 | ) | ||||||||||||||
Defined benefit obligation from unfunded plans | (274 | ) | (205 | ) | (385 | ) | (327 | ) | (154 | ) | ||||||||||||||
Plan assets | 4,579 | 4,602 | 4,288 | 3,580 | 3,402 | |||||||||||||||||||
Surplus/(deficit) | (349 | ) | (605 | ) | (732 | ) | (562 | ) | (261 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | (32 | ) | (11 | ) | 7 | |||||||||||||||||||
Experience gains / (losses) on plan assets | (97 | ) | 40 | 247 | ||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Principal weighted average actuarial assumptions used (%) Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.5 | 3.0 | 3.0 | 5.8 | 5.2 | 5.0 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.8 | 4.6 | 4.4 | ||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 0.8 | 2.4 | 2.1 | 1.9 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.0 | 3.0 | 3.3 | 5.2 | 5.0 | 5.5 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 7.0 | 6.7 | 7.0 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 1.0 | 2.1 | 1.9 | 1.9 | ||||||||||||||||||
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Notes to the Financial Statements
Mortality tables and life expectancies for major plans | ||||||||||||||||||||||||||
Life expectancy at age 65 for a male member currently | ||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||
Country | Mortality table (end of 2007) | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Switzerland | BVG 2000 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | 17.8 | |||||||||||||||||||
UK | PA 92 G, medium cohort | 21.9 | 21.8 | 19.7 | 23.0 | 23.0 | 21.3 | |||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 18.9 | 18.7 | 18.5 | 21.6 | 21.5 | 21.3 | |||||||||||||||||||
US | RP2000 projected to 2008 | 18.3 | 17.9 | 17.5 | 18.3 | 17.9 | 17.5 | |||||||||||||||||||
Life expectancy at age 65 for a female member currently | ||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||
Country | Mortality table (end of 2007) | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||
Switzerland | BVG 2000 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | 21.1 | |||||||||||||||||||
UK | PA 92 G, medium cohort | 24.8 | 24.7 | 22.6 | 25.8 | 25.8 | 24.1 | |||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 23.0 | 22.8 | 22.7 | 25.6 | 25.5 | 25.4 | |||||||||||||||||||
US | RP2000 projected to 2008 | 20.5 | 20.3 | 20.7 | 20.5 | 20.3 | 20.7 | |||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
For the year ended | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||
Plan assets (weighted average) | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 38 | 41 | 43 | 50 | 53 | 52 | ||||||||||||||||||
Debt instruments | 47 | 45 | 43 | 38 | 38 | 39 | ||||||||||||||||||
Real estate | 11 | 11 | 12 | 4 | 4 | 4 | ||||||||||||||||||
Other | 4 | 3 | 2 | 8 | 5 | 5 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 33--51 | 33--51 | 34--46 | 49--52 | 49--53 | 52--55 | ||||||||||||||||||
Debt instruments | 31--50 | 31--50 | 30--53 | 38--44 | 37--44 | 44--45 | ||||||||||||||||||
Real estate | 10--19 | 10--19 | 11--19 | 4--6 | 4--6 | 0--3 | ||||||||||||||||||
Other | 0 | 0 | 0 | 1--3 | 1--5 | 1--2 | ||||||||||||||||||
Actual return on plan assets (%) | 3.9 | 7.2 | 12.0 | 4.8 | 7.8 | 13.6 | ||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
CHF million | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 336 | 684 | 613 | |||||||||||||||||||||
UBS AG shares1 | 128 | 193 | 225 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 9,379 | 7,169 | 2,222 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 111 | 69 | 69 | |||||||||||||||||||||
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b) Post-retirement medical and life plans
In the US and the UK, the Group offers retiree medical benefits that contribute to the health care coverage of employees and beneficiaries after retirement. In addition to retiree medical benefits, the Group in the US also provides retiree life insurance benefits. The UK plan is closed to new entrants. The benefit obligation in excess of fair value of plan assets for those plans amounts to CHF 190 million as of 31 December 2007 (2006: CHF 219 million, 2005: CHF 216 mil-
lion) and the total accrued post-retirement cost amounts to CHF 181 million as of 31 December 2007 (2006: CHF 176 million, 2005: CHF 168 million). The net periodic post-retirement costs for the years ended 31 December 2007, 31 December 2006 and 31 December 2005 were CHF 26 million, CHF 24 million and CHF 21 million, respectively.
b) Post-retirement medical and life plans | ||||||||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||
Post-retirement benefit obligation at the beginning of the year | (219 | ) | (216 | ) | (166 | ) | ||||||||||||||
Service cost | (12 | ) | (10 | ) | (8 | ) | ||||||||||||||
Interest cost | (11 | ) | (11 | ) | (11 | ) | ||||||||||||||
Plan participant contributions | (1 | ) | (1 | ) | 0 | |||||||||||||||
Actuarial gain / (loss) | 39 | 1 | (17 | ) | ||||||||||||||||
Foreign currency translation | 14 | 10 | (22 | ) | ||||||||||||||||
Amendments | (8 | ) | (1 | ) | 0 | |||||||||||||||
Benefits paid | 8 | 9 | 8 | |||||||||||||||||
Post-retirement benefit obligation at the end of the year | (190 | ) | (219 | ) | (216 | ) | ||||||||||||||
Fair value of plan assets at the beginning of the year | 0 | 0 | 0 | |||||||||||||||||
Employer contributions | 7 | 8 | 8 | |||||||||||||||||
Plan participant contributions | 1 | 1 | 0 | |||||||||||||||||
Benefits paid | (8 | ) | (9 | ) | (8 | ) | ||||||||||||||
Fair value of plan assets at the end of the year | 0 | 0 | 0 | |||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||
Defined benefit obligation | (190 | ) | (219 | ) | (216 | ) | (166 | ) | (179 | ) | ||||||||||
Plan asset | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Surplus/(deficit) | (190 | ) | (219 | ) | (216 | ) | (166 | ) | (179 | ) | ||||||||||
Experience gains / (losses) on plan liabilities | 8 | 1 | (3 | ) | 0 | 0 | ||||||||||||||
The assumed average health care cost trend rate used in determining post-retirement benefit expense is assumed to be 11% for 2007 and to decrease to an ultimate trend rate of 5% in 2013. On a country-by-country basis, the same discount rate is used for the calculation of the post-retirement benefit obligation from medical and life plans as for the defined benefit obligations arising from pension plans.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. 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 | 25 | (20 | ) | |||||
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Notes to the Financial Statements
c) Defined contribution plans
The Group also sponsors a number of defined contribution plans primarily in the UK and the US. Certain plans permit employees to make contributions and earn matching or other contributions from the Group. The contributions to these plans recognized as expense for the years ended 31 December 2007, 31 December 2006 and 31 December 2005 were CHF 285 million, CHF 229 million and CHF 184 million, respectively.
d) Related party disclosure
UBS is the principal bank for the pension fund of UBS in Switzerland. In this function, UBS is engaged to execute most of the pension fund’s banking activities. These activities also include, but are not limited to, trading and securities lending and borrowing. All transactions have been executed at arm’s length conditions.
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Received by UBS | ||||||||||||
Fees | 58 | 53 | 48 | |||||||||
Paid by UBS | ||||||||||||
Interest | 2 | 2 | 4 | |||||||||
Dividends and capital repayments | 38 | 33 | 7 | |||||||||
The transaction volumes in UBS shares and other UBS securities are as follows:
For the year ended | ||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Financial instruments bought by pension funds | ||||||||||||
UBS AG shares (in thousands of shares) | 1,728 | 1,793 | 2,774 | |||||||||
UBS financial instruments (nominal values in CHF million) | 950 | 8 | 0 | |||||||||
Financial instruments sold by pension funds or matured | ||||||||||||
UBS AG shares (in thousands of shares) | 1,930 | 2,752 | 4,526 | |||||||||
UBS financial instruments (nominal values in CHF million) | 976 | 14 | 45 | |||||||||
UBS has also leased buildings from its pension funds. The rent paid by UBS under these leases amounted to CHF 6 million in 2007, CHF 4 million in 2006 and CHF 4 million in 2005.
UBS defined benefit pension plans are contained in the additional details to the fair value of plan assets. Furthermore, UBS defined contribution plans hold 14,121,239 UBS shares with a market value of CHF 736 million as of 31 December 2007 (2006: 14,158,961 shares with a market value of CHF 1,043 million, 2005: 14,128,558 shares with a market value of CHF 885 million).
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Note 30 Equity Participation and Other Compensation Plans
UBS has established several equity participation plans to further align the long-term interests of executives, managers and staff with the interests of shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules may vary by country.
shares instead of cash, on a mandatory basis. The awards granted in UBS shares or notional shares are settled in equity. SEEOP awards generally vest in one-fifth increments over a five-year vesting period. These awards are forfeitable if certain conditions are not met.
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Financial Statements
Notes to the Financial Statements
Note 30 Equity Participation and Other Compensation Plans (continued)
Movements in shares granted under various equity participation plans described in Note 30a) are as follows:
Weighted | ||||||||||||||||||||||||
average | Weighted | Weighted | ||||||||||||||||||||||
Number | grant | Number | average grant | Number | average grant | |||||||||||||||||||
of shares | date fair | of shares | date fair | of shares | date fair | |||||||||||||||||||
31.12.07 | value CHF | 31.12.06 | value CHF | 31.12.05 | value CHF | |||||||||||||||||||
Unvested, at the beginning of the year | 56,141,102 | 58 | 53,725,186 | 46 | 49,273,638 | 40 | ||||||||||||||||||
Shares awarded during the year | 30,271,820 | 70 | 26,652,070 | 69 | 27,252,100 | 51 | ||||||||||||||||||
Vested during the year | (25,031,819 | ) | 55 | (22,712,566 | ) | 43 | (21,991,760 | ) | 39 | |||||||||||||||
Forfeited during the year | (2,278,523 | ) | 66 | (1,523,588 | ) | 56 | (808,792 | ) | 45 | |||||||||||||||
Unvested, at the end of the year | 59,102,580 | 66 | 56,141,102 | 58 | 53,725,186 | 46 | ||||||||||||||||||
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. The market value of shares
vested was CHF 1,737 million, CHF 1,587 million and CHF 1,083 million for the years ended 31 December 2007, 31 December 2006 and 31 December 2005, respectively.
c) UBS Option Awards
Movements in options granted under various equity participation plans described in Note 30a) are as follows:
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | average | Number | average | Number | average | |||||||||||||||||||
of options | exercise | of options | exercise | of options | exercise | |||||||||||||||||||
31.12.07 | price CHF1 | 31.12.06 | price CHF1 | 31.12.05 | price CHF1 | |||||||||||||||||||
Outstanding, at the beginning of the year | 176,779,087 | 50 | 181,765,090 | 42 | 201,814,708 | 35 | ||||||||||||||||||
Granted during the year | 45,129,476 | 71 | 45,517,013 | 71 | 45,202,854 | 55 | ||||||||||||||||||
Exercised during the year | (32,214,986 | ) | 38 | (47,179,386 | ) | 36 | (61,303,418 | ) | 34 | |||||||||||||||
Forfeited during the year | (3,425,863 | ) | 66 | (3,303,002 | ) | 55 | (3,810,106 | ) | 45 | |||||||||||||||
Expired unexercised | (274,384 | ) | 62 | (20,628 | ) | 40 | (138,948 | ) | 34 | |||||||||||||||
Outstanding, at the end of the year | 185,993,330 | 55 | 176,779,087 | 50 | 181,765,090 | 42 | ||||||||||||||||||
Exercisable, at the end of the year | 90,453,625 | �� | 42 | 80,312,503 | 36 | 74,788,838 | 35 | |||||||||||||||||
The weighted average share price at the time when the options were exercised during the year was CHF 72, CHF 71 and CHF 53 for the years ended 31 December 2007, 31 De-
cember 2006 and 31 December 2005, respectively. The following table provides additional information about option awards:
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Intrinsic value of options exercised during the year (CHF million) | 1,046 | 1,660 | 1,224 | |||||||||
Weighted average grant date fair value of options granted (CHF) | 11.11 | 12.39 | 8.01 | |||||||||
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Note 30 Equity Participation and Other Compensation Plans (continued)
The following table summarizes additional information about options outstanding and options exercisable at 31 December 2007:
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||||||
Weighted | Aggregate | average | Weighted | Aggregate | average | |||||||||||||||||||||||||||
Number | average | intrinsic value | remaining | Number | average | intrinsic value | remaining | |||||||||||||||||||||||||
of options | exercise price | (CHF / USD | contractual | of options | exercise price | (CHF / USD | contractual | |||||||||||||||||||||||||
Range of exercise price per share | outstanding | (CHF / USD) | million) | term (years) | exercisable | (CHF / USD) | million) | term (years) | ||||||||||||||||||||||||
CHF | ||||||||||||||||||||||||||||||||
26.69–40.00 | 17,461,795 | 34.25 | 317 | 4.8 | 17,241,610 | 34.27 | 312 | 4.8 | ||||||||||||||||||||||||
40.01–50.00 | 14,334,889 | 46.77 | 81 | 5.5 | 14,201,947 | 46.79 | 80 | 5.5 | ||||||||||||||||||||||||
50.01–60.00 | 24,364,314 | 52.63 | 24 | 7.4 | 11,532,651 | 51.11 | 16 | 7.0 | ||||||||||||||||||||||||
60.01–70.00 | 5,791,089 | 64.50 | 0 | 9.0 | 607,206 | 64.34 | 0 | 8.1 | ||||||||||||||||||||||||
70.01–78.80 | 77,760,388 | 72.25 | 0 | 8.7 | 7,841,168 | 70.45 | 0 | 8.2 | ||||||||||||||||||||||||
26.69–78.80 | 139,712,475 | 61.14 | 422 | 7.7 | 51,424,582 | 47.38 | 408 | 6.0 | ||||||||||||||||||||||||
USD | ||||||||||||||||||||||||||||||||
4.74–20.00 | 138,622 | 14.20 | 4 | 2.1 | 138,622 | 14.20 | 4 | 2.1 | ||||||||||||||||||||||||
20.01–30.00 | 18,753,410 | 23.26 | 426 | 4.3 | 18,753,410 | 23.26 | 426 | 4.3 | ||||||||||||||||||||||||
30.01–40.00 | 10,550,084 | 36.26 | 103 | 6.3 | 10,508,448 | 36.24 | 103 | 6.3 | ||||||||||||||||||||||||
40.01–53.50 | 16,838,735 | 44.15 | 39 | 7.2 | 9,628,563 | 43.15 | 29 | 7.1 | ||||||||||||||||||||||||
4.74–53.50 | 46,280,851 | 33.79 | 572 | 5.8 | 39,029,043 | 31.63 | 562 | 5.5 | ||||||||||||||||||||||||
d) Valuation
The fair value of options is determined by means of a Monte Carlo simulation. The simulation technique uses a mix of implied and historic volatility and specific employee exercise behavior patterns based on statistical data, taking into account the specific terms and conditions under which the options are granted, such as the vesting period, forced exercises during the lifetime, and gain- and time-dependent exercise behavior. The expected term of each option is calcu-
lated as the probability-weighted average period of the time between grant and exercise. The term structure of volatility is derived from the implied volatilities of traded UBS options in combination with the observed long-term historic share price volatility. Dividends are assumed to grow at a fixed rate over the term of the option.
31.12.07 | ||||||||||||
CHF awards | range low | range high | ||||||||||
Expected volatility (%) | 23.86 | 22.51 | 29.23 | |||||||||
Risk-free interest rate (%) | 2.58 | 2.46 | 3.27 | |||||||||
Expected dividend (CHF) | 3.13 | 2.20 | 4.56 | |||||||||
Strike price (CHF) | 71.31 | 55.48 | 78.80 | |||||||||
Share price (CHF) | 70.25 | 55.48 | 78.80 | |||||||||
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Notes to the Financial Statements
Note 30 Equity Participation and Other Compensation Plans (continued)
31.12.06 | ||||||||||||
CHF awards1 | range low | range high | ||||||||||
Expected volatility (%) | 25.38 | 22.51 | 27.18 | |||||||||
Risk-free interest rate (%) | 2.15 | 1.96 | 2.68 | |||||||||
Expected dividend (CHF) | 2.26 | 1.76 | 2.83 | |||||||||
Strike price (CHF) | 71.19 | 65.13 | 77.33 | |||||||||
Share price (CHF) | 70.16 | 65.13 | 76.25 | |||||||||
31.12.05 | ||||||||||||||||||||||||
CHF awards | range low | range high | USD awards | range low | range high | |||||||||||||||||||
Expected volatility (%) | 23.20 | 12.39 | 27.03 | 23.36 | 15.21 | 27.21 | ||||||||||||||||||
Risk-free interest rate (%) | 2.00 | 0.62 | 2.34 | 4.11 | 1.91 | 4.63 | ||||||||||||||||||
Expected dividend (CHF / USD) | 2.30 | 1.50 | 3.89 | 1.89 | 1.22 | 4.12 | ||||||||||||||||||
Strike price (CHF / USD) | 52.08 | 48.23 | 63.23 | 44.11 | 39.25 | 48.26 | ||||||||||||||||||
Share price (CHF / USD) | 51.33 | 48.23 | 63.23 | 43.40 | 39.25 | 48.26 | ||||||||||||||||||
e) Effect on income statement and balance sheet
Generally, under IFRS, for all employee share and option awards as well as certain AIV awards, UBS recognizes compensation expense over the service period which is generally equal to the vesting period. Share and option awards typically have a three-year tiered vesting structure which means awards vest in one-third increments over that period.
come statement is CHF 1,904 million, which is expected to be recognized in Personnel expenses over a weighted average period of 2.1 years.
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Note 31 Related Parties
The Group defines related parties as associated companies, post-employment benefit plans for the benefit of UBS employees, key management personnel, close family members of key management personnel and enterprises which are, directly or indirectly, controlled by, jointly controlled by or significantly influenced by or in which significant voting
power resides with key management personnel or their close family members. Key management personnel is defined as members of the Board of Directors (BoD) and Group Executive Board (GEB). This definition is based on the requirements of IAS 24Related Party Disclosures.
a) Remuneration of key management personnel
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Base salaries and other cash payments | 14 | 16 | 15 | |||||||||
Incentive awards – cash | 38 | 107 | 90 | |||||||||
Employer’s contributions to retirement benefit plans | 2 | 1 | 1 | |||||||||
Benefits in kind, fringe benefits (at market value) | 2 | 2 | 3 | |||||||||
Equity compensation benefits1 | 22 | 113 | 2 | 121 | 2 | |||||||
Total | 78 | 239 | 230 | |||||||||
Peter Wuffli relinquished his position as Group CEO on 6 July 2007, Clive Standish retired on 30 September 2007 and Huw Jenkins stepped down from the GEB on 30 September 2007: all three executives are contractually entitled to receive base salary, pro rata incentive and certain employment-benefits until the expiry of their 12-month notice period. Huw Jenkins is retained in a consultancy position with UBS until 30 September 2008. The total amount due under all three contacts – CHF 15.3 million payable in 2008 and CHF
45.3 million payable in 2009 – has been fully accrued in 2007 and reflected in the 2007 income statement.
b) Equity holdings
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||
Number of stock options from equity participation plans held by executive members of the BoD and the GEB1 | 6,828,152 | 10,886,798 | 10,862,250 | |||||||||
Number of shares held by members of the BoD, GEB and parties closely linked to them | 6,693,012 | 7,974,724 | 8,713,984 | |||||||||
Of the share totals above, at 31 December 2007, 31 December 2006 and 31 December 2005, 4,852 shares, 7,146 shares and 6,538 shares, respectively, were held by close family members of key management personnel and 2,200,000 shares, 2,200,000 shares and 2,486,060 shares, respectively, 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. Further information about UBS’s equity participation plans can be found in Note 30. No member of the BoD or GEB is the beneficial owner of more than 1% of the Group’s shares at 31 December 2007.
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Notes to the Financial Statements
Note 31 Related Parties (continued)
c) Loans, advances and mortgages to key management personnel
Movements in the loan, advance and mortgage balances are as follows:
CHF million | 31.12.07 | 31.12.06 | ||||||
Balance at the beginning of the year | 19 | 21 | ||||||
Additions | 0 | 1 | ||||||
Reductions | (4 | ) | (3 | ) | ||||
Balance at the end of the year | 15 | 19 | ||||||
No unsecured loans were granted to key management personnel as of 31 December 2007 and 31 December 2006.
d) Associated companies
CHF million | 31.12.07 | 31.12.06 | ||||||
Balance at the beginning of the year | 375 | 321 | ||||||
Additions | 60 | 116 | ||||||
Reductions | (215 | ) | (48 | ) | ||||
Credit loss (expense) / recovery | 0 | 1 | ||||||
Foreign currency translation | 0 | (15 | ) | |||||
Balance at the end of the year | 220 | 375 | ||||||
Thereof unsecured loans | 56 | 177 | ||||||
Thereof allowances for credit losses | 4 | 5 | ||||||
All loans to associated companies are transacted at arm’s length.
Other transactions with associated companies transacted at arm’s length are as follows:
For the year ended or as of | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Payments to associates for goods and services received | 87 | 58 | 397 | |||||||||
Fees received for services provided to associates | 20 | 79 | 258 | |||||||||
Commitments and contingent liabilities to associates | 33 | 32 | ||||||||||
Note 33 provides a list of significant associates.
e) Other related party transactions
Ltd. (Isle of Man), Royal Dutch Shell plc (UK), Seromer Biotech SA (Switzerland, previously Bertarelli Biotech SA), Serono Group (Switzerland), Stadler Rail Group (Switzerland), Team Alinghi (Switzerland), Team Alinghi (Spain), and Unisys Corporation (USA). Related parties in 2007 also included Bertarelli Investment Ltd (Jersey), Fiat Group (Italy), Lévy Kaufmann-Kohler (Switzerland), Limonares Ltd (Jersey), Omega Fund I Ltd (Jersey), Omega Fund II Ltd (Jersey), Omega Fund III Ltd (Jersey), Omega Fund IV Ltd (Jersey) SGS Société Générale de Surveillance SA (Switzerland) and Walo Group (Switzerland).
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Note 31 Related Parties (continued)
e) Other related party transactions (continued)
Movements in loans to other related parties are as follows:
CHF million | 31.12.07 | 31.12.06 | ||||||||||
Balance at the beginning of the year | 872 | 919 | ||||||||||
Additions | 301 | 34 | ||||||||||
Reductions | 485 | 81 | ||||||||||
Balance at the end of the year1 | 688 | 872 | ||||||||||
Other transactions with these related parties include:
For the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Goods sold and services provided to UBS | 8 | 8 | 15 | |||||||||
Fees received for services provided by UBS | 16 | 8 | 1 | |||||||||
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 8.9 million (EUR 5.4 million) in sponsoring fees for 2007. Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli.
f) Additional information
Note 32 Post-Balance Sheet Events
Mandatory Convertible Notes
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Financial Statements
Notes to the Financial Statements
Note 33 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.
the Business Groups. It provides for the most cost-efficient and flexible structure and facilitates efficient allocation and use of capital, comprehensive risk management and control and straightforward funding processes.
Significant subsidiaries | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
Banco UBS Pactual S.A. | Rio de Janeiro, Brazil | IB | BRL | 349.6 | 100.0 | |||||||||
Crédit Industriel Société Anonyme in Liquidation | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
Dillon Read U.S. Finance L.P. | Delaware, USA | IB | USD | 548.0 | 100.0 | |||||||||
Fondcenter AG | Zurich, Switzerland | Global AM | CHF | 0.1 | 100.0 | |||||||||
OOO UBS Bank | Moscow, Russia | IB | RUB | 1250.0 | 100.0 | |||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 118000.0 | 98.4 | |||||||||
Thesaurus Continentale Effekten-Gesellschaft in Zürich in Liquidation | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS (Bahamas) Ltd. | Nassau, Bahamas | Global WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) S.A. | Paris, France | Global WM&BB | EUR | 25.7 | 100.0 | |||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
UBS (Italia) S.p.A. | Milan, Italy | Global WM&BB | EUR | 60.0 | 100.0 | |||||||||
UBS (Luxembourg) S.A. | Luxembourg, Luxembourg | Global WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) S.A. | Monte Carlo, Monaco | Global WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments Limited | London, Great Britain | Global AM | GBP | 0.3 | 100.0 | |||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.1 | 100.0 | |||||||||
UBS Americas Inc. | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Asesores SA | Panama, Panama | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | Global WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank Mexico, S.A. Institucion de Banca Multiple, UBS Grupo Financiero | Mexico City, Mexico | IB | MXN | 409.4 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | Global WM&BB | USD | 1700.0 | 100.0 | |||||||||
UBS Bank, S.A. | Madrid, Spain | Global WM&BB | EUR | 72.2 | 100.0 | |||||||||
UBS Belgium SA / NV | Brussels, Belgium | Global WM&BB | EUR | 23.0 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd. | St. Helier, Jersey | IB | GBP | 130.0 | 100.0 | |||||||||
UBS Capital B.V. | Amsterdam, the Netherlands | IB | EUR | 29.8 | 2 | 100.0 | ||||||||
UBS Card Center AG | Glattbrugg, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS Clearing and Execution Services Limited | London, Great Britain | IB | USD | 50.0 | 100.0 | |||||||||
UBS Commodities Canada Ltd. | Toronto, Canada | IB | USD | 11.3 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 500.0 | 100.0 | |||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | Global WM&BB | EUR | 176.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | GBP | 0.0 | 100.0 | |||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Factoring AG | Zurich, Switzerland | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Fiduciaria S.p.A. | Milan, Italy | Global WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | Global WM&BB | USD | 4.4 | 2 | 100.0 | ||||||||
UBS Finance (Cayman Islands) Ltd. | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) N.V. | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
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Note 33 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Financial Services Inc. | Delaware, USA | Global WM&BB | USD | 2005.8 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | Global WM&BB | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor, L.L.C. | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) S.A. | Luxembourg, Luxembourg | Global AM | CHF | 42.0 | 100.0 | |||||||||
UBS Fund Holding (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 18.0 | 100.0 | |||||||||
UBS Fund Management (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 1.0 | 100.0 | |||||||||
UBS Fund Services (Cayman) Ltd. | George Town, Cayman Islands | Global AM | USD | 5.6 | 100.0 | |||||||||
UBS Fund Services (Ireland) Limited | Dublin, Ireland | Global AM | EUR | 1.3 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) S.A. Poland Branch | Zabierzow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Futures Singapore Ltd. | Singapore, Singapore | IB | USD | 39.8 | 2 | 100.0 | ||||||||
UBS Global Asset Management (Americas) Inc. | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Global Asset Management (Australia) Ltd. | Sydney, Australia | Global AM | AUD | 8.0 | 100.0 | |||||||||
UBS Global Asset Management (Canada) Co. | Toronto, Canada | Global AM | CAD | 117.0 | 100.0 | |||||||||
UBS Global Asset Management (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Global Asset Management (France) S.A. | Paris, France | Global WM&BB | EUR | 2.1 | 100.0 | |||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management (Italia) SGR SpA | Milan, Italy | Global AM | EUR | 3.1 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd. | Tokyo, Japan | Global AM | JPY | 2200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Ltd. | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd. | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||
UBS Global Asset Management (UK) Ltd. | London, Great Britain | Global AM | GBP | 56.0 | 100.0 | |||||||||
UBS Global Asset Management (US) Inc. | Delaware, USA | Global AM | USD | 23.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Funds Ltd. | London, Great Britain | Global AM | GBP | 11.0 | 100.0 | |||||||||
UBS Global Asset Management Holding Ltd. | London, Great Britain | Global AM | GBP | 78.0 | 100.0 | |||||||||
UBS Global Asset Management Life Ltd. | London, Great Britain | Global AM | GBP | 5.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | Global WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS Grupo Financiero, S.A. de C.V. | Mexico City, Mexico | IB | MXN | 548.8 | 100.0 | |||||||||
UBS Hana Asset Management Company Ltd. | Seoul, South Korea | Global AM | KRW | 45000.0 | 51.0 | |||||||||
UBS International Holdings B.V. | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc. | New York, USA | Global WM&BB | USD | 44.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | Global WM&BB | EUR | 1.0 | 100.0 | |||||||||
UBS Investment Management Canada Inc. | Toronto, Canada | Global WM&BB | CAD | 0.0 | 100.0 | |||||||||
UBS Investments Philippines, Inc. | Makati City, Philippines | IB | PHP | 360.0 | 99.4 | |||||||||
UBS Italia SIM SpA | Milan, Italy | IB | EUR | 15.1 | 100.0 | |||||||||
UBS Leasing AG | Zurich, Switzerland | Global WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | Global WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Life Insurance Company USA | California, USA | Global WM&BB | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Limited | London, Great Britain | IB | GBP | 29.4 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Menkul Degerler AS | Istanbul, Turkey | IB | TRY | 0.4 | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor Limited | London, Great Britain | Global AM | GBP | 8.8 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS Pactual Asset Management S.A. DTVM | Rio de Janeiro, Brazil | Global AM | BRL | 73.2 | 100.0 | |||||||||
UBS Preferred Funding Company LLC I | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
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Notes to the Financial Statements
Note 33 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Jurisdiction | Share capital | Equity interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Real Estate Investments Inc. | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 51.0 | |||||||||
UBS Real Estate Securities Inc. | Delaware, USA | IB | USD | 300.4 | 2 | 100.0 | ||||||||
UBS Realty Investors LLC | Massachusetts, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Sauerborn Private Equity Komplementär GmbH | Bad Homburg, Germany | Global WM&BB | EUR | 0.0 | 100.0 | |||||||||
UBS Securities (Thailand) Ltd | Bangkok, Thailand | IB | THB | 400.0 | 100.0 | |||||||||
UBS Securities Asia Limited | Hong Kong, China | IB | HKD | 20.0 | 100.0 | |||||||||
UBS Securities Australia Ltd | Sydney, Australia | IB | AUD | 209.8 | 2 | 100.0 | ||||||||
UBS Securities Canada Inc. | Toronto, Canada | IB | CAD | 10.0 | 100.0 | |||||||||
UBS Securities España Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France S.A. | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 430.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 668.3 | 100.0 | |||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 60000.0 | 100.0 | |||||||||
UBS Securities Limited | London, Great Britain | IB | GBP | 140.0 | 100.0 | |||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 2455.6 | 2 | 100.0 | ||||||||
UBS Securities Malaysia Sdn. Bhd. | Kuala Lumpur, Malaysia | IB | MYR | 75.0 | 100.0 | |||||||||
UBS Securities Philippines Inc. | Makati City, Philippines | IB | PHP | 190.0 | 100.0 | |||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 311.5 | 100.0 | |||||||||
UBS Securities Pte. Ltd. Seoul Branch | Seoul, South Korea | IB | KRW | 150000.0 | 100.0 | |||||||||
UBS Service Centre (Poland) Sp. z o.o. | Krakow, Poland | CC | PLN | 0.1 | 100.0 | |||||||||
UBS Services USA LLC | Delaware, USA | Global WM&BB | USD | 0.1 | 100.0 | |||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | Global WM&BB | CHF | 1.5 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | Global WM&BB | USD | 105.0 | 2 | 100.0 | ||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd. | St. Helier, Jersey | Global WM&BB | GBP | 0.0 | 100.0 | |||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | Global WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | Global WM&BB | GBP | 2.5 | 100.0 | |||||||||
UBS Wealth Management Australia Ltd | Melbourne, Australia | Global WM&BB | AUD | 53.9 | 100.0 | |||||||||
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Note 33 Significant Subsidiaries and Associates (continued)
Consolidated companies: changes in 2007 | ||
Significant new companies | ||
Dillon Read U.S. Finance L.P. – Delaware, USA | ||
Fondcenter AG – Zurich, Switzerland | ||
UBS Alternative and Quantitative Investments Limited – London, Great Britain | ||
UBS Bank Mexico, S.A. Institucion de Banca Multiple, UBS Grupo Financiero – Mexico City, Mexico | ||
UBS Fund Services (Luxembourg) S.A. Poland Branch – Zabierzow, Poland | ||
UBS Global Asset Management (Italia) SGR SpA – Milan, Italy | ||
UBS Global Asset Management (UK) Ltd – London, Great Britain | ||
UBS Global Asset Management Funds Ltd – London, Great Britain | ||
UBS Global Asset Management Life Ltd – London, Great Britain | ||
UBS Grupo Financiero, S.A. de C.V. – Mexico City, Mexico | ||
UBS Hana Asset Management Company Ltd – Seoul, South Korea | ||
UBS Investments Philippines, Inc. – Makati City, Philippines | ||
UBS O’Connor Limited – London, Great Britain | ||
UBS Service Centre (Poland) Sp. z o.o. – Krakow, Poland | ||
Deconsolidated companies | ||
Significant deconsolidated companies | Reason for deconsolidation | |
Banco UBS S.A. – Rio de Janeiro, Brazil | Merged | |
Noriba Bank BSC – Manama, Bahrain | Liquidated | |
UBS Capital AG – Zurich, Switzerland | Merged | |
UBS Corporate Finance Italia SpA – Milan, Italy | Merged | |
UBS Global Asset Management (Italia) SIM SpA – Milan, Italy | Merged | |
Significant associates | |||||||||||
Company | Industry | Equity interest in % | Share capital in millions | ||||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 32.9 | CHF | 26 | |||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33.3 | CHF | 45 | |||||||
UBS Securities Co. Limited, Beijing – China | Financial | 20.0 | CNY | 1,490 | |||||||
UBS Alpha Select – George Town, Cayman Islands | Private Investment Company | 20.7 | USD | 2,323 | 1 | ||||||
UBS Global Alpha Strategies XL (Multi Currency) Limited – George Town, Cayman Islands | Private Investment Company | 23.2 | USD | 164 | 1 | ||||||
Williamsburg Edge LLC – Delaware, USA | Real Estate | 50.0 | USD | 72 | |||||||
219 West 81st LLC – Wilmington – USA | Real Estate | 50.0 | USD | 56 | |||||||
Greensands Holding Limited – St. Helier, Jersey | Water Supply | 15.6 | 2 | GBP | 1,282 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 34 Invested Assets and Net New Money
Invested assets include all client assets managed by or deposited with UBS for investment purposes. Invested assets include, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. All assets held for purely transactional purposes and custody-only assets, including corporate client assets held for cash management and transactional purposes, are excluded from invested assets as the Group only administers the assets and does not offer advice on how the assets should be invested. Also excluded are non-bankable assets (e. g. art collections) and deposits from third-party banks for funding or trading purposes.
distributes it. This results in double counting within UBS total invested assets, as both Business Groups are providing a service independently to their respective clients, and both add value and generate revenue.
As of or for the year ended | ||||||||
CHF billion | 31.12.07 | 31.12.06 | ||||||
Fund assets managed by UBS | 509 | 439 | ||||||
Discretionary assets | 877 | 849 | ||||||
Other invested assets | 1,803 | 1,701 | ||||||
Total invested assets (double counts included) | 3,189 | 2,989 | ||||||
thereof double count | 392 | 371 | ||||||
thereof acquisitions (divestments) | 50.5 | 81.1 | ||||||
Net new money (double counts included) | 140.6 | 151.7 | ||||||
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Note 35 Business Combinations
Business combinations completed in 2007
McDonald Investments’ branch network
portfolios of McDonald Investments, resulting in a total cash consideration paid of CHF 339 million (USD 278 million). The cost of the business combination was allocated to an intangible asset reflecting customer relationships of CHF 57 million (USD 47 million), remaining net assets of CHF 77 million (USD 63 million) including the net loans to customer portfolios, and goodwill of CHF 205 million (USD 168 million). The unit provides comprehensive wealth management services to affluent and high net worth individuals, including estate planning, retirement planning and asset management, and has been integrated into Wealth Management US.
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 57 | 57 | |||||||||
Property and equipment | 4 | (1 | ) | 3 | ||||||||
Deferred tax assets | 0 | 10 | 10 | |||||||||
Goodwill | 0 | 205 | 205 | |||||||||
All other assets | 70 | 0 | 70 | |||||||||
Total assets | 74 | 271 | 345 | |||||||||
Liabilities | ||||||||||||
Total liabilities | 6 | 0 | 6 | |||||||||
Net assets | 68 | 271 | 339 | |||||||||
Total liabilities and equity | 74 | 271 | 345 | |||||||||
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Notes to the Financial Statements
Note 35 Business Combinations (continued)
Daehan Investment Trust Management Company
lion) in total and was paid in cash. The purchase price is subject to an earn-out clawback of up to CHF 40 million (KRW 30 billion) over the next three to five years. The acquisition costs have been allocated to intangible assets reflecting customer relationships of CHF 54 million, net assets of CHF 74 million and goodwill of CHF 170 million. On acquisition date, equity attributable to minority interests was CHF 60 million. The allocation of the cost of the business combination to assets acquired and liabilities assumed is still being finalized. At closing, DIMCO managed around CHF 26.4 billion of assets (KRW 19.9 trillion).
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 54 | 54 | |||||||||
Goodwill | 0 | 170 | 170 | |||||||||
All other assets | 87 | 0 | 87 | |||||||||
Total assets | 87 | 224 | 311 | |||||||||
Liabilities | ||||||||||||
Total liabilities | 13 | 0 | 13 | |||||||||
Net assets attributable to minority interests | 36 | 24 | 60 | |||||||||
Net assets attributable to UBS shareholders | 38 | 200 | 238 | |||||||||
Total liabilities and equity | 87 | 224 | 311 | |||||||||
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Note 35 Business Combinations (continued)
Business combinations announced in 2007
Standard Chartered’s mutual funds management business in India
Acquisition of significant associates in 2007
UBS Securities
Business combinations completed in 2006
Banco Pactual S.A.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 610 | 610 | |||||||||
Property and equipment | 9 | 0 | 9 | |||||||||
Deferred tax assets | 16 | 0 | 16 | |||||||||
Goodwill | 0 | 1,723 | 1,723 | |||||||||
All other assets | 11,877 | 0 | 11,877 | |||||||||
Total assets | 11,902 | 2,333 | 14,235 | |||||||||
Liabilities | ||||||||||||
Provisions | 52 | 0 | 52 | |||||||||
Deferred tax liabilities | 28 | 0 | 28 | |||||||||
All other liabilities | 11,363 | (35 | ) | 11,328 | ||||||||
Total liabilities | 11,443 | (35 | ) | 11,408 | ||||||||
Net assets | 459 | 2,368 | 2,827 | |||||||||
Total liabilities and equity | 11,902 | 2,333 | 14,235 | |||||||||
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Financial Statements
Notes to the Financial Statements
Note 35 Business Combinations (continued)
On the acquisition date, intangible assets and goodwill were allocated to the Business Groups as follows:
Global Wealth Management & | Global Asset | |||||||||||||||
CHF million | Business Banking | Investment Bank | Management | Total | ||||||||||||
Assets | ||||||||||||||||
Intangible assets | 160 | 252 | 198 | 610 | ||||||||||||
Goodwill | 174 | 1,066 | 483 | 1,723 | ||||||||||||
Investment Bank
ABN AMRO’s Global Futures and Options Business
provides clearing and execution services on a global basis. The acquired business has been integrated into the Prime Services business within the Equities business of the Investment Bank. The purchase price was allocated to net assets of CHF 429 million (USD 344 million) and intangible assets of CHF 132 million (USD 106 million). The difference of CHF 298 million (USD 237 million) from the purchase price was recognized as goodwill.
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 132 | 132 | |||||||||
Property and equipment | 13 | 0 | 13 | |||||||||
Financial investments available-for-sale | 26 | 54 | 80 | |||||||||
Goodwill | 0 | 298 | 298 | |||||||||
All other assets | 11,942 | 0 | 11,942 | |||||||||
Total assets | 11,981 | 484 | 12,465 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 9 | 9 | |||||||||
Deferred tax liabilities | 0 | 23 | 23 | |||||||||
All other liabilities | 11,574 | 0 | 11,574 | |||||||||
Total liabilities | 11,574 | 32 | 11,606 | |||||||||
Net assets | 407 | 452 | 859 | |||||||||
Total liabilities and equity | 11,981 | 484 | 12,465 | |||||||||
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Note 35 Business Combinations (continued)
Global Wealth Management & Business Banking
Piper Jaffray Companies’ Private Client Services Branch Network
120 million) representing client relationships. The difference of CHF 457 million (USD 371 million) from the purchase price was recognized as goodwill. Approximately 90 Piper Jaffray wealth management offices, mainly located in the Midwest and Western United States, serving 190,000 households, have been renamed and integrated into Wealth Management US.
Dolfi
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 158 | 158 | |||||||||
Property and equipment | 16 | (4 | ) | 12 | ||||||||
Financial investments available-for-sale | 1 | 0 | 1 | |||||||||
Goodwill | 0 | 479 | 479 | |||||||||
All other assets | 291 | 0 | 291 | |||||||||
Total assets | 308 | 633 | 941 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 8 | 8 | |||||||||
Deferred tax liabilities | 0 | 3 | 3 | |||||||||
All other liabilities | 2 | 4 | 6 | |||||||||
Total liabilities | 2 | 15 | 17 | |||||||||
Net assets | 306 | 618 | 924 | |||||||||
Total liabilities and equity | 308 | 633 | 941 | |||||||||
105
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Financial Statements
Notes to the Financial Statements
Note 35 Business Combinations (continued)
Acquisitions of minority interests of subsidiaries in 2006
UBS Bunting Limited
Acquisition completed after the balance sheet date
Caisse Centrale de Réescompte Group
well as approximately EUR 140 million for the excess capital of CCR at closing, reflecting provisional adjustments made during the closing process. Under the terms of the transaction, the final price for the acquisition will be determined after the closing, following determination of the actual adjustments. The business of CCR, which includes EUR 13.3 billion of invested assets as of 31 December 2007 and approximately 190 employees, will be integrated into the asset management and wealth management businesses of UBS in France.
Pro-forma information (unaudited)
For the year ended | ||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Total operating income | 32,035 | 49,180 | 41,580 | |||||||||
Net profit | (4,404 | ) | 12,617 | 14,070 | ||||||||
Basic earnings per share (CHF) | (2.29 | ) | 6.38 | 6.99 | ||||||||
106
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Note 36 Discontinued Operations
2007
Industrial Holdings
Private Banks & GAM
2006
Motor-Columbus
Other Industrial Holdings
107
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Financial Statements
Notes to the Financial Statements
Note 36 Discontinued Operations (continued)
2005
Private Banks & GAM
for the remaining 1.6%. The value of the Julius Baer stake is based on a price of CHF 86.20 per share at the date of closing, which is a discount of 8.4% to the market price to take into account the 18-month lock-up period to which 19.9% of the stake is subject. Shortly after closing, UBS reduced its 21.5% stake to approximately 20.7% by settling call options that were outstanding on the shares of the former holding company of the Private Banks & GAM businesses. UBS classified the stake as a financial investment available-for-sale until its sale in 2007 (refer to Note 5 and to the year 2007 section of Private Banks & GAM in this Note). Private Banks & GAM is presented as a discontinued operation in these Financial Statements.
For the year ended 31.12.07 | ||||||||
CHF million | Private Banks & GAM1 | Industrial Holdings | ||||||
Operating income | 0 | 135 | ||||||
Operating expenses | 0 | 109 | ||||||
Operating profit from discontinued operations before tax | 0 | 26 | ||||||
Pre-tax gain on sale | 7 | 102 | ||||||
Profit from discontinued operations before tax | 7 | 128 | ||||||
Tax expense on operating profit from discontinued operations before tax | 0 | (8 | ) | |||||
Tax expense on gain on sale | (258 | ) | 0 | |||||
Tax expense from discontinued operations | (258 | ) | (8 | ) | ||||
Net profit from discontinued operations | 265 | 136 | ||||||
Net cash flows from | ||||||||
operating activities | 0 | 28 | ||||||
investing activities | 0 | 0 | ||||||
financing activities | 0 | (42 | ) | |||||
108
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Note 36 Discontinued Operations (continued)
For the year ended 31.12.06 | ||||||||
Other | ||||||||
CHF million | Motor-Columbus | Industrial Holdings1 | ||||||
Operating income | 2,494 | 741 | ||||||
Operating expenses | 2,412 | 736 | ||||||
Operating profit from discontinued operations before tax | 82 | 5 | ||||||
Pre-tax gain on sale | 364 | 428 | ||||||
Profit from discontinued operations before tax | 446 | 433 | ||||||
Tax expense on operating profit from discontinued operations before tax | 11 | 0 | ||||||
Tax expense on gain on sale | (23 | ) | 0 | |||||
Tax expense from discontinued operations | (12 | ) | 0 | |||||
Net profit from discontinued operations | 458 | 433 | ||||||
Net cash flows from | ||||||||
operating activities | 1 | 14 | ||||||
investing activities | (52 | ) | 78 | |||||
financing activities | (22 | ) | (88 | ) | ||||
For the year ended 31.12.05 | ||||||||||||
Other | ||||||||||||
CHF million | Private Banks & GAM | Motor-Columbus | Industrial Holdings | |||||||||
Operating income | 1,102 | 8,711 | 2,551 | |||||||||
Operating expenses | 633 | 8,323 | 2,522 | |||||||||
Operating profit from discontinued operations before tax | 469 | 388 | 29 | |||||||||
Pre-tax gain on sale | 4,095 | 0 | 113 | |||||||||
Profit from discontinued operations before tax | 4,564 | 388 | 142 | |||||||||
Tax expense on operating profit from discontinued operations before tax | 99 | 65 | 28 | |||||||||
Tax expense on gain on sale | 390 | 0 | 0 | |||||||||
Tax expense from discontinued operations | 489 | 65 | 28 | |||||||||
Net profit from discontinued operations | 4,075 | 323 | 114 | |||||||||
Net cash flows from | ||||||||||||
operating activities | (143 | ) | 252 | 92 | ||||||||
investing activities | (22 | ) | (326 | ) | (47 | ) | ||||||
financing activities | 0 | 163 | 29 | |||||||||
Note 37 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||
As of | Year ended | |||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||
1 USD | 1.13 | 1.22 | 1.22 | 1.25 | 1.25 | |||||||||||||||
1 EUR | 1.65 | 1.61 | 1.65 | 1.58 | 1.55 | |||||||||||||||
1 GBP | 2.25 | 2.39 | 2.31 | 2.31 | 2.27 | |||||||||||||||
100 JPY | 1.02 | 1.02 | 1.02 | 1.08 | 1.13 | |||||||||||||||
109
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Financial Statements
Notes to the Financial Statements
Note 38 Swiss Banking Law Requirements
The consolidated Financial Statements of UBS are prepared in accordance with International Financial Reporting Standards. Included in this note are the significant differences in regard to recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance.
1. Consolidation
2. Financial investments available-for-sale
3. Cash flow hedges
4. Investment property
5. Fair value option
6. Goodwill and intangible assets
7. Discontinued operations
110
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Note 39 Additional Disclosures Required under SEC Rules
Note 39.1 Industrial Holdings’ Income Statement
From 1 July 2004, UBS held a majority ownership interest in Motor-Columbus and consolidated it in its Financial Statements. Motor-Columbus was sold on 23 March 2006, and it is presented below as a discontinued operation in the income statements for the years ended 31 December 2006 and 31 December 2005. Refer to Note 36 Discontinued Operations for further information.
The following table provides information required by Regulation S-X for commercial and industrial companies, including a condensed income statement and certain additional balance sheet information.
As of or for | ||||||||||||
the year ended | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||
Operating income | ||||||||||||
Net Sales | 268 | 262 | 229 | |||||||||
Operating expenses | ||||||||||||
Cost of products sold | 229 | 220 | 196 | |||||||||
Marketing expenses | 2 | 2 | 2 | |||||||||
General and administrative expenses | 14 | 20 | 22 | |||||||||
Amortization of intangible assets | 6 | 5 | 6 | |||||||||
Other operating expenses | 161 | 63 | 118 | |||||||||
Total operating expenses | 412 | 310 | 344 | |||||||||
Operating profit | (144 | ) | (48 | ) | (115 | ) | ||||||
Non-operating profit | ||||||||||||
Interest income | 6 | 0 | 6 | |||||||||
Interest expense | (9 | ) | (44 | ) | (54 | ) | ||||||
Other non-operating income, net | 708 | 336 | 589 | |||||||||
Non-operating profit | 705 | 292 | 541 | |||||||||
Net profit from continuing operations before tax | 561 | 244 | 426 | |||||||||
Tax expense | 36 | 34 | 169 | |||||||||
Equity in income of associates, net of tax | (25 | ) | 11 | 25 | ||||||||
Net profit from continuing operations | 500 | 221 | 282 | |||||||||
Net profit from discontinued operations | 136 | 887 | 437 | |||||||||
Net profit | 636 | 1,108 | 719 | |||||||||
Net profit attributable to minority interests | 50 | 104 | 207 | |||||||||
Net profit attributable to UBS shareholders | 586 | 1,004 | 512 | |||||||||
Accounts receivable trade, gross | 27 | 103 | ||||||||||
Allowance for doubtful receivables | (2 | ) | (7 | ) | ||||||||
Accounts receivables trade, net | 25 | 96 | ||||||||||
111
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Financial Statements
Notes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Information
Guarantee of PaineWebber securities
ceeding against UBS Americas Inc. UBS’s obligations under the subordinated note guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. At 31 December 2007, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 2,215 billion.
Supplemental Guarantor Consolidating Income Statement | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 77,306 | 47,747 | 51,985 | (67,926 | ) | 109,112 | ||||||||||||||
Interest expense | (74,689 | ) | (46,420 | ) | (50,592 | ) | 67,926 | (103,775 | ) | |||||||||||
Net interest income | 2,617 | 1,327 | 1,393 | 0 | 5,337 | |||||||||||||||
Credit loss (expense) / recovery | 11 | (234 | ) | (15 | ) | 0 | (238 | ) | ||||||||||||
Net interest income after credit loss expense | 2,628 | 1,093 | 1,378 | 0 | 5,099 | |||||||||||||||
Net fee and commission income | 12,852 | 10,119 | 7,663 | 0 | 30,634 | |||||||||||||||
Net trading income | 3,467 | (9,932 | ) | (1,888 | ) | 0 | (8,353 | ) | ||||||||||||
Income from subsidiaries | 602 | 0 | 0 | (602 | ) | 0 | ||||||||||||||
Other income | (4,273 | ) | 8,369 | 236 | 0 | 4,332 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 268 | 0 | 268 | |||||||||||||||
Total operating income | 15,276 | 9,649 | 7,657 | (602 | ) | 31,980 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 12,611 | 8,307 | 3,880 | 0 | 24,798 | |||||||||||||||
General and administrative expenses | 5,684 | 3,446 | (665 | ) | 0 | 8,465 | ||||||||||||||
Depreciation of property and equipment | 930 | 138 | 183 | 0 | 1,251 | |||||||||||||||
Amortization of intangible assets | 3 | 101 | 178 | 0 | 282 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 119 | 0 | 119 | |||||||||||||||
Total operating expenses | 19,228 | 11,992 | 3,695 | 0 | 34,915 | |||||||||||||||
Operating profit from continuing operations before tax | (3,952 | ) | (2,343 | ) | 3,962 | (602 | ) | (2,935 | ) | |||||||||||
Tax expense / (benefit) | 697 | (486 | ) | 1,100 | 0 | 1,311 | ||||||||||||||
Net profit / (loss) from continuing operations | (4,649 | ) | (1,857 | ) | 2,862 | (602 | ) | (4,246 | ) | |||||||||||
Net profit / (loss) from discontinued operations | 265 | 0 | 136 | 0 | 401 | |||||||||||||||
Net profit / (loss) | (4,384 | ) | (1,857 | ) | 2,998 | (602 | ) | (3,845 | ) | |||||||||||
Net profit / (loss) attributable to minority interests | 0 | 18 | 521 | 0 | 539 | |||||||||||||||
Net profit / (loss) attributable to UBS shareholders | (4,384 | ) | (1,875 | ) | 2,477 | (602 | ) | (4,384 | ) | |||||||||||
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Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 0 | 18,793 | |||||||||||||||
Due from banks | 154,138 | 16,530 | 200,488 | (310,249 | ) | 60,907 | ||||||||||||||
Cash collateral on securities borrowed | 117,312 | 166,479 | 53,672 | (130,400 | ) | 207,063 | ||||||||||||||
Reverse repurchase agreements | 292,839 | 106,775 | 266,470 | (289,156 | ) | 376,928 | ||||||||||||||
Trading portfolio assets | 354,200 | 170,977 | 84,884 | 0 | 610,061 | |||||||||||||||
Trading portfolio assets pledged as collateral | 103,971 | 55,842 | 4,498 | 0 | 164,311 | |||||||||||||||
Positive replacement values | 436,271 | 16,770 | 192,144 | (216,968 | ) | 428,217 | ||||||||||||||
Financial assets designated at fair value | 5,510 | 7,149 | 8,421 | (9,315 | ) | 11,765 | ||||||||||||||
Loans | 370,274 | 41,398 | 43,584 | (119,392 | ) | 335,864 | ||||||||||||||
Financial investments available-for-sale | 2,611 | 980 | 1,375 | 0 | 4,966 | |||||||||||||||
Accrued income and prepaid expenses | 7,379 | 4,369 | 4,883 | (4,678 | ) | 11,953 | ||||||||||||||
Investments in associates | 28,049 | 139 | 150 | (26,359 | ) | 1,979 | ||||||||||||||
Property and equipment | 5,352 | 959 | 923 | 0 | 7,234 | |||||||||||||||
Goodwill and intangible assets | 276 | 10,516 | 3,746 | 0 | 14,538 | |||||||||||||||
Other assets | 13,606 | 5,135 | 4,881 | (5,622 | ) | 18,000 | ||||||||||||||
Total assets | 1,900,318 | 604,127 | 880,273 | (1,112,139 | ) | 2,272,579 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 246,977 | 114,066 | 94,968 | (310,249 | ) | 145,762 | ||||||||||||||
Cash collateral on securities lent | 45,055 | 64,281 | 52,685 | (130,400 | ) | 31,621 | ||||||||||||||
Repurchase agreements | 105,750 | 238,880 | 250,413 | (289,156 | ) | 305,887 | ||||||||||||||
Trading portfolio liabilities | 111,955 | 51,904 | 929 | 0 | 164,788 | |||||||||||||||
Negative replacement values | 456,631 | 16,333 | 187,543 | (216,968 | ) | 443,539 | ||||||||||||||
Financial liabilities designated at fair value | 146,701 | 14,947 | 39,520 | (9,315 | ) | 191,853 | ||||||||||||||
Due to customers | 555,694 | 87,534 | 118,056 | (119,392 | ) | 641,892 | ||||||||||||||
Accrued expenses and deferred income | 13,276 | 7,940 | 5,310 | (4,678 | ) | 21,848 | ||||||||||||||
Debt issued | 168,266 | 3,478 | 50,333 | 0 | 222,077 | |||||||||||||||
Other liabilities | 19,011 | 5,356 | 42,031 | (5,622 | ) | 60,776 | ||||||||||||||
Total liabilities | 1,869,316 | 604,719 | 841,788 | (1,085,780 | ) | 2,230,043 | ||||||||||||||
Equity attributable to UBS shareholders | 31,002 | (2,916 | ) | 33,858 | (26,359 | ) | 35,585 | |||||||||||||
Minority interests | 0 | 2,324 | 4,627 | 0 | 6,951 | |||||||||||||||
Total equity | 31,002 | (592 | ) | 38,485 | (26,359 | ) | 42,536 | |||||||||||||
Total liabilities and equity | 1,900,318 | 604,127 | 880,273 | (1,112,139 | ) | 2,272,579 | ||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2007 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (65,133 | ) | 19,722 | (5,865 | ) | (51,276 | ) | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (2,337 | ) | 0 | 0 | (2,337 | ) | ||||||||||
Disposal of subsidiaries and associates | 885 | 0 | 0 | 885 | ||||||||||||
Purchase of property and equipment | (1,022 | ) | (581 | ) | (307 | ) | (1,910 | ) | ||||||||
Disposal of property and equipment | 40 | 28 | 66 | 134 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 4,027 | 34 | 1,920 | 5,981 | ||||||||||||
Net cash flow from / (used in) investing activities | 1,593 | (519 | ) | 1,679 | 2,753 | |||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 35,017 | (1,426 | ) | (919 | ) | 32,672 | ||||||||||
Net movements in treasury shares and own equity derivative activity | (3,550 | ) | 0 | 0 | (3,550 | ) | ||||||||||
Dividends paid | (4,275 | ) | 0 | 0 | (4,275 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 105,197 | 1,022 | 4,655 | 110,874 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (54,251 | ) | (7,022 | ) | (1,134 | ) | (62,407 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 32 | 1,062 | 1,094 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (665 | ) | 46 | (619 | ) | ||||||||||
Net activity in investments in subsidiaries | 1,057 | (6,679 | ) | 5,622 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 79,195 | (14,738 | ) | 9,332 | 73,789 | |||||||||||
Effects of exchange rate differences | (9,093 | ) | (3,062 | ) | (96 | ) | (12,251 | ) | ||||||||
Net increase / (decrease) in cash equivalents | 6,562 | 1,403 | 5,050 | 13,015 | ||||||||||||
Cash and cash equivalents, beginning of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents, end of the year | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 8,530 | 109 | 10,154 | 18,793 | ||||||||||||
Money market paper2 | 60,266 | 13,202 | 3,747 | 77,215 | ||||||||||||
Due from banks with original maturity of less than three months | 40,314 | 2,221 | 10,562 | 53,097 | ||||||||||||
Total | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
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Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 60,057 | 42,667 | 39,269 | (54,592 | ) | 87,401 | ||||||||||||||
Interest expense | (56,020 | ) | (41,049 | ) | (38,403 | ) | 54,592 | (80,880 | ) | |||||||||||
Net interest income | 4,037 | 1,618 | 866 | 0 | 6,521 | |||||||||||||||
Credit loss (expense) / recovery | 167 | (6 | ) | (5 | ) | 0 | 156 | |||||||||||||
Net interest income after credit loss expense | 4,204 | 1,612 | 861 | 0 | 6,677 | |||||||||||||||
Net fee and commission income | 11,646 | 8,590 | 5,220 | 0 | 25,456 | |||||||||||||||
Net trading income | 10,306 | 1,634 | 1,803 | 0 | 13,743 | |||||||||||||||
Income from subsidiaries | 3,760 | 0 | 0 | (3,760 | ) | 0 | ||||||||||||||
Other income | (450 | ) | 1,637 | 411 | 0 | 1,598 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 262 | 0 | 262 | |||||||||||||||
Total operating income | 29,466 | 13,473 | 8,557 | (3,760 | ) | 47,736 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 12,208 | 8,040 | 3,343 | 0 | 23,591 | |||||||||||||||
General and administrative expenses | 2,805 | 3,362 | 1,813 | 0 | 7,980 | |||||||||||||||
Depreciation of property and equipment | 979 | 133 | 140 | 0 | 1,252 | |||||||||||||||
Amortization of intangible assets | 14 | 83 | 56 | 0 | 153 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 116 | 0 | 116 | |||||||||||||||
Total operating expenses | 16,006 | 11,618 | 5,468 | 0 | 33,092 | |||||||||||||||
Operating profit from continuing operations before tax | 13,460 | 1,855 | 3,089 | (3,760 | ) | 14,644 | ||||||||||||||
Tax expense / (benefit) | 1,715 | 585 | 485 | 0 | 2,785 | |||||||||||||||
Net profit / (loss) from continuing operations | 11,745 | 1,270 | 2,604 | (3,760 | ) | 11,859 | ||||||||||||||
Net profit / (loss) from discontinued operations | 512 | 0 | 379 | 0 | 891 | |||||||||||||||
Net profit / (loss) | 12,257 | 1,270 | 2,983 | (3,760 | ) | 12,750 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 527 | (34 | ) | 0 | 493 | ||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 12,257 | 743 | 3,017 | (3,760 | ) | 12,257 | ||||||||||||||
115
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Financial Statements
Notes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 0 | 3,495 | |||||||||||||||
Due from banks | 121,404 | 16,884 | 182,850 | (270,712 | ) | 50,426 | ||||||||||||||
Cash collateral on securities borrowed | 99,829 | 303,607 | 156,083 | (207,929 | ) | 351,590 | ||||||||||||||
Reverse repurchase agreements | 270,814 | 167,222 | 300,862 | (333,064 | ) | 405,834 | ||||||||||||||
Trading portfolio assets | 294,590 | 188,710 | 143,736 | 0 | 627,036 | |||||||||||||||
Trading portfolio assets pledged as collateral | 162,722 | 51,834 | 36,922 | 0 | 251,478 | |||||||||||||||
Positive replacement values | 283,466 | 13,168 | 173,243 | (176,902 | ) | 292,975 | ||||||||||||||
Financial assets designated at fair value | 2,902 | 4,147 | 7,146 | (8,265 | ) | 5,930 | ||||||||||||||
Loans | 399,352 | 40,279 | 38,644 | (180,433 | ) | 297,842 | ||||||||||||||
Financial investments available-for-sale | 5,843 | 862 | 2,232 | 0 | 8,937 | |||||||||||||||
Accrued income and prepaid expenses | 6,598 | 4,029 | 4,809 | (5,075 | ) | 10,361 | ||||||||||||||
Investments in associates | 34,887 | 179 | 237 | (33,780 | ) | 1,523 | ||||||||||||||
Property and equipment | 5,432 | 637 | 844 | 0 | 6,913 | |||||||||||||||
Goodwill and intangible assets | 258 | 11,128 | 3,387 | 0 | 14,773 | |||||||||||||||
Other assets | 10,709 | 5,524 | 5,587 | (4,571 | ) | 17,249 | ||||||||||||||
Total assets | 1,701,466 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,346,362 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 228,992 | 114,782 | 130,627 | (270,712 | ) | 203,689 | ||||||||||||||
Cash collateral on securities lent | 106,019 | 57,937 | 107,061 | (207,929 | ) | 63,088 | ||||||||||||||
Repurchase agreements | 167,166 | 419,427 | 291,951 | (333,064 | ) | 545,480 | ||||||||||||||
Trading portfolio liabilities | 107,747 | 71,165 | 25,861 | 0 | 204,773 | |||||||||||||||
Negative replacement values | 290,746 | 13,629 | 169,590 | (176,902 | ) | 297,063 | ||||||||||||||
Financial liabilities designated at fair value | 121,074 | 49 | 32,829 | (8,265 | ) | 145,687 | ||||||||||||||
Due to customers | 489,823 | 80,936 | 165,560 | (180,433 | ) | 555,886 | ||||||||||||||
Accrued expenses and deferred income | 12,336 | 8,406 | 5,860 | (5,075 | ) | 21,527 | ||||||||||||||
Debt issued | 110,020 | 29,149 | 50,974 | 0 | 190,143 | |||||||||||||||
Other liabilities | 16,488 | 4,284 | 47,050 | (4,571 | ) | 63,251 | ||||||||||||||
Total liabilities | 1,650,411 | 799,764 | 1,027,363 | (1,186,951 | ) | 2,290,587 | ||||||||||||||
Equity attributable to UBS shareholders | 51,055 | 5,539 | 26,872 | (33,780 | ) | 49,686 | ||||||||||||||
Minority interests | 0 | 2,985 | 3,104 | 0 | 6,089 | |||||||||||||||
Total equity | 51,055 | 8,524 | 29,976 | (33,780 | ) | 55,775 | ||||||||||||||
Total liabilities and equity | 1,701,466 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,346,362 | ||||||||||||||
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Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (1,916 | ) | (14,810 | ) | 11,805 | (4,921 | ) | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | 2,856 | 0 | 0 | 2,856 | ||||||||||||
Disposal of subsidiaries and associates | 1,154 | 0 | 0 | 1,154 | ||||||||||||
Purchase of property and equipment | (1,292 | ) | (255 | ) | (246 | ) | (1,793 | ) | ||||||||
Disposal of property and equipment | 298 | 47 | 154 | 499 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 90 | 433 | 1,200 | 1,723 | ||||||||||||
Net cash flow from / (used in) investing activities | 3,106 | 225 | 1,108 | 4,439 | ||||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 17,526 | 1,039 | (1,644 | ) | 16,921 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (3,624 | ) | 0 | 0 | (3,624 | ) | ||||||||||
Capital issuance | 1 | 0 | 0 | 1 | ||||||||||||
Capital repayment by par value reduction | (631 | ) | 0 | 0 | (631 | ) | ||||||||||
Dividends paid | (3,214 | ) | 0 | 0 | (3,214 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 79,358 | 10,881 | 7,436 | 97,675 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (48,748 | ) | (447 | ) | (10,545 | ) | (59,740 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 85 | 1,246 | 1,331 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | 2,441 | (3,513 | ) | (1,072 | ) | ||||||||||
Net activity in investments in subsidiaries | (8,246 | ) | 3,055 | 5,191 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 32,422 | 17,054 | (1,829 | ) | 47,647 | |||||||||||
Effects of exchange rate differences | 388 | (1,871 | ) | (634 | ) | (2,117 | ) | |||||||||
Net increase / (decrease) in cash equivalents | 34,000 | 598 | 10,450 | 45,048 | ||||||||||||
Cash and cash equivalents, beginning of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents, end of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 3,495 | ||||||||||||
Money market paper2 | 73,431 | 11,488 | 2,225 | 87,144 | ||||||||||||
Due from banks with original maturity of less than three months | 26,457 | 2,563 | 16,431 | 45,451 | ||||||||||||
Total | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | Entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,779 | 27,782 | 20,729 | (29,004 | ) | 59,286 | ||||||||||||||
Interest expense | (33,892 | ) | (24,803 | ) | (20,067 | ) | 29,004 | (49,758 | ) | |||||||||||
Net interest income | 5,887 | 2,979 | 662 | 0 | 9,528 | |||||||||||||||
Credit loss (expense) / recovery | 370 | (3 | ) | 8 | 0 | 375 | ||||||||||||||
Net interest income after credit loss expense | 6,257 | 2,976 | 670 | 0 | 9,903 | |||||||||||||||
Net fee and commission income | 9,670 | 7,420 | 4,094 | 0 | 21,184 | |||||||||||||||
Net trading income | 7,453 | (123 | ) | 918 | 0 | 8,248 | ||||||||||||||
Income from subsidiaries | (675 | ) | 0 | 0 | 675 | 0 | ||||||||||||||
Other income | 2,635 | 476 | (1,984 | ) | 0 | 1,127 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 229 | 0 | 229 | |||||||||||||||
Total operating income | 25,340 | 10,749 | 3,927 | 675 | 40,691 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,962 | 6,587 | 3,518 | 0 | 20,067 | |||||||||||||||
General and administrative expenses | 2,330 | 2,667 | 1,507 | 0 | 6,504 | |||||||||||||||
Depreciation of property and equipment | 988 | 140 | 119 | 0 | 1,247 | |||||||||||||||
Amortization of intangible assets | 24 | 70 | 39 | 0 | 133 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 97 | 0 | 97 | |||||||||||||||
Total operating expenses | 13,304 | 9,464 | 5,280 | 0 | 28,048 | |||||||||||||||
Operating profit from continuing operations before tax | 12,036 | 1,285 | (1,353 | ) | 675 | 12,643 | ||||||||||||||
Tax expense / (benefit) | 1,712 | 1,079 | (326 | ) | 0 | 2,465 | ||||||||||||||
Net profit / (loss) from continuing operations | 10,324 | 206 | (1,027 | ) | 675 | 10,178 | ||||||||||||||
Net profit / (loss) from discontinued operations | 3,705 | 0 | 807 | 0 | 4,512 | |||||||||||||||
Net profit / (loss) | 14,029 | 206 | (220 | ) | 675 | 14,690 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 122 | 539 | 0 | 661 | |||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 14,029 | 84 | (759 | ) | 675 | 14,029 | ||||||||||||||
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Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (29,118 | ) | (15,771 | ) | (18,318 | ) | (63,207 | ) | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (1,540 | ) | 0 | 0 | (1,540 | ) | ||||||||||
Disposal of subsidiaries and associates | 3,240 | 0 | 0 | 3,240 | ||||||||||||
Purchase of property and equipment | (1,153 | ) | (155 | ) | (584 | ) | (1,892 | ) | ||||||||
Disposal of property and equipment | 71 | 6 | 193 | 270 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (4,667 | ) | (40 | ) | 2,220 | (2,487 | ) | |||||||||
Net cash flow from / (used in) investing activities | (4,049 | ) | (189 | ) | 1,829 | (2,409 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 22,698 | 615 | (92 | ) | 23,221 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (2,416 | ) | 0 | 0 | (2,416 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (3,105 | ) | 0 | 0 | (3,105 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 50,587 | 14,635 | 11,085 | 76,307 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair | (17,780 | ) | (753 | ) | (11,924 | ) | (30,457 | ) | ||||||||
value | ||||||||||||||||
Increase in minority interests | 0 | 8 | 1,564 | 1,572 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (175 | ) | (400 | ) | (575 | ) | |||||||||
Net activity in investments in subsidiaries | (1,591 | ) | (214 | ) | 1,805 | 0 | ||||||||||
Net cash flow from / (used in) financing activities | 48,395 | 14,116 | 2,038 | 64,549 | ||||||||||||
Effects of exchange rate differences | 3,283 | (720 | ) | 2,455 | 5,018 | |||||||||||
Net increase / (decrease) in cash equivalents | 18,511 | (2,564 | ) | (11,996 | ) | 3,951 | ||||||||||
Cash and cash equivalents, beginning of the year | 50,037 | 16,095 | 20,959 | 87,091 | ||||||||||||
Cash and cash equivalents, end of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 5,359 | ||||||||||||
Money market paper2 | 47,838 | 8,991 | 997 | 57,826 | ||||||||||||
Due from banks with original maturity of less than three months | 17,998 | 4,535 | 5,324 | 27,857 | ||||||||||||
Total | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 39 Additional Disclosures Required under SEC Rules (continued)
Note 39.2 Guarantee of other securities
Guarantee of other securities
USD billion, unless otherwise indicated | Outstanding as of 31.12.07 | |||||||
Issuing Entity | Type of security | Date issued | Interest (%) | Amount | ||||
UBS Preferred Funding Trust I | Trust preferred securities | October 2000 | 8.622 | 1.5 | ||||
UBS Preferred Funding Trust II | Trust preferred securities1 | June 2001 | 7.247 | 0.5 | ||||
Floating rate noncumulative trust | one-month LIBOR | |||||||
UBS Preferred Funding Trust IV | preferred securities | May 2003 | + 0.7% | 0.3 | ||||
UBS Preferred Funding Trust V | Trust preferred securities | May 2006 | 6.243 | 1.0 | ||||
UBS AG has fully and unconditionally guaranteed these securities. UBS’s obligations under the trust preferred securities guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. At 31 December 2007, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 2,215 billion.
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Table of Contents
UBS AG (Parent Bank)
Table of Contents
UBS AG (Parent Bank)
Table of Contents
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UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
Income Statement
The Parent Bank UBS AG Net profit decreased by CHF 10,809 million from a profit of CHF 6,558 million to a loss of CHF 4,251 million.
– | The increase of Depreciation from CHF 1,352 million in 2006 to CHF 8,660 million in 2007 mainly reflects write-downs of investments in associated US companies. | |
– | Provisions of CHF 2,688 million were recognized in 2007 for commitments to capitalize subsidiaries that have a capital deficit. | |
– | Net trading income decreased from CHF 9,467 million in 2006 to CHF 2,767 million in 2007, which mainly reflects losses in the fixed income business. |
Balance Sheet
UBS’s Parent Bank total assets stood at CHF 1,598 billion on 31 December 2007, up slightly from CHF 1,586 billion on 31 December 2006. The total asset rise of CHF 12 billion was caused by higher inter-bank lending (which includes loans and collateral trading) of CHF 88 billion and Liquid Assets of
CHF 6 billion. These increases, however, were almost offset by decreases in customer and mortgage loans (down CHF 54 billion), in positive replacement values on derivative instruments (down CHF 14 billion), in money market paper (down CHF 13 billion) and a decline in investments in associated companies of CHF 6 billion due to write-downs of investments in US subsidiaries.
Interbank Lending
In due from banks, on demand volume rose by CHF 39 billion partially due to higher funding needs of our bank subsidiaries in the European Region, combined with an increase to non-UBS related banks in the same region and to a lesser extent in the Americas Region. During 2007, due from banks on time slightly declined by CHF 5 billion. In addition, Inter-bank collateral trading grew by CHF 54 billion due to trading with UBS subsidiaries, in particular in the two Regions Europe and Asia, and with third party clients.
Customer Lending
The customer loan drop of CHF 42 billion was due to lower funding needs of UBS subsidiaries, predominately related to the reintegration of positions held by Dillon Read Capital Management subsidiaries, which are no longer funded by the UBS Parent Bank. In addition, loans secured by mortgages declined (CHF 12 billion) driven by the downturn in the US mortgage market and the exit of certain US legacy positions which were built up by Dillon Read Capital Management.
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UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement
For the year ended | % change from | |||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Interest and discount income | 58,674 | 45,978 | 28 | |||||||||
Interest and dividend income from trading portfolio | 19,003 | 15,324 | 24 | |||||||||
Interest and dividend income from financial investments | 58 | 32 | 81 | |||||||||
Interest expense | (75,179 | ) | (57,507 | ) | 31 | |||||||
Net interest income | 2,556 | 3,827 | (33 | ) | ||||||||
Credit-related fees and commissions | 205 | 199 | 3 | |||||||||
Fee and commission income from securities and investment business | 15,468 | 12,288 | 26 | |||||||||
Other fee and commission income | 686 | 840 | (18 | ) | ||||||||
Fee and commission expense | (3,269 | ) | (1,820 | ) | 80 | |||||||
Net fee and commission income | 13,090 | 11,507 | 14 | |||||||||
Net trading income | 2,767 | 9,467 | (71 | ) | ||||||||
Net income from disposal of financial investments | 178 | 333 | (47 | ) | ||||||||
Income from investments in associated companies | 2,592 | 1,910 | 36 | |||||||||
Income from real estate holdings | 27 | 21 | 29 | |||||||||
Sundry income from ordinary activities | 3,352 | 2,982 | 12 | |||||||||
Sundry ordinary expenses | (3,223 | ) | (3,059 | ) | 5 | |||||||
Other income from ordinary activities | 2,926 | 2,187 | 34 | |||||||||
Operating income | 21,339 | 26,988 | (21 | ) | ||||||||
Personnel expenses | 13,505 | 12,886 | 5 | |||||||||
General and administrative expenses | 5,191 | 4,736 | 10 | |||||||||
Operating expenses | 18,696 | 17,622 | 6 | |||||||||
Operating profit | 2,643 | 9,366 | (72 | ) | ||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 8,660 | 1,352 | 541 | |||||||||
Allowances, provisions and losses | 2,780 | 342 | 713 | |||||||||
Profit before extraordinary items and taxes | (8,797 | ) | 7,672 | |||||||||
Extraordinary income | 4,665 | 1,095 | 326 | |||||||||
Extraordinary expenses | 4 | 239 | (98 | ) | ||||||||
Tax expense | 115 | 1,970 | (94 | ) | ||||||||
Profit for the period | (4,251 | ) | 6,558 | |||||||||
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UBS AG (Parent Bank)
Financial Statements
Balance Sheet
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Assets | ||||||||||||
Liquid assets | 8,530 | 2,660 | 221 | |||||||||
Money market paper | 60,266 | 73,430 | (18 | ) | ||||||||
Due from banks | 527,081 | 439,098 | 20 | |||||||||
Due from customers | 274,510 | 316,241 | (13 | ) | ||||||||
Mortgage loans | 141,381 | 153,114 | (8 | ) | ||||||||
Trading balances in securities and precious metals | 412,977 | 411,981 | 0 | |||||||||
Financial investments | 1,685 | 2,844 | (41 | ) | ||||||||
Investments in associated companies | 21,228 | 27,076 | (22 | ) | ||||||||
Fixed assets | 5,273 | 4,527 | 16 | |||||||||
Accrued income and prepaid expenses | 7,221 | 6,573 | 10 | |||||||||
Positive replacement values | 124,244 | 138,222 | (10 | ) | ||||||||
Other assets | 13,676 | 9,975 | 37 | |||||||||
Total assets | 1,598,072 | 1,585,741 | 1 | |||||||||
Total subordinated assets | 6,293 | 5,852 | 8 | |||||||||
Total amounts receivable from Group companies | 602,667 | 657,919 | (8 | ) | ||||||||
Liabilities | ||||||||||||
Money market paper issued | 104,878 | 69,861 | 50 | |||||||||
Due to banks | 491,102 | 556,136 | (12 | ) | ||||||||
Due to customers on savings and deposit accounts | 72,303 | 80,883 | (11 | ) | ||||||||
Other amounts due to customers | 521,189 | 508,609 | 2 | |||||||||
Medium-term bonds | 3,228 | 2,238 | 44 | |||||||||
Bond issues and loans from central mortgage institutions | 189,023 | 143,779 | 31 | |||||||||
Accruals and deferred income | 17,368 | 16,672 | 4 | |||||||||
Negative replacement values | 145,445 | 149,879 | (3 | ) | ||||||||
Other liabilities | 15,576 | 10,471 | 49 | |||||||||
Allowances and provisions | 3,970 | 2,305 | 72 | |||||||||
Share capital | 207 | 211 | (2 | ) | ||||||||
General statutory reserve | 8,775 | 8,295 | 6 | |||||||||
Reserve for own shares | 9,441 | 9,114 | 4 | |||||||||
Other reserves | 19,818 | 20,730 | (4 | ) | ||||||||
Profit for the period | (4,251 | ) | 6,558 | |||||||||
Total liabilities | 1,598,072 | 1,585,741 | 1 | |||||||||
Total subordinated liabilities | 21,114 | 21,907 | (4 | ) | ||||||||
Total amounts payable to Group companies | 330,567 | 450,093 | (27 | ) | ||||||||
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Statement of Appropriation of Retained Earnings
CHF million | ||||
The Board of Directors proposes to the Annual General Meeting the following appropriation: | ||||
Profit / (Loss) for the financial year 2007 as per the Parent Bank’s Income Statement | (4,251 | ) | ||
Appropriation to other reserves | (4,251 | ) | ||
The Board of Directors has proposed to the Extraordinary Meeting of Shareholders on 27 February 2008 to create authorized share capital up to a maximum of 5% of the current share capital (103.7 million new shares) to replace the cash dividend for the business year 2007 with a stock dividend. The issuance of shares and the final exchange ratio for the entitlement to the stock dividend (not less than 20:1) will be determined by the Board of Directors on 23 April 2008.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the Financial Statements
Accounting Principles
The Parent Bank’s accounting policies are in compliance with Swiss banking law. The accounting policies are principally the same as for the Group Financial Statements outlined in Note 1, Summary of Significant Accounting Policies. Major differences between the Swiss banking law requirements and International Financial Reporting Standards are described in Note 38 to the Group Financial Statements. In addition, the following principles are applied for the Parent Bank:
Treasury shares
Foreign currency translation
Investments in associated companies
Property and equipment
Extraordinary income and expenses
Equity participation plans
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Additional Income Statement Information
Net Trading Income | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Equities | 7,867 | 5,761 | 37 | |||||||||
Fixed income | (7,679 | ) | 1,114 | |||||||||
Foreign exchange and other1 | 2,579 | 2,592 | (1 | ) | ||||||||
Total | 2,767 | 9,467 | (71 | ) | ||||||||
Extraordinary Income and Expenses
Extraordinary income includes a CHF 3,180 million gain on the sale of UBS’s 20.7% stake in Julius Baer in 2007 and a gain on the sale of Motor-Columbus of CHF 678 million in 2006. In addition, amounts in 2007 include a write-up of investments in associated companies of CHF 409 million (2006: CHF 223 million), releases of provisions for credit losses of CHF 11 million (2006: CHF 167 million). Amounts in 2007 further include a
release on reserves on own properties of CHF 824 million and for lapsed employee options of CHF 165 million.
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UBS AG (Parent Bank)
Notes to the Financial Statements
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 | 31.12.06 | specified purpose | differences | to income | to income | 31.12.07 | ||||||||||||||||||
Default risks (credit and country risk) | 1,298 | (299 | ) | 48 | (279 | ) | 268 | 1,036 | ||||||||||||||||
Trading portfolio risks | 2,844 | 0 | 0 | 0 | 1,710 | 4,554 | ||||||||||||||||||
Litigation risks | 293 | (187 | ) | (15 | ) | (48 | ) | 115 | 158 | |||||||||||||||
Operational risks | 131 | (84 | ) | 3 | (44 | ) | 158 | 164 | ||||||||||||||||
Retirement benefit plans | 106 | (8 | ) | (40 | ) | 0 | 49 | 107 | ||||||||||||||||
Deferred taxes | 34 | 0 | (14 | ) | 0 | 11 | 31 | |||||||||||||||||
Other1 | 1,664 | (1,091 | ) | (3 | ) | (88 | ) | 2,964 | 3,446 | |||||||||||||||
Total allowances and provisions | 6,370 | (1,669 | ) | (21 | ) | (459 | ) | 5,275 | 9,496 | |||||||||||||||
Allowances deducted from assets | 4,065 | 5,526 | ||||||||||||||||||||||
Total provisions as per balance sheet | 2,305 | 3,970 | ||||||||||||||||||||||
Statement of Shareholders’ Equity | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
shareholders’ | ||||||||||||||||||||||||
General statutory | General statutory | equity (before | ||||||||||||||||||||||
reserves: | reserves: | Reserves for | distribution | |||||||||||||||||||||
CHF million | Share capital | Share premium | Retained earnings | own shares | Other reserves | of profit) | ||||||||||||||||||
As of 31.12.05 and 1.1.06 | 871 | 6,246 | 1,681 | 10,562 | 26,792 | 46,152 | ||||||||||||||||||
Par value reduction | (631 | ) | 35 | (596 | ) | |||||||||||||||||||
Cancellation of own shares | (30 | ) | (3,997 | ) | (4,027 | ) | ||||||||||||||||||
Capital increase | 1 | 34 | 35 | |||||||||||||||||||||
Increase in reserves | 334 | (334 | ) | 0 | ||||||||||||||||||||
Prior year dividend | (3,214 | ) | (3,214 | ) | ||||||||||||||||||||
Profit for the period | 6,558 | 6,558 | ||||||||||||||||||||||
Changes in reserves for own shares | (1,448 | ) | 1,448 | 0 | ||||||||||||||||||||
As of 31.12.06 and 1.1.07 | 211 | 6,280 | 2,015 | 9,114 | 27,288 | 44,908 | ||||||||||||||||||
Cancellation of own shares | (4 | ) | (2,411 | ) | (2,415 | ) | ||||||||||||||||||
Capital increase | 23 | 23 | ||||||||||||||||||||||
Increase in reserves | 457 | (457 | ) | 0 | ||||||||||||||||||||
Prior year dividend | (4,275 | ) | (4,275 | ) | ||||||||||||||||||||
Profit for the period | (4,251 | ) | (4,251 | ) | ||||||||||||||||||||
Changes in reserves for own shares | 327 | (327 | ) | 0 | ||||||||||||||||||||
As of 31.12.07 | 207 | 6,303 | 2,472 | 9,441 | 15,567 | 33,990 | ||||||||||||||||||
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Share Capital | ||||||||||||||||
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As of 31.12.07 | ||||||||||||||||
Issued and paid up | 2,073,547,344 | 207,354,734 | 2,073,547,344 | 207,354,734 | ||||||||||||
Conditional share capital | 150,138,634 | 15,013,863 | ||||||||||||||
As of 31.12.06 | ||||||||||||||||
Issued and paid up | 2,105,273,286 | 210,527,329 | 2,082,673,286 | 208,267,329 | ||||||||||||
Conditional share capital | 151,437,410 | 15,143,741 | ||||||||||||||
On 31 December 2007, a maximum of 144,338 shares could be issued against the future exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the table above. In addition, during 2006, shareholders approved the creation of conditional capital of up to a maximum of 150 million shares to fund UBS’s employee share option programs. As of 31 December 2007 and 31 December 2006, 5,704 shares and zero shares, respectively, have been issued under this program.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Off-Balance Sheet and Other Information
Assets Pledged or Assigned as Security for Own Obligations, Assets Subject to Reservation of Title | ||||||||||||||||||||||||
31.12.07 | 31.12.06 | Change in % | ||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||
Money market paper | 12,792 | 2,372 | 37,471 | 9,035 | (66 | ) | (74 | ) | ||||||||||||||||
Mortgage loans | 200 | 199 | 81 | 38 | 147 | 424 | ||||||||||||||||||
Securities | 99,821 | 49,397 | 89,869 | 41,306 | 11 | 20 | ||||||||||||||||||
Other | 8,628 | 0 | 5,432 | 0 | 59 | |||||||||||||||||||
Total | 121,441 | 51,968 | 132,853 | 50,379 | (9 | ) | 3 | |||||||||||||||||
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions and for security deposits relating to stock exchange and clearinghouse memberships.
Commitments and Contingent Liabilities | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Contingent liabilities | 223,105 | 189,627 | 18 | |||||||||
Irrevocable commitments | 104,784 | 115,364 | (9 | ) | ||||||||
Liabilities for calls on shares and other equities | 145 | 125 | 16 | |||||||||
Confirmed credits | 2,630 | 2,133 | 23 | |||||||||
Derivative Instruments | ||||||||||||||||||||||||
31.12.07 | 31.12.06 | |||||||||||||||||||||||
Notional | Notional | |||||||||||||||||||||||
amount | amount | |||||||||||||||||||||||
CHF million | PRV1 | NRV2 | CHF bn | PRV1 | NRV2 | CHF bn | ||||||||||||||||||
Interest rate contracts | 167,334 | 164,325 | 33,545 | 176,765 | 175,394 | 29,558 | ||||||||||||||||||
Credit derivative contracts | 111,898 | 116,128 | 5,451 | 29,026 | 31,781 | 2,824 | ||||||||||||||||||
Foreign exchange contracts | 99,494 | 99,613 | 7,725 | 76,459 | 70,899 | 6,134 | ||||||||||||||||||
Precious metal contracts | 6,363 | 6,569 | 147 | 4,472 | 4,168 | 121 | ||||||||||||||||||
Equity / Index contracts | 30,400 | 49,985 | 760 | 22,437 | 39,016 | 745 | ||||||||||||||||||
Commodities contracts, excluding precious metals contracts | 21,181 | 21,251 | 484 | 11,459 | 11,017 | 359 | ||||||||||||||||||
Total derivative instruments | 436,670 | 457,871 | 48,112 | 320,618 | 332,275 | 39,741 | ||||||||||||||||||
Replacement value netting | 312,426 | 312,426 | 182,396 | 182,396 | ||||||||||||||||||||
Replacement values after netting | 124,244 | 145,445 | 138,222 | 149,879 | ||||||||||||||||||||
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Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Deposits: | ||||||||||||
with other banks | 46,074 | 41,075 | 12 | |||||||||
with Group banks | 2,186 | 1,650 | 32 | |||||||||
Total | 48,260 | 42,725 | 13 | |||||||||
Due to UBS Pension Plans | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.06 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 443 | 790 | (51 | ) | ||||||||
Securities borrowed from pension plans | 9,379 | 7,169 | 31 | |||||||||
Personnel
Parent Bank personnel was 45,102 on 31 December 2007 and 42,443 on 31 December 2006.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Corporate Governance and Compensation Report
Compensation details and additional information for executive members of the Board of Directors1 | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual incentive | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual incentive | award (shares; | award (options; | Benefits | to retirement | ||||||||||||||||||||||||||||
Name, function2 | For the year | Base salary | award (cash) | fair value)b | fair value)c | in kindd | benefits planse | Total | ||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 2,000,000 | 0 | 0 | 0 | 307,310 | 261,069 | 2,568,379 | ||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 1,500,000 | 0 | 0 | 0 | 111,808 | 261,069 | 1,872,877 | ||||||||||||||||||||||||
Marco Suter, Executive Vice Chairman | 2007 | 1,125,000 | 0 | 0 | 0 | 70,820 | 155,252 | 1,351,072 | ||||||||||||||||||||||||
Remuneration details and additional information for non-executive members of the Board of Directors1 | |||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | |||||||||||||||||||||||||||||||||||||
Corporate | For the | ||||||||||||||||||||||||||||||||||||
Audit | Compensation | Nominating | Responsibility | period AGM | Committee | Benefits | Additional | Share | Number of | ||||||||||||||||||||||||||||
Name, function2 | Committee | Committee | Committee | Committee | 2007 / 2008 | Base fee | retainer | in kind | payments | Total | percentage | shares3 | |||||||||||||||||||||||||
Ernesto Bertarelli, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | M | M | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | |||||||||||||||||||||||||||
Sergio Marchionne, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||
Rolf A. Meyer, member | M | C | 2007/2008 | 325,000 | 650,000 | 0 | 0 | 975,000 | 50 | 15,853 | |||||||||||||||||||||||||||
Helmut Panke, member | C | 2007/2008 | 325,000 | 250,000 | 0 | 0 | 575,000 | 50 | 9,349 | ||||||||||||||||||||||||||||
Peter Spuhler, member | M | 2007/2008 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 16,226 | ||||||||||||||||||||||||||||
Peter Voser, member | M | 2007/2008 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 10,162 | ||||||||||||||||||||||||||||
Lawrence A.Weinbach, member | C | 2007/2008 | 325,000 | 600,000 | 0 | 0 | 925,000 | 50 | 15,040 | ||||||||||||||||||||||||||||
Joerg Wolle, member | M | 2007/2008 | 325,000 | 150,000 | 0 | 0 | 475,000 | 100 | 14,677 | ||||||||||||||||||||||||||||
Legend:C = Chairman of the respective committee; M = Member of the respective committee
1 Individual compensation figures for the previous period will be disclosed from 2008 onwards. 2 There are nine non-executive members of the Board of Directors in office as of 31 December 2007. Sergio Marchionne was appointed to the Board of Directors at the 2007 annual general meeting. 3 Number of shares is reduced in case of the 100% election to deduct social security contribution. All remuneration payments are submitted to social security contribution / taxes at source.
Total payments to all members of the Board of Directors1 | ||||||||
CHF, except where indicateda | For the year2 | Total | ||||||
Aggregate of all (executive and non-executive) members of the Board of Directors | 2007 | 11,467,328 | ||||||
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Total compensation for all members of the Group Executive Board1 | ||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||
Annual | Discretionary | Contributions | ||||||||||||||||||||||||||||||
Annual | incentive | award | to retirement | |||||||||||||||||||||||||||||
incentive | award (shares; | (options; | Benefits in | benefits | ||||||||||||||||||||||||||||
Name, function | For the year | Base salary | award (cash) | fair value)b | fair value)c | kindd | planse | Total | ||||||||||||||||||||||||
Rory Tapner, Chairman and Chief Executive Officer Asia Pacific (highest-paid) | 2007 | 1,291,960 | 4,501,900 | 4,501,904 | 0 | 10,256 | 900 | 10,306,920 | ||||||||||||||||||||||||
Aggregate of all members of the Group Executive Board (GEB) who were in office as of 31 December 20072 | 2007 | 6,995,885 | 15,305,667 | 15,305,708 | 0 | 532,706 | 912,974 | 39,052,939 | ||||||||||||||||||||||||
Aggregate of all members of the GEB who stepped down during 20073 | 2007 | 2,511,947 | 23,042,376 | 6,750,036 | 0 | 406,567 | 275,635 | 32,986,561 | ||||||||||||||||||||||||
Compensation paid to former members of the Board of Directors and Group Executive Board1 | ||||||||||||
CHF, except where indicateda | ||||||||||||
Name, function | Compensation | Benefits in kind | Total | |||||||||
Alberto Togni, former member of the Board of Directors (BoD) | 318,401 | 502,478 | 820,879 | |||||||||
Philippe de Weck, former member of the BoD (Union Bank of Switzerland) | 0 | 129,701 | 129,701 | |||||||||
Robert Studer, former member of the BoD (Union Bank of Switzerland) | 0 | 260,162 | 260,162 | |||||||||
Georges Blum, former member of the BoD (Swiss Bank Corporation) | 0 | 90,803 | 90,803 | |||||||||
Aggregate of all former members of the Group Executive Board (GEB)2 | 0 | 257,791 | 257,791 | |||||||||
Aggregate of all former members of the BoD and GEB | 318,401 | 1,240,935 | 1,559,336 | |||||||||
Explanations of compensation details for executive members of the BoD and members of the GEB:
a) | Local currencies are converted into CHF using the exchange rates as detailed in Note 37 ofFinancial Statements 2007. | |
b) | Values per share at grant: CHF 36.15 / USD 33.55 for shares granted in 2008 related to the performance year 2007. CHF prices are average price of UBS shares at virt-x over the last ten trading days of February, and USD prices are average price of UBS shares at the New York Stock Exchange (NYSE) over the last ten trading days of February in the year in which they are granted. Share awards in this report are disclosed at fair value for the performance year for which they were granted. This differs from the recognition of share-based compensation expense in UBS’s financial statements, which is based on International Financial Reporting Standards (IFRS). Until 2007, IFRS required the recognition of the fair value of share-based payments to employees as a compensation expense over the service period (typically equivalent to the vesting period). | |
c) | For the performance year 2007, no options were granted in 2008. In line with the “accrual principle” outlined by the SWX Swiss Exchange (SWX) in September 2007, UBS has amended its reporting of basic stock option grants in this report to align them with the performance year for which they were awarded, rather than show them in the year in which they were actually granted. According to UBS’s previous disclosure, total compensation of the executive members of the Board of Directors (BoD) and the Group Executive Board (GEB) would have been down by 60% compared to 2006, and the Chairman of the BoD’s compensation would have decreased 81%. This presentation differs from previous years, where options were included in the grant year. It also differs from the recognition of share-based compensation expense in UBS’s financial statements (see Note 30 inFinancial Statements 2007). | |
d) | Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits and general expense allowances all valued at market price. | |
e) | In 2007, the Swiss pension plan converted to a Swiss defined contribution model. Swiss senior executives participate in the same plan as all other employees. Under this plan, employees receive a company contribution to the plan which covers compensation up to CHF 795,600. The retirement benefits consist of a pension, a bridging pension and a one-off payout of accumulated capital from the bonus plan. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV) but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award components. In both the US and the UK, senior executives participate in the same plans as all other employees. In the US there are two different plans, one of which operates on a cash balance basis and entitles the participant to receive a company contribution based on compensation limited to USD 250,000. US senior executives may also participate in the UBS 401K defined contribution plan (open to all employees), which provides a company matching contribution for employee contributions. In the UK, senior executives participate in either the principal pension plan, which is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension on retirement based on career average base salary (uncapped). |
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UBS AG (Parent Bank)
Notes to the Financial Statements
Share and option ownership of members of the Board of Directors as of 31 December 2007 | |||||||||||||||||||||||||||
Potentially | |||||||||||||||||||||||||||
conferred | Type and | ||||||||||||||||||||||||||
Number of | Voting rights | Number of | voting rights | quantity | |||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | in %2 | of options3 | |||||||||||||||||||||
xii: | 390,000 | ||||||||||||||||||||||||||
xiv: | 300,000 | ||||||||||||||||||||||||||
Marcel Ospel, Chairman | 2007 | 769,483 | 0.068 | 940,000 | 0.083 | xv: | 250,000 | ||||||||||||||||||||
vii: | 80,000 | ||||||||||||||||||||||||||
ix: | 80,000 | ||||||||||||||||||||||||||
x: | 80,000 | ||||||||||||||||||||||||||
xii: | 120,000 | ||||||||||||||||||||||||||
xiv: | 100,000 | ||||||||||||||||||||||||||
Stephan Haeringer, Executive Vice Chairman | 2007 | 487,053 | 0.043 | 535,000 | 0.047 | xv: | 75,000 | ||||||||||||||||||||
Ernesto Bertarelli, member | 2007 | 48,411 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Gabrielle Kaufmann-Kohler, member | 2007 | 3,303 | 0.000 | 0 | 0 | ||||||||||||||||||||||
Sergio Marchionne, member | 2007 | 45,800 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Rolf A. Meyer, member | 2007 | 50,562 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Helmut Panke, member | 2007 | 13,206 | 0.001 | 0 | 0 | ||||||||||||||||||||||
Peter Spuhler, member | 2007 | 67,092 | 0.006 | 0 | 0 | ||||||||||||||||||||||
Peter Voser, member | 2007 | 11,580 | 0.001 | 0 | 0 | ||||||||||||||||||||||
Lawrence A. Weinbach, member | 2007 | 45,520 | 0.004 | 0 | 0 | ||||||||||||||||||||||
Joerg Wolle, member | 2007 | 7,709 | 0.001 | 0 | 0 | ||||||||||||||||||||||
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Share and option ownership of members of the Group Executive Board as of 31 December 2007 | ||||||||||||||||||||||||||||
Potentially | Type and | |||||||||||||||||||||||||||
Number of | Voting rights | Number of | conferred voting | quantity | ||||||||||||||||||||||||
Name, function1 | For the year | shares held | in % | options held | rights in %2 | of options3 | ||||||||||||||||||||||
ix: | 30,000 | |||||||||||||||||||||||||||
x: | 200,000 | |||||||||||||||||||||||||||
xii: | 260,000 | |||||||||||||||||||||||||||
Marcel Rohner, Group Chief Executive Officer (CEO) and | xiv: | 300,000 | ||||||||||||||||||||||||||
Chairman & CEO Investment Bank | 2007 | 501,846 | 0.044 | 990,000 | 0.088 | xv: | 200,000 | |||||||||||||||||||||
i: | 52,560 | |||||||||||||||||||||||||||
iv: | 71,672 | |||||||||||||||||||||||||||
vi: | 120,000 | |||||||||||||||||||||||||||
viii: | 120,000 | |||||||||||||||||||||||||||
xi: | 160,000 | |||||||||||||||||||||||||||
xiii: | 190,000 | |||||||||||||||||||||||||||
John A. Fraser, Chairman and | xiv: | 200,000 | ||||||||||||||||||||||||||
CEO Global Asset Management | 2007 | 461,764 | 0.041 | 1,074,232 | 0.095 | xv: | 160,000 | |||||||||||||||||||||
x: | 80,000 | |||||||||||||||||||||||||||
xii: | 90,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Peter Kurer, Group General Counsel | 2007 | 292,762 | 0.026 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
ii: | 4,000 | |||||||||||||||||||||||||||
iv: | 57,590 | |||||||||||||||||||||||||||
v: | 40,000 | |||||||||||||||||||||||||||
viii: | 100,000 | |||||||||||||||||||||||||||
xi: | 133,092 | |||||||||||||||||||||||||||
xiii: | 52,000 | |||||||||||||||||||||||||||
xiv: | 66,000 | |||||||||||||||||||||||||||
Joseph Scoby, Group Chief Risk Officer | 2007 | 509,571 | 0.045 | 533,682 | 0.047 | xv: | 81,000 | |||||||||||||||||||||
vii: | 30,000 | |||||||||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 80,000 | |||||||||||||||||||||||||||
xiv: | 90,000 | |||||||||||||||||||||||||||
Walter Stuerzinger, Chief Operating Officer Corporate Center | 2007 | 209,442 | 0.019 | 350,000 | 0.031 | xv: | 90,000 | |||||||||||||||||||||
x: | 60,000 | |||||||||||||||||||||||||||
xii: | 120,000 | |||||||||||||||||||||||||||
xiv: | 100,000 | |||||||||||||||||||||||||||
Marco Suter, Group Chief Financial Officer | 2007 | 235,757 | 0.021 | 355,000 | 0.031 | xv: | 75,000 | |||||||||||||||||||||
iii: | 264,486 | |||||||||||||||||||||||||||
vi: | 200,000 | |||||||||||||||||||||||||||
ix: | 200,000 | |||||||||||||||||||||||||||
x: | 160,000 | |||||||||||||||||||||||||||
xii: | 150,000 | |||||||||||||||||||||||||||
xiv: | 160,000 | |||||||||||||||||||||||||||
Rory Tapner, Chairman and CEO Asia Pacific | 2007 | 514,365 | 0.046 | 1,294,486 | 0.115 | xv: | 160,000 | |||||||||||||||||||||
vi: | 50,000 | |||||||||||||||||||||||||||
xii: | 95,976 | |||||||||||||||||||||||||||
Raoul Weil, Chairman and | xiv: | 120,000 | ||||||||||||||||||||||||||
CEO Global Wealth Management & Business Banking | 2007 | 212,934 | 0.019 | 405,752 | 0.036 | xv: | 139,776 | |||||||||||||||||||||
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UBS AG (Parent Bank)
Notes to the Financial Statements
Vested and unvested options held by executive members of the Board of Directors
and by members of the Group Executive Board as of 31 December 2007
Type | Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | ||||||||||||||||||
i | 52,560 | 2001 | 20/02/2004 | 20/02/2009 | 1:1 | CHF 50.00 | ||||||||||||||||||
ii | 4,000 | 2002 | 28/02/2005 | 28/02/2012 | 1:1 | USD 23.12 | ||||||||||||||||||
iii | 264,486 | 2002 | 20/02/2005 | 31/01/2012 | 1:1 | CHF 38.88 | ||||||||||||||||||
iv | 129,262 | 2002 | 31/01/2005 | 31/01/2012 | 1:1 | USD 22.63 | ||||||||||||||||||
v | 40,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | USD 24.85 | ||||||||||||||||||
vi | 370,000 | 2002 | 28/06/2005 | 28/06/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
vii | 110,000 | 2002 | 28/06/2005 | 28/12/2012 | 1:1 | CHF 40.38 | ||||||||||||||||||
viii | 220,000 | 2003 | 31/01/2006 | 31/01/2013 | 1:1 | USD 24.00 | ||||||||||||||||||
ix | 310,000 | 2003 | 31/01/2006 | 31/07/2013 | 1:1 | CHF 32.50 | ||||||||||||||||||
x | 640,000 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | CHF 51.88 | ||||||||||||||||||
xi | 293,092 | 2004 | 28/02/2007 | 28/02/2014 | 1:1 | USD 40.63 | ||||||||||||||||||
xii | 1,305,976 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | CHF 55.75 | ||||||||||||||||||
xiii | 242,000 | 2005 | 01/03/2008 | 28/02/2015 | 1:1 | USD 47.75 | ||||||||||||||||||
xiv | 1,526,000 | 2006 | 01/03/2009 | 28/02/2016 | 1:1 | CHF 77.33 | ||||||||||||||||||
xv | 1,320,776 | 2007 | 01/03/2010 | 28/02/2017 | 1:1 | CHF 78.50 | ||||||||||||||||||
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Loans granted to members of the Board of Directors as of 31 December 2007
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted | Total | |||||||||
Marcel Ospel, Chairman | 11,000,000 | 0 | 11,000,000 | |||||||||
Stephan Haeringer, Executive Vice Chairman | 0 | 0 | 0 | |||||||||
Ernesto Bertarelli, member | 0 | 0 | 0 | |||||||||
Gabrielle Kaufmann-Kohler, member | 0 | 0 | 0 | |||||||||
Sergio Marchionne, member | 0 | 0 | 0 | |||||||||
Rolf A. Meyer, member | 480,000 | 0 | 480,000 | |||||||||
Helmut Panke, member | 0 | 0 | 0 | |||||||||
Peter Spuhler, member | 0 | 0 | 0 | |||||||||
Peter Voser, member | 0 | 0 | 0 | |||||||||
Lawrence A. Weinbach, member | 0 | 0 | 0 | |||||||||
Joerg Wolle, member | 0 | 0 | 0 | |||||||||
Aggregate of all members of the Board of Directors | 11,480,000 | 0 | 11,480,000 | |||||||||
Loans granted to members of the Group Executive Board
CHF, except where indicateda | ||||||||||||
Name, function1 | Mortgages | Other loans granted2 | Total | |||||||||
Joseph Scoby, Group Chief Risk Officer | 0 | 3,145,796 | 3,145,796 | |||||||||
Aggregate of all members of the Group Executive Board | 3,487,000 | 3,145,796 | 6,632,796 | |||||||||
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142
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Additional Disclosure Required under SEC Regulations
Additional Disclosure Required
under SEC Regulations
Table of Contents
145 | ||||
145 | ||||
146 | ||||
147 | ||||
148 | ||||
148 | ||||
148 | ||||
149 | ||||
149 | ||||
149 | ||||
151 | ||||
153 | ||||
154 | ||||
155 | ||||
156 | ||||
157 | ||||
158 | ||||
159 | ||||
160 | ||||
162 | ||||
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164 | ||||
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A – Introduction
The following pages contain additional disclosures about UBS Group which are required under SEC regulations.
B – Selected Financial Data
The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
2005 | 0.8721 | 0.7544 | 0.8039 | 0.7606 | ||||||||||||
2006 | 0.8396 | 0.7575 | 0.8034 | 0.8200 | ||||||||||||
2007 | 0.9087 | 0.7978 | 0.8381 | 0.8827 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2007 | 0.8568 | 0.8258 | ||||||||||||||
October 2007 | 0.8629 | 0.8437 | ||||||||||||||
November 2007 | 0.9087 | 0.8627 | ||||||||||||||
December 2007 | 0.8951 | 0.8645 | ||||||||||||||
January 2008 | 0.9221 | 0.8948 | ||||||||||||||
February 2008 | 0.9583 | 0.9030 | ||||||||||||||
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Additional Disclosure Required under SEC Regulations
Income statement data |
B – Selected Financial Data (continued)
For the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Income statement data | ||||||||||||||||||||
Interest income | 109,112 | 87,401 | 59,286 | 39,228 | 40,045 | |||||||||||||||
Interest expense | (103,775 | ) | (80,880 | ) | (49,758 | ) | (27,484 | ) | (27,784 | ) | ||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | 11,744 | 12,261 | |||||||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | 241 | (102 | ) | |||||||||||||
Net interest income after credit loss (expense) / recovery | 5,099 | 6,677 | 9,903 | 11,985 | 12,159 | |||||||||||||||
Net fee and commission income | 30,634 | 25,456 | 21,184 | 18,310 | 16,484 | |||||||||||||||
Net trading income | (8,353 | ) | 13,743 | 8,248 | 5,098 | 3,859 | ||||||||||||||
Other income | 4,332 | 1,598 | 1,127 | 868 | 295 | |||||||||||||||
Income from industrial holdings | 268 | 262 | 229 | 188 | 51 | |||||||||||||||
Total operating income | 31,980 | 47,736 | 40,691 | 36,449 | 32,848 | |||||||||||||||
Total operating expenses | 34,915 | 33,092 | 28,048 | 26,448 | 25,571 | |||||||||||||||
Operating profit from continuing operations before tax | (2,935 | ) | 14,644 | 12,643 | 10,001 | 7,277 | ||||||||||||||
Tax expense | 1,311 | 2,785 | 2,465 | 2,150 | 1,402 | |||||||||||||||
Net profit from continuing operations | (4,246 | ) | 11,859 | 10,178 | 7,851 | 5,875 | ||||||||||||||
Net profit from discontinued operations | 401 | 891 | 4,512 | 619 | 378 | |||||||||||||||
Net profit | (3,845 | ) | 12,750 | 14,690 | 8,470 | 6,253 | ||||||||||||||
Net profit attributable to minority interests | 539 | 493 | 661 | 454 | 349 | |||||||||||||||
Net profit attributable to UBS shareholders | (4,384 | ) | 12,257 | 14,029 | 8,016 | 5,904 | ||||||||||||||
Cost / income ratio (%)1 | 110.3 | 69.7 | 70.1 | 73.2 | 76.8 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | (2.28 | ) | 6.20 | 6.97 | 3.89 | 2.72 | ||||||||||||||
Diluted earnings per share2 | (2.28 | ) | 5.95 | 6.68 | 3.70 | 2.59 | ||||||||||||||
Operating profit before tax per share | (1.52 | ) | 7.41 | 6.28 | 4.86 | 3.35 | ||||||||||||||
Cash dividends declared per share (CHF)3,4 | N/A | 2.20 | 1.60 | 1.50 | 1.30 | |||||||||||||||
Cash dividend declared per share (USD)3,4 | N/A | 1.83 | 1.26 | 1.27 | 1.00 | |||||||||||||||
Dividend payout ratio (%)3,4 | N/A | 35.5 | 23.0 | 38.6 | 47.8 | |||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on equity attributable to UBS shareholders5 | (9.4 | ) | 28.2 | 39.7 | 25.8 | 18.0 | ||||||||||||||
Return on average equity | (9.1 | ) | 26.3 | 37.2 | 23.8 | 16.9 | ||||||||||||||
Return on average assets | (0.16 | ) | 0.52 | 0.68 | 0.44 | 0.38 | ||||||||||||||
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B – Selected Financial Data (continued)
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 2,272,579 | 2,346,362 | 1,998,455 | 1,701,258 | 1,539,841 | |||||||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | 33,632 | 33,350 | |||||||||||||||
Average equity to average assets (%) | 1.74 | 1.96 | 1.83 | 1.87 | 2.25 | |||||||||||||||
Market capitalization | 108,654 | 154,222 | 131,949 | 103,638 | 95,401 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 2,073,547,344 | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | 2,366,093,528 | |||||||||||||||
Treasury shares | 158,105,524 | 164,475,699 | 208,519,748 | 249,326,620 | 273,482,454 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 8.8 | 11.9 | 12.8 | 11.8 | 11.8 | |||||||||||||||
Total BIS (%) | 12.0 | 14.7 | 14.1 | 13.6 | 13.4 | |||||||||||||||
Risk-weighted assets | 372,298 | 341,892 | 310,409 | 264,832 | 252,398 | |||||||||||||||
Invested assets (CHF billion) | 3,189 | 2,989 | 2,652 | 2,217 | 2,098 | |||||||||||||||
Personnel Financial Businesses (full-time equivalents) | ||||||||||||||||||||
Switzerland | 27,884 | 27,018 | 26,028 | 25,987 | 26,660 | |||||||||||||||
Rest of Europe / Middle East / Africa | 13,728 | 12,687 | 11,007 | 10,751 | 9,888 | |||||||||||||||
Americas | 31,975 | 30,819 | 27,136 | 26,231 | 25,508 | |||||||||||||||
Asia Pacific | 9,973 | 7,616 | 5,398 | 4,438 | 3,823 | |||||||||||||||
Total | 83,560 | 78,140 | 69,569 | 67,407 | 65,879 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Moody’s, New York | Aaa | Aa2 | Aa2 | Aa2 | Aa2 | |||||||||||||||
Standard & Poor’s, New York | AA | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,272,579 | 2,346,362 | 1,998,455 | 1,701,258 | 1,539,841 | |||||||||||||||
Due from banks | 60,907 | 50,426 | 33,644 | 35,419 | 31,959 | |||||||||||||||
Cash collateral on securities borrowed | 207,063 | 351,590 | 288,435 | 210,606 | 206,519 | |||||||||||||||
Reverse repurchase agreements | 376,928 | 405,834 | 404,432 | 357,164 | 320,499 | |||||||||||||||
Trading portfolio assets | 610,061 | 627,036 | 499,297 | 389,487 | 354,558 | |||||||||||||||
Trading portfolio assets pledged as collateral | 164,311 | 251,478 | 154,759 | 159,115 | 120,759 | |||||||||||||||
Positive replacement values | 428,217 | 292,975 | 273,889 | 248,664 | 234,015 | |||||||||||||||
Loans | 335,864 | 297,842 | 279,910 | 241,803 | 220,083 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 145,762 | 203,689 | 124,328 | 120,026 | 129,084 | |||||||||||||||
Cash collateral on securities lent | 31,621 | 63,088 | 59,938 | 51,301 | 48,272 | |||||||||||||||
Repurchase agreements | 305,887 | 545,480 | 478,508 | 422,587 | 415,863 | |||||||||||||||
Trading portfolio liabilities | 164,788 | 204,773 | 188,631 | 171,033 | 143,957 | |||||||||||||||
Negative replacement values | 443,539 | 297,063 | 277,770 | 267,799 | 240,577 | |||||||||||||||
Financial liabilities designated at fair value | 191,853 | 145,687 | 117,401 | 65,756 | 35,286 | |||||||||||||||
Due to customers | 641,892 | 555,886 | 466,907 | 386,320 | 351,583 | |||||||||||||||
Debt issued | 222,077 | 190,143 | 160,710 | 117,856 | 88,874 | |||||||||||||||
Equity attributable to UBS shareholders | 35,585 | 49,686 | 44,015 | 33,632 | 33,350 | |||||||||||||||
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Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
Ratio of Earnings to Fixed Charges
The following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are calculated based on earnings from continuing operations. Ratios of earnings to combined fixed charges and preferred stock dividend requirements are not presented as there were no preferred share dividends in any of the periods indicated.
For the year ended | ||||||||||||||||||||
31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | ||||||||||||||||
0.97 | 1.17 | 1.24 | 1.34 | 1.24 | ||||||||||||||||
C – Information on the Company
Property, Plant and Equipment
At 31 December 2007, the Industrial Holdings segment operated about 17 business locations worldwide, of which 94% were in the Americas and 6% in Asia-Pacific. 94% of the business locations worldwide were held under commercial leases.
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D – Information Required by Industry Guide 3
Selected Statistical Information
ber 2006 and 31 December 2005 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 2007, 2006 and 2005.
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Due from banks | ||||||||||||||||||||||||||||||||||||
Domestic | 11,784 | 664 | 5.6 | 10,800 | 587 | 5.4 | 15,467 | 270 | 1.7 | |||||||||||||||||||||||||||
Foreign | 46,049 | 2,344 | 5.1 | 29,814 | 1,490 | 5.0 | 25,497 | 1,334 | 5.2 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 31,473 | 1,693 | 5.4 | 27,147 | 1,333 | 4.9 | 33,012 | 1,079 | 3.3 | |||||||||||||||||||||||||||
Foreign | 977,302 | 46,581 | 4.8 | 926,575 | 38,393 | 4.1 | 776,972 | 22,283 | 2.9 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 11,866 | 696 | 5.9 | 17,976 | 651 | 3.6 | 15,545 | 457 | 2.9 | |||||||||||||||||||||||||||
Foreign taxable | 861,923 | 38,206 | 4.4 | 707,432 | 31,433 | 4.4 | 580,763 | 23,619 | 4.1 | |||||||||||||||||||||||||||
Foreign non-taxable | 5,754 | 199 | 3.5 | 4,438 | 127 | 2.9 | 3,390 | 58 | 1.7 | |||||||||||||||||||||||||||
Foreign total | 867,677 | 38,405 | 4.4 | 711,870 | 31,560 | 4.4 | 584,153 | 23,677 | 4.1 | |||||||||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 588 | 0 | 42 | 0 | 616 | 0 | ||||||||||||||||||||||||||||||
Foreign | 9,114 | 298 | 3.3 | 2,325 | 70 | 3.0 | 691 | 26 | 3.8 | |||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 187,073 | 6,565 | 3.5 | 181,186 | 5,784 | 3.2 | 174,299 | 5,424 | 3.1 | |||||||||||||||||||||||||||
Foreign | 146,040 | 9,359 | 6.4 | 105,362 | 6,284 | 5.9 | 91,290 | 3,531 | 3.9 | |||||||||||||||||||||||||||
Financial investments available-for-sale | ||||||||||||||||||||||||||||||||||||
Domestic | 3,930 | 66 | 1.7 | 4,126 | 28 | 0.7 | 1,036 | 3 | 0.3 | |||||||||||||||||||||||||||
Foreign taxable | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | |||||||||||||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||
Foreign total | 2,934 | 110 | 3.7 | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | |||||||||||||||||||||||||||
Total interest-earning assets | 2,295,830 | 106,781 | 4.7 | 2,020,394 | 86,280 | 4.3 | 1,722,124 | 58,167 | 3.4 | |||||||||||||||||||||||||||
Net interest on swaps | 2,331 | 1,121 | 1,119 | |||||||||||||||||||||||||||||||||
Interest income and average interest- earning assets | 2,295,830 | 109,112 | 4.8 | 2,020,394 | 87,401 | 4.3 | 1,722,124 | 59,286 | 3.4 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 373,229 | 278,733 | 271,795 | |||||||||||||||||||||||||||||||||
Fixed assets | 7,090 | 7,445 | 9,308 | |||||||||||||||||||||||||||||||||
Other | 80,336 | 66,362 | 55,178 | |||||||||||||||||||||||||||||||||
Total average assets | 2,756,485 | 2,372,934 | 2,058,405 | |||||||||||||||||||||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||||||||||||||||||
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 | 60,858 | 2,477 | 4.1 | 46,544 | 1,583 | 3.4 | 35,713 | 897 | 2.5 | |||||||||||||||||||||||||||
Foreign | 146,286 | 8,008 | 5.5 | 108,885 | 5,261 | 4.8 | 92,431 | 3,321 | 3.6 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 47,041 | 1,902 | 4.0 | 46,224 | 1,589 | 3.4 | 40,772 | 881 | 2.2 | |||||||||||||||||||||||||||
Foreign | 752,616 | 38,680 | 5.1 | 751,617 | 32,432 | 4.3 | 647,998 | 19,599 | 3.0 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 5,561 | 328 | 5.9 | 4,408 | 283 | 6.4 | 3,632 | 145 | 4.0 | |||||||||||||||||||||||||||
Foreign | 214,326 | 15,484 | 7.2 | 202,263 | 14,250 | 7.0 | 173,394 | 10,591 | 6.1 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 1,503 | 79 | 5.3 | 1,864 | 58 | 3.1 | 638 | 5 | 0.8 | |||||||||||||||||||||||||||
Foreign | 173,162 | 7,580 | 4.4 | 127,458 | 4,699 | 3.7 | 86,688 | 2,385 | 2.8 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic demand deposits | 64,568 | 736 | 1.1 | 70,981 | 534 | 0.8 | 67,987 | 292 | 0.4 | |||||||||||||||||||||||||||
Domestic savings deposits | 78,775 | 502 | 0.6 | 86,631 | 392 | 0.5 | 86,373 | 404 | 0.5 | |||||||||||||||||||||||||||
Domestic time deposits | 41,056 | 1,206 | 2.9 | 28,876 | 639 | 2.2 | 24,245 | 386 | 1.6 | |||||||||||||||||||||||||||
Domestic total | 184,399 | 2,444 | 1.3 | 186,488 | 1,565 | 0.8 | 178,605 | 1,082 | 0.6 | |||||||||||||||||||||||||||
Foreign1 | 426,130 | 16,388 | 3.8 | 314,788 | 11,500 | 3.7 | 249,561 | 5,906 | 2.4 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 2,228 | 98 | 4.4 | 1,973 | 115 | 5.8 | 1,584 | 20 | 1.3 | |||||||||||||||||||||||||||
Foreign | 144,546 | 8,643 | 6.0 | 110,418 | 5,934 | 5.4 | 96,767 | 3,196 | 3.3 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 4,235 | 115 | 2.7 | 3,957 | 82 | 2.1 | 4,250 | 117 | 2.8 | |||||||||||||||||||||||||||
Foreign | 70,079 | 1,549 | 2.2 | 57,899 | 1,529 | 2.6 | 43,035 | 1,613 | 3.7 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 2,232,970 | 103,775 | 4.6 | 1,964,786 | 80,880 | 4.1 | 1,655,068 | 49,758 | 3.0 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 382,115 | 278,903 | 288,089 | |||||||||||||||||||||||||||||||||
Other | 87,196 | 76,270 | 70,654 | |||||||||||||||||||||||||||||||||
Total liabilities | 2,702,281 | 2,319,959 | 2,013,811 | |||||||||||||||||||||||||||||||||
Total equity | 54,204 | 52,975 | 44,594 | |||||||||||||||||||||||||||||||||
Total average liabilities and equity | 2,756,485 | 2,372,934 | 2,058,405 | |||||||||||||||||||||||||||||||||
Net interest income | 5,337 | 6,521 | 9,528 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.2 | 0.3 | 0.6 | |||||||||||||||||||||||||||||||||
The percentage of total average interest-earning assets attributable to foreign activities was 89% for 2007 (88% for 2006 and 86% for 2005). The percentage of total average interest-bearing liabilities attributable to foreign activities was 86% for 2007 (85% for 2006 and 84% for 2005). All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest rates in general, but are also affected by changes in the currency mix included in the assets and liabilities. This is especially true for foreign assets and liabilities. Tax-exempt income is not recorded on a tax-equivalent basis. For all three years presented, tax-exempt income is considered to be insignificant and the impact from such income is therefore negligible.
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D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 2007 compared with the year ended 31 December 2006, and for the year ended 31 December 2006 compared with the year end-
ed 31 December 2005. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally. Refer to the appropriate section of Industry Guide 3 for a discussion of the treatment of impaired and non-performing loans.
2007 compared with 2006 | 2006 compared with 2005 | |||||||||||||||||||||||
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 | 53 | 24 | 77 | (79 | ) | 396 | 317 | |||||||||||||||||
Foreign | 812 | 42 | 854 | 224 | (68 | ) | 156 | |||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||
Domestic | 212 | 148 | 360 | (194 | ) | 448 | 254 | |||||||||||||||||
Foreign | 2,080 | 6,108 | 8,188 | 4,338 | 11,772 | 16,110 | ||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||
Domestic | (220 | ) | 265 | 45 | 70 | 124 | 194 | |||||||||||||||||
Foreign taxable | 6,798 | (25 | ) | 6,773 | 5,193 | 2,621 | 7,814 | |||||||||||||||||
Foreign non-taxable | 38 | 34 | 72 | 18 | 51 | 69 | ||||||||||||||||||
Foreign total | 6,836 | 9 | 6,845 | 5,211 | 2,672 | 7,883 | ||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 204 | 24 | 228 | 62 | (18 | ) | 44 | |||||||||||||||||
Loans | ||||||||||||||||||||||||
Domestic | 188 | 593 | 781 | 213 | 147 | 360 | ||||||||||||||||||
Foreign | 2,441 | 634 | 3,075 | 549 | 2,204 | 2,753 | ||||||||||||||||||
Financial investments | ||||||||||||||||||||||||
Domestic | (1 | ) | 39 | 38 | 9 | 16 | 25 | |||||||||||||||||
Foreign taxable | (8 | ) | 18 | 10 | (9 | ) | 26 | 17 | ||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign total | (8 | ) | 18 | 10 | (9 | ) | 26 | 17 | ||||||||||||||||
Interest income | ||||||||||||||||||||||||
Domestic | 232 | 1,069 | 1,301 | 19 | 1,131 | 1,150 | ||||||||||||||||||
Foreign | 12,365 | 6,835 | 19,200 | 10,375 | 16,588 | 26,963 | ||||||||||||||||||
Total interest income from interest-earning assets | 12,597 | 7,904 | 20,501 | 10,394 | 17,719 | 28,113 | ||||||||||||||||||
Net interest on swaps | 1,210 | 2 | ||||||||||||||||||||||
Total interest income | 21,711 | 28,115 | ||||||||||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)
2007 compared with 2006 | 2006 compared with 2005 | |||||||||||||||||||||||
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 | 487 | 407 | 894 | 271 | 415 | 686 | ||||||||||||||||||
Foreign | 1,795 | 952 | 2,747 | 592 | 1,348 | 1,940 | ||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 28 | 285 | 313 | 120 | 588 | 708 | ||||||||||||||||||
Foreign | 43 | 6,205 | 6,248 | 3,109 | 9,724 | 12,833 | ||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | 74 | (29 | ) | 45 | 31 | 107 | 138 | |||||||||||||||||
Foreign | 844 | 390 | 1,234 | 1,761 | 1,898 | 3,659 | ||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||
Domestic | (11 | ) | 32 | 21 | 10 | 43 | 53 | |||||||||||||||||
Foreign | 1,691 | 1,190 | 2,881 | 1,142 | 1,172 | 2,314 | ||||||||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic demand deposits | (51 | ) | 253 | 202 | 12 | 230 | 242 | |||||||||||||||||
Domestic savings deposits | (39 | ) | 149 | 110 | 1 | (13 | ) | (12 | ) | |||||||||||||||
Domestic time deposits | 268 | 299 | 567 | 74 | 179 | 253 | ||||||||||||||||||
Domestic total | 178 | 701 | 879 | 87 | 396 | 483 | ||||||||||||||||||
Foreign | 4,120 | 768 | 4,888 | 1,565 | 4,029 | 5,594 | ||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 15 | (32 | ) | (17 | ) | 5 | 90 | 95 | ||||||||||||||||
Foreign | 1,843 | 866 | 2,709 | 450 | 2,288 | 2,738 | ||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | 6 | 27 | 33 | (8 | ) | (27 | ) | (35 | ) | |||||||||||||||
Foreign | 317 | (297 | ) | 20 | 550 | (634 | ) | (84 | ) | |||||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | 777 | 1,391 | 2,168 | 516 | 1,612 | 2,128 | ||||||||||||||||||
Foreign | 10,653 | 10,074 | 20,727 | 9,169 | 19,825 | 28,994 | ||||||||||||||||||
Total interest expense | 11,430 | 11,465 | 22,895 | 9,685 | 21,437 | 31,122 | ||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Deposits
31.12.07 | 31.12.06 | 31.12.05 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 2,474 | 0.6 | 2,024 | 0.2 | 8,491 | 0.1 | ||||||||||||||||||
Time deposits | 9,310 | 5.1 | 8,776 | 4.5 | 6,976 | 3.3 | ||||||||||||||||||
Total domestic offices | 11,784 | 4.2 | 10,800 | 3.7 | 15,467 | 1.5 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 46,049 | 5.5 | 29,814 | 4.8 | 25,497 | 3.6 | ||||||||||||||||||
Total due to banks | 57,833 | 5.2 | 40,614 | 4.5 | 40,964 | 2.8 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 64,568 | 1.1 | 70,981 | 0.8 | 67,987 | 0.4 | ||||||||||||||||||
Savings deposits | 78,775 | 0.6 | 86,631 | 0.5 | 86,373 | 0.5 | ||||||||||||||||||
Time deposits | 41,056 | 2.9 | 28,876 | 2.2 | 24,245 | 1.6 | ||||||||||||||||||
Total domestic offices | 184,399 | 1.3 | 186,488 | 0.8 | 178,605 | 0.6 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 426,130 | 3.8 | 314,788 | 3.7 | 249,561 | 2.4 | ||||||||||||||||||
Total due to customers | 610,529 | 3.1 | 501,276 | 2.6 | 428,166 | 1.6 | ||||||||||||||||||
At 31 December 2007, 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 | 39,427 | 276,913 | ||||||
3 to 6 months | 3,448 | 37,109 | ||||||
6 to 12 months | 1,082 | 7,215 | ||||||
1 to 5 years | 448 | 1,679 | ||||||
Over 5 years | 87 | 228 | ||||||
Total time deposits | 44,492 | 323,144 | ||||||
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Additional Disclosure Required under SEC Regulations
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 2007, 2006 and 2005.
Money market paper issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.07 | 31.12.06 | 31.12.05 | |||||||||||||||||||||||||||
Period-end balance | 152,256 | 119,584 | 102,662 | 84,826 | 153,231 | 90,651 | 487,455 | 754,623 | 667,317 | |||||||||||||||||||||||||||
Average balance | 146,774 | 112,391 | 98,351 | 149,311 | 114,815 | 114,701 | 739,138 | 717,542 | 628,362 | |||||||||||||||||||||||||||
Maximum month-end balance | 167,637 | 123,108 | 112,217 | 175,233 | 153,231 | 101,178 | 848,401 | 777,010 | 719,208 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 6.0 | 5.4 | 3.3 | 5.1 | 4.4 | 3.3 | 5.0 | 4.4 | 3.0 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 6.1 | 4.0 | 4.0 | 4.5 | 4.1 | 3.0 | 4.9 | 5.0 | 2.6 | |||||||||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Contractual Maturities of Investments in Debt Instruments Available-for-Sale1,2
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 20073 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 2 | 2.02 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 50 | 1.87 | 2 | 2.54 | 75 | 4.48 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 50 | 5.66 | 44 | 4.11 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 3 | 4.48 | 561 | 5.28 | ||||||||||||||||||||||||
Other debt instruments | 14 | 4.20 | 216 | 12.41 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 114 | 264 | 78 | 562 | ||||||||||||||||||||||||||||
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2006 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 2 | 2.22 | 0 | 0.00 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.48 | 2 | 1.89 | 57 | 4.47 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 26 | 7.00 | 0 | 0.00 | 2 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 10 | 4.48 | 150 | 5.10 | ||||||||||||||||||||||||
Other debt instruments | 0 | 0.00 | 233 | 9.28 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 66 | 235 | 69 | 151 | ||||||||||||||||||||||||||||
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
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 instruments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 51 | 285 | 95 | 247 | ||||||||||||||||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross)
The Group’s lending portfolio is widely diversified across industry sectors with no significant concentrations of credit risk. CHF 164.4 billion (41% of the total) consists of loans to thousands of private households, predominantly in Switzerland, and mostly secured by mortgages, financial collateral or other assets. Exposure to Banks and Financial Institutions amounted to CHF 163 billion (41% of the total). This includes cash posted as collateral by UBS against negative replacement values on derivatives or other positions, which, from a risk perspective, is not considered lending but is a key component of the measurement of counterparty risk taken in connection with the underlying products. Exposure to
banks includes money market deposits with highly rated institutions. Excluding Banks and Financial institutions, the largest industry sector exposure is CHF 17 billion (4% of the total) to Real estate and rentals. For further discussion of the loan portfolio, see the “Credit risk” section inRisk, Treasury and Capital Management 2007.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 1,237 | 561 | 1,407 | 1,406 | 619 | |||||||||||||||
Construction | 1,393 | 1,535 | 1,816 | 1,943 | 2,175 | |||||||||||||||
Financial institutions | 5,525 | 5,542 | 4,213 | 4,332 | 4,009 | |||||||||||||||
Hotels and restaurants | 1,824 | 1,957 | 2,044 | 2,269 | 2,440 | |||||||||||||||
Manufacturing2 | 3,887 | 3,643 | 4,134 | 5,485 | 6,478 | |||||||||||||||
Private households | 121,536 | 117,852 | 111,549 | 105,160 | 102,180 | |||||||||||||||
Public authorities | 4,734 | 4,972 | 5,494 | 5,460 | 5,251 | |||||||||||||||
Real estate and rentals | 11,691 | 11,356 | 11,792 | 11,466 | 12,449 | |||||||||||||||
Retail and wholesale | 5,138 | 4,569 | 4,808 | 4,908 | 6,062 | |||||||||||||||
Services3 | 6,170 | 6,758 | 8,088 | 9,110 | 9,493 | |||||||||||||||
Other4 | 3,300 | 4,345 | 3,119 | 591 | 1,014 | |||||||||||||||
Total domestic | 166,435 | 163,090 | 158,464 | 152,130 | 152,170 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 60,333 | 50,124 | 32,287 | 34,269 | 31,405 | |||||||||||||||
Chemicals | 635 | 1,321 | 2,716 | 366 | 245 | |||||||||||||||
Construction | 624 | 522 | 295 | 122 | 84 | |||||||||||||||
Electricity, gas and water supply | 1,888 | 951 | 1,637 | 745 | 249 | |||||||||||||||
Financial institutions | 96,370 | 67,676 | 62,344 | 45,095 | 30,906 | |||||||||||||||
Manufacturing5 | 4,678 | 3,006 | 3,784 | 2,758 | 2,421 | |||||||||||||||
Mining | 4,509 | 3,177 | 3,431 | 1,695 | 1,114 | |||||||||||||||
Private households | 42,828 | 35,031 | 38,283 | 30,237 | 21,195 | |||||||||||||||
Public authorities | 4,172 | 2,175 | 1,686 | 1,228 | 1,224 | |||||||||||||||
Real estate and rentals | 5,056 | 4,360 | 2,707 | 940 | 473 | |||||||||||||||
Retail and wholesale | 2,239 | 1,815 | 1,257 | 1,102 | 1,880 | |||||||||||||||
Services | 9,294 | 16,436 | 5,593 | 8,002 | 7,983 | |||||||||||||||
Transport, storage and communication | 1,752 | 1,528 | 1,419 | 762 | 3,658 | |||||||||||||||
Other6 | 1,105 | 564 | 272 | 318 | 432 | |||||||||||||||
Total foreign | 235,483 | 188,686 | 157,711 | 127,639 | 103,269 | |||||||||||||||
Total gross | 401,918 | 351,776 | 316,175 | 279,769 | 255,439 | |||||||||||||||
The table above also includes loans designated at fair value. Prior period amounts have been adjusted to reflect this change in presentation.
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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 2007, 2006, 2005, 2004 and 2003. Mortgages are included in the industry categories mentioned on the previous page.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 135,341 | 134,468 | 130,880 | 124,496 | 122,069 | |||||||||||||||
Foreign | 8,152 | 10,069 | 15,619 | 12,185 | 7,073 | |||||||||||||||
Total gross mortgages | 143,493 | 144,537 | 146,499 | 136,681 | 129,142 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 122,435 | 124,548 | 127,990 | 117,731 | 109,980 | |||||||||||||||
Commercial | 21,058 | 19,989 | 18,509 | 18,950 | 19,162 | |||||||||||||||
Total gross mortgages | 143,493 | 144,537 | 146,499 | 136,681 | 129,142 | |||||||||||||||
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 1,235 | 1 | 0 | 1,236 | ||||||||||||
Mortgages | 55,758 | 55,537 | 24,046 | 135,341 | ||||||||||||
Other loans | 23,051 | 5,293 | 1,515 | 29,859 | ||||||||||||
Total domestic | 80,044 | 60,831 | 25,561 | 166,436 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 58,053 | 1,448 | 198 | 59,699 | ||||||||||||
Mortgages | 4,243 | 3,432 | 477 | 8,152 | ||||||||||||
Other loans | 152,535 | 8,746 | 2,234 | 163,515 | ||||||||||||
Total foreign | 214,831 | 13,626 | 2,909 | 231,366 | ||||||||||||
Total gross1 | 294,875 | 74,457 | 28,470 | 397,802 | ||||||||||||
At 31 December 2007, the total amount of due from banks and loans due after one year granted at fixed and floating rates were as follows:
CHF million | 1 to 5 years | Over 5 years | Total | |||||||||
Fixed-rate loans | 69,694 | 27,712 | 97,406 | |||||||||
Adjustable or floating-rate loans | 4,763 | 758 | 5,521 | |||||||||
Total | 74,457 | 28,470 | 102,927 | |||||||||
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Additional Disclosure Required under SEC Regulations
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.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Gross interest income that would have been recorded on non-performing loans: | ||||||||||||||||||||
Domestic | 39 | 50 | 81 | 107 | 171 | |||||||||||||||
Foreign | 4 | 10 | 8 | 17 | 23 | |||||||||||||||
Interest income included in Net profit for non-performing loans: | ||||||||||||||||||||
Domestic | 40 | 56 | 72 | 106 | 163 | |||||||||||||||
Foreign | 2 | 8 | 9 | 8 | 8 | |||||||||||||||
The table below provides an analysis of the Group’s non-performing loans. For further information see the “Credit risk” section inRisk, Treasury and Capital Management 2007.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 1,349 | 1,744 | 2,106 | 2,772 | 4,012 | |||||||||||||||
Foreign | 132 | 174 | 257 | 783 | 746 | |||||||||||||||
Total non-performing loans | 1,481 | 1,918 | 2,363 | 3,555 | 4,758 | |||||||||||||||
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 2007, 2006, 2005, 2004 or 2003.
Other impaired loans are loans where the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. For the years ended 31 December 2007, 2006, 2005 and 2004, they are loans not considered “non-performing” in accordance with Swiss regulatory guidelines, and for the year ended 31 December 2003, they are loans that were current or less than 90 days in arrears with respect to payment of principal or interest. As of 31 December 2007, 31 December 2006, 31 December 2005 and 31 December 2004, specific allowances of CHF 124 million, CHF 106 million, CHF 200 million, CHF 241 million, respectively, had been established against these loans.
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D – Information Required by Industry Guide 3 (continued)
Cross-border Outstandings
Cross-border outstandings consist of general banking products such as loans and deposits with third parties, credit equivalents of over-the-counter (OTC) derivatives and securities financing, and the market value of the inventory of debt securities. Outstandings are monitored and reported on an ongoing basis by the credit risk control organization with a dedicated country risk information system. With the exception of the 33 most developed economies, these exposures are rigorously limited. The following analysis excludes Due from banks and Loans from Industrial Holdings.
the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.
31.12.07 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 13,110 | 192,049 | 16,545 | 221,704 | 9.8 | |||||||||||||||
Japan | 1,761 | 12,883 | 36,717 | 51,361 | 2.3 | |||||||||||||||
Germany | 21,384 | 12,354 | 2,249 | 35,988 | 1.6 | |||||||||||||||
United Kingdom | 6,624 | 14,647 | 8,552 | 29,823 | 1.3 | |||||||||||||||
Cayman Islands | 173 | 27,715 | 74 | 27,963 | 1.2 | |||||||||||||||
France | 10,620 | 7,075 | 4,605 | 22,300 | 1.0 | |||||||||||||||
31.12.06 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 7,692 | 208,200 | 22,574 | 238,466 | 10.2 | |||||||||||||||
Japan | 2,283 | 8,263 | 30,158 | 40,704 | 1.7 | |||||||||||||||
United Kingdom | 11,149 | 16,098 | 559 | 27,806 | 1.2 | |||||||||||||||
Germany | 15,240 | 8,080 | 1,574 | 24,894 | 1.1 | |||||||||||||||
31.12.05 | ||||||||||||||||||||
CHF million | Banks | Private Sector | Public Sector | Total | % of total assets | |||||||||||||||
United States | 6,700 | 133,561 | 23,297 | 163,558 | 7.9 | |||||||||||||||
Germany | 16,985 | 4,525 | 1,265 | 22,775 | 1.1 | |||||||||||||||
Japan | 2,044 | 7,582 | 10,824 | 20,450 | 1.0 | |||||||||||||||
United Kingdom | 6,384 | 11,423 | 555 | 18,362 | 0.9 | |||||||||||||||
Italy | 3,343 | 2,509 | 11,324 | 17,176 | 0.8 | |||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
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 | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Balance at beginning of year | 1,332 | 1,776 | 2,802 | 3,775 | 5,015 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (9 | ) | (14 | ) | (16 | ) | (49 | ) | (73 | ) | ||||||||||
Financial institutions | (8 | ) | (11 | ) | (14 | ) | (24 | ) | (37 | ) | ||||||||||
Hotels and restaurants | (7 | ) | (16 | ) | (26 | ) | (101 | ) | (57 | ) | ||||||||||
Manufacturing1 | (45 | ) | (40 | ) | (39 | ) | (77 | ) | (121 | ) | ||||||||||
Private households | (68 | ) | (89 | ) | (131 | ) | (208 | ) | (262 | ) | ||||||||||
Public authorities | (1 | ) | 0 | 0 | 0 | (18 | ) | |||||||||||||
Real estate and rentals | (27 | ) | (44 | ) | (56 | ) | (109 | ) | (206 | ) | ||||||||||
Retail and wholesale | (62 | ) | (20 | ) | (25 | ) | (68 | ) | (67 | ) | ||||||||||
Services2 | (20 | ) | (47 | ) | (35 | ) | (83 | ) | (111 | ) | ||||||||||
Other3 | (21 | ) | (2 | ) | (4 | ) | (9 | ) | (43 | ) | ||||||||||
Total domestic write-offs | (268 | ) | (283 | ) | (346 | ) | (728 | ) | (995 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (1 | ) | (3 | ) | (164 | ) | (21 | ) | (17 | ) | ||||||||||
Chemicals | 0 | 0 | 0 | (1 | ) | 0 | ||||||||||||||
Construction | 0 | 0 | 0 | (3 | ) | 0 | ||||||||||||||
Electricity, gas and water supply | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Financial institutions | (15 | ) | 0 | (50 | ) | (34 | ) | (112 | ) | |||||||||||
Manufacturing4 | (21 | ) | (11 | ) | (8 | ) | (23 | ) | (77 | ) | ||||||||||
Mining | 0 | (1 | ) | (23 | ) | (8 | ) | (15 | ) | |||||||||||
Private households | (14 | ) | (7 | ) | (21 | ) | (8 | ) | (11 | ) | ||||||||||
Public authorities | (2 | ) | (58 | ) | (22 | ) | (2 | ) | 0 | |||||||||||
Real estate and rentals | 0 | 0 | (3 | ) | 0 | (1 | ) | |||||||||||||
Retail and wholesale | 0 | 0 | (9 | ) | 0 | (76 | ) | |||||||||||||
Services | 0 | 0 | 0 | (7 | ) | (25 | ) | |||||||||||||
Transport, storage and communication | 0 | 0 | 0 | 0 | (24 | ) | ||||||||||||||
Other5 | 0 | 0 | (5 | ) | (21 | ) | (83 | ) | ||||||||||||
Total foreign write-offs | (53 | ) | (80 | ) | (305 | ) | (128 | ) | (441 | ) | ||||||||||
Total write-offs | (321 | ) | (363 | ) | (651 | ) | (856 | ) | (1,436 | ) | ||||||||||
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D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 52 | 51 | 53 | 54 | 49 | |||||||||||||||
Foreign | 3 | 11 | 10 | 5 | 38 | |||||||||||||||
Total recoveries | 55 | 62 | 63 | 59 | 87 | |||||||||||||||
Net write-offs | (266 | ) | (301 | ) | (588 | ) | (797 | ) | (1,349 | ) | ||||||||||
Increase / (decrease) in credit loss allowance and provision | 242 | (108 | ) | (298 | ) | (216 | ) | 102 | ||||||||||||
Collective loan loss provisions | (4 | ) | (48 | ) | (76 | ) | (25 | ) | ||||||||||||
Other adjustments1 | (140 | ) | 13 | (64 | ) | 65 | 7 | |||||||||||||
Balance at end of year | 1,164 | 1,332 | 1,776 | 2,802 | 3,775 | |||||||||||||||
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Net foreign exchange | (9 | ) | 10 | 50 | 2 | (57 | ) | |||||||||||||
Other adjustments | (131 | )2 | 3 | (114 | ) | 63 | 64 | |||||||||||||
Total adjustments | (140 | ) | 13 | (64 | ) | 65 | 7 | |||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses
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 2007, 2006, 2005, 2004 and 2003. For a description of procedures with respect to allowances and provisions for credit losses, see the “Credit risk” section inRisk, Treasury and Capital Management 2007.The following analysis includes Due from banks from Industrial Holdings.
CHF million | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 10 | 10 | 10 | 10 | 10 | |||||||||||||||
Construction | 43 | 72 | 91 | 112 | 158 | |||||||||||||||
Financial institutions | 52 | 61 | 75 | 82 | 137 | |||||||||||||||
Hotels and restaurants | 10 | 27 | 49 | 98 | 214 | |||||||||||||||
Manufacturing1 | 113 | 155 | 174 | 224 | 327 | |||||||||||||||
Private households | 190 | 187 | 262 | 333 | 511 | |||||||||||||||
Public authorities | 1 | 3 | 8 | 9 | 9 | |||||||||||||||
Real estate and rentals | 57 | 99 | 168 | 250 | 383 | |||||||||||||||
Retail and wholesale | 247 | 311 | 330 | 363 | 201 | |||||||||||||||
Services2 | 112 | 113 | 196 | 222 | 549 | |||||||||||||||
Other3 | 76 | 107 | 61 | 188 | 150 | |||||||||||||||
Total domestic | 911 | 1,145 | 1,424 | 1,891 | 2,649 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks4 | 18 | 20 | 35 | 246 | 256 | |||||||||||||||
Chemicals | 1 | 4 | 5 | 4 | 5 | |||||||||||||||
Construction | 1 | 2 | 2 | 1 | 0 | |||||||||||||||
Electricity, gas and water supply | 3 | 8 | 16 | 15 | 0 | |||||||||||||||
Financial institutions | 112 | 9 | 8 | 140 | 168 | |||||||||||||||
Manufacturing5 | 20 | 37 | 57 | 112 | 359 | |||||||||||||||
Mining | 0 | 0 | 1 | 14 | 19 | |||||||||||||||
Private households | 15 | 26 | 30 | 48 | 48 | |||||||||||||||
Public authorities | 20 | 21 | 72 | 66 | 69 | |||||||||||||||
Real estate and rentals | 8 | 4 | 3 | 5 | 7 | |||||||||||||||
Retail and wholesale | 4 | 4 | 1 | 95 | 51 | |||||||||||||||
Services | 4 | 7 | 27 | 32 | 32 | |||||||||||||||
Transport, storage and communication | 1 | 1 | 0 | 1 | 195 | |||||||||||||||
Other6 | 12 | 6 | 8 | (75 | ) | (345 | ) | |||||||||||||
Total foreign | 219 | 149 | 265 | 704 | 864 | |||||||||||||||
Collective loan loss provisions7w | 34 | 38 | 86 | 207 | 262 | |||||||||||||||
Total allowances and provisions for credit losses8 | 1,164 | 1,332 | 1,775 | 2,802 | 3,775 | |||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans by Industry Sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans. This table can be read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by industry sectors to evaluate the credit risks in each of the categories.
in % | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 0.3 | 0.2 | 0.4 | 0.5 | 0.2 | |||||||||||||||
Construction | 0.3 | 0.4 | 0.6 | 0.7 | 0.8 | |||||||||||||||
Financial institutions | 1.4 | 1.6 | 1.3 | 1.5 | 1.6 | |||||||||||||||
Hotels and restaurants | 0.5 | 0.6 | 0.6 | 0.8 | 1.0 | |||||||||||||||
Manufacturing2 | 1.0 | 1.0 | 1.3 | 2.0 | 2.5 | |||||||||||||||
Private households | 30.2 | 33.5 | 35.3 | 37.6 | 40.0 | |||||||||||||||
Public authorities | 1.2 | 1.4 | 1.7 | 2.0 | 2.1 | |||||||||||||||
Real estate and rentals | 2.9 | 3.2 | 3.7 | 4.1 | 4.9 | |||||||||||||||
Retail and wholesale | 1.3 | 1.3 | 1.5 | 1.7 | 2.4 | |||||||||||||||
Services3 | 1.5 | 1.9 | 2.6 | 3.3 | 3.7 | |||||||||||||||
Other4 | 0.8 | 1.3 | 1.1 | 0.2 | 0.4 | |||||||||||||||
Total domestic | 41.4 | 46.4 | 50.1 | 54.4 | 59.6 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 15.0 | 14.2 | 10.2 | 12.3 | 12.3 | |||||||||||||||
Chemicals | 0.2 | 0.4 | 0.9 | 0.1 | 0.1 | |||||||||||||||
Construction | 0.2 | 0.1 | 0.1 | 0.0 | 0.0 | |||||||||||||||
Electricity, gas and water supply | 0.5 | 0.3 | 0.5 | 0.3 | 0.1 | |||||||||||||||
Financial institutions | 24.0 | 19.2 | 19.7 | 16.1 | 12.1 | |||||||||||||||
Manufacturing5 | 1.2 | 0.9 | 1.2 | 1.0 | 1.0 | |||||||||||||||
Mining | 1.1 | 0.9 | 1.1 | 0.6 | 0.4 | |||||||||||||||
Private households | 10.7 | 10.0 | 12.1 | 10.8 | 8.3 | |||||||||||||||
Public authorities | 1.0 | 0.6 | 0.5 | 0.4 | 0.5 | |||||||||||||||
Real estate and rentals | 1.3 | 1.2 | 0.9 | 0.3 | 0.2 | |||||||||||||||
Retail and wholesale | 0.6 | 0.5 | 0.4 | 0.4 | 0.7 | |||||||||||||||
Services | 2.3 | 4.7 | 1.8 | 2.9 | 3.1 | |||||||||||||||
Transport, storage and communication | 0.4 | 0.4 | 0.4 | 0.3 | 1.4 | |||||||||||||||
Other6 | 0.1 | 0.2 | 0.1 | 0.1 | 0.2 | |||||||||||||||
Total foreign | 58.6 | 53.6 | 49.9 | 45.6 | 40.4 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Loss History Statistics
The following is a summary of the Group’s loan loss history (relating to Due from banks and Loans). The table below does not include loans designated at fair value.
CHF million, except where indicated | 31.12.07 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | |||||||||||||||
Gross loans1 | 397,802 | 349,524 | 315,210 | 279,769 | 255,439 | |||||||||||||||
Impaired loans | 2,392 | 2,628 | 3,434 | 4,699 | 6,999 | |||||||||||||||
Non-performing loans | 1,481 | 1,918 | 2,363 | 3,555 | 4,758 | |||||||||||||||
Allowances and provisions for credit losses2 | 1,164 | 1,332 | 1,776 | 2,802 | 3,775 | |||||||||||||||
Net write-offs | 266 | 301 | 588 | 797 | 1,349 | |||||||||||||||
Credit loss (expense) / recovery | (238 | ) | 156 | 375 | 241 | (102 | ) | |||||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 0.6 | 0.8 | 1.1 | 1.7 | 2.7 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 0.4 | 0.5 | 0.7 | 1.3 | 1.9 | |||||||||||||||
Allowances and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 0.3 | 0.4 | 0.6 | 1.0 | 1.5 | |||||||||||||||
Impaired loans | 48.7 | 50.7 | 51.7 | 59.6 | 53.9 | |||||||||||||||
Non-performing loans | 78.6 | 69.4 | 75.2 | 78.8 | 79.3 | |||||||||||||||
Allocated allowances as a percentage of impaired loans3 | 41.7 | 46.3 | 46.4 | 51.6 | 46.8 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans4 | 58.9 | 58.0 | 59.0 | 61.4 | 55.1 | |||||||||||||||
Net write-offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.1 | 0.1 | 0.2 | 0.3 | 0.5 | |||||||||||||||
Average loans outstanding during the period | 0.0 | 0.1 | 0.1 | 0.2 | 0.5 | |||||||||||||||
Allowances and provisions for credit losses | 22.9 | 22.6 | 33.1 | 28.4 | 35.7 | |||||||||||||||
Allowance and provisions for credit losses as a multiple of net write-offs | 4.38 | 4.43 | 3.02 | 3.52 | 2.80 | |||||||||||||||
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More about UBS
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More about UBS
Sources of information
Annual report 2007
Strategy, Performance and Responsibility 2007
Risk, Treasury and Capital Management 2007
Corporate Governance and Compensation Report 2007
Financial Statements 2007
Quarterly reports
How to order reports
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Information tools for investors
Website
Messaging service
Results presentations
Form 20-F and other submissions to the US
Securities and Exchange Commission
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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More about UBS
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 | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +41-44-234 3415 | P.O. Box | ||||
www.ubs.com/investors | CH-8098 Zurich, Switzerland | |||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
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 | BNY Mellon Shareowner 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 | ||||||
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Imprint |Publisher / Copyright: UBS AG, Switzerland | Languages: English, German
Order number Annual Report 2007: SAP-No. 80531E-0801
Mixed Sources Product group from well-managed forests and other controlled sources www.fsc.org Cert no. SQS-COC-100112 © 1996 Forest Stewardship Council |
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UBS AG |
P.O. Box, CH-8098 Zurich |
P.O. Box, CH-4002 Basel |
www.ubs.com |
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