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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 |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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)
UBS AG
677 Washington Boulevard
Stamford, CT 06901
Telephone: (203) 719-3000
Fax: (203) 719-0680
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Please see page 3.
Please see page 4.
Please see page 4.
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Yesþ | Noo |
Yeso | Noþ |
Yesþ | Noo |
Yesþ | Noo |
Large accelerated filerþ | Accelerated filero | Non-accelerated filero |
statements included in this filing.
U.S. GAAPo | International Financial Reporting Standards as issued by the International Accounting Standards Boardþ | Othero |
financial statement item the registrant has elected to follow.
Item 17o | Item 18o |
(as defined in Rule 12b-2 of the Exchange Act)
Yeso | Noþ |
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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 Floating Rate Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 Floating Rate Noncumulative Company Preferred Securities | New York Stock Exchange* | |
$1,000,000,000 6.243% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$1,000,000,000 6.243% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to each of the Noncumulative Company Preferred Securities above | New York Stock Exchange* | |
$17,842,000 PPNs due October 2011 | NYSE Alternext US | |
$100,000,000 E-TRACS UBS Bloomberg CMCI Food ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Agriculture ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Energy ETN due April 2038 | NYSE Arca | |
$100,000,000 E-TRACS UBS Bloomberg CMCI Total Return ETN due April 2038 | NYSE Arca | |
$100,000,000 E-TRACS UBS Bloomberg Gold ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Industrial Metals due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Livestock ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Bloomberg CMCI Silver ETN due April 2038 | NYSE Arca | |
$50,000,000 E-TRACS UBS Long Platinum ETN due May 2018 | NYSE Arca | |
$50,000,000 E-TRACS UBS Short Platinum ETN due May 2018 | NYSE Arca | |
$100,000,000 E-TRACS UBS S&P 500 Gold Hedged Index ETN due January 2040 | NYSE Arca | |
$100,000,000 E-TRACS Dow Jones-UBS Commodity Index Total Return ETN due October 2039 | NYSE Arca | |
$100,000,000 E-TRACS Linked to the Alerian MLP Infrastructure Index due April 2, 2040 | NYSE Arca |
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Name of each exchange on | ||
Title of each class | which registered | |
$100,000,000 1xMonthly Short E-TRACS Linked to the Alerian MLP Infrastructure Total Return Index due October 1, 2040 | NYSE Arca | |
$100,000,000 2xMonthly Leveraged Long E-TRACS Linked to the Alerian MLP Infrastructure Index due July 9, 2040 | NYSE Arca | |
$100,000,000 E-TRACS Linked to the Alerian Natural Gas MLP Index due July 9, 2040 | NYSE Arca | |
$100,000,000 E-TRACS Linked to the Wells Fargo® MLP Index due October 29, 2040 | NYSE Arca | |
$100,000,000 E-TRACS Daily Long-Short VIX ETN due November 30, 2040 | NYSE Arca |
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1-3 | Please seeCorporate informationon page 6 of the Annual Report. | ||
4-6 | Please seeThe making of UBSon page 18 andKey factors affecting our financial position and results of operations in 2010on pages 32 to 33 of the Annual Report. | ||
7 | Not applicable. |
1,2,5,7 | Please refer to the Annual Report on pages 75 to 77 (as to Wealth Management) and pages 81 to 82 (as to Retail & Corporate) with respect to Wealth Management & Swiss Bank, pages 85 to 87 with respect to Wealth Management Americas, pages 92 to 96 with respect to Global Asset |
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Management, pages 102 to 103 with respect to the Investment Bank, and pages 109 to 110 with respect to the Corporate Center. 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 consolidated financial statements (the “Financial Statements”) contained in the Annual Report,Segment reporting on pages 293 to 296 andSegment reporting by geographic locationon page 297, respectively. | |||
3 | Please refer toSeasonal characteristicson page 33 of the Annual Report. | ||
4 | Not applicable. | ||
6 | None. | ||
8 | Please seeRegulation and supervisionon pages 215 to 217 of the Annual Report. |
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1,2,3 | Please see pages 198 to 201 and pages 205 to 209 of the Annual Report. | ||
4,5 | None. |
1 | Please see pages 240 to 250 of the Annual Report and also Note 31 to the Financial Statements,Equity participation and other compensation plans,on pages 351 to 358 and Note 32 to the Financial Statements,Related parties,on pages 359 to 361 of the Annual Report. | ||
2 | Please see Note 30 to the Financial Statements,Pension and other post-employment benefits plans, on pages 345 to 350 of the Annual Report. |
1 | Please see pages 198 to 209 of the Annual Report. | ||
2 | Please see pages 240 to 250 of the Annual Report and Note 32 to the Financial Statements,Related parties,on pages 359 to 361 of the Annual Report. |
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3 | Please seeAudit committeeon page 201 andHuman Resources and Compensation Committeeon page 202 of the Annual Report. |
1,2,3,4,5,6 | Please see Item 18 of this Form 20-F. | ||
7 | Information on material legal and regulatory proceedings is in Note 21 to the Financial Statements,Provisions and contingent liabilities, on pages 314 to 319 of the Annual Report. For developments during the year, please see also the Financial Information section in each of our quarterly reports: First Quarter 2010 Report, filed on Form 6-K dated May 4, 2010 (Note 15,Litigation); Second Quarter 2010 Report, filed on Form 6-K dated July 27, 2010 (Note 15,Litigation); Third Quarter 2010 Report, filed on Form 6-K dated October 26, 2010 (Note 15,Litigation and regulatory matters); and Fourth Quarter 2010 Report, filed on Form 6-K dated February 8, 2011 (Note 14,Litigation and regulatory matters,and Note 15,Other contingent liabilities). The Notes in each such Quarterly Report speak only as of their respective dates. |
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8 | Please refer toDistributions to shareholderson page 162 of the Annual Report for a description of UBS’s dividend policy. |
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 165 of the Annual Report. |
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• | Amendments to the Articles; | ||
• | Elections of directors and statutory auditors; | ||
• | Approval of the annual report and the consolidated statements of accounts; | ||
• | Approval of the annual financial statements and the resolution on the use of the balance sheet profit (declaration of dividend); | ||
• | Decisions to discharge directors and management from liability for matters disclosed to the shareholders’ meeting; and | ||
• | Passing resolutions on matters which are by law or by the Articles reserved to the shareholders’ meeting (e.g., the ordering of an independent investigation into the specific matters proposed to the shareholders’ meeting). |
• | Change the limits on BoD size in the Articles; | ||
• | Remove one fourth or more of the members of the BoD; or | ||
• | Delete or modify the above supermajority requirements. |
• | A change in our stated purpose in the Articles; | ||
• | The creation of shares with privileged voting rights; | ||
• | A restriction on transferability; | ||
• | An increase in authorized capital; | ||
• | An increase in 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 corporation; or | ||
• | Dissolution of the corporation without liquidation. |
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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 U.S. 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 U.S. 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. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed October 5, 2010) | |
1.2 | Organization Regulations of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed August 4, 2010) | |
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. | ||
4.1 | Deferred Prosecution Agreement between the United States of America and UBS AG, dated February 18, 2009 (incorporated by reference to Exhibit 4.1 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2009). | |
7 | Statement regarding ratio of earnings to fixed charges. |
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Exhibit | ||
Number | Description | |
8 | Significant Subsidiaries of UBS AG. | |
Please see Note 34 to the Financial StatementsSignificant subsidiaries and associates,on pages 362 to 365 of the Annual 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 U.S. Code (18 U.S.C. 1350). | |
15 | Consent of Ernst & Young Ltd. |
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UBS AG | ||||
/s/ Oswald Grübel | ||||
Name: | Oswald Grübel | |||
Title: | Chief Executive Officer | |||
/s/ John Cryan | ||||
Name: | John Cryan | |||
Title: | Chief Financial Officer | |||
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Exhibit | ||
Number | Description | |
1.1 | Articles of Association of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed October 5, 2010) | |
1.2 | Organization Regulations of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed August 4, 2010) | |
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. | ||
4.1 | Deferred Prosecution Agreement between the United States of America and UBS AG, dated February 18, 2009 (incorporated by reference to Exhibit 4.1 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2009). | |
7 | Statement regarding ratio of earnings to fixed charges. | |
8 | Significant Subsidiaries of UBS AG. | |
Please see Note 34 to the Financial StatementsSignificant subsidiaries and associates,on pages 362 to 365 of the Annual 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 U.S. Code (18 U.S.C. 1350). | |
15 | Consent of Ernst & Young Ltd. |
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Annual Report 2010 |
Ourperformance in 2010
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Annual Report 2010
Letter to shareholders
Dear Shareholders,
2010 was a year of substantial improvement for us.We achieved a net profit attributable to UBS shareholders of CHF 7.5 billion1, compared with a loss of CHF 2.7 billion in 2009. Our return on equity for 2010 improved to 16.7% from negative 7.8% at the end of 2009. We believe that providing outstanding levels of execution and delivering sustainable profitability are the cornerstones on which we can build a successful future, and that the progress we made during 2010 has enhanced our reputation with stakeholders.
Sustaining this progress will require us to continue to act with discipline and integrity, and to maintain a sharp focus on achieving our targets.During the year we increased revenues by CHF 9 billion compared with 2009, while at the same time reducing overall risk levels. We maintained discipline over our cost base, achieving our targeted fixed costs of less than CHF 20 billion. Our clients have once again entrusted us with net new money, with net inflows stabilizing in the second half of the year. Profits for 2010 were a key driver of the increase in our Basel II tier 1 capital ratio, which stood at an industry-leading 17.8% at the year-end. While our results for 2010 showed a marked improvement, we have far greater ambitions. In 2011 we will continue to build further on our achievements.
Most of our business divisions showed an improvement compared with 2009.InWealth Management,client confidence remained subdued in volatile markets, affecting overall transaction volumes. Market rates of interest also remained low during the year. Against this backdrop, Wealth Management’s pre-tax profit increased to CHF 2,308 million compared with CHF 2,280 million in 2009, mainly as a result of reduced operating expenses. Total operating income declined marginally on lower interest income reflecting the interest rate environment as well as the effects of foreign exchange on our results, particularly the decrease in the value of the euro and US dollar against the Swiss franc. Fee income decreased on a lower average asset base, but trading income increased reflecting the work we have done to further strengthen our advisory relationship with clients. Invested assets declined by 7% as foreign exchange movements and outflows more than offset positive investment performance. Operating expenses declined by 3% mainly reflecting reduced personnel and restructuring costs.
InRetail & Corporate,pre-tax profit increased by 9% to CHF 1,772 million compared with 2009. Total operating income remained broadly stable, with net interest income impacted by low market interest rates. Operating expenses were reduced by 8%, reflecting cost-cutting measures initiated in 2009.
Wealth Management Americasreported a pre-tax loss of CHF 130 million compared with a pre-tax profit of CHF 32 million in 2009. The result belies the considerable operational progress made during the year, the benefits of which were more than offset by a significant increase in litigation provisions. We believe the restructuring of this business over the past year will allow us to leverage our strong competitive positioning going forward. Retaining talent within the business is key, and we are encouraged that financial advisors with us for more than one year delivered a strong performance, especially in the fourth quarter. Operating income was flat, with improved managed account fees and higher mutual fund revenues offset by a decrease in municipal trading income. Net new money trends in the business are encouraging, with the business delivering positive net new money in the second half of the year.
In 2010,Global Asset Managementcontinued to build on its already sound investment track record with a pre-tax profit of CHF 516 million, an increase of 18% compared with 2009. This was achieved despite a decrease in invested assets as positive investment performance and net new money inflows were more than offset by negative currency effects. Operating income was down by 4% due to lower performance fees and lower revenues also reflecting the sale of UBS Pactual. Operating expenses decreased by 9%.
OurInvestment Bankcontributed most to the improvement in our 2010 results, recording a pre-tax profit of CHF 2,197 million compared with a pre-tax loss of CHF 6,081 million in 2009. This was primarily due to a reversal of losses in our fixed income, currencies and commodities business and reflects the rebuild of our credit business where revenues rose significantly. In 2010 we recorded considerably lower net credit loss expenses and lower own credit losses, partly offset by an increase in operating expenses.
We continued to maintain tight control over our risks and balance sheet alongside improvements in profitability over the year.Risk-weighted assets were reduced by 4% during the year to CHF 199 billion, and, on 31 December 2010, our balance sheet stood at CHF 1,317 billion, down 2% compared with the prior year. The increase in our regulatory capital, together with a reduction in risk-weighted assets, led to an improvement of our BIS tier 1 capital ratio to 17.8% compared with 15.4% at the end of 2009.
During 2010 the regulatory landscape shifted substantially with the expectation of more stringent regulatory requirements becoming a reality.New global regulatory pro-
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posals were finalized by the Basel Committee on Banking Supervision early this year, and the Swiss Federal Council published draft legislation for Swiss banks based on the recommendations of the Swiss Expert Commission and designed to address the “too big to fail” issue. These proposals are due to be debated in the Swiss Parliament later this year. We will continue to evaluate the impacts of these changes, especially the effect that they may have on the profitability of our businesses, and, where necessary, we will take appropriate action. As previously stated, we will retain earnings in order to meet the recommended future capital requirements.
Recent quarters have demonstrated that our results for certain divisions, and for the Group as a whole, are highly sensitive to regulatory, legal and tax developments.In 2011, we believe that we may have opportunities to recognize further deferred tax assets in our results. We also expect that provisions for litigation and other contingencies will continue to affect us, although the timing and magnitude of these developments are not predictable.
In the current environment it is more important than ever that we focus on our clients’ needs.During the year we continued to implement our global and integrated bank strategy. We
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Annual Report 2010
Letter to shareholders
improved the way in which we deliver our products and services to clients, which in turn should help us achieve further revenue growth. As part of this strategy we established our Investment Products and Services unit. We believe that this unit will play a crucial role, ensuring that our clients receive fast and efficient access to products and services tailored to their individual needs. Alongside this we set up our Global Family Office Group, catering to the often complex needs of many of the world’s wealthiest families.
We continued our tradition of supporting the local communities in which we live and work.We believe that our success stems not only from our employees’ skills and resources and from our relationships with our clients, but also from a healthy social environment. All over the world, our regional Community Affairs teams organize a wide variety of charitable activities in addition to direct donations made by the firm. Across all of our business regions, our employees continue to play a very active role in our community investment efforts, in particular through their volunteering activities. In 2010, our employees spent nearly 81,000 hours volunteering. We support their commitment by offering up to two working days a year for volunteering efforts, and also match employee donations to selected charities. In 2010 we also announced our support of the UBS Kids Cup, an athletics competition in Switzerland involving up to 70,000 children aged 7 to 15, helping to promote health and well-being.
During the year there were signs of improved client confidence in UBS.Building on this momentum, in August we launched our new brand campaign, our first global campaign for two years. The “We will not rest” campaign conveys our commitment to and focus on our clients at every level of the organization.
The ultimate responsibility for the firm’s strategy and the supervision of its executive management rests with the Board of Directors.We welcome the announcement that Joseph Yam, founder and former Chief Executive of the Hong Kong Monetary Authority, has been nominated for election to the Board. His expected appointment following the 2011 Annual General Meeting should further strengthen UBS’s Board of Directors, allowing us to benefit from his considerable experience. We recently announced that Sally Bott has resigned from the Board. We would like to express our gratitude to Sally for her outstanding contributions and great commitment during the past two and a half years.
2010 was a year of substantial improvement in our financial performance and our financial condition, and we would like to take this opportunity to thank you, our shareholders, for your continued support, and all of our employees for their hard work and commitment.In 2011, we are confident that we can consolidate the progress already made throughout the firm, helping to deliver our goal of long-term sustainable profitability for our shareholders.
15 March 2011
Yours sincerely,
UBS
Kaspar Villiger | Oswald J. Grübel | |
Chairman of the | Group Chief | |
Board of Directors | Executive Officer |
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Information sources
Reporting publications
Annual publications:Annual report (SAP no. 80531): Published in both English and German, this single volume report provides a description of: our UBS Group strategy, performance and responsibility; the strategy and performance of the business divisions and the Corporate Center; risk and treasury management; corporate governance and senior management and Board of Directors compensation; and financial information, including the financial statements.Review (SAP no. 80530): The booklet contains key information on our strategy and financials. It is published in English, German, French and Italian.Compensation Report (SAP no. 82307): The report discusses compensation for senior management and the Board of Directors (executive and non-executive members). It is published in English and German.
Quarterly publications:Letter to shareholders: The letter provides a quarterly update from executive management on our strategy and performance. The letter is published in English, German, French and Italian.Financial report (SAP no. 80834): The quarterly financial report provides an update on our strategy and performance for the respective quarter. It is published in English.
How to order reports
The annual and quarterly publications are available in PDF format on the internet atwww.ubs.com/investors/topicsin the “Financial information” section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the left-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, F2AL-AUL, P.O. Box, CH-8098 Zurich, Switzerland.
Other information
Website: The “Analysts & Investors” section atwww.ubs.com/ investorsprovides the following information on UBS: financial in-
Result presentations: Our quarterly results presentations are webcast live. A playback of most presentations is downloadable atwww.ubs.com/presentations.
Messaging service / UBS news alert: On thewww.ubs.com/ newsalertswebsite, it is possible to subscribe to receive news alerts about UBS via SMS or e-mail. Messages are sent in English, German, French or Italian and it is possible to state theme preferences for the alerts received.
Form 20-F and other submissions to the US Securities and Exchange Commission: We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is the annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934. The filing of Form 20-F is structured as a “wraparound” document. Most sections of the filing can be satisfied by referring to parts of the annual report. However, there is a small amount of additional information in Form 20-F which is not presented elsewhere, and is particularly targeted at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that we file with the SEC is available to read and copy on the SEC’s website,www.sec.gov,or at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC, 20549. Please call the SEC by dialing +1-800-SEC-0330 for further information on the operation of its public reference room. Much of this additional information may also be found on the UBS website atwww.ubs.com/investors,and copies of results-related filings with the SEC may be obtained from our Investor Relations team atwww.ubs.com/investors.
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Annual Report 2010
UBS AG shares are currently listed on the SIX Swiss Exchange and the New York Stock Exchange.
Investor Relations
Office of the Company Secretary
US Transfer Agent
Corporate calendar
Imprint
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com Languages: English/German | SAP-No. 80531E © UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks. Paper production from socially responsible and ecologically sound forestry practices. |
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Strategy, performance and responsibility
Content of the sections “Our employees” and “Corporate responsibility” has been assured by SGS Société Générale de Surveillance SA (SGS) using the GRI Sustainability Reporting Guidelines, as evidenced in the SGS Assurance Statement on page 70. The assurance by SGS also covered text and data on the website of UBS. Both the relevant text in the Annual Report 2010 and on the website are referenced in the GRI Index (www.ubs.com/gri), which defines the scope of the assurance. SGS has confirmed the level of assurance as GRI A+.
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Strategy and performance
– | We are a client-focused financial services firm that offers a strong combination of wealth management, asset management and investment banking services on a global and regional basis. | |
– | We aim to generate sustainable earnings and create value for our shareholders. |
Our strategic priorities
We are concentrating on:
– | further strengthening our position as a leading bank for high net worth and ultra high net worth clients around the world; | |
– | continuing our leadership across all client segments in Switzerland; | |
– | attaining a top-tier position in the growth regions in which we choose to operate; and | |
– | remaining a leading investment bank with a client-centric business model, focusing on flow trading and advice, leveraging our traditional strengths and maximizing our scope by working in close conjunction with our wealth management and asset management businesses. |
Re-focusing the business portfolio
We will further foster collaboration between our wealth management, asset management and investment banking businesses, reflecting our commitment to serve our clients comprehensively across all segments. We believe this will improve our operating and financial results and will generate more shareholder value. From a geographic perspective, we want to leverage our strong existing global footprint. We are continuously investing in our Asia Pacific businesses as well as other growth markets such as the Middle East and Latin America.
Transforming the way we operate
Our transformation is geared towards exploiting the full potential of our strengths based on our three strategic guidelines of reputation, integration and execution.
Our reputation is our most valuable asset. It is ultimately defined by the actions and decisions we take every day. In order to restore and safeguard our reputation, we have introduced more disciplined and effective governance processes.
Integration is a key factor in serving our clients and driving efficiencies across our businesses, and is essential to our ability to achieve our financial targets. Integration is being achieved through a series of measures, including several dedicated client-related initiatives around the globe, and related improvements in client coverage and management processes.
We are committed to execution at the highest standards, ensuring consistent high-quality delivery to clients as well as within the firm. Furthermore, we are further developing our performance-oriented culture to help us to attract, develop and retain top industry talent.
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UBS key figures | ||||||||||||
As of or for the year ended | ||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Group results | ||||||||||||
Operating income | 31,994 | 22,601 | 796 | |||||||||
Operating expenses | 24,539 | 25,162 | 28,555 | |||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||
Diluted earnings per share (CHF)1 | 1.96 | (0.75 | ) | (7.63 | ) | |||||||
Key performance indicators, balance sheet and capital management2 | ||||||||||||
Performance | ||||||||||||
Return on equity (RoE) (%) | 16.7 | (7.8 | ) | (58.7 | ) | |||||||
Return on risk-weighted assets, gross (%) | 15.5 | 9.9 | 1.2 | |||||||||
Return on assets, gross (%) | 2.3 | 1.5 | 0.2 | |||||||||
Growth | ||||||||||||
Net profit growth (%)3 | N/A | N/A | N/A | |||||||||
Net new money (CHF billion)4 | (14.3 | ) | (147.3 | ) | (226.0 | ) | ||||||
Efficiency | ||||||||||||
Cost / income ratio (%) | 76.5 | 103.0 | 753.0 | |||||||||
Capital strength | ||||||||||||
BIS tier 1 ratio (%)5 | 17.8 | 15.4 | 11.0 | |||||||||
FINMA leverage ratio (%)5 | 4.45 | 3.93 | 2.45 | |||||||||
Balance sheet and capital management | ||||||||||||
Total assets | 1,317,247 | 1,340,538 | 2,014,815 | |||||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 32,531 | |||||||||
BIS total ratio (%)5 | 20.4 | 19.8 | 15.0 | |||||||||
BIS risk-weighted assets5 | 198,875 | 206,525 | 302,273 | |||||||||
BIS tier 1 capital5 | 35,323 | 31,798 | 33,154 | |||||||||
Additional information | ||||||||||||
Invested assets (CHF billion) | 2,152 | 2,233 | 2,174 | |||||||||
Personnel (full-time equivalents) | 64,617 | 65,233 | 77,783 | |||||||||
Market capitalization6 | 58,803 | 57,108 | 43,519 | |||||||||
The 2010 results and the balance sheet in this report differ from those presented in our fourth quarter 2010 report issued on 8 February 2011. The net impact of adjustments made subsequent to the publication of the unaudited fourth quarter 2010 financial report on net profit attributable to UBS shareholders was a gain of CHF 373 million, which increased basic and diluted earnings per share by CHF 0.10.
è | Refer to “Note 33 Events after the reporting period” in the “Financial information” section of this report for more information |
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Strategy, performance and responsibility
Strategy and structure
Strategy and structure
UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. We combine our wealth management, investment banking and asset management businesses with our Swiss operations to deliver superior financial solutions. Headquartered in Zurich and Basel, Switzerland, UBS has offices in more than 50 countries, including all major financial centers, and employs approximately 65,000 people. Under Swiss company law, UBS is organized as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
UBS business model and aspiration
UBS AG is the parent company of the UBS Group (Group). The operational structure of the Group comprises the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank.
– | further strengthening our position as a leading bank for high net worth and ultra high net worth clients around the world; | |
– | continuing our leadership across all client segments in Switzerland; | |
– | attaining a top-tier position in the growth regions in which we choose to operate; and | |
– | remaining a leading investment bank with a client-centric business model, focusing on flow trading and advice, leveraging our traditional strengths and maximizing our scope by working in close conjunction with our wealth management and asset management businesses. |
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering comprehensive financial services to high net worth and ultra high net worth individuals around the world – except to those served by
Wealth Management Americas – as well as private and corporate clients in Switzerland. Our Wealth Management business unit provides clients in over 40 countries, including Switzerland, with financial advice, products and tools to fit their individual needs. Our Retail & Corporate business unit provides individual and business clients with an array of banking services, such as deposits and lending, and maintains a leading position across its client segments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, high net worth and core affluent individuals and families. It includes the domestic United States business (Wealth Management US), the domestic Canadian business and international business booked in the United States.
Global Asset Management
Global Asset Management is a large-scale asset manager with businesses diversified across regions, capabilities and distribution channels. It offers investment capabilities and styles across all major traditional and alternative asset classes including equities, fixed income, currency, hedge fund, real estate and infrastructure that can also be combined into multi-asset strategies. The fund
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services unit provides legal fund set-up and accounting and reporting for retail and institutional funds.
Investment Bank
Corporate Center
è | Refer to the “Accounting and reporting structure changes” and “UBS business divisions and Corporate Center” sections of this report for more information on our businesses |
UBS’s competitive profile
Our business mix reflects decades of continuous development, organic growth and acquisitions. As a leader in the wealth management industry in terms of total invested assets, we offer a combination of wealth management, investment banking and asset management and services in local and regional markets. Specifically, we are a leading wealth manager in Switzerland, Europe, and the Asia Pacific region and are well positioned in
main growth markets such as the Middle East and Latin America. In the US, we are a leading wealth management service provider and are the biggest foreign-owned wealth manager. Furthermore, we have the largest ultra high net worth business globally in terms of invested assets. Our Investment Bank maintains a strong presence among global corporate and institutional clients, and holds leading positions in equities, foreign exchange, money markets, mergers and acquisitions and financial advisory services. In the Asia Pacific region, we operate leading investment banking, wealth management and asset management businesses.
UBS’s strategy
At the end of 2009, we established strategic objectives to improve our financial performance and reposition the firm in order to generate sustainable profitability and increased shareholder value. These strategic objectives and the related medium-term financial targets were reiterated at our Investor Day in November 2010. Our strategy is built on two primary pillars: re-focusing our business portfolio to fully capitalize on our strengths, and transforming the way we operate, exploiting the full potential of our strengths based on our three strategic guidelines of reputation, integration and execution. We are delivering against this strategy and have made progress in improving our financial performance during 2010.
Re-focusing the business portfolio
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responsibility Strategy and structure
è | Refer to the “UBS business divisions and Corporate Center” section of this report for more information on the business division strategies |
Transforming the way we operate
We are committed to our Swiss home market. Switzerland is the only country in which retail, corporate and institutional banking, wealth and asset management as well as investment banking are present. We strive to be the leading bank with regard to client satisfaction, employee engagement and sustainable profitability. Within the Swiss market, we maintain a leading position in all of our businesses.
Through our network of over 300 branches including around 4,700
client-facing staff, we reach approximately 80% of Swiss wealth. We serve every third household, every third wealthy individual and almost half of all Swiss companies.
Our strategy leverages our strengths and leading position in Switzerland and our integrated bank model allows us to offer a very broad range of products and services to our clients. For example, we can offer our private clients banking products and services needed throughout
their lives, ensuring the stability and continuity of the relationship. The same holds true for our corporate and institutional clients. We also offer our clients in Switzerland access to our global asset gathering and investment banking expertise.
UBS Switzerland operates with an integrated management team consisting of the heads of all Swiss business segments and support functions.
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step in this process. Also, we launched a new corporate identity program in 2010, including the world-wide brand campaign “We will not rest”, and a corresponding sponsorship strategy to raise our brand awareness.
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Strategy and structure
Board of Directors
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The Board of Directors (BoD) is our most senior body. Under the leadership of the Chairman, it determines the strategy of the Group based upon the recommendations of the Group Chief Executive Officer (Group CEO). It exercises ultimate supervision of management and is responsible for the appointment and dismissal of all Group Executive Board (GEB) members, the Company Secretary and the head of Group Internal Audit as well as supervising and setting appropriate risk management and control principles for the firm. With the exception of its current Chairman, Kaspar Villiger, all members of the BoD are independent.
è | Refer to the “Corporate governance” section of this report for more information about the BoD |
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Strategy and structure
Group Executive Board
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Management of the firm is delegated by the BoD to the GEB. Under the leadership of the Group CEO, the GEB has executive management responsibility for the Group and its businesses. It assumes overall responsibility for the development of the Group and business division strategies and the implementation of approved strategies.
è | Refer to the “Corporate governance” section of this report for more information about the GEB |
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The making of UBS
The making of UBS
è | Refer to www.ubs.com/history for more information |
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Current market climate and industry drivers
Current market climate and industry drivers
The quest for greater systemic stability continues and its resilience has been tested once again by the euro crisis.
Emergence from the financial crisis amid continued
uncertainties
Global growth accelerated in the first half of 2010, as companies restocked their inventories and improved consumer confidence kick-started spending. Monetary policies remained expansionary in nature given the continuing fragility of the economic recovery. Emerging economies exited the crisis relatively unscathed and with improved economic, financial and fiscal positions in comparison with developed economies. Re-leveraging started across emerging markets at a time when de-leveraging was the norm in most developed markets, and China overtook Japan as the biggest Asian economy.
Euro crisis
Europe’s sovereign debt crisis resulted in a major dip in confidence in the euro. The situation had its origins as much in the establish-
ment and subsequent development of the common currency itself as in the effects of the financial market crisis. When the global recession struck in 2008, much of the debt accumulated mostly (but not exclusively) in the private sectors of some European Monetary Union (EMU) countries became unsustainable. The governments faced falling tax revenues, rising social outlays and costs for supporting their economies and their failing financial institutions. Public debt-to-gross domestic product (GDP) ratios in the EMU rose by around 20 percentage points on average. The weaker and most severely affected countries saw their annual public deficits swell to double-digit levels as a percentage of GDP. Holders of government bonds grew increasingly nervous about their investments, triggering today’s sovereign debt crisis in Europe.
Macroeconomic perspectives
The global recovery, while weak, appears to be increasingly self-sustaining. We believe that the global economy has the potential
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to grow at between 3% and 4% in the medium term, a moderate rate of growth compared with previous recovery years. However, this global figure masks distinct regional discrepancies. The US is likely to show slower growth than during the period 1982–2007. Among the factors responsible for this are the de-leveraging of the private sector, re-regulation of financial intermediaries, the surge of public debt and the subsequent need to repair the public sector balance sheet. A subdued recovery remains the most likely US scenario as the stimulus-induced boom has come to a definite end. Generally, spare capacity in the western world will only be slowly re-absorbed, keeping inflation rates in most countries subdued (with the notable exception of the UK), while requiring further monetary easing, including via asset purchases (i.e. quantitative easing).
Industry drivers
A number of drivers have a significant impact on banks’ earnings as well as the structure of the financial services industry. The most relevant factor over the coming years will be the new business environment arising out of regulatory reform. This is likely to have far reaching and transformational consequences for markets, firm structures and business models.
è | Refer to the “Regulatory developments” section for more information |
Changing business models
Changes in regulation are expected to have a profound effect on banks’ business models. In view of the pressure that the new capital requirements and other regulatory principles, as stipulated by the Basel Committee and other bodies, will put on asset inventory-based future returns, the industry is currently reassessing its business portfolios and models. This is particularly true in the case of fixed income. However, structural changes are unlikely to happen in the short term.
Increasing role of emerging market banks
Emerging market banks came out of the global financial crisis in much better shape than their peers in developed markets, given their limited exposure to the US sub-prime market. As such, their capital position, on average, is already well above the Basel minimal requirement for 2019. Global emerging market banks are also strongly funded with deposits, which, together with a mostly supportive macro outlook, make them well positioned to capture future growth. In 2010, a number of emerging market countries enacted additional regulations for local banks. These include higher reserve requirements (China, India, Indonesia, and Turkey), more stringent provisioning (India, Indonesia and Mexico), compulsory lending (Korea), banking taxes (Hungary) and mortgage restrictions (China, Hong Kong, India, Malaysia, Poland and Thailand).
Demographics
The demographic dividend brought by a fall in child dependency and a rise in the share of the working population has been exhausted in western countries, and will soon be exhausted in a few developing countries (e.g. China). For most of the developing world this point lies 20–30 years ahead. Countries that have lost the demographic dividend will confront fiscal and social stresses from increases in the old age dependency ratio. In Japan, today there are 3.4 people working for every person over 65. By 2050, it is estimated the ratio will be 1.3. In Western Europe the ratio would fall from nearly four to two. Many pension funds – particularly pay-as-you-go public pensions – are underfunded, leaving many with insufficient retirement income. As baby-boomers retire, they will roll over trillions of assets from defined contribution plans and individual retirement accounts to other accounts. The need for stable income will increase the demand for fixed income investments and target date funds.
Development of major currencies versus the Swiss franc
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Regulatory developments
Regulatory developments
Banking sector re-regulation remained high on the agenda throughout 2010. The pace of regulatory reform often varies among countries, raising the prospect of an uneven playing field among banks. Regulatory reforms will have a significant impact on capital levels, future revenue and earnings, and ultimately investment returns for the banking sector as a whole. In particular, the impact will be felt in certain business areas, such as fixed income.
Global capital and liquidity standard – Basel III
The enhanced Basel II framework (increased weighting of market risks) and Basel III capital requirements mandate that banking businesses will have to be underpinned by a higher quantity and quality of capital going forward. The definition of core tier 1 capital (common equity) will be more restrictive. Risk-weighted assets (RWA) will rise significantly, notably at banks with large trading portfolios, due to the introduction of additional charges as well as increased calibration percentages. It will take some time to implement fully the Basel reforms and global standards, and, as a result, the focus is on local regulations and their comparison. It is apparent that the pace of regulatory change varies considerably from country to country, and it is likely that there will be different rules in different jurisdictions.
ing buffers amounts 10.5–13%.These requirements will be phased-in from 2013 to the end of 2018. The risk-based capital requirements are supplemented by a tier 1 leverage ratio of 3% that will be tested from 2013 to 2016, with a view to perform a final calibration and implementation as of 1 January 2018.
Basel II market risk framework
Further to the publication of the enhanced Basel II market risk framework in July 2009, the BCBS has issued certain adjustments to the revision in June 2010. For a transition period of two years, the capital charges for non-correlation trading securitization positions may be based on the larger of the capital charges for net long and net short positions instead of the sum of net long and net short positions. Also, for correlation trading securitization positions, banks applying an internally developed model are subject to a floor of at least 8% of the capital charge for specific risk according to the standardized measurement method. Finally, the BCBS agreed to a coordinated start-date of not later than 31 December 2011.
è | Refer to the “Treasury management” section of our 2009 Annual Report for the 2009 developments of the Basel II market risk framework |
Systemically important financial institutions
Regulatory attention is clearly focused on the question of systemically important financial institutions. However, at present, an in-
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Swiss Commission of Experts on “Too big to fail”
and public consultation
Of special relevance for UBS is the “too big to fail” discussion in Switzerland. On 4 October 2010, the Commission of Experts appointed by the Swiss Federal Council presented its final report, proposing measures to be applied to systemically relevant banks, with recommendations for increased capital requirements (including a leverage ratio) and organizational measures aimed at safeguarding the continuation of important Swiss banking services at the point of a bank’s non-viability. These measures are supplemented by strict liquidity requirements and a limitation of interdependencies and concentration risks in the financial sector. The proposals include:
1. | Capital: Common equity of at least 10% of RWA and additional capital equivalent instruments (contingent convertibles [CoCos]) of 9% of RWA. The CoCos would automatically convert into common equity in the event that the capital ratios of the issuing bank fall below certain predefined thresholds (trigger levels). Of the 9% capital equivalent instruments, the Commission of Experts recommended that 3% consist of CoCos with a trigger at a 7% common equity capital ratio. Alternatively, this 3% may also be held in the form of common equity. The remaining 6% would be issued as CoCos with a lower trigger, set at a 5% common equity capital ratio. This progressive component would be variable, based on the bank’s degree of systemic importance, and depend on market share in Swiss systemic functions and total balance sheet size of the bank. These proposed capital requirements exceed the proposed Basel III minimum standards. The calibration of the three components was based on the assumption that RWA would increase to approximately CHF 400 billion under Basel III. The 6% progressive component, calibrated as at the end of 2009, is based on a balance sheet total of approximately CHF 1,500 billion and a market share of around 20%. Furthermore, the Commission recommended a leverage ratio (minimum capital level as a proportion of the balance sheet) as an additional capital rule. The timeframe for the imple- |
mentation of the Swiss capital requirements is the same as it is for the Basel III standards. | ||
2. | Liquidity: Proposals concerning liquidity requirements largely correspond to the FINMA principles that were effective as of 30 June 2010. It has been proposed that the agreed-upon FINMA principles should be given legal form. The FINMA liquidity regulations require banks to hold a balance of highly liquid assets sufficient to offset the projected outflows under the stress scenario for a period of 30 days. Similar to the FINMA liquidity regime, our established internal liquidity stress tests consider a severe stress scenario. We believe that our internal model enables us to sustain our business in stress conditions for a period substantially beyond the minimum regulatory horizon. |
3. | Risk diversification: The measures presented by the Commission to improve risk diversification are similar to the adjustments envisaged in other jurisdictions, notably the European Union. One objective of these measures is to reduce the degree of interconnectedness within the banking sector, and thus limit the dependence of other banks on systemically important banks. |
4. | Organization: The Commission stressed that it is the responsibility of a systemically important bank to organize itself in such a way that maintenance of the Swiss systemically important functions would be guaranteed in the event of a crisis. No specific structural measures were recommended by the Commission for systemically important banks. | |
On 22 December 2010, the Swiss Federal Council launched a consultation on the “too big to fail” legislative proposals. The draft contains the measures recommended by the Commission of Experts which form the heart of the proposals. There were two additional elements compared with the Commission’s final report: (i) proposed legal changes to grant tax relief for the Swiss capital market, and (ii) a paragraph that empowers the Federal Council to rule on variable compensation for bank employees in case of future government support for a bank. The consultation is scheduled to end on 23 March 2011 and, after consolidation, the papers will enter the parliamentary process with a view to conclude the debate in 2011. The Swiss administration took strides to further clarify the measures stipulated by the Commission, while the abovementioned four main pillars remained in place. | ||
The revised legislation would require each systemically relevant institution such as UBS to develop a plan to ensure the continuation of systemically relevant functions within Switzerland in the event that the institution approaches insolvency. It would empower FINMA to impose far-reaching structural changes, including among other things the separation of lines of business into separate legal entities and restrictions on intragroup funding and guarantees, should any such institution be deemed to have failed to develop an adequate plan. |
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Regulatory developments in other jurisdictions
Other notable regulatory initiatives include the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US, which impacts the financial services industry by addressing, among other issues, systemic risk oversight, bank capital standards, the liquidation of failing systemically significant financial institutions, over-the-counter derivatives, the ability of deposit-taking banks to engage in proprietary trading activities and invest in hedge funds and private equity (the so-called Volcker rule), consumer and investor protection, hedge fund registration, securitization, investment advisors, shareholder “say on pay,” the role of credit-rating agencies, and more. The details of these regulations will depend on the final regulations ultimately adopted by various agencies and oversight boards in 2011.
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Risk factors
Certain risks, including those described below, may impact our ability to execute our strategy and directly affect our business activities, financial condition, results of operations and prospects. Because the business of a broad-based international financial services firm such as UBS is inherently exposed to risks that only become apparent with the benefit of hindsight, risks of which we are not presently aware could also materially affect our business activities, financial condition, results of operations and prospects. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Regulatory changes may adversely affect our business and ability to execute our strategic plans
In the wake of the recent financial crisis, regulators and legislators have proposed and adopted, or continue to actively consider, a wide range of measures designed to address the perceived causes of the crisis and to limit the systemic risks posed by major financial institutions. These measures include:
– | significantly higher regulatory capital requirements | |
– | changes in the definition and calculation of regulatory capital, including in the capital treatment of certain capital instruments issued by UBS and other banks | |
– | changes in the calculation of risk-weighted assets | |
– | new or significantly enhanced liquidity requirements | |
– | requirements to maintain liquidity and capital in multiple jurisdictions where activities are conducted | |
– | limitations on principal trading activities | |
– | limitations on risk concentrations and maximum levels of risk | |
– | taxes and government levies that would effectively limit balance sheet growth | |
– | a variety of measures constraining, taxing or imposing additional requirements relating to compensation | |
– | requirements to adopt structural and other changes designed to reduce systemic risk and to make major financial institutions easier to wind down or disassemble | |
– | outright size limitations |
A number of measures have been adopted (or in the case of Basel III, the framework established) and will be implemented in the next several years, or in some cases are subject to legislative action or to further rulemaking by regulatory authorities before final implementation. As a result, there is a high level of uncertainty regarding a number of the measures described above. The timing and implementation of changes could have a material and adverse effect on our business.
regulation may be imposed in a manner that makes it more difficult to manage a global institution. The absence of a coordinated approach is also likely to disadvantage certain banks, such as UBS, as they attempt to compete with less strictly regulated peers based in other jurisdictions.
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Risk factors
Our reputation is critical to the success of our business
Damage to our reputation can have fundamental negative effects on our business and prospects. As the events of the past few years have demonstrated, our reputation is critical to the success of our strategic plans. Reputational damage is difficult to reverse. The process is slow and success can be difficult to measure. This was demonstrated in recent years as our very large losses during the financial crisis, the US cross-border matter and other matters seriously damaged our reputation. This was an important factor in our loss of clients and client assets across our asset-gathering businesses, and to a lesser extent in our loss of and difficulty in attracting staff. These developments had short-term and also more lasting adverse effects on our financial performance. We recognized that restoring our reputation would be essential to maintaining our relationships with clients, investors, regulators and the general public, as well as with our employees. Although there is evidence that the steps we have taken in the past couple of years to restore our reputation have been effective, our reputation has not been fully restored, and we remain vulnerable to the risk of further reputational damage. Any further reputational damage could have a material adverse effect on our operational results and financial condition and on our ability to achieve our strategic goals and financial targets.
Our capital strength is important in supporting our client franchise; changes in capital requirements are likely to constrain certain business activities in our Investment Bank
Our capital position, as measured by the BIS tier 1 and total capital ratios, is determined by (i) risk-weighted assets (RWA) (balance sheet, off-balance sheet and other market and operational risk positions, measured and risk-weighted according to regulatory criteria) and (ii) eligible capital. Both RWA and eligible capital are subject to change. Eligible capital would be reduced if we experience net losses, as determined for the purpose of the regulatory capital calculation. Eligible capital can also be reduced for a number of other reasons, including certain reductions in the ratings of securitization exposures, adverse currency movements directly affecting the value of equity and prudential adjustments that may be required due to the valuation uncertainty associated with certain types of positions. RWA, on the other hand, are driven by our business activities and by changes in the risk profile of our exposures. For instance, substantial market volatility, a widening of credit spreads (the major driver of our value-at-risk), a change in regulatory treatment of certain positions, adverse currency movements, increased counterparty risk or a deterioration in the economic environment could result in a rise in RWA. Any such reduction in eligible capital or increase in RWA could potentially reduce our capital ratios, and such reductions could be material.
We hold risk positions that may be adversely affected by conditions in the financial markets
UBS, like other financial market participants, was severely affected by the financial crisis that began in 2007. The deterioration of financial markets since the beginning of the crisis was extremely severe by historical standards, and we recorded substantial losses on fixed income trading positions, particularly in 2008 and to a lesser extent in 2009. We have drastically reduced our risk exposures from 2008 through 2010, in part through transfers in 2008 and 2009 to a fund controlled by the Swiss National Bank. We do, however, continue to hold legacy risk positions that are exposed to the general systemic and counterparty risks that were exacerbated by the financial crisis.
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The continued illiquidity of most of these legacy risk positions makes it increasingly difficult to reduce our legacy risk exposures.
Performance in the financial services industry depends on the economic climate
The financial services industry prospers in conditions of economic growth, stable geopolitical conditions, transparent, liquid and buoyant capital markets and positive investor sentiment. An economic downturn, inflation or a severe financial crisis (as seen in the last few years) can negatively affect our revenues and ultimately our capital base.
– | a general reduction in business activity and market volumes would affect fees, commissions and margins from market-making and client-driven transactions and activities; | |
– | a market downturn is likely to reduce the volume and valuations of assets we manage on behalf of clients, reducing our asset- and performance-based fees; | |
– | reduced market liquidity limits trading and arbitrage opportunities and impedes our ability to manage risks, impacting both trading income and performance-based fees; | |
– | assets we own and account for as investments or trading positions could 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, we could suffer losses from enforced default by counterparties, be unable to access our own assets, or be impeded in – or prevented from – managing our risks. |
Because UBS has very substantial exposures to other major financial institutions, the failure of any such institution could have a material effect on UBS.
Our global presence subjects us to risk from currency fluctuations
We prepare our consolidated financial statements in Swiss francs. However, a substantial portion of our assets, liabilities, invested assets, revenues and expenses are denominated in other currencies, particularly the US dollar, the euro and the British pound. Accordingly, changes in foreign exchange rates, particularly between the Swiss franc and the US dollar (US dollar revenue represents the major part of our non-Swiss franc revenue) have an effect on our reported income and invested asset levels. During 2010, a strengthening of the Swiss franc, especially against the US dollar and euro, had an adverse effect on our revenues and invested assets. Since exchange rates are subject to constant change, sometimes from completely unpredictable reasons, our results are subject to risks associated with changes in the relative values of currencies.
We are dependent upon our risk management and control processes to avoid or limit potential losses in our trading and counterparty credit businesses
Controlled risk-taking is a major part of the business of a financial services firm. Credit is an integral part of many of our retail, wealth management and Investment Bank activities. This includes
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lending, underwriting and derivatives businesses and positions. Changes in interest rates, credit spreads, equity prices, foreign exchange levels and other market fluctuations can adversely affect our earnings. Some losses from risk-taking activities are inevitable, but to be successful over time, we must balance the risks we take against the returns we generate. We must therefore diligently identify, assess, manage and control our risks, not only in normal market conditions but also as they might develop under more extreme (stressed) conditions, when concentrations of exposures can lead to severe losses.
– | we do not fully identify the risks in our portfolio, in particular risk concentrations and correlated risks; | |
– | our assessment of the risks identified or our response to negative trends proves to be inadequate or incorrect; | |
– | markets move in ways that we do not expect – in terms of their speed, direction, severity or correlation – and our ability to manage risks in the resultant environment is therefore affected; | |
– | third parties to whom we have credit exposure or whose securities we hold for our own account are severely affected by events not anticipated by our models, and we accordingly suffer defaults and impairments beyond the level implied by our risk assessment; or | |
– | collateral or other security provided by our counterparties proves inadequate to cover their obligations at the time of their default. |
We also manage risk on behalf of our clients in our asset and wealth management businesses. Our performance in these activities could be harmed by the same factors. If clients suffer losses or the performance of their assets held with us is not in line with relevant benchmarks against which clients assess investment performance, we may suffer reduced fee income and a decline in assets under management or withdrawal of mandates.
required to be held beyond a normal trading horizon. They are subject to a distinct control framework. Deteriorations in the fair value of these positions would have a negative impact on our earnings.
Valuations of certain assets rely on models. For some
of the inputs to these models there is no observable source
Where possible, we mark our trading book assets at their quoted market price in an active market. Such price information may not be available for certain instruments and we therefore apply 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. In the case of positions for which some or all of the reference data are not observable or have limited observability, we use valuation models with non-market observable inputs. There is no single market standard for valuation models of this type. Such models have inherent limitations; different assumptions and inputs would generate different results, and these differences could have a significant impact on our financial results. We regularly review and update our valuation models to incorporate all factors that market participants would consider in setting a price, including factoring in current market conditions. Judgment is an important component of this process. Changes in model inputs or in the models themselves, or failure to make the changes necessary to reflect evolving market conditions, could have a material adverse effect on our financial results.
We are exposed to possible further reduction in client
assets in our wealth management and asset management
businesses
In 2008 and 2009, we experienced substantial net outflows of client assets in our wealth management and asset management businesses. Our wealth management businesses continued to experience net outflows in the first half of 2010, albeit at significantly reduced levels. The net outflows resulted from a number of different factors, including our substantial losses, the damage to our reputation, the loss of client advisors, difficulty in recruiting qualified client advisors and developments concerning our cross-border private banking business. Some of these factors have been successfully addressed, but others, such as the long-term changes affecting the cross-border private banking business model, will continue to affect client flows for an extended period of time. If we again experience material net outflows of client assets, the results of our wealth management and asset management businesses are likely to be adversely affected.
Liquidity and funding management are critical to
our ongoing performance
Reductions in our credit ratings can increase our funding costs, in particular with regard to funding from wholesale unsecured
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sources, and can affect the availability of certain kinds of funding. In addition, as we experienced in 2008 and 2009, ratings downgrades can require us to post additional collateral or make additional cash payments under master trading agreements relating to our derivatives businesses. Our credit ratings also contribute, together with our capital strength and reputation, to maintaining client and counterparty confidence.
è | Refer to the “Risk and treasury management” section of this report for more information on our approach to liquidity and funding management |
Operational risks may affect our business
All of our businesses are dependent on our ability to process a large number of complex transactions across multiple and diverse markets in different currencies, and to comply with the requirements of the many different legal and regulatory regimes to which we are subject. Our operational risk management and control systems and processes are designed to help ensure that the risks associated with our activities, including those arising from process error, failed execution, unauthorized trading, fraud, system failures and failure of security and physical protection, are appropriately controlled. If our internal controls fail or prove ineffective in identifying and remedying such risks, we could suffer operational failures that might result in material losses.
Legal claims and regulatory risks and restrictions
arise in the conduct of our business
Due to the nature of our business, we are subject to regulatory oversight and liability risk. We are involved in a variety of claims, disputes, legal proceedings and government investigations in jurisdictions where we are active. These types of proceedings expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil penalties, in addition to potential regulatory restrictions on our businesses. The outcome of these matters cannot be predicted and they could adversely affect our future business. We continue to be subject to government inquiries and investigations, and are involved in a number of liti-
gations and disputes, many of which arose out of the financial crisis. These matters concern, among other things, our valuations, accounting classifications, disclosures, writedowns and contractual obligations. We are also subject to potentially material exposure in connection with claims relating to US RMBS and mortgage loan sales, the Madoff investment fraud, Lehman principal protection notes and other matters.
è | Refer to “Note 21 Provisions and contingent liabilities” in the “Financial information” section of this report for more information on legal proceedings and regulatory matters |
We might be unable to identify or capture revenue or
competitive opportunities, or retain and attract qualified
employees
The financial services industry is characterized by intense competition, continuous innovation, detailed (and sometimes fragmented) regulation and ongoing consolidation. We face competition at the level of local markets and individual business lines, and from global financial institutions that are comparable to UBS in their size and breadth. Barriers to entry in individual markets are being eroded by new technology. We expect these trends to continue and competition to increase in the future.
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leave UBS, or that we may be less successful than our competitors in attracting qualified employees. Although changes in regulatory requirements and pressure from regulators and other stakeholders affect not only UBS but also the other major international banks, the constraints and pressures differ by jurisdiction, and this may give some of our peers a competitive advantage.
We are exposed to risks arising from the different
regulatory, legal and tax regimes applicable to our
global businesses
We operate in more than 50 countries, earn income and hold assets and liabilities in many different currencies and are subject to many different legal, tax and regulatory regimes. Our ability to execute our global strategy depends on obtaining and maintaining local regulatory approvals. This includes the approval of acquisitions or other transactions and the ability to obtain and maintain the necessary licenses to operate in local markets. Changes in local tax laws or regulations and their enforcement may affect the ability or the willingness of our clients to do business with the bank, or the viability of our strategies and business model.
The effects of taxes on our financial results are significantly
influenced by changes in our deferred tax assets
and final determinations on audits by tax authorities
The deferred tax assets we have recognized on our balance sheet as of 31 December 2010 in respect of prior years’ tax losses are based on profitability assumptions over a five-year horizon. If the business plan earnings and assumptions in future periods sub-
stantially deviate from the current outlook, the amount of deferred tax assets may need to be adjusted in the future. This could include write-offs of deferred tax assets through the income statement if actual results come in substantially below the business plan forecasts and/or if future business plan forecasts are substantially revised downwards.
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Financial performance
Our performance is reported in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. This section provides a discussion and analysis of our results for 2010, commenting on the underlying operational performance of the business, with a focus on continuing operations.
UBS key figures
As of or for the year ended | ||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Group results | ||||||||||||
Operating income | 31,994 | 22,601 | 796 | |||||||||
Operating expenses | 24,539 | 25,162 | 28,555 | |||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||
Diluted earnings per share (CHF)1 | 1.96 | (0.75 | ) | (7.63 | ) | |||||||
Key performance indicators, balance sheet and capital management2 | ||||||||||||
Performance | ||||||||||||
Return on equity (RoE) (%) | 16.7 | (7.8 | ) | (58.7 | ) | |||||||
Return on risk-weighted assets, gross (%) | 15.5 | 9.9 | 1.2 | |||||||||
Return on assets, gross (%) | 2.3 | 1.5 | 0.2 | |||||||||
Growth | ||||||||||||
Net profit growth (%)3 | N/A | N/A | N/A | |||||||||
Net new money (CHF billion)4 | (14.3 | ) | (147.3 | ) | (226.0 | ) | ||||||
Efficiency | ||||||||||||
Cost / income ratio (%) | 76.5 | 103.0 | 753.0 | |||||||||
Capital strength | ||||||||||||
BIS tier 1 ratio (%)5 | 17.8 | 15.4 | 11.0 | |||||||||
FINMA leverage ratio (%)5 | 4.45 | 3.93 | 2.45 | |||||||||
Balance sheet and capital management | ||||||||||||
Total assets | 1,317,247 | 1,340,538 | 2,014,815 | |||||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 32,531 | |||||||||
BIS total ratio (%)5 | 20.4 | 19.8 | 15.0 | |||||||||
BIS risk-weighted assets5 | 198,875 | 206,525 | 302,273 | |||||||||
BIS tier 1 capital5 | 35,323 | 31,798 | 33,154 | |||||||||
Additional information | ||||||||||||
Invested assets (CHF billion) | 2,152 | 2,233 | 2,174 | |||||||||
Personnel (full-time equivalents) | 64,617 | 65,233 | 77,783 | |||||||||
Market capitalization6 | 58,803 | 57,108 | 43,519 | |||||||||
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Financial performance
Measurement and analysis of performance
Key factors affecting our financial position and results
of operations in 2010
– | In 2010, we generated a net profit attributable to UBS shareholders of CHF 7.5 billion, a significant improvement over the net loss of CHF 2.7 billion in 2009. This increase was primarily due to a significant improvement in fixed income, currencies and commodities revenues from a loss in 2009. In addition, a reduction in credit loss expense, as well as significantly lower own credit losses on financial liabilities designated at fair value supported the result. Operating expenses were slightly lower than in 2009, when we recorded higher restructuring costs and a goodwill impairment charge related to the sale of UBS Pactual. Further, we reduced fixed costs excluding bonus and significant non-recurring items to CHF 19.9 billion in 2010, in line with our communicated target of below CHF 20 billion, despite increased costs for litigation provisions compared with 2009. Diluted earnings per share were CHF 1.96 in 2010, compared with negative CHF 0.75 in 2009. |
– | We recognized a net income tax benefit of CHF 381 million for 2010. This mainly reflects the recognition of additional deferred tax assets in respect of losses and temporary differences in a number of foreign locations, taking into account updated forecast taxable profit assumptions over the five-year horizon used for recognition purposes. This was partly offset by a Swiss net deferred tax expense as Swiss tax losses for which deferred tax assets have previously been recognized were used against profits for the year, which was itself partly offset by an upward revaluation of Swiss deferred tax assets taking into account revised forecast profit assumptions. In 2009, the net income tax benefit was CHF 443 million. |
è | Refer to “Note 22 Income taxes” in the “Financial information” section of this report for more information |
– | As our credit spreads continued to tighten in 2010, the Investment Bank incurred an own credit charge on financial liabilities designated at fair value of CHF 548 million compared with a charge of CHF 2,023 million recognized in 2009. |
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information |
– | In 2010, we recorded a gain on our option to acquire the equity of the SNB StabFund of CHF 745 million compared with CHF 117 million in 2009, following higher asset valuations supporting a higher valuation of the SNB StabFund. |
– | In January 2010, UBS closed the sale of its investments in several associated entities owning office space in New York. A significant portion of the office space is leased by the Group until 2018. The sales price was CHF 187 million with a resulting |
gain on sale of CHF 180 million recorded in the first quarter. In the fourth quarter, we recognized a gain of CHF 158 million from the sale of a property in Zurich. |
– | In 2010, we incurred a credit loss expense of CHF 66 million, of which CHF 64 million occurred in Wealth Management & Swiss Bank. The net credit loss expense in the Investment Bank was nil. In 2009, we recorded an overall credit loss expense of CHF 1,832 million, mainly in the Investment Bank. |
è | Refer to the “Risk and treasury management” section of this report for more information |
– | During 2010, we incurred net restructuring charges of CHF 113 million compared with CHF 791 million in 2009. |
è | Refer to “Note 38 Reorganizations and disposals” in the “Financial information” section of this report for more information |
– | Charges related to the UK Bank Payroll Tax in 2010 amounted to CHF 200 million. |
– | Other comprehensive income attributable to UBS shareholders was negative CHF 1,659 million in 2010 due to: (1) losses in the currency translation account of CHF 909 million (net of tax) mainly related to the Swiss franc carrying value of investments in US, Eurozone and British subsidiaries; (2) fair value losses on financial investments available-for-sale of CHF 607 million (net of tax) predominantly relating to our fixed-interest bearing long-term bond portfolio, which consists of US and UK government bonds; and (3) changes in the replacement values of interest rate swaps designated as hedging instruments of negative CHF 143 million (net of tax). |
è | Refer to the “Statement of comprehensive income” in the “Financial information” section of this report for more information |
– | At the end of 2010, our invested asset base was CHF 2,152 billion, down from CHF 2,233 billion at year-end 2009. This decline was mainly due to unfavorable currency effects, as both the US dollar and the euro fell sharply in value against the Swiss franc. In local currencies, the overall market performance was positive. During 2010, net new money stabilized, and over the last two quarters we achieved net inflows for the overall Group. Wealth Management & Swiss Bank recorded net new money outflows of CHF 10.0 billion in full-year 2010, compared with net outflows of CHF 89.8 billion in 2009; Wealth Management Americas’ net new money outflows declined to CHF 6.1 billion in 2010 from CHF 11.6 billion in 2009; Global Asset Management full year net new money flows turned positive to CHF 1.8 billion, compared with net outflows of CHF 45.8 billion in 2009. |
– | We ended 2010 with an industry-leading Basel II tier 1 capital ratio of 17.8%, up from 15.4% at the end of 2009. Our BIS tier 1 capital increased by CHF 3.5 billion during 2010 to CHF |
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35.3 billion, due to the CHF 7.5 billion net profit attributable to UBS shareholders and the reversals of own credit losses of CHF 0.5 billion. These effects were partially offset by a redemption of hybrid tier 1 capital of CHF 1.5 billion, increased tier 1 deductions of CHF 1.0 billion, negative effects relating to share-based compensation net of tax of CHF 0.9 billion, as well as currency effects of CHF 0.6 billion and other effects of CHF 0.5 billion. Risk-weighted assets decreased by CHF 7.7 billion during 2010 to CHF 198.9 billion as of 31 December 2010. |
– | Our total balance sheet assets stood at CHF 1,317 billion on 31 December 2010, down CHF 23 billion compared with year-end 2009. Our funded asset volume, which excludes positive replacement values, remained relatively unchanged, declining by CHF 3 billion in 2010. |
è | Refer to the “Risk and treasury management” section of this report for more information |
– | On 5 March 2010, the mandatory convertible notes with a notional value of CHF 13 billion issued in March 2008 to the Government of Singapore Investment Corporation Pte. Ltd. and an investor from the Middle East were converted into UBS shares. The notes were converted at a price of CHF 47.68 per share. As a result, UBS issued 272,651,005 new shares with a nominal value of CHF 0.10 each from existing conditional capital. |
è | Refer to “Note 26 Capital increase and mandatory convertible notes” in the “Financial information” section of this report for more information |
Seasonal characteristics
Our main businesses do not generally show significant seasonal patterns, although the Investment Bank’s revenues have been affected in some years by the seasonal characteristics of general financial market activity and deal flows in investment banking. Other business divisions are only slightly impacted by seasonal components, such as asset withdrawals that tend to occur in the fourth quarter and by lower client activity levels related to the summer and end-of-year holiday seasons.
Performance measures
Key performance indicators
è | Refer to the “Compensation” section of this report for more information on total shareholder return |
Client/invested assets reporting
We report two distinct metrics for client funds:
– | The measure “client assets” encompasses all client assets managed by or deposited with us, including custody-only assets and assets held for purely transactional purposes. |
– | The measure “invested assets” is a more restrictive term and includes all client assets managed by or deposited with us for investment purposes. |
Of the two, invested assets is our central measure and includes, for example, discretionary and advisory wealth management portfolios, managed institutional assets, managed fund assets and wealth management securities or brokerage accounts. It excludes all assets held for purely transactional and custody-only purposes, as we only administer the assets and do not offer advice on how these assets should be invested. Non-bankable assets (for example, art collections) and deposits from third-party banks for funding or trading purposes are excluded from both measures.
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è | Refer to “Note 35 Invested assets and net new money” in the “Financial information” section of this report for more information |
Group / business division key performance indicators
Wealth Management & | ||||||||||||||
Swiss Bank | ||||||||||||||
Wealth | Global | |||||||||||||
Wealth | Retail & | Management | Asset | Investment | ||||||||||
Key performance indicators | Definition | Group | Management | Corporate | Americas | Management | Bank | |||||||
Net profit growth (%) | Change in net profit attributable to UBS shareholders from continuing operations between current and comparison periods / net profit attributable to UBS shareholders from continuing operations of comparison period | l | ||||||||||||
Pre-tax profit growth (%) | Change in business division performance before tax between current and comparison periods / business division performance before tax of comparison period | l | l | l | l | l | ||||||||
Cost / income ratio (%) | Operating expenses / operating income before credit loss (expense) or recovery | l | l | l | l | l | l | |||||||
Return on equity (%) | Net profit attributable to UBS shareholders on a year-to-date basis (annualized as applicable) / average equity attributable to UBS shareholders (year-to-date basis) | l | ||||||||||||
Return on attributed equity (%) | Business division performance before tax on a year-to-date basis (annualized as applicable) / average attributed equity (year-to-date basis) | l | ||||||||||||
Return on assets, gross (%) | Operating income before credit loss (expense) or recovery on a year-to-date basis (annualized as applicable) / average total assets (year-to-date basis) | l | l | |||||||||||
Return on risk-weighted assets, gross (%) | Operating income before credit loss (expense) or recovery on a year-to-date basis (annualized as applicable) /average risk-weighted assets (year-to-date basis) | l | ||||||||||||
FINMA leverage ratio (%) | BIS tier 1 capital / average adjusted assets as per definition by FINMA | l | ||||||||||||
BIS tier 1 ratio (%) | BIS tier 1 capital / BIS risk-weighted assets | l | ||||||||||||
Net new money (CHF billion)1 | Inflow of invested assets from new and existing clients less outflows from existing clients or due to client defection | l | l | l | l | |||||||||
Gross margin on invested assets | Operating income before credit loss (expense) or recovery (annualized as applicable) / average invested assets | l | l | l | ||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | Impaired lending portfolio, gross / total lending portfolio, gross | l | ||||||||||||
Average management VaR (1-day, 95% confidence, five years of historical data) | Value-at-risk (VaR) expresses maximum potential loss measured to a 95% confidence level, over a 1-day time horizon and based on five years of historical data | l | ||||||||||||
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Accounting and reporting structure changes
Wealth Management & Swiss Bank reorganization
From 2010 onwards, the internal reporting of Wealth Management & Swiss Bank to the Group Executive Board was revised in order to better reflect the management structure and responsibilities. Segregated financial information is now reported for:
– | “Wealth Management”, encompassing all wealth management business conducted out of Switzerland and in our Asian and European booking centers; |
– | “Retail & Corporate”, including services provided to Swiss retail private clients, small and medium enterprises and corporate and institutional clients. |
In line with this revised internal reporting structure and IFRS 8Operating Segments, Wealth Management and Retail & Corporate are now presented in our external financial reports as separate business units and reportable segments. Prior periods presented have been restated to conform to the new presentation format.
Allocation of additional Corporate Center costs to reportable segments
From 2010 onwards, almost all costs incurred by the Corporate Center related to shared services and control functions are allocated to the reportable segments, which directly and indirectly receive the value of the services, either based on a full cost recovery or on a periodically agreed flat fee. The allocated costs are shown in the respective expense lines of the reportable segments in “Note 2a Segment reporting” in the “Financial information” section, and in the “UBS business divisions and Corporate Center” section of this report.
penses and performance before tax would have been as shown in the table below.
è | Refer to “Note 1a) 33) Segment reporting” in the “Financial information” section of this report for more details |
Cash collateral from derivative transactions and prime brokerage receivables and payables
From 2010 onwards, we have changed the presentation of cash collateral from derivative transactions and prime brokerage receivables and payables to improve transparency.
Personnel expenses
In 2010, we reclassified certain elements ofOther personnel expensestoVariable compensation – otherin order to align the presentation with the new FINMA definition of variable compensation.
Corporate Center cost allocation impact on 2009 figures | ||||||||||||||||||||||||||||
Wealth | Total | |||||||||||||||||||||||||||
Wealth Management & | Management | Global Asset | Investment | business | Corporate | |||||||||||||||||||||||
Swiss Bank | Americas | Management | Bank | divisions | Center | |||||||||||||||||||||||
Wealth | Retail & | |||||||||||||||||||||||||||
CHF million | Management | Corporate | ||||||||||||||||||||||||||
Estimated increase in 2009 operating expenses and decrease in performance before tax | 128 | 96 | 84 | 44 | 288 | 640 | (640 | ) | ||||||||||||||||||||
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Cash collateral from derivative transactions and prime brokerage receivables and payables | ||||||||||||||||||||||||
31.12.09 | 31.12.08 | |||||||||||||||||||||||
Before | After | Before | After | |||||||||||||||||||||
CHF million | reclassification | Reclassification | reclassification | reclassification | Reclassification | reclassification | ||||||||||||||||||
Due from banks | 46,574 | (29,770 | ) | 16,804 | 64,451 | (46,757 | ) | 17,694 | ||||||||||||||||
Cash collateral receivables on derivatives instruments | 0 | 53,774 | 53,774 | 0 | 85,703 | 85,703 | ||||||||||||||||||
Loans | 306,828 | (40,351 | ) | 266,477 | 340,308 | (48,852 | ) | 291,456 | ||||||||||||||||
Other assets | 7,336 | 16,347 | 23,682 | 9,931 | 9,906 | 19,837 | ||||||||||||||||||
Due to banks | 65,166 | (33,244 | ) | 31,922 | 125,628 | (48,806 | ) | 76,822 | ||||||||||||||||
Cash collateral payables on derivatives instruments | 0 | 66,097 | 66,097 | 0 | 92,937 | 92,937 | ||||||||||||||||||
Due to customers | 410,475 | (71,212 | ) | 339,263 | 465,741 | (103,102 | ) | 362,639 | ||||||||||||||||
Other liabilities | 33,986 | 38,359 | 72,344 | 42,998 | 58,971 | 101,969 | ||||||||||||||||||
Furthermore, we reclassified the pension costs related to bonus toPension and other post-employment benefit plans. Previously, those amounts were reported underSocial security. Prior period amounts have been adjusted accordingly. The change in the presentation did not impact our personnel expenses. The related amounts are disclosed in the footnotes to “Note 6 Personnel expenses” in the “Financial information” section of this report.
IFRS 9 Financial Instruments
In November 2009, the International Accounting Standards Board (IASB) issued IFRS 9Financial Instruments, which includes revised guidance on the classification and measurement of financial assets. In October 2010, the IASB updated IFRS 9Financial Instrumentsto include guidance on financial liabilities and derecognition of financial instruments and amended IFRS 7Financial Instruments: Disclosureto include disclosures about transferred financial assets. The publication of IFRS 9Financial Instrumentsrepresents the completion of the first part of a multi-stage project to replace IAS 39Financial Instruments: Recognition and Measurement.
instruments may be accounted for at fair value through other comprehensive income (OCI). Such a designation is available on initial recognition on an instrument-by-instrument basis and is irrevocable. There is no subsequent recycling of realized gains or losses from OCI to profit or loss. All other financial assets are measured at fair value through profit or loss.
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UBS results
Income statement | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 18,872 | 23,461 | 65,679 | (20 | ) | |||||||||||
Interest expense | (12,657 | ) | (17,016 | ) | (59,687 | ) | 26 | |||||||||
Net interest income | 6,215 | 6,446 | 5,992 | (4 | ) | |||||||||||
Credit loss (expense) / recovery | (66 | ) | (1,832 | ) | (2,996 | ) | 96 | |||||||||
Net interest income after credit loss expense | 6,149 | 4,614 | 2,996 | 33 | ||||||||||||
Net fee and commission income | 17,160 | 17,712 | 22,929 | (3 | ) | |||||||||||
Net trading income | 7,471 | (324 | ) | (25,820 | ) | |||||||||||
Other income | 1,214 | 599 | 692 | 103 | ||||||||||||
Total operating income | 31,994 | 22,601 | 796 | 42 | ||||||||||||
Personnel expenses | 16,920 | 16,543 | 16,262 | 2 | ||||||||||||
General and administrative expenses | 6,585 | 6,248 | 10,498 | 5 | ||||||||||||
Depreciation of property and equipment | 918 | 1,048 | 1,241 | (12 | ) | |||||||||||
Impairment of goodwill | 0 | 1,123 | 341 | (100 | ) | |||||||||||
Amortization of intangible assets | 117 | 200 | 213 | (42 | ) | |||||||||||
Total operating expenses | 24,539 | 25,162 | 28,555 | (2 | ) | |||||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||||||
Tax expense / (benefit) | (381 | ) | (443 | ) | (6,837 | ) | 14 | |||||||||
Net profit from continuing operations | 7,836 | (2,118 | ) | (20,922 | ) | |||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 2 | (7 | ) | 198 | ||||||||||||
Tax expense | 0 | 0 | 1 | |||||||||||||
Net profit from discontinued operations | 2 | (7 | ) | 198 | ||||||||||||
Net profit | 7,838 | (2,125 | ) | (20,724 | ) | |||||||||||
Net profit attributable to non-controlling interests | 304 | 610 | 568 | (50 | ) | |||||||||||
from continuing operations | 303 | 600 | 520 | (50 | ) | |||||||||||
from discontinued operations | 1 | 10 | 48 | (90 | ) | |||||||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||||||
from continuing operations | 7,533 | (2,719 | ) | (21,442 | ) | |||||||||||
from discontinued operations | 1 | (17 | ) | 150 | ||||||||||||
Performance by business division | ||||||||||||||||
Wealth Management | 2,308 | 2,280 | 3,631 | 1 | ||||||||||||
Retail & Corporate | 1,772 | 1,629 | 2,382 | 9 | ||||||||||||
Wealth Management & Swiss Bank | 4,080 | 3,910 | 6,013 | 4 | ||||||||||||
Wealth Management Americas | (130 | ) | 32 | (823 | ) | |||||||||||
Global Asset Management | 516 | 438 | 1,333 | 18 | ||||||||||||
Investment Bank | 2,197 | (6,081 | ) | (34,300 | ) | |||||||||||
Treasury activities and other corporate items | 793 | (860 | ) | 19 | ||||||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||||||
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Financial performance
2010
Results
In 2010, we reported a Group net profit attributable to shareholders of CHF 7,534 million, a profit before tax from continuing operations of CHF 7,455 million and a profit before tax from discontinued operations of CHF 2 million. In 2009, we recorded a net loss attributable to shareholders of CHF 2,736 million.
Operating income
Total operating income was CHF 31,994 million in 2010, up from CHF 22,601 million in 2009. Net interest income was CHF 6,215 million compared with CHF 6,446 million in the prior year. Net trading income was positive CHF 7,471 million compared with negative CHF 324 million in 2009.
Net income from trading businesses
Net income from trading businesses, including lending activities of the Investment Bank, was CHF 7,508 million for full-year 2010 compared with CHF 382 million in the prior year.
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information on own credit |
Net income from interest margin businesses
Net income from interest margin businesses was CHF 4,624 million compared with CHF 5,053 million in the prior year. This de-
crease was primarily attributable to lower margins and negative currency effects.
Net income from treasury activities and other
Net income from treasury activities and other was CHF 1,554 million compared with CHF 687 million in 2009. Income from treasury activities was nearly unchanged from last year. A CHF 745 million gain on the valuation of our option to acquire the SNB StabFund’s equity was recorded in 2010, compared with a CHF 117 million gain in the prior year. Additionally, 2009 included a net gain of CHF 297 million (including interest expenses) on the valuation of the mandatory convertible notes (MCN) issued in December 2008 and converted in August 2009.
Credit loss expenses
In 2010, we reported net credit loss expenses of CHF 66 million. This included CHF 172 million of impairment charges taken on reclassified and acquired securities, partially offset by recoveries on certain loan positions. The net credit loss expenses in 2009 amounted to CHF 1,832 million.
è | Refer to the “Risk management and control” section of this report for more information on our risk management approach, method of credit risk measurement and the development of credit risk exposures |
Net fee and commission income
Net fee and commission income was CHF 17,160 million, compared with CHF 17,712 million in the previous year. Income declined slightly in all major fee categories except for portfolio management and advisory fees, as outlined below:
– | Underwriting feeswere CHF 1,912 million compared with CHF 2,386 million in the prior year, due to a decline in both equity and debt underwriting fees. The decrease in equity underwriting fees resulted from an overall market slowdown. Debt underwriting fees declined due to lower revenues in the Investment Bank’s debt capital market business. | |
– | Mergers and acquisitions and corporate finance fees were CHF 857 million, a decrease from CHF 881 million in the prior year. This was due to reduced market activity as deal appetite remained subdued in the first half of 2010. | |
– | Net brokerage feesfell 8% to CHF 3,837 million mainly due to low transaction volumes and margin compression in 2010. | |
– | Investment fund feeswere CHF 3,898 million, a 3% decrease compared with the prior year. Lower asset based commission |
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Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Net interest and trading income | ||||||||||||||||
Net interest income | 6,215 | 6,446 | 5,992 | (4 | ) | |||||||||||
Net trading income | 7,471 | (324 | ) | (25,820 | ) | |||||||||||
Total net interest and trading income | 13,686 | 6,122 | (19,828 | ) | 124 | |||||||||||
Breakdown by businesses | ||||||||||||||||
Net income from trading businesses1 | 7,508 | 382 | (27,203 | ) | ||||||||||||
Net income from interest margin businesses | 4,624 | 5,053 | 6,160 | (8 | ) | |||||||||||
Net income from treasury activities and other | 1,554 | 687 | 1,214 | 126 | ||||||||||||
Total net interest and trading income | 13,686 | 6,122 | (19,828 | ) | 124 | |||||||||||
Credit loss (expense) / recovery | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Wealth Management | 11 | 45 | (388 | ) | (76 | ) | ||||||||||
Retail & Corporate | (76 | ) | (178 | ) | (4 | ) | (57 | ) | ||||||||
Wealth Management & Swiss Bank | (64 | ) | (133 | ) | (392 | ) | (52 | ) | ||||||||
Wealth Management Americas | (1 | ) | 3 | (29 | ) | |||||||||||
Investment Bank | 0 | 1 | (1,698 | ) | (2,575 | ) | (100 | ) | ||||||||
of which: related to reclassified securities2 | (133) | (425 | ) | (125 | ) | (69 | ) | |||||||||
of which: related to acquired securities | (39) | (18 | ) | 0 | 117 | |||||||||||
Treasury activities and other corporate items | 0 | (5 | ) | 0 | (100 | ) | ||||||||||
UBS | (66 | ) | (1,832 | ) | (2,996 | ) | (96 | ) | ||||||||
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Equity underwriting fees | 1,157 | 1,590 | 1,138 | (27 | ) | |||||||||||
Debt underwriting fees | 755 | 796 | 818 | (5 | ) | |||||||||||
Total underwriting fees | 1,912 | 2,386 | 1,957 | (20 | ) | |||||||||||
M&A and corporate finance fees | 857 | 881 | 1,662 | (3 | ) | |||||||||||
Brokerage fees1 | 4,930 | 5,400 | 7,150 | (9 | ) | |||||||||||
Investment fund fees | 3,898 | 4,000 | 5,583 | (3 | ) | |||||||||||
Portfolio management and advisory fees | 5,959 | 5,863 | 7,667 | 2 | ||||||||||||
Insurance-related and other fees | 361 | 264 | 317 | 37 | ||||||||||||
Total securities trading and investment activity fees | 17,918 | 18,794 | 24,335 | (5 | ) | |||||||||||
Credit-related fees and commissions | 448 | 339 | 273 | 32 | ||||||||||||
Commission income from other services | 850 | 878 | 1,010 | (3 | ) | |||||||||||
Total fee and commission income | 19,216 | 20,010 | 25,618 | (4 | ) | |||||||||||
Brokerage fees paid1 | 1,093 | 1,231 | 1,164 | (11 | ) | |||||||||||
Other1 | 964 | 1,068 | 1,524 | (10 | ) | |||||||||||
Total fee and commission expense | 2,057 | 2,299 | 2,689 | (11 | ) | |||||||||||
Net fee and commission income | 17,160 | 17,712 | 22,929 | (3 | ) | |||||||||||
of which: net brokerage fees1 | 3,837 | 4,169 | 5,985 | (8 | ) | |||||||||||
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fees on UBS funds were partly offset by higher fees on third-party funds and sales-based commission income. | ||
– | Portfolio management and advisory feesincreased 2% to CHF 5,959 million, mainly due to higher portfolio management fees in our Wealth Management Americas business division. This was partly offset by lower portfolio management fees in Global Asset Management, primarily resulting from lower performance fees in its alternative and quantitative investments business, and by lower portfolio management and advisory fees in Wealth Management & Swiss Bank and the Investment Bank. | |
– | Other commission expensefell 10% to CHF 964 million, mainly due to lower commissions paid for payment transactions, other services and management advisory. |
Other income
è | Refer to “Note 5 Other income” in the “Financial information” section of this report for more information |
Operating expenses
Total operating expenses were CHF 24,539 million in 2010, compared with CHF 25,162 million in 2009. Operating expenses in 2010 included CHF 113 million of net restructuring charges, while operating expenses in 2009 included goodwill impairment charges of CHF 1,123 million and restructuring charges of CHF 791 million.
Personnel expenses
è | Refer to the “Compensation” section of this report for more information |
è | Refer to the “Accounting and reporting structure changes” section and to “Note 6 Personnel expenses” in the “Financial information” section of this report for more information on the changes in presentation of certain personnel expenses in 2010 and related adjustment of prior periods’ amounts |
General and administrative expenses
è | Refer to “Note 7 General and administrative expenses” in the “Financial information” section of this report for more information |
Depreciation, amortization and impairment of goodwill
Income tax
We recognized a net income tax benefit in our income statement of CHF 381 million for 2010. This included a deferred tax benefit of CHF 605 million and current tax expenses of CHF 224 million.
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è | Refer to “Note 33 Events after the reporting period” in the “Financial information” section of this report for more information |
Net profit attributable to non-controlling interests
Net profit attributable to non-controlling interests for 2010 was CHF 304 million, compared with CHF 610 million for 2009. This decrease was primarily the consequence of the attribution in 2009, rather than in 2010, of CHF 132 million of net profit to non-controlling interests in connection with certain dividends payable in 2010 on hybrid capital instruments classified as non-owner equity. This attribution was made out of 2009’s net profit following a determination that a triggering event had occurred that caused the 2010 dividend payments to become obligatory under the terms of these hybrid capital instruments. The triggering event was the cash payment made by UBS in 2009 to the Swiss Confederation in consideration of the Confederation’s waiver of its right to receive future coupon payments on the mandatory convertible notes due in 2011.
Comprehensive income attributable to UBS shareholders
Comprehensive income attributable to UBS shareholders includes all changes in equity (including net profit) attributed to UBS shareholders during a period, except those resulting from investments by and distributions to shareholders as well as equity settled share-based payments. Items included in comprehensive income, but not in net profit, are reported under other comprehensive income (OCI). Most of those items will be recognized in net profit when the underlying item is sold or realized.
Comprehensive income attributable to UBS shareholders in 2010 was CHF 5,875 million, including net profit attributable to UBS shareholders of CHF 7,534 million, partially offset by other comprehensive income attributable to UBS shareholders of negative CHF 1,659 million.
è | Refer to the “Statement of comprehensive income” section and “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information |
Invested assets
Total invested assets were CHF 2,152 billion on 31 December 2010, a decrease of 4% from CHF 2,233 billion on 31 December 2009. Positive market developments were more than offset by negative currency effects and net new money outflows.
Invested assets | ||||||||||||||||
As of | % change from | |||||||||||||||
CHF billion | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Wealth Management | 768 | 825 | 833 | (7 | ) | |||||||||||
Retail & Corporate | 136 | 135 | 122 | 1 | ||||||||||||
Wealth Management & Swiss Bank | 904 | 960 | 955 | (6 | ) | |||||||||||
Wealth Management Americas | 689 | 690 | 644 | 0 | ||||||||||||
Traditional investments | 487 | 502 | 493 | (3 | ) | |||||||||||
Alternative and quantitative investments | 34 | 41 | 41 | (17 | ) | |||||||||||
Global real estate | 36 | 39 | 40 | (8 | ) | |||||||||||
Infrastructure | 1 | 1 | 1 | 0 | ||||||||||||
Global Asset Management | 559 | 583 | 575 | (4 | ) | |||||||||||
Total | 2,152 | 2,233 | 2,174 | (4 | ) | |||||||||||
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2009
Results
In 2009, we reported a Group net loss attributable to shareholders of CHF 2,736 million, a loss before tax of CHF 2,561 million from continuing operations and a loss before tax of CHF 7 million from discontinued operations. In 2008, we recorded a net loss attributable to shareholders of CHF 21,292 million.
Operating income
Total operating income was CHF 22,601 million in 2009, up from CHF 796 million in 2008. Net interest income at CHF 6,446 million was up 8% compared with CHF 5,992 million a year earlier. Net trading income was negative CHF 324 million compared with negative CHF 25,820 million in 2008.
Net income from trading businesses
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of our Annual Report 2009 for more information on own credit |
Net income from interest margin businesses
decrease was primarily attributable to lower margins on loans and liabilities.
Net income from treasury activities and other
Credit loss expenses
è | Refer to the “Risk management and control” section of our Annual Report 2009 for more information on our risk management approach, method of credit risk measurement and the development of credit risk exposures in 2009 |
Net fee and commission income
– | Underwriting feesincreased 22% to CHF 2,386 million, due to a 40% increase in equity underwriting fees, offset by a 3% decrease in debt underwriting fees. |
– | Mergers and acquisitions and corporate finance fees fell 47% to CHF 881 million due to reduced market activity as deal appetite remained subdued. |
– | Net brokerage feesfell 30% to CHF 4,169 million mainly due to a reduction in equity trading volumes. |
– | Investment fund feesfell 28% to CHF 4,000 million as a result of lower asset-based fees on both own and third-party funds. |
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– | Portfolio management and advisory feesfell 24% to CHF 5,863 million, mainly due to the decreased average asset base, especially in the wealth management businesses. |
– | Other commission expensefell 30% to CHF 1,068 million, mainly due to lower commissions paid to distribution partners. |
Other income
è | Refer to “Note 5 Other income” in the “Financial information” section of our Annual Report 2009 for more information |
Operating expenses
Total operating expenses were down 12% to CHF 25,162 million in 2009 from CHF 28,555 million in 2008.
Personnel expenses
General and administrative expenses
è | Refer to “Note 21 Provisions and litigation” in the “Financial information” section of our Annual Report 2009 for more information about provisions |
Depreciation, amortization and impairment of goodwill
Income tax
We recognized a net income tax benefit in our income statement of CHF 443 million for the full-year 2009. This included a deferred tax benefit of CHF 960 million, which reflected the recognition of additional deferred tax assets in respect of tax losses and temporary differences in certain locations, including the US (CHF 373 million) and Japan (CHF 127 million), taking into account updated profit forecast assumptions over the five-year time horizon used for recognition purposes. In addition, it reflected the release of a deferred tax liability of CHF 243 million relating to UBS Pactual prior to its sale during 2009. This deferred tax benefit was partially offset by a tax charge of CHF 517 million, which mainly related to entities with taxable profits.
Invested assets
Total invested assets were CHF 2,233 billion on 31 December 2009, an increase of 3% from CHF 2,174 billion on 31 December 2008. Positive market developments were nearly offset by net new money outflows, a reduction of invested assets related to divestments, and negative currency translation effects.
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Balance sheet
Balance sheet
% change from | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Assets | ||||||||||||
Cash and balances with central banks | 26,939 | 20,899 | 29 | |||||||||
Due from banks | 17,133 | 16,804 | 2 | |||||||||
Cash collateral on securities borrowed | 62,454 | 63,507 | (2 | ) | ||||||||
Reverse repurchase agreements | 142,790 | 116,689 | 22 | |||||||||
Trading portfolio assets | 167,463 | 188,037 | (11 | ) | ||||||||
Trading portfolio assets pledged as collateral | 61,352 | 44,221 | 39 | |||||||||
Positive replacement values | 401,146 | 421,694 | (5 | ) | ||||||||
Cash collateral receivables on derivative instruments | 38,071 | 53,774 | (29 | ) | ||||||||
Financial assets designated at fair value | 8,504 | 10,223 | (17 | ) | ||||||||
Loans | 262,877 | 266,477 | (1 | ) | ||||||||
Financial investments available-for-sale | 74,768 | 81,757 | (9 | ) | ||||||||
Accrued income and prepaid expenses | 5,466 | 5,816 | (6 | ) | ||||||||
Investments in associates | 790 | 870 | (9 | ) | ||||||||
Property and equipment | 5,467 | 6,212 | (12 | ) | ||||||||
Goodwill and intangible assets | 9,822 | 11,008 | (11 | ) | ||||||||
Deferred tax assets | 9,522 | 8,868 | 7 | |||||||||
Other assets | 22,681 | 23,682 | (4 | ) | ||||||||
Total assets | 1,317,247 | 1,340,538 | (2 | ) | ||||||||
Liabilities | ||||||||||||
Due to banks | 41,490 | 31,922 | 30 | |||||||||
Cash collateral on securities lent | 6,651 | 7,995 | (17 | ) | ||||||||
Repurchase agreements | 74,796 | 64,175 | 17 | |||||||||
Trading portfolio liabilities | 54,975 | 47,469 | 16 | |||||||||
Negative replacement values | 393,762 | 409,943 | (4 | ) | ||||||||
Cash collateral payables on derivative instruments | 58,924 | 66,097 | (11 | ) | ||||||||
Financial liabilities designated at fair value | 100,756 | 112,653 | (11 | ) | ||||||||
Due to customers | 332,301 | 339,263 | (2 | ) | ||||||||
Accrued expenses and deferred income | 7,738 | 8,689 | (11 | ) | ||||||||
Debt issued | 130,271 | 131,352 | (1 | ) | ||||||||
Other liabilities | 63,719 | 72,344 | (12 | ) | ||||||||
Total liabilities | 1,265,384 | 1,291,905 | (2 | ) | ||||||||
Equity | ||||||||||||
Share capital | 383 | 356 | 8 | |||||||||
Share premium | 34,393 | 34,824 | (1 | ) | ||||||||
Cumulative net income recognized directly in equity, net of tax | (6,534 | ) | (4,875 | ) | (34 | ) | ||||||
Retained earnings | 19,285 | 11,751 | 64 | |||||||||
Equity classified as obligation to purchase own shares | (54 | ) | (2 | ) | ||||||||
Treasury shares | (654 | ) | (1,040 | ) | 37 | |||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 14 | |||||||||
Equity attributable to non-controlling interests | 5,043 | 7,620 | (34 | ) | ||||||||
Total equity | 51,863 | 48,633 | 7 | |||||||||
Total liabilities and equity | 1,317,247 | 1,340,538 | (2 | ) | ||||||||
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2010 asset development
Balance sheet development
31.12.10 vs. 31.12.09
Our total assets stood at CHF 1,317 billion on 31 December 2010, down CHF 23 billion (2%) from CHF 1,341 billion on 31 December 2009. The reduction occurred mainly in replacement values (RV), which decreased to a similar extent on both sides of the balance sheet, as market and currency movements drove down positive RV 5% to CHF 401 billion, and negative RV by 4% to CHF 394 billion. Our funded asset volume, which excludes positive RV, remained relatively unchanged, declining by CHF 3 billion in 2010. Nevertheless, our asset composition changed as cash collateral receivables on derivative instruments dropped by CHF 16 billion to CHF 38 billion, financial investments available-for-sale fell by CHF 7 billion to CHF 75 billion, and trading portfolio assets declined by CHF 3 billion to CHF 229 billion. These declines were partially
Balance sheet development – assets
2010 liabilities and equity development
offset by increases in collateral trading assets, which rose by CHF 25 billion to CHF 205 billion, while lending assets remained stable around CHF 315 billion.
Balance sheet development – liabilities and equity
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CHF 4 billion to CHF 16 billion, and Wealth Management Americas’ balance sheet assets decreased by CHF 3 billion to CHF 50 billion. The balance sheet asset size of Retail & Corporate increased by CHF 15 billion to CHF 153 billion. Treasury activities and other corporate items rose by CHF 10 billion to CHF 37 billion.
è | Refer to the table “FINMA leverage ratio calculation” in the “Capital management” section of this report for our average month-end balance sheet size for the fourth quarter 2010 and 2009 |
Lending and borrowing
Lending
è | Refer to the “Risk and treasury management” section for more information |
Borrowing
è | Refer to the “Liquidity and funding management” section for more information on long-term debt issuance |
Repurchase / reverse repurchase agreements and
securities borrowing / lending
Cash collateral on securities borrowed and reverse repurchase agreements increased year-on-year by CHF 25 billion to CHF 205 billion on 31 December 2010. This increase was partly due to increased trading balances in the matched book and to higher short-coverings via reverse repurchase agreements and securities borrowing transactions. In a matched book, the dealer reverses collateral from one customer and repos it to another customer at a different rate generating additional profit from mismatching maturities.
Trading portfolio
Trading portfolio assets declined by CHF 3 billion to stand at CHF 229 billion on 31 December 2010. The majority of this decrease is related to currency effects and trading inventory held for regulatory requirements within our wealth management business. The Investment Bank’s trading portfolio grew by CHF 9 billion, primarily as a result of an increase in holdings of money market papers (mainly treasury bills) of CHF 11 billion and precious metals (mainly silver and palladium) of CHF 2 billion, partially offset by debt instruments, which declined by CHF 5 billion (mainly US government paper and corporate debt).
Replacement values
The positive and the negative replacement values (RV) of derivative instruments developed roughly in parallel, decreasing by CHF 21 billion (5%) and CHF 16 billion (4%), respectively, and ending 2010 at CHF 401 billion and CHF 394 billion, respectively. Decreases in positive RV occurred in credit derivative contracts, which declined by CHF 23 billion due to a tightening of credit
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spreads. Interest rate contracts dropped by CHF 11 billion due to a steepening in interest rate yield curves, specifically those denominated in euro and British pound. These declines were partially offset by foreign exchange contracts, which grew by CHF 16 billion, related to the strengthening of the Swiss franc against major currencies.
Financial investments available-for-sale
Financial investments available-for-sale declined by CHF 7 billion to CHF 75 billion in 2010, reflecting currency effects. The majority of these instruments include highly liquid short-term securities issued by governments and government-controlled institutions in various currencies, mainly US dollars, euro and British pound. It also includes a portfolio of US and UK government bonds with a face amount of CHF 15 billion and a weighted average maturity of approximately eight years.
Other assets / other liabilities
Commencing in the fourth quarter of 2010, UBS has changed the presentation of prime brokerage receivables and payables and cash collateral from derivative transactions to improve transparency. Prime brokerage receivables and prime brokerage payables have been transferred out ofDue from banksandLoanstoOther assets, and out ofDue to banks andDue to customerstoOther liabilities, respectively.Cash collateral receivables and payables on derivatives are presented in the new balance sheet linesCash collateral receivables on derivative instrumentsandCash collateral payables on derivative instrumentsby transferring the amounts out ofDue from banksandLoans, andDue to banksandDue to customers, respectively. In the aforementioned waterfall graphs,Cash collateral receivable and payable on derivative instrumentsare shown inOther assetsandOther liabilities. Comparative periods have been adjusted accordingly.
è | Refer to the “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information |
Shareholders’ equity
On 31 December 2010, equity attributable to UBS shareholders was CHF 46.8 billion, representing an increase of CHF 5.8 billion compared with 31 December 2009. The increase in 2010 reflects a net profit of CHF 7.5 billion, partially offset by negative effects recognized in equity (including currency translation effects) of CHF 1.7 billion.
è | Refer to the “Shares and capital instruments” section of this report for more information |
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Off-balance sheet
Off-balance sheet arrangements
Off-balance sheet arrangements include purchased and retained interests and derivatives, as well as other involvements in non-consolidated entities and structures originated by us or set up by third parties. Generally, these arrangements either meet the financial needs of clients or offer investment opportunities through entities that are not controlled by us.
because we have not assumed the related risks and rewards (financial assets) and/or because we did not become party to the contractual provisions of the financial instruments. We recognize these types of arrangements on the balance sheet only to the extent of their involvement, which, for example, may be in the form of derivatives, guarantees, financing commitments or servicing rights.
Off-balance sheet arrangements, risks, consolidation and fair value measurements | Disclosure in the annual report | ||||
Contractual obligations | Strategy, performance and responsibility, section “Off-balance sheet” | ||||
Credit guarantees, performance guarantees, loan commitments, underwriting commitments, forward starting transactions and similar instruments | Strategy, performance and responsibility, section “Off-balance sheet” | ||||
Guarantees issued by UBS AG to subsidiaries | Financial information, “Note 41 Supplemental guarantor information required under SEC rules” | ||||
Other contingent liabilities | Financial information, “Note 21 Provisions and contingent liabilities” | ||||
Derivative financial instruments | Financial information, “Note 23 Derivative instruments and hedge accounting” Risk and treasury management, section “Basel II Pillar 3 disclosures” | ||||
Credit derivatives | Financial information, “Note 23 Derivative instruments and hedge accounting” Risk and treasury management, section “Basel II Pillar 3 disclosures” | ||||
Leases | Financial information, “Note 25 Operating lease commitments” | ||||
Non-consolidated securitization vehicles – non-agency transactions | Strategy, performance and responsibility, section “Off-balance sheet” | ||||
Support to non-consolidated investment funds | Strategy, performance and responsibility, section “Off-balance sheet” | ||||
Securitizations (banking book only) | Risk and treasury management, section “Basel II Pillar 3 disclosures” | ||||
Risk concentrations | Risk and treasury management, section “Risk concentrations” | ||||
Credit risk information | Risk and treasury management, section “Credit risk” | ||||
Market risk information | Risk and treasury management, section “Market risk” | ||||
Liquidity risk information | Risk and treasury management, section “Liquidity and funding management” | ||||
Consolidation | Financial information, “Note 1 Summary of significant accounting policies” | ||||
Fair value measurements | Financial information, “Note 27 Fair value of financial instruments” | ||||
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Risk positions
Liquidity facilities and similar obligations
Non-consolidated securitization vehicles and collateralized
debt obligations
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on accounting policies regarding securitization activities |
Non-consolidated securitization vehicles and collateralized debt obligations – non-agency transactions1 | ||||||||||||||||||||||||
CHF billion | Total SPE assets | Involvements in non-consolidated SPE held by UBS | ||||||||||||||||||||||
Purchased and | ||||||||||||||||||||||||
retained interests | ||||||||||||||||||||||||
Original principal | Current principal | Delinquency | held by UBS2 | Derivatives held by UBS | ||||||||||||||||||||
As of 31 December 2010 | outstanding | outstanding | amounts | Carrying value | Fair value | Nominal value | ||||||||||||||||||
Originated by UBS | ||||||||||||||||||||||||
CDOs | ||||||||||||||||||||||||
Residential mortgage | 5.3 | 3.9 | 0.0 | 0.7 | 0.0 | 0.9 | ||||||||||||||||||
Commercial mortgage | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 1.3 | ||||||||||||||||||
Other ABS | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | ||||||||||||||||||
Securitizations | ||||||||||||||||||||||||
Residential mortgage | 2.9 | 1.7 | 0.1 | 0.1 | 0.0 | 2.4 | ||||||||||||||||||
Commercial mortgage | 22.1 | 19.3 | 2.1 | 0.1 | 0.0 | 0.0 | ||||||||||||||||||
Other ABS | 0.9 | 1.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||
Total | 31.2 | 25.9 | 2.2 | 0.9 | 0.0 | 4.6 | ||||||||||||||||||
Not originated by UBS | ||||||||||||||||||||||||
CDOs | ||||||||||||||||||||||||
Residential mortgage | 43.7 | 20.1 | 0.1 | 0.4 | 0.0 | 0.1 | ||||||||||||||||||
Commercial mortgage | 13.4 | 8.8 | 0.0 | 0.8 | 0.0 | 0.0 | ||||||||||||||||||
Other ABS | 78.9 | 64.7 | 0.0 | 5.5 | 0.3 | 2.3 | ||||||||||||||||||
Securitizations | ||||||||||||||||||||||||
Residential mortgage | 625.1 | 212.6 | 38.4 | 1.3 | (1.1 | ) | 4.1 | |||||||||||||||||
Commercial mortgage | 608.4 | 515.5 | 63.7 | 2.3 | 0.0 | 0.0 | ||||||||||||||||||
Other ABS | 946.0 | 607.7 | 20.1 | 3.5 | 0.0 | 0.0 | ||||||||||||||||||
Total | 2,315.5 | 1,429.4 | 122.3 | 13.8 | (0.7 | ) | 6.4 | |||||||||||||||||
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Financial performance
Consolidation of securitization vehicles and collateralized debt
obligations
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for further information on consolidation of securitization vehicles and CDO |
Risks resulting from non-consolidated securitization vehicles
and collateralized debt obligations
Support to non-consolidated investment funds
Guarantees and similar obligations
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Clearinghouse and future exchange memberships
Swiss deposit insurance
Private equity funding commitments, equity and debt
underwriting commitments
Financial liabilities not recognized on balance sheet | ||||||||||||||||||||||||
The table below shows the maximum irrevocable amount of guarantees, commitments and forward starting transactions. | ||||||||||||||||||||||||
31.12.10 | 31.12.09 | |||||||||||||||||||||||
Sub- | Sub- | |||||||||||||||||||||||
CHF million | Gross | participations | Net | Gross | participations | Net | ||||||||||||||||||
Guarantees | ||||||||||||||||||||||||
Credit guarantees and similar instruments | 8,612 | (401 | ) | 8,212 | 11,180 | (222 | ) | 10,958 | ||||||||||||||||
Performance guarantees and similar instruments | 3,362 | (506 | ) | 2,856 | 3,484 | (582 | ) | 2,902 | ||||||||||||||||
Documentary credits | 4,561 | (255 | ) | 4,306 | 2,406 | (288 | ) | 2,117 | ||||||||||||||||
Total guarantees | 16,535 | (1,162 | ) | 15,374 | 17,070 | (1,092 | ) | 15,977 | ||||||||||||||||
Commitments | ||||||||||||||||||||||||
Loan commitments | 56,851 | (1,475 | ) | 55,376 | 59,328 | (1,793 | ) | 57,534 | ||||||||||||||||
Underwriting commitments | 404 | (196 | ) | 208 | 2,251 | (556 | ) | 1,695 | ||||||||||||||||
Total Commitments | 57,255 | (1,671 | ) | 55,584 | 61,579 | (2,349 | ) | 59,229 | ||||||||||||||||
Forward starting transactions1 | ||||||||||||||||||||||||
Reverse repurchase agreements | 39,036 | 43,020 | ||||||||||||||||||||||
Securities borrowing agreements | 454 | 904 | ||||||||||||||||||||||
Repurchase agreements | 22,468 | 18,044 | ||||||||||||||||||||||
Securities lending agreements | 783 | 47 | ||||||||||||||||||||||
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Contractual obligations
The table below includes contractual obligations as of 31 December 2010.
Contractual obligations | ||||||||||||||||
Payment due by period | ||||||||||||||||
CHF million | < 1 year | 1-3 years | 3-5 years | > 5 years | ||||||||||||
Long-term debt obligations | 36,742 | 47,582 | 32,387 | 58,279 | ||||||||||||
Finance lease obligations | 46 | 55 | ||||||||||||||
Operating lease obligations | 862 | 1,387 | 1,018 | 1,818 | ||||||||||||
Purchase obligations | 438 | 376 | 191 | 36 | ||||||||||||
Other liabilities | 484 | 1 | ||||||||||||||
Total | 38,572 | 49,401 | 33,596 | 60,133 | ||||||||||||
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Cash flows
2010
As of 31 December 2010, the level of cash and cash equivalents declined to CHF 140.8 billion, down CHF 24.2 billion from CHF 165.0 billion at the end of 2009.
Operating activities
Operating activities generated a cash inflow of CHF 12.0 billion in 2010 compared with a cash inflow of CHF 54.5 billion in 2009. Operating cash inflows (before changes in operating assets and liabilities and income taxes paid, net of refunds) totaled CHF 8.8 billion in 2010, a decrease of CHF 1.0 billion from 2009. Net profit improved CHF 10.0 billion compared with 2009.
Investing activities
Net cash flow used in investing activities was CHF 25.7 billion compared with cash flow used in investing activities of CHF 20.6 billion in 2009.
è | Refer to “Note 36 Business combinations” and “Note 38 Reorganizations and disposals” in the “Financial information” section of this report for more information about our investing activities |
Financing activities
In 2010, financing activities generated net cash inflows of CHF 1.8 billion. This reflected the cash outflow for redemptions and dividends paid for preferred securities reflected in non-controlling interests of CHF 2.1 billion, the issuance of CHF 78.4 billion of long-term debt and the long-term debt repayments, which totaled CHF 77.5 billion. The money market papers issued generated a net cash inflow of CHF 4.5 billion. In 2009, UBS had a net cash outflow of CHF 54.2 billion from financing activities.
2009
As of 31 December 2009, the level of cash and cash equivalents declined to CHF 165.0 billion, down CHF 14.7 billion from CHF 179.7 billion at the end of 2008.
Operating activities
Operating activities generated a cash inflow of CHF 54.5 billion in 2009 compared with a cash inflow of CHF 77.0 billion in 2008. Operating cash inflows (before changes in operating assets and liabilities and income taxes paid, net of refunds) totaled CHF 9.9 billion in 2009, an increase of CHF 81.5 billion from 2008. Net profit improved CHF 18.6 billion compared with 2008.
Investing activities
Net cash flow used in investing activities was CHF 20.6 billion compared with cash flow used in investing activities of CHF 1.7 billion in 2008.
Financing activities
In 2009, financing activities generated net cash outflows of CHF 54.2 billion. This reflected the net repayment of money market paper of CHF 60.0 billion, the issuance of CHF 67.1 billion of long-term debt and the long-term debt repayments, which totaled CHF 65.0 billion. That outflow was partly offset by inflows attributable to capital issuances of CHF 3.7 billion. In 2008, UBS had a net cash outflow of CHF 5.6 billion from financing activities.
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Our employees
Our employees
The excellence, inspiration and commitment of our employees are critical to implementing our business strategy and to meeting the needs of our clients. Our commitment to our employees is reflected in the investment we make in managing talent, and in the development of our performance-oriented culture and our leadership.
Our workforce
In 2010, we focused on enhancing integration across the firm and investing in our workforce by making a number of improvements to the way we managed our employees. For example, we instituted measures to further develop our performance-oriented culture and revised our Code of Business Conduct and Ethics (the Code) to clearly set out the principles and practices we expect all our employees to follow. Additionally, we launched a corporate university to provide more training opportunities and promote continuous development.
Personnel by region | ||||||||||||||||
As of | % change from | |||||||||||||||
Full-time equivalents | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Switzerland | 23,284 | 24,050 | 26,406 | (3 | ) | |||||||||||
UK | 6,634 | 6,204 | 7,071 | 7 | ||||||||||||
Rest of Europe | 4,122 | 4,145 | 4,817 | (1 | ) | |||||||||||
Middle East /Africa | 137 | 134 | 145 | 2 | ||||||||||||
USA | 22,031 | 22,702 | 27,362 | (3 | ) | |||||||||||
Rest of Americas | 1,147 | 1,132 | 1,984 | 1 | ||||||||||||
Asia Pacific | 7,263 | 6,865 | 9,998 | 6 | ||||||||||||
Total | 64,617 | 65,233 | 77,783 | (1 | ) | |||||||||||
Personnel by business division | ||||||||||||||||
As of | % change from | |||||||||||||||
Full-time equivalents | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Wealth Management | 15,663 | 15,408 | 17,910 | 2 | ||||||||||||
Retail & Corporate | 12,089 | 12,140 | 13,105 | 0 | ||||||||||||
Wealth Management & Swiss Bank | 27,752 | 27,548 | 31,016 | 1 | ||||||||||||
Wealth Management Americas | 16,330 | 16,925 | 20,623 | (4 | ) | |||||||||||
Global Asset Management | 3,481 | 3,471 | 3,914 | 0 | ||||||||||||
Investment Bank | 16,860 | 15,666 | 19,132 | 8 | ||||||||||||
Treasury activities and other corporate items | 194 | 1,624 | 3,098 | (88 | ) | |||||||||||
Total | 64,617 | 65,233 | 77,783 | (1 | ) | |||||||||||
of which: personnel managed centrally | 19,406 | 19,993 | 23,997 | (3 | ) | |||||||||||
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Recruiting new employees
Strengthening and sustaining our diverse workforce
ing culture, merit-based career advancement and a sense of individual contribution. In recent years, we have promoted diversity in three stages: (i) raising basic awareness; (ii) integrating diversity into the employee experience through recruiting, performance management and retention; and (iii) working to ensure that diversity ultimately becomes a self-sustaining part of our culture.
Gender distribution by geographical region1
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Our employees
Gender distribution by employee category1 | ||||||||||||||||||||||||
Officers | Non-officers | Total | ||||||||||||||||||||||
As of 31.12.10 | Number | % | Number | % | Number | % | ||||||||||||||||||
Male | 32,068 | 72.0 | 9,680 | 43.5 | 41,748 | 62.5 | ||||||||||||||||||
Female | 12,474 | 28.0 | 12,560 | 56.5 | 25,034 | 37.5 | ||||||||||||||||||
Total | 44,542 | 100.0 | 22,240 | 100.0 | 66,782 | 100.0 | ||||||||||||||||||
Global network guidelines enable employees to set up or join employee networks / affinity groups in any of our operating regions. We have more than 20 employee networks to help build cross-business relationships and strengthen our inclusive culture.
Managing performance
Our approach to people management
Compensation
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placed on the variable component as an incentive to excel and to foster a performance-driven culture, while supporting appropriate and controlled risk taking. Our Total Reward Principles are the foundation of our compensation programs. We always take a holistic view of employee compensation within a total reward framework that takes into account base salary, discretionary incentives and benefits.
è | Refer to the “Compensation” section for more information |
Employee share ownership
Education and talent development
We take a structured approach to both leadership development and business education to ensure our employees have the knowledge and skills required to meet our business needs and support our strategic goals. In January 2010, we launched the UBS Business University, a global and largely virtual corporate university that integrates our learning activities under one umbrella. The Business University effectively aligns all training and education elements across the firm and promotes a culture of continuous development. Having one Group-wide learning organization also leverages the expertise within our various former learning organizations, increases efficiency, eliminates duplication and significantly reduces training costs, while focusing on positively impacting business results.
Building a leadership culture
In 2010, the UBS Business University worked closely with the Group Executive Board (GEB) and the business divisions to put our new strategy into practice, and to further develop our leadership culture. The Business University also supported the design, development and roll out of our GEB-sponsored “Leading UBS forward” employee training program (which will continue into 2011). The program raises awareness and understanding of our strategy and identity, our values and our strategic principles. Face-to-face workshops open to all employees are led by “ambassadors” who are nominated senior employees from across the firm.
Truth
Clarity
Performance
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These sessions provide an opportunity for everyone to better understand key components of our strategy, commit to changing our culture, and embed our values in their daily work.
Commitment
Meeting the needs of clients is a core objective for UBS, and relationships based on respect, trust and mutual understanding are the foundation for our success. The Code sets out the principles and practices that all employees are expected to follow. It also underscores the critical importance of responsible corporate behavior. In 2010, we put in place a process to affirm the Code and provided training to all employees. We are committed to upholding our corporate values of truth, clarity and performance. They are integrated into our corporate decision making and people management processes, and are aimed at shaping the daily actions of our employees.
Employee assistance
lost to accident or illness are tracked, with 18,915 and 103,635 days respectively accounted for in 2010.
Employee representation
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Corporate responsibility
In 2010, we took strides to enhance our performance in all areas of corporate responsibility. An important foundation for this progress was the revision of our Code of Business Conduct and Ethics. It underscores the critical importance of responsible corporate behavior, and defines how we are to behave when dealing with our stakeholders.
In 2010, we made major steps in delivering on our commitment to our key principles, including our values of truth, clarity, and performance; our strategic principles of reputation, integration, and performance; and our financial objectives. We continued to address our societal commitments and responsibilities by contributing to the fight against money laundering, corruption and terrorist financing (AML), executing our environmental management program, implementing our human rights statement and by undertaking community investment activities. Under the guidance of the UBS Corporate Responsibility Committee (CRC), a Board of Directors (BoD) committee, various initiatives were initiated pertaining to the implementation of our Code of Business Conduct and Ethics (the Code). The CRC, which directed revisions to the Code in 2009, monitored its subsequent introduction and implementation across the firm, including mandatory employee certification and web-based training processes.
è | Refer to www.ubs.com/responsibility for more information on the contents of this section |
Governance, strategy, and commitments
Corporate responsibility governance
pectations. The CRC thus supports the BoD’s efforts to ensure and advance our reputation for responsible corporate conduct. Headed by the Chairman of the BoD, the committee included three other BoD members. It is advised by a panel consisting of members of the Group Executive Board (GEB) and other senior managers. The members of the advisory panel participate in committee meetings and implement its recommendations.
è | Refer to www.ubs.com/environment for more information on our environmental and human rights governance |
Corporate Responsibility at UBS
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Led by the Head of Global AML Compliance, our efforts to fight money laundering, corruption and terrorist financing are supported by a network of expert global business teams. We are streamlining our policies and processes to enhance consistency between business divisions, as well as to assess threats and risks within the business. We have developed extensive policies intended to prevent, detect and report money laundering, corruption and terrorist financing. These policies seek to protect the firm and our reputation from those who may be intending to use UBS to legitimize illicit assets.
è | Refer to the discussion on combating financial crime below for more information on our AML activities |
The global diversity team supports senior management and HR business partners in developing diversity-related strategies and goals for each business division. The implementation of these strategies and goals is monitored by the GEB. The global diversity team also coordinates regional efforts and integration into the HR process. Regional diversity heads, along with senior business managers, consider and design diversity and business-aligned plans that are linked to regional and divisional business and talent strategies. They also provide regional support for divisional management in assessing the progress made on relevant diversity objectives. Additionally, regional diversity heads support our numerous employee networks, including the development and coordination of diversity-related events which support regional diversity initiatives.
è | Refer to the “Our employees” section of this report for more information on labor standards and diversity programs |
Community affairs at UBS are founded on a global strategy defined by the GEB, and are based on a global community affairs guideline. Activities are governed by a central framework and regional guidelines and embedded in UBS’s regional structures. Every region has a dedicated community affairs team which coordinates charitable commitments by our firm and our employees. The Corporate Center ensures global coordination of these activities and also provides a central reporting structure to collate community investment data from across UBS as a whole.
è | Refer to the discussion on community investment below for more information on our charitable and related activities |
External commitments and initiatives
External ratings, assurance and awards
Our corporate responsibility governance process
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since their inception. In 2010, we increased our total score for the DJSI World, mainly due to substantially improved performance in the economic dimension and an increased performance in the environmental dimension.
è | Refer to the “Our employees” section of this report for information on diversity awards |
Stakeholder dialogue and capacity building
Training and awareness-raising
Responsible banking
We are focused on earning the trust of our stakeholders, aiming for sustainable earnings and creating long-term shareholder value. In ensuring that banking activities are undertaken in a responsible manner, and that products and services are suited to the needs and requirements of our clients, we aim to fulfill the heightened expectations of clients and stakeholders.
Combating financial crime
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correspond with those risks, and that relationships which are classified as higher risk are dealt with appropriately. We adhere to strict know-your-clients regulations, which do not, however, seek to undermine clients’ legitimate right to privacy. Ongoing due diligence and monitoring is undertaken to assist in the identification of suspicious activities, including using advanced technology to assist in the identification of transaction patterns or unusual dealings which, if discovered, are promptly escalated to management or control functions. As part of our extensive and ongoing efforts to prevent money laundering, corruption and terrorist financing, enhancements to address more specific risks in relation to corruption and terrorist financing were implemented globally in 2010.
Managing environmental and social risks
Our environmental policy
– | Endangered species of wild flora and fauna listed in Appendix 1 of the Convention on International Trade in Endangered Species; |
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– | High conservation value forests as defined by the six categories of the Forestry Stewardship Council (FSC); |
– | Illegal use of fire: uncontrolled and/or illegal use of fire for land clearance; |
– | Illegal logging including purchase of illegal harvested timber (logs or roundwood); |
– | Palm oil production unless a member in good standing of the Roundtable on Sustainable Palm Oil and actively seeking to enhance certification of its production; | |
– | Wetlands: on the RAMSAR list; and | |
– | World heritage sites as classified by UNESCO. |
All commercial activities that engage in, or threaten:
– | Child labor: according to ILO-conventions 138 (minimum age) and 182 (worst forms); |
– | Forced labor: according to ILO-convention 29; |
– | Indigenous peoples’ rights in accordance with IFC Performance Standard 7; and |
– | Diamond mining and trading of rough diamonds unless Kimberly Process certified. |
We also require enhanced due diligence and approval processes in certain other areas, such as coal mining practices that use mountain top removal (MTR) in the US Appalachian Mountains as an extraction method. As part of this review, we assess to what extent companies rely on MTR mining for their revenue generation, and we need to be satisfied that the client is committed to reducing its exposure to this form of mining over time.
Products and services
Investment products and advisory
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Corporate responsibility
Engagement and voting rights
Research
Financing and advisory services
Socially responsible investments invested assets1 | ||||||||||||||||||||
% change | ||||||||||||||||||||
For the year ended | from | |||||||||||||||||||
CHF billion, except where indicated | GRI2 | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||||
UBS | 2,152 | 2,233 | 2,174 | (4 | ) | |||||||||||||||
UBS SRI products and mandates | ||||||||||||||||||||
positive criteria | FS11 | 2.00 | 2.72 | 2.12 | (36 | ) | ||||||||||||||
exclusion criteria | FS11 | 21.27 | 22.44 | 14.05 | (6 | ) | ||||||||||||||
Third-party3 | FS11 | 2.40 | 1.69 | 1.85 | 30 | |||||||||||||||
Total SRI invested assets | FS11 | 25.67 | 4 | 26.85 | 18.03 | (5 | ) | |||||||||||||
Proportion of total invested assets (%)5 | 1.19 | 1.20 | 0.83 | |||||||||||||||||
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Carbon trading
Corporate responsibility in operations
We continue to build on a long heritage of managing our internal environmental impact, which, since the 1970s, has focused on increasing energy efficiency, reducing consumption of paper and other resources, actively managing waste volumes and encouraging our employees to replace air travel with more sustainable options. Now delivering the program through a network of global, regional and local environmental specialists, we manage an environmental management system accredited to ISO 14001 and have greenhouse gas emissions data externally verified to ISO 14064.
Environmental and CO2 footprints
CO2 strategy and emission reduction
– | adopting in-house energy efficiency measures that reduce energy consumption in the buildings we operate; | |
– | increasing the proportion of renewable energy used limiting emissions at source; and |
– | off setting CO2 emissions that cannot be reduced by other means (i.e. business air travel). | |
Energy consumption and efficiency
Renewable energy
Business travel and offsetting CO2 emissions
Our greenhouse gas (GHG) footprint
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Environmental indicators per full-time employee
Unit | 2010 | Trend | 2009 | 2008 | ||||||||||||||||
Direct and intermediate energy | kWh / FTE | 12,633 | ì | 11,986 | 11,792 | |||||||||||||||
Business travel | Pkm / FTE | 8,743 | é | 7,016 | 10,281 | |||||||||||||||
Paper consumption | kg / FTE | 119 | î | 130 | 167 | |||||||||||||||
Waste | kg / FTE | 251 | î | 265 | 298 | |||||||||||||||
Water consumption | m3 / FTE | 33.3 | è | 31.9 | 28.1 | |||||||||||||||
CO2 footprint | t / FTE | 3.66 | é | 3.12 | 3.07 | |||||||||||||||
continue to encourage employees to blend travel and technology to optimize work-life balance and environmental impact.
Paper and waste
Supply chain management
Community investment
We are continuing the well-established tradition of supporting the advancement and empowerment of organizations and individuals within the communities we do business in. From an early focus on direct cash donations, we have progressed to a position where our community investment program encompasses employee volunteering, matched-giving schemes, in-kind donations, disaster relief efforts and / or partnerships with community groups, educational institutions and cultural organizations in all of our business regions.
Community affairs
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Environmental indicators1
20102 | 2009 | 2 | 2008 | 2 | ||||||||||||||||||||
Absolute | Data | Absolute | Absolute | |||||||||||||||||||||
GRI3 | normalized4 | quality5 | Trend6 | normalized4 | normalized4 | |||||||||||||||||||
Total direct and intermediate energy consumption7 | 859 GWh | *** | ê | 957 GWh | 1,016 GWh | |||||||||||||||||||
Total direct energy consumption8 | EN3 | 137 GWh | ** | è | 132 GWh | 127 GWh | ||||||||||||||||||
natural gas | 82.6% | ** | è | 84.6% | 83.3% | |||||||||||||||||||
heating oil | 15.0% | *** | é | 10.9% | 12.2% | |||||||||||||||||||
fuels (petrol, diesel, gas) | 2.3% | *** | ê | 4.5% | 4.5% | |||||||||||||||||||
renewable energy (solar power, etc.) | 0.02% | *** | ê | 0.05% | 0.03% | |||||||||||||||||||
Total intermediate energy purchased9 | EN4 | 722 GWh | *** | ê | 825 GWh | 890 GWh | ||||||||||||||||||
electricity from gas-fired power stations | 16.3% | ** | é | 10.6% | 11.7% | |||||||||||||||||||
electricity from oil-fired power stations | 4.1% | *** | é | 2.9% | 3.7% | |||||||||||||||||||
electricity from coal-fired power stations | 17.1% | ** | è | 17.5% | 18.4% | |||||||||||||||||||
electricity from nuclear power stations | 11.5% | ** | é | 9.5% | 11.1% | |||||||||||||||||||
electricity from hydroelectric power stations | 29.1% | *** | è | 28.0% | 25.8% | |||||||||||||||||||
electricity from other renewable resources | 13.5% | *** | ê | 23.6% | 23.1% | |||||||||||||||||||
district heating | 8.5% | *** | ì | 7.8% | 6.2% | |||||||||||||||||||
Share of renewable energy and district heating | 43% | *** | ê | 51% | 48% | |||||||||||||||||||
Total business travel | EN29 | 595 m Pkm | *** | ì | 560 m Pkm | 886 m Pkm | ||||||||||||||||||
rail travel10 | 1.9% | *** | ê | 3.7% | 3.5% | |||||||||||||||||||
road travel10 | 0.5% | ** | ê | 1.0% | 0.6% | |||||||||||||||||||
air travel | 97.6% | *** | è | 95.3% | 96.0% | |||||||||||||||||||
Number of flights (segments) | 258,766 | *** | è | 258,396 | 398,369 | |||||||||||||||||||
Total paper consumption | EN1 | 8,076 t | *** | ê | 10,349 t | 14,403 t | ||||||||||||||||||
post-consumer recycled | EN2 | 21.9% | *** | é | 16.7% | 16.2% | ||||||||||||||||||
new fibers FSC11 | 20.9% | *** | é | 17.1% | 16.6% | |||||||||||||||||||
new fibers ECF +TCF11 | 57.0% | *** | ê | 65.9% | 66.8% | |||||||||||||||||||
new fibers chlorine bleached | 0.3% | ** | ê | 0.4% | 0.4% | |||||||||||||||||||
Total waste | EN22 | 17,053 t | *** | ê | 21,183 t | 25,644 t | ||||||||||||||||||
valuable materials separated and recycled | 53.7% | *** | è | 54.4% | 54.6% | |||||||||||||||||||
incinerated | 18.1% | *** | é | 12.5% | 14.3% | |||||||||||||||||||
landfilled | 28.2% | ** | î | 33.1% | 31.1% | |||||||||||||||||||
Total water consumption | EN8 | 2.27 m m3 | ** | î | 2.55 m m | 3 | 2.42 m m | 3 | ||||||||||||||||
Greenhouse Gas (GHG) Emissions in CO2e | ||||||||||||||||||||||||
Direct GHG emissions (Scope 1)12 | EN16 | 27,153 t | ** | è | 25,723 t | 26,490 t | ||||||||||||||||||
Gross indirect GHG emissions (Gross Scope 2)12 | EN16 | 253,556 t | *** | ê | 298,338 t | 313,582 t | ||||||||||||||||||
Gross other indirect GHG emissions (Gross Scope 3)12 | EN17 | 89,957 t | *** | è | 87,867 t | 129,364 t | ||||||||||||||||||
Total Gross GHG Emissions | 370,666 t | *** | ê | 411,928 t | 469,436 t | |||||||||||||||||||
GHG reductions from renewable energy13 | 61,889 t | *** | ê | 99,248 t | 109,238 t | |||||||||||||||||||
CO2e offsets (business air travel)14 | 69,152 t | *** | ì | 63,579 t | 96,000 t | |||||||||||||||||||
Total Net GHG Emissions (GHG Footprint)15 | 239,624 t | *** | è | 249,101 t | 264,197 t | |||||||||||||||||||
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Client foundation
dations, it has contributed over CHF 80 million to more than 170 projects in over 60 countries. All of the projects which it supports are dedicated to improving the lives of children around the world. Employing a sophisticated funding strategy, it plays a key role in bringing about positive social change in the areas which it targets: “global health” and “education and protection”. As UBS bears all the administrative costs related to Optimus, clients can be sure that 100% of every donation they make goes directly to the projects themselves.
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One of our signature volunteer efforts is the annual Building Brighter Futures’ Community Engagement Month in October in the US. More than 25 communities participated in 2010, with the goal of supporting community needs in the areas of education, the economy and the environment. Over 1,300 UBS employees participated in locally-driven volunteer activities. Additionally, we have longstanding volunteer partnerships with the Special Olympics and the Power Lunch reading program, which operates in four US cities. According to Maryellen Frank, an eleven-year veteran Power Lunch volunteer, “there are some days when it
doesn’t feel possible to break away from the office and change your focus, but when you walk into the room and your young reading partner’s face lights up, it’s all worthwhile. Spending that hour truly giving yourself has its own benefits. I usually return to the desk refreshed and ready for action.”
Asia Pacific– Building upon our ground-breaking Community Leadership Experience, developed in partnership with Charities Aid Foundation India in 2008, UBS subsequently developed and launched a program for Singapore non-profit sector leaders in partnership with the Centre for Non-Profit Leadership in 2009. Now in its second year, the Experience program combines a two-day residential retreat workshop with one-to-one partnering between UBS senior executives and executives of non-governmental organizations. The opportunity for both sets of leaders to interact and share experiences has proven to be highly successful, resulting in a deeper understanding of the challenges faced by the community in Singapore. Additional workshops focusing on common human resource issues, such as talent recruitment and retention, have also been organized as part of the Experience program.
Europe, Middle East and Africa– Throughout the region, we continue to support education and regeneration efforts, particularly in areas close to where we conduct our business. In Poland, over 75% of staff were engaged in support for low income and disadvantaged communities, and entered into an innovative arrangement with col-
leagues in Luxembourg to increase our contribution. In the UK, this year the firm was amongst a very small number of firms to receive three Business in the Community National Big Tick Awards for our Community Affairs program; our flagship EMEA partnership with the Bridge Academy – a local secondary school sponsored by UBS; and our employee volunteering regeneration partnership through Project Shoreditch (in Hackney, East London). In addition, a long-standing community partnership dating back to 1992 was awarded the prestigious Dragon Award by the Lord Mayor of London. The partnership reflects UBS’s overall commitment to corporate responsibility, encompassing financial contributions, employee expertise, capacity building and creating links to other community initiatives. It has led to a significant impact on the economy of a disadvantaged area of the UK, encouraging inward investment of GBP 1.5 million.
Switzerland– In October, more than 180 employees participated in the traditional Finance Forum sponsored walk on the shores of Lake Zurich. They were joined by 1,100 colleagues from other Swiss financial and IT firms. With CHF 50,000 raised in just two hours, our employees achieved the highest amount of all participating companies. The total amount raised by the walk (CHF 187,000) was donated to the Swiss Multiple Sclerosis Society which supports research into this disease and advises and helps families of afflicted children free of charge.
è | Refer to www.ubs.com/community for more information on our community investment activities |
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ASSURANCE STATEMENT |
SGS STATEMENT ON ASSURANCE OF UBS GRI Sustainability Disclosure 2010
SCOPE
CONTENT
ASSUROR INDEPENDENCE AND COMPETENCIES
METHODOLOGY
OPINION
SIGNED FOR AND ON BEHALF OF SGS
Dr. Christine Jasch | Elvira Bieri | |
Lead auditor, SGS | Lead auditor, SGS | |
Zurich, 18 February 2011 | WWW.SGS.COM |
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Corporate Center
– | Starting from 2010, external reporting of Wealth Management & Swiss Bank was revised to better reflect management structure and responsibilities, and was split into two business units: Wealth Management and Retail & Corporate. | |||
– | The Investment Products and Services (IPS) unit was created to provide comprehensive service to Wealth Management clients with complex needs using the capabilities and expertise of the entire firm. | |||
– | In the Investment Bank, the implementation of the securities platform to unify our capabilities in equities and fixed income, currencies and commodities combined previously distinct trading and sales activities into a holistic business with the goal of improving our market position and overall client service. | |||
– | In the first half of the year, we took an important step to expand our presence into emerging markets by agreeing to acquire Link Investimentos, one of the largest independent broker-dealers in Brazil. | |||
– | The Global Family Office unit was established as a joint venture between Wealth Management and the Investment Bank to provide a cross-divisional platform for the delivery of integrated products and services. |
Performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Wealth Management | 2,308 | 2,280 | 3,631 | 1 | ||||||||||||
Retail & Corporate | 1,772 | 1,629 | 2,382 | 9 | ||||||||||||
Wealth Management & Swiss Bank | 4,080 | 3,910 | 6,013 | 4 | ||||||||||||
Wealth Management Americas | (130 | ) | 32 | (823 | ) | |||||||||||
Global Asset Management | 516 | 438 | 1,333 | 18 | ||||||||||||
Investment Bank | 2,197 | (6,081 | ) | (34,300 | ) | |||||||||||
Treasury activities and other corporate items | 793 | (860 | ) | 19 | ||||||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||||||
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Wealth Management & Swiss Bank
Wealth Management –In 2010, pre-tax profit increased 1% to CHF 2,308 million from CHF 2,280 million in 2009, mainly due to a 3% decrease in operating expenses. Total operating income in 2010 was CHF 7,356 million, down 2% from CHF 7,471 million a year earlier. Operating expenses declined 3% to CHF 5,049 million from CHF 5,191 million.
During 2010, net new money outflows declined to CHF 12.1 billion from CHF 87.1 billion in 2009. International wealth management net new money outflows declined significantly to CHF 12.9 billion from CHF 79.9 billion. While Europe saw ongoing net outflows, net inflows were recorded in the Asia Pacific region as well as globally from ultra high net worth clients. Swiss wealth management reported net inflows of CHF 0.8 billion in 2010 compared with CHF 7.2 billion net outflows the year before.
Retail & Corporate –In 2010, pre-tax profit increased 9% to CHF 1,772 million compared with CHF 1,629 million in 2009, mainly due to a decrease in operating expenses. Total operating income in 2010 was CHF 3,870 million, down 1% from CHF 3,918 million a year earlier. Operating expenses declined 8% to CHF 2,098 million from CHF 2,289 million as a result of cost-cutting measures initiated in 2009.
Wealth Management Americas
Wealth Management Americas reported a pre-tax loss of CHF 130 million in 2010 compared with a pre-tax profit of CHF 32 million in 2009, due to higher litigation provisions. Operating income of CHF 5,564 million was essentially flat compared with CHF 5,550 million in 2009, but increased 4% in US dollar terms. In 2010, operating expenses increased 3% to CHF 5,694 million from CHF 5,518 million, and included CHF 162 million in restructuring charges compared with CHF 152 million in restructuring charges in 2009.
Net new money outflows for Wealth Management Americas were CHF 6.1 billion in 2010 compared with CHF 11.6 billion in the prior year. The Wealth Management US business saw net new money outflows of CHF 5.5 billion in 2010 compared with CHF 9.8 billion in 2009. We experienced net new money outflows during the first half of 2010, but reported net new money inflows in the second half of 2010 due to improved financial advisor retention and improved net new money inflows from financial advisors employed with UBS for more than one year.
Global Asset Management
Pre-tax profit for 2010 was CHF 516 million compared with CHF 438 million in 2009. Excluding a net goodwill impairment charge of CHF 191 million related to the sale of UBS Pactual in 2009, the pre-tax profit for 2010 would have decreased by CHF 113 million compared with 2009. Total operating income was CHF 2,058 million in 2010, compared with CHF 2,137 million in 2009. Total operating expenses were CHF 1,542 million in 2010, compared with CHF 1,698 million in 2009.
Net new money inflows were CHF 1.8 billion in 2010 compared with net outflows of CHF 45.8 billion in 2009. Net inflows from third parties were CHF 18.2 billion in 2010 compared with net outflows of CHF 5.1 billion in 2009. Net outflows from clients of our wealth management businesses were CHF 16.4 billion in 2010 compared with net outflows of CHF 40.7 billion in 2009.
Investment Bank
In 2010, we recorded a pre-tax profit of CHF 2,197 million compared with a pre-tax loss of CHF 6,081 million in 2009, primarily as a result of increased revenues in fixed income, currency and commodities, a significant reduction in net credit loss expenses and lower own credit losses. Total operating income in 2010 was CHF 12,010 million compared with CHF 3,135 million in the prior year. Net credit loss expense in 2010 was nil compared with net credit loss expense of CHF 1,698 million in 2009. Total operating expenses were CHF 9,813 million in 2010, compared with CHF 9,216 million in 2009.
Investment banking revenues were CHF 2,414 million in 2010, marginally down from CHF 2,466 million in the previous year. Revenues in equities were CHF 4,469 million, down 9% from CHF 4,937 million in 2009. Revenues in the fixed income, currencies and commodities business were positive CHF 5,675 million in 2010 compared with negative CHF 547 million in 2009, when the business was materially affected by losses on residual risk positions.
Corporate Center
The Corporate Center allocates operating expenses to the business divisions according to service consumption. In 2010, the Corporate Center had a cost base excluding variable compensation of just below CHF 7.5 billion. The Corporate Center has improved Group-wide cost management, and has implemented simple service delivery models with clear responsibilities. At the end of 2010, across all shared services functions, the Corporate Center had approximately 19,400 employees.
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Wealth Management & Swiss Bank
Wealth Management & Swiss Bank
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Income | 11,291 | 11,523 | 15,413 | (2 | ) | |||||||||||
Credit loss (expense) / recovery | (64 | ) | (133 | ) | (392 | ) | (52 | ) | ||||||||
Total operating income | 11,226 | 11,390 | 15,021 | (1 | ) | |||||||||||
Personnel expenses | 4,778 | 5,197 | 5,430 | (8 | ) | |||||||||||
General and administrative expenses | 2,101 | 2,017 | 3,295 | 4 | ||||||||||||
of which: impact from US cross-border case | 917 | |||||||||||||||
Services (to) / from other business divisions | (61 | ) | (90 | ) | (73 | ) | 32 | |||||||||
Depreciation of property and equipment | 309 | 289 | 323 | 7 | ||||||||||||
Amortization of intangible assets | 19 | 67 | 33 | (72 | ) | |||||||||||
Total operating expenses | 7,147 | 7,480 | 9,008 | (4 | ) | |||||||||||
Business division performance before tax | 4,080 | 3,910 | 6,013 | 4 | ||||||||||||
of which: impact from US cross-border case | (917 | ) | ||||||||||||||
of which: business division performance before tax excluding US cross-border case | 4,080 | 3,910 | 6,930 | 4 | ||||||||||||
Key performance indicators1 | ||||||||||||||||
Pre-tax profit growth (%) | 4.3 | (35.0 | ) | (29.6 | ) | |||||||||||
Cost / income ratio (%) | 63.3 | 64.9 | 58.4 | |||||||||||||
Net new money (CHF billion)2 | (10.0 | ) | (89.8 | ) | (107.1 | ) | ||||||||||
Additional information | ||||||||||||||||
Average attributed equity (CHF billion)3 | 9.0 | 9.0 | 9.5 | 0 | ||||||||||||
Return on attributed equity (RoaE) (%) | 45.3 | 43.4 | 63.3 | |||||||||||||
BIS risk-weighted assets (CHF billion) | 43.4 | 48.6 | 62.3 | (11 | ) | |||||||||||
Return on BIS risk-weighted assets, gross (%) | 24.3 | 21.7 | 22.3 | |||||||||||||
Goodwill and intangible assets (CHF billion) | 1.5 | 1.6 | 1.7 | (6 | ) | |||||||||||
Invested assets (CHF billion) | 904 | 960 | 955 | (6 | ) | |||||||||||
Client assets (CHF billion) | 1,799 | 1,844 | 1,711 | (2 | ) | |||||||||||
Personnel (full-time equivalents) | 27,752 | 27,548 | 31,016 | 1 | ||||||||||||
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Wealth Management
Business description
With a presence in over 40 countries and headquartered in Switzerland, Wealth Management provides clients with financial advice, products and tools to fit their individual needs.
Business
Wealth Management delivers comprehensive financial services to wealthy private clients around the world – except those served by Wealth Management Americas. Our clients benefit from the entire spectrum of UBS resources, ranging from asset management to estate planning and corporate finance advice, in addition to the specific wealth management products and services outlined below. An open product platform provides clients with access to a wide array of products from third-party providers that complement our product lines.
Strategy and clients
Our goal is to be the bank of choice for wealthy individuals worldwide. We offer sophisticated products and services to private clients, focusing in particular on the ultra high net worth and high net worth client segments. In addition, we also provide wealth management solutions, products and services to financial intermediaries.
Invested assets by client domicile
Invested assets by client wealth
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Wealth Management & Swiss Bank
Organizational structure
Wealth Management is headquartered in Switzerland with a presence in 44 countries and approximately 200 wealth management and representative offices, half of which are outside Switzerland, mostly in Europe, Asia Pacific, Latin America and the Middle East. As of the end of 2010, Wealth Management employed more than 15,500 personnel worldwide, including approximately 4,200 client advisors. The Wealth Management business unit is governed by an executive committee, and is primarily organized along regional lines with the business areas Asia Pacific, Europe, Global Emerging Markets, Global Established Markets, Switzerland and Global Ultra High Net Worth Clients – supported by a global Investment Products and Services unit and central functions.
Competitors
Our major global competitors include Credit Suisse, Julius Baer, HSBC, BNP/Fortis, Barclays and Citigroup. In domestic markets, we compete primarily with the private banking operations of large local banks such as Coutts in the UK, Deutsche Bank in Germany and Unicredit in Italy.
Products and services
As a global integrated firm, UBS has the necessary expertise to identify appropriate investment opportunities for clients and the local presence to provide them. We have brought together experts from our Investment Bank, Global Asset Management and Wealth Management & Swiss Bank business divisions to create a new unit called Investment Products and Services (IPS), with approximately 2,150 employees at the end of 2010. IPS provides access to UBS’s services and expertise for clients and client advisors through an integrated and efficient organization. In addition, IPS develops investment products and services, based on the capabilities of the entire firm, to satisfy our clients’ needs. Wealth Management thus leverages the knowledge and product and service offerings from Global Asset Management and the Investment Bank to provide expert financial advice that supports clients throughout the different stages of their lives. By aggregating private investment flows into institutional-size flows, we are in a position to offer our Wealth Management clients access to investments that would otherwise only be available to institutional clients. Expertise is sourced either from within UBS or from approved third-party providers.
Invested assets by asset class
Invested assets by currency
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investment spectrum from execution only to discretionary mandates. Clients who opt for a discretionary mandate delegate the management of their assets to a team of professional portfolio managers. Clients who prefer to be actively involved in the management of their assets can choose an advisory mandate, in which investment professionals provide analysis and monitoring of portfolios, together with tailor-made proposals to support investment decisions. Our clients can trade the full range of financial instruments from single securities, such as equities and bonds, to various investment funds, structured products and alternative investments. Additionally, we offer structured lending, corporate finance and wealth planning advice on client needs such as funding for education, gift giving, inheritance and succession. For our ultra high net worth clients, we are able to offer institutional-like servicing with special access to our Investment Bank and Global Asset Management offerings.
The foundations of our client service platform
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Business performance
Business unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Recurring income | 5,411 | 5,696 | 8,061 | (5 | ) | |||||||||||
Non-recurring income | 1,934 | 1,731 | 2,440 | 12 | ||||||||||||
Income | 7,345 | 7,427 | 10,502 | (1 | ) | |||||||||||
Credit loss (expense) / recovery | 11 | 45 | (388 | ) | (76 | ) | ||||||||||
Total operating income | 7,356 | 7,471 | 10,114 | (2 | ) | |||||||||||
Personnel expenses | 3,153 | 3,360 | 3,503 | (6 | ) | |||||||||||
General and administrative expenses | 1,264 | 1,182 | 2,357 | 7 | ||||||||||||
of which: impact from US cross-border case | 917 | |||||||||||||||
Services (to) / from other business divisions | 449 | 428 | 409 | 5 | ||||||||||||
Depreciation of property and equipment | 163 | 154 | 181 | 6 | ||||||||||||
Amortization of intangible assets | 19 | 67 | 33 | (72 | ) | |||||||||||
Total operating expenses | 5,049 | 5,191 | 6,483 | (3 | ) | |||||||||||
Business unit performance before tax | 2,308 | 2,280 | 3,631 | 1 | ||||||||||||
of which: impact from US cross-border case | (917 | ) | ||||||||||||||
of which: business unit performance before tax excluding US cross-border case | 2,308 | 2,280 | 4,548 | 1 | ||||||||||||
Key performance indicators1 | ||||||||||||||||
Pre-tax profit growth (%) | 1.2 | (37.2 | ) | (40.5 | ) | |||||||||||
Cost / income ratio (%) | 68.7 | 69.9 | 61.7 | |||||||||||||
Net new money (CHF billion)2 | (12.1 | ) | (87.1 | ) | (96.0 | ) | ||||||||||
Gross margin on invested assets (bps)3 | 92 | 91 | 99 | 1 | ||||||||||||
Swiss wealth management | ||||||||||||||||
Income | 1,543 | 1,488 | 2,081 | 4 | ||||||||||||
Net new money (CHF billion)2 | 0.8 | (7.2 | ) | (23.0 | ) | |||||||||||
Invested assets (CHF billion) | 137 | 140 | 137 | (2 | ) | |||||||||||
Gross margin on invested assets (bps) | 112 | 110 | 120 | 2 | ||||||||||||
International wealth management | ||||||||||||||||
Income | 5,802 | 5,939 | 8,420 | (2 | ) | |||||||||||
Net new money (CHF billion)2 | (12.9 | ) | (79.9 | ) | (73.0 | ) | ||||||||||
Invested assets (CHF billion) | 631 | 685 | 697 | (8 | ) | |||||||||||
Gross margin on invested assets (bps)3 | 88 | 88 | 95 | 0 | ||||||||||||
Additional information | ||||||||||||||||
Average attributed equity (CHF billion)4 | 4.4 | 4.4 | 5.1 | 0 | ||||||||||||
Return on attributed equity (RoaE) (%) | 52.5 | 51.8 | 71.5 | |||||||||||||
BIS risk-weighted assets (CHF billion) | 16.9 | 17.9 | 25.1 | (6 | ) | |||||||||||
Return on BIS risk-weighted assets, gross (%) | 41.4 | 37.4 | 35.0 | |||||||||||||
Goodwill and intangible assets (CHF billion) | 1.5 | 1.6 | 1.7 | (6 | ) | |||||||||||
Invested assets (CHF billion) | 768 | 825 | 833 | (7 | ) | |||||||||||
Client assets (CHF billion) | 920 | 1,005 | 1,010 | (8 | ) | |||||||||||
Client advisors (full-time equivalents) | 4,172 | 4,286 | 5,435 | (3 | ) | |||||||||||
Personnel (full-time equivalents) | 15,663 | 15,408 | 17,910 | 2 | ||||||||||||
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2010
Results
In 2010, pre-tax profit increased 1% to CHF 2,308 million from CHF 2,280 million in 2009, mainly due to a 3% decrease in operating expenses. Operating income was down 2% as the result was negatively affected by low market interest rates and the strengthening of the Swiss franc against major currencies.
Operating income
Operating expenses
ment of intangible assets related to invested asset outflows in UBS (Bahamas) Ltd. in 2009.
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on allocation of additional Corporate Center costs to the business divisions in 2010 |
Development of invested assets
Net new money
Invested assets
Gross margin on invested assets
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2009
Results
In 2009, pre-tax profit fell 37% to CHF 2,280 million, compared with CHF 3,631 million in 2008. The decline in profit was due to a 26% reduction in operating income, which was only partially compensated by a 20% cut in operating expenses resulting from cost-cutting measures. A provision of CHF 917 million in relation to the US cross-border case was included in the results for 2008.
Operating income
Operating expenses
the US cross-border case. Charges for services from other business divisions, at CHF 428 million in 2009, were slightly up from CHF 409 million in the previous year. Depreciation was CHF 154 million in 2009, compared with CHF 181 million a year earlier. Amortization of intangible assets was CHF 67 million, up from CHF 33 million in 2008, mainly reflecting the impairment of intangible assets related to invested asset outflows in UBS (Bahamas) Ltd.
Development of invested assets
Net new money
Invested assets
Gross margin on invested assets
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Retail & Corporate
Business description
Through our network of 300 branches in Switzerland, we deliver comprehensive financial services to retail, corporate and institutional clients.
Business
Retail & Corporate delivers comprehensive financial services to retail, corporate and institutional clients in Switzerland. With CHF 879 billion in client assets at the end of 2010, we are the leading bank in Switzerland for retail, corporate and institutional clients. We are market leaders in the retail and corporate loan market in Switzerland, with a highly collateralized loan book of CHF 135 billion on 31 December 2010 as shown in the “Loan portfolio, gross” chart.
è | Refer to the “Strategy and structure” section of this report for more information on UBS Switzerland |
Strategy and clients
Our goal is to be the bank of choice for retail clients in Switzerland by delivering value-added services. We serve one out of three households in Switzerland with over 300 branches, 1,250 automated teller machines and self-service terminals, e-banking services and customer service centers. We are continuously refining our suite of life-cycle based offerings, which offer our clients dedicated products and services to fulfill their evolving requirements. We will continue to invest in our physical and electronic channels in order to improve the client experience – we use technology to complement, rather than replace, the traditional physi-
cal branch network. We are refurbishing our branches by introducing new concepts to welcome and serve customers as well as to reflect our new brand identity.
Organizational structure
Retail & Corporate is a core element of UBS Switzerland’s integrated bank delivery model which allows us to extend the expertise of the entire bank to our Swiss retail, corporate and institutional clients.
Loan portfolio, gross
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Competitors
In the Swiss retail banking business, our competitors are Credit Suisse, Raiffeisen, the cantonal banks, PostFinance, as well as other regional and local Swiss banks.
Products and services
Our retail clients have access to services such as a comprehensive selection of cash accounts, payments, savings and retirement products, investment fund solutions, residential mortgages, life insurance and advisory services. These services can be
tailored to clients’ individual life-cycle solutions in combination with financial advice. We offer our Swiss corporate and institutional clients a comprehensive set of products and services. In Switzerland, we are a leading provider of financing solutions, as we offer access to capital markets (equity and debt capital), syndicated and structured credit, private placements, trade finance, factoring, leasing and traditional financing solutions. By providing access to global sector specialists within the Investment Bank, we can provide strategic advice in the field of mergers and acquisitions. Additionally, we advise company owners on succession planning, and provide professional support in liquidity and cash management. Finally, we offer global custody services for institutional clients who want to consolidate multiple-agent bank custodies into a single, cost-efficient global custodial relationship.
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Business performance
Business unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Net interest income | 2,422 | 2,681 | 3,207 | (10 | ) | |||||||||||
Non-interest income | 1,524 | 1,415 | 1,704 | 8 | ||||||||||||
Income | 3,946 | 4,096 | 4,911 | (4 | ) | |||||||||||
Credit loss (expense) / recovery | (76 | ) | (178 | ) | (4 | ) | (57 | ) | ||||||||
Total operating income | 3,870 | 3,918 | 4,907 | (1 | ) | |||||||||||
Personnel expenses | 1,625 | 1,836 | 1,927 | (11 | ) | |||||||||||
General and administrative expenses | 836 | 835 | 938 | 0 | ||||||||||||
Services (to) / from other business divisions | (509 | ) | (518 | ) | (482 | ) | 2 | |||||||||
Depreciation of property and equipment | 146 | 136 | 142 | 7 | ||||||||||||
Amortization of intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,098 | 2,289 | 2,524 | (8 | ) | |||||||||||
Business unit performance before tax | 1,772 | 1,629 | 2,382 | 9 | ||||||||||||
Key performance indicators1 | ||||||||||||||||
Pre-tax profit growth (%) | 8.8 | (31.6 | ) | (2.5 | ) | |||||||||||
Cost / income ratio (%) | 53.2 | 55.9 | 51.4 | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross (%) | 0.9 | 1.1 | 1.2 | |||||||||||||
Additional information | ||||||||||||||||
Average attributed equity (CHF billion)2 | 4.6 | 4.6 | 4.4 | 0 | ||||||||||||
Return on attributed equity (RoaE) (%) | 38.5 | 35.4 | 53.8 | |||||||||||||
BIS risk-weighted assets (CHF billion) | 26.5 | 30.8 | 37.1 | (14 | ) | |||||||||||
Return on BIS risk-weighted assets, gross (%) | 13.7 | 12.3 | 12.5 | |||||||||||||
Goodwill and intangible assets (CHF billion) | 0.0 | 0.0 | 0.0 | |||||||||||||
Net new money (CHF billion)3 | 2.0 | (2.7 | ) | (11.1 | ) | |||||||||||
Invested assets (CHF billion) | 136 | 135 | 122 | 1 | ||||||||||||
Client assets (CHF billion) | 879 | 840 | 701 | 5 | ||||||||||||
Personnel (full-time equivalents) | 12,089 | 12,140 | 13,105 | 0 | ||||||||||||
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2010
Results
In 2010, pre-tax profit increased 9% to CHF 1,772 million compared with CHF 1,629 million in 2009, mainly due to an 8% decrease in operating expenses. Operating income was slightly lower compared with the previous year as reduced interest income was only partly offset by lower credit loss expenses.
Operating income
Operating expenses
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on allocation of additional Corporate Center costs to the business divisions in 2010 |
Development of invested assets
Invested assets
2009
Results
In 2009, pre-tax profit fell 32% to CHF 1,629 million compared with CHF 2,382 million in 2008. The decline in profit was due to a 17% decline in revenues and higher credit loss expenses. This was only partly compensated by a 9% reduction in operating expenses from cost-cutting measures.
Operating income
Operating expenses
Development of invested assets
Invested assets
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UBS business divisions and Corporate Center
Wealth Management Americas
Wealth Management Americas
Wealth Management Americas provides advice-based relationships through its financial advisors, who deliver a fully-integrated set of wealth management solutions designed to address the needs of high net worth and ultra high net worth individuals and families.
Business
Wealth Management Americas is among the leading wealth managers in the Americas based on invested assets, and includes the Wealth Management US business, the domestic Canadian business and the international business booked in the United States. On 31 December 2010, the business division had CHF 689 billion in invested assets.
Strategy and clients
Our vision is to be the best wealth management business in the Americas. In order to achieve this goal, we must be both client-focused and advisor-centric. Due to our competitive positioning, we believe we are large enough to be relevant and small enough
to be nimble, enabling us to combine the advantages of both large and boutique players. By partnering with financial advisors serving high net worth and ultra high net worth clients, our goal is to become a trusted, differentiated and superior provider of financial solutions.
Geographical presence in key markets
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Wealth Management Americas
Organizational structure
Wealth Management Americas consists of branch networks in the US, Puerto Rico and Canada, with 6,796 financial advisors as of 31 December 2010. Most corporate and operational functions of the business division are located in the home office in Weehawken, New Jersey.
– | March 2009: agreement to sell 56 branches to Stifel, Nicolaus | |
& Company, Incorporated. The sale was completed in four separate closings in the second half of 2009. | ||
– | September 2009: completed the sale of UBS’s Brazilian financial services business, UBS Pactual, to BTG Investments, LP. | |
– | October 2010: transfer of investment management responsibility for the US hedge funds business from Wealth Management Americas to Global Asset Management’s alternative and quantitative investments business. This formed part of a new joint venture between the two business divisions, which aims to deliver attractive hedge fund and fund of hedge funds solutions to Wealth Management Americas’ clients. |
Competitors
Wealth Management Americas competes with national full-service brokerage firms, domestic and global private banks, regional broker-dealers, independent broker-dealers, registered investment advisors, trust companies and other financial services firms offering wealth management services to US and Canadian private clients, as well as foreign non-resident clients seeking wealth management services within the US. Our main competitors include the wealth management businesses of Bank of America, Morgan Stanley, and Wells Fargo.
Products and services
Wealth Management Americas offers clients a full array of solutions that focus on the individual financial needs of each client. Comprehensive planning supports clients through the various stages of their lives, including education funding, charitable giving, tax management strategies, estate strategies, insurance, retirement, and trusts and foundations with corresponding product offerings for each stage. Our advisors work closely with internal consultants in areas such as wealth planning, portfolio strategy, retirement and annuities, alternative investments, managed accounts, structured products, banking and lending, equities, and fixed income. Clients also benefit from our dedicated Wealth Management Research team, which provides research guidance to help support the clients’ investment decisions.
Invested assets by asset class
Invested assets by client wealth
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source Management Account (RMA), FDIC-insured deposits, securities-backed lending, mortgages and credit cards.
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Wealth Management Americas
Business performance
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Recurring income | 3,472 | 3,256 | 4,076 | 7 | ||||||||||||
Non-recurring income | 2,093 | 2,290 | 2,201 | (9 | ) | |||||||||||
Income | 5,565 | 5,546 | 6,278 | 0 | ||||||||||||
of which: ARS settlement impact | (172 | ) | ||||||||||||||
Credit loss (expense) / recovery | (1 | ) | 3 | (29 | ) | |||||||||||
Total operating income | 5,564 | 5,550 | 6,249 | 0 | ||||||||||||
Personnel expenses | 4,225 | 4,231 | 4,271 | 0 | ||||||||||||
Financial advisor compensation1 | 2,068 | 1,828 | 2,130 | 13 | ||||||||||||
Compensation commitments and advances related to recruited FAs2 | 599 | 599 | 305 | 0 | ||||||||||||
Salaries and other personnel costs | 1,558 | 1,804 | 1,836 | (14 | ) | |||||||||||
General and administrative expenses | 1,223 | 1,017 | 2,558 | 20 | ||||||||||||
of which: ARS settlement impact | 1,464 | |||||||||||||||
Services (to) / from other business divisions | (6 | ) | 4 | 16 | ||||||||||||
Depreciation of property and equipment | 198 | 170 | 162 | 16 | ||||||||||||
Impairment of goodwill | 0 | 34 | 0 | (100 | ) | |||||||||||
Amortization of intangible assets | 55 | 62 | 65 | (11 | ) | |||||||||||
Total operating expenses | 5,694 | 5,518 | 7,072 | 3 | ||||||||||||
Business division performance before tax | (130 | ) | 32 | (823 | ) | |||||||||||
of which: ARS settlement impact | (1,636 | ) | ||||||||||||||
of which: business division performance before tax excluding ARS settlement impact | (130 | ) | 32 | 813 | ||||||||||||
Key performance indicators3 | ||||||||||||||||
Pre-tax profit growth (%)4 | N/A | N/A | N/A | |||||||||||||
Cost / income ratio (%) | 102.3 | 99.5 | 112.6 | |||||||||||||
Net new money (CHF billion)5 | (6.1 | ) | (11.6 | ) | (15.9 | ) | ||||||||||
Gross margin on invested assets (bps) | 80 | 81 | 82 | (1 | ) | |||||||||||
Additional information | ||||||||||||||||
Average attributed equity (CHF billion)6 | 8.0 | 8.8 | 7.8 | (9 | ) | |||||||||||
Return on attributed equity (RoaE) (%) | (1.6 | ) | 0.4 | (10.6 | ) | |||||||||||
BIS risk-weighted assets (CHF billion) | 23.8 | 22.8 | 26.9 | 4 | ||||||||||||
Return on BIS risk-weighted assets, gross (%) | 23.8 | 23.5 | 28.9 | |||||||||||||
Goodwill and intangible assets (CHF billion) | 3.7 | 4.2 | 4.5 | (12 | ) | |||||||||||
Invested assets (CHF billion) | 689 | 690 | 644 | 0 | ||||||||||||
Client assets (CHF billion) | 738 | 737 | 682 | 0 | ||||||||||||
Personnel (full-time equivalents) | 16,330 | 16,925 | 20,623 | (4 | ) | |||||||||||
Financial advisors (full-time equivalents) | 6,796 | 7,084 | 8,607 | (4 | ) | |||||||||||
Additional information (only Wealth Management US) | ||||||||||||||||
Net new money (CHF billion)5 | (5.5 | ) | (9.8 | ) | (11.4 | ) | ||||||||||
Net new money including interest and dividend income (CHF billion)7 | 13.1 | 10.0 | 11.9 | |||||||||||||
Business division reporting excluding PaineWebber acquisition costs8 | ||||||||||||||||
Business division performance before tax | (21 | ) | 155 | (689 | ) | |||||||||||
Cost / income ratio (%) | 100.4 | 97.3 | 110.4 | |||||||||||||
Average attributed equity (CHF billion) | 4.6 | 5.2 | 4.2 | (12 | ) | |||||||||||
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2010
Results
Wealth Management Americas reported a pre-tax loss of CHF 130 million in 2010 compared with a pre-tax profit of CHF 32 million in 2009. In 2010, Wealth Management Americas incurred restructuring charges of CHF 162 million, while 2009 included restructuring charges of CHF 152 million and net goodwill impairment charges of CHF 19 million related to the sale of UBS Pactual. Excluding these items, pre-tax performance would have declined to a profit of CHF 32 million in 2010 from CHF 203 million in 2009, primarily resulting from a significant increase in litigation provisions in 2010 to CHF 320 million from CHF 54 million in 2009.
Operating income
Operating expenses
sonnel costs, resulting from restructuring initiatives in 2010 and 2009. Expenses for compensation commitments and advances related to recruited financial advisors were flat from 2009, but increased 4% in US dollar terms. Compensation advance balances were CHF 3,112 million as of 31 December 2010, down 4% from 31 December 2009, but increased 7% in US dollar terms.
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on allocation of additional Corporate Center costs to the business divisions in 2010 |
Development of invested assets
Net new money
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Invested assets
Gross margin on invested assets
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2009
Results
Wealth Management Americas reported a pre-tax profit of CHF 32 million in 2009 compared with a pre-tax loss of CHF 823 million in 2008. The 2009 results included restructuring charges of CHF 152 million and a net goodwill impairment charge of CHF 19 million related to the sale of UBS Pactual. Our performance in 2008 included CHF 1,636 million in charges and trading losses related to auction rate securities (ARS). Excluding these items, pre-tax performance would have been a profit of CHF 203 million in 2009 compared with a profit of CHF 813 million in 2008.
Operating income
Operating expenses
cember 2009 from 31 December 2008. Non-personnel expenses declined 54% to CHF 1,287 million from CHF 2,801 million in 2008, but would have decreased 11% excluding CHF 82 million in restructuring costs that were mainly related to real estate writedowns, the abovementioned goodwill impairment charges and ARS-related charges in 2008. The decline was also due to cost-cutting measures in general, including reduced general and administrative expenses.
Development of invested assets
Net new money
Invested assets
Gross margin on invested assets
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Global Asset Management
Global Asset Management
Global Asset Management is a large-scale asset manager with businesses well-diversified across regions, capabilities and distribution channels. We offer investment capabilities and styles across all major traditional and alternative asset classes. These include equities, fixed income, currency, hedge fund, real estate and infrastructure investment capabilities which can be combined into multi-asset strategies. The fund services unit provides professional services including legal fund set-up, accounting and reporting for traditional investment funds and alternative funds.
Business
Global Asset Management offers a diverse range of investment capabilities and services from a boutique-like structure, encompassing all major asset classes, including equities, fixed income, currency, hedge funds, real estate and infrastructure as well as asset allocation, risk management and fund administration services. Invested assets totaled CHF 559 billion on 31 December 2010, making Global Asset Management one of the larger global asset managers. We are among the largest hedge fund of funds and real estate investment managers in the world, one of the biggest mutual fund managers in Europe and the largest in Switzerland. The “Business structure” chart shows the investment, distribution and support structure of the business division.
Strategy
Global Asset Management is focused on delivering consistent long-term investment performance and capitalizing on the expected growth opportunities within the asset management industry. The industry outlook remains strong with three main drivers: the financial crisis has reduced the assets of both the retired and the working population, creating a pressing need for increased savings rates; emerging markets will continue to drive the growth of the mutual funds industry and retirement schemes in these markets; and as governments focus on reducing deficits, they will need to reduce support for benefits and pensions and will face increased pressure for privatizing infrastructure assets.
Business structure
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initiatives in the Americas and in Europe. Through increased collaboration with UBS’s wealth management businesses, we expect to benefit from their return to growth. We continue to capitalize on our established positions in emerging markets, notably in China, South Korea and the Middle East and will build our presence in Brazil following the completion of the acquisition of Link Investimentos.
Organizational structure
Our business division has main offices in London, Chicago, Hartford, Hong Kong, New York, Paris, Singapore, Sydney, Tokyo and Zurich, and employs around 3,500 personnel in 24 countries. Global Asset Management operates through UBS AG, or through its subsidiaries.
Significant recent acquisitions and business transfers
– | In February 2008, UBS acquired 100% of the Caisse Centrale de Réescompte (CCR) Group in France from Commerzbank. The asset management business of CCR currently operates as CCR Asset Management. | |
– | In August 2008, UBS sold its 24.9% stake in Adams Street Partners to its remaining shareholders. | |
– | In September 2009, UBS completed the sale of its Brazilian financial services business, UBS Pactual, including its asset management business, UBS Pactual Asset Management. | |
– | In December 2009, the real estate investment management business of Wealth Management & Swiss Bank was transferred to Global Asset Management. | |
– | In April 2010, UBS announced that it had agreed to acquire Link Investimentos, one of the largest independent broker-dealers in Brazil. | |
– | In October 2010, UBS increased its holding from 51.0% to 94.9% in UBS Real Estate Kapitalanlagegesellschaft mbH (KAG), a Global Asset Management joint venture with Siemens in Munich, Germany. We purchased our original stake in Siemens’ real estate business in January 2005. | |
– | In October 2010, investment management responsibility for the US hedge fund business was transferred from Wealth Management Americas to Global Asset Management’s alternative and quantitative investments business. This formed part of a new joint venture between the two business divisions, which aims to deliver attractive hedge fund and fund of hedge funds solutions to Wealth Management Americas’ clients. |
Invested assets by region1
Competitors
Our competitors include global firms with wide-ranging capabilities, such as Fidelity Investments, AllianceBernstein Investments, BlackRock, JP Morgan Asset Management, Deutsche Asset Management and Goldman Sachs Asset Management. Many of our other competitors are regional or local specialist niche players who focus mainly on one asset class, particularly in the real estate, hedge fund or infrastructure investment areas.
Products and services
The “Investment capabilities and services” chart illustrates our offering, which can be delivered in the form of segregated, pooled and advisory mandates, along with a range of more than 500 registered investment funds, exchange-traded funds and other investment vehicles across all major asset classes.
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Investment capabilities and services | ||||||||||||
Alternative and | Global | Global investment | ||||||||||
Equities | Fixed income | quantitative investments | real estate | solutions | Infrastructure | Fund services | ||||||
Core/value | Global | Single-manager hedge funds | Global | Global | Direct investment | Alternative funds | ||||||
Global | Country and regional | Country and regional | Country and regional | Investment funds | ||||||||
Country and regional | Sector specific | Multi-manager hedge funds | Income, core, value-added and opportunistic strategies | Asset allocation | ||||||||
Emerging markets | Emerging markets | Currency management | ||||||||||
Specialist | High yield | Quantitative | Multi-manager funds | Return and risk targeted | ||||||||
Long / short | Structured credit | Infrastructure fund of funds | Listed securities | Structured portfolios | ||||||||
HALO | Liquidity / short duration | Farmland | Risk management and advisory services | |||||||||
Growth | Indexed | Private equity fund of funds | ||||||||||
Global | ||||||||||||
Country and regional | Active commodities, multi-manager | |||||||||||
Structured | ||||||||||||
Structured alpha | ||||||||||||
Structured beta and indexing | ||||||||||||
– | Equitiesoffers a full spectrum of investment styles with varying risk and return objectives. It has three investment pillars with distinct strategies, including core / value (portfolios managed according to a price to intrinsic value philosophy), growth (portfolios of quality growing companies that we believe to be undervalued in the market) and structured equities (strategies that employ proprietary analytics and quantitative methods, including passive). | |
– | Fixed incomeoffers a diverse range of global, regional and local market-based investment strategies that cover a wide range of benchmarks. Its capabilities include “core” government and corporate bond strategies, complemented by extended strategies such as high-yield and emerging market debt. | |
– | Alternative and quantitative investmentshas two primary business lines – multi-manager (or fund of funds) and single manager. The former constructs portfolios of hedge funds and other alternative investments operated by third-party managers, allowing clients to have diversified exposure to a range of hedge funds, private equity and infrastructure strategies. O’Connor is a key provider of single manager global hedge funds. |
– | Global real estateactively manages real estate investments in Asia, Europe and the US, as well as across the major real estate sectors. Its capabilities are focused on core and value-added strategies but also include other strategies across the risk/return spectrum. It offers direct investment, fund of funds and real estate securities strategies. | |
– | Global investment solutionsoffers asset allocation, currency, manager research and risk management services. It manages a wide array of domestic, regional and global balanced portfolios, currency mandates, structured portfolios, multi-manager and absolute return strategies. Through its strategic investment advisory services, it supports clients in a wide range of investment-related functions, including investment policy setting, integrated asset liability solutions, multi-manager approaches, investment outsourcing and fiduciary management. | |
– | Infrastructureoriginates and manages specialist strategies that invest directly in infrastructure assets globally. | |
– | Fund services,the global fund administration business, provides professional services, including legal setup, reporting and accounting for retail and institutional investment funds, hedge funds and other alternative funds. |
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Clients
Global Asset Management has a client base located throughout the world. As of 31 December 2010, approximately 60% of invested assets originated from institutional clients (for example, corporate and public pension plans, governments and their central banks), with the remainder from wholesale clients (financial intermediaries, including UBS’s wealth management businesses, and third parties).
Investment performance 2010
Investment markets were volatile in 2010 yet two-thirds of our key actively-managed traditional strategies delivered strong results, further improving their long-term records. By contrast, some of our actively managed equity strategies faced the greatest head-winds as many equity markets, notably the US, became highly sentiment-driven. This created a difficult environment for our active managers focusing on fundamental analysis to seek to generate outperformance.
pany fundamentals than to broad economic factors. As a result, core / value large cap strategies such as US, pan-European, emerging markets, Asia (ex-Japan) and Australia underperformed their benchmarks and peers, although the margin of underperformance was much smaller than the margin of outperformance in 2009. Both UK value and Canadian large cap equity strategies also underperformed in 2010. Some large cap core / value strategies did extend their favorable performance into 2010, including global, global ex-US, a high alpha emerging markets strategy and global and European concentrated alpha strategies. Swiss large cap equities performed positively as well. Small cap strategies in the core / value pillar tended to perform extremely well, especially European, US and Swiss small cap strategies. Still, on a three-year basis, well over half of key core / value strategies were ahead of their benchmarks – most of them by a notable margin.
Invested assets by business line
Invested assets by channel
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Business performance
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Net management fees1 | 1,918 | 1,904 | 2,756 | 1 | ||||||||||||
Performance fees | 141 | 233 | 149 | (39 | ) | |||||||||||
Total operating income2 | 2,058 | 2,137 | 2,904 | (4 | ) | |||||||||||
Personnel expenses | 1,096 | 996 | 946 | 10 | ||||||||||||
General and administrative expenses | 400 | 387 | 462 | 3 | ||||||||||||
Services (to) / from other business divisions | (5 | ) | (74 | ) | 88 | 93 | ||||||||||
Depreciation of property and equipment | 43 | 36 | 44 | 19 | ||||||||||||
Impairment of goodwill | 0 | 340 | 0 | (100 | ) | |||||||||||
Amortization of intangible assets | 8 | 13 | 33 | (38 | ) | |||||||||||
Total operating expenses | 1,542 | 1,698 | 1,572 | (9 | ) | |||||||||||
Business division performance before tax | 516 | 438 | 1,333 | 18 | ||||||||||||
Key performance indicators3 | ||||||||||||||||
Pre-tax profit growth (%) | 17.8 | (67.1 | ) | (8.3 | ) | |||||||||||
Cost / income ratio (%) | 74.9 | 79.5 | 54.1 | |||||||||||||
Information by business line | ||||||||||||||||
Income | ||||||||||||||||
Traditional investments | 1,259 | �� | 1,319 | 1,859 | (5 | ) | ||||||||||
Alternative and quantitative investments | 325 | 405 | 430 | (20 | ) | |||||||||||
Global real estate | 258 | 185 | 277 | 39 | ||||||||||||
Infrastructure | 14 | 13 | 15 | 8 | ||||||||||||
Fund services | 202 | 214 | 322 | (6 | ) | |||||||||||
Total operating income | 2,058 | 2,137 | 2,904 | (4 | ) | |||||||||||
Gross margin on invested assets (bps) | ||||||||||||||||
Traditional investments | 25 | 26 | 29 | (4 | ) | |||||||||||
Alternative and quantitative investments | 88 | 102 | 69 | (14 | ) | |||||||||||
Global real estate | 68 | 47 | 63 | 45 | ||||||||||||
Infrastructure | 130 | 114 | 218 | 14 | ||||||||||||
Total gross margin | 36 | 37 | 39 | (3 | ) | |||||||||||
Net new money (CHF billion)4 | ||||||||||||||||
Traditional investments | 4.2 | (40.6 | ) | (88.9 | ) | |||||||||||
Alternative and quantitative investments | (3.2 | ) | (6.7 | ) | (14.8 | ) | ||||||||||
Global real estate | 0.6 | 1.4 | (0.3 | ) | ||||||||||||
Infrastructure | 0.1 | 0.1 | 1.0 | |||||||||||||
Total net new money | 1.8 | (45.8 | ) | (103.0 | ) | |||||||||||
Invested assets (CHF billion) | ||||||||||||||||
Traditional investments | 487 | 502 | 493 | (3 | ) | |||||||||||
Alternative and quantitative investments | 34 | 41 | 41 | (17 | ) | |||||||||||
Global real estate | 36 | 39 | 40 | (8 | ) | |||||||||||
Infrastructure | 1 | 1 | 1 | 0 | ||||||||||||
Total invested assets | 559 | 583 | 575 | (4 | ) | |||||||||||
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Business division reporting (continued) | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Assets under administration by fund services | ||||||||||||||||
Assets under administration (CHF billion)1 | 390 | 406 | 425 | (4 | ) | |||||||||||
Net new assets under administration (CHF billion)2 | (0.8 | ) | (59.7 | ) | (61.1 | ) | ||||||||||
Gross margin on assets under administration (bps) | 5 | 5 | 6 | 0 | ||||||||||||
Additional information | ||||||||||||||||
Average attributed equity (CHF billion)3 | 2.5 | 2.8 | 3.0 | (11 | ) | |||||||||||
Return on attributed equity (RoaE) (%) | 20.6 | 15.9 | 44.4 | |||||||||||||
BIS risk-weighted assets (CHF billion) | 3.5 | 4.1 | 8.5 | (15 | ) | |||||||||||
Return on BIS risk-weighted assets, gross (%) | 56.8 | 37.7 | 41.2 | |||||||||||||
Goodwill and intangible assets (CHF billion) | 1.5 | 1.7 | 2.2 | (12 | ) | |||||||||||
Personnel (full-time equivalents) | 3,481 | 3,471 | 3,914 | 0 | ||||||||||||
2010
Results
Pre-tax profit for 2010 was CHF 516 million compared with CHF 438 million in 2009. Excluding a net goodwill impairment charge of CHF 191 million related to the sale of UBS Pactual in 2009, the pre-tax profit for 2010 would have decreased by CHF 113 million compared with 2009.
Operating income
Operating expenses
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on allocation of additional Corporate Center costs to the business divisions in 2010 |
Development of invested assets
Net new money
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Invested assets
Gross margin on invested assets
Results by business line
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Fund services
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2009
Results
Pre-tax profit for full year 2009 was CHF 438 million compared with CHF 1,333 million in 2008. Excluding a net goodwill impairment charge in 2009 of CHF 191 million related to the sale of UBS Pactual, restructuring costs in 2009 of CHF 48 million and a gain of CHF 168 million from the sale of our non-controlling interest in Adams Street Partners in 2008, pre-tax profit would have decreased 42% to CHF 677 million.
Operating income
Operating expenses
Development of invested assets
Net new money
Invested assets
Gross margin on invested assets
Results by business line
Traditional investments
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billion compared with net outflows of CHF 110.1 billion in the prior year. Equities saw net outflows of CHF 8.2 billion compared with net outflows of CHF 31.5 billion. Fixed income saw net outflows of CHF 5.6 billion compared with net outflows of CHF 30.9 billion. Multi-asset saw net outflows of CHF 14.5 billion compared with net outflows of CHF 48.6 billion.
Alternative and quantitative investments
Global real estate
Infrastructure
Fund services
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Investment Bank
Investment Bank
The Investment Bank provides a broad range of products and services to corporate and institutional clients, sovereign and governmental bodies, financial intermediaries, alternative asset managers and private investors. Products and services offered include securities sales, trading and execution, capital raising, advisory services and investment research across all major capital markets.
Business
The Investment Bank has three distinct and aligned business areas:
– | equities | |
– | fixed income, currencies and commodities (FICC) | |
– | the investment banking department (IBD) |
Strategy
Our strategy is centered on an aligned and integrated client-centric business model built around flow and advice, and is supported by a disciplined risk control framework. Our business involves risk-taking to facilitate and intermediate client transactions. However, our trading strategies are subject to tight balance sheet and risk limits, which are controlled by our risk framework.
Organizational structure
The Investment Bank is comprised of the three business areas described above. Additionally, the global capital markets business is a joint venture between securities and IBD, which consists of two separate areas: equity capital markets and debt capital markets. Global leveraged finance is a joint venture between IBD and FICC and includes the global syndicated finance business. We employ approximately 17,000 personnel in over 30 countries.
Significant recent acquisitions, disposals and business transfers
– | the sale of our Brazilian financial services business, UBS Pactual in 2009; and | |
– | the agreement to acquire Link Investimentos, a Brazilian financial services firm, announced in 2010. |
Competitors
Our main competitors continue to be the major global investment banks, including Bank of America / Merrill Lynch, Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase and Morgan Stanley.
Products and services
Securities
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Equities
– | Cash equities provides clients with investment advisory, trade execution offerings and related consultancy services, together with comprehensive access to the primary markets, corporate management and subject matter expertise. We provide full-service trade execution for single stocks and portfolios, deliver capital commitment, block trading, small cap execution services, commission management services, and a full suite of advanced electronic trading strategies, platforms and analytical tools. |
– | Derivatives and equity-linked provide exchange-traded and structured or customized solutions to our clients. In addition to products with returns linked to equities or indices, we offer products linked to hedge funds, mutual funds, and real estate and commodity indices in a variety of formats such as over-the-counter, securitized, fund-wrapped and exchange-traded. We also offer a full range of convertible products, synthetic and structured products, and global access to primary and secondary markets. |
– | Prime services offers an integrated global prime brokerage business, including multi-asset class clearing and custody, capital consultancy, securities lending and equity swaps execution. The exchange-traded derivatives business is part of this product suite, including execution and clearing services and access to 70 global exchanges. These services are provided through a client-centric service model to hedge funds, banks, asset management and other financial services clients, including corporations, commodity traders, wealth management firms and aggregators. |
Fixed income, currencies and commodities
– | Macro consists of the foreign exchange, money market and interest rate sales and trading businesses, as well as cash and collateral trading. We provide a range of foreign exchange, precious metals, treasury, and liquidity management solutions to institutional and private clients via targeted intermediaries. Interest rate activities include standardized rate-driven products and services such as interest rate derivatives trading, underwriting and trading of government and agency securities. |
– | Credit sales and trading encompasses the origination, under-writing, trading and distribution of cash and synthetic products across the credit spectrum – bonds, derivatives, notes and loans. We are active across all major markets in secondary trading and market-making of flow and structured credit instruments, securitized products and loans, and are focused on providing tailored solutions for our clients. In partnership with IBD, we also provide capital markets debt financing and liability risk management solutions to corporates and institutions. |
– | Theemerging markets business offers investors in Central and Eastern Europe, the Middle East, Latin America and selected Asian countries access to international markets, and provides international investors with an opportunity to add exposure via our onshore presence in key locations. We also provide liquidity in the local markets across foreign exchange, credit, rates and structured products. |
Investment banking department
– | Theadvisory group assists in acquisitions and sale processes, and also advises on strategic reviews and corporate restructuring solutions. |
– | Global capital markets is a joint venture with the securities business. It offers financing and advisory services that cover all forms of capital raising as well as risk management solutions. It comprises the equity capital markets business, aligned with equities, whose products include initial public offerings, secondary offerings and equity-linked transactions; and the debt capital markets business, aligned with FICC, whose products include commercial paper, medium-term notes, senior debt, high-yield debt, subordinated debt and hybrid capital. All our financing products are provided alongside risk management solutions, which include derivatives, structured finance, ratings advisory services and liability management. |
– | Global leveraged finance provides event-driven (acquisition, leveraged buyout) loans, and bond and mezzanine leveraged finance to corporate customers and financial sponsors. |
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Business performance
Business division reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Investment banking | 2,414 | 2,466 | 2,880 | (2 | ) | |||||||||||
Advisory revenues | 846 | 858 | 1,609 | (1 | ) | |||||||||||
Capital market revenues | 1,994 | 2,514 | 1,844 | (21 | ) | |||||||||||
Equities | 1,020 | 1,609 | 977 | (37 | ) | |||||||||||
Fixed income, currencies and commodities | 974 | 904 | 866 | 8 | ||||||||||||
Other fee income and risk management | (426 | ) | (906 | ) | (573 | ) | 53 | |||||||||
Securities | 10,144 | 4,390 | (26,712 | ) | 131 | |||||||||||
Equities | 4,469 | 4,937 | 5,184 | (9 | ) | |||||||||||
Fixed income, currencies and commodities | 5,675 | (547 | ) | (31,895 | ) | |||||||||||
Total income | 12,558 | 6,856 | (23,832 | ) | 83 | |||||||||||
Credit loss (expense) / recovery1 | 0 | (1,698 | ) | (2,575 | ) | (100 | ) | |||||||||
Total operating income excluding own credit | 12,558 | 5,158 | (26,407 | ) | 143 | |||||||||||
Own credit2 | (548 | ) | (2,023 | ) | 2,032 | 73 | ||||||||||
Total operating income as reported | 12,010 | 3,135 | (24,375 | ) | 283 | |||||||||||
Personnel expenses | 6,743 | 5,568 | 5,182 | 21 | ||||||||||||
General and administrative expenses | 2,693 | 2,628 | 3,830 | 2 | ||||||||||||
Services (to) / from other business divisions | 64 | (147 | ) | 41 | ||||||||||||
Depreciation of property and equipment | 278 | 360 | 447 | (23 | ) | |||||||||||
Impairment of goodwill | 0 | 749 | 341 | (100 | ) | |||||||||||
Amortization of intangible assets | 34 | 59 | 83 | (42 | ) | |||||||||||
Total operating expenses | 9,813 | 9,216 | 9,925 | 6 | ||||||||||||
Business division performance before tax | 2,197 | (6,081 | ) | (34,300 | ) | |||||||||||
Key performance indicators3 | ||||||||||||||||
Pre-tax profit growth (%)4 | N/A | N/A | N/A | |||||||||||||
Cost / income ratio (%)5 | 81.7 | 190.7 | N/A | |||||||||||||
Return on attributed equity (RoaE) (%) | 8.7 | (24.1 | ) | (128.2 | ) | |||||||||||
Return on assets, gross (%) | 1.2 | 0.4 | (1.2 | ) | ||||||||||||
Average VaR (1-day, 95% confidence, 5 years of historical data) | 56 | 55 | 79 | 2 | ||||||||||||
Additional information | ||||||||||||||||
Total assets (CHF billion)6 | 966.9 | 992.0 | 1 680.3 | (3 | ) | |||||||||||
Average attributed equity (CHF billion)7 | 25.3 | 25.3 | 26.8 | 0 | ||||||||||||
BIS risk-weighted assets, gross (CHF billion) | 119.3 | 122.4 | 195.8 | (3 | ) | |||||||||||
Return on BIS risk-weighted assets, gross (%) | 9.7 | 3.1 | (10.0 | ) | ||||||||||||
Goodwill and intangible assets (CHF billion) | 3.2 | 3.5 | 4.6 | (9 | ) | |||||||||||
Compensation ratio (%)5 | 56.1 | 115.2 | N/A | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross (%) | 5.5 | 8.0 | 6.0 | |||||||||||||
Personnel (full-time equivalents) | 16,860 | 15,666 | 19,132 | 8 | ||||||||||||
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2010
Results
In 2010, we recorded a pre-tax profit of CHF 2,197 million compared with a pre-tax loss of CHF 6,081 million in 2009, primarily as a result of increased revenues in FICC, a significant reduction in net credit loss expenses and lower own credit losses on financial liabilities designated at fair value.
Operating income
Credit loss expense / recovery
è | Refer to the “Risk management and control” section of this report for more information on our risk management approach, method of credit risk measurement and the development of credit risk exposures |
Own credit
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information on own credit |
Operating income by business segment
Investment banking
974 million, up 8% from CHF 904 million, mainly due to a strong leverage capital market fees pool and market share gain.
Securities
Equities
Fixed income, currencies and commodities
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sion experienced across foreign exchange and credit markets, and uncertainties over European sovereign debt impacted liquidity and overall client volumes.
Operating expenses
brand. These costs were partially offset by a reduction in professional fees.
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on allocation of additional Corporate Center costs to the business divisions in 2010 |
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2009
Results
In 2009, we recorded a pre-tax loss of CHF 6,081 million compared with a pre-tax loss of CHF 34,300 million in 2008, primarily due to a reduction in losses on residual risk positions.
Operating income
Credit loss expense / recovery
è | Refer to the “Risk management and control” section of this report for more information on our risk management approach, method of credit risk measurement and the development of credit risk exposures |
Own credit
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information on own credit |
Operating income by business segment
Investment banking
Securities
Equities
Fixed income, currencies and commodities
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trades in the second and third quarters. Other areas which incurred losses in first quarter 2009 had a less material impact on the remainder of the year.
Operating expenses
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UBS business divisions and Corporate Center
Corporate Center
Corporate Center
The Corporate Center seeks to ensure that UBS operates as a coherent and effective whole, by providing and managing support and control functions for the business divisions and the Group, in the areas of risk, finance (including funding, capital and balance sheet management and management of non-trading risk), legal and compliance, information technology, human resources, real estate, procurement, communication and branding, corporate development, security and service centers.
Aims and objectives
The Corporate Center assists our business divisions through provision of Group-level control in the areas of finance, risk and legal and compliance, as well as through a global corporate shared services organization comprising support and logistics functions. We strive to maintain an appropriate balance between risk and return, and control our corporate governance processes, including compliance with relevant regulations. Each functional head in the Corporate Center has authority over all businesses in their area of responsibility, including the authority to issue Group-wide policies for that area.
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Corporate Center
Organizational structure
The Corporate Center consists of the control functions Group Finance, Group Risk, and Group General Counsel, in addition to the shared services functions.
Group Chief Financial Officer (Group CFO)
Group Chief Operating Officer (Group COO)
UBS. In addition, the Group COO supports the Group CEO in strategy development and key strategic issues. The Group COO also acts as the CEO of the Corporate Center, and oversees the business and strategic planning of the shared services.
Group Chief Risk Officer (Group CRO)
Group General Counsel (Group GC)
The Corporate Center allocates operating expenses to the business divisions according to service consumption.
In 2010, the Corporate Center had a cost base excluding variable compensation of just below CHF 7.5 billion which includes personnel costs of CHF 3.2 billion. The retained total operating expenses relate to Group governance functions and
Group items which cannot be allocated to specific business divisions.
As mentioned in the text describing the Corporate Center, the integration of the control and support functions has created a superior foundation for Group-wide efficiencies. In 2010, the Corporate Center was able to reduce its cost base excluding variable compensation before
allocation by CHF 605 million from the previous year, primarily as a result of lower personnel costs in IT and lower real estate-related costs.
The business divisions fully benefited from the reduced cost base through lower allocations.
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Treasury activities and other corporate items reporting
From 2010 onwards, almost all costs incurred by the Corporate Center related to shared services and control functions are allocated to the reportable segments, which directly and indirectly receive the value of the services, either based on a full cost recovery or on a periodically agreed flat fee.
è | Refer to “Note 1a 33) Segment reporting” and “Note 1b Allocation of additional Corporate Center costs to reportable segments” in the “Financial information” section of this report for more information |
in presentation of the Corporate Center information. It predominantly includes the results of treasury activities, e.g. from the management of structural foreign exchange risks and interest rate risks, residual operating expenses such as those associated with the functioning of the Group Executive Board and the Board of Directors, other costs related to organizational management, as well as a limited number of specifically defined items. These items include the valuation of UBS’s option to acquire the SNB StabFund’s equity and expenses such as capital taxes, as well as the difference between actually incurred Corporate Center costs and periodically agreed flat fees charged to the business divisions.
è | Refer to the discussion of “Net income from treasury activities and other” in the “UBS results” section of this report for more information on significant items and treasury-related income |
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Income | 1,135 | 394 | 998 | 188 | ||||||||||||
Credit loss (expense) / recovery | 0 | (5 | ) | 0 | (100 | ) | ||||||||||
Total operating income | 1,135 | 389 | 998 | 192 | ||||||||||||
Personnel expenses | 78 | 551 | 433 | (86 | ) | |||||||||||
General and administrative expenses | 168 | 199 | 353 | (16 | ) | |||||||||||
Services (to) / from other business divisions | 8 | 306 | (73 | ) | (97 | ) | ||||||||||
Depreciation of property and equipment | 89 | 193 | 265 | (54 | ) | |||||||||||
Amortization of intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 343 | 1,250 | 979 | (73 | ) | |||||||||||
Performance from continuing operations before tax | 793 | (860 | ) | 19 | ||||||||||||
Performance from discontinued operations before tax | 2 | (7 | ) | 198 | ||||||||||||
Performance before tax | 795 | (867 | ) | 217 | ||||||||||||
Additional information | ||||||||||||||||
BIS risk-weighted assets (CHF billion) | 8.9 | 8.5 | 8.8 | 5 | ||||||||||||
Personnel (full-time equivalents) | 194 | 1,624 | 3,097 | (88 | ) | |||||||||||
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Risk disclosures provided in line with the requirements of theInternational Financial Reporting Standard 7 (IFRS 7) Financial Instruments: Disclosures,and disclosures on capital required by theInternational Accounting Standard 1 (IAS 1) Financial Statements: Presentation form part of the financial statements audited by our 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 the financial statements of this report.
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Risk management and control
– | Disciplined risk management and control are essential to our success. In 2010, we continued to make significant investments in our infrastructure, processes, methodologies and people to ensure that our risk frameworks are sufficiently robust to support our risk appetite and business aspirations. | |||
– | Our risk appetite is established within our risk capacity as determined by a complementary set of firm-wide risk metrics, and is approved under Board of Directors (BoD) authority. It is administered and enforced by a detailed limit framework of portfolio and position limits at both UBS Group (Group) and business division levels. |
In 2010, increased risk taking was authorized for incremental trading activity, particularly to support client flow activity, and also for loan underwriting. Outside of these two areas, the core risk profile of the firm remained largely unchanged.
Reduction of our residual risk positions remained a priority in 2010. We further reduced our exposures to monoline insurers, student loan auction rate securities and certain restructured legacy leveraged finance positions, thereby decreasing our impaired loan portfolio.
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Treasury management
– | We continued to maintain focus on asset quality and building up capital by increasing our tier 1 capital by CHF 3.5 billion and to further strengthen and safeguard our liquidity position by raising over CHF 15 billion equivalent of public benchmark bonds. | |||
– | We have re-defined treasury interactions between business divisions and desks, improved tools and reporting, and introduced a new Group-wide funds transfer pricing process. |
Our total assets stood at CHF 1,317 billion on 31 December 2010, down CHF 23 billion (2%) from CHF 1,341 billion on 31 December 2009. The reduction occurred mainly in replacement values as market and currency movements drove down positive replacement values by CHF 21 billion (to CHF 401 billion). Our funded asset volume, which excludes positive replacement values, remained relatively unchanged, declining by CHF 3 billion in 2010.
In 2010, we continued to maintain a sound liquidity position and a diversified portfolio of funding sources, despite the potential uncertain impact of developments in financial regulatory reforms and the significant market volatility caused by uncertainties regarding the global macroeconomic environment, including certain European fiscal and sovereign debt concerns.
Over the course of 2010, as investors became gradually more risk tolerant, credit spreads and incremental funding costs for most global financial Institutions, including UBS, generally narrowed throughout the yield curve. We raised over CHF 15 billion equivalent of public benchmark bonds with an average maturity of 5.5 years. This exceeded the combined amount of public benchmark bonds and other long-term straight debt which matured, or was redeemed, during 2010. Our customer cash deposits in our wealth and asset management business divisions at year-end 2010 were stable compared with the prior year-end when adjusted for currency effects.
In response to the prolonged low yields, treasury supported and implemented measures to improve Wealth Management & Swiss Bank’s margin income through income-generating fixed receiver swap and bond portfolios.
Group Treasury continued to earn interest income on equity through its portfolio of interest rate products and managed the currency effects on equity and key ratios. Profits and losses in foreign currencies were hedged to protect shareholder value.
At year-end 2010, our BIS tier 1 ratio was 17.8%, and the BIS total capital ratio was 20.4%. While overall BIS risk-weighted assets declined by CHF 7.7 billion to CHF 198.9 billion, our BIS tier 1 capital increased by CHF 3.5 billion to CHF 35.3 billion. Our financial stability allowed us to call and redeem tier 1 and tier 2 instruments in 2010. Nevertheless, the BoD has decided to further bolster capital and has therefore not proposed any dividend for the financial year 2010.
We continued to use the equity attribution framework to guide our businesses in the allocation of resources to opportunities that are expected to provide the best risk-adjusted profitability contributions.
As of 31 December 2010, we had a total of 3.8 billion shares issued, an increase of 273 million shares compared with 31 December 2009. The conversion of CHF 13 billion in mandatory convertible notes on 5 March 2010 led to an issuance of 273 million shares from conditional capital.
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Risk management and control
Risk management and control
Disciplined risk management and control are essential to our success. In 2010 we continued to make significant investments in our infrastructure, processes, methodologies and people to ensure that our risk frameworks are sufficiently robust to support our risk appetite and business aspirations. Our risk appetite is established within our risk capacity as determined by a complementary set of firm-wide risk metrics, and is approved under Board of Directors authority. It is administered and enforced by a detailed limit framework of portfolio and position limits at both Group and business division levels. Each element of our risk control framework plays a key role in the decision-making processes within the firm. All material risks are reported to the respective authority holders at least monthly. In 2010, increased risk-taking was authorized for incremental trading activity, particularly to support client flow activity, and also for loan underwriting. Outside of these two areas, the core risk profile of the firm remained largely unchanged. Reduction of our residual risk positions remained a priority in 2010. We further reduced our exposures to monoline insurers, student loan auction rate securities and certain restructured legacy leveraged finance positions, thereby decreasing our impaired loan portfolio.
Summary of key developments in 2010
The most important developments that took place in 2010 with regard to risk management and control include:
– | On a net basis (new credit loss expenses minus recoveries), credit losses at the Group level were CHF 66 million, significantly down from CHF 1,832 million in 2009. Our Swiss and international loan portfolios were materially unchanged. | |
– | Our impaired loan portfolio decreased by CHF 2.7 billion, primarily due to sales of certain restructured legacy leveraged finance positions, without the incurrence of any meaningful incremental costs to the firm. | |
– | During the second half of the year, our market risk profile increased moderately from previously low levels (on both an absolute basis and a relative basis to our peers) in line with our previously communicated growth plans in the Investment Bank. This is reflected in the development of our value-at-risk (VaR) and market risk related risk-weighted assets (RWA). | |
– | After repurchasing USD 7.6 billion at par value of outstanding client holdings of student loan auction rate securities (ARS) in 2010, our remaining purchase commitment at the end of the year was immaterial with a par value of USD 63 million. Despite the material buy-backs, our inventory of student loan ARS decreased by net USD 0.6 billion to USD 9.8 billion, as a result of significant redemptions and sales in the secondary market. | |
– | We commuted several trades with monoline insurers, which along with an increase in the fair values or the remaining insured assets resulted in a reduction of our net exposure to monoline insurers after credit valuation adjustments (CVA) to USD 1.6 billion. Based on fair values, only 2% of our remaining portfolio of assets hedged with monoline insurers related to US residential mortgage-backed securities collateralized debt obligations (RMBS CDO). Approximately 73% of the remaining assets were collateralized loan obligations (CLO), the vast majority of which were rated AA and above. |
– | Our sovereign exposures are subject to limits and are actively managed under an established country risk control framework. As a result, sovereign exposures are commensurate with the rating of each country and the size of each economy. Sovereign exposures of industrialized European countries rated AA and below were materially reduced on a gross and net basis during the year. In addition, we do not have material sovereign risk exposures in the Middle East and North African region. | |
– | We have made further significant enhancements to our firm-wide risk measures and tools. Our stress testing framework has continued to evolve, including the development of new scenarios to capture our risk exposure to extreme market events and macroeconomic developments. | |
– | Since the start of 2009, the Swiss Financial Market Supervisory Authority (FINMA) has conducted regular stress tests on the two large Swiss banks. In July 2010, FINMA carried out a stress test which assumed a severe global recession and very sharp, specific shocks for certain European countries. FINMA’s analysis showed that UBS “would have a tier 1 ratio of at least 8% under the stress events tested.” | |
– | In anticipation of the enhanced Basel II framework, we further enhanced our risk appetite framework by making it more comprehensive and relevant to the current financial environment. New measures supplementing the current market risk capital have been introduced, enabling compliance with the enhanced Basel II requirements. | |
– | Over the last two years, we took comprehensive steps to help ensure that our compensation plans and processes were redesigned and implemented in such a way to ensure appropriate risk-taking. Risk awareness, assessment and management were integrated into our compensation framework. They now form a basis for designing our compensation plans, determining the overall bonus pool, allocating individual bonuses, and identifying and monitoring performance and compensation of key risk takers and controllers across the organization. |
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– | We made significant investments in our risk IT platforms during 2010, particularly in the Investment Bank, where we are designing and building a new platform for risk aggregation. Key improvements being introduced include enhanced data quality and detail, automated reporting with ad-hoc analysis and drilldown capability, and re-engineered analytics for more accurate VaR calculations. Work in this area is ongoing. | |||||
– | In order to standardize methodology, processes and tools for credit monitoring across our wealth management locations, we began global deployment of a new monitoring solution for this business. Additionally, in our Global Asset Management business, we commenced deployment of a third-party risk measurement application, which will facilitate improved reporting and provide our portfolio managers with enhanced risk management models. | |||||
è | Refer to the “Credit risk”, “Market risk”, “Operational risk”, “Risk concentrations” and “Liquidity and funding management” sections of this report for more information | |||||
è | Refer to the “Compensation” section of this report for more information on our compensation practices | |||||
Risk management and control principles | ||||||
We have five key principles that support the firm in achieving an appropriate balance between risk and return: | ||||||
– | Protection of financial strength by controlling our overall risk exposures and assessing potential risk concentrations at position and portfolio levels, as well as across all risk types and business divisions. | |||||
– | Reputation protection, which depends on a sound risk culture characterized by a holistic and integrated view of risk, performance and reward, including effectively managing and controlling risks. Our risk culture demands that all employees make protecting the firm’s reputation a priority. | |||||
– | Management is accountable for all risks in their business, and is responsible for the continuous and active management of their respective risk exposures to ensure that risk and return are balanced. | |||||
– | Independent control functions oversee the risk-taking activities of the business, the effectiveness of risk management in the business and the mitigation of operational risks. | |||||
– | Disclosure of risk to provide comprehensive and transparent reporting to senior management, the Board of Directors (BoD), shareholders, regulators, rating agencies and other stakeholders. | |||||
Our risk management and control principles are implemented through a risk management and control framework. This framework comprises qualitative elements such as policies and authorities, and quantitative components including risk measurement methodologies and risk limits. | ||||||
In addition, the framework is dynamic and continuously adapted as our businesses and the market environment evolve. It includes clearly defined processes to deal with new business initiatives as well as large and complex transactions. |
Risk management and control responsibilities | ||||||
Key roles and responsibilities for risk management and control are: | ||||||
– | The BoD is responsible for determining the firm’s risk principles, risk appetite and major portfolio limits, including their allocation to the business divisions. The BoD is supported by a BoD Risk Committee (RC), which monitors and oversees the firm’s risk profile and the implementation of the risk framework as established by the BoD. The BoD RC also assesses and approves the firm’s key risk measurement methodologies. | |||||
– | The Group Executive Board (GEB) implements the risk framework, controls the firm’s risk profile and approves all major risk policies. | |||||
– | The Group Chief Executive Officer (Group CEO) is responsible for the results of the firm, has risk authority over transactions, positions and exposures, and also allocates portfolio limits approved by the BoD within the business divisions. | |||||
– | The divisional CEOs are accountable for the results of their business divisions including actively managing their risk exposures, and ensuring that risks and returns are balanced. | |||||
– | The Group Chief Risk Officer (Group CRO) reports directly to the Group CEO and has functional and management authority over risk control throughout the firm. Risk Control provides independent oversight of risk and is responsible for implementing the risk control processes for credit, country, market, investment and operational risks. This includes establishing methodologies to measure and assess risk, setting risk limits and developing and operating an appropriate risk control infrastructure. The risk control process is supported by a framework of policies and authorities, which are delegated to Risk Control Officers, corresponding to their experience and scope of responsibilities. | |||||
– | The Group Chief Financial Officer (Group CFO) is responsible for ensuring that disclosure of our financial performance is clear and transparent and meets regulatory requirements and corporate governance standards. The Group CFO is also responsible for implementing the risk management and control frameworks for capital management, liquidity, funding and tax. | |||||
– | The Group General Counsel (Group GC) is responsible for implementing the firm’s risk management and control principles for legal and compliance matters. | |||||
Risk categories | ||||||
The risks faced by our businesses can be broken down into three different categories: primary risks, consequential risks and business risks. Primary and consequential risks result from our business activities and are subject to independent risk control. Primary risks consist of credit risk, country risk, market risk (including issuer risk) and investment risk. Consequential risks consist of operational risk, which includes legal, compliance and tax risks, and liquidity and funding risks. Definitions of primary and consequential risks are provided below: |
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– | Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its contractual obligations. | |||||
– | Country risk: the risk of loss resulting from country-specific events. It includes transfer risk, whereby a country’s authorities prevent or restrict the payment of an obligation, as well as systemic risk events arising from country-specific political or macroeconomic developments. | |||||
– | Market risk and investment risks: the risk of loss resulting from changes in market variables, whether to our trading positions or financial investments. | |||||
– | Operational risk: the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. This includes risks related to legal, compliance and tax matters. | |||||
– | Liquidity and funding risks: the risk that we might be unable to either meet our payment obligations when due or to borrow funds in the market at an acceptable price to fund actual or proposed commitments. | |||||
Finally, business risks arise from the commercial, strategic and economic risks inherent in our business activities. It is management’s responsibility to manage these risks. | ||||||
è | Refer to the “Credit risk”, “Market risk”, “Operational risk” and “Liquidity and funding management” sections of this report for a description of the control frameworks for these risk categories | |||||
Risk measurement | ||||||
A variety of methodologies and measurements are applied to quantify the risks of our portfolios and risk concentrations. Risks that are not properly reflected by standard measures are subject to additional controls, which may include pre-approval of transactions and specific restrictions. Models to quantify risk are generally developed by dedicated units within the firm-wide and business division-facing control functions. We require that valuations and risk models which could impact the firm’s books and records be independently verified and subjected to ongoing monitoring and control by the Group CRO and Group CFO organizations. | ||||||
Statistical loss and stress loss | ||||||
We assess potential future losses using two complementary types of risk measures: statistical loss and stress loss. | ||||||
Statistical loss | ||||||
Statistical loss measures include VaR, expected loss (EL) and earnings-at-risk (EaR). VaR estimates the losses which could potentially be realized over a set time period at an established level of confidence. EL is used to measure the average annual costs that are expected to arise from our credit portfolios and from operational risks. EaR is comprised of core statistical measures overlaid with management judgment, and measures the potential shortfall |
è | Refer to the “Credit risk”, “Market risk” and “Operational risk” sections of this report for a description of our key statistical loss measures |
Stress loss
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defining stress scenarios or the way they are applied to a firm’s positions. Consequently, comparisons of stress results between firms can be misleading and, therefore, like most of our peers, we do not publish quantitative stress test results.
è | Refer to the “Credit risk” and “Market risk” sections of this report for a description of our key stress loss measures |
Group risk appetite framework
Our risk appetite framework establishes risk appetite objectives in respect of earnings and capital levels that we seek to maintain, even after experiencing severe losses over a defined time horizon. In order to monitor our risk profile against our risk appetite, we use our two complementary firm-wide risk measurement frameworks: EaR (together with its extension, capital-at–risk (CaR)) and CST. Both frameworks capture risks across all of our business divisions and from all major risk categories, including primary risks, consequential risks and business risks. These measures are significant components of our risk control, capital management and business planning processes, which are described in more detail below.
– | EaR is measured as the potential shortfall in earnings at a 95% confidence level and is evaluated over both three-month and one-year periods. | |
– | CaR extends EaR to consider the impact on BIS tier 1 capital of a more severe earnings shortfall and is measured at confidence levels from 95% to 99.9%. | |
– | CST supplements EaR and CaR. As described in the “Stress loss” section above, our firm-wide stress tests evaluate the impact across our risk portfolios, and thereby on our earnings and capital, based on specified macroeconomic stress scenarios. |
Our risk appetite is approved by the BoD. Risk appetite is based on our risk capacity, which is in turn based on our capital and forecasted earnings resources. Our overall risk appetite is set as an upper limit covering the aggregate risk exposure for each risk appetite objective, taking into account inherent limitations in the precision of risk exposure measures that focus on extreme market and economic events. Comparison of the firm’s risk exposure with our risk capacity under prevailing operating conditions as well as prospective business plans serves as an input to the risk limit framework. This comparison is also a key tool to support management decisions on potential adjustments to the risk profile of our firm.
è | Refer to the “Credit risk”, “Market risk” and “Risk concentration” sections of this report for more information on our risk exposures |
Risk disclosures
The measures of risk exposure that we use may differ depending on the purposes for which exposures are calculated: financial accounting under International Financial Reporting Standards (IFRS), determination of our required regulatory capital or our internal management. The exposures detailed in the “Credit risk” and “Market risk” sections are typically based on our internal management view of risk exposure.
è | Refer to the “Basel II Pillar 3” section of this report for further information on the exposures we use in the determination of our required regulatory capital |
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Credit risk
Credit risk is the risk of loss resulting from the failure of 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, which cause failures in the settlement process, for example, in foreign exchange transactions where we have fulfilled our 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 a counterparty or issuer of a security is based or where it has substantial assets (country risk). | ||
Sources of credit risk | ||
Credit risk arises from traditional banking products such as loans, loan commitments and guarantees (for example, letters of credit). Credit risk also arises from traded products including over-the-counter (OTC) derivative transactions, exchange-traded derivatives, as well as securities financing transactions such as repurchase agreements (repos and reverse repos) and securities borrowing and lending transactions. The risk control processes applied to these products are generally the same, although the accounting treatment may vary as products can be carried at amortized cost (loans and receivables), at fair value through profit and loss (instruments held for trading, instruments designated at fair value) or at fair value through other comprehensive income (available-for-sale instruments) depending on the product type and the nature of the exposure. A form of credit risk also arises on securities and other obligations in tradable form, as their fair values are affected by changing expectations regarding the probability of issuers failing to meet these obligations or when actual failures occur. Where these securities and obligations are held in connection with a trading activity, we view the risk as a market risk. Debt securities not held in connection with a trading activity are reported as debt investments at the end of this section. Many of the business activities of Wealth Management & Swiss Bank and the Investment Bank expose us to credit risk, while credit risk exposures from Wealth Management Americas and Global Asset Management are less material. | ||
Credit risk control | ||
Limits and controls | ||
Limits are established for individual counterparties and their counterparty groups covering banking and traded products, as well as settlement amounts. These limits apply not only to the current outstanding amount, but also to contingent commitments and the potential future exposure of traded products. Credit engagements may not be entered into without the appropriate approvals and adherence to limits. |
In the Investment Bank, a distinction is made between exposures intended to be held to maturity (take-and-hold exposures) and those which are intended to be held for a short term, pending distribution or risk transfer (temporary exposures). Credit risk concentrations can arise if clients are engaged in similar activities, are located in the same geographical region or have comparable economic characteristics, for example, if their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. To avoid credit risk concentrations, we establish limits and/or operational controls to constrain risk concentrations at portfolio and sub-portfolio levels with regard to sector exposures, country risk and specific product exposures. | ||
Risk mitigation | ||
We actively manage the credit risk in our portfolios by taking collateral against exposures and utilizing credit hedging. In Wealth Management & Swiss Bank, the majority of loans are extended on a secured basis. For real estate financing, a mortgage over the property is taken to secure the claim. Commercial loans may also be secured by mortgages on business premises or other real estate. We apply measures to evaluate collateral and determine maximum loan-to-value ratios including an assessment of income cover. Lombard loans are made against the pledge of eligible marketable securities or cash. The Investment Bank also takes collateral in the form of marketable securities and cash in its OTC derivatives and securities financing businesses. Discounts (haircuts) are generally applied to the market value of the collateral reflecting the quality, liquidity and value volatility of the underlying collateral. Exposure and collateral values are continuously monitored, and margin calls or close-out procedures are enforced when the market value of collateral falls below a predefined trigger level. Concentrations within individual collateral portfolios and across clients are also monitored where relevant and may affect the haircut applied to a specific collateral pool. Our OTC derivatives trading is generally conducted under bilateral International Swaps and Derivatives Association (ISDA), or ISDA-equivalent, master trading agreements, which allow for the close-out and netting of all transactions in the event of default. We also have two-way collateral agreements with major market participants under which either party can be required to provide collateral in the form of cash or marketable securities when the exposure exceeds a predefined level. Our OTC derivatives activity with lower-rated counterparties is typically conducted under one-way collateral agreements where only the counterparty is required to provide us with collateral. For certain counterparties, like hedge funds, we may also use two-way collateral agreements. We have clearly defined processes for entering into netting and collateral |
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agreements, including the requirement to have a legal opinion on the enforceability of contracts in relevant jurisdictions in the case of insolvency. | ||||
Primarily in the Investment Bank, we actively manage the credit risk of our portfolios with the aim of reducing its concentrations toward specific counterparties, sectors or portfolios. Hedging measures include single-name credit default swaps (CDS), index CDS, credit-linked notes and total return swaps. Single-name CDS are generally executed under bilateral netting and collateral agreements with high-grade market counterparties. We observe strict standards for recognizing credit hedges; for example, we usually do not recognize credit risk mitigants such as proxy hedges (credit protection on a correlated but different name) or index CDS for the purposes of monitoring exposures against limits. Buying credit protection creates credit exposure against the hedge provider. We monitor our exposures to credit protection providers and the effectiveness of credit hedges as part of our overall credit exposures to the relevant counterparties. Where there is significant correlation between a counterparty and the hedge provider (so-called wrong-way risk), our policy is to discourage such activity, but in any event, not to recognize any hedge benefit in credit risk measures. | ||||
è | Refer to the “Basel II Pillar 3” section of this report for more information on credit derivatives | |||
Credit risk measurement | ||||
We have developed tools and models to measure credit risk. Exposures to individual counterparties are measured based on three generally accepted parameters: probability of default, exposure at default and loss given default. These parameters are the basis for the majority of our internal measures of credit risk, and are key inputs for the regulatory capital calculation under the advanced internal ratings-based (advanced IRB) approach of the framework governing international convergence of capital measurement known as Basel II. We also use models to derive the portfolio credit risk measures of expected loss, statistical loss and stress loss. | ||||
Probability of default | ||||
The probability of default (PD) is an estimate of the likelihood of a counterparty defaulting on its contractual obligations. This probability is assessed using rating tools tailored to the various categories of counterparties. These categories are also calibrated to our internal credit rating scale (masterscale) designed to ensure a consistent assessment of default probabilities across counterparties. We regularly assess the performance of our rating tools and adjust our model parameters as necessary. In addition to using ratings for credit risk measurement, we use them as an important input to determine credit risk approval authorities. | ||||
In the Investment Bank, rating tools are applied to broad segments including banks, sovereigns, corporates, funds, hedge funds and commercial real estate. We determine our choice of the relevant assessment criteria, for example, financial ratios and |
qualitative factors, for the rating tools on the basis of various statistical analyses, externally available information and expert judgment. | ||||||||
Within our retail and corporate banking business in Switzerland, we rate our business and corporate clients in the small-to-medium enterprise (SME) segment using statistically developed scorecards. The underlying data used in our scorecards is predominantly based on a combination of clients’ financial information, qualitative criteria and credit loss history over several years. To rate our large corporate clients domiciled in Switzerland, Wealth Management & Swiss Bank uses templates established for this segment by our Investment Bank. We assess the probability of default from loans secured on owner-occupied or investment properties with a model that takes loan-to-value ratios and debt service capacity of the obligor into account. We rate lombard loan exposures by means of a model simulating potential changes in the value of the collateral, and the probability that it may become lower than the loan amount. | ||||||||
Our masterscale expresses default probabilities that we determine through our various rating tools by means of distinct classes, whereby each class incorporates a range of default probabilities. Counterparties migrate between rating classes as our assessment of their probability of default changes. | ||||||||
The ratings of the major credit rating agencies, and their equivalents on our masterscale, are shown in the “UBS internal rating scale and mapping of external ratings” table. The mapping is based on the long-term average of one-year default rates that we observed for each external rating grade. Observed defaults by rating agencies may vary through economic cycles, and we do not necessarily expect the actual number of defaults in our equivalent rating band to equal the rating agencies average in any given period. We periodically assess the long-term average default rates of credit rating agencies’ grades, and we adjust their mapping to our masterscale as necessary to reflect any material changes. | ||||||||
UBS internal rating scale and mapping of external ratings | ||||||||
UBS | ||||||||
internal | Moody's Investor | Standard & Poor's | ||||||
rating | Description | Services equivalent | equivalent | |||||
0 and 1 | Investment grade | Aaa | AAA | |||||
2 | Aa1 to Aa3 | AA+ to AA– | ||||||
3 | A1 to A3 | A+ to A– | ||||||
4 | Baa1 to Baa2 | BBB+ to BBB | ||||||
5 | Baa3 | BBB– | ||||||
6 | Sub-investment grade | Ba1 | BB+ | |||||
7 | Ba2 | BB | ||||||
8 | Ba2 | BB | ||||||
9 | Ba3 | BB– | ||||||
10 | B1 | B+ | ||||||
11 | B2 | B | ||||||
12 | B3 | B– | ||||||
13 | Caa to C | CCC to C | ||||||
14 | Defaulted | D | ||||||
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Risk management and control
Exposure at default
Loss given default
Expected loss
è | Refer to the discussion on “Impairment and default – distressed claims” below for more information |
Statistical and stress loss
è | Refer to the discussion on stress loss in this section for more information |
Composition of credit risk – UBS Group
The exposures detailed in the tables in this section are based on our management view of credit risk.
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è | Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information on the reclassification of cash collateral from derivative transactions and prime brokerage receivables and payables | |
è | Refer to the “Basel II Pillar 3” section of this report for more information on the credit exposures used in the determination of our required regulatory capital and additional information on credit derivatives | |
è | Refer to “Note 23 Derivative instruments and hedge accounting“ and “Note 29c Measurement categories of financial assets and liabilities“ in the “Financial information” section of this report for further information on IFRS required disclosures on derivatives and credit risk |
Credit exposure by business division | ||||||||||||||||||||||||||||||||
Wealth Management & | Wealth Management | |||||||||||||||||||||||||||||||
Swiss Bank | Americas | Investment Bank | Other1 | UBS | ||||||||||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||||||||||||
Balances with central banks | 10,727 | 8,589 | 13,732 | 9,525 | 24,459 | 18,114 | ||||||||||||||||||||||||||
Due from banks | 2,678 | 2,679 | 2,157 | 1,074 | 13,924 | 13,959 | 315 | 282 | 19,075 | 17,993 | ||||||||||||||||||||||
Loans | 201,942 | 197,178 | 22,472 | 21,496 | 17,679 | 2 | 25,351 | 2 | 158 | 86 | 242,250 | 2 | 244,111 | 2 | ||||||||||||||||||
Guarantees | 10,505 | 11,908 | 370 | 385 | 4,820 | 4,881 | 123 | 141 | 15,819 | 17,315 | ||||||||||||||||||||||
Loan commitments | 7,276 | 7,236 | 1,066 | 498 | 46,216 | 49,356 | 54,558 | 57,090 | ||||||||||||||||||||||||
Banking products3 | 233,128 | 227,590 | 26,065 | 23,453 | 96,371 | 4 | 103,072 | 4 | 596 | 509 | 356,161 | 354,624 | ||||||||||||||||||||
OTC derivatives | 4,048 | 3,583 | 56 | 44 | 47,452 | 58,121 | 284 | 947 | 51,840 | 62,695 | ||||||||||||||||||||||
Exchange-traded derivatives | 978 | 1,059 | 1,114 | 611 | 14,599 | 14,933 | 16,691 | 16,603 | ||||||||||||||||||||||||
Securities financing transactions | 156 | 185 | 20,279 | 16,939 | 20,435 | 17,124 | ||||||||||||||||||||||||||
Traded products | 5,026 | 4,642 | 1,326 | 840 | 82,330 | 89,993 | 284 | 947 | 88,966 | 96,422 | ||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Total credit exposure | 238,155 | 232,232 | 27,391 | 24,293 | 178,701 | 193,065 | 880 | 1,456 | 445,127 | 451,046 | ||||||||||||||||||||||
Total credit exposure, net5 | 236,488 | 230,169 | 27,389 | 24,289 | 143,364 | 141,838 | 876 | 1,451 | 408,117 | 397,747 | ||||||||||||||||||||||
1Includes Global Asset Management, treasury activities and other corporate items. 2 Does not include reclassified and acquired securities. 3 Excludes loans designated at fair value. 4 IFRS Banking products including securities and internal risk adjustments were CHF 119,177 million (31.12.09: CHF 128,919 million). 5 Net of allowances, provisions, CVA and hedges. |
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Composition of credit risk – business divisions
Wealth Management & Swiss Bank
The total gross banking products exposure of Wealth Management & Swiss Bank was CHF 233 billion on 31 December 2010, compared with CHF 228 billion on 31 December 2009. The high quality of this portfolio is illustrated by the rating and loss given default distributions shown in the “Wealth Management & Swiss Bank: distribution of net banking products exposure across UBS internal rating and loss given default buckets” table. Approximately 60% of Wealth Management & Swiss Bank’s banking product portfolio is rated investment grade, with over 80% of it categorized in the lowest LGD bucket of 0–25%.
compared with CHF 197 billion on 31 December 2009, mainly in our Asia Pacific region, with exposure increases in local currencies cushioned by the strengthening of the Swiss franc. Of Wealth Management & Swiss Bank’s loan portfolio, 92% was secured by collateral, of which CHF 144 billion was secured by real estate and CHF 43 billion by marketable securities. The majority of the real estate exposure is secured by a portfolio of Swiss residential property (single and multi-family homes), which have typically exhibited a low risk profile.
Wealth Management & Swiss Bank: distribution of net banking products exposure across UBS internal rating and loss given default buckets
CHF million, except where indicated | 31.12.10 | 31.12.09 | ||||||||||||||||||||||||||||||||||||||
Moody’s | LGD buckets | |||||||||||||||||||||||||||||||||||||||
Investor | Standard & | Weighted | Weighted | |||||||||||||||||||||||||||||||||||||
Services | Poor’s | average | average | |||||||||||||||||||||||||||||||||||||
UBS internal rating | equivalent | equivalent | Exposure | 0–25% | 26–50% | 51–75% | 76–100% | LGD (%) | Exposure | LGD (%) | ||||||||||||||||||||||||||||||
Aaa to | AAA to | |||||||||||||||||||||||||||||||||||||||
Investment grade | Baa3 | BBB− | 140,194 | 113,509 | 25,961 | 712 | 11 | 16 | 134,626 | 18 | ||||||||||||||||||||||||||||||
Sub-investment grade | 89,888 | 80,398 | 7,378 | 1,118 | 995 | 12 | 89,434 | 15 | ||||||||||||||||||||||||||||||||
of which: 6–9 | Ba1 to Ba3 | BB+ to BB− | 86,867 | 78,027 | 6,761 | 1,084 | 995 | 11 | 85,864 | 15 | ||||||||||||||||||||||||||||||
of which: 10–12 | B1 to B3 | B+ to B− | 2,967 | 2,333 | 601 | 33 | 17 | 3,494 | 20 | |||||||||||||||||||||||||||||||
of which: 13 | Caa & lower | CCC & lower | 55 | 38 | 16 | 1 | 20 | 76 | 21 | |||||||||||||||||||||||||||||||
Total non-defaulted | 230,082 | 193,907 | 33,339 | 1,830 | 1,006 | 14 | 224,061 | 17 | ||||||||||||||||||||||||||||||||
Defaulted1 | 1,379 | 1,465 | ||||||||||||||||||||||||||||||||||||||
Net banking products exposure2 | 231,461 | 225,526 | ||||||||||||||||||||||||||||||||||||||
Wealth Management & Swiss Bank: composition of loan portfolio, gross | ||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||||||||||
Secured by residential property | 122,815 | 60.8 | % | 122,106 | 61.9 | % | ||||||||||
Secured by commercial / industrial property | 20,766 | 10.3 | % | 20,378 | 10.3 | % | ||||||||||
Secured by securities | 42,993 | 21.3 | % | 39,136 | 19.8 | % | ||||||||||
Unsecured loans | 15,367 | 7.6 | % | 15,558 | 7.9 | % | ||||||||||
Total loans, gross | 201,942 | 100.0 | % | 197,178 | 100.0 | % | ||||||||||
Total loans, net of allowances and credit hedges | 201,012 | 196,064 | ||||||||||||||
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Wealth Management Americas
Wealth Management & Swiss Bank: unsecured loans by industry sector
CHF million | 31.12.10 | 31.12.09 | ||||
Construction | 252 | 263 | ||||
Financial institutions | 642 | 895 | ||||
Hotels and restaurants | 59 | 74 | ||||
Manufacturing | 2,172 | 2,599 | ||||
Private households | 1,842 | 1,984 | ||||
Public authorities | 4,895 | 4,176 | ||||
Real estate and rentals | 889 | 778 | ||||
Retail and wholesale | 1,551 | 1,778 | ||||
Services | 2,776 | 2,768 | ||||
Other | 288 | 243 | ||||
Total | 15,367 | 15,558 | ||||
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Investment Bank
Investment Bank: banking products and OTC derivatives exposure1
Banking products | OTC derivatives | |||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||
Total exposure, before deduction of allowances and provisions, CVA and hedges | 70,885 | 2 | 82,084 | 2 | 47,452 | 58,121 | ||||||
less: allowances, provisions and CVA | (124 | ) | (1,520 | ) | (2,224 | ) | (4,475 | ) | ||||
less: credit protection bought (credit default swaps, notional) | (29,154 | ) | (39,314 | ) | (3,683 | ) | (5,741 | ) | ||||
Net exposure after allowances and provisions, CVA and hedges | 41,608 | 41,250 | 41,546 | 47,905 | ||||||||
Investment Bank: distribution of net banking products exposure to corporates and other
non-banks, across UBS internal rating and loss given default buckets
CHF million, except where indicated | 31.12.10 | 31.12.09 | ||||||||||||||||||||||
LGD buckets | Weighted | Weighted | ||||||||||||||||||||||
Moody's Investor | Standard & Poor’s | average | average | |||||||||||||||||||||
UBS internal rating | Services equivalent | equivalent | Exposure | 0 – 25% | 26 – 50% | 51 – 75% | 76 – 100% | LGD (%) | Exposure | LGD (%) | ||||||||||||||
Investment grade | Aaa to Baa3 | AAA to BBB– | 25,603 | 7,755 | 11,417 | 2,636 | 3,795 | 43 | 26,273 | 39 | ||||||||||||||
Sub-investment grade | 16,005 | 6,690 | 6,619 | 2,181 | 515 | 33 | 14,977 | 34 | ||||||||||||||||
of which: 6 – 9 | Ba1 to Ba3 | BB+ to BB– | 6,812 | 2,322 | 3,555 | 824 | 111 | 36 | 6,896 | 36 | ||||||||||||||
of which: 10 – 12 | B1 to B3 | B+ to B– | 8,285 | 3,880 | 2,826 | 1,258 | 321 | 31 | 5,338 | 27 | ||||||||||||||
of which: 13 & defaulted | Caa & lower | CCC & lower | 908 | 488 | 238 | 100 | 83 | 35 | 2,743 | 42 | ||||||||||||||
Net banking products exposure to corporates and other non-banks, after application of credit hedges | 41,608 | 14,444 | 18,036 | 4,817 | 4,310 | 39 | 41,250 | 37 | ||||||||||||||||
Investment Bank: distribution of net OTC derivatives exposure, across UBS internal rating and loss given default buckets | ||||||||||||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | ||||||||||||||||||||||
LGD buckets | Weighted | Weighted | ||||||||||||||||||||||
Moody's Investor | Standard & Poor’s | average | average | |||||||||||||||||||||
UBS internal rating | Services equivalent | equivalent | Exposure | 0 – 25% | 26 – 50% | 51 – 75% | 76 – 100% | LGD (%) | Exposure | LGD (%) | ||||||||||||||
Investment grade | Aaa to Baa3 | AAA to BBB– | 37,552 | 8,877 | 24,640 | 2,591 | 1,444 | 36 | 42,883 | 34 | ||||||||||||||
Sub-investment grade | 3,994 | 607 | 1,709 | 133 | 1,545 | 54 | 5,022 | 48 | ||||||||||||||||
of which: 6 – 9 | Ba1 to Ba3 | BB+ to BB– | 2,302 | 386 | 1,005 | 120 | 791 | 55 | 2,382 | 62 | ||||||||||||||
of which: 10 –12 | B1 to B3 | B+ to B– | 889 | 41 | 673 | 9 | 166 | 53 | 1,066 | 22 | ||||||||||||||
of which: 13 & defaulted | Caa & lower | CCC & lower | 803 | 180 | 31 | 4 | 588 | 70 | 1,574 | 60 | ||||||||||||||
Net OTC derivatives exposure, after application of credit hedges | 41,546 | 9,484 | 26,349 | 2,724 | 2,989 | 39 | 47,905 | 37 | ||||||||||||||||
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industry sectors. Based on our assessment, the vast majority of the sub-investment grade exposures in this portfolio had an LGD of 0–50% on 31 December 2010.
è | Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information on reclassified securities including carrying values of student loan auction rate securities, monoline protected assets and US commercial real estate positions |
Loan to BlackRock fund
specified declines in the aggregate notional balance of the portfolio, and we may assume control of the underlying assets in the event of a specified further decline in the notional balance.
Investment Bank: net banking products and OTC derivatives exposure by industry sector1 | ||||||||||||||||
Banking products | OTC derivatives | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||
Banks | 2,608 | 3,655 | 13,409 | 9,982 | ||||||||||||
Chemicals | 1,046 | 1,347 | 179 | 267 | ||||||||||||
Electricity, gas, water supply | 2,380 | 2,120 | 155 | 150 | ||||||||||||
Non-bank financial institutions | 13,054 | 12,661 | 20,778 | 29,171 | ||||||||||||
Manufacturing | 8,021 | 6,695 | 524 | 710 | ||||||||||||
Mining | 3,707 | 2,284 | 94 | 562 | ||||||||||||
Public authorities | 1,921 | 2,657 | 49 | 51 | ||||||||||||
Retail and wholesale | 2,722 | 1,530 | 861 | 982 | ||||||||||||
Transport, storage and communication | 4,537 | 4,057 | 581 | 642 | ||||||||||||
Other | 1,611 | 4,243 | 4,916 | 5,389 | ||||||||||||
Total | 41,608 | 41,250 | 41,546 | 47,905 | ||||||||||||
Investment Bank: net banking products and OTC derivatives exposure by geographical region | ||||||||||||||||
Banking products | OTC derivatives | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||
Switzerland | 348 | 543 | 1,804 | 1,759 | ||||||||||||
Rest of Europe | 5,291 | 6,759 | 19,874 | 22,286 | ||||||||||||
North America | 32,721 | 29,222 | 15,764 | 19,907 | ||||||||||||
Latin America | 34 | 152 | 185 | 123 | ||||||||||||
Asia Pacific | 2,658 | 4,014 | 3,338 | 3,236 | ||||||||||||
Middle East and Africa | 556 | 559 | 580 | 594 | ||||||||||||
Total | 41,608 | 41,250 | 41,546 | 47,905 | ||||||||||||
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Impairment and default – distressed claims | ||
With respect to distressed claims resulting from banking products, we distinguish between loans that are “past due” and those that are “impaired”. We consider a loan to be past due when a contractual payment has been missed. We consider a loan as impaired if it is probable that we will not fully recover all contractual payments due under the loan as a result of the borrower’s inability, or unwillingness, to meet its obligations after realization of available collateral. Past due but not impaired loans are those that have suffered missed payments, but are not considered impaired because we expect to collect all amounts due under the contractual terms of the loans or the equivalent value. We also assess claims from securities financing transactions for default and impairment using the same principles and processes as we use for banking products. | ||
We have established processes to ensure that the carrying values of impaired claims are determined in compliance with IFRS requirements. Our credit controls applied to valuation and work-out are the same for both amortized cost and fair-valued credit products. With exception of a part of the mortgage portfolio and small unsecured retail account overdrafts, we assess each identified case individually. Our workout strategy and estimation of recoverable amounts are independently approved. | ||
None of the portfolios with collective loan loss provisions are included in the totals of impaired loans in the tables shown in the composition of credit risk for business divisions in the “Credit risk” section of this report. | ||
We also assess our portfolios of claims carried at amortized cost with similar credit risk characteristics for collective impairment in order to consider if these portfolios contain impaired obligations where the individual impaired items cannot yet be identified. In our retail and corporate banking business in Switzerland, we typically review 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, we establish collective loan loss allowances based on the expected loss for the portfolio over the average period between trigger events and the identification of individual impairment. Collective loan loss allowances of this kind are typically not required for our investment banking businesses because we continuously monitor individual counterparties and exposures to identify impairment events at an early stage. | ||
Additionally, for all of our portfolios we assess whether there have been any unforeseen developments which might result in impairments but that are not immediately observable. These events could be stress situations, such as a natural disaster or a country crisis, or they could result from structural changes in the legal or regulatory environment. To determine whether an event-driven collective impairment exists, we use a set of global economic drivers to regularly assess the most vulnerable countries and review the impact of any potential impairment event. | ||
The recognition of impairment in our 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 charged to the income statement as a credit loss expense. For products recorded at fair value, such as derivatives, a deterioration of the credit quality is recognized through a CVA charged to the income statement through theNet trading income line. | ||||
è | Refer to “Note 27a Valuation principles” in the “Financial information” section of this report for more information on CVA | |||
Impaired loans, allowances and provisions | ||||
The credit risk exposures reported in the table “Allowances and provisions for credit losses” represent the IFRS balance sheet view of our gross banking products portfolio. This comprises the balance sheet line itemsBalances with central banks,Due from banksandLoansas well as the off-balance sheet itemsGuaranteesandLoan commitments. The table also shows the IFRS reported allowances and provisions for credit losses and impairments. | ||||
The table shows that our allowances and provisions for credit losses, excluding collective loan loss provisions (CLLP) of CHF 47 million, decreased 56% to CHF 1,193 million on 31 December 2010 from CHF 2,720 million (excluding CLLP of CHF 49 million) at the end of 2009. | ||||
We consider a reclassified security an impaired loan if the carrying value at the balance sheet date is, on a cumulative basis, 5% or more below the carrying value at the reclassification date adjusted for redemptions. | ||||
Our gross impaired loan portfolio decreased to CHF 4,172 million on 31 December 2010 from CHF 6,829 million on 31 December 2009. | ||||
The ratio of the impaired loan portfolio to the total loan portfolio (both measured gross) was 1.6% on 31 December 2010 compared with 2.5% on 31 December 2009. For loans excluding securities the ratio was 0.9% on 31 December 2010 compared with 2.3% on 31 December 2009. | ||||
We reclassified loans and receivables with carrying amounts of CHF 39 million and CHF 58 million from impaired to performing during 2010 and 2009 respectively. This reclassification occurred because the loans had either been renegotiated and the new terms and conditions met normal market criteria for the quality of the obligor and type of loan, or because the financial position of the obligor improved, enabling it to repay any past due amounts such that we deemed future principal and interest to be fully collectible in accordance with the original contractual terms. | ||||
Collateral held against our impaired loan portfolio mainly consisted of real estate and multi-asset-backed securities. It is our policy to dispose of foreclosed real estate as soon as practicable. The carrying amount of foreclosed property recorded in our balance sheet underOther assetsat the end of 2010 and 2009 amounted to CHF 90 million and CHF 245 million, respectively. | ||||
We seek to liquidate collateral held in the form of financial assets expeditiously and at prices considered fair. This may require us to purchase assets for our own account, where permitted by law, pending orderly liquidation. |
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Allowances and provisions for credit losses | ||||||||||||||||||||||||||||||||||||||||
Allowances and provisions | Estimated liquidation | |||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | IFRS exposure, gross | Impaired exposure1 | for credit losses2 | proceeds of collateral | Impairment ratio (%) | |||||||||||||||||||||||||||||||||||
As of | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||||||||||||||||||||
UBS Group | ||||||||||||||||||||||||||||||||||||||||
Balances with central banks | 24,459 | 18,114 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Due from banks | 17,158 | 16,836 | 21 | 36 | 24 | 32 | 0.1 | 0.2 | ||||||||||||||||||||||||||||||||
Loans | 263,964 | 269,124 | 4,172 | 6,829 | 1,039 | 2,598 | 2,286 | 2,200 | 1.6 | 2.5 | ||||||||||||||||||||||||||||||
of which: related to reclassified securities3 | 11,719 | 19,255 | 1,574 | 1,090 | 221 | 162 | 1,376 | 958 | 13.4 | 5.7 | ||||||||||||||||||||||||||||||
of which: related to acquired securities | 9,673 | 7,982 | 351 | 119 | 52 | 17 | 313 | 105 | 3.6 | 1.5 | ||||||||||||||||||||||||||||||
of which: related to other loans | 242,572 | 241,887 | 2,247 | 5,620 | 766 | 2,419 | 597 | 1,137 | 0.9 | 2.3 | ||||||||||||||||||||||||||||||
Guarantees | 16,535 | 17,070 | 160 | 141 | 96 | 78 | 7 | 1.0 | 0.8 | |||||||||||||||||||||||||||||||
Loan commitments | 56,851 | 59,328 | 142 | 209 | 34 | 12 | 5 | 0.2 | 0.4 | |||||||||||||||||||||||||||||||
Banking products | 378,967 | 380,472 | 4,495 | 7,215 | 1,193 | 2,720 | 2,298 | 2,200 | 1.2 | 1.9 | ||||||||||||||||||||||||||||||
Investment Bank | ||||||||||||||||||||||||||||||||||||||||
Balances with central banks | 13,732 | 9,525 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Due from banks | 12,007 | 12,802 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Loans | 39,392 | 50,364 | 2,838 | 5,056 | 348 | 1,642 | 1,926 | 1,670 | 7.2 | 10.0 | ||||||||||||||||||||||||||||||
of which: related to reclassified securities3 | 11,719 | 19,255 | 1,574 | 1,090 | 221 | 162 | 1,376 | 958 | 13.4 | 5.7 | ||||||||||||||||||||||||||||||
of which: related to acquired securities | 9,673 | 7,982 | 351 | 119 | 52 | 17 | 313 | 105 | 3.6 | 1.5 | ||||||||||||||||||||||||||||||
of which: related to other loans | 18,000 | 23,127 | 913 | 3,847 | 76 | 1,463 | 237 | 607 | 5.1 | 16.6 | ||||||||||||||||||||||||||||||
Guarantees | 5,536 | 4,635 | 67 | 117 | 43 | 66 | 1.2 | 2.5 | ||||||||||||||||||||||||||||||||
Loan commitments | 48,509 | 51,593 | 95 | 209 | 26 | 1 | 0.2 | 0.4 | ||||||||||||||||||||||||||||||||
Banking products | 119,177 | 128,919 | 3,000 | 5,382 | 417 | 1,708 | 1,926 | 1,670 | 2.5 | 4.2 | ||||||||||||||||||||||||||||||
Wealth Management & Swiss Bank | ||||||||||||||||||||||||||||||||||||||||
Balances with central banks | 10,727 | 8,589 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Due from banks | 2,678 | 2,678 | 21 | 36 | 24 | 32 | 0.8 | 1.3 | ||||||||||||||||||||||||||||||||
Loans | 201,942 | 197,178 | 1,333 | 1,769 | 689 | 952 | 360 | 530 | 0.7 | 0.9 | ||||||||||||||||||||||||||||||
Guarantees | 10,505 | 11,908 | 93 | 24 | 49 | 9 | 7 | 0.9 | 0.2 | |||||||||||||||||||||||||||||||
Loan commitments | 7,276 | 7,236 | 47 | 8 | 11 | 5 | 0.6 | 0.0 | ||||||||||||||||||||||||||||||||
Banking products | 233,128 | 227,589 | 1,494 | 1,829 | 770 | 1,004 | 372 | 530 | 0.6 | 0.8 | ||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||||||||||||||
Balances with central banks | 463 | 5,614 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Due from banks | 456 | 419 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Loans | 67,104 | 61,935 | 166 | 295 | 126 | 165 | 45 | 141 | 0.2 | 0.5 | ||||||||||||||||||||||||||||||
Guarantees | 2,391 | 3,554 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Loan commitments | 983 | 1,107 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Banking products | 71,397 | 72,629 | 166 | 295 | 126 | 165 | 45 | 141 | 0.2 | 0.4 | ||||||||||||||||||||||||||||||
Retail & Corporate | ||||||||||||||||||||||||||||||||||||||||
Balances with central banks | 10,265 | 2,975 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||||||||
Due from banks | 2,222 | 2,260 | 21 | 36 | 24 | 32 | 0.9 | 1.6 | ||||||||||||||||||||||||||||||||
Loans | 134,838 | 135,244 | 1,167 | 1,474 | 563 | 788 | 315 | 390 | 0.9 | 1.1 | ||||||||||||||||||||||||||||||
Guarantees | 8,114 | 8,354 | 93 | 24 | 49 | 8 | 7 | 1.1 | 0.3 | |||||||||||||||||||||||||||||||
Loan commitments | 6,293 | 6,129 | 47 | 8 | 11 | 5 | 0.7 | 0.0 | ||||||||||||||||||||||||||||||||
Banking products | 161,732 | 154,961 | 1,328 | 1,534 | 644 | 839 | 327 | 390 | 0.8 | 1.0 | ||||||||||||||||||||||||||||||
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Impaired assets by type of financial instrument1 | ||||||||||||||||||||||||||||||||||
Specific allowances, | Estimated liquidation | |||||||||||||||||||||||||||||||||
CHF million | Impaired exposure | provisions and CVA | proceeds of collateral | Net impaired exposure | ||||||||||||||||||||||||||||||
31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | |||||||||||||||||||||||||||
Impaired loans (incl. due from banks) | 4,193 | 6,865 | (1,064 | )2 | (2,630 | )2 | (2,286 | ) | (2,200 | ) | 844 | 2,035 | ||||||||||||||||||||||
Impaired guarantees and loan commitments | 301 | 350 | (130 | ) | (90 | ) | (12 | ) | 159 | 260 | ||||||||||||||||||||||||
Defaulted derivatives transactions | 1,915 | 4,607 | (1,130 | ) | (3,061 | ) | 785 | 1,546 | ||||||||||||||||||||||||||
Defaulted securities financing transactions | 59 | 98 | (46 | ) | (51 | ) | (13 | ) | (47 | ) | 0 | 0 | ||||||||||||||||||||||
Total | 6,468 | 11,920 | (2,370 | ) | (5,831 | ) | (2,310 | ) | (2,247 | ) | 1,788 | 3,841 | ||||||||||||||||||||||
1 Includes impaired Due from banks, Loans, Guarantees, Loan commitments, Securities financing transactions and OTC derivatives with specific CVA. 2 Excludes CHF 47 million collective loan loss allowances (31.12.09: CHF 49 million). |
The table “Impaired assets by type of financial instrument” includes impaired loans, impaired loan commitments, guarantees and defaulted derivative and securities financing transactions, which are subject to the same workout and recovery processes. Our impaired assets decreased significantly by CHF 5.5 billion to CHF 6.5 billion on 31 December 2010, mainly due to sales of legacy loan positions. | ||||||
After deducting allocated specific allowances, provisions and CVA of CHF 2.4 billion and the estimated liquidation proceeds of collateral of CHF 2.3 billion, net impaired assets amounted to CHF 1.8 billion as of 31 December 2010. | ||||||
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on the reclassification of the cash collateral from derivative transactions as well as prime brokerage receivables and payables | |||||
è | Refer to “Note 9b Due from banks and loans” in the “Financial information” section of this report for more information on the changes in allowances and provisions for credit losses |
Past due but not impaired loans
Past due but not impaired loans | ||||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||||
1 – 10 days | 62 | 138 | ||||||||
11 – 30 days | 59 | 62 | ||||||||
31 – 60 days | 30 | 78 | ||||||||
61 – 90 days | 20 | 17 | ||||||||
> 90 days | 678 | 635 | ||||||||
of which: mortgage loans | 468 | 511 | ||||||||
Total | 849 | 930 | ||||||||
Past due but not impaired mortgage loans | ||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||||||||||
Total | of which: | Total | of which: | |||||||||||||
mortgage | past due > 90 days | mortgage | past due > 90 days | |||||||||||||
exposure | but not impaired | exposure | but not impaired | |||||||||||||
Total | 133,343 | 468 | 130,348 | 511 | ||||||||||||
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Settlement risk
Settlement risk arises in transactions involving exchange of value where we must fulfill our obligation to deliver without first being able to determine with certainty that we will receive the countervalue. We use multilateral and bilateral agreements with counterparties to reduce our actual settlement volumes.
Country risk
Country risk is the risk of loss arising from country-specific events. We have a well established country risk control framework to actively manage and limit, as necessary, our trading, lending, issuer and investment risk. This framework is intended to ensure that our exposure to a certain country is commensurate with the credit rating we assign to it, and that it is not disproportionate to our overall country risk profile.
tries rated 3 and below, we set country risk ceilings approved either by the BoD or under delegated authority by the Group CEO or Group CRO. A country risk ceiling applies to all our exposures to counterparties or issuers of securities and financial investments in the respective country. Our country risk measures cover cross-border transactions and investments as well as our local operations, branches and subsidiaries in countries where the risk is material. We may limit the extension of credit, transactions in traded products or positions in securities based on a country ceiling, even if our exposure to a counterparty is otherwise acceptable.
Country risk exposure
Exposures to sovereign of industrialized European countries
rated AA and below
Largest five exposures to sovereign1of industrialized European countries rated AA and below2 | ||||||||||||||||
CHF million | Gross exposure | Net exposure3 | ||||||||||||||
As of | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||
Italy, sovereign | 2,812 | 7,872 | 395 | 3,534 | ||||||||||||
Belgium, sovereign | 473 | 2,889 | 473 | 2,863 | ||||||||||||
Iceland, sovereign | 123 | 0 | 123 | 0 | ||||||||||||
Greece, sovereign | 38 | 317 | 31 | 290 | ||||||||||||
Portugal, sovereign | 29 | 91 | 25 | 0 | ||||||||||||
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Risk management and control
Emerging market countries
Emerging markets net1 exposure by UBS internal country rating category2
CHF million | 31.12.10 | 31.12.09 | ||||
Investment grade | 17,567 | 14,659 | ||||
Sub-investment grade | 2,521 | 3,132 | ||||
Total | 20,088 | 17,791 | ||||
Emerging markets net1 exposure by major geographical area and product type2
CHF million | Total | Banking products | Traded products | Financial investments | Tradable assets | |||||||||||||||||||||||||
As of | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||||||||||
Emerging Europe | 2,177 | 1,608 | 651 | 575 | 178 | 178 | 30 | 25 | 1,318 | 830 | ||||||||||||||||||||
Russia | 1,090 | 951 | 212 | 254 | 29 | 57 | 0 | 0 | 849 | 640 | ||||||||||||||||||||
Hungary | 318 | 45 | 20 | 17 | 39 | 14 | 0 | 0 | 259 | 14 | ||||||||||||||||||||
Turkey | 249 | 157 | 156 | 104 | 42 | 31 | 2 | 0 | 49 | 22 | ||||||||||||||||||||
Poland | 156 | 95 | 17 | 8 | 62 | 43 | 0 | 0 | 77 | 44 | ||||||||||||||||||||
Ukraine | 87 | 74 | 32 | 37 | 0 | 0 | 27 | 25 | 28 | 12 | ||||||||||||||||||||
Other | 277 | 286 | 214 | 155 | 6 | 33 | 1 | 0 | 56 | 98 | ||||||||||||||||||||
Emerging Asia | 11,937 | 10,969 | 4,784 | 4,119 | 2,443 | 2,652 | 121 | 166 | 4,589 | 4,032 | ||||||||||||||||||||
Hong Kong | 2,597 | 1,791 | 950 | 602 | 565 | 784 | 0 | 0 | 1,082 | 405 | ||||||||||||||||||||
India | 2,519 | 1,468 | 919 | 648 | 32 | 45 | 0 | 0 | 1,568 | 775 | ||||||||||||||||||||
China | 2,267 | 2,714 | 1,007 | 1,362 | 605 | 442 | 120 | 166 | 535 | 744 | ||||||||||||||||||||
South Korea | 1,495 | 2,111 | 592 | 452 | 588 | 1,021 | 0 | 0 | 315 | 638 | ||||||||||||||||||||
Taiwan | 1,433 | 1,399 | 451 | 659 | 343 | 202 | 0 | 0 | 639 | 538 | ||||||||||||||||||||
Other | 1,626 | 1,486 | 865 | 396 | 310 | 158 | 1 | 0 | 450 | 932 | ||||||||||||||||||||
Emerging America | 3,387 | 2,729 | 263 | 308 | 620 | 203 | 30 | 35 | 2,474 | 2,183 | ||||||||||||||||||||
Brazil | 1,699 | 1,142 | 119 | 150 | 471 | 117 | 0 | 0 | 1,109 | 875 | ||||||||||||||||||||
Mexico | 951 | 913 | 36 | 39 | 95 | 77 | 23 | 11 | 797 | 786 | ||||||||||||||||||||
Venezuela | 218 | 102 | 0 | 1 | 0 | 0 | 0 | 0 | 218 | 101 | ||||||||||||||||||||
Chile | 155 | 64 | 42 | 32 | 38 | 0 | 0 | 0 | 75 | 32 | ||||||||||||||||||||
Argentina | 134 | 55 | 24 | 20 | 0 | 0 | 7 | 23 | 103 | 12 | ||||||||||||||||||||
Other | 230 | 453 | 42 | 66 | 16 | 9 | 0 | 1 | 172 | 377 | ||||||||||||||||||||
Middle East and Africa | 2,587 | 2,485 | 969 | 1,129 | 819 | 826 | 0 | 1 | 799 | 529 | ||||||||||||||||||||
United Arab Emirates | 608 | 444 | 223 | 202 | 130 | 140 | 0 | 1 | 255 | 101 | ||||||||||||||||||||
Saudi Arabia | 606 | 576 | 110 | 168 | 488 | 395 | 0 | 0 | 8 | 13 | ||||||||||||||||||||
South Africa | 589 | 514 | 163 | 269 | 39 | 172 | 0 | 0 | 387 | 73 | ||||||||||||||||||||
Israel | 214 | 326 | 125 | 145 | 40 | 17 | 0 | 0 | 49 | 164 | ||||||||||||||||||||
Kuwait | 130 | 116 | 32 | 58 | 98 | 51 | 0 | 0 | 0 | 7 | ||||||||||||||||||||
Other | 440 | 509 | 316 | 287 | 24 | 51 | 0 | 0 | 100 | 171 | ||||||||||||||||||||
Total | 20,088 | 17,791 | 6,667 | 6,131 | 4,060 | 3,859 | 181 | 227 | 9,180 | 7,574 | ||||||||||||||||||||
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Debt investments | ||||
Debt investments classified according to IFRS asFinancial investments available-for-saleare measured at fair value through equity, and can be broadly categorized as money market instruments and debt securities primarily held for statutory, regulatory or liquidity reasons. Debt investments may also include non-performing loans purchased in the secondary market by the Investment Bank. | ||||
The risk control framework applied to debt instruments classified asFinancial investments available-for-saledepends on the nature of the instruments and the purpose for which we hold them. Our exposures may be included in market risk limits or be subject to specific monitoring such as interest rate sensitivity analysis, firm-wide earnings-at-risk, capital-at-risk and combined stress test metrics. |
Composition of debt investments | ||||
Debt financial instruments classified asFinancial investments available-for-saledecreased to CHF 73.4 billion on 31 December 2010 compared with CHF 80.4 billion on 31 December 2009. These instruments primarily comprised highly liquid short-term securities issued by governments and government-controlled institutions. This position includes our strategic investment portfolio, managed by Group Treasury. | ||||
è | Refer to “Note 13 Financial investments available-for-sale” in the “Financial information” section of this report for more information | |||
è | Refer to the “Non-trading portfolios” section of this report for more information | |||
è | Refer to the “Treasury management” section of this report for more information on Group Treasury’s risk management activities |
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Market risk
Market risk is the risk of loss resulting from changes in market variables. There are two broad categories of market variables: general market risk factors and specific components. General market risk factors include interest rates, equity index levels, exchange rates, commodity prices and general credit spreads. The volatility of these risk factors and the correlations between them are also general market risk factors. Specific components relate to the prices of debt and equity instruments, which result from factors and events particular to individual companies or entities. | ||
Sources of market risk | ||
We take general and specific market risks both in our trading activities and in some non-trading businesses. | ||
Trading portfolios | ||
Most of our market risk arises from our trading activities in the Investment Bank, including market-making, facilitation of client business and associated position taking in cash and derivative markets for equities, fixed income, interest rates, foreign exchange and commodities. | ||
Our trading businesses are subject to multiple market risk limits. Traders are required to manage their risks within these limits, which may involve utilizing hedging and risk mitigation strategies. These strategies can expose the firm to additional risks as the hedge instrument and the position being hedged may not always move in parallel (often referred to as basis risk). We also actively manage such basis risks. Management and Risk Control may also give instructions to reduce the risk, even when limits are not exceeded. | ||
Our 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. | ||
Non-trading portfolios | ||
Non-trading books may arise in any business division of the firm. Market risk exposures – primarily general interest rate and foreign exchange risks – may arise from non-trading activities such as retail banking and lending in our wealth management businesses, retail and corporate banking business in Switzerland, the Investment Bank’s lending businesses and our treasury activities, primarily from funding, balance sheet, liquidity and capital management needs. Equity and certain debt investments, including our strategic investment portfolio, can also give rise to specific market risks. | ||
Non-trading foreign exchange risks are managed under market risk limits, with the exception of Group Treasury management of consolidated capital activity. Non-trading interest rate risk is either |
managed under market risk limits, or subject to specific monitoring and is reported in firm-wide EaR, CaR and CST metrics. | ||||
è | Refer to the “Non-trading portfolios” section of this report for more information | |||
è | Refer to the “Treasury management” section of this report for more information on Group Treasury’s risk management activities | |||
Market risk limits | ||||
We established a limit framework to control our market risks. We have two major portfolio measures of market risk: VaR and stress loss. Both are common to all our business divisions and subject to limits that are approved by the BoD. | ||||
In the Investment Bank, these portfolio measures are complemented by concentration and other supplementary limits on portfolios, asset classes and products, and also cover exposures to general market risk factors and single-name risk. Single-name risk (or issuer risk) is a measure of our exposure to the tradable instruments (debt, equity and derivatives) of a single issuer (or issuer group) were that issuer to be subject to a credit event including default. Our concentration and other supplementary limits take a variety of forms, including values (market or notional) and risk sensitivities, which are measures of exposure to a given risk factor such as interest rates, credit spreads, equity indices, foreign exchange rates or volatilities. These limits take into account the extent of market liquidity and volatility, available operational capacity, valuation uncertainty, and, for our single-name exposures, the credit quality of issuers. | ||||
Our exposures from security underwriting commitments are subject to the same concentration measures and controls as secondary market positions. Underwriting commitments are also generally reviewed by our Commitment Committee, which includes representatives from both business and control functions. Underwriting commitments are approved under delegated risk management and risk control authorities. | ||||
Market risk limits are set for each of the business divisions and Group Treasury. The limit framework in the Investment Bank is more detailed than in the other business divisions, reflecting the nature and magnitude of the risks it takes. | ||||
Trading portfolios | ||||
For the purposes of our disclosure, VaR is used to quantify market risk exposures in our trading portfolios. | ||||
Value-at-risk definition and limitations | ||||
As a statistical measure of market risk, VaR represents the market risk losses that potentially could be realized over a set time horizon at an established level of confidence. This assumes no change in our trading positions over the relevant time horizon. We use a |
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single VaR model for both internal management purposes and for determining market risk regulatory capital requirements, although the confidence levels and time horizons differ. | ||||
Our VaR model is approved by FINMA and ongoing significant revisions of our VaR methodology and model are also subject to regulatory approval. | ||||
The model uses historical data covering a five-year period and is calibrated to a 1-day 95% measure for our internal management purposes. However, in accordance with Basel II and FINMA requirements, we use a 1-day 99% VaR for backtesting and a 10-day 99% VaR for determining market risk regulatory capital. We calculate VaR on a daily basis on our end-of-day positions. Our VaR calculation is based on the application of historical changes in market risk factors directly to our current positions – a method known as historical simulation. | ||||
Actual realized losses may differ from those implied by our VaR. All VaR measures are subject to limitations and must be interpreted accordingly. The limitations of VaR include the following: | ||||
– | The five-year historical period used in creating our VaR measure will include fluctuations in market rates and prices that differ from those that will occur in future periods. In particular, the use of a five-year window means that sudden increases in market volatility will not tend to increase VaR as quickly as the use of shorter historical observation periods, but the impact of the increase will impact our VaR for a longer period of time. |
– | The VaR measure is calibrated to a specified level of confidence and may not indicate potential losses beyond this confidence level. | |||
– | The 1-day time horizon in the VaR measure, or 10-day in the case of regulatory VaR, may not fully capture the market risk of positions that cannot be closed out or hedged within the specified period. | |||
– | In certain cases, VaR calculations approximate the impact of changes in risk factors on the values of positions and portfolios. This may happen because the number of risk factors included in the VaR model is necessarily limited; for example, yield curve risk factors do not exist for all future dates. | |||
– | The effect of extreme market movements is subject to estimation errors which may result from non-linear interaction effects, as well as the potential for actual volatility and correlation levels to differ from assumptions implicit in the VaR calculations. | |||
We continue to review the performance of our VaR implementation, including a review of risks not included in VaR. We will continue to enhance our VaR model in order to more accurately capture the relationships between the market risks associated with our risk positions, as well as the revenue impact of large market movements on particular trading positions. |
Group: value-at-risk (1-day, 95% confidence, 5 years of historical data) | |||||||||||||||||||||||||||||||||||
For the year ended 31.12.10 | For the year ended 31.12.09 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | |||||||||||||||||||||||||||
Business divisions | |||||||||||||||||||||||||||||||||||
Investment Bank | 42 | 78 | 56 | 68 | 43 | 75 | 55 | 54 | |||||||||||||||||||||||||||
Wealth Management & Swiss Bank | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
Wealth Management Americas | 1 | 3 | 2 | 1 | 2 | 3 | 3 | 3 | |||||||||||||||||||||||||||
Global Asset Management | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | |||||||||||||||||||||||||||
Treasury activities and other corporate items | 2 | 22 | 8 | 5 | 2 | 16 | 5 | 4 | |||||||||||||||||||||||||||
Diversification effect | 1 | 1 | (10 | ) | (7 | ) | 1 | 1 | (8 | ) | (7 | ) | |||||||||||||||||||||||
Total management VaR, Group2 | 42 | 76 | 57 | 68 | 44 | 78 | 55 | 54 | |||||||||||||||||||||||||||
Diversification effect (%) | (15 | ) | (9 | ) | (13 | ) | (11 | ) | |||||||||||||||||||||||||||
1 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect. 2 Includes all positions subject to internal management VaR limits. | |||||||||||||||||||||||||||||||||||
Investment Bank: value-at-risk (1-day, 95% confidence, 5 years of historical data) | |||||||||||||||||||||||||||||||||||
For the year ended 31.12.10 | For the year ended 31.12.09 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | |||||||||||||||||||||||||||
Risk type | |||||||||||||||||||||||||||||||||||
Equities | 11 | 37 | 19 | 17 | 13 | 36 | 22 | 21 | |||||||||||||||||||||||||||
Interest rates | 13 | 44 | 24 | 23 | 16 | 38 | 24 | 23 | |||||||||||||||||||||||||||
Credit spreads | 42 | 70 | 55 | 59 | 33 | 65 | 46 | 50 | |||||||||||||||||||||||||||
Foreign exchange | 2 | 15 | 7 | 6 | 2 | 12 | 6 | 4 | |||||||||||||||||||||||||||
Energy, metals & commodities | 2 | 8 | 3 | 7 | 2 | 5 | 4 | 3 | |||||||||||||||||||||||||||
Diversification effect | 1 | 1 | (51 | ) | (43 | ) | 1 | 1 | (47 | ) | (47 | ) | |||||||||||||||||||||||
Total management VaR, Investment Bank2 | 42 | 78 | 56 | 68 | 43 | 75 | 55 | 54 | |||||||||||||||||||||||||||
Diversification effect (%) | (48 | ) | (39 | ) | (46 | ) | (47 | ) | |||||||||||||||||||||||||||
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. 2 Includes all positions subject to internal management VaR limits. |
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Value-at-risk developments in 2010 | ||||||
The tables in this section show our 1-day 95% management VaR for the Group and the Investment Bank. | ||||||
The Investment Bank’s average management VaR (1-day 95%) increased slightly to CHF 56 million in 2010 compared with CHF 55 million in 2009. Period-end VaR was higher at CHF 68 million on 31 December 2010 compared with CHF 54 million on 31 December 2009. This increase was a result of the execution of the growth plans in the Investment Bank as the market risk profile increased from previously low levels. Credit spread VaR remained the dominant component of the Investment Bank’s VaR. VaR for the Group followed a similar pattern as the Investment Bank’s VaR. | ||||||
Backtesting | ||||||
Backtesting compares 1-day 99% regulatory VaR calculated for positions at the close of each business day with the revenues which actually arise on those positions on the following business day. Our backtesting revenues exclude non-trading revenues, such as fees and commissions and estimated revenues from intraday trading. A backtesting exception occurs when backtesting revenues are negative and the absolute value of those revenues is greater than the previous day’s VaR. | ||||||
We experienced one backtesting exception in 2010 compared with four backtesting exceptions in 2009. This exception was due to extreme market moves which followed the announcement of the European Central Bank’s financial aid package for certain European countries in May 2010. | ||||||
The chart on the right-hand side shows the 12-month development of 1-day 99% VaR against backtesting revenues in the Investment Bank for the whole of 2010. The histogram on the right-hand side shows the Investment Bank’s full trading revenues distribution in 2010. | ||||||
We investigate all backtesting exceptions and any exceptional revenues on the profit side of the VaR distribution. In addition, we report all backtesting results to senior business management, the Group Chief Risk Officer (Group CRO) and business division CROs. | ||||||
Backtesting exceptions are also reported to internal and external auditors and to the relevant regulators. |
Investment Bank: development of backtesting revenues1 against value-at-risk | ||||||
1 Excludes non-trading revenues, such as commissions and fees, and revenues from intraday trading. | ||||||
Investment Bank: all revenue distribution1 | ||||||
1 Includes all revenues from business areas which have trading activities. |
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Non-trading portfolios | ||
For the purposes of our disclosure, the market risks associated with our non-trading portfolios are quantified using sensitivity analysis. This includes an aggregate measure of our exposures to interest rate risk in the banking book and specific sensitivity information for certain significant portfolios and positions that are not included in our management VaR. | ||
Interest rate risk in the banking book | ||
The banking book consists ofAvailable-for-sale instruments, Loans and receivables,certainInstruments designated at fair value through profit or loss,derivatives measured at fair value through profit or loss and derivatives employed for cash flow hedge accounting purposes, as well as related funding transactions. These positions may impact other comprehensive income or profit or loss, due to differences in accounting treatment. | ||
All interest rate risk is subject to independent risk control. When not included in our VaR measure, interest rate risk is subject to specific monitoring, which may include interest rate sensitivity analysis, EaR, CaR and CST metrics. Interest rate risk sensitivity figures are provided for the impact of a 1-basis-point parallel increase in yield curves on present values of future cash flows, irrespective of accounting treatment. | ||
Our largest banking book interest rate risk exposures arise primarily from activities such as retail banking and lending in our Wealth Management & Swiss Bank division, as well as our treasury activities, which are mainly hedged. | ||
The interest rate risks arising in the Wealth Management & Swiss Bank are transferred either by means of back-to-back transactions or, in the case of products with no contractual maturity date or direct market-linked rate, via “replicating” portfolios from the originating business into one of two centralized interest rate risk management units: Group Treasury or the Investment Bank’s fixed income, currencies and commodities (FICC) unit. These units manage the risks as part of their risk portfolios within their allocated market risk limits and controls, on an integrated basis, exploiting the netting potential across interest rate risks from different sources. | ||
The Investment Bank’s portfolio of assets that were reclassified toLoans and receivablesfromHeld-for-tradingin the fourth quarter of 2008 and the first quarter of 2009, and certain other debt |
securities held asLoans and receivables,also give rise to non-trading interest rate risk. | ||||
Interest rate risk within Wealth Management Americas arises from the business division’s investment portfolio in addition to its lending and deposit products offered to clients. | ||||
Interest rate risk is closely measured, monitored and managed within approved risk limits and controls. Interest rate risk management incorporates the effects of natural risk offsets inherent within the balance sheet of Wealth Management Americas. | ||||
The interest sensitivity of non-contractual maturity products is modeled using historical behavior patterns from a complete interest rate cycle. | ||||
Group Treasury manages two main types of interest rate risk positions. One type is the risk transferred from Wealth Management & Swiss Bank’s banking operations (mentioned above). The other type arises from investing or funding non-monetary corporate balance sheet items that have indefinite lives such as equity and goodwill. For these items we have defined specific target durations based on which we fund and invest as applicable. These targets are defined by replication portfolios, which establish rolling benchmarks to execute against. The table below captures any residual risk in the Group Treasury books against these benchmarks. This activity and associated sensitivities of these replication portfolios are further discussed in the Group Treasury section. | ||||
In addition to its regular risk management activities, Group Treasury has been executing transactions that aim to economically hedge negative effects on the firm’s net interest income stemming from the extraordinarily low yield environment. These positions are the cause of the significant increase of our interest rate risk in the banking book compared to 2009. | ||||
è | Refer to “Group Treasury” section for more information on investment of equity | |||
The impact of an adverse parallel shift in interest rates of 200 basis points on our banking book interest rate risk exposures is significantly below the threshold of 20% of eligible regulatory capital specified by regulators. This is designed to identify banks that may be required to hold additional regulatory capital against this risk. | ||||
Interest rate sensitivity of available-for-sale bond investments In addition to the above economic risk view which also considers off-setting positions, we provide below the accounting view of |
Impact of a 1-basis-point parallel increase in yield curves on present value of future cash flows1 | ||||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||||
CHF | (0.7 | ) | (0.3 | ) | ||||||
EUR | (2.1 | ) | (0.2 | ) | ||||||
GBP | (2.9 | ) | (0.3 | ) | ||||||
USD | (10.7 | ) | (0.8 | ) | ||||||
Other | (0.3 | ) | (0.1 | ) | ||||||
Total impact on interest rate-sensitive banking book positions | (16.6 | ) | (1.8 | ) | ||||||
1 Does not include interest rate sensitivities in respect of our inventory of student loan ARS or our commitment to purchase client holdings of student loan ARS. From an economic perspective these exposures are not materially affected by parallel shifts in USD interest rates, holding other factors constant. |
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debt investments classified according to IFRSas Financial investments available-for-sale,which are measured at fair value through other comprehensive income. Debt financial instruments classified asFinancial investments available-for-saleamounted to CHF 73.4 billion on 31 December 2010. A 1-basis-point increase in the respective yields of the IFRS debt instruments available-for-sale portfolio would have decreased equity by approximately CHF 15 million from fair value changes posted to OCI. This estimation excludes economic off-setting positions and is included in the above table on interest rate-sensitivities in the banking book, together with partially offsetting hedge and funding effects, or in disclosed VaR. | ||||||
è | Refer to “Note 13 Financial investments available-for-sale” in the “Financial information” section of this report for more information | |||||
è | Refer to “Debt investments” in the “Credit risk” section of this report for more information | |||||
Interest rate sensitivity of interest rate swaps designated in cash flow hedges | ||||||
To the extent effective, interest rate swaps designated in cash flow hedges are accounted for at fair value through equity under IFRS. Amounts deferred in equity are released to the income statement according to the occurrence of the underlying hedged interest cash flows. Interest rate swaps designated in cash flow hedges are denominated in USD, EUR, GBP, CHF and CAD. At 31 December 2010, fair values of interest rate swaps amounted to CHF 5.4 billion (positive replacement values) and CHF 3.4 billion (negative replacement values). The impact on other comprehensive income under IFRS of a 1-basis-point increase of underlying LIBOR curves would have decreased equity by approximately CHF 21 million. This estimation excludes economic offsetting positions and is included in the above table on interest rate sensitivities in the banking book, together with partially offsetting hedge and funding effects. | ||||||
Non-trading portfolios – valuation and sensitivity information by instrument category | ||||||
This section includes a description of the valuation of certain significant product categories and related valuation techniques and models. In addition, sensitivity information is provided for certain significant instrument categories that are excluded from management VaR as disclosed in the “Risk and treasury management” section of this report. | ||||||
Credit valuation adjustments on monoline credit protection | ||||||
UBS previously entered into negative basis trades with monolines, whereby they provided CDS protection against UBS-held underlyings, including residential and commercial mortgage-backed securities collateralized debt obligations (RMBS and CMBS CDO), trans- |
actions with CLO, and asset-backed securities collateralized debt obligations (ABS CDO). Since the start of the financial crisis, the CVA relating to these monoline exposures have been a source of valuation uncertainty, given market illiquidity and the contractual terms of these exposures relative to other monoline-related instruments. | ||||||
CVA amounts related to monoline credit protection are based on a methodology that uses CDS spreads on the monolines as a key input in determining an implied level of expected loss. Where a monoline has no observable CDS spread, a judgment is made on the most comparable monoline or combination of monolines, and the corresponding spreads are used instead. For RMBS CDO, CMBS CDO, and CLO asset categories, cash flow projections are used in conjunction with current fair values of the underlying assets to provide estimates of expected future exposure levels. For other asset categories, future exposure is derived from current exposure levels. | ||||||
To assess the sensitivity of the monoline CVA calculation to alternative assumptions, the impact of a 10% increase in monoline CDS spreads (e.g. from 1,000 basis points to 1,100 basis points for a specific monoline) was examined. On 31 December 2010, such an increase would have resulted in an increase in the monoline credit valuation adjustment of approximately USD 45 million (CHF 42 million) compared with USD 77 million or CHF 80 million on 31 December 2009. | ||||||
The sensitivity of the monoline CVA to a decrease of one percentage point in the monoline recovery rate assumptions (e.g. from 35% to 34% for a specific monoline, conditional on default occurring) is estimated to result in an increase of approximately USD 9 million (CHF 8 million) in the CVA, compared with USD 26 million or CHF 27 million on 31 December 2009. The sensitivity to credit spreads and recovery rates is substantially linear. | ||||||
US reference-linked notes | ||||||
The US reference-linked notes (RLN) consist of a series of transactions whereby UBS purchased credit protection, predominantly in note form, on a notional portfolio of fixed income assets. The referenced assets are comprised of USD asset-backed securities (ABS). These are primarily commercial mortgage-backed securities and subprime residential mortgage-backed securities and/or corporate bonds and loans across all rating categories. While the assets in the portfolio are marked-to-market, the credit protection embodied in the RLN is fairly valued using a market standard approach to the valuation of portfolio credit protection (Gaussian copula). This approach is intended to effectively simulate correlated defaults within the portfolio, where the expected losses and defaults of the individual assets are closely linked to the observed market prices (spread levels) of those assets. Key assumptions of the model include correlations and recovery rates. UBS applies fair value adjustments related to potential uncertainty in each of these |
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parameters, which are only partly observable. In addition, UBS applies fair value adjustments for uncertainties associated with the use of observed spread levels as the primary inputs. These fair value adjustments are calculated by applying shocks to the relevant parameters and revaluing the credit protection. These shocks for correlation, recovery and spreads are set to various levels depending on the asset type and/or region and may vary over time depending on the best judgment of the relevant trading and control personnel. Correlation and recovery shocks are generally in the reasonably possible range of 5 to 15 percentage points. Spread shocks vary more widely and depend on whether the underlying protection is funded or unfunded to reflect cash or synthetic basis effects. | ||||||
On 31 December 2010, the fair value of the US RLN credit protection was approximately USD 629 million (CHF 588 million) compared with USD 1,431 million (CHF 1,481 million) on 31 December 2009. This fair value includes fair value adjustments which were calculated by applying the shocks described above of approximately USD 31 million (CHF 29 million). This compares with USD 71 million (CHF 74 million) on 31 December 2009. The fair value adjustments may also be considered a measurement of sensitivity. | ||||||
Non-US reference-linked notes | ||||||
The same valuation model and approach to the calculation of fair value adjustments are applied to the non-US RLN credit protection and the US RLN credit protection as described above, except that the spread is shocked by 10% for European corporate names. | ||||||
On 31 December 2010, the fair value of the non-US RLN credit protection was approximately USD 660 million (CHF 616 million) compared with USD 1,050 million (CHF 1,087 million) on 31 December 2009. This fair value includes fair value adjustments which were calculated by applying the shocks described above of approximately USD 72 million (CHF 67 million) compared with USD 105 million (CHF 109 million) on 31 December 2009. This adjustment may also be considered a measurement of sensitivity. | ||||||
Option to acquire equity of the SNB StabFund | ||||||
UBS’s option to purchase the SNB StabFund’s equity is recognized on the balance sheet as a derivative at fair value (positive replacement values) with changes to fair value recognized in profit or loss. On 31 December 2010, the fair value (after adjustments) of the call option held by UBS was approximately USD 1,906 million (CHF 1,781 million) compared with USD 1,174 million (CHF 1,216 million) on 31 December 2009. | ||||||
The model incorporates cash flow projections for all assets within the fund across various scenarios. It is calibrated to market levels by setting the spread above the one-month Libor rates used |
to discount future cash flows such that the model-generated price of the underlying asset pool equals UBS’s assessed fair value of the asset pool. The model incorporates a model reserve (fair value adjustment) to address potential uncertainty in this calibration. On 31 December 2010, this adjustment was USD 250 million (CHF 234 million) compared with USD 262 million (CHF 271 million) on 31 December 2009. | ||||||
On 31 December 2010, a 100-basis-point increase in the discount rate would have decreased the option value by approximately USD 167 million (CHF 156 million), and a 100-basis-point decrease would have increased the option value by approximately USD 188 million (CHF 176 million). | ||||||
Stress loss | ||||||
To complement VaR and other measures of market risk, we also run macro stress scenarios, combining various market moves to reflect the most common types of potential stress events, as well as more targeted stress tests for our concentrated exposures and vulnerable portfolios. Targeted stress tests are typically applied to specific asset classes or to specific markets and products. We continued to enhance our market risk stress framework in 2010, in order to increase the scope and granularity of the analysis. Our scenarios capture the liquidity characteristics of different markets, asset classes and positions. | ||||||
Our market risk stress testing framework is designed to provide a control framework that is forward-looking and responsive to changing market conditions. Our stress scenarios are therefore reviewed regularly in the context of the macroeconomic and geopolitical environment by a committee comprised of representatives from the business divisions, Risk Control and Economic Research. In response to changing market conditions and new developments around the world, we develop and run ad hoc stress scenarios to assess the potential impact on our portfolio. | ||||||
è | Refer to the discussion on stress loss in this section for more information | |||||
Equity investments | ||||||
Under IFRS, equity investments not in the trading book may be classified asFinancial investments available-for-sale, Financial assets designated at fair value through profit or lossorInvestments in associates. | ||||||
We make investments for a variety of purposes, including revenue generation or as part of strategic initiatives. Other investments, such as exchange and clearing house memberships, are held to support our business activities. We may also make investments in funds that we manage, in order to fund or “seed” them at inception, or to demonstrate alignment of our interests with those of |
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investors. We also buy, and are sometimes required by agreement to buy, securities and units from funds that we have sold to clients. These may include purchases of illiquid assets such as interests in hedge funds. | ||
We can make direct investments in a variety of entities or buy equity holdings in both listed and unlisted companies, if such investments are illiquid. The fair value of equity investments tends to be dominated by factors specific to the individual stocks, and our equity investments are generally intended to be held for the medium or long term and may be subject to lock-up agreements. For these reasons, we generally do not control these exposures using the market risk measures applied to trading activities. Such equity investments are, however, subject to risk controls, including pre-approval of new investments by business management and Risk Control and regular monitoring and reporting. They are also included in our firm-wide EaR, CaR and CST metrics. | ||
Investments made as part of an ongoing business are also subject to our 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 approved by delegated authorities and are monitored and reported to senior management. |
Composition of equity investments | ||||
On 31 December 2010, we held equity investments totaling CHF 3.0 billion, of which CHF 1.4 billion were classified asFinancial investments available-for-sale, CHF 0.9 billion asFinancial assets designated at fair valueand CHF 0.8 billion asInvestments in associates. | ||||
As of 31 December 2009, we held equity investments totaling CHF 3.1 billion, of which CHF 1.4 billion were classified asFinancial investments available-for-sale, CHF 0.8 billion asFinancial assets designated at fair valueand CHF 0.9 billion asInvestments in associates. | ||||
The vast majority of the CHF 0.9 billion ofFinancial assets designated at fair valuerepresented the assets of trust entities associated with employee compensation schemes. They are broadly offset by liabilities to plan participants included inOther liabilities. The equivalent positions on 31 December 2009 amounted to CHF 0.8 billion. | ||||
è | Refer to “Note 12 Financial assets designated at fair value” in the “Financial information” section of this report for further information | |||
è | Refer to “Note 13 Financial investments available-for-sale” in the “Financial information” section of this report for further information | |||
è | Refer to “Note 14 Investments in associates” in the “Financial information” section of this report for further information |
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Operational risk
Operational risk framework
The operational risk framework sets general requirements for managing and controlling operational risk, including implementation by divisional and functional management. The framework
– | theft, fraud and unauthorized activity | |
– | employment-related risks | |
– | business practices | |
– | operating and legal entity governance | |
– | client selection and monitoring | |
– | investment suitability, maintenance and servicing | |
– | data confidentiality and protection | |
– | product risks and business due diligence | |
– | transaction processing and operational reliability | |
– | technology risks | |
– | vendors and offshoring | |
– | valuation and reporting | |
– | primary risk management and control |
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Operational risk measurement
We have developed a model for the quantification of our operational risk, which meets the regulatory capital standard specified by the Basel II advanced measurement approach (AMA). Our model has two main components. The expected loss component is a statistical measure based on our own historical loss experiences (collected since 2002), and is used primarily to determine the expected loss portion of our capital requirement. The unex-
è | Refer to the “Capital management” section of this report for more information on the development of RWA for operational risk |
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Risk concentrations
Risk concentrations | ||||||
A risk concentration exists where: (i) a position in financial instruments is affected by changes in a group of correlated factors, or a group of positions are affected by changes in the same risk factor or a group of correlated factors; and (ii) the exposure could, in the event of large but plausible adverse developments, result in significant losses. | ||||||
The identification of risk concentrations requires judgment, as potential future developments cannot be predicted and may vary from period to period. In determining whether we have a risk concentration, we consider a number of elements, both individually and collectively. These elements include: the shared characteristics of the instruments and counterparties; the size of the position or group of positions; the sensitivity of the position or group of positions to changes in risk factors; and the volatility and correlations of those factors. Also important in our assessment is the liquidity of the markets where the instruments are traded, and the availability and effectiveness of hedges or other potential risk mitigating factors. The value of a hedge instrument may not always move in line with the position being hedged, and this mismatch is referred to as basis risk. | ||||||
If we identify a risk concentration, we assess it to determine whether it should be reduced or mitigated, and we also evaluate the available means to do so. Our identified risk concentrations are subject to increased monitoring. | ||||||
Identified risk concentrations | ||||||
Based on our assessment of our portfolios and asset classes with potential for material loss in a stress scenario relevant to the current environment, we believe that our exposures to monoline insurers and student loan auction rate securities shown below can be considered as risk concentrations as of 31 December 2010, in accordance with the abovementioned definition. | ||||||
It is possible that material losses could occur on asset classes, positions and hedges other than those disclosed in this section of the report, particularly if the correlations that emerge in a stressed environment differ markedly from those we anticipated. We are exposed to price risk, basis risk, credit spread risk and default risk as well as other idiosyncratic and correlation risks on both our equities and fixed income inventories. We also have price risk on our option to acquire the SNB StabFund’s equity. | ||||||
In addition, we have lending, counterparty and country risk exposures that could result in significant losses if economic conditions were to worsen. | ||||||
è | Refer to the discussion of credit risk, market risk and operational risk above for more information on the risks to which we are exposed |
Exposure to monoline insurers | ||||||
The vast majority of our direct exposures to monoline insurers arise from OTC derivative transactions, mainly CDS purchased to hedge specific positions. The “Exposure to monoline insurers by rating” table shows the CDS protection purchased from monoline insurers to hedge specific positions. It illustrates the notional amounts of the protection held, the fair value of the underlying instruments and the fair value of the CDS both prior to and after the CVA taken on these contracts. As a result of trade commutations, and because a significant portion of the underlying assets are classified asLoans and receivablesfor accounting purposes, the change in CVA reported in the table does not equal the profit or loss associated with this portfolio during the year ended 31 December 2010. | ||||||
Exposure under CDS contracts with monoline insurers is calculated as the sum of the fair values of individual CDS after CVA. Changes in CVA result from changes in CDS fair value. This, in turn, arises from changes in the fair value of the instruments against which protection has been purchased, and also from movements in monoline credit spreads. | ||||||
UBS actively reduced exposures to monoline insurers in 2010 by commuting trades. The trade commutations related primarily to US RMBS CDO that we had substantially written down on a fair value basis. Combined with the improved performance and composition of the portfolio, the fair values of our remaining assets hedged with monoline insurers increased over the period, with a corresponding decrease in the fair values of the related CDS. On 31 December 2010, based on fair values, approximately 73% of the remaining assets were collateralized loan obligations (CLO), 25% were collateralized CMBS and other asset-backed securities, and only 2% related to US RMBS CDO. The vast majority of the CLO positions were rated AA and above. | ||||||
On 31 December 2010, the total fair value of CDS protection purchased from monoline insurers decreased to USD 1.6 billion (USD 2.3 billion on 31 December 2009) after cumulative CVA of USD 1.1 billion (USD 2.8 billion on 31 December 2009). These exposures do not take into account any hedging benefits. | ||||||
In addition to credit protection purchased on the positions detailed in the table, on 31 December 2010 UBS held direct derivative exposure to monoline insurers of USD 240 million after CVA of USD 143 million. | ||||||
è | Refer to the discussion on credit valuation adjustments on monoline credit protection in this section of the report for more information on CVA valuation and sensitivities |
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Exposure to monoline insurers, by rating1 | ||||||||||||||||||||||
31.12.10 | ||||||||||||||||||||||
Fair value of | Fair value of | |||||||||||||||||||||
Fair value | CDS prior to | Credit | CDS after | |||||||||||||||||||
Notional | of underlying | credit valuation | valuation | credit valuation | ||||||||||||||||||
amount3 | assets | adjustment | adjustment | adjustment | ||||||||||||||||||
Column 3 | Column 5 | |||||||||||||||||||||
USD million | Column 1 | Column 2 | (=1–2) | Column 4 | (=3–4) | |||||||||||||||||
Credit protection on US sub-prime residential mortgage- backed securities (RMBS) CDO, all from monolines rated sub-investment grade (BB and below)2 | 750 | 204 | 546 | 385 | 161 | |||||||||||||||||
Credit protection on other assets2 | 11,156 | 9,002 | 4 | 2,153 | 702 | 1,451 | ||||||||||||||||
of which: from monolines rated investment grade (BBB and above) | 2,288 | 1,935 | 353 | 68 | 285 | |||||||||||||||||
of which: from monolines rated sub-investment grade (BB and below) | 8,868 | 7,067 | 1,800 | 634 | 1,166 | |||||||||||||||||
Total 31.12.10 | 11,906 | 9,206 | 2,699 | 1,087 | 1,612 | |||||||||||||||||
Total 31.12.09 | 14,187 | 9,083 | 5,103 | 2,795 | 2,308 | |||||||||||||||||
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 CDS purchased as credit protection. 4 Includes USD 5.8 billion (CHF 5.4 billion) at fair value / USD 5.6 billion (CHF 5.3 billion) at carrying value of assets that were reclassified to Loans and receivables from Held for trading in the fourth quarter of 2008. Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report. |
Exposure to student loan auction rate securities | ||
Approximately USD 8.6 billion at par value of student loan ARS were redeemed by issuers, or sold by us in the secondary market, in 2010. | ||
We have committed to restore liquidity to certain client holdings of ARS. This commitment is in line with previously announced agreements in principle with various US state agencies, as well as the final settlements entered into with the Massachusetts Securities Division, the US Securities and Exchange Commission and the New York State Attorney General. We repurchased USD 7.6 billion at par value of student loan ARS in 2010, including approximately USD 4 billion of student loan ARS where we accelerated the repurchase from our clients in order to facilitate redemptions with issuers or resales. Combined with other redemptions directly with clients and amortizations, this resulted in an overall decrease of USD 7,754 million in the maximum repurchase amount at par of student loan ARS required by the regulatory settlements (as shown in the table “Client holdings: student loan ARS”) compared with a reduction of USD 3,958 million in 2009. On 31 December 2010, |
our outstanding repurchase commitment was USD 63 million. This concerns institutional client holdings of student loan ARS, and the relevant buy-back window will close on 2 July 2012. | ||
Our inventory of student loan ARS decreased by USD 563 million to USD 9,784 million as of 31 December 2010 as a result of the abovementioned redemptions, resales and amortizations. These were largely offset by student loan ARS repurchased in the period. On 31 December 2010, approximately 77% of the collateral underlying our inventory of student loan ARS was backed by Federal Family Education Loan Program (FFELP), which was reinsured by the US Department of Education for not less than 97% of principal and interest. All of our student loan ARS positions are held asLoans and receivablesand are subject to an impairment test that includes a detailed review of the quality of the underlying collateral. Impairment charges incurred on our inventory of student loan ARS in 2010 were USD 145 million (CHF 148 million). Approximately 62% of the USD 63 million student loan ARS that we committed to purchase from clients were backed by FFELP guaranteed collateral. |
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Student loan ARS inventory | ||||||||||
Carrying value | ||||||||||
USD million | 31.12.10 | 31.12.09 | ||||||||
US student loan ARS | 9,784 | 1 | 10,347 | |||||||
1 Includes USD 4.5 billion net of allowances of USD 0.2 billion (CHF 4.2 billion, net of allowances of CHF 0.2 billion) at carrying value of student loan ARS that were reclassified to Loans and receivables from Held for trading in fourth quarter 2008. Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information. | ||||||||||
Client holdings: student loan ARS | ||||||||||
Par value of maximum required purchase | ||||||||||
USD million | 31.12.10 | 31.12.09 | ||||||||
US student loan ARS | 63 | 7,817 | ||||||||
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Treasury management
Group Treasury oversees the balance sheet and the usage of our critical financial resources including capital, liquidity and funding. Treasury manages key portions of these resources including the interest rate and currency risks arising from balance sheet and capital management activities.
Liquidity management
In 2010, we continued to maintain a sound liquidity position and a diversified portfolio of funding sources, despite the potential uncertain impact of developments in financial regulatory reforms and the significant market volatility caused by uncertainties regarding the global macroeconomic environment, including certain European fiscal and sovereign debt concerns.
Funding management
Over the course of 2010, as investors became gradually more risk tolerant, credit spreads and incremental funding costs for most global financial institutions, including UBS, generally narrowed throughout the yield curve. We raised over CHF 15 billion equivalent of public benchmark bonds with an average maturity of 5.5 years. This exceeded the combined amount of public benchmark bonds and other long-term straight debt which matured, or was redeemed, during 2010. Adjusting for currency effects, our customer cash deposits in our wealth and asset management business divisions at year-end 2010 were stable compared with year-end 2009.
Interest rate and currency management
The interest rate risk management responsibility for Wealth Management & Swiss Bank transactions executed in Switzerland was transferred to Group Treasury. The interest rate risk arising from this is managed by Group Treasury to optimize risk capture, management and netting potential. In response to the prolonged low yields, treasury supported and implemented measures to improve Wealth Management & Swiss Bank’s margin income through income-generating fixed receiver swap and bond portfolios. Group Treasury continued to earn interest income on equity through its portfolio of interest rate products and managed the currency effects on equity and key ratios. Profits and losses in foreign currencies were hedged to protect shareholder value.
Capital ratios, risk-weighted assets and eligible capital
On 31 December 2010, our BIS tier 1 ratio was 17.8% and the total capital ratio was 20.4%, up from 15.4% and 19.8%, re-
spectively, on 31 December 2009. BIS risk-weighted assets declined from CHF 206.5 billion at the end of December 2009 to CHF 198.9 billion at the end of December 2010, while eligible tier 1 capital increased from CHF 31.8 billion to CHF 35.3 billion over the same period.
Equity attribution
Group Treasury uses our equity attribution framework to guide our businesses in the allocation of resources to opportunities that are expected to provide the best risk-adjusted profitability contributions.
Shares
As of 31 December 2010, we had a total of 3,830,840,513 shares issued. In 2010, the issued shares were increased by a total of 272,727,760 shares. This was mainly due to our capital raising as CHF 13 billion in convertible notes (MCN) issued in 2008 expired on 5 March 2010. The notes were mandatorily converted into 272,651,005 newly issued shares, which represented 7.7% of our issued share capital at the time. Additionally there were a small number of exercises of conditional capital due to exercises of employee options (76,755 shares).
Financial resource governance
Our Group Asset and Liability Management Committee (Group ALCO) promotes the usage of our assets and liabilities in line with our overall UBS Group (Group) strategy as defined by the Board of Directors (BoD) and the Group Executive Board (GEB), our regulatory commitments and the interests of our shareholders and other stakeholders. The Group ALCO manages the balance sheet of the business divisions through allocation and monitoring of targets. In addition, the Group ALCO manages our liquidity, funding and capital by taking into account their business performance, overall risk profile as well as market conditions.
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Liquidity and funding management
We define liquidity risk as the risk of being unable to generate sufficient funds from assets 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 our current business and desired strategy. Liquidity and funding are not the same, but they are closely related and both are critical for a financial institution. | ||||
Liquidity and funding must be continuously managed to ensure that we can successfully adjust to sudden adverse changes in market conditions or our operating environment, whether such changes consist of a general market crisis, 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 fail, even though it is not insolvent, because it is unable to borrow sufficient funds on an unsecured basis, or does not have sufficient high quality assets to borrow against or liquid assets to sell to raise immediate cash. | ||||
Market liquidity overview: 2010 | ||||
Relative to the latter part of 2009, the beginning of 2010 was characterized by much more favorable market conditions, with a surge in public long-term debt issuance by financial institutions. However, markets subsequently became more volatile and issuance conditions deteriorated into and during the second quarter as increasing concerns regarding sovereign debt in several European countries led to heightened risk aversion and fears of contagion, driving up banks’ credit risk premia and funding spreads. Risk aversion persisted into the early summer amid concerns about the global economy, the pending release of the EU banks’ stress test results, the debate on central bank support and the uncertain impact of global financial regulatory reform. Market liquidity and funding conditions for banks began to improve again following the release of the EU banks’ stress test results in July, and continued to remain relatively favorable throughout the third quarter and into the early part of the fourth quarter, albeit with reduced activity in debt issuance. Certain financial institutions’ funding spreads widened noticeably late in the year due to renewed European sovereign credit concerns and uncertainty around the potential success of continued quantitative easing efforts by major central banks. | ||||
We saw continued signs of stabilization during 2010, with overall quarterly net new money inflows in the second half of the year, while customer cash deposits in our wealth and asset management business divisions at year-end 2010 were stable compared with the prior year-end when adjusted for currency effects. This is a notable change from the declines in customer cash deposits and net new money outflows that these businesses experienced in 2009. | ||||
è | Refer to the “Balance sheet” section of this report for more information |
Continuing implementation of the liquidity and funding risk management framework | ||||
Following the approval of our funding model by the Group ALCO, a new internal funds transfer pricing curve has been implemented. We further developed the architecture of the strategic models that focus on the stressed liquidity and the operational cash ladders that are used to monitor the liquidity profile of the firm. In 2011 we will begin regional implementation of the new funding model. | ||||
è | Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information | |||
Liquidity approach | ||||
Our approach to liquidity management, which covers all UBS branches and subsidiaries, aims to ensure that we will always have sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking sustained damage to our various businesses. | ||||
Central to the integrated framework is an assessment and regular testing of all material, known and expected cash flows and the level of high-grade collateral that could be used to raise additional funding. This involves monitoring the balance sheet contractual and behavioral maturity profiles and projecting and modeling the liquidity exposures of the firm under a variety of potential scenarios – encompassing both normal and stressed market conditions. Limits are set at Group and business division level by the BoD, the Group ALCO, the Group Chief Financial Officer (Group CFO) and the Group Treasurer. These limits are monitored by Group Treasury, which reports the results and trends on a regular basis to the BoD Risk Committee and the Group ALCO. | ||||
Our major sources of liquidity are channeled through entities that are fully consolidated. The liquidity position and asset and liability profile are continuously tracked. We consider the possibility that our access to markets could be impacted by a stress event affecting some, or all, parts of our business. The results are factored into our overall contingency plans. Contingency plans for a liquidity crisis are then incorporated into our wider crisis management process. | ||||
Liquidity management | ||||
We manage our liquidity position in order to be able to survive a UBS-specific liquidity crisis combined with a generally stressed market environment. This is complemented by our funding risk management, which aims to achieve the optimal liability structure to finance our businesses reliably and cost-efficiently. |
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Our business activities generate asset and liability portfolios that are intrinsically highly diversified with respect to market, product and currency. This reduces our exposure to individual funding sources, and also provides a broad range of investment opportunities, which in turn reduces liquidity risk. | ||||||
Our funding diversification and global scope help protect our liquidity position in the event of a crisis. The liquidity and funding process is undertaken jointly by Group Treasury and the foreign exchange and money market (FXMM) unit within the Investment Bank’s fixed income, currencies and commodities (FICC) business area. Group Treasury establishes a control framework, while FICC undertakes operational cash and collateral management within the established limits. | ||||||
This permits close control of both our global cash position and our stock of high-quality liquid securities. Our treasury processes also ensure that the firm’s general access to wholesale cash markets is concentrated in FICC. Funds raised externally are largely channeled into FICC, including the proceeds of debt securities issued by UBS, an activity for which Group Treasury is responsible. FICC in turn meets internal demands for funding by channeling funds from units generating surplus cash to those in need of financing. | ||||||
Liquidity modeling, controls and contingency planning | ||||||
For the purpose of monitoring our liquidity situation, we employ the following main measures: | ||||||
– | Acash ladderwhich is used to manage our funding requirements on a daily basis within limits that are set by the Group ALCO, the Group CFO and the Group Treasurer. This cumulative cash ladder shows the daily liquidity position – the net cumulative funding requirement for a specific day – projected for each business day from the current day forward three months. | |||||
– | Astressedversion of thecash ladderwhich is overlaid with behavioral assumptions that model a severe UBS-specific liquidity crisis combined with a generally stressed market environment. This stress scenario is run daily and used to project potential outflows over a one-month time horizon. | |||||
– | Acontractual maturity gapanalysis of our assets and liabilities over a one-year time horizon. | |||||
– | Abehavioral maturity gapanalysis under an assumed UBS-specific liquidity crisis combined with a generally stressed market environment over a one-year time horizon. | |||||
– | Acash capital modelwhich measures the amount of stable funding in relation to the amount and composition of our assets. | |||||
All of these tools and models are reviewed and enhanced regularly to ensure that latest business developments are incorporated. | ||||||
The breakdown of the contractual maturities of our assets and liabilities serves as a starting point for stress testing analyses. This contractual view does not fully represent a liquidity risk management perspective, and is thus adjusted to include behavioral components and a more detailed breakdown of asset and liability types. |
The liquidity crisis scenario combines a firm-specific crisis with market disruption and focuses on a time horizon extending up to one year. This UBS-specific scenario envisages large drawdowns on otherwise stable client deposits which are predominantly due contractually on demand, an inability to renew or replace maturing unsecured wholesale funding and the reduced capacity to generate liquidity from trading assets. Liquidity crisis scenario analysis and contingency planning supports the liquidity management process so that immediate corrective measures, such as the use of a liquidity buffer to absorb potential sudden liquidity shortfalls, can be put into effect. | ||||||
Since a liquidity crisis could have a myriad of causes, we focus on a scenario that encompasses potential stress effects across all markets, currencies and products. | ||||||
The assessment includes the likelihood of maturing assets and liabilities being rolled over in a UBS-specific crisis within an otherwise stressed market environment, and gauges the extent to which the potential crisis-induced shortfall could be covered by available funding. This would be raised on a secured basis against available collateral, which includes securities eligible for pledging at the major central banks, or by selling inventory. In both cases we apply crisis-level discounts to the value of assets. We assume that we would generally be unable to renew any of our wholesale unsecured debt, including all our maturing money market paper (CHF 56 billion outstanding on 31 December 2010). Since liquidity needs may also result from commitments and contingencies, including credit lines extended to secure the liquidity needs of clients, we regularly monitor undrawn committed credit facilities and other latent liquidity risks and factor these into the scenario analysis. Particular emphasis is placed on potential drawdowns of committed credit lines. | ||||||
If our credit ratings were to be downgraded, “rating trigger” clauses, especially in derivative transactions, could result in an immediate cash outflow due to the unwinding of derivative positions or the need to deliver additional collateral. Based on our credit ratings as of 31 December 2010, additional collateral or termination payments pursuant to agreements with certain counterparties of approximately CHF 0.7 billion and CHF 1.9 billion would have been required in the event of a one-notch and two-notch reduction, respectively, in our long-term credit ratings. At year-end 2010 our long-term senior debt ratings were as follows: Moody’s Aa3 (outlook: negative); Standard and Poor’s A+ (outlook: stable); and Fitch Ratings A+ (outlook: stable). | ||||||
We also take into account the potential impact on our net liquidity position of adverse movements in the replacement value of our over-the-counter (OTC) derivative transactions, which are subject to collateral arrangements. Given the diversity of our derivatives business and that of our counterparties, there is not necessarily a direct correlation between the factors influencing net replacement values with each counterparty and a UBS-specific crisis scenario. | ||||||
è | Refer to “Note 23 Derivative instruments and hedge accounting” in the “Financial information” section of this report for more information |
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Liquidity limits and controls | ||
Liquidity and funding limits and targets are set by the BoD, the Group ALCO, the Group CFO and the Group Treasurer, taking into consideration our business model and strategy, the prevailing market conditions and our tolerance for risk. The principles underlying our limit and target framework aim to maximize and sustain the value of our business franchise and maintain an appropriate balance in the asset/liability structure. Structural limits and targets focus on the structure and composition of the balance sheet, while supplementary limits and targets are designed to drive the utilization and allocation of funding resources. Together the limits and targets focus on structural liquidity risk for periods out to one year, including stress testing, and on the liability mix, including diversification by source, counterparty, currency and tenor. Group Treasury is responsible for the oversight of the liquidity and funding limits and targets. Performance versus limits and targets is monitored and regularly communicated to senior management. On an annual basis these limits and targets are reviewed and reconfirmed by the respective authorities. | ||
To complement and support the limit framework, Group Treasury and members of our regional and divisional treasuries monitor the markets in which we operate for potential threats. | ||
We have contingency plans for liquidity crisis management, a cornerstone of which are our substantial liquidity reserves, including a large multi-currency portfolio of unencumbered high-quality short-term assets and available and unutilized liquidity facilities at several major central banks. | ||
The liquidity contingency plan is an integral part of the global crisis management concept, which covers all types of crisis events. Its implementation falls under the responsibility of a special crisis |
team with representatives from Group Treasury, FICC and related areas, including the functions responsible for payments and settlements, market and credit risk control, collateral and margin management, and information technology and infrastructure. Our global management model lends itself naturally to efficient liquidity crisis management. Should a crisis require contingency funding measures to be invoked, Group Treasury is responsible for coordinating liquidity generation with representatives from FICC and the relevant business areas.
New Swiss regulatory liquidity regime
During 2010, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) introduced a revised liquidity regime for big banks which came into effect on 30 June 2010, designed to ensure stability within the Swiss financial industry. The new regime is broadly consistent with international proposals for liquidity regulations, particularly the principles written by the Basel Committee for Banking Supervision. The core element of the new liquidity regime is a severe stress scenario that combines a general financial market crisis with creditors’ loss of trust in the bank. The new liquidity regulations require the banks to hold liquid assets sufficient to offset the projected outflows under the stress scenario for a period of 30 days. Our established internal liquidity stress tests consider a stress scenario similar in nature to that used by the new FINMA liquidity regime. We believe this will enable us to sustain our business for a period substantially beyond the minimum regulatory horizon.
è | Refer to the “Regulatory developments” section of this report for more information |
UBS asset funding | ||
1 Including compound debt instruments – OTC. 2 Including cash collateral on derivative transactions. |
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Funding | ||
Our wealth management businesses represent valuable and cost-efficient sources of funding. At year-end 2010, these businesses contributed CHF 304 billion, or 92%, of the CHF 332 billion total customer deposits shown in the “UBS asset funding” graph. Compared with the CHF 263 billion of net loans as of 31 December 2010, customer deposits provided 126% coverage compared with an adjusted 127% on 31 December 2009. In the fourth quarter of 2010, we changed the presentation of cash collateral from derivative transactions and prime brokerage receivables and payables. These positions are no longer included in customer and interbank deposits, but are now shown as part of “other liabilities” in the “UBS asset funding” graph. | ||
In terms of secured funding (i.e. repurchase agreements and securities lent against cash collateral received), we borrowed less cash on a collateralized basis than we lent, leading to a surplus of net securities sourced – shown as the CHF 124 billion cash-equivalent surplus in the “UBS asset funding” graph. | ||
Funding is also provided through numerous short-, medium- and long-term funding programs, which offer customized investment opportunities to institutional and private clients. These programs can efficiently raise funds globally, further reducing our dependence on any particular source. | ||
Through broad diversification of our funding sources by market, product and currency, we maintain a well-balanced portfolio of liabilities, which provide protection in the event of market disruptions. This enables us to efficiently fund our business activities. | ||
Funding approach | ||
Funding activities are planned by assessing the overall liquidity and funding profile of the balance sheet, taking account of stable |
funding needed to support ongoing business activities through periods of difficult market conditions.
UBS: funding by product and currency | ||||||||||||||||||||||||||||||||||||||||
All currencies | CHF | EUR | USD | Other | ||||||||||||||||||||||||||||||||||||
In %1 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||||||||||||||||||||
Securities lending | 0.9 | 1.0 | 0.0 | 0.0 | 0.2 | 0.2 | 0.6 | 0.5 | 0.1 | 0.3 | ||||||||||||||||||||||||||||||
Repurchase agreements | 9.6 | 8.1 | 1.0 | 1.0 | 1.4 | 1.4 | 6.4 | 4.5 | 0.8 | 1.2 | ||||||||||||||||||||||||||||||
Interbank | 5.3 | 4.0 | 1.1 | 0.7 | 0.6 | 0.5 | 1.3 | 1.1 | 2.3 | 1.7 | ||||||||||||||||||||||||||||||
Money market paper | 7.2 | 6.5 | 0.2 | 0.2 | 0.7 | 0.6 | 5.7 | 5.0 | 0.6 | 0.7 | ||||||||||||||||||||||||||||||
Retail savings / deposits | 13.4 | 12.8 | 9.3 | 8.4 | 0.8 | 0.8 | 3.3 | 3.6 | 0.0 | 0.0 | ||||||||||||||||||||||||||||||
Demand deposits | 15.6 | 14.7 | 5.9 | 4.7 | 3.1 | 3.7 | 4.5 | 4.4 | 2.1 | 2.0 | ||||||||||||||||||||||||||||||
Fiduciary | 3.9 | 5.4 | 0.2 | 0.3 | 1.1 | 1.5 | 2.1 | 2.9 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||
Time deposits | 9.6 | 9.9 | 0.5 | 0.8 | 1.2 | 1.3 | 5.3 | 4.8 | 2.6 | 3.0 | ||||||||||||||||||||||||||||||
Long-term debt | 22.4 | 24.3 | 3.2 | 3.2 | 8.0 | 9.7 | 8.0 | 7.8 | 3.2 | 3.6 | ||||||||||||||||||||||||||||||
Cash collateral payables on derivative transactions2 | 7.5 | 8.3 | 0.2 | 0.2 | 3.2 | 3.0 | 3.2 | 3.6 | 0.9 | 1.5 | ||||||||||||||||||||||||||||||
Prime brokerage payables2 | 4.7 | 4.8 | 0.1 | 0.0 | 0.5 | 0.5 | 3.4 | 3.8 | 0.7 | 0.5 | ||||||||||||||||||||||||||||||
Total | 100.0 | 100.0 | 21.5 | 19.4 | 20.7 | 23.4 | 43.9 | 42.0 | 13.9 | 15.2 | ||||||||||||||||||||||||||||||
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UBS: funding by product type1
UBS: funding by currency1
Funding position and diversification
Credit ratings
cies to assess a firm’s creditworthiness and determine its credit ratings include stability and quality of earnings, capital adequacy, risk profile and management, liquidity management, diversification of funding sources, asset quality and corporate governance. Credit ratings reflect the opinions of the rating agencies and can therefore be changed at any time.
Maturity breakdown of long-term straight debt portfolio
Long-term straight debt – contractual maturities
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positions shown in the graph, CHF 10 billion, or 14%, will mature within one year, down from 17% a year earlier. The equivalent of CHF 1.5 billion of subordinated debt with a contractual maturity date in 2016 has an early call date during 2011. | ||||||
The abovementioned CHF 70 billion long-term straight debt forms part of the CHF 130 billion shown on theDebt issuedline on the balance sheet. | ||||||
è | Refer to “Note 19 Financial liabilities designated at fair value and debt issued” in the “Financial information” section of this report for more information | |||||
Maturity analysis of financial liabilities | ||||||
Contractual maturity information of our assets and liabilities serves as a starting point for the stress testing analyses described |
earlier. Our liquidity risk management framework includes a behavioral stress analysis, which involves a more detailed assessment of asset and liability cash flows as well as outflows from off-balance sheet exposures. | ||
The contractual maturities of our non-derivative and non-trading financial liabilities as of 31 December 2010 presented in the table below are based on the earliest date on which we could be required to pay. The total amounts that contractually mature in each time-band are also shown for 31 December 2009. Derivative positions and trading liabilities, predominantly made up of short sale transactions, are assigned to the column “On demand” as management believes that this provides the most accurate reflection of the short-term nature of trading activities. The contractual maturity may extend over significantly longer periods. |
Maturity analysis of financial liabilities1 | ||||||||||||||||||||||||||||||
Due | Due | Due | ||||||||||||||||||||||||||||
Due | between | between | between | |||||||||||||||||||||||||||
within | 1 and 3 | 3 and 12 | 1 and 5 | Due after | ||||||||||||||||||||||||||
CHF billion | On demand2 | 1 month2 | months2 | months2 | years3 | 5 years3 | Total | |||||||||||||||||||||||
Financial liabilities recognized on balance sheet | ||||||||||||||||||||||||||||||
Due to banks | 22.4 | 14.4 | 2.2 | 1.0 | 1.5 | 0.1 | 41.5 | |||||||||||||||||||||||
Cash collateral on securities lent | 6.6 | 0.0 | 6.7 | |||||||||||||||||||||||||||
Repurchase agreements | 7.0 | 51.4 | 11.4 | 4.9 | 0.0 | 74.8 | ||||||||||||||||||||||||
Trading portfolio liabilities4, 5 | 55.0 | 55.0 | ||||||||||||||||||||||||||||
Negative replacement values4 | 393.8 | 393.8 | ||||||||||||||||||||||||||||
Cash collateral payables on derivative instruments | 58.9 | 58.9 | ||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 2.0 | 4.2 | 20.1 | 45.7 | 28.7 | 100.8 | ||||||||||||||||||||||||
Due to customers | 200.2 | 113.0 | 8.7 | 9.7 | 0.5 | 0.1 | 332.3 | |||||||||||||||||||||||
Accrued expenses and deferred income | 7.6 | 7.6 | ||||||||||||||||||||||||||||
Debt issued | 20.1 | 21.4 | 28.4 | 34.5 | 25.9 | 130.3 | ||||||||||||||||||||||||
Other liabilities | 18.1 | 41.6 | 59.7 | |||||||||||||||||||||||||||
Total 31.12.10 | 762.1 | 250.2 | 47.9 | 64.1 | 82.2 | 54.8 | 1,261.3 | |||||||||||||||||||||||
Total 31.12.09 | 806.3 | 213.5 | 43.4 | 69.4 | 83.8 | 70.6 | 1,286.9 | |||||||||||||||||||||||
Financial liabilities not recognized on balance sheet6 | ||||||||||||||||||||||||||||||
Commitments | ||||||||||||||||||||||||||||||
Loan commitments | 54.2 | 1.5 | 0.5 | 0.5 | 0.2 | 0.0 | 56.9 | |||||||||||||||||||||||
Underwriting commitments | 0.0 | 0.2 | 0.0 | 0.0 | 0.2 | 0.0 | 0.4 | |||||||||||||||||||||||
Total commitments | 54.2 | 1.7 | 0.5 | 0.5 | 0.4 | 0.0 | 57.3 | |||||||||||||||||||||||
Guarantees | 14.9 | 0.3 | 0.2 | 0.7 | 0.4 | 0.1 | 16.5 | |||||||||||||||||||||||
Forward starting transactions | ||||||||||||||||||||||||||||||
Reverse repurchase agreements | 11.3 | 26.8 | 0.2 | 0.7 | 0.0 | 0.0 | 39.0 | |||||||||||||||||||||||
Securities borrowing agreements | 0.0 | 0.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.5 | |||||||||||||||||||||||
Total 31.12.10 | 80.4 | 29.2 | 0.9 | 1.9 | 0.8 | 0.1 | 113.3 | |||||||||||||||||||||||
Total 31.12.09 | 87.6 | 32.0 | 1.3 | 1.0 | 0.5 | 0.1 | 122.6 | |||||||||||||||||||||||
1 Only financial instruments (as disclosed in “Note 29a Measurement categories of financial assets and financial liabilities” in the “Financial information” section of this report) are required to be disclosed in the maturity analysis, therefore, not all numbers in the table reconcile to the line items in the balance sheet. The differences relate to accrued expenses, deferred income and other liabilities and also comprise, deferred tax liabilities, provisions and liabilities from employee compensation plans. 2 Our liquidity risk management focus is on short and mid-term cash flows. In these time periods, the carrying values of non-derivative financial liabilities largely approximate the undiscounted cash flows. 3 Represents carrying values. 4 Carrying value is fair value. Management believes that this best represents the cash flows that would have to be paid if these positions had to be settled or closed out. Refer to “Note 23 Derivative instruments and hedge accounting” in the “Financial information” section of this report for undiscounted cash flows of derivatives designated in hedge accounting relationships. 5 Contractual maturities of trading portfolio liabilities are: CHF 53.7 billion due within one month (2009: CHF 45.9 billion); and CHF 1.2 billion due more than one month (2009: CHF 1.6 billion). 6 The table below shows the maximum irrevocable amount of Guarantees, Commitments and Forward starting transactions. |
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Interest rate and currency management
Management of non-trading interest rate risk | ||
Our largest non-trading interest rate exposures arise within our wealth management business divisions. With the exception of the Wealth Management Americas business, the inherent interest rate risk exposures are transferred from the originating business into one of two centralized interest rate risk management units: Group Treasury or the Investment Bank’s FICC unit. These units manage the risks on an integrated basis, maximizing the netting potential across risks from different sources. | ||
The interest rate risk management responsibility for Wealth Management & Swiss Bank transactions executed in Switzerland was transferred to Group Treasury. The fixed-rate products do not contain embedded options, such as early prepayment, which would allow clients to prepay at par. All prepayments are therefore subject to market-based unwinding costs. Transactions executed outside of Switzerland continue to be transferred predominantly to FICC. | ||
Current and savings accounts and many other retail products of Wealth Management & Swiss Bank 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 managed 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 Group Treasury, structured to approximate, on average, the implied behavioral interest rate cash flow and repricing behavior of the 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 much as possible against market interest rate movements, but retain and manage their own 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 Group Treasury through replicating portfolios which, in this case, are designed to approximate the tenor profile mandated by senior management. |
Group 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 which include value-at-risk (VaR) and stress loss. The preferred risk management instruments are interest rate swaps, for which there is a liquid and flexible market. All transactions are executed via the Investment Bank. Group Treasury does not directly access the external market for swap transactions. | ||||||
In addition to its regular risk management activities, Group Treasury executes transactions that aim to hedge negative effects on the Bank’s net interest income stemming from the prolonged period of extraordinarily low yields. As part of this strategy, UBS acquired in October and November 2010 approximately CHF 10 billion face amount of US Treasury securities and approximately CHF 5 billion face amount of UK Government bonds, with a weighted average maturity of approximately 8 years at the end of 2010. The portfolio is held on the balance sheet and is classified for accounting purposes as available-for-sale. The difference between the market value of these securities and their amortized cost does not affect net profit, but is included in the calculation of comprehensive income and accordingly affects our shareholders’ equity and our regulatory capital. In the fourth quarter of 2010, we charged CHF 545 million (pre-tax) against other comprehensive income as a result of reductions in the market value of this portfolio. Assuming that we continue to hold these securities, future changes in their market value will affect our other comprehensive income and capital. If we hold the securities until their maturity, the effect of market value changes would reverse over time back to amortized cost plus accrued interest at maturity. | ||||||
è | Refer to the “Market risk” section of this report for more information on our market risk measures and controls | |||||
Market risk arising from management of consolidated capital | ||||||
Key ratios on capital and risk-weighted assets (RWA) are monitored by regulators and analysts and are key indicators of our financial strength. |
Group Treasury: value-at-risk (1-day, 95% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||
Year ended 31.12.10 | Year ended 31.12.09 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | ||||||||||||||||||||||||
Interest rates | 2 | 18 | 6 | 4 | 1 | 7 | 3 | 3 | ||||||||||||||||||||||||
Foreign exchange | 0 | 18 | 5 | 2 | 0 | 15 | 3 | 2 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (2 | ) | (1 | ) | 1 | 1 | (1 | ) | (1 | ) | ||||||||||||||||||||
Total management VaR | 2 | 22 | 8 | 5 | 2 | 16 | 5 | 4 | ||||||||||||||||||||||||
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The majority of our capital and many of our assets are denominated in Swiss francs, but we also hold RWA and some eligible capital in other currencies, primarily US dollars, euros and British pounds. Any significant depreciation of the Swiss franc against these currencies would adversely impact our key ratios. Group Treasury’s mandate is to minimize adverse currency impacts on these ratios. | ||
Group Treasury’s target to hedge the key ratios is based on a currency mix of capital that broadly reflects the currency distribution of our consolidated RWA. As the Swiss franc depreciates or appreciates against these currencies, the consolidated RWA increases or decreases relative to our capital. These currency fluctuations also lead to foreign currency translation gains or losses on consolidation, which are recorded through equity. Thus, our consolidated equity rises or falls in line with the fluctuations in the RWA. 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. | ||
Furthermore, Group Treasury has the mandate to generate a stable interest income flow from capital. The capital of the parent bank and its subsidiaries is placed via interest-bearing cash deposits internally within our entity network. Group Treasury further maintains a portfolio of interest rate swaps to achieve a target tenor profile and return on invested equity. | ||
To provide a benchmark for investments of equity, Group Treasury defines a replicating portfolio of target tenors and currencies. The effective investment positions created by both internal cash deposits and interest rate swaps are then measured against this benchmark tenor replication portfolio. Mismatches between the two are measured, together with other non-trading interest rate risk positions, against Group Treasury’s market risk limits (VaR and stress loss). | ||
Non-trading foreign exchange risks are managed under market risk limits, with the exception of Group Treasury management of consolidated capital activity. | ||
On 31 December 2010, our consolidated equity was invested, according to target, as follows: in Swiss francs (including most of the capital of the Parent Bank) with an average duration of approximately three years and fair value sensitivity of CHF 9.5 million per basis point; in US dollars with an average duration of approximately four years and a sensitivity of CHF 7.1 million per basis point; in euros with an average duration of approximately three years and a sensitivity of CHF 0.9 million per basis point; and in British pounds with a duration of approximately three years and a sensitivity of CHF 0.4 million per basis point. The sensitivities directly relate to the chosen durations. Targeting significantly shorter tenors reduces fair value sensitivities, but leads to greater volatility in the interest income. |
Corporate currency management | ||
Our corporate currency management activities are designed to reduce the impact of adverse currency fluctuations on our reported financial results in Swiss francs, given regulatory constraints. We specifically focus on three principal areas of currency risk management: Currency matched funding of investments in non-Swiss franc assets and liabilities; sell-down of non-Swiss franc profits and losses; and selective hedging of anticipated non-Swiss franc profits and losses. | ||
Currency matched funding and investment of non-Swiss franc assets and liabilities | ||
For monetary balance sheet items and non-core investments, we follow the principle of matching the currency of our assets with the same currency of the liabilities from which they are funded, at least as far as it is practical and efficient to do so. A US dollar asset is thus typically funded in US dollars, while a euro liability is typically offset by an asset in euros. This avoids profits and losses arising from the retranslation of foreign currency assets and liabilities at the prevailing exchange rates to the Swiss franc at quarter-ends. | ||
Sell-down of reported profits and losses | ||
For accounting purposes, reported profit and losses are translated each month from their original transaction currencies into Swiss francs at exchange rates fixed at the prevailing month-end. In order to eliminate earnings volatility on the retranslation of previously recognized earnings in foreign currencies, Group Treasury centralizes the profits and losses arising in the parent bank and sells or buys them for Swiss francs. Our other operating entities follow a similar monthly sell-down process into their own reporting currencies. Retained earnings in operating entities with a reporting currency other than the Swiss franc are integrated and managed as part of our consolidated equity. | ||
Hedging of anticipated future reported profits and losses | ||
Our corporate currency management executes a dynamic and cost-efficient hedging strategy to protect anticipated future profit and losses in foreign currencies against possible adverse trends of foreign exchange rates from one reporting period to the next. At any point in time, Group Treasury may hedge part or all of the anticipated next three months’ earnings. Although intended to hedge future earnings, these transactions are accounted for as open currency positions and are subject to internal market risk VaR and stress loss limits. |
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Capital management
Eligible capital must be available to support business activities, in accordance with both our own internal assessment and the requirements of our regulators, in particular our lead regulator FINMA. | ||||||
We aim to maintain sound capital ratios at all times, and we therefore consider not only the current situation but also projected business and regulatory developments. The main tools we employ to manage our capital ratios are: the active management of own shares, capital instruments, dividends and RWA. | ||||||
Capital adequacy management | ||||||
Ongoing compliance with regulatory capital requirements and target capital ratios is central to our capital adequacy management. In this process, we manage towards tier 1 and total capital target ratios. In the target setting process we take into account the current and future minimum requirements set by regulators as well as their “buffer” expectations. Furthermore, we consider our own internal assessment of aggregate risk exposure in terms of capital-at-risk, the views of rating agencies and comparisons with peer institutions. | ||||||
è | Refer to the “Risk management and control” section of this report for more information on earnings-at-risk and capital-at-risk | |||||
Regulatory requirements | ||||||
We are subject to FINMA regulatory capital requirements, which result in higher RWA than under BIS guidelines. | ||||||
è | Refer to the additional capital management disclosure in the “Basel II Pillar 3” section of this report | |||||
To allow for comparability, published RWA are determined in accordance with the BIS guidelines. For the determination of the eligible capital, there were no differences between BIS guidelines and FINMA regulations as of 31 December 2010. | ||||||
During 2010, we complied with all externally imposed capital requirements. | ||||||
The Basel III revisions will have a negative impact on capital (mainly due to the exclusion of deferred tax assets, pension assets and hybrid tier 1 capital instruments for the calculation of common equity) and also mean significantly higher RWA. As a result, our common equity ratio would be materially lower than our current BIS tier 1 ratio, if Basel III requirements were effective immediately. It is therefore important to also consider the Basel III transitional arrangements, which effectively phase in the impacts on capital over several years. | ||||||
è | Refer to the “Regulatory developments” section of this report for more information |
Capital ratios and RWA | ||||||
BIS capital ratios | ||||||
The BIS capital ratios compare eligible capital (tier 1 and total capital) with total RWA. | ||||||
On 31 December 2010, our BIS tier 1 capital ratio stood at 17.8% (up from 15.4% on 31 December 2009), our BIS core tier 1 capital ratio stood at 15.3% (up from 11.9% on 31 December 2009), while our BIS total capital ratio was 20.4% (up from 19.8% on 31 December 2009). Our BIS tier 1 capital increased by CHF 3.5 billion to CHF 35.3 billion, while RWA decreased to CHF 198.9 billion from CHF 206.5 billion. | ||||||
è | Refer to the discussions on “Capital adequacy management” and “Eligible capital” in this section for more information | |||||
Capital requirements | ||||||
Our capital requirements are based on our consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), adjusted for regulatory differences. Under IFRS, subsidiaries and special purpose entities that are directly or indirectly controlled by UBS must be consolidated, whereas for regulatory capital purposes, different consolidation principles apply. For example, subsidiaries that are not active in the banking and finance business are not consolidated. | ||||||
è | Refer to the additional capital management disclosure in the “Basel II Pillar 3” section of this report for more information | |||||
On 31 December 2010, BIS RWA were CHF 198.9 billion, compared with CHF 206.5 billion at year-end 2009. The analysis by component is as follows: |
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Credit risk | ||||||
RWA for credit risk amounted to CHF 119.9 billion on 31 December 2010, compared with CHF 140.5 billion on 31 December 2009. The reduction was primarily related to lower derivatives RWA of CHF 7.9 billion and reduced drawn exposure RWA of CHF 8.7 billion, as well as a reduction in residential mortgage RWA of CHF 2.6 billion. These decreases occurred mainly in the Investment Bank and Wealth Management & Swiss Bank. The weakening of several major currencies against the Swiss franc has been a significant contributor to most of these RWA reductions. | ||||||
è | Refer to the “Credit risk” section of this report for more information | |||||
Non-counterparty related assets | ||||||
RWA for non-counterparty related assets amounted to CHF 6.2 billion on 31 December 2010, compared with CHF 7.0 billion on 31 December 2009. | ||||||
Market risk | ||||||
In 2010, RWA for market risk increased by CHF 7.9 billion to CHF 20.8 billion on 31 December 2010. This was due to an increase in average regulatory VaR exposures, primarily resulting from increased credit spread risk. | ||||||
è | Refer to the “Market risk” section of this report for more information | |||||
Operational risk | ||||||
RWA for operational risk increased to CHF 51.9 billion on 31 December 2010 from CHF 46.1 billion on 31 December 2009, as agreed with FINMA. | ||||||
è | Refer to the “Operational risk” section of this report for more information | |||||
Eligible capital | ||||||
Eligible capital, the capital available to support RWA, consists of tier 1 and tier 2 capital. To determine eligible tier 1 and total capital, specific adjustments must be made to equity attributable |
to our shareholders as defined by IFRS and as shown on our balance sheet. The most notable adjustments are the deductions for goodwill, intangible assets, investments in unconsolidated entities engaged in banking and financial activities and own credit effects on liabilities designated at fair value. | ||||||
Tier 1 capital | ||||||
Tier 1 capital amounted to CHF 35.3 billion on 31 December 2010, compared with CHF 31.8 billion on 31 December 2009, an increase of CHF 3.5 billion. The positive contributors to this increase were the CHF 7.5 billion net profit attributable to UBS shareholders and the reversals of own credit losses of CHF 0.5 billion. These effects were partially offset by a redemption of hybrid tier 1 capital of CHF 1.5 billion, increased tier 1 deductions of CHF 1.0 billion (securitization exposures and other deduction items), negative effects relating to share-based compensation net of tax of CHF 0.9 billion, as well as currency effects of CHF 0.6 billion and other effects of CHF 0.5 billion. | ||||||
Hybrid tier 1 capital | ||||||
These instruments are perpetual and can only be redeemed if they are called by the issuer after having received regulatory approval. The payment of interest is subject to compliance with minimum capital ratios and other requirements. Any missed payment is non-cumulative. As of 31 December 2010, our hybrid tier 1 instruments amounted to CHF 4.9 billion, down from CHF 7.2 billion as of 31 December 2009. Under IFRS, these instruments are accounted for as equity attributable to non-controlling interests. | ||||||
Tier 2 capital | ||||||
These instruments consist mainly of our subordinated long-term debt that ranks senior to both our shares and hybrid tier 1 instruments but is subordinated to all our senior obligations. Tier 2 capital net of tier 2 deductions accounted for CHF 5.2 billion in total capital as of year-end 2010. In 2010, we redeemed a floating rate EUR 1.2 billion subordinated bond. | ||||||
è | Refer to the “Shares and capital instruments” section of this report for more information |
Capital adequacy | ||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | ||||||
BIS core tier 1 capital | 30,420 | 24,574 | ||||||
BIS tier 1 capital | 35,323 | 31,798 | ||||||
BIS total capital | 40,542 | 40,941 | ||||||
BIS core tier 1 capital ratio (%) | 15.3 | 11.9 | ||||||
BIS tier 1 capital ratio (%) | 17.8 | 15.4 | ||||||
BIS total capital ratio (%) | 20.4 | 19.8 | ||||||
BIS risk-weighted assets | 198,875 | 206,525 | ||||||
of which: credit risk1 | 119,919 | 140,494 | ||||||
of which: non-counterparty related risk | 6,195 | 7,026 | ||||||
of which: market risk | 20,813 | 12,861 | ||||||
of which: operational risk | 51,948 | 46,144 | ||||||
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Capital components | ||||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||||
BIS core tier 1 capital prior to deductions1 | 46,365 | 40,144 | ||||||||
of which: paid-in share capital | 383 | 356 | ||||||||
of which: share premium, retained earnings, currency translation differences and other elements | 45,982 | 39,788 | ||||||||
Less: treasury shares / deduction for own shares2 | (2,993 | ) | (2,424 | ) | ||||||
Less: goodwill & intangible assets | (9,822 | ) | (11,008 | ) | ||||||
Less: securitization exposures3 | (2,385 | ) | (1,506 | ) | ||||||
Less: other deduction items4 | (744 | ) | (632 | ) | ||||||
BIS core tier 1 capital | 30,420 | 24,574 | ||||||||
Hybrid tier 1 capital | 4,903 | 7,224 | ||||||||
of which: non-innovative capital instruments | 1,523 | 1,785 | ||||||||
of which: innovative capital instruments | 3,380 | 5,438 | ||||||||
BIS tier 1 capital | 35,323 | 31,798 | ||||||||
Upper tier 2 capital | 110 | 50 | ||||||||
Lower tier 2 capital | 8,239 | 11,231 | ||||||||
Less: securitization exposures3 | (2,385 | ) | (1,506 | ) | ||||||
Less: other deduction items4 | (744 | ) | (632 | ) | ||||||
BIS total capital | 40,542 | 40,941 | ||||||||
1 “BIS core tier 1 capital prior to deductions” plus “Hybrid tier 1 capital” less “treasury shares / deduction for own shares” equals “Total equity / gross tier 1 including hybrid tier 1 instruments” in the “Reconciliation of IFRS equity to BIS tier 1 capital” table. 2 Consists of: i) net long position in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards; and iii) accruals built for upcoming share awards. 3 Includes a 50% deduction of the fair value of UBS’s option to acquire the SNB StabFund’s equity (CHF 1,781 million on 31.12.10 and CHF 1,216 million on 31.12.09). 4 Positions to be deducted as 50% from tier 1 and 50% from total capital mainly consist of: i) net long position of non-consolidated participations in the finance sector; ii) expected loss on advanced internal ratings-based portfolio less general provisions (if difference is positive); and iii) expected loss for equities (simple risk weight method). |
Transfer of capital within UBS Group
IFRS equity to BIS tier 1 capital
The main differences between IFRS equity attributable to shareholders and tier 1 capital result from:
– | The difference of CHF 0.4 billion inNet income recognized directly in equity, net of taxwas due to cash flow hedge effects, which are reversed for BIS purposes and thereby reduced the amount by CHF 1.1 billion. This was partly offset by CHF 0.4 billion of net positive foreign currency translation effects and the reclassification for BIS purpose of fair value changes relating toAvailable-for-sale securities of CHF 0.3 billion. |
Reconciliation of IFRS equity to BIS tier 1 capital | ||||||||||||||
31.12.10 | ||||||||||||||
CHF million | IFRS view1 | Reconciliation items | BIS view | |||||||||||
Share capital | 383 | 0 | 383 | |||||||||||
Share premium | 34,393 | (8 | ) | 34,386 | ||||||||||
Net income recognized directly in equity, net of tax | (6,534 | ) | (406 | ) | (6,940 | ) | ||||||||
Retained earnings | 19,285 | (857 | ) | 18,428 | ||||||||||
Equity classified as obligation to purchase own shares | (54 | ) | 54 | 0 | ||||||||||
Equity attributable to non-controlling interests | 5,043 | (33 | ) | 5,010 | ||||||||||
Treasury shares / deduction for own shares2 | (654 | ) | (2,339 | ) | (2,993 | ) | ||||||||
Total equity / gross tier 1 including hybrid tier 1 instruments | 51,863 | (3,588 | ) | 48,274 | ||||||||||
Less: goodwill, intangible assets and other deduction items | (12,952 | )3 | ||||||||||||
Less: accrual for expected future dividend payments | 0 | |||||||||||||
Eligible tier 1 capital | 35,323 | |||||||||||||
1 International Financial Reporting Standards (IFRS). 2 Generally, treasury shares are fully deducted from equity under IFRS, whereas for capital adequacy purposes this position covers the following: i) net long position in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards; and iii) accruals built for upcoming share awards. 3 “Other deduction items” include primarily 50% of the deductions for net long position of non-consolidated participations in the finance sector; expected loss on advanced internal ratings-based approach portfolio less general provisions (if difference is positive): expected loss for equities (simple risk weight method); and first loss positions from securitization exposures. |
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– | Retained earnings were lower under the BIS view than under IFRS by CHF 0.9 billion, primarily due to CHF 0.2 billion of life-to-date IFRS gains on own credit net of tax which are reversed for BIS purposes and CHF 0.3 billion attributable to differences in the scope of consolidation. The remainder is due to multiple factors, e.g. differences in measurement and recognition principles between IFRS and BIS, including a deduction for unrealized losses on available-for-sale securities. | |||
– | A negative adjustment inTreasury shares/deduction for own sharesof CHF 2.3 billion, mainly due to the different calculation of the capital deduction relating to share-based compensation. | |||
FINMA leverage ratio | ||||
FINMA requires a minimum leverage ratio of 3% at a Group level and expects that, in normal times, the ratio will be well above this. This target is to be achieved by 1 January 2013 at the latest. | ||||
On 31 December 2010, our Group FINMA leverage ratio improved to 4.45%, compared with the 31 December 2009 ratio of 3.93%. During the year, average total assets prior to deductions decreased by CHF 27.7 billion to CHF 1,398.5 billion. The average total adjusted assets fell by CHF 15.2 billion to CHF 794.2 billion. The table below shows the FINMA leverage ratio calculation for the Group. | ||||
Equity attribution framework | ||||
The equity attribution framework reflects our overarching objectives of maintaining a strong capital base and guiding businesses toward activities with the best balance of profit potential, risk and capital usage. In June 2010, the key principles underlying the equity attribution framework received BoD approval. | ||||
Within this framework, the BoD attributes equity to the businesses after considering their risk exposure, RWA usage, asset size, goodwill and intangible assets. |
The design of the equity attribution framework enables us to: | ||||
– | Calculate and assess return on attributed equity (RoE) in each of our business divisions. RoE is disclosed for all business divisions and units. | |||
– | Integrate Group-wide capital management activities with those at business division and business unit levels. | |||
– | Measure current period and historical performance in a consistent manner across business divisions and business units. | |||
– | Make better comparisons between our businesses and those of our competitors. | |||
The framework operates as follows: First, each business is attributed an amount of equity equal to the average book value of goodwill and intangible assets, as reported for that business division or business unit according to IFRS. Second, the BoD considers a number of factors that drive required capital, including: | ||||
– | Equity requirements based on aggregated risk exposure, including the potential for losses exceeding earnings capacity as defined by the firm’s risk-based capital. At certain other institutions, this factor is sometimes referred to as “economic capital”. | |||
– | RWA usage and a target capital ratio for each business. | |||
– | Asset size and a target leverage ratio for each business. | |||
After reviewing the results of this formulaic approach, the Group ALCO recommends and the BoD makes adjustments to the final tangible equity attribution to reflect the amount of equity it believes is appropriate for each business. This assessment is based on the expectations of the business’s clients and the business environment, including allowing for sufficient capital to support the business’s underlying risks and sustain extreme stress scenarios. The amount of equity attributed to all the businesses corresponds to the amount that we believe is required to maintain a strong capital base and support our businesses adequately. If the total equity attributed to the businesses differs from the Group’s actual equity during a given period, the surplus or deficit is reflected in Treasury activities and other corporate items. The BoD currently makes equity attribution decisions on a quarterly basis. |
FINMA leverage ratio calculation | ||||||||
CHF billion, except where indicated | Average 4Q10 | Average 4Q09 | ||||||
Total assets (IFRS)1 | 1,398.5 | 1,426.2 | ||||||
Less: netting of replacement values2 | (410.1 | ) | (420.9 | ) | ||||
Less: loans to Swiss clients (excluding banks)3 | (161.6 | ) | (161.4 | ) | ||||
Less: cash and balances with central banks | (20.1 | ) | (22.1 | ) | ||||
Less: other4 | (12.4 | ) | (12.4 | ) | ||||
Total adjusted assets | 794.2 | 809.4 | ||||||
BIS tier 1 capital (at year-end) | 35.3 | 31.8 | ||||||
FINMA leverage ratio (%) | 4.45 | 3.93 | ||||||
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Average attributed equity | ||||||||
CHF billion | 4Q10 | 4Q09 | ||||||
Wealth Management | 4.4 | 4.4 | ||||||
Retail & Corporate | 4.6 | 4.6 | ||||||
Wealth Management & Swiss Bank | 9.0 | 9.0 | ||||||
Wealth Management Americas | 8.0 | 8.0 | ||||||
Global Asset Management | 2.5 | 2.5 | ||||||
Investment Bank | 27.0 | 24.0 | ||||||
Treasury activities and other corporate items | 3.0 | 1.0 | ||||||
Average equity attributed to the business divisions | 49.5 | 44.5 | ||||||
Surplus / (deficit) | (2.2 | ) | (4.2 | ) | ||||
Average equity attributable to UBS shareholders | 47.3 | 40.3 | ||||||
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Treasury management
Shares and capital instruments
Shares
UBS shares and tier 1 capital
è | Refer to the “Shareholders’ participation rights” section of this report for more information |
Holding of UBS shares
UBS holds own shares for two main purposes: in Group Treasury to cover employee share and option programs and in the Investment Bank, to a limited extent, for trading purposes where the Investment Bank engages in market-making activities in UBS shares and related derivative products. The holding of treasury shares on 31 December 2010 increased to 38,892,031 or 1.0% of shares issued, from 37,553,872 or 1.1% on the same date one year prior.
Treasury shares held by the Investment Bank
Shares
For the year ended | |||||
Number of shares | 31.12.10 | ||||
Balance at the beginning of the year | 3,558,112,753 | ||||
Issue of shares for capital increase (conversion of MCN in March 2010) | 272,651,005 | ||||
Issue of shares for employee options | 76,755 | ||||
Balance at the end of the year | 3,830,840,513 | ||||
Shareholder-approved issuance of shares
Year approved by | ||||||||||||
Maximum number of | shareholder general | % of shares issued | ||||||||||
shares to be issued | meeting | 31.12.10 | ||||||||||
Conditional capital | ||||||||||||
SNB warrants | 100,000,000 | 2009 | 2.61 | |||||||||
Employee equity participation plans of UBS AG | 149,920,712 | 2006 | 3.91 | |||||||||
Conversion rights / warrants granted in connection with bonds | 380,000,000 | 2010 | 9.92 | |||||||||
Total | 629,920,712 | 16.44 | ||||||||||
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Capital instruments
In order to improve the quality of capital, regulators are proposing new requirements for capital instruments and creating a new category of capital instruments: contingent convertible bonds (CoCo). The changes proposed are designed to increase the resilience against a financial crisis and are expected to maintain the banks in crisis as going concerns. Regulators view these instruments as additional protection against systemic risks of large banks.
è | Refer to the “Regulatory developments” section of this report for more information |
Mandatory convertible notes
Hybrid tier 1 capital
Treasury share activities
Treasury shares purchased for employee share and | ||||||||||||||||
option participation plans and acquisitions1 | Total number of shares | |||||||||||||||
Month of purchase | Number of shares | Average price in CHF | Number of shares (cumulative) | Average price in CHF | ||||||||||||
January 2010 | 0 | 0.00 | 0 | 0.00 | ||||||||||||
February 2010 | 45,000,000 | 14.20 | 45,000,000 | 14.20 | ||||||||||||
March 2010 | 33,580,113 | 15.13 | 78,580,113 | 14.60 | ||||||||||||
April 2010 | 0 | 0.00 | 78,580,113 | 14.60 | ||||||||||||
May 2010 | 0 | 0.00 | 78,580,113 | 14.60 | ||||||||||||
June 2010 | 0 | 0.00 | 78,580,113 | 14.60 | ||||||||||||
July 2010 | 0 | 0.00 | 78,580,113 | 14.60 | ||||||||||||
August 2010 | 900,000 | 16.93 | 79,480,113 | 14.63 | ||||||||||||
September 2010 | 0 | 0.00 | 79,480,113 | 14.63 | ||||||||||||
October 2010 | 0 | 0.00 | 79,480,113 | 14.63 | ||||||||||||
November 2010 | 3,110,000 | 15.72 | 82,590,113 | 14.67 | ||||||||||||
December 2010 | 670,000 | 15.70 | 83,260,113 | 14.68 | ||||||||||||
Conversion price and number of shares
Amount | Conversion price per | Conversion into | ||||||||||||||||||||||||||
Coupon | (CHF billion) | Issuance date | Conversion period / maturity | UBS share (CHF) | number of UBS shares | |||||||||||||||||||||||
MCN | 9 | % | 13 | 5 March 2008 | 6 September 2008 | 5 March 2010 | 47.68 | 1 | 272,651,005 | |||||||||||||||||||
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Treasury management
Tier 2 capital
Distributions to shareholders
The decision whether to pay a dividend, and the level of the dividend, are dependent on our targeted capital ratios and cash flow generation. The decision on dividend payments is proposed by the BoD to the shareholders and is subject to their approval at the Annual General Meeting. The BoD has decided to further bolster capital and has therefore not proposed any dividend for the financial year 2010.
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UBS shares in 2010
UBS share price chart vs Dow Jones Banks Titans 30 Index
UBS shares are listed on the SIX Swiss Exchange (SIX) and the New York Stock Exchange (NYSE). As of 16 April 2010, UBS shares have been delisted from the Tokyo Stock Exchange.
è | Refer to the “Capital structure” section of this report for more information on our shares, including par value, type and rights of security |
Share liquidity
During 2010, the daily average volume in UBS shares on the SIX was 16.4 million shares. On the NYSE, it was 1.2 million shares. The SIX trades a higher volume of UBS shares, and as such, it is expected to remain the main factor determining the movement in our share price.
Ticker symbols
Trading exchange | Bloomberg | Reuters | ||
SIX | UBSN VX | UBSN.VX | ||
NYSE | UBS UN | UBS.N | ||
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 | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Total ordinary shares issued | 3,830,840,513 | 3,558,112,753 | 2,932,580,549 | |||||||||
Treasury shares | 38,892,031 | 37,553,872 | 61,903,121 | |||||||||
Weighted average shares (for basic EPS calculations)1 | 3,789,732,938 | 3,661,086,266 | 2,792,023,098 | |||||||||
Weighted average shares (for diluted EPS calculations) | 3,838,332,049 | 3,661,841,214 | 2,793,174,654 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
EPS | ||||||||||||
Basic EPS | 1.99 | (0.75 | ) | (7.63 | ) | |||||||
Basic EPS from continuing operations | 1.99 | (0.74 | ) | (7.68 | ) | |||||||
Diluted EPS | 1.96 | (0.75 | ) | (7.63 | ) | |||||||
Diluted EPS from continuing operations | 1.96 | (0.74 | ) | (7.69 | ) | |||||||
UBS shares and market capitalization
As of | % change from | |||||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||
Share price (CHF) | 15.35 | 16.05 | 14.84 | (4 | ) | |||||||||||
Market capitalization (CHF million)1 | 58,803 | 57,108 | 43,519 | 3 | ||||||||||||
Trading volumes
For the year ended | ||||||||||||
1,000 shares | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
SIX total | 4,166,417 | 5,105,358 | 7,174,486 | |||||||||
SIX daily average | 16,403 | 20,340 | 28,584 | |||||||||
NYSE total | 296,517 | 222,052 | 539,856 | |||||||||
NYSE daily average | 1,177 | 881 | 2,134 | |||||||||
Source: Thomson Reuters |
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Stock exchange prices1
SIX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High (CHF) | Low (CHF) | Period end (CHF) | High (USD) | Low (USD) | Period end (USD) | |||||||||||||||||||
2010 | 18.60 | 13.31 | 15.35 | 18.48 | 12.26 | 16.47 | ||||||||||||||||||
Fourth quarter 2010 | 17.83 | 14.92 | 15.35 | 18.48 | 14.99 | 16.47 | ||||||||||||||||||
December | 16.27 | 15.12 | 15.35 | 16.87 | 15.42 | 16.47 | ||||||||||||||||||
November | 17.46 | 14.92 | 15.03 | 18.15 | 14.99 | 15.07 | ||||||||||||||||||
October | 17.83 | 16.43 | 16.66 | 18.48 | 16.78 | 17.02 | ||||||||||||||||||
Third quarter 2010 | 18.53 | 13.94 | 16.68 | 18.47 | 13.04 | 17.03 | ||||||||||||||||||
September | 18.53 | 16.59 | 16.68 | 18.47 | 16.94 | 17.03 | ||||||||||||||||||
August | 18.34 | 16.51 | 17.18 | 17.64 | 16.08 | 16.83 | ||||||||||||||||||
July | 18.00 | 13.94 | 17.80 | 17.19 | 13.04 | 16.97 | ||||||||||||||||||
Second quarter 2010 | 18.60 | 14.15 | 14.46 | 17.75 | 12.26 | 13.22 | ||||||||||||||||||
June | 16.25 | 14.15 | 14.46 | 14.53 | 12.26 | 13.22 | ||||||||||||||||||
May | 17.32 | 14.56 | 15.53 | 15.77 | 12.58 | 13.33 | ||||||||||||||||||
April | 18.60 | 16.31 | 16.87 | 17.75 | 15.13 | 15.42 | ||||||||||||||||||
First quarter 2010 | 17.50 | 13.31 | 17.14 | 16.84 | 12.40 | 16.28 | ||||||||||||||||||
March | 17.47 | 14.78 | 17.14 | 16.41 | 13.65 | 16.28 | ||||||||||||||||||
February | 14.94 | 13.31 | 14.81 | 13.98 | 12.40 | 13.86 | ||||||||||||||||||
January | 17.50 | 14.01 | 14.03 | 16.84 | 12.85 | 13.01 | ||||||||||||||||||
2009 | 19.65 | 8.20 | 16.05 | 19.31 | 7.06 | 15.51 | ||||||||||||||||||
Fourth quarter 2009 | 19.34 | 14.76 | 16.05 | 19.18 | 15.03 | 15.51 | ||||||||||||||||||
Third quarter 2009 | 19.65 | 12.50 | 18.97 | 19.31 | 11.25 | 18.31 | ||||||||||||||||||
Second quarter 2009 | 17.51 | 10.56 | 13.29 | 15.82 | 9.40 | 12.21 | ||||||||||||||||||
First quarter 2009 | 17.00 | 8.20 | 10.70 | 15.31 | 7.06 | 9.43 | ||||||||||||||||||
2008 | 45.98 | 10.67 | 14.84 | 46.40 | 8.33 | 14.30 | ||||||||||||||||||
Fourth quarter 2008 | 24.00 | 10.67 | 14.84 | 21.30 | 8.33 | 14.30 | ||||||||||||||||||
Third quarter 2008 | 25.76 | 15.18 | 18.46 | 23.07 | 12.22 | 17.54 | ||||||||||||||||||
Second quarter 2008 | 35.11 | 20.96 | 21.44 | 36.02 | 20.41 | 20.66 | ||||||||||||||||||
First quarter 2008 | 45.98 | 21.52 | 25.67 | 46.40 | 22.33 | 28.80 | ||||||||||||||||||
2007 | 71.95 | 42.69 | 46.60 | 66.26 | 43.50 | 46.00 | ||||||||||||||||||
Fourth quarter 2007 | 61.05 | 42.69 | 46.60 | 58.01 | 43.50 | 46.00 | ||||||||||||||||||
Third quarter 2007 | 66.88 | 53.67 | 55.67 | 62.34 | 49.84 | 53.25 | ||||||||||||||||||
Second quarter 2007 | 71.55 | 63.72 | 65.46 | 66.26 | 58.73 | 60.01 | ||||||||||||||||||
First quarter 2007 | 71.95 | 59.76 | 64.21 | 64.30 | 55.40 | 59.43 | ||||||||||||||||||
2006 | 71.06 | 53.23 | 65.86 | 63.39 | 48.34 | 60.33 | ||||||||||||||||||
Fourth quarter 2006 | 71.06 | 62.88 | 65.86 | 63.39 | 58.50 | 60.33 | ||||||||||||||||||
Third quarter 2006 | 66.52 | 53.23 | 66.52 | 59.77 | 48.34 | 59.31 | ||||||||||||||||||
Second quarter 2006 | 66.97 | 54.31 | 59.32 | 61.70 | 49.36 | 54.85 | ||||||||||||||||||
First quarter 2006 | 64.05 | 55.60 | 63.39 | 55.55 | 48.66 | 54.99 | ||||||||||||||||||
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Basel II Pillar 3
Basel II Pillar 3
The Basel II capital adequacy framework consists of three pillars, each of which focuses on a different aspect of capital adequacy. Pillar 1 provides a framework for measuring minimum capital requirements for the credit, market and operational risks faced by banks. Pillar 2 addresses the principles of the supervisory review process, emphasizing the need for a qualitative approach to supervising banks. The aim of Basel II Pillar 3 is to encourage market discipline by requiring banks to publish a range of disclosures on risk and capital.
è | Refer to the “Risk management and control” and “Treasury management” sections of this report for more information on qualitative disclosures related to our risk management and control, definitions and risk exposures as well as to capital management |
Overview of disclosures
This table provides an overview of our Basel II Pillar 3 disclosures in our Annual Report 2010.
Basel II Pillar 3 requirement | Disclosure in the Annual Report 2010 | ||||
Capital structure | “Capital management” section | ||||
Capital adequacy | “Capital management” and “Basel II Pillar 3” sections | ||||
Risk management objectives, policies and methodologies (qualitative disclosure) | “Risk management and control” section | ||||
Credit risk | “Risk management and control” and “Basel II Pillar 3” sections | ||||
Investment positions | “Basel II Pillar 3” section | ||||
Market risk | “Risk management and control” and “Basel II Pillar 3” sections | ||||
Securitization | “Basel II Pillar 3” section | ||||
Operational risk | “Risk management and control” section | ||||
Interest rate risk in the banking book | “Risk management and control” section | ||||
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Our Pillar 3 disclosures may differ from the way we manage our risks and how these risks are disclosed in our quarterly reports and in other sections of this annual report.
– | Real estate and commercial companies as well as collective investment schemes are not consolidated for regulatory capital purposes but are risk-weighted. | |
– | Insurance companies are not consolidated for regulatory capital purposes but are deducted from capital. | |
– | Securitization vehicles are not consolidated for regulatory capital purposes but are treated under the securitization framework. | |
– | Joint ventures that are controlled by two ventures are fully consolidated for regulatory capital purposes, whereas they are valued under equity method accounting for IFRS. |
Category | Our approach | ||||
Credit risk | Under the advanced internal ratings-based (advanced IRB) approach applied for the majority of our businesses, credit risk weights are determined by reference to internal counterparty ratings and loss given default estimates. We use internal models, approved by FINMA, to measure the credit risk exposures to third parties on over-the-counter derivatives and repurchase-style (repo-style) transactions. For a subset of our credit portfolio, we apply the standardized approach based on external ratings. | ||||
Non-counterparty related risk | Non-counterparty related assets such as our premises, other properties and equipment require capital under-pinning according to prescribed regulatory risk weights. | ||||
Settlement risk | Capital requirements for failed transactions are determined according to the rules for failed trades and non-delivery-versus-payment transactions under the BIS Basel II framework. | ||||
Equity exposures outside trading book | Simple risk weight method under the advanced IRB approach. | ||||
Market risk | Regulatory capital requirement is derived from our value-at-risk (VaR) model, which is approved by FINMA. | ||||
Operational risk | We have developed a model to quantify operational risk which meets the regulatory capital standard under the Basel II advanced measurement approach (AMA). | ||||
Securitization exposures | Securitization exposures in the banking book are assessed using the advanced IRB approach, applying risk weights based on external ratings. | ||||
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Basel II Pillar 3
Capital
The “Detailed segmentation of BIS risk-weighted assets” table provides a granular breakdown of our RWA. The table also shows the net exposure at default (EaD) per category for the current disclosure period, which forms the basis for the calculation of the RWA.
è | Refer to the “Capital management” section of this report for more information on risk-weighted assets and the determination of eligible capital |
Credit risk
The tables in this section provide details on the exposures used to determine the firm’s credit risk regulatory capital. The parameters applied under the advanced IRB approach are generally based on the same methodologies, data and systems used by the firm for internal credit risk quantification, except where certain treatments are specified by regulatory requirements. These include, for example, the application of regulatory prescribed floors and multi-
pliers, and differences with respect to eligibility criteria and exposure definitions. The exposure information presented in this section differs therefore from that disclosed in the “Risk management and control” section of this report. Similarly the regulatory capital prescribed measure of credit risk exposure also differs to that required under IFRS.
è | Refer to the “Financial information” section of this report for more information |
Detailed segmentation of BIS risk-weighted assets | ||||||||||||||||||||
31.12.10 | 31.12.09 | |||||||||||||||||||
Net EaD | Basel II RWA | |||||||||||||||||||
Advanced | Standardized | |||||||||||||||||||
CHF million | IRB approach | approach | Total | Total | ||||||||||||||||
Credit risk | 541,565 | 84,419 | 24,677 | 109,096 | 127,218 | |||||||||||||||
Sovereigns | 112,036 | 6,190 | 386 | 6,577 | 7,060 | |||||||||||||||
Banks | 75,469 | 12,979 | 1,548 | 14,528 | 18,305 | |||||||||||||||
Corporates | 167,718 | 51,689 | 19,853 | 71,542 | 83,179 | |||||||||||||||
Retail | ||||||||||||||||||||
Residential mortgages | 120,298 | 10,090 | 782 | 10,871 | 13,498 | |||||||||||||||
Lombard lending | 62,355 | 3,074 | 0 | 3,074 | 2,682 | |||||||||||||||
Other retail | 3,688 | 397 | 2,107 | 2,504 | 2,496 | |||||||||||||||
Securitization exposures | 21,211 | 7,085 | 1 | 7,085 | 8,515 | |||||||||||||||
Non-counterparty related risk | 19,704 | 6,195 | 6,195 | 7,026 | ||||||||||||||||
Settlement risk (failed trades) | 65 | 18 | 29 | 47 | 103 | |||||||||||||||
Equity exposures outside trading book | 1,061 | 3,691 | 2 | 3,691 | 4,657 | |||||||||||||||
Market risk | 20,813 | 3 | 20,813 | 12,861 | ||||||||||||||||
Operational risk | 51,948 | 4 | 51,948 | 46,144 | ||||||||||||||||
Total BIS RWA | 583,606 | 167,975 | 30,900 | 198,875 | 206,525 | |||||||||||||||
Additional RWA according to FINMA regulations | 16,135 | 5 | 19,103 | |||||||||||||||||
Total FINMA RWA | 215,010 | 6 | 225,628 | |||||||||||||||||
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Credit risk exposures and risk-weighted assets
This table shows the average exposure and the derivation of RWA from the regulatory gross credit exposure.
Average regulatory | ||||||||||||||||||||||||
Exposure | risk weighting2 | RWA | ||||||||||||||||||||||
Average regulatory | Less: regulatory | |||||||||||||||||||||||
gross credit | Regulatory gross | credit risk offsets | Regulatory net | |||||||||||||||||||||
CHF million | exposure | credit exposure | and adjustments1 | credit exposure | ||||||||||||||||||||
Cash and balances with central banks | 35,509 | 24,446 | 24,446 | 5 | % | 1,323 | ||||||||||||||||||
Due from banks | 16,359 | 15,472 | (5,343 | ) | 10,130 | 27 | % | 2,715 | ||||||||||||||||
Loans | 250,093 | 247,086 | (5,431 | ) | 241,655 | 16 | % | 37,861 | ||||||||||||||||
Financial assets designated at fair value | 8,484 | 7,576 | (3,711 | ) | 3,865 | 45 | % | 1,721 | ||||||||||||||||
Off-balance sheet3 | 41,252 | 38,724 | (263 | ) | 38,460 | 31 | % | 11,763 | ||||||||||||||||
Banking products | 351,697 | 333,305 | (14,748 | ) | 318,557 | 17 | % | 55,383 | ||||||||||||||||
Derivatives | 86,680 | 73,879 | 73,879 | 41 | % | 30,554 | ||||||||||||||||||
Cash collateral receivables on derivative instruments | 14,906 | 9,549 | 9,549 | 21 | % | 1,960 | ||||||||||||||||||
Securities financing | 53,402 | 48,735 | 48,735 | 8 | % | 4,078 | ||||||||||||||||||
Traded products | 154,988 | 132,162 | 132,162 | 28 | % | 36,592 | ||||||||||||||||||
Trading portfolio assets | 7,785 | 6,772 | 12 | 6,783 | 84 | % | 5,682 | |||||||||||||||||
Financial investments available-for-sale4 | 72,911 | 72,961 | 72,961 | 2 | % | 1,202 | ||||||||||||||||||
Accrued income and prepaid expenses | 5,544 | 5,152 | (51 | ) | 5,101 | 83 | % | 4,252 | ||||||||||||||||
Other assets | 12,462 | 22,822 | (16,820 | ) | 6,002 | 100 | % | 5,985 | ||||||||||||||||
Other products | 98,701 | 107,707 | (16,860 | ) | 90,847 | 19 | % | 17,120 | ||||||||||||||||
Total 31.12.10 | 605,386 | 573,174 | (31,608 | ) | 541,565 | 20 | % | 109,096 | ||||||||||||||||
Total 31.12.09 | 630,562 | 610,036 | (24,487 | ) | 585,549 | 22 | % | 127,218 | ||||||||||||||||
Regulatory gross credit exposure by geographical region
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instruments and also by geographical regions. The latter distribution is based on the legal domicile of the customer.
Total regulatory | Total regulatory | |||||||||||||||||||||||||||||||
Rest of | North | Latin | Asia | Middle East | gross credit | net credit | ||||||||||||||||||||||||||
CHF million | Switzerland | Europe | America1 | America | Pacific | and Africa | exposure | exposure | ||||||||||||||||||||||||
Cash and balances with central banks | 10,255 | 4,200 | 477 | 9,514 | 24,446 | 24,446 | ||||||||||||||||||||||||||
Due from banks | 1,127 | 6,127 | 3,068 | 88 | 4,865 | 197 | 15,472 | 10,130 | ||||||||||||||||||||||||
Loans | 159,359 | 19,132 | 49,071 | 4,420 | 11,430 | 3,673 | 247,086 | 241,655 | ||||||||||||||||||||||||
Financial assets designated at fair value | 2 | 1,358 | 5,771 | 48 | 374 | 23 | 7,576 | 3,865 | ||||||||||||||||||||||||
Off-balance sheet | 6,702 | 7,032 | 22,892 | 386 | 1,225 | 487 | 38,724 | 38,460 | ||||||||||||||||||||||||
Banking products | 177,445 | 37,850 | 81,279 | 4,942 | 27,408 | 4,380 | 333,305 | 318,557 | ||||||||||||||||||||||||
Derivatives | 6,296 | 33,083 | 26,015 | 491 | 7,151 | 842 | 73,879 | 73,879 | ||||||||||||||||||||||||
Cash collateral receivables on derivative instruments | 90 | 6,294 | 2,597 | 13 | 527 | 27 | 9,549 | 9,549 | ||||||||||||||||||||||||
Securities financing | 8,737 | 16,189 | 15,815 | 510 | 6,963 | 520 | 48,735 | 48,735 | ||||||||||||||||||||||||
Traded products | 15,124 | 55,565 | 44,427 | 1,014 | 14,642 | 1,390 | 132,162 | 132,162 | ||||||||||||||||||||||||
Trading portfolio assets | 2,716 | 2,736 | 172 | 1,133 | 14 | 6,772 | 6,783 | |||||||||||||||||||||||||
Financial investments available-for-sale2 | 3,205 | 21,721 | 41,208 | 2 | 6,722 | 102 | 72,961 | 72,961 | ||||||||||||||||||||||||
Accrued income and prepaid expenses | 320 | 807 | 3,849 | 16 | 150 | 10 | 5,152 | 5,101 | ||||||||||||||||||||||||
Other assets | 3,392 | 8,456 | 8,840 | 2 | 1,819 | 313 | 22,822 | 6,002 | ||||||||||||||||||||||||
Other products | 6,917 | 33,700 | 56,633 | 192 | 9,824 | 440 | 107,707 | 90,847 | ||||||||||||||||||||||||
Total regulatory gross credit exposure 31.12.10 | 199,486 | 127,115 | 182,340 | 6,149 | 51,874 | 6,209 | 573,174 | 541,565 | ||||||||||||||||||||||||
Total regulatory gross credit exposure 31.12.09 | 187,283 | 154,601 | 204,709 | 5,344 | 52,550 | 5,548 | 610,036 | 585,549 | ||||||||||||||||||||||||
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Regulatory gross credit exposure by counterparty type
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instruments and also by counterparty type. The classification of counterparty type applied here is also used for the grouping of the balance sheet. The counterparty type is different from the Basel II defined exposure segments used in certain other tables in this section.
Public entities | Total | Total | ||||||||||||||||||||||
(including | Banks and | regulatory | regulatory | |||||||||||||||||||||
Private | sovereigns and | multilateral | gross credit | net credit | ||||||||||||||||||||
CHF million | individuals | Corporates1 | central banks) | institutions | exposure | exposure | ||||||||||||||||||
Cash and balances with central banks | 2 | 24,133 | 311 | 24,446 | 24,446 | |||||||||||||||||||
Due from banks | 141 | 15,331 | 15,472 | 10,130 | ||||||||||||||||||||
Loans | 158,067 | 81,826 | 7,194 | 247,086 | 241,655 | |||||||||||||||||||
Financial assets designated at fair value | 4,323 | 22 | 3,231 | 7,576 | 3,865 | |||||||||||||||||||
Off-balance sheet | 2,666 | 34,363 | 459 | 1,236 | 38,724 | 38,460 | ||||||||||||||||||
Banking products | 160,733 | 120,513 | 31,950 | 20,110 | 333,305 | 318,557 | ||||||||||||||||||
Derivatives | 1,409 | 36,680 | 14,052 | 21,738 | 73,879 | 73,879 | ||||||||||||||||||
Cash collateral receivables on derivative financial instruments | 4,210 | 267 | 5,072 | 9,549 | 9,549 | |||||||||||||||||||
Securities financing | 104 | 28,054 | 7,099 | 13,478 | 48,735 | 48,735 | ||||||||||||||||||
Traded products | 1,513 | 68,944 | 21,418 | 40,288 | 132,162 | 132,162 | ||||||||||||||||||
Trading portfolio assets | 6,372 | 312 | 87 | 6,772 | 6,783 | |||||||||||||||||||
Financial investments available-for-sale2 | 1 | 3,246 | 64,446 | 5,268 | 72,961 | 72,961 | ||||||||||||||||||
Accrued income and prepaid expenses | 3,638 | 1,123 | 227 | 163 | 5,152 | 5,101 | ||||||||||||||||||
Other assets | 1,266 | 21,008 | 204 | 345 | 22,822 | 6,002 | ||||||||||||||||||
Other products | 4,905 | 31,749 | 65,189 | 5,864 | 107,707 | 90,847 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.10 | 167,150 | 221,206 | 118,556 | 66,261 | 573,174 | 541,565 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.09 | 165,012 | 227,330 | 138,717 | 78,977 | 610,036 | 585,549 | ||||||||||||||||||
Regulatory gross credit exposure by residual contractual maturity
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instruments and also by maturity. The latter distribution is based on the residual contractual tenor.
Total | Total | |||||||||||||||||||||||
regulatory | regulatory | |||||||||||||||||||||||
Due in | Due over | Due over | gross credit | net credit | ||||||||||||||||||||
CHF million | 1 year or less | 1 year to 5 years | 5 years | Other1 | exposure | exposure | ||||||||||||||||||
Cash and balances with central banks | 24,446 | 24,446 | 24,446 | |||||||||||||||||||||
Due from banks | 3,036 | 215 | 75 | 12,146 | 15,472 | 10,130 | ||||||||||||||||||
Loans | 102,183 | 73,551 | 38,921 | 32,431 | 247,086 | 241,655 | ||||||||||||||||||
Financial assets designated at fair value | 846 | 4,944 | 1,761 | 25 | 7,576 | 3,865 | ||||||||||||||||||
Off-balance sheet | 9,318 | 27,657 | 1,635 | 114 | 38,724 | 38,460 | ||||||||||||||||||
Banking products | 115,383 | 106,367 | 42,393 | 69,162 | 333,305 | 318,557 | ||||||||||||||||||
Derivatives | 27,148 | 17,009 | 29,722 | 73,879 | 73,879 | |||||||||||||||||||
Cash collateral receivables on derivative financial instruments | 9,549 | 9,549 | 9,549 | |||||||||||||||||||||
Securities financing | 10,084 | 11 | 6 | 38,634 | 48,735 | 48,735 | ||||||||||||||||||
Traded products | 37,232 | 17,020 | 29,728 | 48,183 | 132,162 | 132,162 | ||||||||||||||||||
Trading portfolio assets | 1,072 | 2,440 | 2,185 | 1,074 | 6,772 | 6,783 | ||||||||||||||||||
Financial investments available-for-sale2 | 47,486 | 8,208 | 17,236 | 30 | 72,961 | 72,961 | ||||||||||||||||||
Accrued income and prepaid expenses | 5,152 | 5,152 | 5,101 | |||||||||||||||||||||
Other assets | 22,822 | 22,822 | 6,002 | |||||||||||||||||||||
Other products | 48,559 | 10,649 | 19,421 | 29,078 | 107,707 | 90,847 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.10 | 201,173 | 134,036 | 91,542 | 146,423 | 573,174 | 541,565 | ||||||||||||||||||
Total regulatory gross credit exposure 31.12.09 | 249,047 | 151,651 | 83,350 | 125,988 | 610,036 | 585,549 | ||||||||||||||||||
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Derivation of regulatory net credit exposure
This table provides a derivation of the regulatory net credit exposure from the regulatory gross credit exposure according to the advanced IRB approach and the standardized approach. The table also provides a breakdown according to Basel II defined exposure segments.
Advanced IRB | Standardized | |||||||||||||||
CHF million | approach | approach | Total 31.12.10 | Total 31.12.09 | ||||||||||||
Total regulatory gross credit exposure | 462,221 | 110,953 | 573,174 | 610,036 | ||||||||||||
Less: regulatory credit risk offsets and adjustments1 | (26,008 | ) | (5,601 | ) | (31,608 | ) | (24,487 | ) | ||||||||
Total regulatory net credit exposure | 436,214 | 105,352 | 541,565 | |||||||||||||
Total 31.12.09 | 445,526 | 140,024 | 585,549 | |||||||||||||
Breakdown of the regulatory net credit exposure by exposure segment | ||||||||||||||||
Corporates | 140,979 | 26,739 | 167,718 | 165,246 | ||||||||||||
Sovereigns | 43,562 | 68,475 | 112,036 | 128,957 | ||||||||||||
Banks | 69,809 | 5,660 | 75,469 | 109,049 | ||||||||||||
Retail | ||||||||||||||||
Residential mortgages | 118,604 | 1,694 | 120,298 | 119,859 | ||||||||||||
Lombard lending | 62,355 | 62,355 | 58,723 | |||||||||||||
Other retail | 905 | 2,784 | 3,688 | 3,714 | ||||||||||||
Total regulatory net credit exposure | 436,214 | 105,352 | 541,565 | |||||||||||||
Total 31.12.09 | 445,526 | 140,024 | 585,549 | |||||||||||||
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Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of collateral information, showing exposures covered by guarantees as well as those covered by credit derivatives, according to Basel II defined exposure segments. These are defined as follows:
– | Corporates: consists of all exposures that do not fit into any of the other exposure segments below. It includes private commercial entities such as corporations, partnerships or proprietorships, insurance companies, funds, exchanges and clearing houses. | |
– | Sovereigns (Central governments and central banks under Swiss and EU regulations): consists of exposures relating to sovereign states and their central banks, the Bank for International Settlement (BIS), the International Monetary Fund (IMF), the European Union including the European Central Bank and eligible multilateral development banks. | |
– | Banks (Institutions under Swiss and EU regulations): consists of exposures towards banks, i.e. legal entities holding a banking license. It also includes those securities firms that are subject to supervisory and regulatory arrangements comparable to those |
applied to banks according to the Basel II revised framework, including, in particular, risk-based capital requirements. Basel II also defines this regulatory exposure segment such that it contains exposures to public sector entities with tax-raising power or whose liabilities are fully guaranteed by a public entity. | ||
– | Residential mortgages (claims secured on residential real estate under Swiss and EU regulations): consists of residential mortgages, regardless of exposure size, if the obligor owns and occupies or rents out the mortgaged property. | |
– | Lombard lending: loans which are made against the pledge of eligible marketable securities or cash. | |
– | Other retail: consists of exposures to small businesses, private clients and other retail customers without mortgage financing. |
The collateral amounts in the table reflect the values used for determining regulatory capital. However, we utilize credit hedging to reduce concentrated exposure to individual names or sectors or in specific portfolios, which is not fully reflected in the regulatory numbers in this section.
Exposure covered by | Exposure covered by | |||||||
CHF million | guarantees1 | credit derivatives | ||||||
Exposure segment | ||||||||
Corporates | 3,621 | 19,821 | ||||||
Sovereigns | 127 | |||||||
Banks | 401 | 282 | ||||||
Retail | ||||||||
Residential mortgages | 9 | |||||||
Lombard lending | 496 | |||||||
Other retail | 44 | |||||||
Total regulatory gross credit exposure 31.12.10 | 4,697 | 20,103 | ||||||
Total regulatory gross credit exposure 31.12.09 | 4,746 | 24,978 | ||||||
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Advanced IRB approach: regulatory net credit exposure by UBS-internal rating
This table provides a breakdown of the regulatory net credit exposure of our credit portfolio (including loan commitments) using the advanced IRB approach according to our internal rating classes.
UBS-internal rating | ||||||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||||||
regulatory | of which: | regulatory | of which: | |||||||||||||||||||||||||||||||||||||
Investment | net credit | loan | net credit | loan | ||||||||||||||||||||||||||||||||||||
grade | Sub-investment grade | Defaulted1 | exposure | commitments | exposure | commitments | ||||||||||||||||||||||||||||||||||
CHF million, except | ||||||||||||||||||||||||||||||||||||||||
where indicated | 0 / 1 | 2 / 3 | 4 / 5 | 6–8 | 9–13 | 31.12.10 | 31.12.09 | |||||||||||||||||||||||||||||||||
Regulatory net credit exposure-weighted average probability of default | 0.008 | % | 0.057 | % | 0.272 | % | 0.926 | % | 5.255 | % | 0.542 | % | 0.548 | % | ||||||||||||||||||||||||||
Exposure segment | ||||||||||||||||||||||||||||||||||||||||
Corporates | 5,915 | 57,873 | 30,056 | 28,503 | 15,583 | 3,048 | 140,979 | 12,034 | 128,146 | 11,706 | ||||||||||||||||||||||||||||||
Sovereigns | 21,811 | 20,523 | 680 | 255 | 284 | 9 | 43,562 | 135 | 36,163 | 187 | ||||||||||||||||||||||||||||||
Banks | 5,422 | 52,374 | 10,123 | 1,635 | 207 | 49 | 69,809 | 15,407 | 103,280 | 17,292 | ||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||||||
Residential mortgages | 4,615 | 55,609 | 52,785 | 5,121 | 473 | 118,604 | 890 | 118,213 | 858 | |||||||||||||||||||||||||||||||
Lombard lending | 54,392 | 5,378 | 1,564 | 984 | 37 | 62,355 | 167 | 58,723 | 133 | |||||||||||||||||||||||||||||||
Other retail | 142 | 46 | 694 | 12 | 11 | 905 | 1,000 | 4 | ||||||||||||||||||||||||||||||||
Total 31.12.10 | 33,148 | 189,919 | 101,893 | 85,436 | 22,192 | 3,626 | 436,214 | |||||||||||||||||||||||||||||||||
of which: loan commitments | 388 | 18,293 | 3,901 | 2,294 | 3,659 | 98 | 28,633 | |||||||||||||||||||||||||||||||||
Total 31.12.09 | 27,748 | 205,085 | 101,119 | 84,659 | 20,805 | 6,109 | 445,526 | |||||||||||||||||||||||||||||||||
of which: loan commitments | 512 | 20,239 | 4,597 | 2,004 | 2,657 | 171 | 30,179 | |||||||||||||||||||||||||||||||||
Advanced IRB approach: exposure-weighted average loss given default by UBS-internal rating
This table provides a breakdown of the net exposure-weighted average loss given default (LGD) for our credit portfolio exposures calculated using the advanced IRB approach, according to our internal rating classes.
UBS-internal rating | ||||||||||||||||||||||||||||
Regulatory net credit | ||||||||||||||||||||||||||||
Investment | Sub-investment | exposure-weighted | ||||||||||||||||||||||||||
grade | grade | average LGD | ||||||||||||||||||||||||||
in % | 0 / 1 | 2 / 3 | 4 / 5 | 6–8 | 9–13 | 31.12.10 | 31.12.09 | |||||||||||||||||||||
Regulatory net credit exposure-weighted average LGD | ||||||||||||||||||||||||||||
Corporates | 38 | 29 | 32 | 27 | 26 | 30 | 31 | |||||||||||||||||||||
Sovereigns | 38 | 46 | 45 | 40 | 91 | 42 | 44 | |||||||||||||||||||||
Banks | 18 | 30 | 39 | 44 | 58 | 31 | 29 | |||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
Residential mortgages | 10 | 10 | 10 | 10 | 10 | 10 | 10 | |||||||||||||||||||||
Lombard lending | 20 | 20 | 20 | 20 | 20 | 20 | ||||||||||||||||||||||
Other retail | 20 | 10 | 40 | 15 | 35 | 35 | ||||||||||||||||||||||
Average 31.12.10 | 35 | 28 | 20 | 17 | 23 | 24 | ||||||||||||||||||||||
Average 31.12.09 | 35 | 29 | 20 | 18 | 21 | 25 | ||||||||||||||||||||||
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Advanced IRB approach: expose-weighted average risk weight by UBS-internal rating
This table provides a breakdown of the net exposure-weighted average risk weight for our credit portfolio exposures calculated using the advanced IRB approach according to our internal rating classes.
UBS-internal rating | ||||||||||||||||||||||||||||
Regulatory net credit | ||||||||||||||||||||||||||||
Investment | Sub-investment | exposure-weighted | ||||||||||||||||||||||||||
grade | grade | average risk weight | ||||||||||||||||||||||||||
in % | 0 / 1 | 2 / 3 | 4 / 5 | 6–8 | 9–13 | 31.12.10 | 31.12.09 | |||||||||||||||||||||
Regulatory net credit exposure-weighted average risk weight | ||||||||||||||||||||||||||||
Corporates | 9 | 12 | 35 | 49 | 87 | 35 | 42 | |||||||||||||||||||||
Sovereigns | 2 | 20 | 40 | 61 | 310 | 13 | 17 | |||||||||||||||||||||
Banks | 6 | 12 | 38 | 82 | 208 | 18 | 15 | |||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
Residential mortgages | 1 | 2 | 5 | 10 | 23 | 8 | 10 | |||||||||||||||||||||
Lombard lending | 3 | 11 | 20 | 31 | 5 | 4 | ||||||||||||||||||||||
Other retail | 3 | 5 | 51 | 24 | 41 | 42 | ||||||||||||||||||||||
Average 31.12.10 | 4 | 10 | 17 | 25 | 74 | 18 | ||||||||||||||||||||||
Average 31.12.09 | 5 | 12 | 19 | 28 | 68 | 20 | ||||||||||||||||||||||
Standardized approach
– | central governments and central banks | |
– | regional governments and local authorities | |
– | multilateral development banks | |
– | institutions | |
– | corporates |
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Regulatory gross and net credit exposure by risk weight under the standardized approach
This table provides a breakdown of the regulatory gross and net credit exposure by risk weight for our credit portfolio exposures treated under the standardized approach, according to Basel II defined exposure segments.
Total exposure | Total exposure | |||||||||||||||||||||||||||
CHF million | 0% | >0–35% | 36–75% | 76–100% | 150% | 31.12.10 | 31.12.09 | |||||||||||||||||||||
Regulatory gross credit exposure | ||||||||||||||||||||||||||||
Corporates | 163 | 8,134 | 799 | 22,066 | 380 | 31,541 | 42,159 | |||||||||||||||||||||
Sovereigns1 | 68,036 | 65 | 399 | 68,500 | 92,843 | |||||||||||||||||||||||
Banks | 2 | 4,413 | 1,331 | 22 | 5,767 | 6,821 | ||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
Residential mortgages | 463 | 1,217 | 675 | 4 | 2,359 | 1,646 | ||||||||||||||||||||||
Lombard lending | ||||||||||||||||||||||||||||
Other retail | 2,758 | 28 | 2,785 | 2,731 | ||||||||||||||||||||||||
Total 31.12.10 | 68,201 | 13,075 | 6,104 | 23,161 | 411 | 110,953 | ||||||||||||||||||||||
Total 31.12.09 | 92,176 | 17,444 | 7,209 | 28,256 | 1,115 | 146,200 | ||||||||||||||||||||||
Regulatory net credit exposure2 | ||||||||||||||||||||||||||||
Corporates | 163 | 8,134 | 799 | 17,278 | 365 | 26,739 | 37,100 | |||||||||||||||||||||
Sovereigns1 | 68,036 | 65 | 373 | 68,475 | 92,794 | |||||||||||||||||||||||
Banks | 2 | 4,306 | 1,331 | 22 | 5,660 | 5,769 | ||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
Residential mortgages | 463 | 1,227 | 4 | 1,694 | 1,646 | |||||||||||||||||||||||
Lombard lending | ||||||||||||||||||||||||||||
Other retail | 2,756 | 28 | 2,784 | 2,715 | ||||||||||||||||||||||||
Total 31.12.10 | 68,201 | 12,968 | 6,113 | 17,673 | 397 | 105,352 | ||||||||||||||||||||||
Total 31.12.09 | 92,176 | 17,428 | 6,157 | 23,148 | 1,115 | 140,024 | ||||||||||||||||||||||
Eligible financial collateral recognized under standardized approach
This table provides a breakdown of the financial collateral, which is eligible for recognition in the regulatory capital calculation under the standardized approach, according to Basel II defined exposure segments.
Regulatory net credit exposure | Eligible financial collateral recognized in | |||||||||||||||
CHF million | under standardized approach | capital calculation1 | ||||||||||||||
31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | |||||||||||||
Exposure segment | ||||||||||||||||
Corporates | 26,739 | 37,100 | 7,252 | 20,852 | ||||||||||||
Sovereigns | 68,475 | 92,794 | 26 | 60 | ||||||||||||
Banks | 5,660 | 5,769 | 1,948 | 4,916 | ||||||||||||
Retail | ||||||||||||||||
Residential mortgages | 1,694 | 1,646 | 664 | |||||||||||||
Lombard lending | ||||||||||||||||
Other retail | 2,784 | 2,715 | 2 | 18 | ||||||||||||
Total | 105,352 | 140,024 | 9,891 | 25,847 | ||||||||||||
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Basel II Pillar 3
Impairment, default and credit loss
Impaired assets by region
This table shows a breakdown of credit exposures arising from impaired assets and allowances / provisions according to Basel II defined exposure segments. Impaired asset exposures include loans, off-balance sheet claims, securities financing transactions, and derivative transactions.
Impaired assets | Total allowances, | |||||||||||||||||||||||||||
net of specific | Total allowances, | provisions and | ||||||||||||||||||||||||||
Specific allowances, | allowances, | provisions and | specific credit | |||||||||||||||||||||||||
provisions and | provisions and | Collective | specific credit | valuation | ||||||||||||||||||||||||
Regulatory gross | credit valuation | credit valuation | allowances and | valuation | adjustments | |||||||||||||||||||||||
CHF million | credit exposure | Impaired assets1 | adjustments | adjustments | provisions2 | adjustments2 | 31.12.09 | |||||||||||||||||||||
Switzerland | 199,486 | 1,178 | (561 | ) | 617 | (47 | ) | (609 | ) | (885 | ) | |||||||||||||||||
Rest of Europe | 127,115 | 738 | (267 | ) | 471 | (267 | ) | (1,185 | ) | |||||||||||||||||||
North America3 | 182,340 | 4,125 | (1,444 | ) | 2,681 | (1,444 | ) | (3,584 | ) | |||||||||||||||||||
Latin America | 6,149 | 31 | (25 | ) | 6 | (25 | ) | (25 | ) | |||||||||||||||||||
Asia Pacific | 51,874 | 359 | (41 | ) | 318 | (41 | ) | (121 | ) | |||||||||||||||||||
Middle East and Africa | 6,209 | 37 | (32 | ) | 5 | (32 | ) | (80 | ) | |||||||||||||||||||
Total 31.12.10 | 573,174 | 6,468 | (2,370 | ) | 4,097 | (47 | ) | (2,418 | ) | |||||||||||||||||||
Total 31.12.09 | 610,036 | 11,920 | (5,831 | ) | 6,090 | (49 | ) | (5,881 | ) | |||||||||||||||||||
Impaired assets by exposure segment
This table provides a breakdown of movements in the specific and collective allowances and provisions for impaired assets, including changes in the credit valuation allowance for derivatives.
Total allowances, | ||||||||||||||||||||||||||||
Total allowances, | provisions and | |||||||||||||||||||||||||||
Specific allowances, | provisions and | specific credit | ||||||||||||||||||||||||||
provisions and | Collective | specific credit | Write offs for the | valuation | ||||||||||||||||||||||||
Regulatory gross | credit valuation | allowances and | valuation | year ended | adjustments | |||||||||||||||||||||||
CHF million | credit exposure | Impaired assets1 | adjustments | provisions2 | adjustments2 | 31.12.10 | 31.12.09 | |||||||||||||||||||||
Corporates | 190,504 | 5,912 | (2,083 | ) | (2,083 | ) | (1,470 | ) | (5,470 | ) | ||||||||||||||||||
Sovereigns | 112,172 | 14 | (10 | ) | (10 | ) | (1 | ) | (10 | ) | ||||||||||||||||||
Banks | 83,491 | 32 | (30 | ) | (30 | ) | (42 | ) | ||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
Residential mortgages | 120,962 | 252 | (68 | ) | (68 | ) | (92 | ) | ||||||||||||||||||||
Lombard lending | 62,355 | 159 | (120 | ) | (120 | ) | (1 | ) | (147 | ) | ||||||||||||||||||
Other retail | 3,690 | 99 | (59 | ) | (59 | ) | (33 | ) | (71 | ) | ||||||||||||||||||
Not allocated segment3 | (47 | ) | (47 | ) | (49 | ) | ||||||||||||||||||||||
Total 31.12.10 | 573,174 | 6,468 | (2,370 | ) | (47 | ) | (2,418 | ) | (1,505 | ) | ||||||||||||||||||
Total 31.12.09 | 610,036 | 11,920 | (5,831 | ) | (49 | ) | (5,881 | ) | (2,046 | ) | (5,881 | ) | ||||||||||||||||
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Changes in allowances, provisions and specific credit valuation adjustments for defaulted derivatives
Specific credit | Total specific | |||||||||||||||||||||||||||
Specific allowances | valuation | allowances, | ||||||||||||||||||||||||||
and provisions for | adjustments for | provisions and | Collective | For the | ||||||||||||||||||||||||
banking products and | defaulted | credit valuation | allowances and | For the year | year ended | |||||||||||||||||||||||
CHF million | securities financing | derivatives | adjustments | provisions1 | ended 31.12.10 | 31.12.09 | ||||||||||||||||||||||
Opening balance | ||||||||||||||||||||||||||||
Opening balance as of 1.1.10 | 2,771 | 3,060 | 5,831 | 49 | 5,881 | as of 1.1.09 | 7,275 | |||||||||||||||||||||
Write-offs | (1,505 | ) | (1,505 | ) | (1,505 | ) | (2,046 | ) | ||||||||||||||||||||
Recoveries (on written-off positions) | 79 | 79 | 79 | 52 | ||||||||||||||||||||||||
Increase / (decrease) in allowances, provisions and specific credit valuation adjustments2 | 68 | (1,681 | ) | (1,613 | ) | (2 | ) | (1,615 | ) | 1,110 | ||||||||||||||||||
Foreign currency translations and other adjustments | (173 | ) | (249 | ) | (421 | ) | (421 | ) | (460 | ) | ||||||||||||||||||
Transfers | (51 | ) | ||||||||||||||||||||||||||
Closing balance | ||||||||||||||||||||||||||||
Closing balance as of 31.12.10 | 1,240 | 1,130 | 2,370 | 47 | 2,418 | as of 31.12.09 | 5,881 | |||||||||||||||||||||
Total expected loss and actual credit loss | ||
This table provides a breakdown of the one-year expected loss estimate on our credit portfolios (including lending, derivative and securities financing portfolios) calculated as of 31 December 2009, and the actual IFRS credit loss amount (including credit valuation adjustments on derivatives) charged against our income statement in 2010, according to Basel II defined exposure segments of the advanced IRB approach. Comparison between our expected and actual losses has certain limitations | as the two measures are not directly comparable. In particular our expected loss estimate is an annualized average expected loss measure which takes into account our historical loss experience, whereas actual loss represents our credit loss expense charged to the income statement incurred in the financial year. The difference in our expected and actual loss amounts resulted primarily from credit recoveries affecting the net actual losses in 2010. |
Expected loss | Actual credit (loss) / recovery and credit valuation adjustments | |||||||||||||||||||
For the year ended | For the year ended | |||||||||||||||||||
31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||||||||
Specific credit | Total actual credit | Total actual credit | ||||||||||||||||||
valuation adjust- | (loss) / recovery and | (loss) / recovery | ||||||||||||||||||
Actual credit | ments for de- | credit valuation | and credit valuation | |||||||||||||||||
CHF million | Total expected loss | (loss) / recovery | faulted derivatives | adjustments | adjustments | |||||||||||||||
Corporates1 | (359 | ) | (83 | ) | 1,660 | 1,577 | (1,093 | ) | ||||||||||||
Sovereigns | (8 | ) | 1 | |||||||||||||||||
Banks | (37 | ) | 5 | 21 | 26 | (22 | ) | |||||||||||||
Retail | ||||||||||||||||||||
Residential mortgages | (84 | ) | 1 | 1 | (1 | ) | ||||||||||||||
Lombard lending | (19 | ) | 5 | 5 | 52 | |||||||||||||||
Other retail | (5 | ) | (2 | ) | (2 | ) | (30 | ) | ||||||||||||
Not allocated2 | 7 | 7 | (17 | ) | ||||||||||||||||
Total | (512 | ) | (66 | ) | 1,681 | 1,615 | (1,110 | ) | ||||||||||||
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Risk and treasury management
Basel II Pillar 3
Other credit risk tables
Credit exposure of derivative instruments
CHF million | 31.12.10 | 31.12.09 | ||||||
Gross positive replacement values | 401,146 | 424,548 | ||||||
Netting benefits recognized1 | (301,515 | ) | (313,172 | ) | ||||
Collateral held | (41,592 | ) | (38,012 | ) | ||||
Net current credit exposure | 58,039 | 73,364 | ||||||
Regulatory net credit exposure (total counterparty credit risk)2 | 73,879 | 96,063 | ||||||
of which: treated with internal models (effective expected positive exposure [EPE])2 | 60,843 | 79,111 | ||||||
of which: treated with supervisory approaches (current exposure method)2 | 13,036 | 16,952 | ||||||
Breakdown of the collateral held | ||||||||
Cash collateral | 36,520 | 34,049 | ||||||
Securities collateral and debt instruments collateral (excluding equity) | 4,837 | 3,243 | ||||||
Equity instruments collateral | 120 | 95 | ||||||
Other collateral | 115 | 625 | ||||||
Total collateral held | 41,592 | 38,012 | ||||||
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Credit derivatives1, 2
Regulatory banking book | Regulatory trading book | Total | ||||||||||||||||||||||||||||||
Protection | Protection | Protection | Protection | |||||||||||||||||||||||||||||
Notional amounts, CHF million | bought | sold | Total | bought | sold | Total | 31.12.10 | 31.12.09 | ||||||||||||||||||||||||
Credit default swaps | 28,650 | 2,602 | 31,252 | 1,162,631 | 1,110,666 | 2,273,297 | 2,304,549 | 2,466,954 | ||||||||||||||||||||||||
Total return swaps | 0 | 0 | 0 | 4,597 | 4,334 | 8,931 | 8,931 | 11,123 | ||||||||||||||||||||||||
Total 31.12.10 | 28,650 | 2,602 | 31,252 | 1,167,228 | 1,115,000 | 2,282,228 | 2,313,480 | |||||||||||||||||||||||||
Total 31.12.093 | 36,353 | 36,353 | 1,254,586 | 1,187,139 | 2,441,725 | 2,478,077 | ||||||||||||||||||||||||||
Credit derivatives portfolio (split by counterparty)1
% of total notional | % of buy notional | % of sell notional | ||||||||||||||||||||||
31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | |||||||||||||||||||
Portfolio segment | ||||||||||||||||||||||||
Developed markets commercial banks | 59 | 64 | 58 | 63 | 60 | 66 | ||||||||||||||||||
Broker-dealers, investment and merchant banks | 25 | 28 | 25 | 28 | 25 | 28 | ||||||||||||||||||
Hedge funds | 2 | 1 | 1 | 1 | 3 | 2 | ||||||||||||||||||
All other | 15 | 7 | 17 | 8 | 12 | 4 | ||||||||||||||||||
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Risk and treasury management
Basel II Pillar 3
Investment positions
The IFRS view differs from the regulatory capital view primarily due to: (i) differences in the basis of valuation in that IFRS is based on “fair value accounting” whereas “lower of cost or market value” (LOCOM) or “cost less impairment” are used for regulatory capital purposes; (ii) positions may be treated under a different framework to determine regulatory capital (for example tradable assets treated under market risk VaR); and (iii) differences in the scope of
Equities disclosure for banking book positions
This table provides an overview of our equity investments held in the banking book for regulatory capital purposes. The calculation of equity investment exposure for financial accounting under IFRS differs from that required for regulatory capital purposes. The table illustrates these two measures of exposure as well as the key differences between them.
Book value | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Equity investments | ||||||||
Financial investments available-for-sale | 1,359 | 1,351 | ||||||
Financial assets designated at fair value | 856 | 840 | ||||||
Investments in associates | 790 | 870 | ||||||
Total equity investments under IFRS | 3,006 | 3,062 | ||||||
Regulatory capital adjustment | 281 | 713 | ||||||
Total equity exposure under BIS | 3,287 | 3,774 | ||||||
of which: to be risk weighted | ||||||||
publicly traded | 390 | 1,452 | ||||||
privately held | 1,513 | 1,110 | ||||||
of which: deducted from equity | 1,384 | 1,212 | ||||||
RWA according to simple risk weight method | 3,691 | 4,657 | ||||||
Capital requirement according to simple risk weight method | 295 | 373 | ||||||
Total capital charge | 1,679 | 1,585 | ||||||
Net realized gains / (losses) and latent gains from equities | ||||||||
Net realized gains / (losses) from disposals | 270 | 70 | ||||||
Latent revaluation gains | 68 | 111 | ||||||
of which: included in tier 2 capital | 31 | 50 | ||||||
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Risk and treasury management |
Market risk
Risk-weighted assets attributable to market risk increased to CHF 20.8 billion as of 31 December 2010, compared with CHF 12.9 billion as of 31 December 2009. We increased our trading risk expo-
Group: value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory VaR by business division.
For the year ended 31.12.10 | For the year ended 31.12.09 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | ||||||||||||||||||||||||
Business divisions | ||||||||||||||||||||||||||||||||
Investment Bank | 132 | 546 | 306 | 389 | 179 | 541 | 315 | 286 | ||||||||||||||||||||||||
Wealth Management & Swiss Bank | 0 | 1 | 1 | 1 | 0 | 1 | 0 | 0 | ||||||||||||||||||||||||
Wealth Management Americas | 13 | 30 | 21 | 14 | 15 | 32 | 21 | 30 | ||||||||||||||||||||||||
Global Asset Management | 0 | 1 | 1 | 1 | 0 | 7 | 2 | 1 | ||||||||||||||||||||||||
Treasury activities and other corporate items | 5 | 71 | 22 | 13 | 2 | 67 | 14 | 7 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (27 | ) | (17 | ) | 1 | 1 | (37 | ) | (23 | ) | ||||||||||||||||||||
Total regulatory VaR, Group | 140 | 561 | 323 | 401 | 187 | 545 | 315 | 301 | ||||||||||||||||||||||||
Diversification effect (%) | (8 | ) | (4 | ) | (11 | ) | (7 | ) | ||||||||||||||||||||||||
Investment Bank: value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Investment Bank’s minimum, maximum, average and period-end regulatory VaR by risk type.
For the year ended 31.12.10 | For the year ended 31.12.09 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | ||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||
Equities | 47 | 133 | 68 | 64 | 55 | 115 | 71 | 57 | ||||||||||||||||||||||||
Interest rates | 54 | 138 | 95 | 96 | 64 | 149 | 98 | 116 | ||||||||||||||||||||||||
Credit spreads | 225 | 635 | 422 | 386 | 216 | 489 | 332 | 322 | ||||||||||||||||||||||||
Foreign exchange | 8 | 88 | 28 | 41 | 4 | 55 | 27 | 27 | ||||||||||||||||||||||||
Energy, metals and commodities | 5 | 44 | 12 | 43 | 9 | 25 | 16 | 12 | ||||||||||||||||||||||||
Diversification effect | 1 | 1 | (319 | ) | (242 | ) | 1 | 1 | (229 | ) | (248 | ) | ||||||||||||||||||||
Total regulatory VaR, Investment Bank | 132 | 546 | 306 | 389 | 179 | 541 | 315 | 286 | ||||||||||||||||||||||||
Diversification effect (%) | (51 | ) | (38 | ) | (42 | ) | (46 | ) | ||||||||||||||||||||||||
Group: value-at-risk (1-day, 99% confidence, 5 years of historical data)1
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory backtesting VaR by business division.
For the year ended 31.12.10 | For the year ended 31.12.09 | ||||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.10 | Min. | Max. | Average | 31.12.09 | |||||||||||||||||||||||||||||
Investment Bank | Regulatory VaR2 | 57 | 110 | 82 | 93 | 63 | 167 | 103 | 78 | ||||||||||||||||||||||||||||
Group | Regulatory VaR2 | 58 | 114 | 84 | 94 | 64 | 170 | 104 | 79 | ||||||||||||||||||||||||||||
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Risk and treasury management
Basel II Pillar 3
Securitization
Objectives, roles and involvement
è | Refer to the discussion on exposure to student loan auction rate securities in the “Risk management and control” section of this report for more information | |
è | Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information |
Regulatory treatment of securitization structures
Accounting policies
Good practice guidelines
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Securitization activity during the year
Originator | Sponsor | |||||||||||||||||||||||||||
Realized | ||||||||||||||||||||||||||||
gains / losses | ||||||||||||||||||||||||||||
on traditional | ||||||||||||||||||||||||||||
Traditional | Synthetic | securitizations | Traditional | Synthetic | ||||||||||||||||||||||||
Securitization | No securitization | Securitization | No securitization | |||||||||||||||||||||||||
CHF million | positions retained | positions retained | positions retained | positions retained | ||||||||||||||||||||||||
Residential mortgages | ||||||||||||||||||||||||||||
Commercial mortgages | ||||||||||||||||||||||||||||
Credit card receivables | ||||||||||||||||||||||||||||
Leasing | ||||||||||||||||||||||||||||
Loans to corporates or SMEs | ||||||||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||
Student loans | ||||||||||||||||||||||||||||
Trade receivables | ||||||||||||||||||||||||||||
Re-securitizations | ||||||||||||||||||||||||||||
Other | 1,715 | |||||||||||||||||||||||||||
Total 31.12.10 | 0 | 0 | 1,715 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Total 31.12.09 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Total outstanding securitized exposures – securitization position retained / ongoing involvement
Originator | Sponsor | |||||||||||||||
CHF million | Traditional | Synthetic | Traditional | Synthetic | ||||||||||||
Residential mortgages | ||||||||||||||||
Commercial mortgages | ||||||||||||||||
Credit card receivables | ||||||||||||||||
Leasing | ||||||||||||||||
Loans to corporates or SMEs | ||||||||||||||||
Consumer loans | ||||||||||||||||
Student loans | ||||||||||||||||
Trade receivables | ||||||||||||||||
Re-securitizations | 1,677 | |||||||||||||||
Other | 1,715 | |||||||||||||||
Total 31.12.10 | 0 | 3,392 | 0 | 0 | ||||||||||||
Total 31.12.09 | 0 | 1,677 | 0 | 0 | ||||||||||||
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Risk and treasury management
Basel II Pillar 3
Impaired or past due securitized exposures
Originator | Sponsor | |||||||||||
Securitization | No securitization | |||||||||||
CHF million | positions retained | positions retained | ||||||||||
Residential mortgages | ||||||||||||
Commercial mortgages | ||||||||||||
Credit card receivables | ||||||||||||
Leasing | ||||||||||||
Loans to corporates or SMEs | ||||||||||||
Consumer loans | ||||||||||||
Student loans | ||||||||||||
Trade receivables | ||||||||||||
Re-securitizations | 165 | |||||||||||
Other | ||||||||||||
Total 31.12.10 | 165 | 0 | 0 | |||||||||
Total 31.12.09 | 102 | 0 | 0 | |||||||||
Losses recognized from retained or purchased securitization positions
CHF million | Originator | Sponsor | ||||||
Residential mortgages | 23 | |||||||
Commercial mortgages | 3 | |||||||
Credit card receivables | ||||||||
Leasing | ||||||||
Loans to corporates or SMEs | ||||||||
Consumer loans | ||||||||
Student loans | ||||||||
Trade receivables | ||||||||
Re-securitizations | 29 | |||||||
Other | 11 | |||||||
Total 31.12.10 | 66 | 0 | ||||||
Total 31.12.09 | 34 | 0 | ||||||
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Risk and treasury management |
Securitization positions retained or purchased
CHF million | ||||
Residential mortgages | 1,045 | |||
Commercial mortgages | 2,100 | |||
Credit card receivables | 53 | |||
Leasing | 130 | |||
Loans to corporates or SMEs | 0 | |||
Consumer loans | 4 | |||
Student loans | 9,475 | |||
Trade receivables | 0 | |||
Re-securitizations | 6,679 | |||
Other | 4,715 | |||
Total 31.12.10 | 24,201 | |||
Total 31.12.09 | 33,074 | |||
Capital charge for securitization positions retained or purchased
CHF million | ||||
over 0 – 10% | 43 | |||
over 10 – 15% | 69 | |||
over 15 – 20% | 47 | |||
over 20 – 35% | 49 | |||
over 35 – 50% | 8 | |||
over 50 – 75% | 17 | |||
over 75 – 100% | 43 | |||
over 100 – 250% | 185 | |||
over 250 – 1,250% | 106 | |||
Total 31.12.10 | 567 | |||
Total 31.12.09 | 681 | |||
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Risk and treasury management
Basel II Pillar 3
Deductions from eligible capital related to securitization positions retained or purchased
CHF million | ||||
Residential mortgages | 238 | |||
Commercial mortgages | 266 | |||
Credit card receivables | 0 | |||
Leasing | 57 | |||
Loans to corporates or SMEs | 0 | |||
Consumer loans | 1 | |||
Student loans | 1,489 | |||
Trade receivables | 0 | |||
Re-securitizations | 808 | |||
Other | 131 | |||
Total 31.12.10 | 2,990 | |||
Total 31.12.09 | 1,797 | |||
Early amortization treatment
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Corporate governance
– | Our corporate governance principles are designed to support UBS towards sustainable profitability and protect the interests of our shareholders, as well as to create value for shareholders and stakeholders |
Dual board structure
UBS operates under a strict dual board structure: the Board of Directors (BoD) and the Group Executive Board (GEB). This results in a clear separation of duties and responsibilities. The BoD is responsible for the UBS Group’s (Group) direction as well as monitoring and supervising the business. All BoD members are independent with the exception of the full-time Chairman. Shareholders elect each member of the BoD, which in turn appoints the Chairman. The GEB, which members are appointed by the BoD, is responsible for the executive management and is accountable to the BoD for the overall financial results of the Group. The GEB is led by the Group Chief Executive Officer (Group CEO).
Developments in 2010 that strengthened our leadership capacity
The Organization Regulations of UBS AG and its annexes were revised to implement all applicable regulatory requirements and further enhance the authority of the executive management. In addition, they simultaneously accentuate the supervisory role of the BoD and its various Committees and reflect the newly separated roles of the Vice Chairman and the Senior Independent Director.
The BoD is ultimately responsible for the financial success of the Group, and thus decides on the business strategy of the Group upon recommendation of the Group CEO and the GEB. The BoD is responsible for approving our annual report and quarterly financial statements as reviewed and proposed by the Audit Committee together with executive management, Group Internal Audit and external auditors. Furthermore, the BoD is responsible for approving our risk capacity and appetite, taking into account the proposals and alternatives suggested by the Risk Committee.
Operational Group structure
The operational structure of the Group is comprised of the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank.
Shareholder participation
We are committed to shareholder participation in our decision-making process. Our directly registered shareholders, as well as US shareholders registered via nominee companies, regularly receive written information about our activities and performance and are personally invited to shareholder meetings. We fully subscribe to the principle of equal treatment of all shareholders, who range from large investment institutions to individual investors, and regularly inform them about the development of the company of which they are co-owners.
In addition, the Annual General Meeting offers shareholders the opportunity to raise any questions regarding our development and the events of the respective year under review. BoD and GEB members, as well as the internal and external auditors, are present to answer these questions.
Transparency report
In October 2010, we published the “Transparency report to the shareholders of UBS”, which is a comprehensive review of the events that took place during the financial crisis. In publishing this report, the BoD responded to the report publicized by the control committee of the Swiss parliament in May 2010. The transparency report is supported by two reports from independent experts who assessed the events from a legal and historic perspective.
Table of Contents
2010 compensation at a glance
– | Our foremost priority is to encourage and reward behavior that contributes to sustainable profitability and therefore the long-term success of our firm. | ||
– | In order to align employee incentives with the interests of our shareholders, we pay a significant part of our employees’ variable compensation in the form of deferred awards, mostly in UBS shares, which are subject to strict forfeiture rules. |
Bonuses granted for 2010
In making UBS’s compensation decisions for 2010, the BoD and the GEB have carefully balanced all the relevant factors such as our improved business performance, industry compensation trends and regulatory requirements. From a shareholder’s perspective, it is essential to weigh the short-term potential for raising profitability against the long-term
requirement to retain and attract key staff. Although our financial performance in 2010 was markedly better than in 2009, with an increase in profitability of CHF 10 billion, given the considerations outlined above, the bonus pool for 2010 was set at CHF 4,245 million, 11% lower than it was last year.
High levels of deferred bonuses for Group Executive Board members
At least 76% of a GEB member’s bonus, including 60% in equity (under the Performance Equity Plan [PEP] and the Senior Executive Equity Ownership Plan [SEEOP]), is deferred and at risk of forfeiture for periods of up to five years. Moreover, the vest-
ing of these awards is subject to the fulfillment of specific performance conditions. A maximum of 24% in cash (under the Cash Balance Plan [CBP]) is paid out immediately, subject to a cap of CHF / USD 2 million.
Variable cash compensation | ||||||||||||||||||||||||
under CBP | Effective | |||||||||||||||||||||||
Annual bonus | deferrals | Contributions | ||||||||||||||||||||||
Immediate | Deferred | in equity under | in % of bonus | Benefits | to retirement | Total | ||||||||||||||||||
CHF, except where indicated | Base salary | cash | cash | SEEOP & PEP | for 2010 | in kind | benefits plans | compensation | ||||||||||||||||
Group CEO Oswald J. Grübel | 3,000,000 | 0 | 0 | 0 | N/A | 25,600 | 0 | 3,025,600 | ||||||||||||||||
Highest paid GEB-member: Carsten Kengeter | 874,626 | 1,002,496 | 2,339,158 | 5,012,481 | 88% | 92,547 | 0 | 9,321,308 | ||||||||||||||||
GEB aggregate pay | 14,705,894 | 15,588,145 | 14,451,756 | 45,059,852 | 79% | 381,851 | 843,402 | 91,030,900 |
– | As in 2009, the Group CEO has decided to waive the bonus. | ||
– | The highest paid GEB member in 2010 was Carsten Kengeter, with a total compensation of CHF 9.3 million: 88% of his bonus was deferred, with 28% in deferred cash and 60% in deferred equity vesting over three to five years. | ||
– | In total, the compensation for GEB members in office on 31 December 2010 was CHF 91.0 million, compared with a total of CHF 68.7 million in 2009. |
– | The Chairman of the BoD, Kaspar Villiger, chose to waive a substantial part of the share award and instead to accept a limited number of 26,940 UBS shares with a fair value of CHF 500,000. In addition, he decided to maintain the voluntary reduction in his annual base salary from CHF 2 million to CHF 850,000. Kaspar Villiger is the highest paid member of the BoD, with total compensation of CHF 1,491,308. | ||
– | Fees for the independent BoD members remained unchanged in 2010. |
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Corporate governance and compensation
Corporate governance
Corporate governance
Our corporate governance principles are designed to support our objective of sustainable profitability, as well as to create value and protect the interests of our shareholders and stakeholders. We use the term “corporate governance” when referring to the organizational structure of UBS and operational practices of our management.
We are subject to, and fully comply with, the following regulatory requirements regarding corporate governance: the Swiss Code of Obligations (CO) articles 663bbis and 663c (paragraph three) regarding transparency of compensation paid to members of the Board of Directors (BoD) and senior management; the SIX Swiss Exchange’s (SIX) “Directive on Information Relating to Corporate Governance”; the Swiss Financial Market Supervisory Authority’s (FINMA) “Circular 2010/1 Remuneration schemes” (FINMA Circular 2010/1); and the standards established in the Swiss Code of Best Practice for Corporate Governance, including the appendix on executive compensation.
– | The SIX “Directive on Information Relating to Corporate Governance”, with regard to: Group structure and shareholders; capital structure; BoD; Group Executive Board (GEB); compensation, shareholdings and loans; shareholders’ participation rights; change of control and defense measures; auditors and information policy. | |
– | Articles 663bbis and 663c (paragraph three) of the CO, “Supplementary disclosures for companies whose shares are listed on a stock exchange: compensations and participations”, with regard to remuneration, share and option ownership and loans. These disclosures are also included in the audited financial statements of this report. This information is marked by a bar on the left-hand side throughout this section. |
– | The FINMA Circular 2010/1, with regard to the BoD’s duty to annually report on the implementation of the remuneration policy. |
– | The NYSE “Corporate Governance Listing Standards” with regard to foreign listed companies: independence of directors, BoD Committees and differences from the NYSE standards applicable to US domestic issuers. |
è | Refer to www.ubs.com/governance for more details on the Organization Regulations |
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Group structure and shareholders
UBS Group legal entity structure
Under Swiss company law, UBS AG is organized as a limited company: a corporation that has issued shares of common stock to investors. UBS AG is the Parent Bank of the Group.
Operational Group structure
On 31 December 2010, the operational structure of the Group comprised the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank. In this report, performance is reported according to this structure.
è | Refer to the “UBS business divisions and Corporate Center” section of this report for more information |
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, none of which, however, are listed companies other than UBS AG.
è | Refer to “Note 34 Significant subsidiaries and associates” in the “Financial information” section of this report for details of significant operating subsidiary companies of the Group |
Significant shareholders
Under the Federal Act on Stock Exchanges and Securities Trading of 24 March 1995, as amended (the Swiss Stock Exchange Act), anyone holding shares in a company listed in Switzerland, or holding derivative rights related to shares of such a company, has to notify the company and the SIX if the holding attains, falls below or exceeds one of the following thresholds: 3, 5, 10, 15, 20, 25, 331/3, 50, or 662/3% of the voting rights, whether they are exercisable or not. The detailed disclosure requirements and the methodology for calculating the thresholds are defined in the Ordinance of the Swiss Financial Market Supervisory Authority on Stock Exchanges and Securities Trading (the Ordinance). In particular, the Ordinance takes into account all future potential share obligations irrespective of their possible contingent nature, and prohibits the netting of so-called acquisition positions (in particular shares, conversion rights and acquisition rights or obligations) with disposal positions (i.e. rights or obligations to sell). It further requires that each such position be calculated separately, and be reported as soon as it reaches one of the abovementioned thresholds. Nominee companies which cannot autonomously decide how voting rights are exercised, are not obligated to notify UBS and the SIX in case they reach, exceed or fall below the threshold percentages.
Significant shareholders | ||||||||||||||
Shareholders registered in the UBS shares register with 3% or more of shares issued | ||||||||||||||
In % of shares issued | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||
Chase Nominees Ltd., London | 10.70 | 11.63 | 7.19 | |||||||||||
DTC (Cede & Co.), New York1 | 7.32 | 8.42 | 9.89 | |||||||||||
Government of Singapore Investment Corp., Singapore | 6.41 | less than 3 | less than 3 | |||||||||||
Nortrust Nominees Ltd., London | 3.79 | 3.07 | less than 3 | |||||||||||
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization. |
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Corporate governance
Exchange Act, the percentages indicated above were calculated in relation to the share capital reflected in the Articles of Association of UBS AG (Articles of Association) at the time of the respective disclosure notification. Information on disclosures under the Swiss Stock Exchange Act can be found on the following website of the SIX: http://www.six-exchange-regulation.com/obligations/disclosure/
major_shareholders_en.html.
tors or beneficial owners) listed in the “Significant shareholders” table below, were registered with 3% or more of the total share capital on 31 December 2010, 2009 and 2008.
Cross shareholdings
We have no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
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Capital structure
Capital
Under Swiss company law, shareholders must approve in a shareholders’ meeting any increase in the total number of issued shares, which may arise from an ordinary share capital increase, or the creation of conditional or authorized capital. At year-end 2010, 3,830,840,513 shares were issued with a par value of CHF 0.10 each, leading to ordinary share capital of CHF 383,084,051.30. This includes 272,651,005 shares issued in 2010 out of conditional share capital upon conversion of CHF 13 billion in mandatory convertible notes (MCN) on 5 March 2010; and 76,755 (of which 3,171 under former PaineWebber employee option plans) shares issued for employee option exercises out of conditional capital, all of which took effect in 2010.
Conditional share capital
– | At the Annual General Meeting (AGM) held in 2006, shareholders approved conditional capital in the maximum amount of 150,000,000 shares to be used for employee option grants. Options are exercisable at any time between their vesting and expiration dates. Shareholders have no pre-emptive rights. In 2010, options on 73,584 shares were exercised under the option plans with a total of 149,920,712 conditional capital shares being available to satisfy further exercises of options. |
– | At the AGM held in 2010, shareholders approved conditional capital in the amount of up to 380,000,000 fully paid registered shares, with a nominal value of CHF 0.10 each, through the exercise of conversion rights and / or warrants granted in connection with the issuance of bonds or similar financial instruments by UBS. Shareholders have no pre-emptive rights. The owners of conversion rights and / or warrants shall be entitled to subscribe to the new shares. At year-end 2010, the BoD had not made use of the allowance to issue bonds or warrants with conversion rights covered by conditional share capital. |
– | At the AGM held on 15 April 2009, our shareholders approved the creation of conditional capital for the potential issuance of 100,000,000 shares in the event of exercise of warrants granted to the Swiss National Bank (SNB) in connection with the loan granted by the SNB to the SNB StabFund. |
è | Refer to the “Shares and capital instruments” section of this report for more information on conditional share capital |
Authorized share capital
Changes of shareholders’ equity and shares
è | Refer to the “Statement of changes in equity” in the “Financial information (consolidated financial statements)” section of this report for more information on changes in shareholders’ equity over the last three years |
Shares and participation certificates
We have only one unified class of shares issued. Our shares are issued in registered form, and are traded and settled as global registered shares. Each registered share has a par value of CHF 0.10 and carries one vote subject to the restrictions set out under “Transferability, voting rights and nominee registration”. Global registered shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange on which they are traded.
è | Refer to the “Shareholders’ participation rights” section of this report for more information |
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Distribution of UBS shares | ||||||||||||||||
On 31 December 2010 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1–100 | 40,896 | 11.5 | 2,401,727 | 0.1 | ||||||||||||
101–1,000 | 200,705 | 56.3 | 91,565,192 | 2.4 | ||||||||||||
1,001–10,000 | 104,236 | 29.2 | 286,103,960 | 7.5 | ||||||||||||
10,001–100,000 | 9,856 | 2.8 | 242,026,391 | 6.3 | ||||||||||||
100,001–1,000,000 | 725 | 0.2 | 191,357,995 | 5.0 | ||||||||||||
1,000,001–5,000,000 | 95 | 0.0 | 223,378,963 | 5.8 | ||||||||||||
5,000,001–38,308,405 (1%) | 26 | 0.0 | 245,584,542 | 6.4 | ||||||||||||
1–2% | 1 | 0.0 | 63,760,200 | 1.7 | ||||||||||||
2–3% | 2 | 0.0 | 177,912,038 | 4.6 | ||||||||||||
3–4% | 1 | 0.0 | 145,038,407 | 3.8 | ||||||||||||
4–5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 3 | 1 | 0.0 | 935,659,719 | 24.4 | |||||||||||
Total registered | 356,546 | 100.0 | 2,604,789,134 | 68.0 | ||||||||||||
Unregistered2 | 1,226,051,379 | 32.0 | ||||||||||||||
Total shares issued | 3,830,840,513 | 3 | 100.0 | |||||||||||||
Shareholders: type and geographical distribution | ||||||||||||||||
Shareholders | Shares | |||||||||||||||
On 31 December 2010 | Number | % | Number | % | ||||||||||||
Individual shareholders | 347,790 | 97.5 | 634,936,250 | 16.6 | ||||||||||||
Legal entities | 8,194 | 2.3 | 716,304,953 | 18.7 | ||||||||||||
Nominees, fiduciaries | 562 | 0.2 | 1,253,547,931 | 32.7 | ||||||||||||
Unregistered | 1,226,051,379 | 32.0 | ||||||||||||||
Total | 356,546 | 100.0 | 3,830,840,513 | 100.0 | ||||||||||||
Switzerland | 319,928 | 89.7 | 840,192,284 | 21.9 | ||||||||||||
Europe | 20,130 | 5.7 | 948,210,958 | 24.8 | ||||||||||||
North America | 8,574 | 2.4 | 486,694,537 | 12.7 | ||||||||||||
Other countries | 7,914 | 2.2 | 329,691,355 | 8.6 | ||||||||||||
Unregistered | 1,226,051,379 | 32.0 | ||||||||||||||
Total | 356,546 | 100.0 | 3,830,840,513 | 100.0 | ||||||||||||
Ordinary share capital | ||||||||||||
Share capital in CHF | Number of shares | Par value in CHF | ||||||||||
On 31 December 2008 | 293,258,055 | 2,932,580,549 | 0.10 | |||||||||
Issue of shares for capital increase (MCNs conversion) | 33,222,591 | 332,225,913 | 0.10 | |||||||||
Issue of shares for capital increase (private placement) | 29,325,805 | 293,258,050 | 0.10 | |||||||||
Issue of shares out of employee options exercised from conditional capital | 4,824 | 48,241 | 0.10 | |||||||||
On 31 December 2009 | 355,811,275 | 3,558,112,753 | 0.10 | |||||||||
Issue of shares for capital increase (MCNs conversion) | 27,265,100 | 272,651,005 | 0.10 | |||||||||
Issue of shares for capital increase (private placement) | 0 | 0 | 0.10 | |||||||||
Issue of shares out of employee options exercised from conditional capital | 7,676 | 76,755 | 0.10 | |||||||||
On 31 December 2010 | 383,084,051 | 3,830,840,513 | 0.10 | |||||||||
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Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transferability of shares. Voting rights may be exercised without any restrictions by shareholders entered into the share register, if they expressly render a declaration of beneficial ownership according to the provisions of the Articles of Association.
è | Refer to the “Shareholders’ participation rights” section of this report for more information |
Capital instruments
On 31 December 2010, there were no contingent capital securities or convertible bonds outstanding requiring the issuance of new shares. We had CHF 4,903 million principal amount of deeply subordinated capital instruments outstanding, which count as hybrid
tier 1 capital under Swiss regulatory rules, and CHF 8,239 million principal amount of outstanding tier 2 capital securities (mainly subordinated bonds). We did not issue any capital instruments in 2010.
Options
In connection with the loan granted by the SNB to the SNB Stab-Fund, we have issued warrants granted to the SNB sourced by conditional capital for which 100,000,000 shares were approved by our shareholders. The warrants are exercisable only if the SNB incurs a loss on its loan to the fund.
è | Refer to the “Shares and capital instruments” section of this report for more information on options |
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Corporate governance
Shareholders’ participation rights
We are committed to shareholder participation in our decision- making process. More than 350,000 directly registered shareholders, as well as some 90,000 US shareholders registered via nominee companies, regularly receive written information about our activities and performance and are personally invited to shareholder meetings.
è | Refer to the “Information policy” section of this report for more information |
Relationships with shareholders
We fully subscribe to the principle of equal treatment of all shareholders, who range from large investment institutions to individual investors, and regularly inform them about the development of the company of which they are co-owners.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights. Nominee companies and trustees, who normally represent a large number of individual shareholders, may hold an unlimited number of shares, but we have provisions according to which 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 in the share register. Securities clearing organizations, such as The Depository Trust Company in New York, are not subject to the 5% voting limit.
Statutory quorums
Shareholder resolutions, the election and reelection of BoD members 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 AGM, and the absolute majority of the par value of shares represented at the AGM, must vote in favor of the resolution. These issues include, among others, the creation of shares with privileged voting rights, the introduction of restrictions on the transferability of registered shares, conditional and authorized capital increases, and restrictions or exclusion of shareholders’ pre-emptive rights.
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Convocation of general meetings of shareholders
The AGM normally takes place each year 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 AGM. The meeting agenda is also published in the Swiss Official Gazette of Commerce and in selected Swiss newspapers as well as on the internet at www.ubs.com/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 at the shareholders’ meeting.
Registrations in the share register
The general rules for being entered with voting rights in our Swiss or US share registers also apply before general meetings of shareholders. There is no “closing of the share register” in the days before 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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Board of Directors
The BoD, under the leadership of the Chairman, decides on the strategy of the Group upon recommendation of the Group Chief Executive Officer (Group CEO), exercises the ultimate supervision over senior management, and appoints all GEB members. The BoD also approves all financial statements for issue. Shareholders elect each member of the BoD, which in turn appoints its Chairman, Vice Chairman, SID, the members of the BoD Committees and their respective Chairpersons.
Members of the Board of Directors
At the AGM held on 14 April 2010, Kaspar Villiger, Michel Demaré, David Sidwell, Sally Bott, Rainer-Marc Frey, Bruno Gehrig, Ann F. Godbehere, Axel P. Lehmann, Helmut Panke and William
G. Parrett were reelected as their terms of office expired. Sergio Marchionne and Peter R. Voser tendered their resignation. Wolfgang Mayrhuber was elected to his first term on the BoD. Following their election, the BoD appointed Michel Demaré as Vice Chairman and David Sidwell as SID. On 22 July 2010, UBS nominated Joseph Yam, former Chief Executive of the Hong Kong Monetary Authority, for election to the BoD at the 2011 AGM. On 31 December 2010, with the exception of the non-independent Chairman, Kaspar Villiger, all BoD members were considered independent by the BoD. Sally Bott resigned from the BoD effective on 11 February 2011.
Kaspar Villiger Swiss, born 5 February 1941 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Chairman of the Board of Directors/Chairperson of the Corporate Responsibility Committee/Chairperson of the Governance and Nominating Committee Year of initial appointment: 2009 | Professional history and education Kaspar Villiger was elected to the Board of Directors (BoD) at the 2009 Annual General Meeting (AGM) and was thereafter appointed Chairman of the BoD. He chairs the Corporate Responsibility Committee and the Governance and Nominating Committee. Mr. Villiger was elected Federal Councilor in 1989, and served as the Minister of Defense and Head of the Federal Military Department until 1995. Subsequently, he served as Finance Minister and Head of the Federal Department of Finance until he stepped down at the end of 2003. In addition to Federal Councilor, he served as President of the Swiss Confederation, in 1995 and 2002. In 2004, he was elected to the boards of Nestlé, Swiss Re and the Neue Zürcher Zeitung, all of which he resigned from in 2009 when he took on the position of Chairman of UBS. As co-owner of the Villiger Group, Mr. Villiger managed the Swiss parent firm, Villiger Söhne AG, from 1966 until 1989. In addition, Mr. Villiger held several political positions, first in the parliament of the canton of Lucerne and, from 1982 until 1989, in the Swiss Parliament. He graduated from the Swiss Federal Institute of Technology (ETH) in Zurich with a degree in mechanical engineering in 1966. | ||||||
Michel Demaré Belgian, born 31 August 1956 ABB Ltd., Affolternstrasse 44, P.O. Box 5009, CH-8050 Zurich Functions in UBS Independent Vice Chairman/member of the Audit Committee/member of the Governance and Nominating Committee Year of initial appointment: 2009 | Professional history and education Michel Demaré was elected to the BoD at the 2009 AGM, and in April 2010 appointed independent Vice Chairman. He is a member of the Audit Committee and the Governance and Nominating Committee. Mr. Demaré joined ABB in 2005 as Chief Financial Officer (CFO) and as a member of the Group Executive Committee. In addition, he became President of Global Markets in November 2008. Between February and September 2008, he acted as the interim CEO of ABB. Mr. Demaré joined ABB from Baxter International Inc., where he was CFO Europe from 2002 to 2005. Prior to this role, he spent 18 years at the Dow Chemical Company, holding various treasury and risk management positions in Belgium, France, the US and Switzerland. Between 1997 and 2002, he was the CFO of the Global Polyolefins and Elastomers division. Mr. Demaré began his career as an officer in the multinational banking division of Continental Illinois National Bank of Chicago, and was based in Antwerp. He graduated with an MBA from the Katholieke Universiteit Leuven, Belgium, and holds a degree in applied economics from the Université Catholique de Louvain, Belgium. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Demaré is a member of the IMD Foundation Board in Lausanne. | ||||||
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David Sidwell American (US) and British, born 28 March 1953 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Senior Independent Director/Chairperson of the Risk Committee Year of initial appointment: 2008 | Professional history and education David Sidwell was elected to the BoD at the 2008 AGM. In April 2010, he was appointed Senior Independent Director, and chairs the Risk Committee. Mr. Sidwell was Executive Vice President and CFO of Morgan Stanley between 2004 and 2007. Before joining Morgan Stanley, he was with JPMorgan Chase & Co., where in his 20 years of service, he held a number of different positions including Controller, and from 2000 to 2004 CFO of the Investment Bank. Prior to this, he was with Price Waterhouse in both London and New York. Mr. Sidwell graduated from Cambridge University and is a chartered accountant qualifying in the Institute of Chartered Accountants in England and Wales. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Sidwell is a Director and Chairperson of the Risk Policy and Capital Committee of Fannie Mae, Washington D.C., and a Senior Advisor at Oliver Wyman, New York. He is a trustee of the International Accounting Standards Committee Foundation, London, the Chairman of the board of Village Care, New York, and is a Director of the National Council on Aging, Washington D.C. | ||||||
Sally Bott American (US), born 11 November 1949 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Chairperson of the Human Resources and Compensation Committee/member of the Corporate Responsibility Committee/member of the Governance and Nominating Committee, resigned with effect on 11 February 2011 Year of initial appointment: 2008 | Professional history and education Sally Bott was elected to the BoD at the October 2008 Extraordinary General Meeting (EGM). Until her resignation with effect on 11 February 2011, she chaired the Human Resources and Compensation Committee. Furthermore, she was a member of the Corporate Responsibility Committee and the Governance and Nominating Committee. Ms. Bott served as the Group Human Resources (HR) Director of BP plc, from 2005 until 2011, and was member of BP’s Group Executive Committee. As of April 2011, Ms. Bott will be the Head of Human Resources at Barclays plc. Ms. Bott has spent most of her career in financial services. Between 2000 and 2005, she was a Managing Director at Marsh & McLennan Companies and Head of Global HR for Marsh Inc. She was at Barclays Bank from 1994 to 2000, first as Barclays de Zoete Wedd HR Director and then as Group HR Director from 1997 to 2000. In 1970, she joined Citibank out of college as a research analyst in the economics department where she was credit trained and worked in the finance function. She moved into HR in 1978, and worked as an HR Director in most of Citibank’s wholesale bank and investment banking businesses for the next 15 years. She was the Global HR Director of the wholesale bank from 1990 to 1993. Ms. Bott studied at Manhattanville College, and graduated with a bachelor’s degree in economics. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Ms. Bott is a member of the board of the Carter Burden Center for the Aging in New York City. | ||||||
Rainer-Marc Frey Swiss, born 10 January 1963 Office of Rainer-Marc Frey, Seeweg 39, CH-8807 Freienbach Functions in UBS Member of the Audit Committee/member of the Risk Committee Year of initial appointment: 2008 | Professional history and education Rainer-Marc Frey was elected to the BoD at the October 2008 EGM and is a member of the Audit Committee and the Risk Committee. Mr. Frey is the founder of the investment management company Horizon21. He is the Chairman of Horizon21 as well as of its related entities and subsidiaries. In 1992, he founded and was appointed CEO of RMF Investment Group. RMF was acquired by Man Group plc in 2002. Between 2002 and 2004, he held a number of senior roles within Man Group and was the largest individual shareholder. From 1989 to 1992, Mr. Frey served as a director at Salomon Brothers in Zurich, Frankfurt and London, where he was primarily involved with equity derivatives. Between 1987 and 1989, he worked for Merrill Lynch covering equity, fixed income and swaps markets. He holds a degree in economics from the University of St. Gallen. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Frey is a member of the board of DKSH Group, Zurich, as well as of the Frey Charitable Foundation, Freienbach. | ||||||
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Bruno Gehrig Swiss, born 26 December 1946 Swiss International Air Lines AG, Obstgartenstrasse 25, CH-8302 Kloten Functions in UBS Member of the Governance and Nominating Committee / member of the Human Resources and Compensation Committee Year of initial appointment: 2008 | Professional history and education Bruno Gehrig was elected to the BoD at the October 2008 EGM and is a member of the Governance and Nominating Committee and the Human Resources and Compensation Committee. From 2003 to 2009, Mr. Gehrig was Chairman of Swiss Life Holding. Between 1996 and 2003, he worked at the Swiss National Bank, starting as a member of the Governing Board and becoming Vice Chairman in 2000. From 1992 to 1996, he was a professor of banking and finance at the University of St. Gallen and concurrently served as a member of the Swiss Federal Banking Commission. Between 1989 and 1991, he held the position of CEO at Bank Cantrade AG. Mr. Gehrig worked for the former Union Bank of Switzerland (UBS) between 1981 and 1989, where he started as a chief economist before assuming responsibility for securities sales and trading. He studied economics at the University of Bern, where he completed his PhD studies, and then continued on to postgraduate studies at the University of Rochester, New York. He was an assistant professor at the University of Bern and received an honorary doctorate from the University of Rochester. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Gehrig is the Chairman of the board of Swiss International Air Lines and the Vice Chairman and Chairperson of the Remuneration Committee of Roche Holding Ltd., Basel. | ||||||
Ann F. Godbehere Canadian and British, born 14 April 1955 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Member of the Audit Committee / member of the Corporate Responsibility Committee Year of initial appointment: 2009 | Professional history and education Ann F. Godbehere was elected to the BoD at the 2009 AGM and is a member of the Audit Committee and the Corporate Responsibility Committee. Ms. Godbehere was appointed CFO and Executive Director of Northern Rock in February 2008, serving in these roles during the initial phase of the business’ public ownership – she left at the end of January 2009. Prior to this role, she served as CFO of Swiss Re Group from 2003 to 2007. Ms. Godbehere was CFO of the Property and Casualty division in Zurich for two years, before this she served as CFO of the Life & Health division in London for three years. From 1997 to 1998, Ms. Godbehere was CEO of Swiss Re Life & Health in Canada. In 1996 and 1997, she was CFO of Swiss Re Life & Health North America. She is a certified general accountant, and in 2003, was made a fellow of the Certified General Accountants Association of Canada. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Ms. Godbehere is a board member and Chairperson of the Audit Committees of Prudential plc, Rio Tinto plc and Rio Tinto Limited in London. She is on the board of Atrium Underwriters Ltd. and Atrium Underwriting Group Ltd., London. She is also a member of the board and Chairperson of the Audit Committee of Ariel Holdings Ltd., Bermuda. | ||||||
Axel P. Lehmann Swiss, born 23 March 1959 Zurich Financial Services, Mythenquai 2, CH-8002 Zurich Function in UBS Member of the Risk Committee Year of initial appointment: 2009 | Professional history and education Axel P. Lehmann was elected to the BoD at the 2009 AGM and is a member of the Risk Committee. He has been the Group Chief Risk Officer of Zurich Financial Services (Zurich) since January 2008, and was responsible for Group IT until 2010. In September 2004, Mr. Lehmann was appointed CEO of Zurich American Insurance Company and the North America Commercial business division in Schaumburg, Illinois. He became a member of Zurich’s Group Executive Committee and CEO of its Continental Europe business division in 2002, and subsequently was in charge, in 2004, of integrating UK, Ireland and South Africa in the newly created Europe General insurance business division. In 2001, he took over the responsibility for Northern, Central and Eastern Europe and was appointed CEO of the Zurich Group Germany. In 2000, Mr. Lehmann became a member of the Group Management Board where he was responsible for Group-wide business development functions. Before he joined Zurich in 1996, he was Head of Corporate Planning and Controlling for Swiss Life in Zurich. Mr. Lehmann was a lecturer at several universities and institutes. In 1990, he became Vice President of the Institute of Insurance Economics and the European Center at the University of St. Gallen, and was responsible for consulting and management development. He holds a PhD and a master’s degree in business administration and economics from the University of St. Gallen. He is a graduate of the Wharton Advanced Management Program and an honorary professor of business administration and service management at the University of St. Gallen. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Lehmann is Chairman of the board of the Institute of Insurance Economics at the University of St. Gallen and is Chairman of the Chief Risk Officer Forum. | ||||||
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Wolfgang Mayrhuber Austrian, born 22 March 1947 Deutsche Lufthansa AG, Flughafen Frankfurt am Main 302, D-60549 Frankfurt am Main Functions in UBS Member of the Corporate Responsibility Committee/member of the Human Resources and Compensation Committee Year of initial appointment: 2010 | Professional history and education Wolfgang Mayrhuber was elected to the BoD at the 2010 AGM and is a member of the Corporate Responsibility Committee and the Human Resources and Compensation Committee. He was Chairman of the Executive Board and CEO of Deutsche Lufthansa AG from 2003 to 2010. In 2002, he was elected Deputy Chairman of the Executive Board, and in 2001, he was appointed to the Executive Board with responsibility for the passenger airline business. From 1994 to the end of 2000, he was Chairman of the Executive Board of the newly founded Lufthansa Technik AG. After holding a variety of management positions in the maintenance, repair and overhaul division, he was appointed Executive Vice President and Chief Operating Officer Technical in 1992. In 1970, he joined Lufthansa as an engineer at the engine overhaul facility in Hamburg. Mr. Mayrhuber studied mechanical engineering at the Technical College in Steyr, Austria, and at the Bloor Collegiate Institute in Canada, until 1965. In 1990, he completed an Executive Management Training course at the Massachusetts Institute of Technology. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Mayrhuber is Chairman of the supervisory board and Chairperson of the Mediation Committee, the Nomination Committee and the Executive Committee of Infineon Technologies AG, as well as a member of the supervisory boards of Munich Re Group, BMW Group, Lufthansa Technik AG and Austrian Airlines AG. Furthermore, he serves on the board of SN Airholding SA / NV, Brussels, and HEICO Corporation, Hollywood, FL. | ||||||
Helmut Panke German, born 31 August 1946 BMW AG, Petuelring 130, D-80788 Munich Functions in UBS Member of the Risk Committee and as of 11 February 2011 ad-interim Chairperson of the Human Resources and Compensation Committee Year of initial appointment: 2004 | Professional history and education Helmut Panke was elected to the BoD at the 2004 AGM. He is a member of the Risk Committee and, as of 11 February 2011, ad-interim Chairperson of the Human Resources and Compensation Committee. Between 2002 and 2006, Mr. Panke was Chairman of the Board of Management at BMW. In 1982, he joined BMW’s Research and Development division as Head of Planning and Controlling. He subsequently assumed management functions in corporate planning, organization and corporate strategy. Before his appointment as Chairman, he was a member of BMW’s Board of Management from 1996. Between 1993 and 1996, he was Chairman and CEO of BMW Holding Corporation in the US. Mr. Panke graduated from the University of Munich with a PhD in physics, and was on special research assignment at the University of Munich and the Swiss Institute for Nuclear Research before joining McKinsey & Company in Dusseldorf and Munich as a consultant. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Panke is a member of the board of Microsoft Corporation (Chairperson of the Antitrust Compliance Committee) and Singapore Airlines Ltd. He is a member of the supervisory board of Bayer AG. | ||||||
William G. Parrett American (US), born 4 June 1945 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Function in UBS Chairperson of the Audit Committee Year of initial appointment: 2008 | Professional history and education William G. Parrett was elected to the BoD at the October 2008 EGM and chairs the Audit Committee. Mr. Parrett served his entire career with Deloitte Touche Tohmatsu. He was CEO from 2003 until his retirement in 2007. Between 1999 and 2003, he was a Managing Partner of Deloitte & Touche USA LLP and served on Deloitte’s Global Executive Committee. Mr. Parrett founded Deloitte’s US National Financial Services Industry Group in 1995 and its Global Financial Services Industry Group in 1997, both of which he led as Chairman. In his 40 years of experience in professional services, Mr. Parrett served public, private, governmental, and state-owned clients worldwide. Mr. Parrett has a bachelor’s degree in accounting from St. Francis College, New York, and is a certified public accountant. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Parrett is an independent Director of the Eastman Kodak Company, the Blackstone Group LP, and Thermo Fisher Scientific Inc., in all of which he chairs the Audit Committee. He is also the Immediate Past Chairman of the board of the United States Council for International Business and United Way Worldwide. He is a Carnegie Hall Board of Trustees member. | ||||||
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Elections and terms of office
In accordance with article 19 (paragraph one) of the Articles of Association, all BoD members are to be elected on an individual basis for a one-year term of office. As a result, shareholders must confirm the entire membership of the BoD on a yearly basis at the next AGM, which will take place on 28 April 2011.
Organizational principles and structure
The Organization Regulations were revised and are valid as of 1 August 2010. Major changes consisted of separating the roles of the Vice Chairman and the SID, integrating the requirements of the FINMA Circular 2010/1, and enhancing the approval authority of the BoD with regard to the cost of equity for UBS and its business divisions.
Audit Committee
Corporate Responsibility Committee
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è | Refer to the “Corporate responsibility” section of this report for more information |
Governance and Nominating Committee
Human Resources and Compensation Committee
è | Refer to the “Compensation governance” section of this report for more information on the Human Resources and Compensation Committee’s decision-making procedures |
Risk Committee
Roles and responsibilities of the Chairman of the Board of Directors
Kaspar Villiger, the Chairman, has entered into a full-time employment contract with UBS in connection with his service on the BoD.
Roles and responsibilities of the Vice Chairman and the Senior Independent Director
The BoD appoints a Vice Chairman and an SID. Both the Vice Chairman and the SID must be independent. The Vice Chairman is required to lead the BoD in the absence of the Chairman as well as provide support and advice to the Chairman. At least twice a year, the SID organizes and leads a meeting of the independent BoD members without the presence of the Chairman. In 2010,
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Important business connections of independent members of the Board of Directors with UBS
As a global financial services provider and a major bank in Switzerland, we have business relationships with many large companies, including those in which our BoD members assume management or independent board responsibilities. The nature of the relationships between UBS and companies whose chair, chief executive or other officer is a member of our BoD is not considered to compromise the BoD members’ capacity for independent judgment. Furthermore, no independent BoD member has personal business relationships with UBS that could compromise his or her independence.
Checks and balances: Board of Directors and Group Executive Board
We operate under a strict dual board structure, as mandated by Swiss banking law. The separation of responsibilities between the BoD and the GEB is clearly defined in the Organization Regulations. The BoD decides on the strategy of the Group upon recommendation of the Group CEO, and supervises and monitors the business, whereas the GEB, headed by the Group CEO, has executive management responsibility. The functions of Chairman of the BoD and Group CEO are assigned to two different people, thus ensuring a separation of power. This structure establishes checks and balances and preserves the institutional independence of the BoD from the day-to-day management of the firm, for which responsibility is delegated to the GEB under the leadership of the Group CEO. No member of one board may be a member of the other.
è | Refer to www.ubs.com/governance for more details on checks and balances for the BoD and GEB |
Transparency report
On 14 October 2010, we published the “Transparency report to the shareholders of UBS”, which is a comprehensive review of the
è | Refer to www.ubs.com/transparencyreport 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 minutes of the GEB meetings are made available to the BoD members. At BoD meetings, the Group CEO and GEB members regularly update the BoD on important issues.
è | Refer to the “Risk management and control” section of this report for more information |
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Group Executive Board
UBS operates under a strict dual board structure, as required by Swiss banking law. The management of the business is delegated by the BoD to the GEB.
Members of the Group Executive Board and changes in 2010
Lukas Gähwiler was named CEO of UBS Switzerland on 1 April 2010, replacing Francesco Morra who stepped down on that date.
an interim basis. Mr. Cryan took on these responsibilities in addition to his existing role as Group CFO.
Oswald J. Grübel German, born 23 November 1943 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Function in UBS Group CEO Year of initial appointment: 2009 | Professional history and education Oswald J. Grübel was named Group Chief Executive Officer (Group CEO) and a member of the Group Executive Board (GEB) in February 2009. Before joining UBS, he was the CEO of Credit Suisse Group and Credit Suisse and stepped down from this role in May 2007. From 2002 to 2004, he was CEO of Credit Suisse Financial Services, and co-CEO of Credit Suisse Group from 2003 until 2004. Mr. Grübel was a member of the Group Executive Board of Credit Suisse from 1997 to 2001, and again from 2002 to 2007. From 1991 until 1997, he was a member of the Group Executive Board of Credit Suisse and was responsible for equities, fixed income, global foreign exchange, money markets and asset /liability management in Zurich. Before that he was a member of the Financière Credit Suisse First Boston Group Executive Board in Zug. In 1970, Mr. Grübel joined White Weld Securities and became its CEO in 1975. From 1961 to 1970, he worked for Deutsche Bank where he completed his training as a banker. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Grübel is a board member of the Swiss-American Chamber of Commerce, the Institute of International Finance and the Financial Services Forum. He is member of the International Monetary Conference. | ||||||
John Cryan British, born 16 December 1960 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Group CFO CEO UBS AG London Branch and UBS Limited Chairman and CEO UBS Group Europe Middle East and Africa (EMEA) ad interim Year of initial appointment: 2008 | Professional history and education John Cryan was appointed CEO of UBS AG London Branch and UBS Limited in November 2010 as well as Chairman and CEO of UBS Group Europe, Middle East and Africa (EMEA) on an interim basis. Mr. Cryan took on these responsibilities in addition to his existing role as Group Chief Financial Officer (Group CFO). He was appointed Group CFO and became a GEB member in September 2008. In 2002, he became the European Head of the Financial Institutions Group of the Investment Bank and three years later he was made its Global Head. A former employee of Arthur Andersen LLP, Mr. Cryan joined S.G. Warburg & Co. in London in 1987. Since 1992, he has specialized in providing strategic and financial advice to a wide range of companies in the financial services sector globally. Mr. Cryan graduated in 1981 with an MA with honors from the University of Cambridge. |
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Markus U. Diethelm Swiss, born 22 October 1957 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Function in UBS Group General Counsel Year of initial appointment: 2008 | Professional history and education Markus U. Diethelm was appointed Group General Counsel of UBS and a GEB member in September 2008. From 1998 until 2008, he served as Group Chief Legal Officer at Swiss Re, and was appointed to its Group Executive Board in 2007. Prior to that, he was at the Los Angeles-based law firm Gibson, Dunn & Crutcher, and focused on corporate matters, securities transactions, litigation and regulatory investigations while working out of the firm’s Brussels and Paris offices. From 1989 until 1992, he practiced at Shearman & Sterling law firm in New York, specializing in mergers and acquisitions. In 1988, he worked at Paul, Weiss, Rifkind, Wharton & Garrison in New York, after starting his career in 1983 with Bär & Karrer. Mr. Diethelm holds a law degree from the University of Zurich and a master’s degree and PhD from Stanford Law School. He is a qualified attorney-at-law admitted to the Zurich and New York State Bar Associations. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Diethelm is the Chairman of the Swiss-American Chamber of Commerce’s Legal Committee and member of the Swiss Advisory Council of the American Swiss Foundation. | ||||||
John A. Fraser Australian and British, born 8 August 1951 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Chairman and CEO Global Asset Management Chairman UBS Saudi Arabia Year of initial appointment: 2002 | Professional history and education John A. Fraser was appointed Chairman and CEO of the Global Asset Management business division in December 2001, and became a GEB member in July 2002. Since 2008, he has been the Chairman of UBS Saudi Arabia. Before 2001, he was President and Chief Operating Officer (COO) of UBS Asset Management and Head of Asia Pacific (APAC). From 1994 to 1998, he was the Executive Chairman and CEO of the Australia funds management business. Before joining UBS, Mr. Fraser spent over 20 years in various positions at the Australian Treasury, including two international postings in Washington D.C., first, at the International Monetary Fund and second, as Economic Minister at the Australian Embassy. He was the Deputy Secretary (Economic) of the Australian Treasury from 1990 to 1993. Mr. Fraser graduated from Monash University, Melbourne, in 1972, and holds a first-class honors degree in economics. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Fraser is a member of the President’s Advisory Council of the European Fund and Asset Management Association, a member of the Board of Governors of the Marymount International School at Kingston-upon-Thames in the UK and Chairman of the Victorian Funds Management Corporation, Melbourne. | ||||||
Lukas Gähwiler Swiss, born 4 May 1965 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS CEO UBS Switzerland and co-CEO Wealth Management & Swiss Bank Year of initial appointment: 2010 | Professional history and education Lukas Gähwiler became a GEB member in April 2010, and was appointed CEO of UBS Switzerland and co-CEO of Wealth Management & Swiss Bank. In his role as CEO of UBS Switzerland he is responsible for all businesses including retail and wealth management, corporate and institutional banking, investment banking and asset management in UBS’s home market. Before joining UBS, he held the position of Chief Credit Officer with Credit Suisse since 2003, and was accountable for the worldwide credit business of Private Banking, including Commercial Banking in Switzerland. In 1998, Mr. Gähwiler was appointed Chief of Staff to the CEO of the Credit Suisse Private and Corporate Business Unit. Previously, he held various front-office positions in Switzerland and North America. Mr. Gähwiler earned a bachelor’s degree in business administration from the University of Applied Sciences in St. Gallen. He completed an MBA program in corporate finance at the International Bankers School in New York, as well as the Advanced Management Program at Harvard Business School. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Gähwiler is a member of the boards of the Zurich Chamber of Commerce and the Opernhaus AG as well as Vice Chairman of the Swiss Finance Institute. |
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Carsten Kengeter German, born 31 March 1967 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Chairman and CEO Investment Bank Year of initial appointment: 2009 | Professional history and education Carsten Kengeter was appointed Chairman and CEO of the Investment Bank in November 2010, after having been appointed its co-CEO in April 2009, when he became a GEB member. He joined UBS in December 2008, and served as the joint Global Head of Fixed Income, Currencies & Commodities (FICC) of the Investment Bank until January 2010. He has been on the Governing Board of UBS Limited since March 2009. Mr. Kengeter worked for Goldman Sachs as the co-Head of Asia (ex-Japan) Securities division in Hong Kong since 2006. In 2003, he co-headed the European FICC and Structured Equities Distribution in London, and in 2002, he became partner and Head of the FICC German Region in Frankfurt. In 2000, he was made Head of the European and Asian Collateralized Debt Obligation business in London, and before that he was in derivatives marketing in Frankfurt. From 1992 to 1997, Mr. Kengeter worked for Barclays de Zoete Wedd, and was responsible for setting up the credit derivatives trading desk. He graduated as Diplom-Betriebswirt from Fachhochschule Reutlingen, holds a bachelor’s in business administration from Middlesex University and a finance and accounting MSc from the London School of Economics. | ||||||
Ulrich Körner German and Swiss, born 25 October 1962 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Group Chief Operating Officer and CEO Corporate Center Year of initial appointment: 2009 | Professional history and education Ulrich Körner was appointed Group Chief Operating Officer (Group COO) and CEO Corporate Center, and was made a GEB member in April 2009. Mr. Körner was previously with Credit Suisse from 1998, and served as a member of the Credit Suisse Group Executive Board from 2003 to 2008, holding various management positions including CFO and COO. From 2006 to 2008 and before joining UBS, he was responsible for the entire Swiss client business as CEO of the Switzerland region. Mr. Körner received a PhD from the University of St. Gallen in business administration, and served several years as an auditor for Price Waterhouse and as a management consultant for McKinsey & Company. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Körner is Vice Chairman of the Committee of the Governing Board of the Swiss Bankers Association, Chairman of the Widder Hotel, Zurich, and Vice President of the board of Lyceum Alpinum Zuoz. He is Deputy Chairman of the Supervisory Board of UBS Deutschland AG, member of the Foundation Board of the UBS Pension Fund, member of the Financial Service Chapter Board of the Swiss-American Chamber of Commerce and member of the advisory board of the Department of Banking and Finance at the University of Zurich. | ||||||
Philip Lofts British, born 9 April 1962 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Function in UBS Group CRO until 31 December 2010 CEO UBS Group Americas as of 1 January 2011 Year of initial appointment: 2008 | Professional history and education Philip J. Lofts was appointed CEO of UBS Group Americas in January 2011. He became a GEB member in November 2008. From 2008 until 2010, he was Group Chief Risk Officer (Group CRO). He has been with UBS for over 20 years. In 2008, he became the Group Risk COO after having previously been the Group Chief Credit Officer for three years. Before this, Mr. Lofts worked for the Investment Bank in a number of business and risk control positions in Europe, APAC and the US. He successfully completed his A-levels at Cranbrook School. From 1981 to 1984, he was a trainee at Charterhouse Japhet plc, a merchant bank acquired by the Royal Bank of Scotland in 1985. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Lofts is a board member of the University of Connecticut Foundation. |
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Robert J. McCann American (US) and Irish, born 15 March 1958 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Function in UBS CEO Wealth Management Americas Year of initial appointment: 2009 | Professional history and education Robert J. McCann was appointed CEO of Wealth Management Americas and became a GEB member in October 2009. Before joining UBS, he worked for Merrill Lynch & Co. as Vice Chairman and President of the Global Wealth Management Group. In 2003, he served as Vice Chairman of Distribution and Marketing for AXA Financial. He started his career with Merrill Lynch in 1982, working in various positions in capital markets and research. From 1998 to 2000, he was the Global Head of Global Institutional Debt and Equity Sales. In 2000, he became the COO of Global Markets and Investment Banking, and from 2001 to 2003, he was the Head of Global Securities Research and Economics. Mr. McCann graduated with a bachelor’s in economics from Bethany College, West Virginia. He holds an MBA from Texas Christian University. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. McCann is a board member of the American Ireland Fund, and is Vice Chairman of the Bethany College Board of Trustees. He is a member of the No Greater Sacrifice Advisory Board, Washington D.C. | ||||||
Alexander Wilmot-Sitwell British, born 16 March 1961 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Co-Chairman and co-CEO UBS Group APAC Year of initial appointment: 2008 | Professional history and education Alexander Wilmot-Sitwell was appointed co-Chairman and co-CEO of UBS Group APAC in November 2010. He became a GEB member in February 2008. From 2009 to 2010, he served as co-CEO of the Investment Bank, and from 2005 to 2009 as the joint Global Head of Investment Banking. From 2008 to 2010, he was Chairman and CEO of UBS Group EMEA. He joined the firm in 1996 as the Head of Corporate Finance in South Africa and moved to London in 1998 as Head of UK Investment Banking. Mr. Wilmot-Sitwell previously worked for Warburg Dillon Read and served as the Head of Corporate Finance at SBC Warburg in South Africa. Mr. Wilmot-Sitwell graduated from Bristol University with a degree in modern history. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Wilmot-Sitwell is Vice President of the Save the Children Fund, London. | ||||||
Robert Wolf American (US), born 8 March 1962 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Chairman and CEO UBS Group Americas, CEO until 31 December 2010 President Investment Bank Year of initial appointment: 2008 | Professional history and education Robert Wolf was appointed President of the Investment Bank in 2007. He was Chairman and CEO of UBS Group Americas and was a GEB member from March 2008 until the end of 2010. Since January 2011 he has been the Chairman of UBS Group Americas. He was COO of the Investment Bank from 2004 to 2008. Prior to that, Mr. Wolf served as the Global Head of Fixed Income from 2002 to 2004, and previously as Global Head of Credit Trading, Research and Distribution. He joined Union Bank of Switzerland (UBS) in 1994, after spending approximately 10 years at Salomon Brothers in fixed income. In 1984, Mr. Wolf graduated from the Wharton School of the University of Pennsylvania with a degree in economics. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Wolf is a member of President Obama’s Economic Recovery Advisory Board. He is a member of the Undergraduate Executive Board of the Wharton School, the University of Pennsylvania Athletics Board of Overseers, and the Financial Services Round Table. Mr. Wolf is also a member of the Council on Foreign Relations and the Committee Encouraging Corporate Philanthropy. He is on the board and in the Leadership Council of the Multiple Myeloma Research Foundation. He serves on the board of the Children’s Aid Society, New York, the Partnership New York City, and the Robert F. Kennedy Center for Justice & Human Rights Leadership Council. |
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Chi-Won Yoon Korean, born 2 June 1959 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS Co-Chairman and co-CEO UBS Group APAC Year of initial appointment: 2009 | Professional history and education Chi-Won Yoon is co-Chairman and co-CEO of UBS Group APAC. From June 2009 to November 2010, he served as sole Chairman and CEO of UBS AG, APAC and is a GEB member since June 2009. Prior to his current role, Mr. Yoon served as Head of UBS’s securities business in APAC: Asia Equities which he oversaw since 2004, and APAC FICC which he was brought in to lead in 2009. In 1997, when he first joined the firm, he served as Head of Equity Derivatives. Mr. Yoon began his career in financial services in 1986, working first at Merrill Lynch in New York and then at Lehman Brothers in New York and Hong Kong. Before embarking on a Wall Street career, Mr. Yoon worked as an electrical engineer in satellite communications. In 1982, Mr. Yoon earned a bachelor’s degree in electrical engineering from the Massachusetts Institute of Technology (MIT), and in 1986, a master’s degree in management from MIT’s Sloan School of Management. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Yoon is on the Asian Executive Board of MIT’s Sloan School of Management. | ||||||
Jürg Zeltner Swiss, born 4 May 1967 UBS AG, Bahnhofstrasse 45, CH-8098 Zurich Functions in UBS CEO UBS Wealth Management and co-CEO Wealth Management & Swiss Bank Year of initial appointment: 2009 | Professional history and education Jürg Zeltner was appointed CEO UBS Wealth Management and co-CEO of Wealth Management & Swiss Bank, and became a GEB member in February 2009. In November 2007, he was appointed Head of Wealth Management North, East & Central Europe. From 2005 to 2007, he was CEO of UBS Deutschland, Frankfurt, and prior to that, he held various management positions in the former Wealth Management division of UBS. Between 1987 and 1998, Mr. Zeltner was with SBC in various roles within the Private and Corporate Client division in Berne, New York and Zurich. He graduated from the School of Economics and Business Administration in Berne, and completed the Advanced Management Program at Harvard Business School. Other activities and functions Mandates on boards of important corporations, organizations and foundations or interest groups: Mr. Zeltner is a board member of the German-Swiss Chamber of Commerce and the UBS Optimus Foundation. |
Responsibilities, authorities and organizational principles of the Group Executive Board
Under the leadership of the Group CEO, the GEB has executive management responsibility for the Group and its business. It assumes overall responsibility for the development of the Group and business division strategies and the implementation of approved strategies. The GEB constitutes itself as the risk council of the Group. In this function, the GEB has overall responsibility for establishing and supervising the implementation of risk management and control principles, for approving the core risk policies as proposed by the Group CRO, the Group CFO and the Group GC, as well as for controlling the risk profile of the Group as a whole as determined by the BoD and the RC. In 2010, the GEB held in total 20 meetings.
è | Refer to the Organization Regulations, which are available at www.ubs.com/governance, for more information on the authorities of the GEB |
Responsibilities and authorities of the Group Asset and Liability Management Committee
The Group ALCO, established by the GEB in 2009, is responsible for setting strategies to maximize the financial performance of the Group, and is subject to the guidelines, constraints and risk tolerances set by the BoD. The Group ALCO is also responsible for managing the balance sheet of the business divisions through allocation and monitoring of limits as well as managing liquidity, funding and capital; and promoting a one-firm financial management culture. The Organization Regulations additionally specify which powers of the GEB are delegated to the Group ALCO. In 2010, the Group ALCO held 10 meetings.
Management contracts
We have not entered into management contracts with any third parties.
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Change of control and defense measures
We refrain from restrictions that would hinder developments initiated in, or supported by, the financial markets. We also do 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, is required to submit a takeover offer for all shares outstanding, according to Swiss stock exchange law. We have not elected to change or opt out of this rule.
Clauses on change of control
Neither the service agreement with the Chairman of the BoD, nor the employment contracts with the GEB members, contain change of control clauses.
All employment agreements with GEB members contain a notice period of six months, except for one which contains a 12-month notice period. During the notice period, GEB members are entitled to their salary and continuation of existing employment benefits.
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Auditors
Audit is an integral part of corporate governance. While safeguarding their independence, the external auditors closely coordinate their work with Group Internal Audit. The AC, and ultimately the BoD, supervises the effectiveness of audit work.
External, independent auditors
At the 2010 AGM, Ernst & Young were re-elected as principal auditors for the Group for a further one-year term of office. Ernst & Young assume virtually all auditing functions according to laws, regulatory requests and the Articles of Association. The Ernst & Young lead partner in charge of the UBS audit has been Jonathan Bourne since 2010 and his incumbency is limited to five years. Andreas Blumer has acted as the global engagement partner since 2004. He will be replaced in 2011 by Andreas Loetscher due to a seven-year rotation requirement. Ernst & Young will be proposed for reelection at the AGM in 2011.
Fees paid to external independent auditors
investment funds, many of which have independent fund boards or trustees.
Pre-approval procedures and policies
Fees paid to external auditors
UBS paid the following fees (including expenses) to its external auditors Ernst & Young Ltd.:
For the year ended | ||||||||
in CHF thousand | 31.12.10 | 31.12.09 | ||||||
Audit | ||||||||
Global audit fees | 46,939 | 45,276 | ||||||
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators) | 11,604 | 8,856 | ||||||
Total audit | 58,543 | 54,132 | ||||||
Non-audit | ||||||||
Audit-related fees | 7,225 | 7,405 | ||||||
of which assurance and attest services | 3,073 | 3,142 | ||||||
of which control and performance reports | 4,058 | 4,023 | ||||||
of which advisory on accounting standards, transaction consulting including due diligence, other | 94 | 240 | ||||||
Tax advisory | 521 | 509 | ||||||
Other | 1,152 | 279 | ||||||
Total non-audit | 8,898 | 8,193 | ||||||
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Corporate governance
The AC has delegated pre-approval authority to its Chairperson; hence the Group CFO submits all proposals for services by Ernst & Young to the Chairperson of the AC for approval, unless there is a bucket pre-approval in place. At each quarterly meeting, the AC is informed of the approvals granted by its Chairperson and of services authorized under bucket pre-approvals.
Group Internal Audit
Group Internal Audit, with 313 personnel worldwide on 31 December 2010, performs the internal auditing function for the entire Group. Group Internal Audit supports the BoD and its Committees in discharging their governance responsibilities by independently assessing the effectiveness of our system of internal controls and our compliance with statutory, legal and regulatory requirements. All reports with key issues are provided to the
Group CEO, the GEB members responsible for the business divisions and other responsible management. In addition, the Chairman of the BoD, the RC and the AC are regularly informed about important issues. Group Internal Audit closely cooperates with internal and external legal advisors and risk control units on investigations into major control issues.
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Information policy
We provide regular information to our shareholders and to the financial community.
Financial results will be published as follows
First quarter 2011 | 26 April 2011 | |
Second quarter 2011 | 26 July 2011 | |
Third quarter 2011 | 25 October 2011 | |
The Annual General Meeting of shareholders will take place as follows
2011 | 28 April 2011 | |
2012 | 3 May 2012 | |
We meet with institutional investors worldwide throughout the year, and regularly hold results presentations, special investor seminars, road shows, and individual and group meetings. Where possible, meetings involve senior management as well as members of the investor relations team. We make use of diverse technologies such as webcasting, audio links and cross-location video-conferencing to widen our audience and maintain contact with shareholders around the world.
è | Refer to www.ubs.com/investors for a complete set of published reporting documents, the corporate calendar, access to webcasts and a selection of senior management industry conference presentations | |
è | Refer to www.ubs.com/investors for future financial report publication dates |
Financial disclosure principles
Based on discussions with analysts and investors, we believe that the market rewards companies that provide clear, consistent and informative disclosure about their business. Therefore, we aim to communicate our strategy and results in a manner that allows shareholders and investors to gain an understanding of how our company works, what our growth prospects are and what risks
our strategy and results might entail. Feedback from analysts and investors is continually assessed and, where we consider appropriate, reflected in our quarterly and annual reports. To continue to achieve these goals, we apply the following principles in our financial reporting and disclosure:
– | Transparencyin disclosure enhances understanding of the economic drivers and builds trust and credibility. | |
– | Consistencyin disclosure within each reporting period and between reporting periods. | |
– | Simplicityin disclosure allows readers to gain an understanding of the performance of our businesses. |
– | Relevancein disclosure avoids information overload by focusing on what is required by regulation or statute and is relevant to our stakeholders. |
– | Best practicein line with industry norms, leading the way to improved standards where possible. |
Financial reporting policies
We report our results after the end of every quarter, including a breakdown of results by business division and extensive disclosures relating to credit and market risk.
è | Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for a detailed explanation of the basis of UBS’s accounting |
We are committed to maintaining the transparency of our reported results and to ensuring that analysts and investors can make meaningful comparisons with previous periods. If there is a major reorganization of our business divisions, or if changes to accounting standards or interpretations lead to a material change in the Group’s reported results, our results are restated for previous periods when required by applicable accounting standards, to show how they would have been reported according to the new basis and provide clear explanations of all relevant changes.
US regulatory disclosure requirements
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Corporate governance
An evaluation was carried out under the supervision of management including the Group CEO and Group CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934. Based upon that evaluation, the Group CEO and Group CFO concluded that our disclosure controls and procedures were effective as of 31 December 2010. No significant changes have been made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
In accordance with Section 404 of the US Sarbanes-Oxley Act of 2002, our management is responsible for establishing and maintaining adequate internal control over financial reporting. The financial statements of this report contain management’s assessment of the effectiveness of internal control over financial reporting, as of 31 December 2010. The external auditors’ report on this assessment is also included in this report.
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Regulation and supervision
As a Swiss-registered company, our home country regulator and consolidated supervisor is FINMA. However, our operations are global and are therefore regulated and supervised by the relevant authorities in each of the jurisdictions in which we conduct business. The next sections describe the regulation and supervision of our business in Switzerland, our home market, and the regulatory and supervisory environments in the US and the UK, our next two largest areas of operations.
Regulation and supervision in Switzerland
Swiss Federal Legislation
è | Refer to the “Capital management” section of this report for more details about capital requirements, and to the “Regulatory developments” section of this report for more information on Basel III |
Regulation by the Swiss Financial Market Supervisory Authority
– | FINMA has substantial influence on the drafting of Swiss federal acts and ordinances from the Federal Council or the parliament. | |
– | On a more technical level, FINMA is empowered to issue its own ordinances and circulars. |
è | Refer to the “Regulatory developments” section of this report for more information on the legislative framework |
Self-regulation by the SIX and the Swiss Bankers Association
Two-tier system of supervision and direct supervision of UBS
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Corporate governance
Disclosures to the Swiss National Bank
è | Refer to the “Liquidity and funding management” section of this report for more information on liquidity requirements |
Regulation and supervision in the US
Banking regulation
US regulation of other US operations
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Regulation and supervision in the UK
Our operations in the UK are regulated by the FSA, 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
As a Swiss company listed on the NYSE, we comply with the NYSE corporate governance standards for foreign private issuers.
Independence of directors
Based on the listing standards of the NYSE, our BoD has established specific criteria for defining the independence of our external members. Each external director has to personally confirm his or her compliance with the criteria, which are published on our website underwww.ubs.com/governance.
Board of Directors and its Committees
è | Refer to the “Board of Directors” section of this report for further information on these Committees including their mandates, responsibilities and authorities, as well as their activities during 2010 |
Differences from corporate governance standards relevant to US-listed companies
According to the NYSE listing standards on corporate governance, foreign private issuers are required to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies.
Responsibility of the Audit Committee for appointment, compensation, retention and oversight
of the independent auditors
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Discussion of risk assessment and risk management policies by the Risk Committee
Assistance by the Risk Committee of the internal audit function
Responsibility of the Human Resources and Compensation Committee for oversight of management and evaluation by the Board of Directors
Proxy statement reports of the Audit and Human Resources and Compensation Committees
Shareholders’ votes on Equity Compensation Plans
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Compensation
Compensation
Our foremost priority is to encourage and reward behavior that contributes to sustainable profitability and therefore the long-term success of our firm. In order to align employee incentives with the interests of our shareholders, we pay a significant part of our employees’ variable compensation in the form of deferred awards, mostly in UBS shares, which are subject to strict forfeiture rules.
Dear shareholders,
In recent years, UBS has fundamentally reshaped its approach to compensation. Our priority remains to attract and retain talented professionals to enable us to further develop our business. At the same time, it is critical to encourage and reward behavior that contributes to sustainable profits. This is a fundamental prerequisite for the long-term success of our firm, which is in the best interests of our shareholders and other stakeholders.
During 2010, in collaboration with our regulators, we introduced measures to meet our main compensation objectives of better integrating risk within the compensation process and further aligning financial incentives with the long-term profitability of the firm. These measures include identifying our key risk-takers and controllers, individuals in our organization, who by the nature of their role, can materially commit or control the firm’s resources, and/or exert influence over the firm’s risk profile, and adopting appropriate measures regarding their compensation. We also made refinements to deferred compensation for certain other categories of employees.
Furthermore, in response to your concerns last year, we not only made a number of
adjustments to our compensation model, outlined in detail below, but also worked to improve the related disclosure. This year’s report provides greater transparency, especially with regard to our compensation structure and plans.
Focus on long-term profitability
For 2010, we raised the proportion of a Group Executive Board (GEB) member’s bonus paid in deferred equity from 50% to 60%, while at the same time reducing the portion of cash paid out immediately to a GEB member from 30% to 24%. As a result, at least 76% of a GEB member’s bonus, including part of the cash bonus, is deferred and at risk of forfeiture for up to five years. Apart from GEB members, approximately 8,000 employees across all of UBS’s business divisions receive bonuses in the form of deferred equity under the Equity Ownership Plan (EOP). Under this plan, 60% of their bonus is deferred as UBS shares over three years.
For 2010, the vesting of EOP awards for very senior and high-earning employees was made dependent on the profitability of the employee’s business division over the vesting period, or, in the case of Corporate Center employees, on the profitability of the UBS Group (Group) as a whole. We also introduced cash deferrals (for periods of up to three years) for Investment Bank employees whose total compensation exceeds CHF 1 million. Furthermore, we have reduced the use of leverage in our compensation plans.
Addressing risk in compensation decisions
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held two joint meetings over the last year with the Board of Directors’ (BoD) Risk Committee.
In a significant step toward strengthening our risk culture, and in line with regulatory guidance, we adopted stringent measures with regard to the performance assessment and compensation for risk-takers and controllers. Risk-takers are subject to an additional performance evaluation by the control functions, 60% of their bonus is deferred over three years and the vesting of their equity awards is subject to financial performance conditions.
Striking the right balance
While we believe that our current compensation system strikes the balance we seek, and are confident that the approach we have established is the right one, going forward we will continue adapting it to meet our requirements and those of our stakeholders, including ensuring that it complies with all applicable rules and regulations. By maintaining a focus on risk management throughout our business and encouraging sustainable business conduct, we are convinced that we are well-placed to execute our business strategy and achieve our goals.
Helmut Panke
Ad-interim Chairman of the Human
Resources and Compensation Committee
of the Board of Directors
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Compensation governance
Our compensation governance principles include appropriate checks and balances and are designed to support long-term value creation. They have great strategic importance in shaping the direction and success of the firm, supporting its ability to attract and retain the best talent.
Human Resources and Compensation Committee
The HRCC is composed of four independent BoD members. On 31 December 2010, the members were Sally Bott, who chaired the committee, Bruno Gehrig, Wolfgang Mayrhuber and Helmut Panke. The committee held 10 meetings in 2010. Upon Sally Bott’s
resignation from the BoD, effective 11 February 2011, Helmut Panke was appointed ad-interim Chairperson of the HRCC.
Responsibilities and authorities of the HRCC
The HRCC reviews the Total Reward Principles annually and submits any amendments to the BoD for final approval. In addition, the HRCC:
– | reviews and approves the design of the total compensation framework, including compensation strategy, programs and plans on behalf of the BoD; | |
– | reviews variable compensation funding throughout the year on behalf of the BoD and proposes the final bonus pool to the BoD for approval; and | |
– | together with the Group CEO, proposes base salaries and annual bonuses for GEB members to the BoD, which approves the total compensation of the GEB. |
Compensation authorities
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Inclusion of the Risk Committee
Compensation plans can have considerable influence in ensuring prudent and controlled risk-taking at financial institutions. In recognition of this fact, a key principle in the FINMA Circular 2010 / 1 is that a firm’s risk control functions and experts must be involved in designing and implementing compensation plans.
Decision-making process for Group Executive Board member compensation
One of the HRCC’s main responsibilities is to make recommendations for the actual amount of variable cash and equity compensation awarded to each GEB member for the 2010 performance year. These recommendations are submitted to the BoD for approval. This process relies on a detailed and balanced review, not only of the performance of the Group, but of the relevant business division and the impact of specific individuals. It considers Group and divisional performance information, including risk- adjusted profitability and other financial and non-financial factors such as leadership effectiveness, strategy execution and reputational impact. It also takes into account performance information from the businesses, initial compensation recommendations from the Group CEO, employment contract terms, and relevant laws and regulations, together with relevant market data, such as that relating to industry compensation trends.
Shareholders’ advisory vote
We value the opinions of our shareholders. As such, we will provide, as we have done the past two years, an opportunity for shareholders to express their views through an advisory vote on this compensation report at the AGM in April 2011. While such a vote is advisory in nature and not legally binding, we encourage our shareholders to participate in the vote as we regard it as a meaningful way of involving them in the compensation discussion and take its outcome seriously. Shareholders also have the opportunity to raise questions at the AGM, and can address their questions about compensation or related issues at any time to BoD members by contacting the Company Secretary. Contact details are provided at the beginning of this report.
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Total Reward Principles
Our approach to compensation is underpinned by what we call our “Total Reward Principles.” They establish a framework for integrating risk control and managing performance. At the same time, they specify how we structure compensation and the necessary bonus pool funding, that is, the amount of funds available in a given year for the payment of bonuses. They reflect our longstanding focus on pay for performance, sustained profitability, sound governance and strong risk awareness, and build on the UBS strategy of enhancing the firm’s reputation, increasing client focus and teamwork, and improving integration and execution. At the same time, they give full effect to the relevant regulatory requirements.
Total Reward Principles
Align reward with sustainable performance
Throughout UBS, sustainable performance is a key factor in determining compensation. Our assessment of performance goes beyond whether financial objectives have been achieved and takes into account the long-term risk impact of employee actions.
è | Refer to the “Compensation Governance” section for more information about responsibilities and authorities for compensation-related decisions |
Support appropriate and controlled risk-taking
Our compensation system provides incentives that take specific account of risk. Our performance reviews recognize that different businesses have different risk profiles, and that additional factors should be considered, including the fact that earnings may vary in quality over time. All employees are expected to demonstrate an appropriate understanding of the nature of their business and its associated risks, to consider their actions in light of UBS’s reputation and risk appetite, and to accept responsibility for all risks that arise, which includes taking steps to manage and mitigate them.
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quire deferral of up to five years. The deferred portion will be forfeited in certain cases, including if an employee acts contrary to the firm’s interests during the deferral period by contributing to significant financial losses or restatements, causing reputational harm, or breaching risk policy, legal or regulatory requirements, all of which constitute “harmful acts”.
Foster effective individual performance management and communication
We evaluate performance rigorously to ensure that compensation is fairly and appropriately allocated. We base it not only on the contribution employees make to UBS’s business results, but also on whether they:
– | observe our corporate values and principles; | |
– | implement our strategy of enhancing reputation and improving integration and execution; | |
– | demonstrate leadership when it comes to our clients, business, people and change; | |
– | lead or support effective collaboration and teamwork; | |
– | operate with a high level of integrity and in compliance with UBS policies; | |
– | actively manage risk and strike an appropriate balance between risk and reward; and | |
– | exhibit professional and ethical behavior. |
Attract and engage a diverse, talented workforce
Our need to attract and retain talented, competent employees underpins our compensation policies. We offer market-competitive compensation that strikes an appropriate balance between fixed and variable elements. Base salaries must be high enough to allow for a flexible policy when it comes to variable compensation. Our variable compensation encourages employees to perform and to be entrepreneurial, while at the same time placing an emphasis on strong risk awareness and measured risk-taking.
è | Refer to the “Overview of our compensation model” section of this report for more information about our compensation system |
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We benchmark our compensation and benefit levels against those of our peers. With respect to compensation for GEB members, we refer to a peer group of companies that are selected based on the comparability of their size, geographic and product and services scope, and staffing and pay strategy, among other factors. These companies, which are large European and US banks operating internationally, are our main competitors when it comes to hiring. They are: Bank of America, Barclays, Citigroup, Credit
Suisse, Deutsche Bank, HSBC, JP Morgan Chase and Morgan Stanley.
In the view of the HRCC, our executive compensation structure is appropriate relative to our peer group. We review the peer group regularly to ensure that the firms that constitute it remain relevant benchmarks for our purposes.
As for compensation for other employees, given the diversity of our businesses, the companies we use as benchmarks
vary with and are dependent on the relevant business divisions and locations, as well as the nature of the positions involved. For certain businesses or positions, we may take into account other major international banks, the large Swiss private banks, private equity firms, hedge funds and non-financial firms. Furthermore, we also benchmark employee compensation internally for comparable roles within and across business divisions and locations.
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Overview of our compensation model
Our compensation model is consistent with and supports our Total Reward Principles. It rewards appropriate risk-taking and behavior that produces sustainable results. To encourage employees to act with the long-term interests of the firm in mind, which also serves the best interests of our shareholders, we pay a significant part of our variable compensation in the form of equity that is deferred over several years.
All UBS employees
The total compensation employees receive has two elements: a fixed element, which is generally the base salary, and a discretionary variable element, which is the bonus. In determining employees’ pay, and in benchmarking pay both internally and externally, we focus on total compensation, rather than its individual elements, as it presents a more comprehensive picture of an employee’s pay.
mine our commitment to providing market-competitive compensation. By not capping total compensation, we have the flexibility required to respond to different circumstances, such as changing business and market conditions or retention needs.
Base salary
Compensation overview
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Bonus
è | Refer to the “Our employees” section of this report for more information on the Core Cycle process |
è | Refer to the discussion in the “Deferred variable compensation plans” section of this report for more information |
Compensation for financial advisors in Wealth Management Americas
Other variable compensation
Severance and sign-on payments1 | ||||||||||||||
These payments were made to certain GEB members, Group Managing Directors (replacing the former Group Managing Board in February 2010), and to certain key risk-takers and controllers in 2010. | ||||||||||||||
31.12.10 | ||||||||||||||
Of which expenses to | ||||||||||||||
Of which expenses | be recognized in | |||||||||||||
Total | recognized in 2010 | 2011 and later | ||||||||||||
Sum of all sign-on payments, in CHF million2 | 95 | 55 | 40 | |||||||||||
of which related to replacement awards and guarantees for the first year, in CHF million | 82 | 46 | 36 | |||||||||||
Number of beneficiaries | 19 | |||||||||||||
Sum of all severance payments, in CHF million | 13 | 13 | N/A | |||||||||||
Number of beneficiaries | 7 | |||||||||||||
Number of departing managers | 18 | |||||||||||||
1 For the purpose of this table we consider replacement awards and guarantees as sign-on payments. 2 Includes sign-on payments agreed in 2010 and awards granted in 2010. Awards granted are included with their fair value at the date of grant. |
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ments are made outside the circumstances described, or where substantial severance payments are made, a further stringent approval process applies.
Pensions and benefits
è | Refer to “Note 30 Pension and other post-employment benefit plans” in the “Financial Information” section of this report for more information |
As part of our efforts to attract and retain the best employees, our total compensation includes, in addition to a base salary and bonus, certain benefits such as health insurance and retirement benefits. These benefits vary depending on the location, but are competitive within each of the markets in which we operate.
Employee share purchase program
Risk-takers and controllers
Our risk-takers and controllers are a group of around 200 individuals who, by the nature of their role, have been determined to be able to materially commit or control the firm’s resources and / or exert significant influence over its risk profile, whether they are in the front office, logistics or control functions. Risk-taker activities are closely monitored, and risk-takers are subject to an additional level of performance evaluation by the control functions. Additionally, their compensation is adjusted to reflect the individual
risks that they take, and a deferral rate of 60% is applied to their annual bonus granted under the applicable plans. Furthermore, the vesting of their deferred awards is contingent on the profitability of the business division in which they work, or, in the case of Corporate Center employees, on the profitability of the Group as a whole. Like all other employees, risk-takers also face forfeiture or reduction of the deferred portion of their compensation if they commit harmful acts.
è | Refer to the discussion “Support appropriate and controlled risk-taking” in the “Total Reward Principles” section of this report for more information |
While we comply with the relevant Swiss Financial Market Supervisory Authority (FINMA) requirements regarding risk-takers, we are currently seeking guidance from regulators across the European Union regarding the implementation of the Capital Requirements Directive issued by the European Commission, which contains some rules relating to compensation. In the UK, for instance, the Financial Services Authority (FSA) has already issued a revised remuneration code. In line with guidance from the FSA, we have identified senior management and employees whose professional activities could have a material impact on the firm’s risk profile in the UK, so-called “Code staff”. Of the approximately 100 Code staff, about half are also part of our wider population of risk-takers and controllers. Code staff compensation is generally similar to those of risk-takers. However, due to specific FSA requirements, 50% of Code staff bonuses that are paid out immediately are delivered in shares. Furthermore, any shares granted to Code staff under the EOP for their performance in 2010 will be subject to an additional six-month blocking period upon vesting.
Group Executive Board
Bonus
è | Refer to the discussion in the “Compensation funding and expenses” section of this report for more information |
At least 76% of a GEB member’s bonus is deferred. Of the annual bonus, 40% is awarded in cash under the Cash Balance Plan (CBP): a maximum of 24% is paid out immediately, subject to a cash cap of CHF/USD 2 million. Vesting of the deferred cash portion is in equal installments over the following two years, with the amount vesting dependent on the return on equity achieved by the Group (Group RoE) in the financial year prior to vesting. The remaining 60% of a GEB member’s bonus is paid in equity, with 20% delivered under the Performance Equity Plan (PEP) and 40% under the Senior Executive Equity Ownership Plan (SEEOP). CBP awards vest over two years, PEP awards after three years, and
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Illustrative example
SEEOP awards over five years. The deferred portion of all these awards is subject to forfeiture under certain conditions.
è | Refer to the “Deferred Variable Compensation Plans” section for more information |
Share retention
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Employment contract terms
Benefits
Board of Directors
Chairman of the BoD
man’s employment contract does not provide for special severance terms, including supplementary contributions to pension plans.
Independent BoD members
è | Refer to the “2010 compensation for the Group Executive Board and the Board of Directors” section of this report for more information |
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Deferred variable compensation plans
Overview of variable compensation plans
Compensation is closely linked to long-term sustainable performance. All of our variable compensation plans featuremalusprovisions. A substantial part of variable compensation is deferred and at risk of forfeiture for several years.
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Variable compensation plans 2010
Cash Balance Plan (CBP)
Plan type – Deferred cash plans
Eligible employees:CBP awards are granted annually toGEB members.
Description: Generally, 40% of a GEB member’s annual bonus consists of cash awarded under the CBP. A maximum of 24% of the total bonus is paid out immediately, subject to a cap of CHF/USD 2 million. The balance is deferred and paid out in two equal installments over two years, subject to the performance condition described below.
The amount of cash delivered on vesting depends on the return on equity achieved by the Group during the vesting period. If the Group RoE is below 6%, no adjustment will be made to the amount of cash delivered upon vesting. If the Group RoE exceeds 6%, the unvested amount will be increased in line with the RoE achieved, though any such increase may not exceed 20%. If the Group RoE is negative, the unvested amount will be decreased accordingly, up to a maximum of 100%, and no vesting will occur in that given year.
Restrictions:The CBP containsmalus provisions so that the deferred amount is partially or fully forfeited if a harmful act is committed. Even after a GEB member has left the firm, the deferred portion of the CBP award continues to be at risk of forfeiture. In addition, the award is forfeited if a GEB member voluntarily terminates his or her employment and joins another financial services organization.
Changes in 2010:The cap on the amount of cash that can be paid out immediately is set at CHF/USD 2 million. This was raised from the previous level of CHF/USD 1 million in line with industry practice.
The amount of cash delivered on vesting was made dependent on the Group RoE achieved during the vesting period.
In addition to the existing forfeiture provisions, awards granted from 2011 onward are now also forfeited if a GEB member voluntarily terminates his or her employment and joins another financial services organization.
Senior Executive Equity Ownership Plan (SEEOP)
Plan type – UBS share plans
Eligible employees:SEEOP awards are granted annually toGEB members.
Description: SEEOP awards are in the form of UBS shares that vest in equal installments over five years. The SEEOP is similar to the EOP, described below, but has a longer vesting period to reflect the additional level of commitment and long-term performance expected of GEB members.
Restrictions:SEEOP awards are subject to forfeiture in the event of a harmful act, if the business division to which a GEB member belongs makes a loss or if his or her employment is terminated voluntarily or for cause.
Changes in 2010:We introduced a performance condition for SEEOP awards, making the vesting of such awards contingent on the profitability of a GEB member’s business division, or, if the GEB member in question does not head a division, on the profitability of the Group as a whole. If the business division (or Group) suffers a loss in a given performance year, then the portion of the SEEOP award due to vest the following year will generally be reduced by 10%–50%, depending on the extent of the loss.
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Performance Equity Plan (PEP)
Plan type – UBS share plans
Eligible employees:PEP awards are granted annually toGEB members.
Description:At the beginning of the three-year performance period, GEB members are granted a certain number of restricted performance shares. The actual number of UBS shares delivered at the end of the period can be between zero and two times the number of performance shares granted initially, depending on whether performance targets relating to economic profit (EP) and relative total shareholder return (TSR) have been achieved. EP is a measure of risk-adjusted profit that takes into account the cost of risk capital and is only realized when the entire return on capital that is achieved is higher than the firm’s cost of capital. TSR measures the total return of a share to an investor, that is, both capital appreciation of the share price and the dividend yield. We measure our TSR over a three-year period relative to the companies in the Dow Jones Bank Titans 30 Index, an index representing 30 leading companies in the global banks sector.
To determine the number of UBS shares delivered upon vesting, it is necessary to first determine the EP multiplier to be used, as well as the TSR multiplier. The EP multiplier changes in line with the level of three-year cumulative EP achieved. The TSR multiplier used depends on the relative ranking achieved by UBS among the companies in the Dow Jones Banks Titans 30 Index at the time of vesting. As was the case last year, a 100% multiplier will be applied if UBS is ranked 15th among the companies in the index. The EP multiplier may range from 50%–150% and the TSR multiplier may range from 50%–133%, but if both measures are below the lowest threshold no shares will vest.
Once the EP and TSR multipliers have been established, to calculate the number of shares delivered upon vesting:
– | the EP multiplier is multiplied with the TSR multiplier; and | |
– | the resulting figure is then multiplied with the number of performance shares granted initially. |
Restrictions:PEP awards are subject to forfeiture in the event of a harmful act or if employment has been terminated voluntarily or for cause.
Changes in 2010:No changes were made to the plan’s design. Performance targets are set annually.
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Equity Ownership Plan (EOP)
Plan type – UBS share plans / Equity Ownership Plan – fund linked
Eligible employees:The EOP is a mandatory bonus deferral plan forall employees with a total compensation of CHF/USD 250,000 or more. In 2010, around 8,000 employees received EOP awards. These employees include risk-takers, Group Managing Directors (GMD) and employees whose total bonus exceeds CHF/USD 2 million. EOP awards are granted annually.
Description:Employees with a total compensation (that is, base salary and bonus) of CHF/USD 250,000 or more receive 60% of their bonus above that level in UBS shares that are deferred over three years under the EOP.
To align their compensation with the performance of the funds that they manage, Global Asset Management employees receive their EOP awards in the form of cash, the amount of which is dependent on the value of the relevant underlying Global Asset Management funds at the time of vesting. The vesting and forfeiture provisions of these awards are the same as for EOP awards made in the form of UBS shares.
Restrictions:EOP awards are subject to forfeiture in the event of a harmful act or if employment is terminated voluntarily or for cause.
EOP awards made to risk-takers, GMD and employees whose total bonus exceeds CHF/USD 2 million will only vest in full if the business division to which the employee belongs is profitable. If the business division incurs an operating loss in a given year, then the deferred portion of the EOP award due to vest in the following year will be partially forfeited. The amount forfeited depends on the extent of the loss and generally ranges from 10%–50% of the award portion due to vest. In the case of Corporate Center employees, their awards are conditional on the profitability of the Group as a whole.
Changes in 2010:We introduced a performance condition for awards granted to risk-takers, GMD and employees whose total bonus exceeds CHF/USD 2 million, making the vesting of their deferred awards contingent on the profitability of their respective business division, or, if such employees belong to the Corporate Center, on the profitability of the Group as a whole.
Deferred Cash Plan (DCP)
Plan type – Deferred cash plans
Eligible employees:DCP awards were granted toInvestment Bank employees whose total compensation exceeds CHF 1 million.
Description:Although the mandatory bonus deferral plan (for total compensation above CHF/USD 250,000) or more applies to all employees, certain Investment Bank employees are subject to additional cash deferrals on the 40% cash component of their bonus. The DCP is a cash award denominated either in USD or CHF. It vests in equal installments in the three subsequent years following its grant. The CHF/USD 2 million cap on the amount of cash that can be paid out immediately applies.
Restrictions:DCP awards are subject to forfeiture in the event of a harmful act or if employment is terminated voluntarily or for cause.
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Discontinued deferred compensation plans
The following table sets out the details of discontinued compensation plans, including those under which stock options, stock appreciation rights and other instruments were granted in the past. UBS has not granted any options since 2009. The strike price for stock options awarded under prior compensation plans has not been reset.
è | Refer to Note 31 “Equity participation and other compensation plans” in the “Financial Information” section of this report for more information |
Performance | Restrictions/ | Time frame and | |||||||||||||||||
Plan | Year granted | Eligible employees | Instrument | conditions | other conditions | vesting terms | |||||||||||||
Incentive | 2010 only | GEB members and | Performance shares | Dependent on share | Subject to continued | Vests in full at the end | |||||||||||||
Performance Plan | other senior employees | price at the end of the | employment and | of five years. Number | |||||||||||||||
(IPP) | (approximately 900 | five-year period | harmful act provisions. | of shares that vest can | |||||||||||||||
employees) | be between one and | ||||||||||||||||||
three times the number | |||||||||||||||||||
of performance shares | |||||||||||||||||||
initially granted. | |||||||||||||||||||
Vests in one-third | |||||||||||||||||||
Conditional Variable | 2009 only | Selected employees | Cash | No financial loss | Subject to continued | installments over a | |||||||||||||
Compensation Plan | (approximately 9,500 | incurred and no need | employment and | three-year period. | |||||||||||||||
(CVCP) | employees), excluding | for additional capital | harmful act provisions. | ||||||||||||||||
GEB members | injection by | ||||||||||||||||||
government | Tranche forfeited if the | ||||||||||||||||||
Group or relevant | |||||||||||||||||||
business division fails to | |||||||||||||||||||
achieve a profit in the | |||||||||||||||||||
year preceding the year | |||||||||||||||||||
of vesting, or if there is | |||||||||||||||||||
any government | |||||||||||||||||||
recapitalization during | |||||||||||||||||||
the vesting period. The | |||||||||||||||||||
first tranche of the | |||||||||||||||||||
CVCP was forfeited as | |||||||||||||||||||
the net profit | |||||||||||||||||||
prerequisite was not | |||||||||||||||||||
satisfied for the | |||||||||||||||||||
performance year 2009. | |||||||||||||||||||
The second tranche of | |||||||||||||||||||
the CVCP is to vest on | |||||||||||||||||||
12 April 2011 following | |||||||||||||||||||
the announcement of | |||||||||||||||||||
UBS's 2010 profit (paid | |||||||||||||||||||
to employees in all | |||||||||||||||||||
business divisions except | |||||||||||||||||||
Wealth Management | |||||||||||||||||||
Americas, which record- | |||||||||||||||||||
ed a full-year loss). | |||||||||||||||||||
Key Employee Stock | 2002-2009 | Selected employees | Share-settled stock | None | Subject to continued | Vests in full at the end | |||||||||||||
Appreciation Rights | (approximately 17,000 | appreciation rights | employment, | of the three-year | |||||||||||||||
Plan (KESAP) and | employees between | (SARs) or stock options | non-solicitation of | period. SARs and | |||||||||||||||
Key Employee Stock | 2002 and 2009) | with a strike price not | clients and employees | options expire 10 years | |||||||||||||||
Option Plan (KESOP) | less than the fair | and non-disclosure of | from the date of grant. | ||||||||||||||||
market value of a UBS | proprietary information. | Awards are settled by | |||||||||||||||||
share on the date of | the delivery of UBS | ||||||||||||||||||
grant | shares, except in | ||||||||||||||||||
countries where this is | |||||||||||||||||||
not permitted by law. | |||||||||||||||||||
Senior Executive | 2002-2009 | GEB members and | SARs or stock options | None | Subject to continued | Vests in full at the end | |||||||||||||
Stock Appreciation | Group Managing Board | with a strike price not | employment, | of the three-year | |||||||||||||||
Rights Plan (SESAP) | less than 110% of the | non-solicitation of | period. SARs and | ||||||||||||||||
and Senior | fair market value of a | clients and employees | options expire 10 years | ||||||||||||||||
Executive Stock | UBS share on the date | and non-disclosure of | from the date of grant. | ||||||||||||||||
Option Plan (SESOP) | of grant | proprietary information. | Awards are settled by | ||||||||||||||||
the delivery of UBS | |||||||||||||||||||
shares, except in | |||||||||||||||||||
countries where this is | |||||||||||||||||||
not permitted by law. |
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Compensation funding and expenses
How we determine our bonus pool
Each business division plans its bonus pool annually based on the funding framework and process that has been agreed by the HRCC. The “management pool” is the amount that a business division proposes to award its employees for their performance in a given performance year after consideration of all relevant factors. These proposed pools are submitted to the Group CEO and the HRCC for review, and approved by the full BoD. A detailed description of this process is provided below. By comparison, the expenses charged to the profit and loss account for any given year include compensation expense, that is, accruals, for bonuses awarded for the latest performance year recognized in the current year, as well as amortization of deferred awards granted in prior years, that is, prior awards that have not yet vested.
Profitability
Funding rates and initial bonus pools
in years of downturn or recovery by retaining key employees, while providing additional shareholder return in good years by preventing excessive capital usage for compensation. As such, we optimize shareholder return in the longer term by adapting our compensation funding in line with the profitability situation of our businesses.
Management discretion
Review and approval process
Sustainable profitability is key to compensation funding
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Business performance over the last two years
UBS achieved a profit before tax of CHF 7,455 million in 2010, compared with a loss of CHF 2,561 million in 2009. The Investment Bank returned to profitability and contributed CHF 8,278 million to the CHF 10 billion improvement in UBS’s operating profit. UBS ended 2010 with an industry-leading BIS tier 1 capital ratio of 17.8%. Client confidence in our business is growing, as demonstrated by increased business volumes as well as improvements in net new money. We also continued to control our costs and achieved our CHF 20 billion fixed costs target for the year.
Operating profit from continuing operations before tax
è Refer to the “UBS business divisions and Corporate Center” section for more information on 2010 business division financial performance
It also considers performance indicators and risk factors specific to each business division when assessing performance and earnings quality, before recommending the size of the final bonus pool to the BoD.
Bonuses granted in 2010
Despite our improved performance in 2010, our bonus pool of CHF 4,245 million for 2010 is 11% lower than that for 2009, reflecting factors such as the market environment, our need to further improve our profitability, and our performance relative to the rest of the industry.
Total bonus pool1 | ||||||||||||||||||||||||||||||||||||||||||
Expenses deferred | Accounting | Number of | ||||||||||||||||||||||||||||||||||||||||
Expenses | to 2011 and later | adjustment | Total | beneficiaries | ||||||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||||||
Cash discretionary bonus | 2,079 | 2,245 | 0 | 0 | 0 | 0 | 2,079 | 2,245 | 51,522 | 51,747 | ||||||||||||||||||||||||||||||||
Deferred cash plans | 64 | 44 | 236 | 45 | 0 | 0 | 300 | 89 | 576 | 54 | ||||||||||||||||||||||||||||||||
UBS share plans | 440 | 276 | 1,271 | 1,827 | 60 | 107 | 1,771 | 2,210 | 7,516 | 10,690 | ||||||||||||||||||||||||||||||||
UBS share option plans | 0 | 33 | 0 | 34 | 0 | 0 | 0 | 67 | 0 | 7,552 | ||||||||||||||||||||||||||||||||
Equity Ownership Plan – fund-linked | 28 | 34 | 67 | 134 | 0 | 0 | 95 | 168 | 579 | 582 | ||||||||||||||||||||||||||||||||
Total discretionary bonus | 2,611 | 2,632 | 1,574 | 2,040 | 60 | 107 | 4,245 | 4,779 | ||||||||||||||||||||||||||||||||||
1 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information” section of this report for more information. |
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case of deferred cash and share awards, the final amount paid to an employee is influenced by forfeiture provisions and any performance conditions to which these awards are subject. The deferred share award amount is based on the fair value of these awards at the date of grant.
Total personnel expenses for 2010
Reconciling the overall bonus pool in 2010 with bonus expense
determine our variable compensation expense, several adjustments are required in order to reconcile the bonus pool to the accounting costs recognized in the Group’s financial statements prepared under IFRS:
– | reduction for the unrecognized future amortization of unvested deferred awards granted in 2011 for the performance year 2010; and | |
– | addition for the amortization of unvested deferred awards granted in previous years. |
As an increasingly large part of compensation consists of deferred awards, the amortization of unvested deferred awards granted in previous years became a more significant part of the 2010 accounting costs, and will increase in 2011.
è | Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information” section of this report for more information |
Personnel expenses | ||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||
Salaries | 7,033 | 7,383 | 7,775 | |||||||||||
Variable compensation – discretionary bonus expense | 4,082 | 1 | 2,809 | 1,674 | ||||||||||
Variable compensation – other | 310 | 2 | 830 | 1,025 | ||||||||||
Contractors | 232 | 275 | 423 | |||||||||||
Social security | 826 | 804 | 660 | |||||||||||
Pension and other post-employment benefit plans | 724 | 988 | 972 | |||||||||||
Wealth Management Americas: financial advisor compensation3 | 2,667 | 2,426 | 2,435 | |||||||||||
Other personnel expenses4 | 1,047 | 1,027 | 1,298 | |||||||||||
Total personnel expenses | 16,920 | 5 | 16,543 | 16,262 | ||||||||||
1 Includes expensing of current year bonuses of CHF 2,611 million and expensing of deferred awards of CHF 1,471 million relating to bonuses for previous years. 2 Includes replacement awards of CHF 107 million, forfeitures of CHF (167) million, guaranteed bonuses of CHF 135 million, severance payments of CHF 69 million and UBS’s Equity Plus Plan of CHF 80 million. 3 Consists of grid-based compensation linked directly to compensable revenues generated by financial advisors, and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. Also includes costs related to compensation commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements. 4 Includes employee mandatory insurance programs and family allowances, recruitment, training and related travel costs, the cost of employee anniversary awards, the costs of international assignees, and relocation costs. 5 Personnel expenses (including fixed and variable compensation) recognized in the profit and loss statement 2010 of CHF 16,920 million (less charges and credits that derive from remuneration for previous financial years of CHF 2,069 million plus expenses deferred to 2011 and later from the pool 2010 of CHF 2,609 million) amount to CHF 17,460 million. |
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Compensation
2010 compensation for the Group Executive Board and Board of Directors
Group Executive Board compensation
In 2010, total compensation for GEB members reflected the individual performance of each executive in the context of each business division’s improved operating performance, overall Group progress toward our medium-term strategic goals and the significant turnaround in the Group’s profitability. In setting compensation levels, the HRCC and the BoD also considered the collective achievements of the GEB in advancing our strategy, the relevant external competitive market and the firm’s relative performance.
goals set out in the firm’s overall strategy. His decision has been gratefully accepted and agreed to by the HRCC and the BoD.
Base salary
Benefits
è | Refer to “Note 30 Pension and other post-employment benefits” in the “Financial Information” section of the Annual Report 2010 for details on the various post-employment benefit plans established in Switzerland and other major markets | |
è | Refer to the “Compensation funding and expenses” and “Overview of our compensation model” sections for information concerning the committee’s determination of the discretionary bonus for 2010, and to the “Deferred variable compensation plans” section for details of the compensation plans awarded to GEB members |
Board of Directors compensation
Chairman of the Board of Directors
Highest paid BoD member
Independent BoD members
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by independent BoD members between the 2010 and 2011 AGM. Fees for 2010 to 2011 remained unchanged.
Compensation for former BoD and GEB members
Compensation and benefits in kind paid to former BoD and GEB members amounted to CHF 77,722 for 2010 and reflect legacy agreements still honored by UBS. These benefits have been discontinued for any BoD and GEB member who stepped down after 1 January 2008.
Transactions in 2010
In accordance with the applicable rules and regulations, management transactions in UBS shares by BoD and GEB members are publicly disclosed. Transactions which require reporting are those involving all types of financial instruments whose price is primarily influenced by the price of UBS shares.
exchange rules do not require disclosure of individual names of GEB or BoD members making such transactions.
Loans
BoD and GEB members are granted loans, fixed advances and mortgages. Such loans were made in the ordinary course of business, on substantially the same terms as those granted to other employees, including interest rates and collateral, and did not involve more than the normal risk of collectability or contain other unfavorable features.
è | Refer to “Note 32 Related parties” in the “Financial information” section of this report for information concerning loans granted to current and former executives |
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Total compensation for all GEB members | ||||||||||||||||||||||||||||||||||||||||
Variable cash | ||||||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | compensation under CBP | |||||||||||||||||||||||||||||||||||||||
Contribu- | ||||||||||||||||||||||||||||||||||||||||
For | tions to | |||||||||||||||||||||||||||||||||||||||
the | Annual | Annual | Annual | retirement | ||||||||||||||||||||||||||||||||||||
year | Immediate | Deferred | bonus | bonus under | bonus | Benefits | benefits | |||||||||||||||||||||||||||||||||
Name, function | ended | Base salary | cashb | cashb, 3 | under PEPc | SEEOPd | under IPPc | in kinde | plansf | Total | ||||||||||||||||||||||||||||||
Oswald J. Grübel, Group CEO | 2010 | 3,000,000 | 0 | 0 | 0 | 0 | – | 25,600 | 0 | 3,025,600 | ||||||||||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank (highest-paid) | 2010 | 874,626 | 1,002,496 | 2,339,158 | 1,670,827 | 3,341,654 | – | 92,547 | 0 | 9,321,308 | ||||||||||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank (highest-paid) | 2009 | 669,092 | 3,002,082 | 2,001,388 | 6,155,869 | – | 1,349,336 | 0 | 12,545 | 13,190,312 | ||||||||||||||||||||||||||||||
Aggregate of all GEB members who | ||||||||||||||||||||||||||||||||||||||||
were in office on 31 December 20101 | 2010 | 14,705,894 | 15,588,145 | 14,451,756 | 15,019,951 | 30,039,901 | – | 381,851 | 843,402 | 91,030,900 | ||||||||||||||||||||||||||||||
Aggregate of all GEB members who | ||||||||||||||||||||||||||||||||||||||||
were in office on 31 December 20091 | 2009 | 12,000,055 | 15,440,827 | 10,293,884 | 13,453,424 | 4 | – | 15,696,333 | 270,971 | 1,551,068 | 68,706,566 | |||||||||||||||||||||||||||||
Aggregate of all GEB members who | ||||||||||||||||||||||||||||||||||||||||
stepped down during 20102 | 2010 | 755,950 | 1,380,000 | 920,000 | 0 | 0 | – | 78,817 | 118,334 | 3,253,101 | ||||||||||||||||||||||||||||||
Aggregate of all GEB members who | ||||||||||||||||||||||||||||||||||||||||
stepped down during 20092 | 2009 | 2,447,544 | 23,065,858 | 15,377,239 | 0 | – | 0 | 215,151 | 171,122 | 41,276,914 | ||||||||||||||||||||||||||||||
1 Number and distribution of GEB members: 13 GEB members in office on 31 December 2010 and on 31 December 2009 respectively. 2 Number and distribution of former GEB members for 2010 includes Francesco Morra (three months in office, including a notice period of six months); and 2009 includes Marcel Rohner (two months in office), Walter H. Stürzinger and Raoul Weil (three months in office), Jerker Johansson (four months in office), Rory Tapner (six months in office) and Marten Hoekstra (10 months in office). 3 In 2010, for John Cryan, Carsten Kengeter and Alexander Wilmot-Sitwell, deferred cash includes blocked shares. 4 Included in the share awards are SEEOP awards at a fair value of GBP 4,655,950 and EOP awards at a fair value of GBP 1,594,250. |
Explanation of the tables outlining compensation details for GEB members and non-independent BoD members | ||||
a. | Local currencies are converted into CHF using the exchange rates as detailed in Note 39 “Currency translation rates” in the “Financial information” section of this report. | |||
b. | Of the cash award, 60% is paid out immediately (representing 24% of a GEB member’s total annual bonus). The balance is paid out in equal installments of 20%, each over the subsequent two years, and is subject to forfeiture. | |||
c. | Value of each performance share at grant: CHF 18.70 for PEP awards granted in 2011 relating to the performance year 2010; CHF 16.30 for PEP awards granted in 2010 relating to the performance year 2009; and CHF 22.20 for IPP awards granted in 2010 relating to the performance year 2009. These values are based on valuations for accounting purposes which take into account the performance conditions and the range of possible outcomes for these conditions. | |||
d. | SEEOP is a pre-existing compensation plan that has been updated and re-introduced. SEEOP awards vest in equal installments over five years and are subject to forfeiture. The grant date accounting value per share granted under SEEOP in 2011 relating to the performance year 2010 at grant is CHF 18.43 or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares). | |||
e. | Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances. | |||
f. | Swiss executives participate in the same pension plan as all other employees. Under this plan, UBS makes contributions to the plan, which covers compensation of up to CHF 820,800. The retirement benefits consist of a pension, a bridging pension and a one-off payout of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV), but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award components. | |||
In both the US and the UK, senior management participates in the same pension plans as all other employees. In the US, there are separate pension plans for Wealth Management Americas compared with the other business divisions. There are generally two different types of pension plans. The grandfathered plans, which are no longer open to new hires, operate (depending on the abovementioned distinction by business division) either on a cash balance basis or a career average salary basis. Participants accrue a pension based on their annual compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined contribution plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 245,000. US management may also participate in a 401(k) defined contribution plan (open to all employees), which provides a limited company matching contribution for employee contributions. In the UK, management participates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010). |
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Share and option ownership of GEB members on 31 December 2009 / 2010 | ||||||||||||||||||||||||||||
Potentially | Potentially | |||||||||||||||||||||||||||
Number of | conferred | conferred | ||||||||||||||||||||||||||
unvested | Number of | Total | voting | Number of | voting | |||||||||||||||||||||||
For the | shares / | vested | number of | rights | options | rights | ||||||||||||||||||||||
Name, function1 | year ended | at risk2 | shares | shares | in % | held3 | in %4 | |||||||||||||||||||||
Oswald J. Grübel, Group Chief Executive Officer | 2010 | 0 | 0 | 0 | 0.000 | 4,000,000 | 0.181 | |||||||||||||||||||||
2009 | – | – | 0 | 0.000 | 4,000,000 | 0.217 | ||||||||||||||||||||||
John Cryan, Group Chief Financial Officer | 2010 | 221,879 | 185,975 | 407,854 | 0.018 | 382,673 | 0.017 | |||||||||||||||||||||
2009 | – | – | 235,929 | 0.013 | 382,673 | 0.021 | ||||||||||||||||||||||
Markus U. Diethelm, Group General Counsel | 2010 | 178,619 | 75,700 | 254,319 | 0.012 | 0 | 0.000 | |||||||||||||||||||||
2009 | – | – | 112,245 | 0.006 | 0 | 0.000 | ||||||||||||||||||||||
John A. Fraser, | 2010 | 326,702 | 316,541 | 643,243 | 0.029 | 1,088,795 | 0.049 | |||||||||||||||||||||
Chairman and CEO Global Asset Management | 2009 | – | – | 480,464 | 0.026 | 1,088,795 | 0.059 | |||||||||||||||||||||
Lukas Gähwiler, CEO UBS Switzerland and co-CEO | 2010 | 110,000 | 850 | 110,850 | 0.005 | 0 | 0.000 | |||||||||||||||||||||
Wealth Management & Swiss Bank | 2009 | – | – | – | – | |||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank | 2010 | 916,201 | 363,047 | 1,279,248 | 0.058 | 905,000 | 0.041 | |||||||||||||||||||||
2009 | – | – | 516,909 | 0.028 | 905,000 | 0.049 | ||||||||||||||||||||||
Ulrich Körner, Group Chief Operating Officer and | 2010 | 177,592 | 95,597 | 273,189 | 0.012 | 0 | 0.000 | |||||||||||||||||||||
CEO Corporate Center | 2009 | – | – | 0 | 0.000 | 0 | 0.000 | |||||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer | 2010 | 200,009 | 144,603 | 344,612 | 0.016 | 577,723 | 0.026 | |||||||||||||||||||||
2009 | – | – | 179,234 | 0.010 | 577,723 | 0.031 | ||||||||||||||||||||||
Robert J. McCann, CEO Wealth Management Americas | 2010 | 138,598 | 540,866 | 679,464 | 0.031 | 0 | 0.000 | |||||||||||||||||||||
2009 | – | – | 602,481 | 0.033 | 0 | 0.000 | ||||||||||||||||||||||
Francesco Morra, former CEO UBS Switzerland5 | 2010 | – | – | – | – | |||||||||||||||||||||||
2009 | – | – | 153,860 | 0.008 | 325,086 | 0.018 | ||||||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman and | 2010 | 274,739 | 213,613 | 488,352 | 0.022 | 353,807 | 0.016 | |||||||||||||||||||||
co-CEO Group Asia Pacific | 2009 | – | – | 286,767 | 0.016 | 353,807 | 0.019 | |||||||||||||||||||||
Robert Wolf, Chairman and CEO, UBS Group Americas / | 2010 | 242,805 | 635,382 | 878,187 | 0.040 | 948,473 | 0.043 | |||||||||||||||||||||
President Investment Bank | 2009 | – | – | 785,631 | 0.043 | 948,473 | 0.051 | |||||||||||||||||||||
Chi-Won Yoon, co-Chairman and | 2010 | 184,858 | 318,332 | 503,190 | 0.023 | 623,253 | 0.028 | |||||||||||||||||||||
co-CEO Group Asia Pacific | 2009 | – | – | 367,573 | 0.020 | 623,253 | 0.034 | |||||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management and | 2010 | 113,609 | 9,405 | 123,014 | 0.006 | 205,470 | 0.009 | |||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | 2009 | – | – | 16,502 | 0.001 | 205,470 | 0.011 | |||||||||||||||||||||
1 This table includes vested and unvested shares and options held by GEB members, including related parties. 2 Includes shares granted under PEP and IPP. The actual number of shares vesting in the future will be calculated under the terms of the plans. Refer to “Deferred variable compensation plans” in this section for more information on both plans. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB member who stepped down during 2010. |
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Compensation
Compensation details and additional information for non-independent BoD members | ||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||
Contributions | ||||||||||||||||||||||||||||
For the | Annual bonus | Annual | to retirement | |||||||||||||||||||||||||
Name, function1 | year ended | Base salary | (cash) | share award | Benefits in kinde | benefits plansf | Total | |||||||||||||||||||||
Kaspar Villiger, Chairman | 2010 | 850,000 | 0 | 500,000 | 2 | 141,308 | 0 | 1,491,308 | ||||||||||||||||||||
2009 | 602,083 | 0 | 0 | 74,488 | 0 | 676,571 | ||||||||||||||||||||||
Peter Kurer, former Chairman | 2010 | – | – | – | – | – | – | |||||||||||||||||||||
2009 | 666,667 | 0 | 0 | 37,561 | 89,780 | 794,008 | ||||||||||||||||||||||
1 2010: Kaspar Villiger was the only non-independent member in office on 31 December 2010 and 31 December 2009, respectively. Peter Kurer did not stand for reelection at the AGM on 15 April 2009. 2 These shares are blocked for four years. |
Remuneration details and additional information for independent BoD members | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | ||||||||||||||||||||||||||||||||||||||||||||||||
Human | For the | |||||||||||||||||||||||||||||||||||||||||||||||
Resources & | Governance & | Corporate | period | Share | ||||||||||||||||||||||||||||||||||||||||||||
Audit | Compensation | Nominating | Responsibility | Risk | AGM to | Committee | Benefits | Additional | percen- | Number of | ||||||||||||||||||||||||||||||||||||||
Name, function1 | Committee | Committee | Committee | Committee | Committee | AGM | Base fee | retainer(s) | in kind | payments | Total | tage2 | shares3,4 | |||||||||||||||||||||||||||||||||||
Michel Demaré, | M | M | 2010 / 2011 | 325,000 | 300,000 | 250,000 | 5 | 875,000 | 100 | 52,631 | ||||||||||||||||||||||||||||||||||||||
Vice Chairman | M | 2009 / 2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 50 | 21,203 | |||||||||||||||||||||||||||||||||||||||
David Sidwell, | C | 2010 / 2011 | 325,000 | 400,000 | 250,000 | 5 | 975,000 | 50 | 30,893 | |||||||||||||||||||||||||||||||||||||||
Senior Independent Director | C | 2009 / 2010 | 325,000 | 400,000 | 0 | 0 | 725,000 | 50 | 29,281 | |||||||||||||||||||||||||||||||||||||||
Sally Bott, | C | M | M | 2010 / 2011 | 325,000 | 450,000 | 775,000 | 50 | 24,556 | |||||||||||||||||||||||||||||||||||||||
member | C | M | 2009 / 2010 | 325,000 | 350,000 | 0 | 0 | 675,000 | 50 | 27,261 | ||||||||||||||||||||||||||||||||||||||
Rainer-Marc Frey, | M | M | 2010 / 2011 | 325,000 | 400,000 | 725,000 | 100 | 43,583 | ||||||||||||||||||||||||||||||||||||||||
member | M | 2009 / 2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 40,301 | |||||||||||||||||||||||||||||||||||||||
Bruno Gehrig, | M | M | 2010 / 2011 | 325,000 | 200,000 | 525,000 | 50 | 16,634 | ||||||||||||||||||||||||||||||||||||||||
member | M | M | 2009 / 2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 50 | 21,203 | ||||||||||||||||||||||||||||||||||||||
Ann F. Godbehere, | M | M | 2010 / 2011 | 325,000 | 250,000 | 575,000 | 50 | 18,219 | ||||||||||||||||||||||||||||||||||||||||
member | M | M | 2009 / 2010 | 325,000 | 250,000 | 575,000 | 50 | 23,222 | ||||||||||||||||||||||||||||||||||||||||
Axel P. Lehmann, | M | 2010 / 2011 | 325,000 | 200,000 | 525,000 | 100 | 31,519 | |||||||||||||||||||||||||||||||||||||||||
member | M | 2009 / 2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 40,301 | |||||||||||||||||||||||||||||||||||||||
Sergio Marchionne, | 2010 / 2011 | – | ||||||||||||||||||||||||||||||||||||||||||||||
former Senior Independent Director, former Vice Chairman | M | 2009 / 2010 | 325,000 | 100,000 | 0 | 250,000 | 5 | 675,000 | 100 | 51,845 | ||||||||||||||||||||||||||||||||||||||
Wolfgang Mayrhuber, | M | M | 2010 / 2011 | 325,000 | 150,000 | 475,000 | 50 | 15,050 | ||||||||||||||||||||||||||||||||||||||||
member | 2009 / 2010 | – | ||||||||||||||||||||||||||||||||||||||||||||||
Helmut Panke, | M | M | 2010 / 2011 | 325,000 | 300,000 | 625,000 | 50 | 19,803 | ||||||||||||||||||||||||||||||||||||||||
member | M | M | 2009 / 2010 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 25,242 | ||||||||||||||||||||||||||||||||||||||
William G. Parrett, | C | 2010 / 2011 | 325,000 | 300,000 | 625,000 | 50 | 19,803 | |||||||||||||||||||||||||||||||||||||||||
member | C | 2009 / 2010 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 25,242 | |||||||||||||||||||||||||||||||||||||||
Peter R. Voser, | 2010 / 2011 | – | ||||||||||||||||||||||||||||||||||||||||||||||
former member | M | 2009 / 2010 | 325,000 | 100,000 | 0 | 0 | 425,000 | 50 | 17,164 | |||||||||||||||||||||||||||||||||||||||
Total 2010 | 6,700,000 | |||||||||||||||||||||||||||||||||||||||||||||||
Total 2009 | 6,425,000 | |||||||||||||||||||||||||||||||||||||||||||||||
Legend:C = Chairperson of the respective Committee; M = Member of the respective Committee | ||||||||||||||||||||||||||||||||||||||||||||||||
1 There were 10 independent BoD members in office on 31 December 2010. Wolfgang Mayrhuber was appointed at the AGM on 14 April 2010 and Sergio Marchionne and Peter Voser stepped down from the BoD at the AGM on 14 April 2010. There were 11 independent BoD members in office on 31 December 2009. Michel Demaré, Ann F. Godbehere and Axel P. Lehmann were appointed at the AGM on 15 April 2009 and Ernesto Bertarelli, Gabrielle Kaufmann-Kohler and Joerg Wolle stepped down from the BoD at the AGM on 15 April 2009. 2 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members can elect to have 100% of their remuneration paid in blocked UBS shares. 3 For 2010, shares valued at CHF 18.56 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2011), included a price discount of 15%, for a new value of discount price CHF 15.78. These shares are blocked for four years. For 2009, shares valued at CHF 14.57 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2010), included a price discount of 15%, for a new value of discount price CHF 12.38. These shares are blocked for four years. 4 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 / withholding tax. 5 This payment is associated with the Vice Chairman or the SID function, respectively. |
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Total payments to all BoD members | ||||||||
CHF, except where indicateda | For the year ended | Total | ||||||
Aggregate of all BoD members | 2010 | 8,191,310 | ||||||
2009 | 7,895,579 | |||||||
Share holdings of BoD members on 31 December 2009 / 2010 | ||||||||||||
Name, function1 | For the year ended | Number of shares held | Voting rights in % | |||||||||
Kaspar Villiger, Chairman | 2010 | 22,500 | 0.001 | |||||||||
2009 | 22,500 | 0.001 | ||||||||||
Michel Demaré, Vice Chairman | 2010 | 23,703 | 0.001 | |||||||||
2009 | 2,500 | 0.000 | ||||||||||
David Sidwell, Senior Independent Director | 2010 | 69,354 | 0.003 | |||||||||
2009 | 40,073 | 0.002 | ||||||||||
Sally Bott, member | 2010 | 39,542 | 0.002 | |||||||||
2009 | 12,281 | 0.001 | ||||||||||
Rainer-Marc Frey, member | 2010 | 56,459 | 0.003 | |||||||||
2009 | 16,158 | 0.001 | ||||||||||
Bruno Gehrig, member | 2010 | 37,775 | 0.002 | |||||||||
2009 | 16,572 | 0.001 | ||||||||||
Ann F. Godbehere, member | 2010 | 23,222 | 0.001 | |||||||||
2009 | 0 | 0.000 | ||||||||||
Axel P. Lehmann, member | 2010 | 58,452 | 0.003 | |||||||||
2009 | 18,151 | 0.001 | ||||||||||
Sergio Marchionne, | 2010 | – | ||||||||||
former Senior Independent Director, former Vice Chairman2 | 2009 | 164,154 | 0,009 | |||||||||
Wolfgang Mayrhuber, member | 2010 | 0 | 0.000 | |||||||||
2009 | – | |||||||||||
Helmut Panke, member | 2010 | 89,529 | 0.004 | |||||||||
2009 | 64,287 | 0.003 | ||||||||||
William G. Parrett, member | 2010 | 42,815 | 0.002 | |||||||||
2009 | 17,573 | 0.001 | ||||||||||
Peter R. Voser, former member2 | 2010 | – | ||||||||||
2009 | 68,310 | 0.004 | ||||||||||
1 This table includes vested, unvested, blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2009 and 2010. 2 BoD members who stepped down at the 2010 AGM. |
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Compensation
Compensation paid to former BoD and GEB members1 | ||||||||||||||||
CHF, except where indicateda | ||||||||||||||||
For the | ||||||||||||||||
Name, function | year ended | Compensation | Benefits in kind | Total | ||||||||||||
Georges Blum, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 92,399 | 92,399 | ||||||||||||
Franz Galliker, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 10,659 | 10,659 | ||||||||||||
Walter G. Frehner, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 25,371 | 25,371 | ||||||||||||
Hans (Liliane) Strasser, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 9,758 | 9,758 | ||||||||||||
Robert Studer, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Union Bank of Switzerland) | 2009 | 0 | 18,751 | 18,751 | ||||||||||||
Alberto Togni, former BoD member | 2010 | 0 | 20,493 | 20,493 | ||||||||||||
(UBS) | 2009 | 320,136 | 355,983 | 676,119 | ||||||||||||
Philippe (Alix) de Weck, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||||
(Union Bank of Switzerland) | 2009 | 0 | 93,135 | 93,135 | ||||||||||||
Aggregate of all former GEB members2 | 2010 | 0 | 57,229 | 57,229 | ||||||||||||
2009 | 0 | 18,293 | 18,293 | |||||||||||||
Aggregate of all former BoD and GEB members | 2010 | 0 | 77,722 | 77,722 | ||||||||||||
2009 | 320,136 | 624,349 | 944,485 | |||||||||||||
1 Compensation or remuneration that is connected with the former member’s activity on the BoD or GEB, that is not at market conditions. 2 Includes one former GEB member in 2010 and one former GEB member in 2009. |
Total of all vested and unvested shares held by GEB members and non-independent BoD members1 | ||||||||||||||||||||||||||||||
Of which | ||||||||||||||||||||||||||||||
Total | vested | Of which vesting | ||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||||||||||||
Shares held on 31 December 2010 | 4,409,345 | 2,922,411 | 582,787 | 411,339 | 282,754 | 105,027 | 105,027 | |||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||
Shares held on 31 December 2009 | 3,760,095 | 1,971,557 | 1,078,664 | 397,046 | 222,601 | 90,227 | 0 | |||||||||||||||||||||||
1 Includes related parties. | ||||||||||||||||||||||||||||||
No individual BoD or GEB member holds 1% or more of all shares issued. |
Total of all blocked and unblocked shares held by independent BoD members1 | ||||||||||||||||||||||||||||||
Of which | ||||||||||||||||||||||||||||||
Total | unblocked | Of which blocked until | ||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||
Shares held on 31 December 2010 | 440,851 | 46,010 | 4,266 | 9,349 | 127,970 | 253,256 | ||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | |||||||||||||||||||||||||||
Shares held on 31 December 2009 | 420,059 | 123,053 | 6,232 | 13,352 | 35,737 | 241,685 | ||||||||||||||||||||||||
1 Includes related parties. | ||||||||||||||||||||||||||||||
No individual Board member holds 1% or more of all shares issued. |
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Corporate governance and compensation |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Oswald J. Grübel, Group Chief Executive Officer | ||||||||||||||||||||||||
2010 | 4,000,000 | 4,000,000 | 2009 | 26/02/2009 | 25/02/2014 | CHF 10.10 | ||||||||||||||||||
2009 | 4,000,000 | 4,000,000 | 2009 | 26/02/2009 | 25/02/2014 | CHF 10.10 | ||||||||||||||||||
John Cryan, Group Chief Financial Officer | ||||||||||||||||||||||||
2010 | 382,673 | 21,362 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
20,731 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
20,725 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
5,454 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,294 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,292 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
23,626 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,620 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,612 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
5,526 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
17,072 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,068 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,063 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,207 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
5,330 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,328 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,326 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,760 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
53 285 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
2009 | 382,673 | 21,362 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
20,731 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
20,725 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
5,454 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,294 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,292 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
23,626 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,620 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,612 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
5,526 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
17,072 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,068 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,063 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,207 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
John Cryan, Group Chief Financial Officer (continued) | ||||||||||||||||||||||||
2009 | 382,673 | 5,330 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||
5,328 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,326 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,760 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
53,285 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
Markus U. Diethelm, Group General Counsel | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
John A. Fraser, Chairman and CEO Global Asset Management | ||||||||||||||||||||||||
2010 | 1,088,795 | 76,380 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
127,884 | 2002 | 28/06/2005 | 28/06/2012 | CHF 37.90 | ||||||||||||||||||||
127,884 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||||
170,512 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
202,483 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
213,140 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
170,512 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
2009 | 1,088,795 | 76,380 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
127,884 | 2002 | 28/06/2005 | 28/06/2012 | CHF 37.90 | ||||||||||||||||||||
127,884 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||||
170,512 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
202,483 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
213,140 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
170,512 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
Lukas Gähwiler, CEO UBS Switzerland and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | – | |||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank | ||||||||||||||||||||||||
2010 | 905,000 | 905,000 | 2009 | 01/03/2012 | 27/12/2019 | CHF 40.00 | ||||||||||||||||||
2009 | 905,000 | 905,000 | 2009 | 01/03/2012 | 27/12/2019 | CHF 40.00 | ||||||||||||||||||
Ulrich Körner, Group Chief Operating Officer and CEO Corporate Center | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer | ||||||||||||||||||||||||
2010 | 577,723 | 11,445 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
11,104 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
11,098 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
1,240 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,464 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
1,199 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 |
247
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Compensation
Vested and unvested options held by GEB members on 31 December 2009 / 20101 (continued)
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer (continued) | ||||||||||||||||||||||||
2010 | 577,723 | 9,985 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||
9,980 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,974 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
1,833 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,521 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
117,090 | 2005 | 01/03/2008 | 28/02/2015 | CHF 52.32 | ||||||||||||||||||||
117,227 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
85,256 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
74,599 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 577,723 | 11,445 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
11,104 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
11,098 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
1,240 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,464 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
1,199 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
9,985 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,980 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,974 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
1,833 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,521 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
117,090 | 2005 | 01/03/2008 | 28/02/2015 | CHF 52.32 | ||||||||||||||||||||
117,227 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
85,256 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
74,599 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Robert J. McCann, CEO Wealth Management Americas | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
Francesco Morra, former CEO UBS Switzerland4 | ||||||||||||||||||||||||
2010 | – | |||||||||||||||||||||||
2009 | 325,086 | 43,911 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||
66,866 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
114,309 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
100,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific | ||||||||||||||||||||||||
2010 | 353,807 | 53,282 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
2,130 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman und co-CEO Group Asia Pacific (cont.) | ||||||||||||||||||||||||
2010 | 353,807 | 35,524 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||
35,524 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,521 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
85,256 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 353,807 | 53,282 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
2,130 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
35,524 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,524 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,521 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
85,256 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Robert Wolf, Chairman and CEO, UBS Group Americas/ | ||||||||||||||||||||||||
President Investment Bank | ||||||||||||||||||||||||
2010 | 948,473 | 287,739 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||
213,140 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
127,884 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
106,570 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
106,570 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 948,473 | 287,739 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||
213,140 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
127,884 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
106,570 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
106,570 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific | ||||||||||||||||||||||||
2010 | 623,253 | 11,577 | 2002 | 31/01/2002 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
11,229 | 2002 | 31/01/2004 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
11,227 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
2,252 | 2002 | 28/02/2002 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
6,446 | 2002 | 29/02/2004 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
2,184 | 2002 | 28/02/2005 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
8,648 | 2003 | 01/03/2004 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,642 | 2003 | 01/03/2005 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,635 | 2003 | 01/03/2006 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
4,262 | 2003 | 28/02/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,374 | 2003 | 01/03/2004 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2006 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
6,200 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
4,262 | 2004 | 27/02/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,198 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,195 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
10,659 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 |
248
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Corporate governance and compensation |
Vested and unvested options held by GEB members on 31 December 2009 / 20101 (continued)
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Chi-Won Yoon, co-Chairman und co-CEO Group Asia Pacific (continued) | ||||||||||||||||||||||||
2010 | 623,253 | 10,657 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
10,654 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
21,316 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,314 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,311 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
8,881 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
350,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
2009 | 623,253 | 11,577 | 2002 | 31/01/2002 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
11,229 | 2002 | 31/01/2004 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
11,227 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
2,252 | 2002 | 28/02/2002 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
6,446 | 2002 | 29/02/2004 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
2,184 | 2002 | 28/02/2005 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
8,648 | 2003 | 01/03/2004 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,642 | 2003 | 01/03/2005 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,635 | 2003 | 01/03/2006 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
4,262 | 2003 | 28/02/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,374 | 2003 | 01/03/2004 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2006 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
6,200 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
4,262 | 2004 | 27/02/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,198 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,195 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
10,659 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
10,657 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
10,654 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
21,316 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,314 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,311 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
8,881 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
350,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | ||||||||||||||||||||||||
2010 | 205,470 | 809 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
784 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
784 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
4,972 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank (continued) | ||||||||||||||||||||||||
2010 | 205,470 | 7,106 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
7,103 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
93 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
161 | 2005 | 06/06/2007 | 06/06/2015 | CHF 45.97 | ||||||||||||||||||||
149 | 2005 | 09/09/2007 | 09/09/2015 | CHF 50.47 | ||||||||||||||||||||
127 | 2005 | 05/12/2007 | 05/12/2015 | CHF 59.03 | ||||||||||||||||||||
7,106 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
110 | 2006 | 03/03/2008 | 03/03/2016 | CHF 65.91 | ||||||||||||||||||||
242 | 2006 | 09/06/2008 | 09/06/2016 | CHF 61.84 | ||||||||||||||||||||
230 | 2006 | 08/09/2008 | 08/09/2016 | CHF 65.76 | ||||||||||||||||||||
221 | 2006 | 08/12/2008 | 08/12/2016 | CHF 67.63 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,103 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
223 | 2007 | 02/03/2009 | 02/03/2017 | CHF 67.08 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
90,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
2009 | 205,470 | 809 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
784 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
784 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
4,972 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
7,106 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
93 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
161 | 2005 | 06/06/2007 | 06/06/2015 | CHF 45.97 | ||||||||||||||||||||
149 | 2005 | 09/09/2007 | 09/09/2015 | CHF 50.47 | ||||||||||||||||||||
127 | 2005 | 05/12/2007 | 05/12/2015 | CHF 59.03 | ||||||||||||||||||||
7,106 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
110 | 2006 | 03/03/2008 | 03/03/2016 | CHF 65.91 | ||||||||||||||||||||
242 | 2006 | 09/06/2008 | 09/06/2016 | CHF 61.84 | ||||||||||||||||||||
230 | 2006 | 08/09/2008 | 08/09/2016 | CHF 65.76 | ||||||||||||||||||||
221 | 2006 | 08/12/2008 | 08/12/2016 | CHF 67.63 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,103 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
223 | 2007 | 02/03/2009 | 02/03/2017 | CHF 67.08 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
90,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 |
249
Table of Contents
Compensation
Loans granted to GEB members on 31 December 2009 / 2010 | ||||||||||
CHF, except where indicateda | ||||||||||
Name, function1 | For the year ended | Loans2 | ||||||||
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank3 | 2010 | 5,739,862 | ||||||||
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank3 | 2009 | 5,800,202 | ||||||||
Aggregate of all GEB members | 2010 | 20,696,569 | ||||||||
2009 | 15,356,483 | |||||||||
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 All loans granted are secured loans. 3 GEB member with the highest loan granted. |
Loans granted to BoD members on 31 December 2009 / 2010 | ||||||||||
CHF, except where indicateda | ||||||||||
Name, function1 | For the year ended | Loans2 | ||||||||
Kaspar Villiger, Chairman | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Michel Demaré, Vice Chairman | 2010 | 850,000 | ||||||||
2009 | 850,000 | |||||||||
David Sidwell, Senior Independent Director | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Sergio Marchionne, former Senior Independent Director, former Vice Chairman3 | 2010 | – | ||||||||
2009 | 0 | |||||||||
Sally Bott, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Rainer-Marc Frey, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Bruno Gehrig, member4 | 2010 | 798,000 | ||||||||
2009 | 798,000 | |||||||||
Ann F. Godbehere, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Axel P. Lehmann, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Wolfgang Mayrhuber, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
Helmut Panke, member | 2010 | 0 | ||||||||
2009 | 0 | |||||||||
William G. Parrett, member4 | 2010 | 0 | ||||||||
2009 | 1,260,731 | |||||||||
Peter R. Voser, member3 | 2010 | – | ||||||||
2009 | 0 | |||||||||
Aggregate of all BoD members | 2010 | 1,648,000 | ||||||||
2009 | 2,908,731 | |||||||||
1 No loans have been granted to related parties of BoD members at conditions not customary in the market. 2 All loans granted are secured loans. 3 BoD members who stepped down at the 2010 AGM. 4 Secured loans granted prior to their election to the BoD. |
250
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Table of Contents
Financial information
Table of contents
259 | Management’s report on internal control over financial reporting | |||||
260 | Report of independent registered public accounting firm on internal control over financial reporting | |||||
262 | Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements | |||||
265 | Income statement | |||||
266 | Statement of comprehensive income | |||||
267 | Balance sheet | |||||
268 | Statement of changes in equity | |||||
271 | Statement of cash flows | |||||
273 | Notes to the consolidated financial statements | |||||
273 | 1 | |||||
293 | 2a | |||||
297 | 2b | |||||
298 | Income statement notes | |||||
298 | 3 | |||||
299 | 4 | |||||
300 | 5 | |||||
300 | 6 | |||||
300 | 7 | |||||
301 | 8 | |||||
302 | Balance sheet notes: assets | |||||
302 | 9a | |||||
303 | 9b | |||||
303 | 10 | |||||
304 | 11 | |||||
306 | 12 | |||||
307 | 13 | |||||
308 | 14 | |||||
308 | 15 | |||||
309 | 16 | |||||
311 | 17 |
252
Table of Contents
Financial information |
253
Table of Contents
Financial information
Introduction and accounting principles
254
Table of Contents
Financial information |
Critical accounting policies
Basis of preparation and selection of policies
UBS prepares its Financial Statements in accordance with IFRS as issued by the International Accounting Standards Board. The application of certain of these accounting principles requires considerable judgment based upon estimates and assumptions that involve significant uncertainty at the time they are made. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Changes in assumptions may have a significant impact on the Financial Statements in the periods where assumptions are changed. Accounting policies that are deemed critical to UBS’s results and financial position, in terms of materiality of the items to which the policy is applied, and which involve significant assumptions and estimates, are discussed in this section. A broader and more detailed description of the accounting policies that UBS employs is shown in Note 1 to the Financial Statements.
Fair value of financial instruments
The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated using observable data in respect of similar financial instruments as well as models. Where market observable inputs are not available, inputs are estimated based on appropriate assumptions. Where valuation techniques or models are used to determine fair values, they are periodically reviewed and validated by qualified personnel independent of those who sourced them. Models are calibrated to ensure that outputs reflect actual data and comparative market prices. Where practicable, models use only observable data; however, areas such as default rates, volatilities and correlations require management to make estimates.
The valuation techniques or models employed may not fully reflect all of the factors relevant to the positions UBS holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and credit risk. UBS uses different approaches to calculate the credit risk, depending on the classification of a financial instrument at fair value. A credit valuation adjustment (CVA) approach based on an expected exposure profile is used to adjust the fair value ofPositive replacement values to reflect counterparty credit risk if deemed necessary. Correspondingly, a debit valuation adjustment (DVA) approach is applied to incorporate the own credit risk in the fair value of uncollateralizedNegative replacement values. The own credit risk forFinancial liabilities designated at fair valueis calculated using the funds transfer price (FTP) curve.
Goodwill impairment test
Goodwill allocated to the Investment Bank on 31 December 2010 amounted to CHF 3.0 billion, to Wealth Management Americas CHF 3.3 billion, to Wealth Management CHF 1.4 billion and to Global Asset Management CHF 1.4 billion.
255
Table of Contents
Financial information
fifth-year profit, the cost of equity and the long-term growth rate. For the 2010 test, the discount rates and long-term growth rates used to calculate the present values of the cash generating units remained unchanged. The recoverable amount of a segment is the sum of discounted earnings available to shareholders from the first five individually forecast years and the terminal value.
Impairment of loans and receivables measured at amortized cost
Loan impairment allowances represent management’s best estimate of losses incurred in the lending portfolio at the balance
sheet date. The loan portfolio, which is measured at amortized cost less impairment, consists of financial assets presented on the balance sheet lineDue from banks and Loans, including reclassified securities. In addition, irrevocable loan commitments are also tested for impairment as described below.
Consolidation of Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) and interacts with non-sponsored SPEs for a variety of reasons, including to allow clients to obtain or be exposed to specific risk and reward profiles, to be provided funding or to sell or purchase credit risk. In accordance with IFRS, UBS does not consolidate SPEs that it does not control. In order to determine whether or not UBS controls an SPE, it evaluates a range of factors, including whether (a) the activities of the SPE are being conducted on UBS’s behalf according to its specific business needs so that UBS obtains the benefits from the SPE’s operations, or (b) UBS has decision-making powers to obtain the majority of the benefits of the activities of the SPE, or UBS has delegated these decision-making
256
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Financial information |
powers by setting up an autopilot mechanism, or (c) UBS has 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) UBS retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain the benefits from its activities. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together require a significant degree of judgment to reach a conclusion. The exposure to volatility in profits and the absorption of risks and rewards, as well as the ability to make operational decisions for the SPE in question are generally the factors to which most weight is given in reaching a conclusion.
Equity compensation
UBS recognizes shares, performance shares, options and share-settled stock appreciation rights (SARs) awarded to employees as compensation expenses based on their fair value at grant date. The performance shares, options and SARs that UBS issues to its employees have features that make them not directly comparable with UBS’s shares traded in active markets. Accordingly, UBS cannot determine the fair value by reference to a quoted market price, but instead estimates fair value by using suitable option valuation models. The models require inputs such as expected dividends, share price volatility and historical employee exercise behavior patterns based on statistical data.
Deferred taxes
Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; and b) expenses recognized in UBS’s income statement that are not deductible until the associated cash flows occur.
ture profitability having regard to relevant business plan forecasts. 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 profitability.
Hedge accounting
The Group uses derivative instruments as part of its asset and liability management activities to manage exposures particularly to interest rate and foreign currency risks, including exposures arising from forecast transactions. If derivative and non-derivative instruments meet certain criteria, they are designated as fair value hedges, cash flow hedges or net investment hedges. The designation of derivatives as hedging instruments is at the discretion of UBS.
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when a forecast transaction is no longer deemed highly probable. In certain circumstances, the Group may decide to discontinue hedge accounting even though the mentioned criteria for discontinuing are not fulfilled. De-designated hedging derivatives are treated as held for trading from the de-designation date.
Provisions
Provisions are recognized when UBS has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
Further details of UBS’s policy on provisions are contained in Note 1a) 26).
Pension and other post-employment benefit plans
The defined benefit obligation at the end of the year and the net periodic pension cost for the year depend on the expected future benefit promises that are determined using a number of economic and demographic assumptions. The economic assumptions include the discount rate, the expected salary increase, the expected return on plan assets as well as the rate of pension increase.
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Financial information |
Financial information
Consolidated financial statements
Consolidated financial statements
Management’s report on internal control
over financial reporting
The Board of Directors and management of UBS AG (UBS) are responsible for establishing and maintaining adequate internal control over financial reporting. UBS’s internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
– | 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. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Consolidated financial statements
Ernst & Young Ltd Aeschengraben 9 CH-4002 Basel | ||||||
Phone | +41 58 286 86 86 | |||||
Fax | +41 58 286 86 00 | |||||
www.ey.com/ch |
To the General Meeting of
Basel, 3 March 2011
Report of independent registered public accounting firm on
internal control over financial reporting
We have audited the internal control over financial reporting of UBS AG and its subsidiaries as of 31 December 2010, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). UBS AG’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Control Over Financial Reporting on page 259. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
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2 |
In our opinion, UBS AG and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of 31 December 2010, based on the COSO criteria.
Ernst & Young Ltd | ||
Jonathan Bourne | Dr. Andreas Blumer | |
Licensed Audit Expert | Licensed Audit Expert | |
(Auditor in Charge) |
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Consolidated financial statements
Ernst & Young Ltd Aeschengraben 9 CH-4002 Basel | ||||||
Phone | +41 58 286 86 86 | |||||
Fax | +41 58 286 86 00 | |||||
www.ey.com/ch |
To the General Meeting of
Basel, 3 March 2011
Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements
As statutory auditor, we have audited the consolidated financial statements of UBS AG and its subsidiaries which are comprised of the consolidated balance sheets as of 31 December 2010 and 2009, and the related consolidated income statements and consolidated statements of comprehensive income, changes in equity and cash flows, and notes thereto, for each of the three years in the period ended 31 December 2010 on pages 265 to 378.
Board of Directors’ responsibility
Auditor’s responsibility
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used
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2 |
and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
Report on other legal and regulatory requirements
Ernst & Young Ltd | ||
Jonathan Bourne | Dr. Andreas Blumer | |
Licensed Audit Expert | Licensed Audit Expert | |
(Auditor in Charge) |
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Consolidated financial statements
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Financial information |
Income statement
For the year ended | % change from | |||||||||||||||||||
CHF million, except per share data | Note | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||||
Continuing operations | ||||||||||||||||||||
Interest income | 3 | 18,872 | 23,461 | 65,679 | (20 | ) | ||||||||||||||
Interest expense | 3 | (12,657 | ) | (17,016 | ) | (59,687 | ) | 26 | ||||||||||||
Net interest income | 3 | 6,215 | 6,446 | 5,992 | (4 | ) | ||||||||||||||
Credit loss (expense) / recovery | (66 | ) | (1,832 | ) | (2,996 | ) | 96 | |||||||||||||
Net interest income after credit loss expense | 6,149 | 4,614 | 2,996 | 33 | ||||||||||||||||
Net fee and commission income | 4 | 17,160 | 17,712 | 22,929 | (3 | ) | ||||||||||||||
Net trading income | 3 | 7,471 | (324 | ) | (25,820 | ) | ||||||||||||||
Other income | 5 | 1,214 | 599 | 692 | 103 | |||||||||||||||
Total operating income | 31,994 | 22,601 | 796 | 42 | ||||||||||||||||
Personnel expenses | 6 | 16,920 | 16,543 | 16,262 | 2 | |||||||||||||||
General and administrative expenses | 7 | 6,585 | 6,248 | 10,498 | 5 | |||||||||||||||
Depreciation of property and equipment | 15 | 918 | 1,048 | 1,241 | (12 | ) | ||||||||||||||
Impairment of goodwill | 16 | 0 | 1,123 | 341 | (100 | ) | ||||||||||||||
Amortization of intangible assets | 16 | 117 | 200 | 213 | (42 | ) | ||||||||||||||
Total operating expenses | 24,539 | 25,162 | 28,555 | (2 | ) | |||||||||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||||||||||
Tax expense / (benefit) | 22 | (381 | ) | (443 | ) | (6,837 | ) | 14 | ||||||||||||
Net profit from continuing operations | 7,836 | (2,118 | ) | (20,922 | ) | |||||||||||||||
Discontinued operations | ||||||||||||||||||||
Profit from discontinued operations before tax | 37 | 2 | (7 | ) | 198 | |||||||||||||||
Tax expense | 22 | 0 | 0 | 1 | ||||||||||||||||
Net profit from discontinued operations | 2 | (7 | ) | 198 | ||||||||||||||||
Net profit | 7,838 | (2,125 | ) | (20,724 | ) | |||||||||||||||
Net profit attributable to non-controlling interests | 304 | 610 | 568 | (50 | ) | |||||||||||||||
from continuing operations | 303 | 600 | 520 | (50 | ) | |||||||||||||||
from discontinued operations | 1 | 10 | 48 | (90 | ) | |||||||||||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||||||||||
from continuing operations | 7,533 | (2,719 | ) | (21,442 | ) | |||||||||||||||
from discontinued operations | 1 | (17 | ) | 150 | ||||||||||||||||
Earnings per share (CHF) | ||||||||||||||||||||
Basic earnings per share | 8 | 1.99 | (0.75 | ) | (7.63 | ) | ||||||||||||||
from continuing operations | 1.99 | (0.74 | ) | (7.68 | ) | |||||||||||||||
from discontinued operations | 0.00 | 0.00 | 0.05 | |||||||||||||||||
Diluted earnings per share | 8 | 1.96 | (0.75 | ) | (7.63 | ) | ||||||||||||||
from continuing operations | 1.96 | (0.74 | ) | (7.69 | ) | |||||||||||||||
from discontinued operations | 0.00 | 0.00 | 0.05 | |||||||||||||||||
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Consolidated financial statements
Statement of comprehensive income
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Net profit | 7,838 | (2,125 | ) | (20,724 | ) | |||||||
Other comprehensive income | ||||||||||||
Foreign currency translation | ||||||||||||
Foreign currency translation movements, before tax | (2,044 | ) | (35 | ) | (4,509 | ) | ||||||
Foreign exchange amounts reclassified to the income statement from equity | 237 | (259 | ) | 202 | ||||||||
Income tax relating to foreign currency translation movements | 121 | 22 | (17 | ) | ||||||||
Subtotal foreign currency translation movements, net of tax | (1,686) | 1 | (272 | ) | (4,324 | ) | ||||||
Financial investments available-for-sale | ||||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale, before tax | (499 | ) | 157 | (903 | ) | |||||||
Impairment charges reclassified to the income statement from equity | 72 | 70 | 47 | |||||||||
Realized gains reclassified to the income statement from equity | (357 | ) | (147 | ) | (645 | ) | ||||||
Realized losses reclassified to the income statement from equity | 153 | 1 | 6 | |||||||||
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale | 13 | (54 | ) | 341 | ||||||||
Subtotal net unrealized gains / (losses) on financial investments available-for-sale, net of tax | (618) | 1 | 27 | (1,154 | ) | |||||||
Cash flow hedges | ||||||||||||
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax | 927 | 78 | 2,001 | |||||||||
Net realized (gains) / losses reclassified to the income statement from equity | (1,108 | ) | (756 | ) | 178 | |||||||
Income tax effects relating to cash flow hedges | 38 | 257 | (520 | ) | ||||||||
Subtotal changes in fair value of derivative instruments designated as cash flow hedges | (143 | ) | (421 | ) | 1,659 | |||||||
Total other comprehensive income | (2,447 | ) | (667 | ) | (3,818 | ) | ||||||
Total comprehensive income | 5,391 | (2,792 | ) | (24,542 | ) | |||||||
Total comprehensive income attributable to non-controlling interests | (484 | ) | 484 | (77 | ) | |||||||
Total comprehensive income attributable to UBS shareholders | 5,875 | (3,276 | ) | (24,465 | ) | |||||||
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Balance sheet
% change from | ||||||||||||||||||||
CHF million | Note | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 26,939 | 20,899 | 32,744 | 29 | ||||||||||||||||
Due from banks | 9 | 17,133 | 16,804 | 17,694 | 2 | |||||||||||||||
Cash collateral on securities borrowed | 10 | 62,454 | 63,507 | 122,897 | (2 | ) | ||||||||||||||
Reverse repurchase agreements | 10 | 142,790 | 116,689 | 224,648 | 22 | |||||||||||||||
Trading portfolio assets | 11 | 167,463 | 188,037 | 271,838 | (11 | ) | ||||||||||||||
Trading portfolio assets pledged as collateral | 11 | 61,352 | 44,221 | 40,216 | 39 | |||||||||||||||
Positive replacement values | 23 | 401,146 | 421,694 | 854,100 | (5 | ) | ||||||||||||||
Cash collateral receivables on derivative instruments | 10 | 38,071 | 53,774 | 85,703 | (29 | ) | ||||||||||||||
Financial assets designated at fair value | 12 | 8,504 | 10,223 | 12,882 | (17 | ) | ||||||||||||||
Loans | 9 | 262,877 | 266,477 | 291,456 | (1 | ) | ||||||||||||||
Financial investments available-for-sale | 13 | 74,768 | 81,757 | 5,248 | (9 | ) | ||||||||||||||
Accrued income and prepaid expenses | 5,466 | 5,816 | 6,141 | (6 | ) | |||||||||||||||
Investments in associates | 14 | 790 | 870 | 892 | (9 | ) | ||||||||||||||
Property and equipment | 15 | 5,467 | 6,212 | 6,706 | (12 | ) | ||||||||||||||
Goodwill and intangible assets | 16 | 9,822 | 11,008 | 12,935 | (11 | ) | ||||||||||||||
Deferred tax assets | 22 | 9,522 | 8,868 | 8,880 | 7 | |||||||||||||||
Other assets | 17 | 22,681 | 23,682 | 19,837 | (4 | ) | ||||||||||||||
Total assets | 1,317,247 | 1,340,538 | 2,014,815 | (2 | ) | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 18 | 41,490 | 31,922 | 76,822 | 30 | |||||||||||||||
Cash collateral on securities lent | 10 | 6,651 | 7,995 | 14,063 | (17 | ) | ||||||||||||||
Repurchase agreements | 10 | 74,796 | 64,175 | 102,561 | 17 | |||||||||||||||
Trading portfolio liabilities | 11 | 54,975 | 47,469 | 62,431 | 16 | |||||||||||||||
Negative replacement values | 23 | 393,762 | 409,943 | 851,864 | (4 | ) | ||||||||||||||
Cash collateral payables on derivative instruments | 10 | 58,924 | 66,097 | 92,937 | (11 | ) | ||||||||||||||
Financial liabilities designated at fair value | 19 | 100,756 | 112,653 | 101,546 | (11 | ) | ||||||||||||||
Due to customers | 18 | 332,301 | 339,263 | 362,639 | (2 | ) | ||||||||||||||
Accrued expenses and deferred income | 7,738 | 8,689 | 10,196 | (11 | ) | |||||||||||||||
Debt issued | 19 | 130,271 | 131,352 | 197,254 | (1 | ) | ||||||||||||||
Other liabilities | 20, 21, 22 | 63,719 | 72,344 | 101,969 | (12 | ) | ||||||||||||||
Total liabilities | 1,265,384 | 1,291,905 | 1,974,282 | (2 | ) | |||||||||||||||
Equity | ||||||||||||||||||||
Share capital | 383 | 356 | 293 | 8 | ||||||||||||||||
Share premium | 34,393 | 34,824 | 25,288 | (1 | ) | |||||||||||||||
Cumulative net income recognized directly in equity, net of tax | (6,534 | ) | (4,875 | ) | (4,335 | ) | (34 | ) | ||||||||||||
Retained earnings | 19,285 | 11,751 | 14,487 | 64 | ||||||||||||||||
Equity classified as obligation to purchase own shares | (54 | ) | (2 | ) | (46 | ) | ||||||||||||||
Treasury shares | (654 | ) | (1,040 | ) | (3,156 | ) | 37 | |||||||||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 32,531 | 14 | ||||||||||||||||
Equity attributable to non-controlling interests | 5,043 | 7,620 | 8,002 | (34 | ) | |||||||||||||||
Total equity | 51,863 | 48,633 | 40,533 | 7 | ||||||||||||||||
Total liabilities and equity | 1,317,247 | 1,340,538 | 2,014,815 | (2 | ) | |||||||||||||||
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Consolidated financial statements
Statement of changes in equity
Equity classified | ||||||||||||||||
as obligation to | ||||||||||||||||
CHF million | Share capital | Share premium | Treasury shares | purchase own shares | ||||||||||||
Balance at 1 January 2008 | 207 | 12,471 | (10,363 | ) | (74 | ) | ||||||||||
Issuance of share capital | 86 | |||||||||||||||
Acquisition of treasury shares | (367 | ) | ||||||||||||||
Disposition of treasury shares | 7,574 | |||||||||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (4,626 | ) | ||||||||||||||
Premium on shares issued and warrants exercised | 20,003 | |||||||||||||||
Employee share and share option plans | (1,961 | ) | ||||||||||||||
Tax benefits from deferred compensation awards | (176 | ) | ||||||||||||||
Transaction costs related to share issuances, net of tax | (423 | ) | ||||||||||||||
Dividends | ||||||||||||||||
Equity classified as obligation to purchase own shares – movements | 28 | |||||||||||||||
Preferred securities | ||||||||||||||||
New consolidations and other increases | ||||||||||||||||
Deconsolidations and other decreases | ||||||||||||||||
Total comprehensive income for the year recognized in equity | ||||||||||||||||
Balance at 31 December 2008 | 293 | 25,288 | (3,156 | ) | (46 | ) | ||||||||||
Issuance of share capital | 63 | |||||||||||||||
Acquisition of treasury shares | (476 | ) | ||||||||||||||
Disposition of treasury shares | 2,592 | |||||||||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (1,268 | ) | ||||||||||||||
Premium on shares issued and warrants exercised | 10,599 | |||||||||||||||
Employee share and share option plans | 291 | |||||||||||||||
Tax benefits from deferred compensation awards | 1 | |||||||||||||||
Transaction costs related to share issuances, net of tax | (87 | ) | ||||||||||||||
Dividends1 | ||||||||||||||||
Equity classified as obligation to purchase own shares – movements | 44 | |||||||||||||||
Preferred securities | ||||||||||||||||
New consolidations and other increases | ||||||||||||||||
Deconsolidations and other decreases | ||||||||||||||||
Total comprehensive income for the year recognized in equity | ||||||||||||||||
Balance at 31 December 2009 | 356 | 34,824 | (1,040 | ) | (2 | ) | ||||||||||
Issuance of share capital | 27 | |||||||||||||||
Acquisition of treasury shares | (1,574 | ) | ||||||||||||||
Disposition of treasury shares | 1,960 | |||||||||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (43 | ) | ||||||||||||||
Premium on shares issued and warrants exercised | (27 | ) | ||||||||||||||
Employee share and share option plans | (104 | ) | ||||||||||||||
Tax benefits from deferred compensation awards | (8 | ) | ||||||||||||||
Transaction costs related to share issuances, net of tax | (113 | ) | ||||||||||||||
Dividends1 | ||||||||||||||||
Equity classified as obligation to purchase own shares – movements | (52 | ) | ||||||||||||||
Preferred securities | ||||||||||||||||
New consolidations and other increases | (136 | ) | ||||||||||||||
Deconsolidations and other decreases | ||||||||||||||||
Total comprehensive income for the year recognized in equity | ||||||||||||||||
Balance at 31 December 2010 | 383 | 34,393 | (654 | ) | (54 | ) | ||||||||||
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Total equity | ||||||||||||||||||||||||||||
Foreign currency | Financial investments | Cash flow | attributable to | Non-controlling | ||||||||||||||||||||||||
Retained earnings | translation | available-for-sale | hedges | UBS shareholders | interests | Total equity | ||||||||||||||||||||||
35,795 | (2,600 | ) | 1,471 | (32 | ) | 36,875 | 6,951 | 43,826 | ||||||||||||||||||||
86 | 86 | |||||||||||||||||||||||||||
(367 | ) | (367 | ) | |||||||||||||||||||||||||
7,574 | 7,574 | |||||||||||||||||||||||||||
(4,626 | ) | (4,626 | ) | |||||||||||||||||||||||||
20,003 | 20,003 | |||||||||||||||||||||||||||
(1,961 | ) | (1,961 | ) | |||||||||||||||||||||||||
(176 | ) | (176 | ) | |||||||||||||||||||||||||
(423 | ) | (423 | ) | |||||||||||||||||||||||||
(16 | ) | (16 | ) | (361 | ) | (377 | ) | |||||||||||||||||||||
28 | 28 | |||||||||||||||||||||||||||
0 | 1,618 | 1,618 | ||||||||||||||||||||||||||
0 | 12 | 12 | ||||||||||||||||||||||||||
0 | (141 | ) | (141 | ) | ||||||||||||||||||||||||
(21,292 | ) | (3,709 | ) | (1,124 | ) | 1,659 | (24,465 | ) | (77 | ) | (24,542 | ) | ||||||||||||||||
14,487 | (6,309 | ) | 347 | 1,627 | 32,531 | 8,002 | 40,533 | |||||||||||||||||||||
63 | 63 | |||||||||||||||||||||||||||
(476 | ) | (476 | ) | |||||||||||||||||||||||||
2,592 | 2,592 | |||||||||||||||||||||||||||
(1,268 | ) | (1,268 | ) | |||||||||||||||||||||||||
10,599 | 10,599 | |||||||||||||||||||||||||||
291 | 291 | |||||||||||||||||||||||||||
1 | 1 | |||||||||||||||||||||||||||
(87 | ) | (87 | ) | |||||||||||||||||||||||||
0 | (849 | ) | (849 | ) | ||||||||||||||||||||||||
44 | 44 | |||||||||||||||||||||||||||
0 | (7 | ) | (7 | ) | ||||||||||||||||||||||||
0 | 3 | 3 | ||||||||||||||||||||||||||
0 | (13 | ) | (13 | ) | ||||||||||||||||||||||||
(2,736 | ) | (136 | ) | 17 | (421 | ) | (3,276 | ) | 484 | (2,792 | ) | |||||||||||||||||
11,751 | (6,445 | ) | 364 | 1,206 | 41,013 | 7,620 | 48,633 | |||||||||||||||||||||
27 | 27 | |||||||||||||||||||||||||||
(1,574 | ) | (1,574 | ) | |||||||||||||||||||||||||
1,960 | 1,960 | |||||||||||||||||||||||||||
(43 | ) | (43 | ) | |||||||||||||||||||||||||
(27 | ) | (27 | ) | |||||||||||||||||||||||||
(104 | ) | (104 | ) | |||||||||||||||||||||||||
(8 | ) | (8 | ) | |||||||||||||||||||||||||
(113 | ) | (113 | ) | |||||||||||||||||||||||||
0 | (305 | ) | (305 | ) | ||||||||||||||||||||||||
(52 | ) | (52 | ) | |||||||||||||||||||||||||
0 | (1,529 | ) | (1,529 | ) | ||||||||||||||||||||||||
(136 | ) | 6 | (130 | ) | ||||||||||||||||||||||||
0 | (264 | ) | (264 | ) | ||||||||||||||||||||||||
7,534 | (909 | ) | (607 | ) | (143 | ) | 5,875 | (484 | ) | 5,391 | ||||||||||||||||||
19,285 | (7,354 | ) | (243 | ) | 1,063 | 46,820 | 5,043 | 51,863 | ||||||||||||||||||||
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Consolidated financial statements
Statement of changes in equity (continued)
Preferred securities1 | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Balance at the beginning of the year | 7,254 | 7,381 | 6,381 | |||||||||
Issuances | 1,618 | |||||||||||
Redemptions | (1,529 | ) | (7 | ) | ||||||||
Foreign currency translation | (818 | ) | (120 | ) | (618 | ) | ||||||
Balance at the end of the year | 4,907 | 7,254 | 7,381 | |||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Shares issued | ||||||||||||||||
Balance at the beginning of the year | 3,558,112,753 | 2,932,580,549 | 2,073,547,344 | 21 | ||||||||||||
Issuance of shares | 272,727,760 | 625,532,204 | 859,033,205 | (56 | ) | |||||||||||
Balance at the end of the year | 3,830,840,513 | 3,558,112,753 | 2,932,580,549 | 8 | ||||||||||||
Treasury shares | ||||||||||||||||
Balance at the beginning of the year | 37,553,872 | 61,903,121 | 158,105,524 | (39 | ) | |||||||||||
Acquisitions | 105,824,816 | 33,566,097 | 13,398,118 | 215 | ||||||||||||
Disposals | (104,486,657 | ) | (57,915,346 | ) | (109,600,521 | ) | (80 | ) | ||||||||
Balance at the end of the year | 38,892,031 | 37,553,872 | 61,903,121 | 4 | ||||||||||||
Shares issued
On 5 March 2010, the mandatory convertible notes (MCNs) with a notional value of CHF 13 billion issued in March 2008 to the Government of Singapore Investment Corporation Pte. Ltd. and an investor from the Middle East were converted into UBS shares. The notes were converted at a price of CHF 47.68 per share. As a result, UBS issued 272,651,005 new shares with a nominal value of CHF 0.10 each from existing conditional capital. The MCNs were treated as equity instruments and recognized inShare premium. The conversion of the MCNs resulted in a reclassification of CHF 27 million fromShare premiumtoShare capital.
Conditional share capital
On 31 December 2010, 149,920,712 shares were available for issue to fund UBS’s employee share option programs. In addition, conditional capital of up to 100,000,000 shares was available in connection with the Swiss National Bank (SNB) transaction. Furthermore, on 14 April 2010 the Annual General Meeting of UBS AG approved the creation of conditional capital up to a maximum amount of 380,000,000 shares for conversion rights/warrants granted in connection with the issuance of bonds or similar financial instruments. These positions are shown as conditional share capital in the UBS AG (Parent Bank) disclosure.
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Statement of cash flows
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | 7,838 | (2,125 | ) | (20,724 | ) | |||||||
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 | 918 | 1,048 | 1,241 | |||||||||
Impairment of goodwill / amortization of intangible assets | 117 | 1,323 | 554 | |||||||||
Credit loss expense / (recovery) | 66 | 1,832 | 2,996 | |||||||||
Share of net profits of associates | (81 | ) | (37 | ) | 6 | |||||||
Deferred tax expense / (benefit) | (605 | ) | (960 | ) | (7,020 | ) | ||||||
Net loss / (gain) from investing activities | (531 | ) | 425 | (797 | ) | |||||||
Net loss / (gain) from financing activities | 1,125 | 8,355 | (47,906 | ) | ||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | 9,022 | (41,766 | ) | (41,589 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (25,048 | ) | 162,822 | 236,497 | ||||||||
Trading portfolio, net replacement values and financial assets designated at fair value | 21,212 | 11,118 | 350,099 | |||||||||
Loans / due to customers | (3,429 | ) | (316 | ) | (156,486 | ) | ||||||
Accrued income, prepaid expenses and other assets | 608 | (4,208 | ) | 31,871 | ||||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements, cash collateral on securities lent | 9,277 | (41,351 | ) | (220,935 | ) | |||||||
Net cash collateral on derivative instruments | (988 | ) | (11,916 | ) | 6,316 | |||||||
Accrued expenses, deferred income and other liabilities | (7,039 | ) | (29,242 | ) | (56,232 | ) | ||||||
Income taxes paid, net of refunds | (498 | ) | (505 | ) | (887 | ) | ||||||
Net cash flow from / (used in) operating activities | 11,963 | 54,497 | 77,007 | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||
Purchase of subsidiaries and associates | (75 | ) | (42 | ) | (1,502 | ) | ||||||
Disposal of subsidiaries and associates | 307 | 296 | 1,686 | |||||||||
Purchase of property and equipment | (541 | ) | (854 | ) | (1,217 | ) | ||||||
Disposal of property and equipment | 242 | 163 | 69 | |||||||||
Net (investment in) / divestment of financial investments available-for-sale | (25,631 | ) | (20,127 | ) | (712 | ) | ||||||
Net cash flow from / (used in) investing activities | (25,698 | ) | (20,563 | ) | (1,676 | ) | ||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market papers issued / (repaid) | 4,459 | (60,040 | ) | (40,637 | ) | |||||||
Net movements in treasury shares and own equity derivative activity | (1,456 | ) | 673 | 623 | ||||||||
Capital issuance | (113 | ) | 3,726 | 23,135 | ||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 78,418 | 67,062 | 103,087 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (77,497 | ) | (65,024 | ) | (92,894 | ) | ||||||
Increase in non-controlling interests1 | 6 | 3 | 1,661 | |||||||||
Dividends paid to / decrease in non-controlling interests | (2,053 | ) | (583 | ) | (532 | ) | ||||||
Net cash flow from / (used in) financing activities | 1,764 | (54,183 | ) | (5,557 | ) | |||||||
Effects of exchange rate differences | (12,181 | ) | 5,529 | (39,186 | ) | |||||||
Net increase / (decrease) in cash and cash equivalents | (24,151 | ) | (14,721 | ) | 30,588 | |||||||
Cash and cash equivalents at the beginning of the year | 164,973 | 179,693 | 149,105 | |||||||||
Cash and cash equivalents at the end of the year | 140,822 | 164,973 | 179,693 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 26,939 | 20,899 | 32,744 | |||||||||
Money market papers2 | 77,998 | 98,432 | 86,732 | |||||||||
Due from banks with original maturity of less than three months3 | 35,885 | 45,642 | 60,217 | |||||||||
Total | 140,822 | 164,973 | 179,693 | |||||||||
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Financial information
Consolidated financial statements
Statement of cash flows (continued)
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Additional information | ||||||||||||
Cash received as interest | 17,344 | 23,844 | 68,232 | |||||||||
Cash paid as interest | 12,606 | 19,597 | 62,284 | |||||||||
Cash received as dividends on equities (incl. associates) | 1,395 | 1,090 | 2,779 | |||||||||
Significant non-cash investing and financing activities
There were no significant items in 2010.
For the year ended | ||||||||
CHF million | 31.12.09 | 31.12.08 | ||||||
Deconsolidation of UBS Pactual | ||||||||
Financial investments available-for-sale | 14 | |||||||
Property and equipment | 31 | |||||||
Goodwill and intangible assets | 731 | |||||||
Debt issued | 1,393 | |||||||
Deconsolidation of private equity investments | ||||||||
Property and equipment | 33 | |||||||
Goodwill and intangible assets | 22 | |||||||
Acquisition of Caisse Centrale de Réescompte Group (CCR) | ||||||||
Property and equipment | 5 | |||||||
Goodwill and intangible assets | 405 | |||||||
Debt issued | 114 | |||||||
Acquisition of VermogensGroep | ||||||||
Property and equipment | 2 | |||||||
Goodwill and intangible assets | 173 | |||||||
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Financial information |
Financial information
Notes to the consolidated financial statements
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
1) Basis of accounting
2) Use of estimates in the preparation of the Financial Statements
3) Subsidiaries
Equity attributable to non-controlling interests (formerly minority interests) is presented on the consolidated balance sheet within equity, and is separate from equity attributable to UBS shareholders.Net profit attributable to non-controlling interests is shown separately in the income statement.
– | the activities of the SPE are being conducted on behalf of UBS according to its specific business needs so that UBS obtains benefits from the SPE’s operations; | |
– | UBS has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an “autopilot” mechanism, UBS has delegated these decision-making powers; | |
– | UBS has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks associated with the activities of the SPE; or | |
– | UBS retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities. |
SPEs that are used to allow clients to hold investmentsare structures that allow one or more clients to invest in specific risk and reward profiles or assets. Typically, UBS will receive service and commission fees for the creation of the SPE, or because UBS acts as investment manager, custodian or in some other function. Some of these SPEs are single-investor or family trusts while others allow a large number of investors to invest in a diversified asset base through a single share, note or certificate. The majority of UBS’s SPEs are created for client investment purposes and are not consolidated. However, UBS consolidates SPEs in certain cases, in which UBS absorbs the majority of the risks and rewards or has unilateral liquidation rights.
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
UBS does not consolidate SPEs for securitization if it has no control over the assets and if it no longer retains any significant exposure (for gain or loss) to the income or investment returns on the assets sold to the SPE or the proceeds of their liquidation. This type of SPE is known as a bankruptcy-remote entity: if UBS were to go bankrupt, the holders of the securities would clearly be owners of the asset, while if the SPE were to go bankrupt, the securities holders would have no recourse against UBS.
in the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized either in profit or loss. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.
– | Transaction costs directly attributable to the acquisition formed part of the acquisition costs. | |
– | The non-controlling interest was measured as a proportion of the acquiree’s identifiable net assets. | |
– | Contingent consideration was recognized if, and only if, UBS had a present obligation, economic outflow was likely and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill. |
Assets and liabilities of subsidiaries are classified as “held for sale” if their carrying amount will be recovered principally through a sale transaction rather than through continuing use – see items 19) and 28). Major lines of business and subsidiaries that were acquired exclusively for the purpose of resale are presented as discontinued operations. This information is presented in the statement of comprehensive income for the period when the sale occurred. It may also be presented when it becomes highly probable that a sale will occur within 12 months – see item 28).
4) Associates and jointly controlled entities
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Note 1 Summary of significant accounting policies (continued)
Investments in associates and interests in jointly controlled entities are classified as “held for sale” if their carrying amount will be recovered principally through a sale transaction rather than through continuing use – see items 19) and 28).
5) Recognition and derecognition of financial instruments
Financial assets
Financial liabilities
6) Determination of fair value
7) Trading portfolio assets and liabilities
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
a financial asset classified in its trading portfolio, unrealized profits and losses are no longer recognized from the date the sales transaction is entered into (trade date) and it derecognizes the asset on the day of its transfer (settlement date).
8) Financial assets and Financial liabilities designated at fair value through profit or loss (“Fair Value Option”)
a) | they are hybrid instruments which consist of a debt host and an embedded derivative component, or | |
b) | they are items that are part of a portfolio which is risk managed on a fair value basis and reported to senior management on that basis, or | |
c) | the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise. |
UBS has designated most of its issued hybrid debt instruments asFinancial liabilities designated at fair valuethrough profit or loss. These instruments are based predominantly on the following categories of underlyings:
– | Credit-linked:bonds, notes linked to the performance (coupon and / or redemption amount) of single names (such as a company or a country) or a basket of reference entities. |
– | Equity-linked:bonds, notes that are linked to a single stock, a basket of stocks or an equity index. |
– | Rates-linked:bonds, notes linked to a reference interest rate, interest rate spread or formula. |
Besides hybrid instruments, the fair value option is also applied to certain loans and loan commitments which are substantially hedged with credit derivatives. The application of the fair value option to these instruments reduces an accounting mismatch, as loans would have been otherwise accounted for at amortized cost or as financial investments available-for-sale (refer to item 9), whereas the hedging credit protection is accounted for as a derivative instrument at fair value through profit or loss.
bilities designated at fair value through profit or loss are included inInterest income on financial assets designated at fair valueorInterest on financial liabilities designated at fair value. Refer to Note 3.
9) Financial investments available-for-sale
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cant financial difficulty of the issuer or counterparty, default or delinquency in interest or principal payments or probability that the borrower will enter bankruptcy or financial re-organization. If a financial investment available-for-sale is determined to be impaired, the related cumulative net unrealized loss previously recognized inEquityis included inNet profit for the periodand reported as a deduction fromOther income. Any further loss is directly recognized in the income statement.
10) Loans and receivables
– | originated loans where money is provided directly to the borrower, participation in a loan from another lender and purchased loans (certain purchased non-performing loans are also classified as financial investment available-for-sale at inception) initially classified as “Loans and receivables”; | |
– | securities initially classified as “Loans and receivables” and reclassified securities previously “Held-for-trading” (refer to Note 29b) due to illiquid markets such as Auction Rate Securities; | |
– | reclassified loans such as leverage finance loans previously “Held-for-trading” (refer to Note 29b). |
For an overview of financial assets and financial liabilities accounted for as “Loans and receivables”, refer to the measurement categories presented in Note 29.
Renegotiated loans
Commitments
11) Allowance and provision for credit losses
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Note 1 Summary of significant accounting policies (continued)
commenced against the firm, or obligations have been restructured on concessionary terms.
12) Securitization structures set up by UBS
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Note 1 Summary of significant accounting policies (continued)
are primarily recorded inTrading portfolio assetsand carried at fair value. Synthetic securitization structures typically involve derivative financial instruments for which the principles set out in item 15) apply.
13) Securities borrowing and lending
14) Repurchase and reverse repurchase transactions
15) Derivative instruments and hedge accounting
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
designated and effective as hedging instruments. If designated as hedging instruments, the method of recognizing gains or losses depends on the nature of the risk being hedged.
Hedge accounting
discontinues hedge accounting when it determines that a hedging instrument is not, or has ceased to be, highly effective as a hedge; when the derivative expires or is sold, terminated or exercised; when the hedged item matures, is sold or repaid; or when a forecast transaction is no longer deemed highly probable.
Fair value hedges
Cash flow hedges
Hedges of net investments in foreign operations
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Note 1 Summary of significant accounting policies (continued)
Economic hedges which do not qualify for hedge accounting
Embedded derivatives
16) Loan commitments
– | Derivative loan commitments (loan commitments that can be settled net in cash or by delivering or issuing another financial instrument) or if there is evidence that UBS is selling similar loans resulting from its loan commitments before or shortly after origination (refer to item 15)). |
– | Loan commitments designated at fair value through profit and loss (“Fair value option”) (refer to item 8)). |
– | Below market loan commitments. Below market loan commitments are recognized at fair value and subsequently measured at the higher of the initially recognized liability at fair value less cumulative amortization and a provision (refer to item 26)). UBS uses them only in specific situations (e.g. restructuring, insolvency). |
– | Other loan commitments. Other loan commitments are not recorded in the balance sheet. However, a provision is recognized if it is probable that a loss has been incurred and a reliable estimate of the amount of the obligation can be made (refer to item 26)). Other loan commitments include irrevocable forward starting reverse repos and irrevocable securities borrowing agreements. |
17) Cash and cash equivalents
18) Physical commodities
19) Property and equipment
Classification for own-used property
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Note 1 Summary of significant accounting policies (continued)
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.
Investment property
Leasehold improvements
Property held for sale
Software
Estimated useful life of property and equipment
Properties, excluding land | Not exceeding 50 years | |
Leasehold improvements | Residual lease term, | |
but not exceeding 10 years | ||
Other machines and equipment | Not exceeding 10 years | |
IT, software and communication | Not exceeding 5 years | |
20) Goodwill and intangible assets
21) Income taxes
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22) Debt issued
Debt without embedded derivatives
Debt with embedded derivatives (related to UBS AG shares)
Debt with embedded derivatives (not related to UBS AG shares)
23) Pension and other post-employment benefit plans
Defined benefit plans
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Note 1 Summary of significant accounting policies (continued)
value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. UBS applies the projected unit credit method to determine the present value of its defined benefit obligation and the related current service cost and, where applicable, past service cost. These amounts are calculated annually by independent actuaries. The principal actuarial assumptions used are set out in Note 30.
a) 10% of the present value of the defined benefit obligation at that date (before deducting the fair value of 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.
Defined contribution plans
A defined contribution plan is a pension plan under which UBS pays fixed contributions into a separate entity. UBS has no legal or constructive obligation to pay further contributions if the plan does not hold sufficient assets to pay employees the benefits relating to employee service in the current and prior periods. UBS’s contributions are expensed when the employees have rendered services in exchange for such contributions; this is generally in the year of contribution. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
Other post-retirement benefits
UBS also provides post-retirement medical and life insurance benefits to certain retirees in the US and the UK. The expected costs of these benefits are recognized over the period of employment using the same accounting methodology used for the defined benefit plans.
24) Equity participation and other compensation plans
Equity participation plans
UBS has established several equity participation plans in the form of share plans, option plans and share-settled stock appreciation right (SAR) plans. UBS’s equity participation plans are mandatory, discretionary, or voluntary plans. UBS recognizes the fair value of share, option and SAR awards, determined at the date of grant,
as compensation expense over the period that the employee is required to provide services in order to earn the award.
Other compensation plans
UBS has established other fixed and variable deferred cash compensation plans, the value of which is not linked to UBS’s own equity. UBS’s deferred cash compensation plans are either mandatory or discretionary plans.
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is distributed. Forfeiture of these awards results in the reversal of expense. Refer to Note 31 for further details on equity participation and other compensation plans.
25) Amounts due under unit-linked investment contracts
UBS’s financial liabilities from unit-linked contracts are presented asOther 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.
26) Provisions
Provisions are recognized when UBS has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. When a provision is recognized, its amount needs to be estimated as the exact amount of the obligation is generally unknown. The estimate is based on all available information and reflects the amount that in management’s opinion represents the best estimate of the expenditure required to settle the obligation. UBS revises existing provisions up or down as soon as it is able to quantify the amounts more accurately. If the effect of the time value of money is material, provisions are discounted and measured at the present value of the expenditure expected to settle the obligation, using a rate that reflects the current market assessments of the time value of money and the risks specific to the obligation.
27) Equity, treasury shares and contracts on UBS shares
Transaction costs related to share issuances
Incremental costs directly attributable to the issue of new shares or contracts with physical settlement (classified as equity instruments) are recognized inEquityas “transaction costs related to share issuances, net of tax” and are a deduction fromEquity.
Non-controlling interests
Net profitandEquityare presented including non-controlling interests.Net profitis split intoNet profit attributable to UBS shareholdersandNet profit attributable to non-controlling interests. Equity is split intoEquity attributable to UBS shareholdersandEquity attributable to non-controlling interests.
UBS AG shares held (“treasury shares”)
UBS AG shares held by the Group are classified inEquityas Treasury shares and accounted for at cost. Treasury shares are deducted from total shareholders’ equity until they are cancelled or reissued. The difference between the proceeds from sales of Treasury shares and their weighted average cost (net of tax, if any) is reported asShare premium.
Contracts with gross physical settlement
(except physically settled written put options and forward share purchase contracts)
Contracts that require gross physical settlement in UBS AG shares are classified inEquityasShare premium(provided a fixed amount of shares is exchanged against a fixed amount of cash) and accounted for at cost. They are added to or deducted from equity until settlement of such contracts. Upon settlement of such contracts, the difference between the proceeds received and their cost (net of tax, if any) are reported asShare premium.
Contracts with net cash settlement or net cash settlement option
Contracts on UBS AG shares that require net cash settlement, or provide the counterparty or UBS with a settlement option which includes a choice of settling net in cash, are classified as trading instruments, with changes in fair value reported in the income statement asNet trading income, except for written put options and forward share purchase contracts.
Physically settled written put options and forward share
purchase contracts
Physically settled written put options and forward share purchase contracts, including contracts where physical settlement is a settlement alternative, result in the recognition of a financial liability. At the inception of the contract, the present value of the obligation to purchase own shares in exchange for cash is transferred out ofEquityand recognized as a liability. The liability is subsequently accreted, using the EIR method, over the life of the contract to the nominal purchase obligation by recognizing interest expense. Upon settlement of the contract, the liability is derecognized, and the amount of equity originally recognized as a liability is reclassified withinEquitytoTreasury shares. The premium received for writing put options is recognized directly inShare premium.
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 fully prior payment of the deposit liabilities of UBS and all other liabilities of UBS. The trust preferred securities represent equity instruments which are held by third parties and treated as non-controlling interests in UBS’s consolidated financial statements. Once a coupon payment becomes mandatory, i.e. when it is trig-
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
gered by a contractually defined event, the full dividend payment obligation on these trust preferred securities issued is reclassified fromEquity to a corresponding liability. In the income statement the full dividend payment is reclassified fromNet profit attributable to UBS shareholderstoNet profit attributable to non-controlling interestsat that time. UBS bonds held by preferred funding trusts are eliminated in consolidation.
28) 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 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. For a sale to be highly probable, management must be committed to a plan to sell such assets and is actively looking for a buyer. Furthermore, the assets must be actively marketed at a reasonable sales price in relation to their fair value and the sale is expected to be completed within one year. 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 inOther assetsandOther liabilities(see Notes 17 and 20).
29) Leasing
UBS enters into lease contracts, predominantly of premises and equipment, as a lessor and 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; and e) whether the asset is of a specialized nature that only the lessee can use without major modifications being made. If one or more of the conditions are 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.
30) Fee income
UBS earns fee income from a diverse range of services it provides to its clients. Fee income can be divided into two broad categories: income earned from services that are provided over a certain period of time 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 with the exception of performance-linked fees or fee components which are recognized when the performance criteria are fulfilled. Fees earned from providing transaction-type services are recognized when the service has been completed. Loan commitment fees on lending arrangements are deferred until the loan is drawn down and then recognized as an adjustment to the effective yield over the life of the loan. If the commitment expires and the loan is not drawn down, the fees are recognized as revenue on expiry.
31) Foreign currency translation
Transactions denominated in foreign currency are translated into the functional currency of the reporting unit at the spot exchange rate on the date of the transaction. At the balance sheet date, all assets and liabilities denominated in foreign currency, except for non-monetary items, are translated using the closing exchange rate. Non-monetary items measured at historical cost are translated at the exchange rate on the date of the transaction. Resulting foreign exchange differences are recognized inNet trading income, except for non-monetary financial investments available-for-sale. Foreign exchange differences from non-monetary finan-
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cial investments available-for-sale are recorded directly inEquityuntil the asset is sold or becomes impaired, unless the non-monetary financial investment is subject to a fair value hedge of foreign exchange risk, in which case changes in fair value attributable to the hedged risk are reported inNet trading income.
32) Earnings per share (EPS)
33) Segment reporting
chief operating decision maker, the financial information about the five reportable segments and the Corporate Center was separately presented. This internal management view was the basis for the external segment reporting.
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
ments are used for the allocation of customer revenues where several reportable segments are involved in the value-creation chain.
34) Netting
b) Changes in accounting policies, comparability and other adjustments
Wealth Management & Swiss Bank reorganization
– | “Wealth Management”, encompassing all wealth management business conducted out of Switzerland and in the Asian and European booking centers; |
– | “Retail & Corporate”, including services provided to Swiss retail private clients, small and medium enterprises and corporate and institutional clients. |
Allocation of additional Corporate Center costs to reportable segments
policy has been applied prospectively and prior year numbers have not been restated.
Cash collateral from derivative transactions and Prime brokerage receivables and payables
Corporate Center cost allocation impact on 2009 figures | ||||||||||||||||||||||||||||
Wealth | Total | |||||||||||||||||||||||||||
Wealth Management & | Management | Global Asset | Investment | business | Corporate | |||||||||||||||||||||||
Swiss Bank | Americas | Management | Bank | divisions | Center | |||||||||||||||||||||||
Wealth | Retail & | |||||||||||||||||||||||||||
CHF million | Management | Corporate | ||||||||||||||||||||||||||
Estimated increase in 2009 operating expenses and decrease in performance before tax | 128 | 96 | 84 | 44 | 288 | 640 | (640 | ) | ||||||||||||||||||||
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For 2009 and 2008, the following reclassifications were made:
Cash collateral from derivative transactions and Prime brokerage receivables and payables | ||||||||||||||||||||||||
31.12.09 – before | 31.12.09 – after | 31.12.08 – before | 31.12.08 – after | |||||||||||||||||||||
CHF million | reclassification | Reclassification | reclassification | reclassification | Reclassification | reclassification | ||||||||||||||||||
Due from banks | 46,574 | (29,770 | ) | 16,804 | 64,451 | (46,757 | ) | 17,694 | ||||||||||||||||
Cash collateral receivables on derivatives | 0 | 53,774 | 53,774 | 0 | 85,703 | 85,703 | ||||||||||||||||||
instruments | ||||||||||||||||||||||||
Loans | 306,828 | (40,351 | ) | 266,477 | 340,308 | (48,852 | ) | 291,456 | ||||||||||||||||
Other assets | 7,336 | 16,347 | 23,682 | 9,931 | 9,906 | 19,837 | ||||||||||||||||||
Due to banks | 65,166 | (33,244 | ) | 31,922 | 125,628 | (48,806 | ) | 76,822 | ||||||||||||||||
Cash collateral payables on derivatives instruments | 0 | 66,097 | 66,097 | 0 | 92,937 | 92,937 | ||||||||||||||||||
Due to customers | 410,475 | (71,212 | ) | 339,263 | 465,741 | (103,102 | ) | 362,639 | ||||||||||||||||
Other liabilities | 33,986 | 38,359 | 72,344 | 42,998 | 58,971 | 101,969 | ||||||||||||||||||
Equity and Other comprehensive income
In 2010, UBS reviewed certain components of its equity and made adjustments to correct immaterial misstatements that relate to periods several years back. The following paragraphs describe the impacts of the changes on UBS’s financial statements as of 31 December 2010.
Personnel expenses
In 2010, UBS reclassified certain elements ofOther personnel expensestoVariable compensation – other in order to align the presentation with the new FINMA definition of variable compensation.
Furthermore, UBS reclassified the pension costs related to bonus toPension and other post-employment benefit plans.Previously, those amounts were reported underSocial security.Prior period amounts have been adjusted accordingly. The change in the presentation did not impact UBS’s personnel expenses. The related amounts are disclosed in the footnotes to Note 6.
Fair value hierarchy of financial instruments
From 2010 onwards, UBS considers input data observable and classifies the respective financial instrument as level 2 in the fair value hierarchy when there is an equally offsetting transaction. An offsetting transaction constitutes evidence of an observable market transaction, when it can be demonstrated that the offsetting transactions nullifies substantially all the price risk of the proportion of the offset instrument and the proportion is significant. In cases such as derivatives, where the counterparty’s credit risk is also based on observable inputs, then it can be concluded that all input data are observable. Refer to Note 27b) for more details.
Effective 2010
Improvements to IFRSs 2009
The IASB issued amendments to twelve IFRS standards as part of its annual improvements project in April 2009. UBS adopted the Improvements to IFRSs 2009 on 1 January 2010. The adoption of the amendments did not have a significant impact on UBS’s financial statements.
Amendments to IAS 39 Financial Instruments:
The amendments to IAS 39 were issued in July 2008. The amendments provide additional guidance on the designation of a hedged item. The amendments clarify how the existing principles underlying hedge accounting should be applied in two particular situations: a) a one-sided risk in a hedged item and b) inflation in a financial hedged item. UBS adopted the amendments to IAS 39 on 1 January 2010. The adoption of the amend-
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Note 1 Summary of significant accounting policies (continued)
ments to IAS 39 did not have a significant impact on UBS’s financial statements.
IFRS 3 Business Combinations, IAS 27 Consolidated and Separate Financial Statements, and IAS 21 The Effects of Changes in Foreign Exchange Rates
The most significant changes under revised IFRS 3 are as follows: |
– | Contingent consideration should be recognized at fair value as part of the consideration transferred at the acquisition date. Previously, contingent consideration was recognized if, and only if, UBS had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. | |
– | Non-controlling interests in an acquiree that are present ownership interests and provide entitlement to a proportionate share of the net assets in the event of liquidation should 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. All other components of the non-controlling interests are measured at their acquisition-date fair values. The option is available on a transaction-by-transaction basis. | |
– | Transaction costs incurred by the acquirer should be expensed as incurred. |
The amendments to IAS 27 and the consequential amendments to IAS 21 require the effects (including foreign exchange translation) of all transactions with non-controlling interests to be recorded in equity if there is no change in control. The standards also specify the accounting when control is lost: any remaining interest in the entity should be re-measured to fair value, and a gain or loss (including foreign exchange translation) should be recognized in profit or loss. The amendments to IAS 21 further clarify that no deferred foreign currency translation gains and losses are to be released upon a partial repayment of share capital of a subsidiary without a loss of control.
Effective in 2009 and earlier
IAS 1 (revised) Presentation of Financial Statements
Effective 1 January 2009, the revised International Accounting Standard (IAS) 1 affected the presentation of owner changes in equity and of comprehensive income. UBS continued to present owner changes in equity in the “statement of changes in equity”, but detailed information relating to non-owner changes in equity, such as foreign exchange translation, cash flow hedges and financial investments available-for-sale, were presented in the “statement of comprehensive income”.
IFRS 8 Operating Segments
Effective as of 1 January 2009, UBS adopted IFRS 8Operating Segmentswhich replaced IAS 14Segment Reporting. Under the requirements of the new standard, UBS’s external segmental reporting is now based on the internal management reporting to the Group Executive Board (or the “chief operating decision maker”), which makes decisions on the allocation of resources and assesses the performance of the reportable segments. Refer to item 33) and Note 2 for further details.
IFRS 7 (revised) Financial Instruments: Disclosures
This standard was revised in March 2009 when the International Accounting Standards Board (IASB) published the amendment “Improving Disclosures about Financial Instruments”. Effective 1 January 2009, the amendment requires enhanced disclosures about fair value measurements and liquidity risk.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 16 was issued on 1 October 2008 and became effective on 1 January 2009. IFRIC 16 provides guidance in identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation; where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting, and how an entity should determine the amounts to be reclassi-
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Note 1 Summary of significant accounting policies (continued)
fied from equity to profit or loss for both the hedging instrument and the hedged item. The impact of this interpretation on UBS’s financial statements was immaterial.
IAS 24 Related Party Disclosures
In November 2009, the IASB amended IAS 24Related Party Disclosureswith latest possible effective date 1 January 2011. UBS has early adopted the revised requirements in its annual financial statements 2009. The revised standard amends the definition of related parties, in particular, the relationship between UBS and associated companies of UBS’s key management personnel or their close family members. Transactions between UBS and associated companies of UBS key management personnel over which UBS key management personnel does not have control or joint control are no longer considered related-party transactions. Due to the application of the revised guidance, related party transactions disclosed in Note 32e of the annual financial statements 2008 have been significantly reduced. Balances and movements of loans to related parties have been reduced by CHF 668 million as of 31 December 2008 and fees received for services provided by UBS have been reduced by CHF 11 million in 2008.
IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
On 1 January 2008, UBS adopted an amendment to IFRS 2Share-based Payment: Vesting Conditions and Cancellationsand fully restated the two comparative prior years. The amended standard clarifies the definition of vesting conditions and the accounting treatment of cancellations. Under the amended standard, UBS is required to distinguish between vesting conditions (such as service and performance conditions) and non-vesting conditions.
of liabilities (including deferred tax liabilities) by approximately CHF 0.5 billion, and increase of deferred tax assets by approximately CHF 0.5 billion. Net profit attributable to UBS shareholders declined by CHF 863 million in 2007 and by CHF 730 million in 2006. Additional compensation expenses of CHF 797 million and CHF 516 million were recognized in 2007 and 2006, respectively. These additional compensation expenses include awards granted in 2008 for the performance year 2007. The impact of the restatement on total equity as of 31 December 2007 was a decrease of CHF 366 million. Retained earnings as of 31 December 2007 decreased by approximately CHF 3.9 billion, share premium increased by approximately CHF 3.5 billion, liabilities (including deferred tax liabilities) increased by approximately CHF 0.6 billion and deferred tax assets increased by approximately CHF 0.2 billion. The restatement decreased basic and diluted earnings per share for the year ended 31 December 2007 by CHF 0.40 each and for the year ended 31 December 2006 by CHF 0.33 and CHF 0.31, respectively. In order to provide comparative information, these amounts also reflect the retrospective adjustments to shares outstanding in 2007 due to the capital increase and the share dividend paid in 2008.
Reclassifications of Financial Assets
The International Accounting Standards Board published an amendment to International Accounting Standard 39 (IAS 39Financial Instruments: Recognition and Measurement) on 13 October 2008, under which eligible financial assets, subject to certain conditions being met, may be reclassified out of theHeld for tradingcategory if the firm had the intent and ability to hold them for the foreseeable future or until maturity.
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Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2011 and later
Effective in 2011
Improvements to IFRSs 2010
In May 2010, the IASB issued amendments to seven standards as part of its annual improvements project. UBS will adopt the improvements to IFRSs 2010 as of 1 January 2011. The amendments will not have a material impact on UBS’s financial statements.
IFRIC 14 Prepayments of a Minimum Funding Requirement
In November 2009, the IASB issued the amended IFRIC 14The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, which itself is an interpretation of IAS 19Employee Benefits. The amendment applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits an entity to treat the benefit of such an early payment as an asset. The amendment is effective from 1 January 2011. Early application is permitted. UBS is not affected by this amendment.
Effective in 2012 and later, if not adopted early
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9Financial instruments, which includes revised guidance on the classification and measurement of financial assets. In October 2010, the IASB updated IFRS 9 to include guidance on financial liabilities and derecognition of financial instruments and amended IFRS 7 to include disclosures about transferred financial assets. The publication of IFRS 9 represents the completion of the first part of a multi-stage project to replace IAS 39Financial instruments: recognition and measurement.
There is no subsequent recycling of realized gains or losses from OCI to profit or loss. All other financial assets are measured at fair value through profit or loss.
Amendments to IAS 12 Income Taxes
In December 2010, the IASB issued amendments to IAS 12Income Taxesto clarify guidance related to the measurement of deferred taxes. IAS 12 requires an entity to measure the deferred tax related to an asset based on whether the entity expects to recover the carrying amount of the asset principally through use or sale. The guidance establishes a rebuttable presumption that recovery of the carrying amount will normally be through sale. As a result of the amendments, SIC-21,Income Taxes – Recovery of Revalued Non-Depreciable Assets, would no longer apply to investment properties carried at fair value. The amendments provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model. The amendments also incorporate the guidance contained in SIC-21, which is now withdrawn. The amendments are effective for annual periods beginning on or after 1 January 2012, with early adoption permitted. UBS is currently assessing the impact of the revised standard on its financial statements.
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Note 2a Segment reporting
UBS AG is the parent company of the UBS Group (Group). The operational structure of the Group comprises the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank. In 2010, for the purpose of segment reporting, the business division Wealth Management & Swiss Bank was split into two separate reportable segments, namely Wealth Management and Retail & Corporate. As a result of the split, UBS now presents five reportable segments compared with only four reportable segments in 2009. The Corporate Center includes all corporate functions, elimination items as well as the remaining industrial holdings activities and is not considered a business segment. The “Corporate Center” column of the table in Note 2a “Segment reporting” has been renamed “Treasury activities and other corporate items”. Refer to Note 1a) 33) “Segment reporting” for more details.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering comprehensive financial services to high net worth and ultra high net worth individuals around the world – except to those served by Wealth Management Americas – as well as private and corporate clients in Switzerland. Our Wealth Management business unit provides clients in over 40 countries, including Switzerland, with financial advice, products and tools to fit their individual needs. Our Retail & Corporate business unit provides individual and business clients with an array of banking services, such as deposits and lending, and maintains a leading position across its client segments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs
of ultra high net worth, high net worth and core affluent individuals and families. It includes the domestic United States business (Wealth Management US), the domestic Canadian business and international business booked in the United States.
Global Asset Management
Global Asset Management is a large-scale asset manager with businesses diversified across regions, capabilities and distribution channels. It offers investment capabilities and styles across all major traditional and alternative asset classes including equities, fixed income, currency, hedge fund, real estate and infrastructure that can also be combined into multi-asset strategies. The fund services unit provides legal fund set-up and accounting and reporting for retail and institutional funds.
Investment Bank
The Investment Bank provides securities and other financial products and research in equities, fixed income, rates, foreign exchange and commodities. It also provides advisory services and access to the world’s capital markets for corporate and institutional clients, sovereign and governmental bodies, financial intermediaries, alternative asset managers and private investors.
Corporate Center
The Corporate Center provides and manages support and control functions for the Group in areas such as risk control, finance, legal and compliance, funding, capital and balance sheet management, management of non-trading risk, communication and branding, human resources, information technology, real estate, procurement, corporate development and service centres. Most costs and personnel of the Corporate Center are allocated to the business divisions.
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Note 2a Segment reporting (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the performance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation agreements are used to allocate shared costs between the segments.
Treasury | ||||||||||||||||||||||||||||
Wealth | activities and | |||||||||||||||||||||||||||
Wealth Management & | Management | Global Asset | Investment | other corporate | ||||||||||||||||||||||||
Swiss Bank | Americas | Management | Bank | items | UBS | |||||||||||||||||||||||
Wealth | Retail & | |||||||||||||||||||||||||||
CHF million | Management | Corporate | ||||||||||||||||||||||||||
For the year ended 31 December 2010 | ||||||||||||||||||||||||||||
Net interest income | 1,737 | 2,422 | 695 | (17 | ) | 2,235 | (858 | ) | 6,215 | |||||||||||||||||||
Non-interest income | 5,608 | 1,524 | 4,870 | 2,075 | 9,775 | 1,993 | 25,845 | |||||||||||||||||||||
Income1 | 7,345 | 3,946 | 5,565 | 2,058 | 12,010 | 1,135 | 32,060 | |||||||||||||||||||||
Credit loss (expense) / recovery | 11 | (76 | ) | (1 | ) | 0 | 0 | 0 | (66 | ) | ||||||||||||||||||
Total operating income2 | 7,356 | 3,870 | 5,564 | 2,058 | 12,010 | 1,135 | 31,994 | |||||||||||||||||||||
Personnel expenses | 3,153 | 1,625 | 4,225 | 1,096 | 6,743 | 78 | 16,920 | |||||||||||||||||||||
General and administrative expenses | 1,264 | 836 | 1,223 | 400 | 2,693 | 168 | 6,585 | |||||||||||||||||||||
Services to / from other business divisions | 449 | (509 | ) | (6 | ) | (5 | ) | 64 | 8 | 0 | ||||||||||||||||||
Depreciation of property and equipment | 163 | 146 | 198 | 43 | 278 | 89 | 918 | |||||||||||||||||||||
Amortization of intangible assets3 | 19 | 0 | 55 | 8 | 34 | 0 | 117 | |||||||||||||||||||||
Total operating expenses4 | 5,049 | 2,098 | 5,694 | 1,542 | 9,813 | 343 | 24,539 | |||||||||||||||||||||
Performance from continuing operations before tax | 2,308 | 1,772 | (130 | ) | 516 | 2,197 | 793 | 7,455 | ||||||||||||||||||||
Performance from discontinued operations before tax | 0 | 0 | 0 | 0 | 0 | 2 | 2 | |||||||||||||||||||||
Performance before tax | 2,308 | 1,772 | (130 | ) | 516 | 2,197 | 795 | 7,457 | ||||||||||||||||||||
Tax expense / (benefit) on continuing operations | (381 | ) | ||||||||||||||||||||||||||
Tax expense / (benefit) on discontinued operations | 0 | |||||||||||||||||||||||||||
Net profit | 7,838 | |||||||||||||||||||||||||||
Additional information5 | ||||||||||||||||||||||||||||
Total assets | 94,056 | 153,101 | 50,071 | 15,894 | 966,945 | 37,180 | 1,317,247 | |||||||||||||||||||||
Additions to non-current assets | 25 | 12 | 48 | 8 | 32 | 467 | 593 | |||||||||||||||||||||
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Note 2a Segment reporting (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the performance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation agreements are used to allocate shared costs between the segments.
Wealth | Treasury activities | |||||||||||||||||||||||||||
Wealth Management & | Management | Global Asset | and other | |||||||||||||||||||||||||
Swiss Bank | Americas | Management | Investment Bank | corporate items | UBS | |||||||||||||||||||||||
Wealth | Retail & | |||||||||||||||||||||||||||
CHF million | Management | Corporate | ||||||||||||||||||||||||||
For the year ended 31 December 2009 | ||||||||||||||||||||||||||||
Net interest income | 1,853 | 2,681 | 800 | 2 | 2,339 | (1,229 | ) | 6,446 | ||||||||||||||||||||
Non-interest income | 5,574 | 1,415 | 4,746 | 2,134 | 2,494 | 1,623 | 17,987 | |||||||||||||||||||||
Income1 | 7,427 | 4,096 | 5,546 | 2,137 | 4,833 | 394 | 24,433 | |||||||||||||||||||||
Credit loss (expense) / recovery | 45 | (178 | ) | 3 | 0 | (1,698 | ) | (5 | ) | (1,832 | ) | |||||||||||||||||
Total operating income | 7,471 | 3,918 | 5,550 | 2,137 | 3,135 | 389 | 22,601 | |||||||||||||||||||||
Personnel expenses | 3,360 | 1,836 | 4,231 | 996 | 5,568 | 551 | 16,543 | |||||||||||||||||||||
General and administrative expenses | 1,182 | 835 | 1,017 | 387 | 2,628 | 199 | 6,248 | |||||||||||||||||||||
Services to / from other business divisions | 428 | (518 | ) | 4 | (74 | ) | (147 | ) | 306 | 0 | ||||||||||||||||||
Depreciation of property and equipment | 154 | 136 | 170 | 36 | 360 | 193 | 1,048 | |||||||||||||||||||||
Impairment of goodwill2 | 0 | 0 | 34 | 340 | 749 | 0 | 1,123 | |||||||||||||||||||||
Amortization of intangible assets2 | 67 | 0 | 62 | 13 | 59 | 0 | 200 | |||||||||||||||||||||
Total operating expenses3 | 5,191 | 2,289 | 5,518 | 1,698 | 9,216 | 1,250 | 25,162 | |||||||||||||||||||||
Performance from continuing operations before tax | 2,280 | 1,629 | 32 | 438 | (6,081 | ) | (860 | ) | (2,561 | ) | ||||||||||||||||||
Performance from discontinued operations before tax | 0 | 0 | 0 | 0 | 0 | (7 | ) | (7 | ) | |||||||||||||||||||
Performance before tax | 2,280 | 1,629 | 32 | 438 | (6,081 | ) | (867 | ) | (2,569 | ) | ||||||||||||||||||
Tax expense / (benefit) on continuing operations | (443 | ) | ||||||||||||||||||||||||||
Tax expense / (benefit) on discontinued operations | 0 | |||||||||||||||||||||||||||
Net profit | (2,125 | ) | ||||||||||||||||||||||||||
Additional information4 | ||||||||||||||||||||||||||||
Total assets | 109,627 | 138,513 | 53,197 | 20,238 | 991,964 | 26,999 | 1,340,538 | |||||||||||||||||||||
Additions to non-current assets | 13 | 30 | 59 | 11 | 81 | 745 | 939 | |||||||||||||||||||||
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Note 2a Segment reporting (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the performance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation agreements are used to allocate shared costs between the segments.
Wealth | Treasury activities | |||||||||||||||||||||||||||
Wealth Management & | Management | Global Asset | and other | |||||||||||||||||||||||||
Swiss Bank | Americas | Management | Investment Bank | corporate items | UBS | |||||||||||||||||||||||
Wealth | Retail & | |||||||||||||||||||||||||||
CHF million | Management | Corporate | ||||||||||||||||||||||||||
For the year ended 31 December 2008 | ||||||||||||||||||||||||||||
Net interest income | 2,217 | 3,207 | 938 | (2 | ) | 2,007 | (2,375 | ) | 5,992 | |||||||||||||||||||
Non-interest income | 8,285 | 1,704 | 5,340 | 2,906 | (23,808 | ) | 3,373 | (2,200 | ) | |||||||||||||||||||
Income1 | 10,502 | 4,911 | 6,278 | 2,905 | (21,800 | ) | 998 | 3,792 | ||||||||||||||||||||
Credit loss (expense) / recovery | (388 | ) | (4 | ) | (29 | ) | 0 | (2,575 | ) | 0 | (2,996 | ) | ||||||||||||||||
Total operating income | 10,114 | 4,907 | 6,249 | 2,904 | (24,375 | ) | 998 | 796 | ||||||||||||||||||||
Personnel expenses | 3,503 | 1,927 | 4,271 | 946 | 5,182 | 433 | 16,262 | |||||||||||||||||||||
General and administrative expenses | 2,357 | 938 | 2,558 | 462 | 3,830 | 353 | 10,498 | |||||||||||||||||||||
Services to / from other business divisions | 409 | (482 | ) | 16 | 88 | 41 | (73 | ) | 0 | |||||||||||||||||||
Depreciation of property and equipment | 181 | 142 | 162 | 44 | 447 | 265 | 1,241 | |||||||||||||||||||||
Impairment of goodwill | 0 | 0 | 0 | 0 | 341 | 0 | 341 | |||||||||||||||||||||
Amortization of intangible assets | 33 | 0 | 65 | 33 | 83 | 0 | 213 | |||||||||||||||||||||
Total operating expenses2 | 6,483 | 2,524 | 7,072 | 1,572 | 9,925 | 979 | 28,555 | |||||||||||||||||||||
Performance from continuing operations before tax | 3,631 | 2,382 | (823 | ) | 1,333 | (34,300 | ) | 19 | (27,758 | ) | ||||||||||||||||||
Performance from discontinued operations before tax | 0 | 0 | 0 | 0 | 0 | 198 | 198 | |||||||||||||||||||||
Performance before tax | 3,631 | 2,382 | (823 | ) | 1,333 | (34,300 | ) | 217 | (27,560 | ) | ||||||||||||||||||
Tax expense / (benefit) on continuing operations | (6,837 | ) | ||||||||||||||||||||||||||
Tax expense / (benefit) on discontinued operations | 1 | |||||||||||||||||||||||||||
Net profit | (20,724 | ) | ||||||||||||||||||||||||||
Additional information3 | ||||||||||||||||||||||||||||
Total assets | 96,777 | 154,710 | 39,039 | 24,640 | 1,680,257 | 19,392 | 2,014,815 | |||||||||||||||||||||
Additions to non-current assets | 241 | 34 | 135 | 430 | 809 | 961 | 2,609 | |||||||||||||||||||||
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Note 2b Segment reporting by geographic location
The geographic analysis of operating income and non-current assets is based on the location of the entity in which the transactions and assets are recorded. The divisions of the Group are managed on an autonomous basis worldwide with a focus on cross-divisional collaboration and the interest of our clients to yield the maximum possible profitability by product line for the Group. The geographical analysis of operating income and non-current assets is provided in order to comply with IFRS.
For the year ended 31 December 2010 | ||||||||||||||||
Total operating income | Total non-current assets | |||||||||||||||
CHF million | Share % | CHF million | Share % | |||||||||||||
Switzerland | 12,670 | 40 | 4,922 | 31 | ||||||||||||
United Kingdom | 2,791 | 9 | 594 | 4 | ||||||||||||
Rest of Europe | 1,514 | 5 | 1,078 | 7 | ||||||||||||
United States | 10,752 | 34 | 8,673 | 54 | ||||||||||||
Asia Pacific | 3,796 | 12 | 394 | 2 | ||||||||||||
Rest of the world | 470 | 1 | 418 | 3 | ||||||||||||
Total | 31,994 | 100 | 16,080 | 100 | ||||||||||||
For the year ended 31 December 2009 | ||||||||||||||||
Total operating income | Total non-current assets | |||||||||||||||
CHF million | Share % | CHF million | Share % | |||||||||||||
Switzerland | 11,939 | 53 | 5,137 | 28 | ||||||||||||
United Kingdom | (3,999 | ) | (18 | ) | 743 | 4 | ||||||||||
Rest of Europe | 1,264 | 6 | 1,266 | 7 | ||||||||||||
United States | 9,333 | 41 | 9,928 | 55 | ||||||||||||
Asia Pacific | 3,770 | 17 | 451 | 3 | ||||||||||||
Rest of the world | 294 | 1 | 565 | 3 | ||||||||||||
Total | 22,601 | 100 | 18,090 | 100 | ||||||||||||
For the year ended 31 December 2008 | ||||||||||||||||
Total operating income | Total non-current assets | |||||||||||||||
CHF million | Share % | CHF million | Share % | |||||||||||||
Switzerland | 11,564 | 1,453 | 5,207 | 25 | ||||||||||||
United Kingdom | (9,219 | ) | (1,158 | ) | 805 | 4 | ||||||||||
Rest of Europe | 6,132 | 770 | 1,337 | 7 | ||||||||||||
United States | (10,519 | ) | (1,321 | ) | 10,505 | 51 | ||||||||||
Asia Pacific | 3,122 | 392 | 495 | 2 | ||||||||||||
Rest of the world | (284 | ) | (36 | ) | 2,184 | 11 | ||||||||||
Total | 796 | 100 | 20,533 | 100 | ||||||||||||
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Income statement notes
Note 3 Net interest and trading income
Accounting standards require separate disclosure ofNet interest incomeandNet 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 interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS considers it to be more meaningful to analyze net interest and trading income according to the businesses that drive
it. The second table below (Breakdown by businesses) provides information that corresponds to this view: Net income from trading businesses includes both interest and trading income generated by the Investment Bank, including its lending activities, and trading income generated by the other business divisions; Net income from interest margin businesses comprises interest income from the loan portfolios of Wealth Management & Swiss Bank and Wealth Management Americas; Net income from treasury activities and other reflects all income from the Group’s centralized treasury function.
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Net interest and trading income | ||||||||||||||||
Net interest income | 6,215 | 6,446 | 5,992 | (4 | ) | |||||||||||
Net trading income | 7,471 | (324 | ) | (25,820 | ) | |||||||||||
Total net interest and trading income | 13,686 | 6,122 | (19,828 | ) | 124 | |||||||||||
Breakdown by businesses | ||||||||||||||||
Net income from trading businesses1 | 7,508 | 382 | (27,203 | ) | ||||||||||||
Net income from interest margin businesses | 4,624 | 5,053 | 6,160 | (8 | ) | |||||||||||
Net income from treasury activities and other | 1,554 | 687 | 1,214 | 126 | ||||||||||||
Total net interest and trading income | 13,686 | 6,122 | (19,828 | ) | 124 | |||||||||||
Net interest income2 | ||||||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances3, 4 | 10,603 | 13,202 | 20,213 | (20 | ) | |||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 1,436 | 2,629 | 22,521 | (45 | ) | |||||||||||
Interest and dividend income from trading portfolio | 6,015 | 7,150 | 22,397 | (16 | ) | |||||||||||
Interest income on financial assets designated at fair value | 262 | 316 | 404 | (17 | ) | |||||||||||
Interest and dividend income from financial investments available-for-sale | 557 | 164 | 145 | 240 | ||||||||||||
Total | 18,872 | 23,461 | 65,679 | (20 | ) | |||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers5 | 1,984 | 3,873 | 18,150 | (49 | ) | |||||||||||
Interest on securities lent and repurchase agreements | 1,282 | 2,179 | 16,123 | (41 | ) | |||||||||||
Interest and dividend expense from trading portfolio | 3,794 | 3,878 | 9,162 | (2 | ) | |||||||||||
Interest on financial liabilities designated at fair value | 2,392 | 2,855 | 7,298 | (16 | ) | |||||||||||
Interest on debt issued | 3,206 | 4,231 | 8,954 | (24 | ) | |||||||||||
Total | 12,657 | 17,016 | 59,687 | (26 | ) | |||||||||||
Net interest income | 6,215 | 6,446 | 5,992 | (4 | ) | |||||||||||
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Financial information |
Note 3 Net interest and trading income (continued)
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Net trading income1 | ||||||||||||||||
Investment Bank equities | 2,356 | 2,462 | 4,694 | (4 | ) | |||||||||||
Investment Bank fixed income, currencies and commodities | 2,000 | (5,455 | ) | (35,040 | ) | |||||||||||
Other business divisions2 | 3,115 | 2,668 | 4,525 | 17 | ||||||||||||
Net trading income | 7,471 | (324 | ) | (25,820 | ) | |||||||||||
of which: net gains / (losses) from financial assets designated at fair value | 465 | 678 | (974 | ) | (31 | ) | ||||||||||
of which: net gains / (losses) from financial liabilities designated at fair value3 | (1,001 | ) | (6,741 | ) | 44,284 | 85 | ||||||||||
Significant impacts on net trading income
Net trading incomein 2010 included a gain of CHF 0.7 billion from credit valuation adjustments for monoline credit protection (CHF 0.8 billion loss in 2009). 2010Net trading income also included a gain of CHF 0.7 billion from the valuation of UBS’s
option to acquire the SNB StabFund’s equity (CHF 0.1 billion gain in 2009).
è | Refer to the “Risk management and control” section of this report for more information on exposure to monolines and the option to acquire equity of the SNB StabFund |
Note 4 Net fee and commission income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Equity underwriting fees | 1,157 | 1,590 | 1,138 | (27 | ) | |||||||||||
Debt underwriting fees | 755 | 796 | 818 | (5 | ) | |||||||||||
Total underwriting fees | 1,912 | 2,386 | 1,957 | (20 | ) | |||||||||||
M&A and corporate finance fees | 857 | 881 | 1,662 | (3 | ) | |||||||||||
Brokerage fees1 | 4,930 | 5,400 | 7,150 | (9 | ) | |||||||||||
Investment fund fees | 3,898 | 4,000 | 5,583 | (3 | ) | |||||||||||
Portfolio management and advisory fees | 5,959 | 5,863 | 7,667 | 2 | ||||||||||||
Insurance-related and other fees | 361 | 264 | 317 | 37 | ||||||||||||
Total securities trading and investment activity fees | 17,918 | 18,794 | 24,335 | (5 | ) | |||||||||||
Credit-related fees and commissions | 448 | 339 | 273 | 32 | ||||||||||||
Commission income from other services | 850 | 878 | 1,010 | (3 | ) | |||||||||||
Total fee and commission income | 19,216 | 20,010 | 25,618 | (4 | ) | |||||||||||
Brokerage fees paid1 | 1,093 | 1,231 | 1,164 | (11 | ) | |||||||||||
Other1 | 964 | 1,068 | 1,524 | (10 | ) | |||||||||||
Total fee and commission expense | 2,057 | 2,299 | 2,689 | (11 | ) | |||||||||||
Net fee and commission income | 17,160 | 17,712 | 22,929 | (3 | ) | |||||||||||
of which: net brokerage fees1 | 3,837 | 4,169 | 5,985 | (8 | ) | |||||||||||
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Notes to the consolidated financial statements
Note 5 Other income
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Associates and subsidiaries | ||||||||||||||||
Net gains from disposals of consolidated subsidiaries1 | (7 | ) | 96 | (184 | ) | |||||||||||
Net gains from disposals of investments in associates2 | 256 | (1 | ) | 199 | ||||||||||||
Share of net profits of associates | 81 | 37 | (6 | ) | 119 | |||||||||||
Total | 331 | 133 | 9 | 149 | ||||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gains from disposals | 204 | 110 | 615 | 3 | 85 | |||||||||||
Impairment charges | (72 | ) | (349 | )4 | (202 | ) | 79 | |||||||||
Total | 132 | (239 | ) | 413 | ||||||||||||
Net income from properties5 | 53 | 72 | 88 | (26 | ) | |||||||||||
Net gains from investment properties6 | 8 | �� | (39 | ) | 0 | |||||||||||
Other7 | 690 | 672 | 183 | 3 | ||||||||||||
Total other income | 1,214 | 599 | 692 | 103 | ||||||||||||
Note 6 Personnel expenses
For the year ended | % change from | |||||||||||||||||||
CHF million | Note | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||||
Salaries | 7,033 | 7,383 | 7,775 | (5 | ) | |||||||||||||||
Variable compensation – discretionary bonus | 31 | 4,082 | 2,809 | 1,674 | 45 | |||||||||||||||
Variable compensation – other1 | 31 | 310 | 830 | 1,025 | (63 | ) | ||||||||||||||
Contractors | 232 | 275 | 423 | (16 | ) | |||||||||||||||
Social security2 | 826 | 804 | 660 | 3 | ||||||||||||||||
Pension and other post-employment benefit plans2 | 30 | 724 | 988 | 972 | (27 | ) | ||||||||||||||
Wealth Management Americas: financial advisor compensation3 | 31 | 2,667 | 2,426 | 2,435 | 10 | |||||||||||||||
Other personnel expenses1 | 1,047 | 1,027 | 1,298 | 2 | ||||||||||||||||
Total personnel expenses | 16,920 | 16,543 | 16,262 | 2 | ||||||||||||||||
Note 7 General and administrative expenses
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | ||||||||||||
Occupancy | 1,252 | 1,420 | 1,516 | (12 | ) | |||||||||||
Rent and maintenance of IT and other equipment | 555 | 623 | 669 | (11 | ) | |||||||||||
Telecommunications and postage | 664 | 697 | 888 | (5 | ) | |||||||||||
Administration | 669 | 695 | 926 | (4 | ) | |||||||||||
Marketing and public relations | 339 | 225 | 408 | 51 | ||||||||||||
Travel and entertainment | 466 | 412 | 728 | 13 | ||||||||||||
Professional fees | 754 | 830 | 1,085 | (9 | ) | |||||||||||
Outsourcing of IT and other services | 1,078 | 836 | 1,029 | 29 | ||||||||||||
Other1 | 807 | 512 | 3,249 | 2 | 58 | |||||||||||
Total general and administrative expenses | 6,585 | 6,248 | 10,498 | 5 | ||||||||||||
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Note 8 Earnings per share (EPS) and shares outstanding
As of or for the year ended | % change from | |||||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | 31.12.09 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||||||
from continuing operations | 7,533 | (2,719 | ) | (21,442 | ) | |||||||||||
from discontinued operations | 1 | (17 | ) | 150 | ||||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | |||||||||||
Less: (profit) / loss on equity derivative contracts | (2 | ) | (5 | ) | (28 | ) | 60 | |||||||||
Net profit attributable to UBS shareholders for diluted EPS | 7,532 | (2,741 | ) | (21,320 | ) | |||||||||||
from continuing operations | 7,531 | (2,724 | ) | (21,470 | ) | |||||||||||
from discontinued operations | 1 | (17 | ) | 150 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding for basic EPS | 3,789,732,938 | 3,661,086,266 | 2,792,023,098 | 4 | ||||||||||||
Potentially dilutive ordinary shares resulting from unvested exchangeable shares, in-the-money options and warrants outstanding1 | 48,599,111 | 754,948 | 1,151,556 | |||||||||||||
Weighted average shares outstanding for diluted EPS | 3,838,332,049 | 3,661,841,214 | 2,793,174,654 | 5 | ||||||||||||
Potential ordinary shares from unexercised employee shares and in-the-money options not considered due to the anti-dilutive effect | 0 | 20,166,373 | 27,909,964 | (100 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | 1.99 | (0.75 | ) | (7.63 | ) | |||||||||||
from continuing operations | 1.99 | (0.74 | ) | (7.68 | ) | |||||||||||
from discontinued operations | 0.00 | 0.00 | 0.05 | |||||||||||||
Diluted | 1.96 | (0.75 | ) | (7.63 | ) | |||||||||||
from continuing operations | 1.96 | (0.74 | ) | (7.69 | ) | |||||||||||
from discontinued operations | 0.00 | 0.00 | 0.05 | |||||||||||||
Shares outstanding | ||||||||||||||||
Ordinary shares issued | 3,830,840,513 | 3,558,112,753 | 2,932,580,549 | 8 | ||||||||||||
Treasury shares | 38,892,031 | 37,553,872 | 61,903,121 | 4 | ||||||||||||
Shares outstanding | 3,791,948,482 | 3,520,558,881 | 2,870,677,428 | 8 | ||||||||||||
Retrospective adjustment for capital increase2 | 23,252,487 | |||||||||||||||
Mandatory convertible notes and exchangeable shares3 | 580,261 | 273,264,461 | 605,547,748 | (100 | ) | |||||||||||
Shares outstanding for EPS | 3,792,528,743 | 3,793,823,342 | 3,499,477,663 | 0 | ||||||||||||
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Notes to the consolidated financial statements
Balance sheet notes: assets
CHF million | 31.12.10 | 31.12.09 | ||||||
By type of exposure | ||||||||
Banks, gross | 17,158 | 16,836 | ||||||
Allowance for credit losses | (24 | ) | (32 | ) | ||||
Net due from banks | 17,133 | 16,804 | ||||||
Loans, gross | ||||||||
Residential mortgages | 122,499 | 121,031 | ||||||
Commercial mortgages | 20,362 | 19,970 | ||||||
Current accounts and loans | 99,710 | 100,887 | ||||||
Securities1 | 21,392 | 27,237 | ||||||
Subtotal | 263,964 | 269,124 | ||||||
Allowance for credit losses | (1,087 | ) | (2,648 | ) | ||||
of which: related to securities1 | (273 | ) | (179 | ) | ||||
Net loans | 262,877 | 266,477 | ||||||
Net due from banks and loans (held at amortized cost) | 280,010 | 283,281 | ||||||
By geographical region (based on the location of the borrower) | ||||||||
Switzerland | 161,109 | 159,990 | ||||||
United Kingdom | 7,376 | 9,681 | ||||||
Rest of Europe | 22,142 | 25,360 | ||||||
United States | 52,097 | 60,520 | ||||||
Asia Pacific | 16,984 | 13,659 | ||||||
Rest of the world | 24,672 | 20,759 | ||||||
Subtotal | 284,381 | 289,969 | ||||||
Allowance for credit losses | (1,111 | ) | (2,680 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value2 | 283,270 | 287,289 | ||||||
By type of collateral | ||||||||
Secured by real estate | 144,403 | 142,617 | ||||||
Collateralized by securities | 46,565 | 39,463 | ||||||
Guarantees and other collateral | 30,890 | 39,439 | ||||||
Unsecured | 62,523 | 68,450 | ||||||
Subtotal | 284,381 | 289,969 | ||||||
Allowance for credit losses | (1,111 | ) | (2,680 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value2 | 283,270 | 287,289 | ||||||
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Financial information |
Note 9b Allowances and provisions for credit losses
Specific | ||||||||||||||||
allowances and | Collective loan | |||||||||||||||
CHF million | provisions | loss allowances | Total 31.12.10 | Total 31.12.09 | ||||||||||||
Balance at the beginning of the year | 2,771 | 49 | 2,820 | 3,070 | ||||||||||||
Write-offs | (1,505 | ) | 0 | (1,505 | ) | (2,046 | ) | |||||||||
Recoveries | 79 | 0 | 79 | 52 | ||||||||||||
Increase / (decrease) in credit loss allowances and provisions recognized in the income statement | 67 | (2 | ) | 66 | 1,832 | |||||||||||
Disposals | 0 | 0 | 0 | (51 | ) | |||||||||||
Foreign currency translation and other adjustments | (173 | ) | 0 | (173 | ) | (37 | ) | |||||||||
Balance at the end of the year | 1,239 | 1 | 47 | 1,287 | 2,820 | |||||||||||
Specific | ||||||||||||||||
allowances and | Collective loan | |||||||||||||||
CHF million | provisions | loss allowances | Total 31.12.10 | Total 31.12.09 | ||||||||||||
As a reduction of due from banks | 24 | 0 | 24 | 32 | ||||||||||||
As a reduction of loans1 | 1,039 | 47 | 1,087 | 2,648 | ||||||||||||
As a reduction of securities borrowed | 46 | 0 | 46 | 51 | ||||||||||||
Subtotal | 1,109 | 47 | 1,157 | 2,730 | ||||||||||||
Included in other liabilities related to provisions for contingent claims | 130 | 0 | 130 | 90 | ||||||||||||
Total allowances and provisions for credit losses | 1,239 | 47 | 1,287 | 2,820 | ||||||||||||
Note 10 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements, and derivative instruments
The Group enters into collateralized reverse repurchase and repurchase agreements, securities borrowing and securities lending transactions and derivative 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 | Cash collateral | |||||||||||||||||||||||
Cash collateral | Reverse | receivables | Reverse | receivables | ||||||||||||||||||||
on securities | repurchase | on derivative | Cash collateral on | repurchase | on derivative | |||||||||||||||||||
borrowed | agreements | instruments | securities borrowed | agreements | instruments | |||||||||||||||||||
CHF million | 31.12.10 | 31.12.10 | 31.12.10 | 31.12.09 | 31.12.09 | 31.12.09 | ||||||||||||||||||
By counterparty | ||||||||||||||||||||||||
Banks | 20,302 | 91,788 | 20,230 | 17,143 | 71,051 | 29,705 | ||||||||||||||||||
Customers | 42,153 | 51,002 | 17,841 | 46,364 | 45,638 | 24,069 | ||||||||||||||||||
Total | 62,454 | 142,790 | 38,071 | 63,507 | 116,689 | 53,774 | ||||||||||||||||||
Balance sheet liabilities | ||||||||||||||||||||||||
Cash collateral | Cash collateral | |||||||||||||||||||||||
payables | payables | |||||||||||||||||||||||
Cash collateral on | Repurchase | on derivative | Cash collateral on | Repurchase | on derivative | |||||||||||||||||||
securities lent | agreements | instruments | securities lent | agreements | instruments | |||||||||||||||||||
CHF million | 31.12.10 | 31.12.10 | 31.12.10 | 31.12.09 | 31.12.09 | 31.12.09 | ||||||||||||||||||
By counterparty | ||||||||||||||||||||||||
Banks | 5,820 | 28,201 | 34,930 | 7,268 | 26,167 | 32,932 | ||||||||||||||||||
Customers | 831 | 46,595 | 23,994 | 727 | 38,008 | 33,165 | ||||||||||||||||||
Total | 6,651 | 74,796 | 58,924 | 7,995 | 64,175 | 66,097 | ||||||||||||||||||
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Financial information
Notes to the consolidated financial statements
Note 11 Trading portfolio
The Group trades in debt instruments (including money market paper and tradable loans), equity instruments, precious metals, other commodities and derivatives to meet the financial needs of its customers and to generate revenue. Refer to “Note 23 Deriva-
tive instruments and hedge accounting”. The table below represents a pure accounting view. It does not reflect hedges and other risk mitigating factors and the amounts must therefore not be considered risk exposures.
CHF million | 31.12.10 | 31.12.09 | ||||||
Trading portfolio assets by counterparty | ||||||||
Debt instruments | ||||||||
Government and government agencies1 | 83,952 | 85,483 | ||||||
of which: Switzerland | 13,292 | 3,778 | ||||||
of which: United States | 19,843 | 22,498 | ||||||
of which: Japan | 25,996 | 25,795 | ||||||
Banks1 | 14,711 | 10,850 | ||||||
Corporates and other | 35,647 | 39,902 | ||||||
Total debt instruments | 134,310 | 136,234 | ||||||
Equity instruments | 57,506 | 57,541 | ||||||
Financial assets for unit-linked investment contracts | 18,056 | 21,619 | ||||||
Financial assets held for trading | 209,873 | 215,393 | ||||||
Precious metals and other physical commodities | 18,942 | 16,864 | ||||||
Total trading portfolio assets | 228,815 | 232,258 | ||||||
Trading portfolio liabilities by counterparty | ||||||||
Debt instruments | ||||||||
Government and government agencies1 | 29,628 | 26,317 | ||||||
of which: Switzerland | 237 | 85 | ||||||
of which: United States | 11,729 | 10,351 | ||||||
of which: Japan | 7,699 | 3,384 | ||||||
Banks1 | 3,107 | 3,462 | ||||||
Corporates and other | 4,640 | 5,447 | ||||||
Total debt instruments | 37,376 | 35,226 | ||||||
Equity instruments | 17,599 | 12,243 | ||||||
Total trading portfolio liabilities | 54,975 | 47,469 | ||||||
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Financial information |
Note 11 Trading portfolio (continued)
31.12.10 | 31.12.09 | |||||||||||||||||||
CHF million | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Trading portfolio assets by product type | ||||||||||||||||||||
Debt instruments | ||||||||||||||||||||
Government bills / bonds | 43,583 | 22,543 | 310 | 66,435 | 67,528 | |||||||||||||||
Corporate bonds, including bonds issued by financial institutions | 1,097 | 42,275 | 3,864 | 47,237 | 49,460 | |||||||||||||||
Loans | 0 | 3,117 | 2,425 | 5,543 | 5,559 | |||||||||||||||
Asset-backed securities | 7,070 | 4,287 | 3,741 | 15,098 | 13,688 | |||||||||||||||
of which: mortgage-backed securities | 7,070 | 2,360 | 925 | 10,355 | 9,202 | |||||||||||||||
Total debt instruments | 51,751 | 72,222 | 10,337 | 134,310 | 136,234 | |||||||||||||||
Equity instruments | ||||||||||||||||||||
Shares | 40,861 | 2,041 | 273 | 43,175 | 43,074 | |||||||||||||||
Investment fund units and other | 5,432 | 8,726 | 174 | 14,331 | 14,467 | |||||||||||||||
Total equity instruments | 46,292 | 10,767 | 446 | 57,506 | 57,541 | |||||||||||||||
Financial assets for unit-linked investment contracts | 18,056 | 0 | 0 | 18,056 | 21,619 | |||||||||||||||
Financial assets held for trading | 116,100 | 82,989 | 10,783 | 209,873 | 215,393 | |||||||||||||||
Precious metals and other physical commodities | 18,942 | 16,864 | ||||||||||||||||||
Total trading portfolio assets | 228,815 | 232,258 | ||||||||||||||||||
Trading portfolio liabilities by product type | ||||||||||||||||||||
Debt instruments | ||||||||||||||||||||
Government bills / bonds | 25,079 | 1,561 | 10 | 26,650 | 22,259 | |||||||||||||||
Corporate bonds, including bonds issued by financial institutions | 864 | 9,544 | 117 | 10,525 | 12,033 | |||||||||||||||
Loans | 0 | 0 | 0 | 0 | 160 | |||||||||||||||
Asset-backed securities | 77 | 97 | 27 | 200 | 774 | |||||||||||||||
of which: mortgage-backed securities | 76 | 47 | 0 | 123 | 515 | |||||||||||||||
Total debt instruments | 26,020 | 11,201 | 154 | 37,376 | 35,226 | |||||||||||||||
Equity instruments | ||||||||||||||||||||
Shares | 15,947 | 419 | 128 | 16,494 | 11,615 | |||||||||||||||
Investment fund units and other | 959 | 146 | 0 | 1,106 | 629 | |||||||||||||||
Total equity instruments | 16,906 | 565 | 128 | 17,599 | 12,243 | |||||||||||||||
Total trading portfolio liabilities | 42,926 | 11,766 | 282 | 54,975 | 47,469 | |||||||||||||||
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Financial information
Notes to the consolidated financial statements
Note 12 Financial assets designated at fair value
CHF million | 31.12.10 | 31.12.09 | ||||||
Loans | 2,331 | 3,052 | ||||||
Structured loans | 929 | 957 | ||||||
Reverse repurchase and securities borrowing agreements | ||||||||
Banks | 2,784 | 3,712 | ||||||
Customers | 1,345 | 1,662 | ||||||
Other financial assets | 1,115 | 840 | ||||||
Total financial assets designated at fair value | 8,504 | 10,223 | ||||||
The maximum exposure to credit loss of all items in the above table is equal to the fair value except CHF 856 million as of 31 December 2010 and CHF 840 million as of 31 December 2009 reported inOther financial assetswhich are generally comprised of equity investments that are not directly exposed to credit risk. The maximum exposure to credit loss as of 31 December 2010 and
31 December 2009 is mitigated by collateral of CHF 3,929 million and CHF 4,845 million, respectively.
CHF million | 31.12.10 | 31.12.09 | ||||||
Notional amount of loans and structured loans | 4,075 | 4,224 | ||||||
Credit derivatives related to loans and structured loans – notional amount1 | 1,730 | 2,699 | ||||||
Credit derivatives related to loans and structured loans – fair value1 | (5 | ) | 90 | |||||
Additional Information | ||||||||||||||||
Cumulative from inception | ||||||||||||||||
For the year ended | until the year ended | |||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||||||
Change in fair value of loans and structured loans designated at fair value, attributable to changes in credit risk2 | 100 | 530 | (27 | ) | (128 | ) | ||||||||||
Change in fair value of credit derivatives and similar instruments which mitigate the maximum exposure to credit loss of loans and structured loans designated at fair value2 | (94 | ) | (435 | ) | (5 | ) | 90 | |||||||||
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Financial information |
Note 13 Financial investments available-for-sale
CHF million | 31.12.10 | 31.12.09 | ||||||
Financial investments available-for-sale by counterparty | ||||||||
Debt instruments | ||||||||
Government and government agencies1 | 67,552 | 76,938 | ||||||
of which: Switzerland | 3,206 | 646 | ||||||
of which: United States | 38,070 | 47,282 | ||||||
of which: United Kingdom | 8,303 | 4,741 | ||||||
of which: Japan | 6,541 | 3,950 | ||||||
Banks1 | 5,091 | 2,937 | ||||||
Corporates and other | 765 | 531 | ||||||
Total debt instruments | 73,409 | 80,406 | ||||||
Equity instruments | 1,359 | 1,351 | ||||||
Total financial investments available-for-sale | 74,768 | 81,757 | ||||||
unrealized gains – before tax | 514 | 577 | ||||||
unrealized (losses) – before tax | (662) | 2 | (93 | ) | ||||
Net unrealized gains / (losses) – before tax | (148 | ) | 484 | |||||
Net unrealized gains / (losses) – after tax | (243 | ) | 375 | |||||
31.12.10 | 31.12.09 | |||||||||||||||||||
CHF million | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial investments available-for-sale by product | ||||||||||||||||||||
Debt instruments | ||||||||||||||||||||
Government bills / bonds | 52,285 | 5,324 | 32 | 57,642 | 64,908 | |||||||||||||||
Corporate bonds, including bonds issued by financial institutions | 561 | 11,045 | 64 | 11,670 | 14,688 | |||||||||||||||
Asset-backed securities | 6 | 4,078 | 13 | 4,097 | 810 | |||||||||||||||
of which: mortgage-backed securities | 2 | 4,078 | 13 | 4,093 | 807 | |||||||||||||||
Total debt instruments | 52,852 | 20,447 | 110 | 73,409 | 80,406 | |||||||||||||||
Equity instruments | ||||||||||||||||||||
Shares | 80 | 445 | 496 | 1,021 | 862 | |||||||||||||||
Investment fund units | 87 | 23 | 110 | 119 | ||||||||||||||||
Private equity investments | 2 | 1 | 224 | 227 | 370 | |||||||||||||||
Total equity instruments | 82 | 533 | 743 | 1,359 | 1,351 | |||||||||||||||
Total financial investments available-for-sale | 52,935 | 20,980 | 853 | 74,768 | 81,757 | |||||||||||||||
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Notes to the consolidated financial statements
Note 14 Investments in associates
CHF million | 31.12.10 | 31.12.09 | ||||||
Carrying amount at the beginning of the year | 870 | 892 | ||||||
Additions | 19 | 14 | ||||||
Disposals | (94 | ) | (38 | ) | ||||
Transfers | 0 | (1 | ) | |||||
Income | 86 | 42 | ||||||
Impairments | (6 | ) | (4 | ) | ||||
Dividends paid | (29 | ) | (30 | ) | ||||
Foreign currency translation | (55 | ) | (5 | ) | ||||
Carrying amount at the end of the year | 790 | 870 | ||||||
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. Refer to “Note 34 Significant subsidiaries and associates”.
CHF million | 31.12.10 | 31.12.09 | ||||||
Assets | 6,391 | 5,155 | ||||||
Liabilities | 4,391 | 3,248 | ||||||
Revenues | 1,371 | 1,468 | ||||||
Net profit | 239 | 319 | ||||||
Note 15 Property and equipment
At historical cost less accumulated depreciation | ||||||||||||||||||||||||||||
IT, software | ||||||||||||||||||||||||||||
Own-used | Leasehold | and com- | Other machines | Projects | ||||||||||||||||||||||||
CHF million | properties | improvements | munication | and equipment | in progress | 31.12.10 | 31.12.09 | |||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,468 | 3,227 | 4,150 | 784 | 217 | 17,846 | 17,952 | |||||||||||||||||||||
Additions | 33 | 96 | 170 | 41 | 198 | 538 | 854 | |||||||||||||||||||||
Additions from acquired companies | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Disposals write-offs1 | (36 | ) | (304 | ) | (185 | ) | (77 | ) | (0 | ) | (602 | ) | (736 | ) | ||||||||||||||
Reclassifications | (90 | ) | 31 | 104 | 9 | (186 | ) | (132 | ) | (227 | ) | |||||||||||||||||
Foreign currency translation | (55 | ) | (218 | ) | (237 | ) | (58 | ) | (15 | ) | (583 | ) | 2 | |||||||||||||||
Balance at the end of the year | 9,321 | 2,832 | 4,002 | 700 | 213 | 17,068 | 17,846 | |||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||
Balance at the beginning of the year | 5,417 | 2,109 | 3,669 | 555 | 0 | 11,750 | 11,461 | |||||||||||||||||||||
Depreciation2 | 209 | 286 | 359 | 63 | 0 | 918 | 1,048 | |||||||||||||||||||||
Disposals/write-offs1 | (20 | ) | (280 | ) | (182 | ) | (66 | ) | 0 | (548 | ) | (644 | ) | |||||||||||||||
Reclassifications | (34 | ) | 38 | (0 | ) | 8 | 0 | 12 | (104 | ) | ||||||||||||||||||
Foreign currency translation | (25 | ) | (148 | ) | (220 | ) | (43 | ) | 0 | (437 | ) | (12 | ) | |||||||||||||||
Balance at the end of the year | 5,548 | 2,005 | 3,625 | 518 | 0 | 11,695 | 11,750 | |||||||||||||||||||||
Net book value at the end of the year3 | 3,773 | 827 | 377 | 182 | 213 | 5,373 | 6,096 | |||||||||||||||||||||
Investment properties at fair value | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Balance at the beginning of the year | 116 | 215 | ||||||
Additions | 3 | 0 | ||||||
Sales | (23 | ) | (60 | ) | ||||
Revaluations | 2 | (37 | ) | |||||
Reclassifications | 6 | 0 | ||||||
Foreign currency translation | (10 | ) | (2 | ) | ||||
Balance at the end of the year | 94 | 116 | ||||||
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Note 16 Goodwill and intangible assets
Introduction
As of 31 December 2010, the following four segments carried goodwill: Wealth Management (CHF 1.4 billion), Wealth Management Americas (CHF 3.3 billion), Global Asset Management (CHF 1.4 billion), and Investment Bank (CHF 3.0 billion). For the purpose of testing goodwill for impairment, UBS considers the segments as reported in Note 2a as separate cash-generating units, and determines the recoverable amount of a segment on the basis of value in use.
Methodology for goodwill impairment testing
The recoverable amount is determined using a discounted cash flow model, which uses inputs that consider features of the banking business and its regulatory environment. The recoverable amount is calculated by estimating streams of earnings available to shareholders over the next five years, discounted to their present values. The terminal value reflecting all periods beyond the fifth year is calculated on the basis of the forecast of fifth-year profit, the cost of equity and the long-term growth rate. For the 2010 test, the discount rates and long-term growth rates used to calculate the present values of the cash-generating units remained unchanged. The recoverable amount of a segment is the sum of discounted earnings available to shareholders from the first five individually forecast years and the terminal value.
Assumptions
The model used to determine the recoverable amount is most sensitive to changes in the forecast earnings available to shareholders in years one to five, the cost of equity and to changes in the long-term growth rate. The applied long-term growth rate is based on real growth rates and expected inflation. Earnings available to shareholders are estimated on the basis of forecast results, which take into account business initiatives and planned capital investments. Valuation parameters used within the Group’s impairment test model are linked to external market information, where applicable. Management believes that reasonable changes in key assumptions used to determine the recoverable amounts of all segments will not result in an impairment situation.
Discount and growth rates
Discount rates | Growth rates | |||||||||||
In % | 31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | ||||||||
Wealth Management | 9.0 | 9.0 | 1.2 | 1.2 | ||||||||
Wealth Management Americas | 9.0 | 9.0 | 2.4 | 2.4 | ||||||||
Global Asset Management | 9.0 | 9.0 | 2.4 | 2.4 | ||||||||
Investment Bank | 11.0 | 11.0 | 2.4 | 2.4 | ||||||||
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Notes to the consolidated financial statements
Note 16 Goodwill and intangible assets (continued)
Investment Bank / Wealth Management Americas
As in prior years, the assessment of the goodwill of the Investment Bank and Wealth Management Americas continued to be a focus. In its review of the year-end 2010 goodwill balance, UBS considered the performance outlook of its Investment Bank and Wealth Management Americas business divisions and the underlying business operations to resolve whether the recoverable amounts for these units cover their carrying amounts, based on the methodology described above. On this basis, UBS concluded that goodwill allocated to the Investment Bank and Wealth Management Americas remains recoverable on 31 December 2010. The conclusion was reached on the basis of the current forecast results and the underlying assumption that the economy will gradually improve and reach an average growth level.
discounted cash flow model. The earnings used were based on an economic stress scenario. Under this economic stress scenario, the key macro economic drivers are severely reduced in the near term, with a gradual recovery thereafter. The stressed values exceeded the carrying values of all business divisions, including the Investment Bank and Wealth Management Americas. However, if the regulatory pressure on the banking industry further intensifies and conditions in the financial markets turn out to be worse than anticipated in our performance forecasts, the goodwill carried in these business divisions may need to be impaired in future periods.
Goodwill | Intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relationships, | ||||||||||||||||||||||||
contractual | ||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.10 | 31.12.09 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 10,115 | 787 | 894 | 1,680 | 11,795 | 13,716 | ||||||||||||||||||
Additions and reallocations | 20 | 0 | 14 | 14 | 34 | 70 | ||||||||||||||||||
Disposals | (3 | ) | 0 | 0 | 0 | (3 | ) | (2,190 | ) | |||||||||||||||
Write-offs1 | 0 | 0 | (1 | ) | (1 | ) | (1 | ) | 0 | |||||||||||||||
Foreign currency translation | (1,016 | ) | (77 | ) | (97 | ) | (174 | ) | (1,190 | ) | 199 | |||||||||||||
Balance at the end of the year | 9,115 | 710 | 809 | 1,519 | 10,634 | 11,795 | ||||||||||||||||||
Accumulated amortization and impairment | ||||||||||||||||||||||||
Balance at the beginning of the year | 0 | 361 | 426 | 787 | 787 | 781 | ||||||||||||||||||
Amortization | 0 | 40 | 65 | 105 | 105 | 144 | ||||||||||||||||||
Impairment | 0 | 0 | 12 | 12 | 12 | 1,180 | ||||||||||||||||||
Disposals | 0 | 0 | 0 | 0 | 0 | (1,416 | ) | |||||||||||||||||
Write-offs1 | 0 | 0 | (1 | ) | (1 | ) | (1 | ) | 0 | |||||||||||||||
Foreign currency translation | 0 | (39 | ) | (52 | ) | (91 | ) | (91 | ) | 99 | ||||||||||||||
Balance at the end of the year | 0 | 362 | 450 | 812 | 812 | 787 | ||||||||||||||||||
Net book value at the end of the year | 9,115 | 348 | 359 | 707 | 9,822 | 11,008 | ||||||||||||||||||
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Note 16 Goodwill and intangible assets (continued)
The following table presents the disclosure of goodwill and intangible assets by business unit for the year ended 31 December 2010.
Balance at | Foreign | Balance at | ||||||||||||||||||||||||||
the beginning | Additions and | currency | the end of | |||||||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | Impairment | translation | the year | |||||||||||||||||||||
Goodwill | ||||||||||||||||||||||||||||
Wealth Management | 1,510 | 20 | (178 | ) | 1,351 | |||||||||||||||||||||||
Wealth Management Americas | 3,655 | (352 | ) | 3,303 | ||||||||||||||||||||||||
Global Asset Management | 1,610 | (161 | ) | 1,448 | ||||||||||||||||||||||||
Investment Bank | 3,341 | (3 | ) | (325 | ) | 3,013 | ||||||||||||||||||||||
UBS | 10,115 | 20 | (3 | ) | (1,016 | ) | 9,115 | |||||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||||||
Wealth Management | 137 | (8 | ) | (12 | ) | (18 | ) | 100 | ||||||||||||||||||||
Wealth Management Americas | 526 | (55 | ) | (46 | ) | 425 | ||||||||||||||||||||||
Global Asset Management | 49 | 3 | (8 | ) | (5 | ) | 40 | |||||||||||||||||||||
Investment Bank | 182 | 10 | (34 | ) | (15 | ) | 143 | |||||||||||||||||||||
UBS | 893 | 14 | (105 | ) | (12 | ) | (83 | ) | 707 | |||||||||||||||||||
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million | Intangible assets | |||
Estimated, aggregated amortization expenses for: | ||||
2011 | 93 | |||
2012 | 88 | |||
2013 | 81 | |||
2014 | 74 | |||
2015 | 73 | |||
2016 and thereafter | 298 | |||
Total | 707 | |||
Note 17 Other assets
CHF million | 31.12.10 | 31.12.09 | ||||||
Settlement and clearing accounts | 708 | 915 | ||||||
VAT and other tax receivables | 275 | 209 | ||||||
Prepaid pension costs | 3,174 | 3,053 | ||||||
Properties held for sale | 302 | 568 | ||||||
Prime brokerage receivables | 16,395 | 16,347 | ||||||
Other receivables | 1,827 | 2,590 | ||||||
Total other assets | 22,681 | 23,682 | ||||||
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Notes to the consolidated financial statements
Balance sheet notes: liabilities
Note 18 Due to banks and customers
CHF million | 31.12.10 | 31.12.09 | ||||||
Due to banks | 41,490 | 31,922 | ||||||
Due to customers in savings and investment accounts | 104,607 | 101,573 | ||||||
Other amounts due to customers | 227,694 | 237,691 | ||||||
Total due to customers | 332,301 | 339,263 | ||||||
Total due to banks and customers | 373,791 | 371,185 | ||||||
Note 19 Financial liabilities designated at fair value and debt issued
Financial liabilities designated at fair value | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Bonds and compound debt instruments issued | ||||||||
Equity linked | 46,894 | 54,856 | ||||||
Credit linked | 19,761 | 25,663 | ||||||
Rates linked | 20,439 | 16,367 | ||||||
Other | 949 | 2,286 | ||||||
Total | 88,043 | 99,173 | ||||||
�� | ||||||||
Compound debt instruments – OTC | 12,475 | 13,306 | ||||||
Repurchase agreements | 93 | 0 | ||||||
Loan commitments1 | 145 | 174 | ||||||
Total | 100,756 | 112,653 | ||||||
As of 31 December 2010, the contractual redemption amount at maturity ofFinancial liabilities designated at fair valuethrough profit or loss was CHF 11.1 billion higher than the carrying value. As of 31 December 2009, the contractual redemption amount at maturity of such liabilities was CHF 7.6 billion higher than the carrying value. Refer to Note 1a) 8) for details.
Debt issued (held at amortized cost) | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Money market papers | 56,039 | 51,579 | ||||||
Debt: | ||||||||
Senior bonds | 54,627 | 57,653 | ||||||
Subordinated bonds | 8,547 | 11,244 | ||||||
Bonds issued by the central bond institutions of the Swiss regional or cantonal banks | 8,455 | 7,909 | ||||||
Medium-term notes | 2,605 | 2,967 | ||||||
Total | 130,271 | 131,352 | ||||||
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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 certain cases, the Group applies hedge accounting for interest rate risk as discussed in Note 1a) 15) and “Note 23 Derivative Instruments and Hedge Accounting”. As a result of applying hedge accounting, as of 31 December 2010 and 31 December 2009, the carrying value of debt issued was CHF 913 million higher and CHF 600 million higher, respectively, reflecting changes in fair value due to interest rate movements.
Group had CHF 8,547 million and CHF 11,244 million, respectively, in subordinated debt. Subordinated debt usually pays fixed interest annually or floating-rate interest based on three-month or six-month London Interbank Offered Rate (LIBOR) and provides for single principal payments upon maturity.
Contractual maturity dates | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2011 | 2012 | 2013 | 2014 | 2015 | 2016–2020 | Thereafter | 31.12.10 | 31.12.09 | |||||||||||||||||||||||||||
UBS AG (Parent Bank) | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 66,270 | 9,108 | 18,435 | 8,010 | 9,061 | 18,044 | 9,839 | 138,767 | 130,356 | |||||||||||||||||||||||||||
Interest rates (range in %)1 | 0-10.0 | 0-10.0 | 0-10.0 | 0-10.0 | 0-8.4 | 0-9.5 | 0-8.0 | |||||||||||||||||||||||||||||
Floating rate | 14,378 | 11,349 | 6,507 | 5,045 | 6,436 | 5,811 | 9,847 | 59,372 | 68,375 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 397 | 1,049 | 3,914 | 1,052 | 6,412 | 7,167 | |||||||||||||||||||||||||||
Interest rates (range in %) | 3.34 | 2.38-7.38 | 3-7.38 | 6.38-8.75 | ||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 1,703 | 431 | 2,134 | 4,077 | |||||||||||||||||||||||||||
Subtotal | 80,648 | 20,457 | 24,942 | 13,452 | 16,546 | 29,471 | 21,170 | 206,685 | 209,975 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 8,742 | 266 | 315 | 155 | 39 | 869 | 4,009 | 14,396 | 19,494 | |||||||||||||||||||||||||||
Interest rates (range in %)1 | 0-8.38 | 0-9.62 | 0-2.82 | 0-7.63 | 0-7.4 | 0-8.25 | 0-10.0 | |||||||||||||||||||||||||||||
Floating rate | 816 | 1,058 | 881 | 818 | 1,423 | 1,587 | 3,363 | 9,947 | 14,537 | |||||||||||||||||||||||||||
Subtotal | 9,558 | 1,324 | 1,197 | 973 | 1,462 | 2,456 | 7,372 | 24,342 | 34,030 | |||||||||||||||||||||||||||
Total | 90,206 | 21,781 | 26,139 | 14,424 | 18,008 | 31,928 | 28,542 | 231,027 | 244,005 | |||||||||||||||||||||||||||
The table above indicates fixed interest rate coupons 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.
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Note 20 Other liabilities
CHF million | Note | 31.12.10 | 31.12.09 | |||||||||
Provisions | 21 | 1,574 | 2,311 | |||||||||
Provisions for contingent claims | 9b | 130 | 90 | |||||||||
Current tax liabilities | 750 | 1,082 | ||||||||||
Deferred tax liabilities | 22 | 97 | 142 | |||||||||
VAT and other tax payables | 579 | 612 | ||||||||||
Settlement and clearing accounts | 961 | 1,430 | ||||||||||
Amounts due under unit-linked investment contracts | 18,125 | 21,740 | ||||||||||
Prime brokerage payables | 36,383 | 38,359 | ||||||||||
Other payables1 | 5,121 | 6,579 | ||||||||||
Total other liabilities | 63,719 | 72,344 | ||||||||||
Note 21 Provisions and contingent liabilities
a) Provisions | ||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
CHF million | Operational risks1 | Litigation2 | Restructuring | Other3 | 31.12.10 | 31.12.09 | ||||||||||||||||||
Balance at the beginning of the year | 82 | 1,028 | 488 | 713 | 2,311 | 2,727 | ||||||||||||||||||
Increase in provisions recognized in the income statement | 86 | 721 | 144 | 106 | 1,056 | 1,346 | ||||||||||||||||||
Release of provisions recognized in the income statement | (22 | ) | (88 | ) | (93 | ) | (58 | ) | (260 | ) | (309 | ) | ||||||||||||
Provisions used in conformity with designated purpose | (79 | ) | (960 | )4 | (199 | ) | (103 | ) | (1,341 | ) | (1,375 | ) | ||||||||||||
Capitalized reinstatement costs | 0 | 0 | 0 | (24 | ) | (24 | ) | 3 | ||||||||||||||||
Disposal of subsidiaries | 0 | 0 | 0 | 0 | 0 | (35 | ) | |||||||||||||||||
Reclassifications | 0 | (20 | ) | 1 | 23 | 4 | 90 | |||||||||||||||||
Foreign currency translation | (11 | ) | (63 | ) | (60 | ) | (39 | ) | (173 | ) | (135 | ) | ||||||||||||
Balance at the end of the year | 56 | 618 | 281 | 619 | 1,574 | 2,311 | ||||||||||||||||||
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Note 21 Provisions and contingent liabilities (continued)
b) Litigation and regulatory matters
The UBS Group operates in a legal and regulatory environment that exposes it to significant litigation risks. As a result, UBS (which for purposes of this Note may refer to UBS AG and / or one or more of its subsidiaries, as applicable) is involved in various disputes and legal proceedings, including litigation, arbitration, and regulatory and criminal investigations. Such cases are subject to many uncertainties, and their outcome is often difficult to predict, including the impact on operations or on the financial statements, particularly in the earlier stages of a case. In certain circumstances, to avoid the expense and distraction of legal proceedings, UBS may, based on a cost-benefit analysis, enter into a settlement even though UBS denies any wrongdoing. The Group makes provisions for cases brought against it when, in the opinion of management after seeking legal advice, it is probable that a liability exists, and the amount can be reliably estimated.
1) Municipal Bonds
In November 2006, UBS and others received subpoenas from the Antitrust Division of the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) seeking information relating to the investment of proceeds of municipal bond issuances and associated derivative transactions. In addition, various state Attorneys General have issued subpoenas seeking similar information. The investigations are ongoing, and UBS is cooperating. Several putative class actions also have been filed in Federal District Courts against UBS and numerous other firms. 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 in connection with the bidding of various financial instruments associated with municipal securities. In December 2010, three former UBS employees were indicted in connection with the Federal criminal antitrust
investigation. Discussions with the SEC, DOJ and a number of state Attorneys General are ongoing.
2) Auction Rate Securities
UBS was the subject of an SEC investigation and state regulatory actions relating to the marketing and sale of auction rate securities (ARS) to clients, and to UBS’s role and participation in ARS auctions and underwriting of ARS. UBS was also named in several putative class actions and individual civil suits and arbitrations. The regulatory actions and investigations and the civil proceedings followed the disruption in the markets for these securities and related auction failures since mid-February 2008. At the end of 2008 UBS entered into settlements with the SEC, the New York Attorney General (NYAG) and the Massachusetts Securities Division whereby UBS agreed to offer to buy back ARS from eligible customers within certain time periods, the last of which began on 30 June 2010, and to pay penalties of USD 150 million (USD 75 million to the NYAG, USD 75 million to the other states). UBS’s settlement is largely in line with similar industry regulatory settlements. UBS has settled with the majority of states and is continuing to finalize settlements with the rest. The fines being paid in these state settlements are being charged against the USD 150 million provision that was established in 2008. The SEC continues to investigate individuals affiliated with UBS regarding the trading in ARS and disclosures. During the third quarter of 2010, a claimant alleging consequential damages from the illiquidity of ARS was awarded approximately USD 80 million by an arbitration panel and UBS has booked a provision of CHF 78 million relating to the case. UBS moved in state court to vacate the award and oral argument was heard on that motion in December 2010. UBS is the subject of other pending arbitration and litigation claims by clients and issuers relating to ARS.
3) Inquiries Regarding Cross-Border Wealth Management
Businesses
Following the disclosure and the settlement of the US cross-border matter, tax and regulatory authorities in a number of countries have made inquiries and served requests for information located in their respective jurisdictions relating to the cross-border wealth management services provided by UBS and other financial institutions. UBS is cooperating with these requests within the limits of financial privacy obligations under Swiss and other applicable laws.
4) Matters Related to the Credit Crisis
UBS is responding to a number of governmental inquiries and investigations and is involved in a number of litigations, arbitrations and disputes related to the credit crisis and in particular
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Notes to the consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
mortgage-related securities and other structured transactions and derivatives. In particular, the SEC is investigating UBS’s valuation of super senior tranches of collateralized debt obligations (CDOs) during the third quarter of 2007 and UBS’s reclassification of financial assets pursuant to amendments to IAS 39 during the fourth quarter of 2008. UBS has provided documents and testimony to the SEC and is continuing to cooperate with the SEC in its investigation. UBS has also communicated with and has responded to other inquiries by various governmental and regulatory authorities, including the Swiss Financial Market Supervisory Authority (FINMA), the UK Financial Services Authority (FSA), the SEC, the US Financial Industry Regulatory Authority (FINRA), the Financial Crisis Inquiry Commission (FCIC), the New York Attorney General, and the US Department of Justice, concerning various matters related to the credit crisis. These matters concern, among other things, UBS’s (i) disclosures and write-downs, (ii) interactions with rating agencies, (iii) risk control, valuation, structuring and marketing of mortgage-related instruments, and (iv) role as underwriter in securities offerings for other issuers.
5) Lehman Principal Protection Notes
From March 2007 through September 2008, UBS sold approximately USD 1 billion face amount of structured notes issued by Lehman Brothers Holdings Inc. (“Lehman”), a majority of which were referred to as “principal protection notes,” reflecting the fact that while the notes’ return was in some manner linked to market indices or other measures, some or all of the investor’s principal was an unconditional obligation of Lehman as issuer of the notes. UBS has been named along with other defendants in a putative class action alleging materially misleading statements and omissions in the prospectuses relating to these notes and asserting claims under US securities laws. UBS has also been named in numerous individual civil suits and customer arbitrations (some of which have resulted in settlements or adverse judgments), was named in a proceeding brought by the New Hampshire Bureau of Securities, and is responding to investigations by other state regulators and FINRA relating to the sale of these notes to UBS customers. The customer litigations and regulatory investigations relate primarily to whether UBS adequately disclosed the risks of these notes to its customers.
6) Claims Related to Sales of RMBS and Mortgages
From 2002 through about 2007, UBS was a substantial underwriter and issuer of US residential mortgage-backed securities (RMBS). UBS has been named as a defendant relating to its role as underwriter and issuer of RMBS in more than 20 lawsuits relating to at least USD 39 billion in original face amount of RMBS underwritten or issued by UBS. Most of the lawsuits are in their early stages. Many have not advanced beyond the motion to dismiss phase; some are
in the early stages of discovery. Of the original face amount of RMBS at issue in these cases, approximately USD 4.5 billion was issued in offerings in which a UBS subsidiary transferred underlying loans (the majority of which were purchased from third party originators) into a securitization trust and made representations and warranties about those loans. The remaining USD 34.5 billion of RMBS to which these cases relate was issued in third-party securitizations where UBS acted as underwriter. In connection with most of the claims included in this latter category, UBS currently expects to be indemnified by the issuers against any loss or liability. These RMBS-related claims include cases in which UBS is named as a defendant in litigation by insurers of RMBS seeking recovery of insurance paid to RMBS investors. These insurers allege that UBS and other RMBS underwriters aided and abetted misrepresentations and fraud by RMBS issuers, and claim equitable and contractual subrogation rights. UBS has also been contacted by certain government-sponsored enterprises requesting that UBS repurchase USD 2 billion of securities issued in UBS-sponsored RMBS offerings.
7) Claims Related to UBS Disclosure
A putative consolidated class action has been filed in the United States District Court for the Southern District of New York against UBS, a number of current and former directors and senior officers and certain banks that underwrote UBS’s May 2008 Rights Offering (including UBS Securities LLC) alleging violation of the US securities laws in connection with the firm’s disclosures relating to its positions and losses in mortgage-related securities, its positions and losses in auction rate securities, and its US cross-border business. Defendants have moved to dismiss the complaint for failure to state a claim. UBS, a number of senior officers and employees and various UBS committees have also been sued in a putative consolidated class action for breach of fiduciary duties brought on behalf of current and former participants in two UBS Employee Retirement Income Security Act (ERISA) retirement plans in which there were purchases of UBS stock. Defendants have moved to dismiss the ERISA complaint for failure to state a claim.
8) Madoff
In relation to the Bernard L. Madoff Investment Securities LLC (BMIS) investment fraud, UBS AG, UBS (Luxembourg) SA and certain other UBS subsidiaries have been subject to inquiries by a number of regulators, including FINMA and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF). Those inquiries concerned two third-party funds established under Lux-
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embourg law, substantially all assets of which were with BMIS, as well as certain funds established under offshore jurisdictions with either direct or indirect exposure to BMIS. These funds now face severe losses, and the Luxembourg funds are in liquidation. The last reported net asset value of the two Luxembourg funds before revelation of the Madoff scheme was approximately USD 1.7 billion in the aggregate, although that figure likely includes fictitious profit reported by BMIS. The documentation establishing both funds identifies UBS entities in various roles including custodian, administrator, manager, distributor and promoter, and indicates that UBS employees serve as board members. Between February and May 2009 UBS (Luxembourg) SA responded to criticisms made by the CSSF in relation to its responsibilities as custodian bank and demonstrated to the satisfaction of the CSSF that it has the infrastructure and internal organization in place in accordance with professional standards applicable to custodian banks in Luxembourg. In December 2009 and March 2010 the liquidators of the two Luxembourg funds filed claims on behalf of the funds against UBS entities, non-UBS entities and certain individuals including current and former UBS employees. The amounts claimed are approximately EUR 890 million and EUR 305 million respectively. In addition, a large number of alleged beneficiaries have filed claims against UBS entities (and non-UBS entities) for purported losses relating to the Madoff scheme. The majority of these cases are pending in Luxembourg, where appeals have been filed against the March 2010 decisions of the court in which the claims in a number of test cases were held to be inadmissible. In the US, the BMIS Trustee has filed claims against UBS entities, amongst others, in relation to the two Luxembourg funds and one of the offshore funds. A claim was filed in November 2010 against 23 defendants including UBS entities, the Luxembourg and offshore funds concerned and various individuals, including current and former UBS employees. The total amount claimed against all defendants is no less than USD 2 billion. A second claim was filed in December 2010 against 16 defendants including UBS entities and the Luxembourg fund concerned. The total amount claimed against all defendants is not less than USD 555 million. In Germany, certain clients of UBS are exposed to Madoff-managed positions through third-party funds and funds administered by UBS entities in Germany. A small number of claims have been filed with respect to such funds.
9) Transactions with City of Milan and Other Italian Public
Sector Entities
In January 2009, the City of Milan filed civil proceedings against UBS Limited, UBS Italia SIM Spa and three other international banks in relation to a 2005 bond issue and associated derivatives transactions entered into with the City of Milan between 2005 and 2007. The claim is to recover alleged damages in an amount which will compensate for terms of the related derivatives which
the City claims to be objectionable. In the alternative, the City seeks to recover alleged hidden profits asserted to have been made by the banks in an amount of approximately EUR 88 million (of which UBS Limited is alleged to have received approximately EUR 16 million) together with further damages of not less than EUR 150 million. The claims are made against all of the banks on a joint and several basis. In addition, two current UBS employees and one former employee, together with employees from other banks, a former City officer and a former adviser to the City, are facing a criminal trial for alleged “aggravated fraud” in relation to the City’s 2005 bond issue and the execution, and subsequent restructuring, of certain related derivative transactions. The primary allegation is that UBS Limited and the other international banks fraudulently obtained hidden and / or illegal profits by entering into the derivative contracts with the City of Milan. The banks also face an administrative charge of failing to have in place a business organizational model to avoid the alleged misconduct by employees, the sanctions for which could include a limitation on activities in Italy. The City has separately asserted claims for damages against UBS Limited and UBS individuals in relation to this alleged failure. A number of transactions with other public entity counterparties in Italy have also been called into question or become the subject of legal proceedings and claims for damages and other awards. These include derivative transactions with the Regions of Calabria, Tuscany, Lombardy and Lazio and the City of Florence. UBS has itself issued proceedings before English courts in connection with a number of derivative transactions with Italian public entities, including some of those mentioned above, aimed at obtaining declaratory judgments as to the legitimacy of UBS’s behavior.
10) HSH Nordbank AG (HSH)
HSH has filed an action against UBS in New York State court relating to USD 500 million of notes acquired by HSH in a synthetic CDO transaction known as North Street Referenced Linked Notes, 2002-4 Limited (NS4). The notes were linked through a credit default swap between the NS4 issuer and UBS to a reference pool of corporate bonds and asset-backed securities. HSH alleges that UBS knowingly misrepresented the risk in the transaction, sold HSH notes with “embedded losses”, and improperly profited at HSH’s expense by misusing its right to substitute assets in the reference pool within specified parameters. HSH is seeking USD 500 million in compensatory damages plus pre-judgment interest. The case was initially filed in 2008. Following orders issued in 2008 and 2009, in which the court dismissed most of HSH’s claims and its punitive damages demand and later partially denied a motion to dismiss certain repleaded claims, the claims remaining in the case are for fraud, breach of contract and breach of the implied covenant of good faith and fair dealing. Both sides have appealed the court’s most recent partial dismissal order, and a decision on the appeal is pending.
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Note 21 Provisions and contingent liabilities (continued)
11) Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006 and 2007, KWL entered into a series of managed Credit Default Swap transactions with bank swap counterparties, including UBS. Under the CDS contracts between KWL and UBS, the last of which were terminated by UBS on 18 October 2010, a net sum of approximately USD 138 million has fallen due from KWL but not been paid. In January 2010, UBS issued proceedings in the English High Court against KWL seeking various declarations from the English court, in order to establish that the swap transaction between KWL and UBS is valid, binding and enforceable as against KWL. On 15 October 2010, the English court dismissed an application by KWL contesting its jurisdiction, and ruled that it has jurisdiction and will hear the proceedings. On 18 October 2010, UBS issued a further claim against KWL in the English court seeking declarations concerning the validity of UBS’s early termination on that date of the remaining CDS with KWL. On 11 November 2010, the English Supreme Court ruled in a case concerning similar jurisdictional issues, but not involving UBS, that certain questions should be referred to the European Court of Justice. Thereafter, KWL was granted permission to appeal certain jurisdictional aspects of its claim, and the court ordered a temporary stay of the proceedings related to UBS’s claim for a declaration as to validity. In March 2010, KWL issued proceedings in Leipzig, Germany, against UBS and other banks involved in these contracts, claiming that the swap transactions are void and not binding on the basis of KWL’s allegation that KWL did not have the capacity or the necessary internal authorization to enter into the transactions and that the banks knew this. UBS is contesting the claims and has also contested the jurisdiction of the Leipzig court. The Leipzig court indicated in August 2010 that it did not have jurisdiction over KWL’s claim. Subsequently, KWL made a further submission in October 2010 making additional allegations including fraudulent collusion by UBS employees. On 15 February 2011, the Leipzig court proposed that the proceedings in Leipzig be stayed against UBS and the other banks pending the outcome of the appeal on the jurisdiction aspects in England.
April 2010, UBS issued separate proceedings in the English High Court against those bank swap counterparties seeking declarations as to the parties’ obligations under those transactions. The aggregate amount that UBS contends is outstanding under those transactions is approximately USD 189 million. These English proceedings are also currently stayed.
12) Puerto Rico
The SEC has been investigating UBS’s secondary market trading and associated disclosures involving shares of closed-end funds managed by UBS Asset Managers of Puerto Rico, principally in 2008 and 2009. In November 2010, the SEC issued a “Wells notice” to two UBS subsidiaries, advising them that the SEC staff is considering whether to recommend that the SEC bring a civil action against them relating to these matters. We believe that the negative financial results, if any, to shareholders of the funds who traded their shares through UBS during the relevant periods were less than USD 5 million in the aggregate. There is, however, no assurance that the SEC’s staff will agree with UBS’s analysis.
13) LIBOR
UBS has received subpoenas from the SEC, the US Commodity Futures Trading Commission and the US Department of Justice in connection with investigations regarding submissions to the British Bankers’ Association, which sets LIBOR rates. UBS understands that the investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate LIBOR rates at certain times. In addition, UBS has received an order to provide information to the Japan Financial Supervisory Agency concerning similar matters. UBS is conducting an internal review and is cooperating with the investigations.
c) Other contingent liabilities
Demands Related to Sales of Mortgages and RMBS
issued. The overall market for privately issued US RMBS during this period was approximately USD 3.9 trillion.
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When UBS acted as an RMBS sponsor or mortgage seller, it generally made certain representations relating to the characteristics of the underlying loans. In the event of a material breach of these representations, UBS was in most cases contractually obligated to repurchase the loans to which they related or to indemnify certain parties against losses. UBS has been notified by certain institutional purchasers and insurers of mortgage loans and RMBS that possible breaches of representations may entitle the purchasers to require that UBS repurchase the loans or to other relief. UBS has received relatively few repurchase demands and has repurchased only a small fraction of the underlying loans.
actual repurchases or indemnity payments, because both the submission of anticipated demands and the timing of resolution of such demands are uncertain. We nevertheless expect that most of the repurchases and payments related to the demands received in 2010, excluding any that become the subject of litigation, will occur in 2011.
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Note 22 Income taxes
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Tax expense from continuing operations | ||||||||||||
Domestic | ||||||||||||
Current | (75 | ) | 55 | (336 | ) | |||||||
Deferred | 668 | 23 | (7,282 | ) | ||||||||
Foreign | ||||||||||||
Current | 300 | 462 | 519 | |||||||||
Deferred | (1,273 | ) | (983 | ) | 262 | |||||||
Total income tax expense/(benefit) from continuing operations | (381 | ) | (443 | ) | (6,837 | ) | ||||||
Tax expense from discontinued operations | ||||||||||||
Domestic | 0 | 0 | 1 | |||||||||
Total income tax expense from discontinued operations | 0 | 0 | 1 | |||||||||
Total income tax expense/(benefit) | (381 | ) | (443 | ) | (6,836 | ) | ||||||
The deferred tax benefit reflects the recognition of additional deferred tax assets in respect of tax losses and temporary differences in a number of foreign locations including the US (CHF 1,161 million) and Japan (CHF 98 million), taking into account updated forecast taxable profit assumptions over the five-year horizon used for recognition purposes. This was partly offset by a Swiss net deferred tax expense as Swiss tax losses for which deferred tax assets have previously been recognized were used against profits for the year (tax expense of CHF 1,409 million), which was itself partly offset by an upwards revaluation of Swiss deferred tax assets taking into account revised forecast profit assumptions (tax benefit of CHF 741 million).
The current tax expense relates to tax expenses in respect of taxable profits in the Group partly offset by tax benefits of CHF 261 million arising from the agreement of prior year positions with tax authorities in various locations. In addition, there is a deferred tax expense of CHF 3 million relating to prior years. The net tax benefits relating to prior years were therefore CHF 258 million.
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | |||||||
Domestic | 5,999 | 4,871 | 3,269 | |||||||||
Foreign | 1,456 | (7,433 | ) | (31,027 | ) | |||||||
Income taxes at Swiss statutory rate of 21.5% for 2010 and 2009, 22% for 2008 | 1,603 | (551 | ) | (6,107 | ) | |||||||
Increase/(decrease) resulting from: | ||||||||||||
Applicable tax rates differing from Swiss statutory rate | (49 | ) | (1,636 | ) | (7,056 | ) | ||||||
Tax effects of losses not recognized | 275 | 1,188 | 7,412 | |||||||||
Previously unrecorded tax losses now utilized | (1,225 | ) | (79 | ) | (10 | ) | ||||||
Non-taxable and lower taxed income | (889 | ) | (932 | ) | (773 | ) | ||||||
Non-deductible expenses and additional taxable income | 1,985 | 1,012 | 897 | |||||||||
Adjustments related to prior years | (258 | ) | (65 | ) | (490 | ) | ||||||
Change in deferred tax valuation allowances | (1,820 | ) | 552 | (692 | ) | |||||||
Other items | (3 | ) | 69 | (17 | ) | |||||||
Income tax expense/(benefit) from continuing operations | (381 | ) | (443 | ) | (6,837 | ) | ||||||
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Note 22 Income taxes (continued)
Significant components of the Group’s deferred income tax assets and liabilities are as follows:
CHF million | 31.12.10 | 31.12.09 | ||||||||||||||||||||||
Valuation | Valuation | |||||||||||||||||||||||
Deferred tax assets | Gross | allowance | Recognized | Gross | allowance | Recognized | ||||||||||||||||||
Compensation and benefits1 | 1,993 | (1,791 | ) | 201 | 2,204 | (1,983 | ) | 221 | ||||||||||||||||
Tax loss carry-forwards1 | 28,474 | (19,546 | ) | 8,929 | 31,945 | (23,699 | ) | 8,246 | ||||||||||||||||
Trading assets1 | 1,164 | (999 | ) | 165 | 923 | (765 | ) | 158 | ||||||||||||||||
Other | 2,002 | (1,776 | ) | 226 | 2,458 | (2,215 | ) | 243 | ||||||||||||||||
Total deferred tax assets | 33,634 | (24,112 | ) | 9,522 | 37,529 | (28,661 | ) | 8,868 | ||||||||||||||||
Deferred tax liabilities | ||||||||||||||||||||||||
Compensation and benefits | 0 | 5 | ||||||||||||||||||||||
Property and equipment | 0 | 1 | ||||||||||||||||||||||
Financial investments and associates | 25 | 60 | ||||||||||||||||||||||
Trading assets | 1 | 0 | ||||||||||||||||||||||
Goodwill and intangible assets | 40 | 61 | ||||||||||||||||||||||
Other | 31 | 15 | ||||||||||||||||||||||
Total deferred tax liabilities | 97 | 142 | ||||||||||||||||||||||
Certain deferred tax asset and liability movements are recognized directly in the statement of changes in equity and in the statement of comprehensive income, including the effects of exchange rate changes on tax assets and liabilities denominated in currencies other than Swiss francs. In particular, in 2010, deferred tax assets of CHF 318 million were recognized directly inEquityfor the increased recognition of those Swiss tax losses incurred in previous years that are of an equity nature for IFRS accounting purposes (2009: CHF 203 million).
The deferred tax assets recognized as of 31 December 2010 in respect of tax losses have been based on profitability assumptions over the five-year horizon. The expected future profitability is based on business plan assumptions, as adjusted to take into account the recognition criteria of IAS 12. If the business plan earnings and assumptions in future periods substantially deviate from the current assumptions, the amount of deferred tax assets may need to be adjusted in the future.
CHF million | 31.12.10 | |||
Within 1 year | 0 | |||
From 2 to 5 years | 3,184 | |||
From 6 to 10 years | 54 | |||
From 11 to 20 years | 36,943 | |||
No expiry | 11,174 | |||
Total | 51,355 | |||
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Note 22 Income taxes (continued)
In general, Swiss tax losses can be carried forward for seven years, US federal tax losses for 20 years and UK and Jersey tax losses for an unlimited period.
For the reasons set out in Note 33, as compared to UBS’s fourth quarter 2010 report issued on 8 February 2011, the tax benefit for the year in the income statement is CHF 320 million higher, the deferred tax benefit recognized in equity is CHF 315 million lower and deferred tax assets recognized at 31 December 2010 are CHF 5 million higher.
Note 23 Derivative instruments and hedge accounting
Derivatives: overview
A derivative is a financial instrument, the value of which is derived from the value of some other variable (“underlying”). These underlyings may be indices, exchange or interest rates, or the value of shares, commodities, bonds, or other financial instruments. The majority of derivative contracts are negotiated with respect to notional amounts, as well as tenor, price and settlement mechanisms, as is customary with other financial instruments.
Products which receive this treatment are futures contracts, 100%-daily margined exchange-traded options, interest rate swaps transacted with the London Clearing House, and certain credit derivative contracts.
Types of derivative instruments
The main types of derivative instruments used by the Group are: | ||
– | Options and warrants: options and warrants 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 |
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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 in the OTC market or on a regulated exchange and may be traded in the form of a security (warrant). | ||
– | Swaps: Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period. | |
– | Forwards and futures: Forwards and futures are contractual obligations to buy or sell financial instruments or commodities on a future date at a specified price. Forward contracts are tailor-made agreements that are transacted between counterparties in the OTC market, whereas futures are standardized contracts transacted on regulated exchanges. | |
– | Cross-currency: 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. Most cross-currency swaps are traded in the OTC market. | |
The main underlying products used by the Group are: | ||
– | Interest rate contracts: Interest rate products include interest rate swaps, swaptions and caps and floors. | |
– | Credit derivatives: Credit default swaps (CDSs) are the most common form of a 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. An elaboration of credit derivatives is included in a separate section below. | |
– | Total return swaps (TRSs): TRSs are employed in both the Investment Bank’s fixed income and equity trading businesses with underlyings which are generally equity or fixed income indices, loans or bonds. TRSs are structured with one party making payments based on a set rate, either fixed or variable, and the other party making payments based on the return of an underlying asset, which includes both the profit or loss it generates and any changes in its value. | |
– | Foreign exchange contracts: Foreign exchange contracts will include spot, forward and cross-currency swaps and options and warrants. Forward purchase and sale currency contracts are typically executed to meet customer needs and for trading and hedging purposes. | |
– | Equity / Index contracts: The Group uses equity derivatives linked to single names, indices and baskets of single names |
and indices. The indices used may be based on a standard market index, or may be defined by UBS. The product types traded include vanilla listed derivatives, both options and futures, total return swaps, forwards and exotic OTC contracts. | ||
– | Commodities contracts: The Group has an established commodity derivatives trading business, which includes the commodity index and the recently added flow business. The index business is a client facilitation business trading exchange traded funds, OTC swaps and options on commodity indices. The underlying indices cover third party and UBS defined indices such as the UBS Bloomberg Constant Maturity Commodity Index and the Dow Jones UBS Commodity indices. The flow business is investor led and incorporates both ETD and vanilla OTC products, for which the underlying covers the agriculture, base metals and energy sectors. All of the flow trading is cash settled with no physical delivery of the underlying. | |
– | Precious metals: The Group has a well established precious metals ability in both flow and non-vanilla OTC products incorporating both physical and non-physical trading. The flow business is investor led and products include ETD, vanilla OTCs and certain non-vanilla OTCs. The vanilla OTCs are in forwards, swaps and options. The non-vanilla OTC business relates to cash settled forwards similar in nature to non deliverable forwards, meaning there is no physical delivery of the underlying. |
Usage of derivative instruments at UBS
Derivatives transacted for trading purposes
Detailed example: Credit derivatives
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Note 23 Derivative instruments and hedge accounting (continued)
consists of trading in single-name CDSs, index CDSs and loan CDSs to capitalize on pricing discrepancies between various credit instruments (bonds, loans and equities) across investment grade, high-yield and emerging markets.
market conventions based on the type of reference entity to which the transaction relates. Applicable credit events by market conventions include “bankruptcy”, “failure to pay”, “restructuring”, “obligation acceleration” and “repudiation / moratorium”.
Credit Derivatives: Recourse provisions
Contingent features of derivative liabilities
Derivatives used for structural hedging
Fair value hedges
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fixed-rate instruments (e.g. long-term fixed-rate debt issues) due to movements in market interest rates. The fair values of outstanding interest rate derivatives designated as fair value hedges
were assets of CHF 1,171 million and liabilities of CHF 46 million as of 31 December 2010 and assets of CHF 526 million and liabilities of CHF 71 million as of 31 December 2009.
Fair value hedges of interest rate risk | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Gains / (losses) on hedging instruments | 402 | (171 | ) | 778 | ||||||||
Gains / (losses) on hedged items attributable to the hedged risk | (383 | ) | 182 | (796 | ) | |||||||
Net gains / (losses) representing ineffective portions of fair value hedges | 19 | 11 | (18 | ) | ||||||||
The Group also hedges foreign exchange exposures arising from certain foreign currency denominated non-monetary financial investments available-for-sale using either the spot component of the forward foreign exchange contracts or debt issued denominated in the same currencies. As of 31 December 2010 the aggregate notional amount of hedging instruments designated as fair value hedges of foreign currency risk was CHF 393 million (CHF 386 million as of 31 December 2009). The ineffectiveness of these hedges was not material for the financial statements of the Group in the disclosed reporting periods.
Fair value hedges for portfolio interest rate risk
Fair value hedge of portfolio of interest rate risk1 | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Gains / (losses) on hedging instruments | 35 | (48 | ) | (644 | ) | |||||||
Gains / (losses) on hedged items attributable to the hedged risk | (60 | ) | 11 | 688 | ||||||||
Net gains / (losses) representing ineffective portions of fair value hedges | (25 | ) | (37 | ) | 44 | |||||||
Cash flow hedges of forecasted transactions
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 18 years.
Forecasted cash flows | ||||||||||||||||||||
CHF billion | < 1 year | 1-3 years | 3-5 years | 5-10 years | over 10 years | |||||||||||||||
Cash inflows | 215 | 368 | 233 | 180 | 15 | |||||||||||||||
Cash outflows | 52 | 87 | 60 | 44 | 1 | |||||||||||||||
Net cash flows | 163 | 281 | 173 | 136 | 14 | |||||||||||||||
To the extent the cash flow hedging relationship meets the qualifying criteria, the effective portion of the fair value changes of the designated derivative hedging instruments is recognized in Equity. These gains and losses are transferred from Equity to current period earnings in the same period in which the hedged cash flows affect
net profit or loss. The ineffective portion of the fair value changes of the derivative hedging instruments is recognized immediately in the income statement. A CHF 22 million loss, a CHF 183 million loss and a CHF 108 million loss were recognized in 2010, 2009 and 2008, respectively, in Net trading income due to hedge ineffectiveness.
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Note 23 Derivative instruments and hedge accounting (continued)
As of 31 December 2010, the fair values of outstanding derivatives designated as cash flow hedges of forecasted transactions were CHF 5,397 million assets and CHF 3,392 million liabilities and as of 31 December 2009 the amounts were CHF 5,180 million assets and CHF 2,736 million liabilities.
Hedges of net investments in foreign operations
Contractual maturities of derivatives designated as hedging instruments in hedge accounting relationships
Derivatives designated in hedge accounting relationships (undiscounted cash flows) | ||||||||||||||||||||||||||||
Due within | Due between | Due between | Due between | Due after | ||||||||||||||||||||||||
CHF billion | On demand | 1 month | 1 and 3 months | 3 and 12 months | 1 and 5 years | 5 years | Total | |||||||||||||||||||||
Interest rate swaps1 | ||||||||||||||||||||||||||||
Cash inflows | 0 | 0 | 0 | 1 | 3 | 17 | 21 | |||||||||||||||||||||
Cash outflows | 0 | 0 | 0 | 1 | 4 | 14 | 19 | |||||||||||||||||||||
Net cash flows | 0 | 0 | 0 | 0 | (1 | ) | 3 | 2 | ||||||||||||||||||||
Risks of derivative instruments
entering into master netting agreements and bilateral collateral arrangements with counterparties. Both the exposure measures used by the Group internally to control credit risk and the capital requirements imposed by regulators reflect these additional factors.
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Note 23 Derivative instruments and hedge accounting (continued)1 | ||||||||||||||||||||||||||||||||||||||||
As of | 31.12.10 | 31.12.098 | ||||||||||||||||||||||||||||||||||||||
Notional | Notional | Notional | Notional | |||||||||||||||||||||||||||||||||||||
values | values | Other | values | values | Other | |||||||||||||||||||||||||||||||||||
Total | related | Total | related | notional | Total | related | Total | related | notional | |||||||||||||||||||||||||||||||
CHF billion | PRV2 | to PRVs | NRV3 | to NRVs | values4 | PRV2 | to PRVs | NRV3 | to NRVs | values4 | ||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1.9 | 1,320.7 | 2.3 | 1,233.6 | 0.0 | 2.1 | 1,308.0 | 2.1 | 1,265.6 | 0.0 | ||||||||||||||||||||||||||||||
Swaps | 170.4 | 7,527.0 | 154.3 | 7,423.7 | 13,076.0 | 186.2 | 7,110.7 | 171.4 | 6,802.7 | 15,949.2 | ||||||||||||||||||||||||||||||
Options | 31.2 | 785.3 | 32.5 | 822.8 | 0.0 | 25.9 | 543.2 | 29.4 | 611.8 | 0.0 | ||||||||||||||||||||||||||||||
Exchange-traded contracts | ||||||||||||||||||||||||||||||||||||||||
Futures | 785.4 | 1,221.5 | ||||||||||||||||||||||||||||||||||||||
Options | 0.0 | 61.7 | 0.0 | 69.7 | 0.0 | 0.0 | 1.3 | 0.0 | 1.3 | 0.0 | ||||||||||||||||||||||||||||||
Agency transactions7 | 0.2 | 0.2 | 0.5 | 0.4 | ||||||||||||||||||||||||||||||||||||
Total | 203.7 | 9,694.7 | 189.3 | 9,549.8 | 13,861.4 | 214.7 | 8,963.2 | 203.3 | 8,681.4 | 17,170.7 | ||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 52.2 | 1,189.8 | 49.8 | 1,091.2 | 0.0 | 77.1 | 1,254.7 | 69.7 | 1,208.9 | 0.0 | ||||||||||||||||||||||||||||||
Total rate of return swaps | 3.5 | 6.1 | 1.3 | 4.2 | 0.0 | 1.5 | 5.7 | 0.9 | 5.4 | 0.0 | ||||||||||||||||||||||||||||||
Options and warrants | 0.1 | 11.9 | 0.1 | 9.5 | 0.0 | 0.0 | 9.3 | 0.0 | 6.6 | 0.0 | ||||||||||||||||||||||||||||||
Total | 55.8 | 1,207.8 | 51.2 | 1,104.9 | 0.0 | 78.6 | 1,269.6 | 70.6 | 1,220.9 | 0.0 | ||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||
Forward contracts | 16.3 | 531.1 | 17.1 | 554.1 | 0.0 | 10.6 | 453.2 | 9.5 | 403.7 | 0.0 | ||||||||||||||||||||||||||||||
Interest and currency swaps | 88.5 | 2,279.9 | 97.0 | 2,190.5 | 0.0 | 80.5 | 2,279.8 | 85.8 | 2,209.6 | 0.0 | ||||||||||||||||||||||||||||||
Options | 8.7 | 515.1 | 8.8 | 483.4 | 0.0 | 5.9 | 347.7 | 5.7 | 350.7 | 0.0 | ||||||||||||||||||||||||||||||
Exchange-traded contracts | ||||||||||||||||||||||||||||||||||||||||
Futures | 0.0 | 9.0 | 1.5 | |||||||||||||||||||||||||||||||||||||
Options | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 | 1.5 | 0.1 | 0.0 | ||||||||||||||||||||||||||||||||
Agency transactions7 | 0.0 | 0.0 | 0.1 | 0.1 | ||||||||||||||||||||||||||||||||||||
Total | 113.5 | 3,326.1 | 123.0 | 3,228.1 | 9.0 | 97.1 | 3,082.2 | 101.1 | 2,964.1 | 1.5 | ||||||||||||||||||||||||||||||
Equity / index contracts | ||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2.6 | 32.2 | 4.0 | 46.3 | 0.0 | 2.7 | 26.0 | 3.4 | 28.1 | 0.0 | ||||||||||||||||||||||||||||||
Options | 8.1 | 67.1 | 8.7 | 81.6 | 0.0 | 7.0 | 80.8 | 9.5 | 73.7 | 0.0 | ||||||||||||||||||||||||||||||
Exchange-traded contracts | ||||||||||||||||||||||||||||||||||||||||
Futures | 28.8 | 26.5 | ||||||||||||||||||||||||||||||||||||||
Options | 3.8 | 106.7 | 3.7 | 111.0 | 0.0 | 4.6 | 108.5 | 4.7 | 120.5 | 0.0 | ||||||||||||||||||||||||||||||
Agency transactions7 | 7.5 | 7.6 | 10,5 | 10.8 | ||||||||||||||||||||||||||||||||||||
Total | 22.0 | 206.0 | 24.0 | 238.9 | 28.8 | 24.8 | 215.3 | 28.4 | 222.3 | 26.5 | ||||||||||||||||||||||||||||||
Commodities contracts | ||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2.7 | 18.8 | 2.7 | 15.9 | 0.0 | 2.0 | 20.6 | 2.0 | 15.0 | 0.0 | ||||||||||||||||||||||||||||||
Options | 1.5 | 19.2 | 1.7 | 15.4 | 0.0 | 1.9 | 21.7 | 1.9 | 22.7 | 0.0 | ||||||||||||||||||||||||||||||
Exchange-traded contracts | ||||||||||||||||||||||||||||||||||||||||
Futures | 41.0 | 26.1 | ||||||||||||||||||||||||||||||||||||||
Options | 0.0 | 0.7 | 0.0 | 1.2 | 0.0 | 0.0 | 1.9 | 1.9 | 0.0 | |||||||||||||||||||||||||||||||
Agency transactions7 | 1.7 | 1.7 | 1.9 | 1.9 | ||||||||||||||||||||||||||||||||||||
Total | 5.9 | 38.7 | 6.0 | 32.5 | 41.0 | 5.9 | 44.2 | 5.8 | 39.6 | 26.1 | ||||||||||||||||||||||||||||||
Unsettled purchases of financial assets5 | 0.2 | 36.5 | 0.1 | 18.8 | 0.0 | 0.4 | 35.9 | 0.2 | 25.4 | |||||||||||||||||||||||||||||||
Unsettled sales of financial assets5 | 0.1 | 34.9 | 0.1 | 13.0 | 0.0 | 0.2 | 30.4 | 0.5 | 14.3 | |||||||||||||||||||||||||||||||
Total derivative instruments, based on IFRS netting | 401.1 | 14,544.6 | 393.8 | 14,186.0 | 13,940.2 | 421.7 | 13,640.8 | 409.9 | 13,168.1 | 17,224.9 | ||||||||||||||||||||||||||||||
Replacement value netting, based on capital adequacy rules | (301.5 | ) | (301.5 | ) | (313.2 | ) | (313.2 | ) | ||||||||||||||||||||||||||||||||
Cash collateral netting | (36.5 | ) | (23.9 | ) | (37.2 | ) | (32.7 | ) | ||||||||||||||||||||||||||||||||
Total derivative instruments, based on capital adequacy netting6 | 63.1 | 68.3 | 71.3 | 64.1 | ||||||||||||||||||||||||||||||||||||
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Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
On a notional value basis, credit protection bought and sold held as of 31 December 2010 matures in a range of approximately 10% within one year, approximately 70% within 1 to 5 years and approximately 20% after 5 years. The maturity profile of OTC interest rate contracts held as of 31 December 2010, based on notional values, is as follows: approximately 45% mature within
one year, 33% within 1 to 5 years and 22% over 5 years. Notional values of interest rate contracts cleared with The London Clearing House are presented under “other notional values” and are categorized into maturity buckets on the basis of contractual maturities of the cleared underlying derivative contracts.
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Financial information |
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 | 31.12.10 | 31.12.09 | ||||||
Fair value of securities received which can be sold or repledged | 573,852 | 528,856 | ||||||
as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions | 571,970 | 515,314 | ||||||
in unsecured borrowings | 1,882 | 13,542 | ||||||
thereof sold or repledged | 428,347 | 398,883 | ||||||
in connection with financing activities | 352,668 | 335,371 | ||||||
to satisfy commitments under short sale transactions | 54,975 | 47,469 | ||||||
in connection with derivative and other transactions | 20,705 | 16,043 | ||||||
Note 25 Operating lease commitments
As of 31 December 2010, 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 agree-
ments do not contain contingent rent payment clauses and purchase options, nor do they impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.10 | |||
Operating leases due | ||||
2011 | 862 | |||
2012 | 741 | |||
2013 | 646 | |||
2014 | 554 | |||
2015 | 464 | |||
2016 and thereafter | 1,818 | |||
Subtotal commitments for minimum payments under operating leases | 5,085 | |||
Less: Sublease rentals under non-cancellable leases | 500 | |||
Net commitments for minimum payments under operating leases | 4,585 | |||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Gross operating lease expense | 1,057 | 1,191 | 1,215 | |||||||||
Sublease rental income | 97 | 57 | 50 | |||||||||
Net operating lease expense | 960 | 1,134 | 1,165 | |||||||||
Operating lease contracts include non-cancellable long-term leases of office buildings in most UBS locations. As of 31 December 2010, the minimum lease commitments for each of 12 office locations exceeded CHF 100 million.
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Financial information
Notes to the consolidated financial statements
Additional information
Note 26 Capital increase and mandatory convertible notes
Conversion of the mandatory convertible notes issued in March 2008
On 5 March 2010, the mandatory convertible notes (MCNs) with a notional value of CHF 13 billion issued in March 2008 to the Government of Singapore Investment Corporation Pte. Ltd. and an investor from the Middle East were converted into UBS
shares. The notes were converted at a price of CHF 47.68 per share. As a result, UBS issued 272,651,005 new shares with a nominal value of CHF 0.10 each from existing conditional capital. The MCNs were treated as equity instruments and recognized inShare premium. The conversion of the MCNs resulted in a reclassification of CHF 27 million fromShare premium toShare capital.
Note 27 Fair value of financial instruments
a) Valuation principles
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. Financial instruments classified as held for trading or designated as at fair value through profit or loss, and financial assets classified as available for sale are recognized in the financial statements at fair value. All derivatives are measured at fair value.
value. This may differ from the value obtained from the valuation model (“Deferred day 1 profit or loss”). The timing of the recognition in profit and loss of this initial difference in fair value depends on the individual facts and circumstances of each transaction but is never later than when the market data become observable.
Pricing models and valuation techniques
The most frequently applied pricing models and valuation techniques include discounted cash flow models, relative value models and option pricing models. Discounted cash flows determine the value by estimating the expected future cash flows from assets or liabilities discounted to their present value. Relative value models determine the value based on the market prices of similar assets or liabilities. Option pricing models include such probability-based techniques as binomial and Monte Carlo pricing.
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Financial information |
Note 27 Fair value of financial instruments (continued)
some or all parameters, UBS calibrates the non-market-observable inputs used in its valuation models based on a combination of historical experience and knowledge of current market conditions. Assumptions and inputs used in valuation techniques and models include benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, equity index prices, foreign exchange rates and levels of market volatility and correlation.
Interest rate curves
UBS uses various interest rate curves for valuing its financial instruments. Financial liabilities designated at fair value are measured using UBS’s funds transfer price curve. Financial assets designated at fair value are valued consistent with the curve used for the particular business. Uncollateralized credit exposure is reserved through normal credit rating and reserving methods. For the valuation of uncollateralized derivative instruments, UBS generally employs a LIBOR flat curve. For the valuation of collateralized derivatives, UBS generally employs the overnight indexed swap (OIS) curve.
Valuation curve changes
For collateralized derivatives, the valuation approach was amended at the beginning of the year to use the OIS curve rather than the LIBOR flat curve. This followed a change in the market convention for pricing collateralized derivatives, to reflect that the interest rate typically paid on cash collateral references the OIS curve. The transitional effect of this change in estimate was recognized prospectively and resulted in an immaterial pre-tax gain.
UBS’s own credit risk in the valuations of derivative financial liabilities (Negative replacement values)
31.12.10 | ||||||||
CHF billion | CVA1 | DVA | ||||||
Life-to-date gain / (loss) | (2.2 | ) | 0.5 | |||||
of which: CVA on monoline credit protection – negative basis trades | (1.1 | ) | N/A | |||||
of which: CVA on monoline credit protection – other | (0.1 | ) | N/A | |||||
of which: CVA on other instruments | (1.0 | ) | N/A | |||||
Gain / (loss) for the year ended2 | 1.0 | 0.2 | ||||||
of which: CVA on monoline credit protection – negative basis trades | 0.7 | N/A | ||||||
of which: CVA on monoline credit protection – other | 0.1 | N/A | ||||||
of which: CVA on other instruments | 0.2 | N/A | ||||||
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Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
UBS’s own credit risk in the valuations of financial liabilities designated at fair value
The Group’s own credit changes are reflected in valuations for those financial liabilities designated at fair value, where the Group’s own credit risk would be considered by market participants. Own credit effects are not reflected in the valuations of fully collateralized transactions and other instruments for which it is established market practice not to include them.
market participants require to acquire UBS MTNs. The FTP curve was implemented at the end of the year and has replaced the asset and liability management revaluation curve (ALMRC). The impact on the income statement at implementation was not material.
Own credit on financial liabilities designated at fair value | ||||||||||||
As of or for the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Total gain / (loss) for the year ended | (548 | ) | (2,023 | ) | 2,032 | |||||||
of which: credit spread related only | (470 | ) | (1,958 | ) | 3,993 | |||||||
Life-to-date gain | 237 | 890 | 2,953 | |||||||||
Year-to-date amounts represent the change during the year and life-to-date amounts reflect the cumulative change since initial recognition. The change in own credit for the period can be analyzed in two components: (1) changes in fair value that are attributable to the change in UBS’s credit spreads during the period, and (2) the effect of volume changes, which is the change in fair values attributable to factors other than credit spreads, such as redemptions, effects from time decay, changes in interest rates and changes in the value of referenced instruments issued by third parties. The disclosed own credit amounts are also impacted by foreign currency movements.
Reflection of market liquidity risk in fair value determinations
Fair value estimates incorporate the effects of market liquidity risk in the relevant markets. Market liquidity risk is the risk that a loss is incurred in neutralizing the exposures within a position or portfolio by either liquidating the position or establishing an offsetting position. A liquidity adjustment is therefore raised to provide against the expected cost of covering open market risk positions within a portfolio or position. Liquidity adjustments are bid / offer adjustments taken where a net open risk position is retained and the model on which it is valued is calibrated to mid market. Valuations based on models incorporate liquidity or risk premiums either implicitly (e.g., by calibrating to market prices that incorporate such premiums) or explicitly.
Reflection of model uncertainty in fair value determinations
Uncertainties associated with the use of model-based valuations are predominantly addressed through the use of model reserves. These reserves reflect the amounts that UBS estimates are appropriate to deduct from the valuations produced directly by the models to reflect uncertainties in the relevant modeling assumptions and inputs used. In arriving at these estimates, UBS considers a 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.
Valuation processes
UBS’s fair value and model governance structure includes numerous controls and procedural safeguards that are intended to maximize the quality of fair value measurements reported in the financial statements. New products need to be reviewed and approved by all stakeholders relevant to risk and financial control. Responsibility for the ongoing measurement of financial instruments at fair value resides with the business but is independently validated by risk and financial control functions. In carrying out their valuation responsibilities, the businesses are required to consider the availability and quality of available external market information and to provide justification and rationale for their fair value estimates. Independent price verification of financial instruments measured at fair value is undertaken by the product control function, which is independent from the risk taking businesses. The objective of the independent price verification process is to independently corroborate the busi-
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Financial information |
Note 27 Fair value of financial instruments (continued)
b) Fair value hierarchy
– | Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities | |
– | Level 2 – valuation techniques for which all significant inputs are market observable, either directly or indirectly; and | |
– | Level 3 – valuation techniques which include significant inputs that are not based on observable market data. |
Determination of fair values from quoted market prices or valuation techniques1 | ||||||||||||||||||||||||||||||||
31.12.10 | 31.12.09 | |||||||||||||||||||||||||||||||
CHF billion | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Financial assets held for trading2 | 77.8 | 60.8 | 10.0 | 148.5 | 94.1 | 65.5 | 11.6 | 171.2 | ||||||||||||||||||||||||
Financial assets held for trading pledged as collateral | 38.3 | 22.2 | 0.8 | 61.4 | 31.3 | 12.3 | 0.6 | 44.2 | ||||||||||||||||||||||||
Positive replacement values | 3.6 | 385.1 | 12.4 | 401.1 | 4.0 | 393.8 | 23.8 | 421.7 | ||||||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||||||
Interest rate contracts | 0.9 | 201.5 | 1.3 | 203.8 | 0.8 | 213.7 | 0.6 | 215.1 | ||||||||||||||||||||||||
Credit derivative contracts | 48.1 | 7.7 | 55.8 | 58.0 | 20.5 | 78.6 | ||||||||||||||||||||||||||
Foreign exchange contracts | 0.3 | 112.2 | 1.0 | 113.5 | 0.3 | 95.9 | 0.9 | 97.1 | ||||||||||||||||||||||||
Equity / index contracts | 2.3 | 17.5 | 2.4 | 22.2 | 2.9 | 20.5 | 1.7 | 25.1 | ||||||||||||||||||||||||
Commodities contracts | 0.0 | 5.8 | 0.0 | 5.9 | 0.0 | 5.8 | 0.1 | 5.9 | ||||||||||||||||||||||||
Financial assets designated at fair value | 0.8 | 7.3 | 0.5 | 8.5 | 0.8 | 9.2 | 0.3 | 10.2 | ||||||||||||||||||||||||
Financial investments available-for-sale | 52.9 | 21.0 | 0.9 | 74.8 | 74.3 | 6.1 | 1.4 | 81.8 | ||||||||||||||||||||||||
Total assets | 173.4 | 496.4 | 24.5 | 694.3 | 204.5 | 487.0 | 37.6 | 729.1 | ||||||||||||||||||||||||
Trading portfolio liabilities | 42.9 | 11.8 | 0.3 | 55.0 | 33.5 | 13.6 | 0.4 | 47.5 | ||||||||||||||||||||||||
Negative replacement values | 3.5 | 379.9 | 10.4 | 393.8 | 3.7 | 389.2 | 17.0 | 409.9 | ||||||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||||||
Interest rate contracts | 1.0 | 187.8 | 0.7 | 189.4 | 0.7 | 203.1 | 0.0 | 203.7 | ||||||||||||||||||||||||
Credit derivative contracts | 44.9 | 6.2 | 51.1 | 55.8 | 14.7 | 70.6 | ||||||||||||||||||||||||||
Foreign exchange contracts | 0.3 | 120.9 | 1.8 | 123.0 | 0.3 | 99.4 | 1.4 | 101.1 | ||||||||||||||||||||||||
Equity / index contracts | 2.2 | 20.5 | 1.5 | 24.2 | 2.8 | 25.0 | 1.0 | 28.7 | ||||||||||||||||||||||||
Commodities contracts | 0.0 | 5.8 | 0.1 | 6.0 | 0.0 | 5.8 | 0.0 | 5.8 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 86.7 | 14.0 | 100.8 | 0.0 | 102.4 | 10.3 | 112.7 | ||||||||||||||||||||||||
Other liabilities – amounts due under unit-linked investment contracts3 | 18.1 | 18.1 | 21.6 | 21.6 | ||||||||||||||||||||||||||||
Total liabilities | 46.4 | 496.5 | 24.7 | 567.6 | 37.2 | 526.8 | 27.7 | 591.7 | ||||||||||||||||||||||||
Detailed breakdowns of UBS’s trading portfolio and financial investments available-for-sale by fair value hierarchy levels are shown in the Notes 11 and 13, respectively.
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
Trading assets of approximately CHF 0.8 billion, of which CHF 0.6 billion are equity instruments, and trading liabilities of approximately CHF 0.2 billion, of which almost all are short sold equity instruments, were transferred from level 2 to level 1 due to increased trading activities and volumes, respectively.
Movements of level 3 instruments
Movements of level 3 instruments and gains / losses for level 3 instruments held at the end of the reporting period | ||||||||||||||||
Financial assets held for | Derivative instruments1 | |||||||||||||||
trading (including those | Positive | Negative | Financial liabilities | |||||||||||||
CHF billion | pledged as collateral)1 | replacement values | replacement values | designated at fair value1 | ||||||||||||
Balance at 31 December 2008 | 16.9 | 37.8 | 35.0 | 10.3 | ||||||||||||
Total gains / (losses) included in the income statement | (3.9 | ) | (13.0 | ) | (15.4 | ) | (1.7 | ) | ||||||||
Net trading income | (3.7 | ) | (12.8 | ) | (15.0 | ) | (1.1 | ) | ||||||||
Other | (0.2 | ) | (0.2 | ) | (0.4 | ) | (0.6 | ) | ||||||||
Purchases, sales, issuances and settlements | (6.3 | ) | (9.6 | ) | (8.6 | ) | (4.6 | ) | ||||||||
Purchases | 5.6 | 0.0 | 0.0 | 0.0 | ||||||||||||
Sales | (11.9 | ) | 0.0 | 0.0 | 0.0 | |||||||||||
Issuances | 0.0 | 7.3 | 5.3 | 2.7 | ||||||||||||
Settlements | 0.0 | (16.9 | ) | (13.9 | ) | (7.3 | ) | |||||||||
Transfers into or out of level 3 | 5.4 | 6.3 | 3.5 | 5.3 | ||||||||||||
Transfers into level 3 | 12.5 | 26.0 | 22.7 | 8.0 | ||||||||||||
Transfers out of level 3 | (7.1 | ) | (19.7 | ) | (19.2 | ) | (2.7 | ) | ||||||||
Foreign currency translation | 0.1 | 2.2 | 2.5 | 1.0 | ||||||||||||
Balance at 31 December 2009 | 12.2 | 23.8 | 17.0 | 10.3 | ||||||||||||
Total gains / (losses) for the period included in the income statement for level 3 instruments held at the end of the reporting period 2009 | (0.5 | ) | (9.3 | ) | 8.7 | (0.7 | ) | |||||||||
Net trading income | (1.0 | ) | (9.4 | ) | 8.8 | (0.7 | ) | |||||||||
Other | 0.5 | 0.1 | (0.1 | ) | 0.0 | |||||||||||
Balance at 31 December 2009 | 12.2 | 23.8 | 17.0 | 10.3 | ||||||||||||
Total gains / (losses) included in the income statement | 0.2 | 1.2 | 1.8 | 0.3 | ||||||||||||
Net trading income | (0.2 | ) | 1.1 | 1.8 | 0.1 | |||||||||||
Other | 0.4 | 0.1 | 0.0 | 0.2 | ||||||||||||
Purchases, sales, issuances and settlements | 0.0 | (7.0 | ) | (5.4 | ) | (1.4 | ) | |||||||||
Purchases | 3.7 | 0.0 | 0.0 | 0.0 | ||||||||||||
Sales | (3.7 | ) | 0.0 | 0.0 | 0.0 | |||||||||||
Issuances | 0.0 | 1.6 | 1.4 | 3.3 | ||||||||||||
Settlements | 0.0 | (8.6 | ) | (6.8 | ) | (4.7 | ) | |||||||||
Transfers into or out of level 3 | (0.4 | ) | (2.7 | ) | (1.1 | ) | 4.7 | |||||||||
Transfers into level 3 | 2.4 | 1.6 | 1.8 | 5.8 | ||||||||||||
Transfers out of level 3 | (2.8 | ) | (4.3 | ) | (2.9 | ) | (1.1 | ) | ||||||||
Foreign currency translation | (1.0 | ) | (3.0 | ) | (1.9 | ) | 0.1 | |||||||||
Balance at 31 December 2010 | 10.8 | 12.4 | 10.4 | 14.0 | ||||||||||||
Total gains / (losses) for the period included in the income statement for level 3 instruments held at the end of the reporting period 2010 | 0.2 | 1.2 | (1.8 | ) | (0.3 | ) | ||||||||||
Net trading income | (0.2 | ) | 1.1 | (1.8 | ) | (0.1 | ) | |||||||||
Other | 0.4 | 0.1 | 0.0 | (0.2 | ) | |||||||||||
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Note 27 Fair value of financial instruments (continued)
– | structured rates and credit trades, including bespoke collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) | |
– | reference-linked notes | |
– | financial instruments linked to the US sub-prime residential and US commercial real estate markets | |
– | corporate bonds and corporate credit default swaps (CDS) | |
– | equity linked notes issued by UBS | |
– | traded loans |
Financial assets held for trading
Derivative instruments
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Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
Financial liabilities designated at fair value
Sensitivity information
Sensitivity of level 3 financial assets and liabilities
As of | 31.12.10 | |||||||
Favorable | Unfavorable | |||||||
CHF billion | changes | changes | ||||||
Cash instruments | ||||||||
Mortgage securities | 0.3 | (0.3 | ) | |||||
Debt securities | 0.2 | (0.2 | ) | |||||
Traded loans | 0.1 | (0.1 | ) | |||||
Total cash instruments | 0.6 | (0.6 | ) | |||||
Derivatives instruments | ||||||||
Equity derivatives | 0.4 | (0.4 | ) | |||||
Interest rate derivatives | 0.7 | (0.7 | ) | |||||
Credit derivatives | 0.1 | (0.1 | ) | |||||
Total derivatives instruments | 1.2 | (1.2 | ) | |||||
336
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Financial information |
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques by product
Government and corporate bonds, bills and loans
Equity securities, hedge fund and investment fund units, convertible bonds, and options
The majority of equity securities are traded on public stock exchanges where quoted prices are readily and regularly available.
Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS), Asset-Backed Securities (ABS) and Collateralized Debt Obligations (CDO)
Values of RMBS, CMBS, ABS and CDOs are determined by traded prices and independently verified market data when available. In the absence of direct market data, values will be derived from traded and quoted prices on the securities with similar characteristics or indices through benchmarking and the triangulation approaches.
Credit derivatives related to RMBS, CMBS, ABS and CDO
Credit derivatives
Rates swaps and forwards
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Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
fixed and future index levels) and then discounting these flows using an interest rate that reflects the appropriate funding rate for that portion of the portfolio. Interest rates and future index levels used in the above calculations are generated from observing current market interest rates associated with typical OTC interest rate derivatives (swap rates, basis swap spreads, futures prices, FRA rates) and converting these into rates specific to the portfolio using market standard yield curve models.
Rates options
FX spot and forward
FX options
è | Refer to the “Risk and treasury management” section for more information on certain financial instruments with significant valuation uncertainty (CVA monolines, US and non-US reference-linked notes, option to acquire equity of the SNB StabFund) |
d) Deferred day 1 profit or loss
The table reflects financial instruments for which fair value is determined using valuation models where not all significant 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. Day 1 reserves are released and P&L is recorded in trading profit or loss as
either the underlying parameters become observable or the transaction is closed out.
Deferred day 1 profit or loss | ||||||||
For the year ended | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Balance at the beginning of the year | 599 | 627 | ||||||
Deferred profit / (loss) on new transactions | 282 | 231 | ||||||
Recognized (profit) / loss in the income statement | (260 | ) | (240 | ) | ||||
Foreign currency translation | (56 | ) | (19 | ) | ||||
Balance at the end of the year | 565 | 599 | ||||||
On 31 December 2010, deferred day 1 profit or loss of approximately CHF 0.3 billion (31 December 2009: approximately CHF 0.3 billion) pertains largely to structured rates and credit trades, including bespoke CDOs and multi-name credit default swaps,
and of approximately CHF 0.3 billion (31 December 2009: approximately CHF 0.3 billion) to over-the-counter (OTC) equity options. Both instruments are presented as replacement values on UBS’s balance sheet.
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Financial information |
Note 27 Fair value of financial instruments (continued)
e) Financial instruments accounted for at amortized cost
The following table reflects the estimated fair values for UBS’s instruments accounted for at amortized cost. Refer to Note 29 for an overview of financial assets classified as “loans and receivables” and financial liabilities accounted for at amortized cost.
31.12.10 | 31.12.09 | |||||||||||||||
CHF billion | Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
Assets | ||||||||||||||||
Due from banks | 17.1 | 17.1 | 16.8 | 16.8 | ||||||||||||
Loans | 261.3 | 263.4 | 264.7 | 265.6 | ||||||||||||
Cash collateral on securities borrowed | 62.5 | 62.5 | 63.5 | 63.5 | ||||||||||||
Reverse repurchase agreements | 142.8 | 142.8 | 116.7 | 116.7 | ||||||||||||
Cash collateral receivables on derivative instruments | 38.1 | 38.1 | 53.8 | 53.8 | ||||||||||||
Accrued income and prepaid expenses, other assets | 20.6 | 20.6 | 21.4 | 21.4 | ||||||||||||
Liabilities | ||||||||||||||||
Due to banks | 41.5 | 41.5 | 31.9 | 31.8 | ||||||||||||
Due to customers | 332.3 | 332.5 | 339.3 | 339.3 | ||||||||||||
Cash collateral on securities lent | 6.7 | 6.7 | 8.0 | 8.0 | ||||||||||||
Repurchase agreements | 74.8 | 74.7 | 64.2 | 64.2 | ||||||||||||
Cash collateral payables on derivative instruments | 58.9 | 58.9 | 66.1 | 66.1 | ||||||||||||
Debt issued | 131.6 | 131.4 | 134.5 | 133.6 | ||||||||||||
Accrued expenses and deferred income, other liabilities | 49.2 | 49.2 | 54.3 | 54.3 | ||||||||||||
Commitments | ||||||||||||||||
Loan commitments1 | 0.4 | 1.9 | 0.3 | 1.2 | ||||||||||||
Guarantees and similar instruments2 | 0.1 | 0.3 | 0.1 | 0.4 | ||||||||||||
Loans include Wealth Management assets, mainly mortgage loans, where fair values exceed related carrying values by CHF 3.4 billion, and Investment Bank assets where fair values fall below related carrying values by CHF 1.2 billion.
The fair values included in the table above were calculated for disclosure purposes only. The valuation techniques and assumptions described below provide a measurement of fair value of UBS’s financial instruments accounted for at amortized cost. However, because other institutions may use different methods and assumptions for their fair value estimation, such fair value disclosures cannot necessarily be compared from one financial institution to another. UBS applies significant judgments and assumptions to arrive at these fair values, which are more holistic and less sophisticated than UBS’s established fair value and model governance policies and processes applied to financial instruments accounted for at fair value, whose fair values impact UBS’s balance sheet and net profit. The following principles were applied when determining fair value estimates for financial instruments accounted for at amortized cost:
– | For financial instruments with remaining maturities greater than three months, the fair value was determined from quoted market prices, where available. |
– | Where quoted market prices were not available, the fair values were estimated by discounting contractual cash flows using |
current market interest rates or appropriate yield curves for instruments with similar credit risk and maturity. These estimates generally include adjustments for counterparty credit or UBS’s own credit. |
– | For short-term financial instruments with remaining maturities of three months or less, the carrying amount, which is net of credit loss allowances, is generally considered a reasonable estimate of fair value. The following financial instruments accounted for at amortized cost have remaining maturities of three months or less: 94% of amounts due from banks; 100% of cash collateral on securities borrowed; 95% of reverse repurchase agreements; 100% of cash collateral receivables on derivatives; 42% of loans; 94% of amounts due to banks; 100% of cash collateral on securities lent; 93% of repurchase agreements; 100% of cash collateral payable on derivatives; 97% of amount due to customers; and 30% of debt issued. |
– | The fair value of variable interest-bearing financial instruments accounted for at amortized cost is assumed to be approximated by their carrying amounts, which are net of credit loss al- |
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
lowances, and does not reflect fair value changes in the credit quality of counterparties or UBS’s own credit movements. |
– | The fair value estimates for repurchase and reverse repurchase agreements with variable and fixed interest rates, for all maturities, include the valuation of the interest rate component of these instruments. Credit and debit valuation adjustments |
have not been included in the valuation due to the short term nature of these instruments. |
– | The estimated fair values of off balance sheet financial instruments are based on market prices for similar facilities and guarantees. Where this information is not available, fair value is estimated using discounted cash flow analysis. |
Note 28 Pledged assets and transferred financial assets which do not qualify for derecognition
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions, in connection
with derivative transactions, as security deposits for stock exchanges and clearinghouse memberships, or transferred for security purposes in connection with the issuance of covered bonds.
Assets pledged | ||||||||
Carrying amount | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Financial assets held for trading portfolio assets pledged to third parties | 79,742 | 64,748 | ||||||
of which: pledged to third parties with right of rehypothecation | 61,352 | 44,221 | ||||||
Financial investments available-for-sale pledged to third parties | 38,106 | 53,222 | ||||||
Mortgage loans | 27,119 | 21,741 | ||||||
Other loans and receivables | 10,235 | 12,553 | ||||||
of which: pledged to third parties with right of rehypothecation | 559 | 192 | ||||||
Total financial assets pledged | 155,202 | 152,264 | ||||||
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 1a) 5). | ||||||||
Transfer of financial assets which do not qualify for derecognition | ||||||||
Continued asset recognition in full – Total assets | ||||||||
CHF billion | 31.12.10 | 31.12.09 | ||||||
Nature of transaction | ||||||||
Securities lending agreements | 30.9 | 17.1 | ||||||
Repurchase agreements | 28.6 | 24.6 | ||||||
Other financial asset transfers | 96.6 | 110.9 | ||||||
Total | 156.1 | 152.6 | ||||||
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 risk 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 except for certain positions pledged with central banks.
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Financial information |
Note 29 Measurement categories of financial assets and financial liabilities
a) Measurement categories of financial assets and financial liabilities
The following table provides information about the carrying amounts of individual classes of financial instruments within the measurement categories of financial assets and financial liabilities as defined in IAS 39. Only those assets and liabilities which are deemed to be financial instruments are included in the table be-
low, which causes certain balances to differ from those presented on the balance sheet.
è | Refer to “Note 27 Fair value of financial instruments” for more information on how fair value of financial instruments is determined |
31.12.10 | 31.12.09 | |||||||
Financial assets1 | ||||||||
Held for trading | ||||||||
Trading portfolio assets | 148,521 | 171,173 | ||||||
Trading portfolio assets pledged as collateral | 61,352 | 44,221 | ||||||
Debt issued2 | 2,665 | 3,109 | ||||||
Positive replacement values | 401,146 | 421,694 | ||||||
Total | 613,684 | 640,197 | ||||||
Fair value through profit or loss | ||||||||
Financial assets designated at fair value | 8,504 | 10,223 | ||||||
Financial assets at amortized cost | ||||||||
Cash and balances with central banks | 26,939 | 20,899 | ||||||
Due from banks | 17,133 | 16,804 | ||||||
Cash collateral on securities borrowed | 62,454 | 63,507 | ||||||
Reverse repurchase agreements | 142,790 | 116,689 | ||||||
Cash collateral receivables on derivative instruments | 38,071 | 53,774 | ||||||
Loans | 261,263 | 264,710 | ||||||
Accrued income and prepaid expenses | 1,404 | 1,465 | ||||||
Other assets | 19,175 | 19,941 | ||||||
Total | 569,229 | 557,789 | ||||||
Available-for-sale | ||||||||
Financial investments available-for-sale | 74,768 | 81,757 | ||||||
Total financial assets | 1,266,185 | 1,289,966 | ||||||
Financial liabilities | ||||||||
Held for trading | ||||||||
Trading portfolio liabilities | 54,975 | 47,469 | ||||||
Debt issued2 | 1,308 | 8 | ||||||
Negative replacement values | 393,762 | 409,943 | ||||||
Total | 450,045 | 457,420 | ||||||
Fair value through profit or loss, other | ||||||||
Financial liabilities designated at fair value | 100,756 | 112,653 | ||||||
Amounts due under unit-linked contracts | 18,125 | 21,740 | ||||||
Total | 118,881 | 134,393 | ||||||
Financial liabilities at amortized cost | ||||||||
Due to banks | 41,490 | 31,922 | ||||||
Cash collateral on securities lent | 6,651 | 7,995 | ||||||
Repurchase agreements | 74,796 | 64,175 | ||||||
Cash collateral payables on derivative instruments | 58,924 | 66,097 | ||||||
Due to customers | 332,301 | 339,263 | ||||||
Accrued expenses and deferred income | 7,581 | 8,522 | ||||||
Debt issued | 131,628 | 134,453 | ||||||
Other liabilities | 41,622 | 45,774 | ||||||
Total | 694,993 | 698,201 | ||||||
Total financial liabilities | 1,263,918 | 1,290,014 | ||||||
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Notes to the consolidated financial statements
Note 29 Measurement categories of financial assets and financial liabilities (continued)
b) Reclassification of financial assets
The reclassification of financial assets reflected UBS’s change in intent and ability to hold these financial assets for the foreseeable future rather than for trading in the near term. The foreseeable future is interpreted to mean a period of approximately 12 months following the date of reclassification. The financial assets were reclassified using their fair value on the date of the reclassification, which became their new cost basis at that date.
Trading portfolio assets reclassified to loans | ||||||||
CHF billion | 31.12.10 | 31.12.09 | ||||||
Carrying value | 11.9 | 19.9 | ||||||
Fair value | 12.1 | 19.0 | ||||||
Pro-forma fair value gain / (loss) | 0.2 | (0.9 | ) | |||||
billion, redemptions of CHF 0.7 billion, fair value changes of CHF 0.4 billion and the appreciation of the Swiss franc against the US dollar of CHF 1.4 billion, partially offset by fair value gains of CHF 1.8 billion.
Reclassified assets | ||||||||||||||||
Ratio of carrying | ||||||||||||||||
CHF billion | Notional value | Fair value | Carrying value | to notional value | ||||||||||||
US student loan and municipal auction rate securities | 5.1 | 4.4 | 4.5 | 88 | % | |||||||||||
Monoline-protected assets | 6.1 | 5.4 | 5.3 | 86 | % | |||||||||||
Leveraged finance | 0.5 | 0.4 | 0.4 | 75 | % | |||||||||||
CMBS / CRE (excluding interest-only strips) | 0.2 | 0.1 | 0.1 | 81 | % | |||||||||||
US reference-linked notes | 0.6 | 0.6 | 0.5 | 83 | % | |||||||||||
Other assets | 0.9 | 0.8 | 0.7 | 82 | % | |||||||||||
Total (excluding CMBS interest-only strips) | 13.5 | 11.7 | 11.6 | 86 | % | |||||||||||
CMBS interest-only strips | 0.4 | 0.3 | ||||||||||||||
Total reclassified assets | 13.5 | 12.1 | 11.9 | |||||||||||||
Contribution of the reclassified assets to the income statement | ||||||||||||||||
For the year ended | ||||||||||||||||
CHF billion | 31.12.10 | 31.12.09 | ||||||||||||||
Net interest income | 0.5 | 1.5 | ||||||||||||||
Credit loss (expense) / recovery | (0.1 | ) | (1.0 | ) | ||||||||||||
Other income1 | 0.1 | 0.1 | ||||||||||||||
Impact on operating profit before tax | 0.5 | 0.6 | ||||||||||||||
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Note 29 Measurement categories of financial assets and financial liabilities (continued)
c) Maximum exposure to credit risk and credit quality information
The table below presents the Group’s maximum exposure to credit risk without taking account of any collateral held or other credit enhancements. The amounts included in the table represent the carrying amounts of financial instruments subject to credit risk, which were determined under the guidance of IFRS. Financial in-
struments have been netted only if and to the extent a) legally enforceable rights to offset exist, and b) UBS has the intention to settle the underlying transactions on a net basis. As such, the amounts disclosed in the table below should not necessarily be considered a “risk measure”.
Maximum exposure to credit risk | ||||||||||||||||||||||||||||||||||||||||
31.12.10 | 31.12.09 | |||||||||||||||||||||||||||||||||||||||
CHF million | WM&SB | WMA | IB | Other1 | UBS | WM&SB | WMA | IB | Other1 | UBS | ||||||||||||||||||||||||||||||
Balances with central banks | 10,727 | 0 | 13,732 | 0 | 24,459 | 8,589 | 0 | 9,525 | 18,114 | |||||||||||||||||||||||||||||||
Due from banks | 2,654 | 2,157 | 12,007 | 315 | 17,133 | 2,647 | 1,074 | 12,802 | 282 | 16,804 | ||||||||||||||||||||||||||||||
Loans | 199,591 | 22,470 | 39,044 | 158 | 261,263 | 194,410 | 21,492 | 48,722 | 86 | 264,710 | ||||||||||||||||||||||||||||||
Cash collateral on securities borrowed | 62,454 | 62,454 | 63,507 | 63,507 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 3,615 | 123,574 | 15,601 | 142,790 | 1,107 | 4,302 | 109,896 | 1,384 | 116,689 | |||||||||||||||||||||||||||||||
Cash collateral receivables on derivative instruments | 4 | 38,052 | 15 | 38,071 | 4 | 53,755 | 15 | 53,774 | ||||||||||||||||||||||||||||||||
Accrued income, other assets and debt underwriting commitments subject to credit risk | 1,187 | 163 | 18,437 | 804 | 20,591 | 1,319 | 147 | 18,783 | 1,185 | 21,434 | ||||||||||||||||||||||||||||||
Financial instruments recognized at amortized cost on balance sheet | 214,163 | 28,405 | 307,300 | 16,893 | 566,762 | 208,076 | 27,015 | 316,989 | 2,952 | 555,032 | ||||||||||||||||||||||||||||||
Positive replacement values | 2,688 | 600 | 396,018 | 1,840 | 401,146 | 2,534 | 520 | 416,862 | 1,778 | 421,694 | ||||||||||||||||||||||||||||||
Trading portfolio assets (including pledged positions) – debt instruments | 10,707 | 613 | 122,986 | 5 | 134,310 | 16,341 | 1,107 | 117,047 | 1,739 | 136,234 | ||||||||||||||||||||||||||||||
Financial assets designated at fair value – debt instruments | 30 | 7,359 | 7,389 | 65 | 9,317 | 9,383 | ||||||||||||||||||||||||||||||||||
Financial investments available-for-sale – debt instruments | 27 | 11,585 | 3,426 | 58,371 | 73,409 | 5,393 | 16,515 | 52,183 | 6,315 | 80,406 | ||||||||||||||||||||||||||||||
Financial instruments recognized at fair value on balance sheet | 13,453 | 12,798 | 529,789 | 60,215 | 616,255 | 24,333 | 18,142 | 595,409 | 9,832 | 647,717 | ||||||||||||||||||||||||||||||
Credit guarantees, performance guarantees, documentary credits and similar instruments2 | 10,449 | 370 | 5,467 | 119 | 16,405 | 11,888 | 385 | 4,569 | 137 | 16,979 | ||||||||||||||||||||||||||||||
Loan commitments | 7,276 | 1,066 | 48,509 | 56,851 | 7,236 | 498 | 51,593 | 59,328 | ||||||||||||||||||||||||||||||||
Irrevocable commitments to acquire ARS | 140 | 140 | 8,700 | 8,700 | ||||||||||||||||||||||||||||||||||||
Irrevocable forward starting reverse repos agreements | 39,036 | 39,036 | 43,020 | 43,020 | ||||||||||||||||||||||||||||||||||||
Irrevocable forward starting securities borrowing agreements | 454 | 454 | 904 | 904 | ||||||||||||||||||||||||||||||||||||
Commitments | 17,724 | 1,436 | 93,607 | 119 | 112,887 | 19,124 | 883 | 108,786 | 137 | 128,931 | ||||||||||||||||||||||||||||||
Total at the year-end | 245,340 | 42,640 | 930,695 | 77,228 | 1,295,903 | 251,533 | 46,040 | 1,021,184 | 12,921 | 1,331,680 | ||||||||||||||||||||||||||||||
The table above does not include written credit protection, which is generally recognized on UBS’s balance sheet underNegative replacement values. It also excludes UBS’s potential obligations under the Swiss Deposit Insurance (2010: CHF 961 million, 2009: 1,030 million).
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Note 29 Measurement categories of financial assets and financial liabilities (continued)
Financial assets subject to credit risk by rating category | ||||||||||||||||||||||||||||||||
CHF million | 31.12.10 | |||||||||||||||||||||||||||||||
Rating category1 | 0-1 | 2-3 | 4-5 | 6-8 | 9-13 | defaulted | not rated4 | Total | ||||||||||||||||||||||||
Balances with central banks | 14,636 | 9,800 | 23 | 24,459 | ||||||||||||||||||||||||||||
Due from banks | 326 | 11,728 | 2,555 | 2,349 | 174 | 2 | 17,133 | |||||||||||||||||||||||||
Loans | 11,845 | 75,638 | 76,200 | 79,785 | 16,216 | 1,580 | 261,263 | |||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | 59,372 | 112,871 | 23,093 | 8,229 | 1,675 | 4 | 205,244 | |||||||||||||||||||||||||
Positive replacement values | 15,220 | 331,725 | 38,372 | 12,567 | 2,187 | 1,074 | 401,146 | |||||||||||||||||||||||||
Cash collateral receivables on derivative instruments | 6,207 | 22,591 | 4,470 | 4,475 | 320 | 8 | 38,071 | |||||||||||||||||||||||||
Trading portfolio assets (including pledged) – debt instruments | 52,541 | 59,353 | 10,162 | 5,544 | 6,415 | 296 | 134,310 | |||||||||||||||||||||||||
Financial investments available-for-sale – debt instruments | 66,804 | 6,559 | 40 | 6 | 73,409 | |||||||||||||||||||||||||||
Other financial instruments | 104 | 5,853 | 3,734 | 16,349 | 1,646 | 294 | 27,980 | |||||||||||||||||||||||||
Commitments2 | ||||||||||||||||||||||||||||||||
Guarantees and similar instruments3 | 131 | 7,183 | 4,528 | 3,149 | 1,386 | 159 | 16,535 | |||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 671 | 32,793 | 10,310 | 4,821 | 8,109 | 147 | 56,851 | |||||||||||||||||||||||||
Irrevocable forward starting reverse repos | 39,036 | 39,036 | ||||||||||||||||||||||||||||||
Irrevocable forward starting securities borrowing | 454 | 454 | ||||||||||||||||||||||||||||||
Total | 227,856 | 676,094 | 173,446 | 137,308 | 38,134 | 3,564 | 39,490 | 1,295,893 | ||||||||||||||||||||||||
CHF million | 31.12.09 | |||||||||||||||||||||||||||||||
Rating category1 | 0-1 | 2-3 | 4-5 | 6-8 | 9-13 | defaulted | not rated4 | Total | ||||||||||||||||||||||||
Balances with central banks | 14,491 | 3,615 | 9 | 18,114 | ||||||||||||||||||||||||||||
Due from banks | 312 | 14,092 | 1,517 | 596 | 176 | 111 | 16,804 | |||||||||||||||||||||||||
Loans | 15,738 | 68,854 | 76,986 | 84,120 | 16,295 | 2,716 | 264,710 | |||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | 47,928 | 100,127 | 24,108 | 7,444 | 537 | 52 | 180,196 | |||||||||||||||||||||||||
Positive replacement values | 18,138 | 357,590 | 31,511 | 10,316 | 2,682 | 1,456 | 421,694 | |||||||||||||||||||||||||
Cash collateral receivables on derivative instruments | 7,956 | 37,621 | 3,563 | 3,835 | 606 | 194 | 53,774 | |||||||||||||||||||||||||
Trading portfolio assets (including pledged) – debt instruments | 60,216 | 56,032 | 9,871 | 4,429 | 4,985 | 701 | 136,234 | |||||||||||||||||||||||||
Financial investments available-for-sale – debt instruments | 75,363 | 5,007 | 3 | 25 | 8 | 80,406 | ||||||||||||||||||||||||||
Other financial instruments | 177 | 7,407 | 5,001 | 15,528 | 2,380 | 323 | 30,816 | |||||||||||||||||||||||||
Commitments2 | ||||||||||||||||||||||||||||||||
Guarantees and similar instruments3 | 87 | 8,391 | 4,129 | 2,931 | 1,475 | 56 | 17,070 | |||||||||||||||||||||||||
Undrawn irrevocable credit facilities | 962 | 40,682 | 8,441 | 3,357 | 5,463 | 422 | 59,328 | |||||||||||||||||||||||||
Irrevocable forward starting reverse repos | 43,020 | 43,020 | ||||||||||||||||||||||||||||||
Irrevocable forward starting securities borrowing | 904 | 904 | ||||||||||||||||||||||||||||||
Total | 241,368 | 699,417 | 165,140 | 132,582 | 34,608 | 6,032 | 43,924 | 1,323,070 | ||||||||||||||||||||||||
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Note 30 Pension and other post-employment benefit plans
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Net periodic pension cost for defined benefit plans | 477 | 742 | 660 | |||||||||
of which: related to major plans (Note 30a) | 430 | 694 | 672 | |||||||||
of which: related to post-retirement medical and life insurance plans (Note 30b) | 22 | 9 | 9 | |||||||||
of which: related to remaining plans | 25 | 39 | (21 | ) | ||||||||
Pension cost for defined contribution plans (Note 30c) | 246 | 246 | 312 | |||||||||
Total pension and other post-employment benefit plans (Note 6) | 724 | 988 | 972 | |||||||||
a) Defined benefit plans
Swiss pension plan
International pension plans
è | Refer also to Note 1a) 23). |
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Note 30 Pension and other post-employment benefit plans (continued)
Defined benefit plans | ||||||||||||||||||||||||
CHF million | Swiss | International | ||||||||||||||||||||||
For the year ended | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (21,119 | ) | (21,311 | ) | (20,877 | ) | (4,353 | ) | (3,642 | ) | (4,928 | ) | ||||||||||||
Service cost | (384 | ) | (432 | ) | (336 | ) | (41 | ) | (41 | ) | (63 | ) | ||||||||||||
Interest cost | (657 | ) | (672 | ) | (710 | ) | (237 | ) | (230 | ) | (251 | ) | ||||||||||||
Plan participant contributions | (197 | ) | (195 | ) | (233 | ) | ||||||||||||||||||
Actuarial gain/(loss) | (149 | ) | 231 | (288 | ) | (119 | ) | (471 | ) | 318 | ||||||||||||||
Benefits paid | 1,252 | 1,314 | 1,158 | 148 | 153 | 148 | ||||||||||||||||||
Termination benefits | (45 | ) | (54 | ) | (25 | ) | ||||||||||||||||||
Foreign currency translation | 549 | (122 | ) | 1,134 | ||||||||||||||||||||
Defined benefit obligation at the end of the year | (21,299 | ) | (21,119 | ) | (21,311 | ) | (4,053 | ) | (4,353 | ) | (3,642 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 20,286 | 19,029 | 22,181 | 3,517 | 2,866 | 4,579 | ||||||||||||||||||
Expected return on plan assets | 850 | 846 | 990 | 237 | 202 | 282 | ||||||||||||||||||
Actuarial gain/(loss) | 54 | 963 | (3,820 | ) | 163 | 266 | (1,027 | ) | ||||||||||||||||
Employer contributions | 510 | 513 | 578 | 86 | 232 | 194 | ||||||||||||||||||
Employer contributions – termination benefits | 45 | 54 | 25 | 0 | ||||||||||||||||||||
Plan participant contributions | 197 | 195 | 233 | |||||||||||||||||||||
Benefits paid | (1,252 | ) | (1,314 | ) | (1,158 | ) | (148 | ) | (153 | ) | (148 | ) | ||||||||||||
Foreign currency translation | (449 | ) | 104 | (1,014 | ) | |||||||||||||||||||
Fair value of plan assets at the end of the year | 20,690 | 20,286 | 19,029 | 3,406 | 3,517 | 2,866 | ||||||||||||||||||
Funded status | (609 | ) | (833 | ) | (2,282 | ) | (647 | ) | (836 | ) | (776 | ) | ||||||||||||
Unrecognized net actuarial (gains)/losses | 3,028 | 2,996 | 4,405 | 1,183 | 1,475 | 1,324 | ||||||||||||||||||
(Accrued)/prepaid pension cost | 2,418 | 2,163 | 2,123 | 536 | 639 | 548 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued)/prepaid pension cost at the beginning of the year | 2,163 | 2,123 | 2,123 | 639 | 548 | 626 | ||||||||||||||||||
Net periodic pension cost | (300 | ) | (527 | ) | (603 | ) | (130 | ) | (167 | ) | (69 | ) | ||||||||||||
Employer contributions | 510 | 513 | 578 | 86 | 232 | 194 | ||||||||||||||||||
Employer contributions – termination benefits | 45 | 54 | 25 | 0 | ||||||||||||||||||||
Foreign currency translation | (59 | ) | 26 | (203 | ) | |||||||||||||||||||
(Accrued)/prepaid pension cost | 2,418 | 2,163 | 2,123 | 536 | 639 | 548 | ||||||||||||||||||
Amounts recognized in the balance sheet | ||||||||||||||||||||||||
Prepaid pension cost | 2,418 | 2,163 | 2,123 | 756 | 890 | 798 | ||||||||||||||||||
Accrued pension liability | (220 | ) | (251 | ) | (250 | ) | ||||||||||||||||||
(Accrued)/prepaid pension cost | 2,418 | 2,163 | 2,123 | 536 | 639 | 548 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 384 | 432 | 336 | 41 | 41 | 63 | ||||||||||||||||||
Interest cost | 657 | 672 | 710 | 237 | 230 | 251 | ||||||||||||||||||
Expected return on plan assets | (850 | ) | (846 | ) | (990 | ) | (237 | ) | (202 | ) | (282 | ) | ||||||||||||
Amortization of unrecognized net (gains)/losses | 64 | 215 | 0 | 89 | 98 | 37 | ||||||||||||||||||
Immediate recognition of net actuarial (gains)/losses in current period | 1,826 | |||||||||||||||||||||||
Termination benefits | 45 | 54 | 25 | |||||||||||||||||||||
Limit of defined benefit asset | (1,304 | ) | ||||||||||||||||||||||
Net periodic pension cost | 300 | 527 | 603 | 130 | 167 | 69 | ||||||||||||||||||
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Financial information |
Note 30 Pension and other post-employment benefit plans (continued)
Defined benefit plans (continued)
Funded and unfunded plans | ||||||||||||||||||||||||
Swiss | ||||||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Defined benefit obligation from funded plans | (21,299 | ) | (21,119 | ) | (21,311 | ) | (20,877 | ) | (21,506 | ) | ||||||||||||||
Plan assets | 20,690 | 20,286 | 19,029 | 22,181 | 21,336 | |||||||||||||||||||
Surplus / (deficit) | (609 | ) | (833 | ) | (2,282 | ) | 1,304 | (170 | ) | |||||||||||||||
Experience gains / (losses) on plan liabilities | 253 | 214 | 0 | |||||||||||||||||||||
Experience gains / (losses) on plan assets | 54 | 963 | (3,820 | ) | ||||||||||||||||||||
International | ||||||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||||||
Defined benefit obligation from funded plans | (3,813 | ) | (4,078 | ) | (3,402 | ) | (4,654 | ) | (5,002 | ) | ||||||||||||||
Defined benefit obligation from unfunded plans | (240 | ) | (275 | ) | (240 | ) | (274 | ) | (205 | ) | ||||||||||||||
Plan assets | 3,406 | 3,517 | 2,866 | 4,579 | 4,602 | |||||||||||||||||||
Surplus / (deficit) | (647 | ) | (836 | ) | (776 | ) | (349 | ) | (605 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | (17 | ) | (12 | ) | 62 | |||||||||||||||||||
Experience gains / (losses) on plan assets | 163 | 266 | (1,027 | ) | ||||||||||||||||||||
Swiss | International | |||||||||||||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 2.8 | 3.3 | 3.3 | 5.4 | 5.7 | 6.0 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.9 | 5.0 | 4.5 | ||||||||||||||||||
Rate of pension increase | 0.3 | 0.5 | 0.5 | 2.3 | 2.5 | 1.9 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.3 | 3.3 | 3.5 | 5.7 | 6.0 | 5.8 | ||||||||||||||||||
Expected rate of return on plan assets | 4.3 | 4.5 | 4.5 | 6.9 | 6.6 | 7.1 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 5.0 | 4.5 | 4.8 | ||||||||||||||||||
Rate of pension increase | 0.5 | 0.5 | 0.8 | 2.5 | 1.9 | 2.4 | ||||||||||||||||||
Plan assets (weighted average) | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 32 | 35 | 26 | 45 | 46 | 46 | ||||||||||||||||||
Debt instruments | 54 | 51 | 55 | 38 | 35 | 35 | ||||||||||||||||||
Real estate | 13 | 13 | 13 | 3 | 3 | 3 | ||||||||||||||||||
Other | 1 | 1 | 6 | 14 | 16 | 16 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 15-39 | 18-44 | 20-48 | 40-42 | 42-45 | 45-48 | ||||||||||||||||||
Debt instruments | 44-68 | 41-65 | 37-63 | 38-44 | 37-44 | 37-38 | ||||||||||||||||||
Real estate | 10-18 | 9-17 | 10-20 | 3-6 | 3-7 | 3-7 | ||||||||||||||||||
Other | 0--5 | 0-5 | 0-5 | 11-15 | 11-12 | 10-12 | ||||||||||||||||||
Actual return on plan assets (%) | 4.6 | 9.7 | (12.8 | ) | 11.7 | 15.5 | (18.2 | ) | ||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 258 | 205 | 782 | |||||||||||||||||||||
UBS AG shares1 | 25 | 66 | 55 | |||||||||||||||||||||
Derivative financial instruments, counterparty UBS | 298 | 25 | 41 | |||||||||||||||||||||
Other assets used by UBS | 188 | 193 | 107 | |||||||||||||||||||||
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Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
Mortality tables and life expectancies for major plans | ||||||||||||||||||||||||||||
Life expectancy at age 65 for a male member currently | ||||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||||
Country | Mortality table | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||||||||||||
Switzerland | BVG 2005 | 17.9 | 17.9 | 17.8 | 17.9 | 17.9 | 17.8 | |||||||||||||||||||||
UK | PA 2000 G, medium cohort with adjustment | 23.0 | 22.8 | 22.7 | 25.9 | 25.7 | 25.6 | |||||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 19.3 | 19.1 | 19.0 | 22.0 | 21.9 | 21.8 | |||||||||||||||||||||
US | PPA mandated mortality table per IRC 1.430(h)(3) | 19.0 | 18.4 | 18.4 | 19.0 | 18.4 | 18.4 | |||||||||||||||||||||
Life expectancy at age 65 for a female member currently | ||||||||||||||||||||||||||||
aged 65 | aged 45 | |||||||||||||||||||||||||||
Country | Mortality table | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||||||||||||
Switzerland | BVG 2005 | 21.0 | 21.0 | 21.1 | 21.0 | 21.0 | 21.1 | |||||||||||||||||||||
UK | PA 2000 G, medium cohort with adjustment | 24.7 | 24.6 | 24.5 | 26.6 | 26.5 | 26.4 | |||||||||||||||||||||
Germany | Dr. K. Heubeck 2005 G | 23.4 | 23.3 | 23.1 | 26.0 | 25.8 | 25.7 | |||||||||||||||||||||
US | PPA mandated mortality table per IRC 1.430(h)(3) | 20.9 | 20.6 | 20.6 | 20.9 | 20.6 | 20.6 | |||||||||||||||||||||
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Note 30 Pension and other post-employment benefit plans (continued)
b) Post-retirement medical and life insurance plans
In the US and the UK, UBS offers retiree medical benefits that contribute to the health care coverage of certain employees and beneficiaries after retirement. The UK plan is closed to new entrants. In addition to retiree medical benefits, UBS in the US also provides retiree life insurance benefits to certain employees. The benefit obligation in excess of the fair value of plan assets for these plans amounts to CHF 209 million as of 31 December 2010 (2009: CHF 186 million; 2008: CHF 159 million) and the total accrued post-retirement cost amounts to CHF 158 million as of 31
December 2010 (2009: CHF 163 million; 2008: CHF 164 million). The periodic post-retirement costs for the years ended 31 December 2010, 31 December 2009, and 31 December 2008 were CHF 22 million (net of a curtailment gain of CHF 0 million), CHF 9 million (net of a curtailment gain of CHF 8 million), and CHF 9 million (net of a curtailment gain of CHF 11 million), respectively.
Post-retirement medical and life insurance plans | ||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||||||||
Post-retirement benefit obligation at the beginning of the year | (186 | ) | (159 | ) | (190 | ) | ||||||||||||||
Service cost | (9 | ) | (7 | ) | (8 | ) | ||||||||||||||
Interest cost | (11 | ) | (10 | ) | (11 | ) | ||||||||||||||
Plan participant contributions | (2 | ) | (2 | ) | 0 | |||||||||||||||
Actuarial gain / (loss) | (35 | ) | (31 | ) | 14 | |||||||||||||||
Benefits paid | 10 | 10 | 7 | |||||||||||||||||
Curtailments | 9 | 9 | ||||||||||||||||||
Foreign currency translation | 24 | 4 | 20 | |||||||||||||||||
Post-retirement benefit obligation at the end of the year | (209 | ) | (186 | ) | (159 | ) | ||||||||||||||
Fair value of plan assets at the beginning of the year | 0 | 0 | 0 | |||||||||||||||||
Employer contributions | 8 | 8 | 6 | |||||||||||||||||
Plan participant contributions | 2 | 2 | 1 | |||||||||||||||||
Benefits paid | (10 | ) | (10 | ) | (7 | ) | ||||||||||||||
Fair value of plan assets at the end of the year | 0 | 0 | 0 | |||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Defined benefit obligation | (209 | ) | (186 | ) | (159 | ) | (190 | ) | (219 | ) | ||||||||||
Plan asset | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Surplus / (deficit) | (209 | ) | (186 | ) | (159 | ) | (190 | ) | (219 | ) | ||||||||||
Experience gains / (losses) on plan liabilities | 6 | 8 | 3 | |||||||||||||||||
The post-retirement benefit expense is determined by using the assumed average health care cost trend rate. The rate for 2011 is assumed to be 8% and is assumed to decrease gradually to 5% by 2018. 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 average 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 periodic post-retirement benefit costs as follows:
CHF million | 1% increase | 1% decrease | ||||||
Effect on total service and interest cost | 5 | (4 | ) | |||||
Effect on the post-retirement benefit obligation | 35 | (27 | ) | |||||
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Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
c) Defined contribution plans
UBS also sponsors a number of defined contribution plans in its international locations. The locations with defined contribution plans of a significant nature are in the UK and the US. Certain plans permit employees to make contributions and earn matching
or other contributions from UBS. The employer contributions to these plans recognized as expense for the years ended 31 December 2010, 31 December 2009, and 31 December 2008 were CHF 246 million, CHF 246 million, and CHF 312 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 can include, but are not limited to, trading and securities lending and borrowing. All transactions have been executed at arm’s length conditions.
multaneously into lease-back arrangements for some of the properties with 25-year lease terms and two renewal options for ten years each. During 2009, UBS renegotiated one of the lease contracts which reduced UBS’s remaining lease commitment.
Related party disclosure | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Received by UBS | ||||||||||||
Fees | 21 | 34 | 44 | |||||||||
Paid by UBS | ||||||||||||
Rent | 11 | 12 | 7 | |||||||||
Interest | 3 | 2 | 1 | |||||||||
Dividends and capital repayments | 0 | 0 | 4 | |||||||||
The transaction volumes in UBS shares and other UBS securities are as follows:
Transaction volumes – related parties | ||||||||||||
For the year ended | ||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||
Financial instruments bought by pension funds | ||||||||||||
UBS AG shares (in thousands of shares) | 2,684 | 3,869 | 6,925 | |||||||||
UBS financial instruments (nominal values in CHF million) | 40 | 35 | 78 | |||||||||
Financial instruments sold by pension funds or matured | ||||||||||||
UBS AG shares (in thousands of shares) | 4,735 | 4,116 | 1,881 | |||||||||
UBS financial instruments (nominal values in CHF million) | 10 | 14 | 10 | |||||||||
UBS did not hold financial instruments issued by UBS pension plans as of 31 December 2010, 31 December 2009 and 31 December 2008, respectively.
contribution pension funds hold 17,665,621 UBS shares with a market value of CHF 272 million as of 31 December 2010 (2009: 17,259,203 shares with a market value of CHF 278 million; 2008: 17,866,949 shares with a market value of CHF 272 million).
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Note 31 Equity participation and other compensation plans
a) Plans offered
UBS has established several equity participation and other compensation plans to further align the 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. UBS’s compensation plans are mandatory, discretionary or voluntary. The explanations below provide a general description of the terms of the most significant plans offered, however specific plan rules may vary by country. Refer to Note 1a) 24) for a description of the accounting policy related to equity participation and other compensation plans.
Mandatory share-based compensation plans
vesting of these awards is subject to the fulfillment of specific performance conditions. Compensation expense is recognized on the same basis as for other share-settled EOP awards.
Mandatory deferred cash compensation plans
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
the initial four-year period and a market rate of interest thereafter. The awards vest in 20% increments six to ten years following grant date. Interest earned on UBS contributions is forfeitable under certain circumstances. Compensation expense is recognized on a straight-line basis from the grant date to the earliest of the vesting date or the retirement eligibility date of the employee.
Discretionary share-based compensation plans
eligibility date of the employee. No KESAP or KESOP awards were granted in 2010.
Voluntary share-based compensation plans
352
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Financial information |
Note 31 Equity participation and other compensation plans (continued)
b) Effect on income statement
Effect on income statement for the financial year and future periods
Personnel expenses – recognized and deferred1 | ||||||||||||||||||||||||
Personnel expenses for the year ended 2010 | Personnel expenses deferred to 2011 and later | |||||||||||||||||||||||
Expenses | Expenses | |||||||||||||||||||||||
relating to | relating to | Relating to | Relating to | |||||||||||||||||||||
awards for | awards for | awards | awards for | |||||||||||||||||||||
CHF million | 2010 | prior years | Total | for 2010 | prior years | Total | ||||||||||||||||||
Variable bonus awards | ||||||||||||||||||||||||
Cash discretionary bonus | 2,079 | 5 | 2,084 | 0 | 0 | 0 | ||||||||||||||||||
Conditional Variable Compensation Plan (CVCP) | 0 | 179 | 179 | 0 | 292 | 292 | ||||||||||||||||||
Cash Balance and other cash plans | 64 | 71 | 135 | 236 | 19 | 255 | ||||||||||||||||||
Total deferred cash plans | 64 | 250 | 314 | 236 | 311 | 547 | ||||||||||||||||||
Equity Ownership Plan (EOP/SEEOP/Performance) – UBS shares | 434 | 852 | 1,286 | 1,249 | 515 | 1,764 | ||||||||||||||||||
Performance Equity Plan (PEP) | 6 | 5 | 11 | 16 | 2 | 18 | ||||||||||||||||||
Incentive Performance Plan (IPP) | 0 | 131 | 131 | 6 | 221 | 227 | ||||||||||||||||||
Total UBS share plans | 440 | 988 | 1,428 | 1,271 | 738 | 2,009 | ||||||||||||||||||
UBS share option plans (KESAP/KESOP) | 145 | 145 | 114 | 114 | ||||||||||||||||||||
Equity Ownership Plan (EOP) – AIVs | 28 | 83 | 111 | 67 | 57 | 124 | ||||||||||||||||||
Total discretionary bonus | 2,611 | 1,471 | 4,082 | 1,574 | 1,220 | 2,794 | ||||||||||||||||||
Variable compensation | ||||||||||||||||||||||||
Variable compensation – other2 | 399 | (89 | ) | 310 | 337 | 20 | 357 | |||||||||||||||||
Financial advisor compensation – cash payments | 1,813 | 0 | 1,813 | 0 | 0 | 0 | ||||||||||||||||||
Compensation commitments and advances related to recruited financial advisors | 29 | 570 | 599 | 388 | 2,186 | 2,574 | ||||||||||||||||||
Partner Plus and other deferred cash plans | 127 | 35 | 162 | 221 | 302 | 523 | ||||||||||||||||||
UBS share plans | 11 | 82 | 93 | 89 | 266 | 355 | ||||||||||||||||||
Wealth Management Americas financial advisor compensation3 | 1,980 | 687 | 2,667 | 698 | 2,754 | 3,452 | ||||||||||||||||||
Total | 4,990 | 2,069 | 7,059 | 2,609 | 3,994 | 6,603 | ||||||||||||||||||
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
Personnel expenses – recognized and deferred1 | ||||||||||||||||||||||||
Personnel expenses for the year ended 2009 | Personnel expenses deferred to 2010 and later | |||||||||||||||||||||||
Expenses | Expenses | |||||||||||||||||||||||
relating to | relating to | Relating to | Relating to | |||||||||||||||||||||
awards for | awards for | awards for | awards for | |||||||||||||||||||||
CHF million | 2009 | prior years | Total | 2009 | prior years | Total | ||||||||||||||||||
Variable bonus awards | ||||||||||||||||||||||||
Cash discretionary bonus | 2,245 | (169 | ) | 2,076 | 0 | 0 | 0 | |||||||||||||||||
Conditional Variable Compensation Plan (CVCP) | 0 | 19 | 19 | 0 | 558 | 558 | ||||||||||||||||||
Cash Balance and other cash plans | 44 | 0 | 44 | 45 | 12 | 57 | ||||||||||||||||||
Total deferred cash plans | 44 | 19 | 63 | 45 | 570 | 615 | ||||||||||||||||||
Equity Ownership Plan (EOP/SEEOP) – UBS shares | 276 | 283 | 559 | 1,352 | 97 | 1,449 | ||||||||||||||||||
Performance Equity Plan (PEP) | 0 | 0 | 0 | 8 | 0 | 8 | ||||||||||||||||||
Incentive Performance Plan (IPP) | 0 | 0 | 0 | 467 | 0 | 467 | ||||||||||||||||||
Total UBS share plans | 276 | 283 | 559 | 1,827 | 97 | 1,924 | ||||||||||||||||||
UBS share option plans (KESAP/KESOP) | 33 | 23 | 56 | 34 | 286 | 320 | ||||||||||||||||||
Equity Ownership Plan (EOP) – AIVs | 34 | 21 | 55 | 134 | 13 | 147 | ||||||||||||||||||
Total discretionary bonus | 2,632 | 177 | 2,809 | 2,040 | 966 | 3,006 | ||||||||||||||||||
Variable compensation | ||||||||||||||||||||||||
Variable compensation – other2 | 816 | 14 | 830 | 61 | 27 | 88 | ||||||||||||||||||
Financial advisor compensation – cash payments | 1,712 | 0 | 1,712 | 0 | 0 | 0 | ||||||||||||||||||
Compensation commitments and advances related to recruited financial advisors | 127 | 471 | 598 | 1,198 | 1,744 | 2,942 | ||||||||||||||||||
Partner Plus and other deferred cash plans | 28 | (7 | ) | 21 | 124 | 241 | 365 | |||||||||||||||||
UBS share plans | 0 | 95 | 95 | 110 | 236 | 346 | ||||||||||||||||||
Wealth Management Americas financial advisor compensation3 | 1,867 | 559 | 2,426 | 1,432 | 2,221 | 3,653 | ||||||||||||||||||
Total | 5,315 | 750 | 6,065 | 3,533 | 3,214 | 6,747 | ||||||||||||||||||
Additional disclosures on mandatory, discretionary and voluntary share-based compensation plans (including AIVs granted under EOP)
periods is CHF 1,382 million and will be recognized inPersonnel expensesover a weighted average period of 2.5 years. Deferred compensation amounts included in the table above differ from this amount as they include non-vested awards granted in February and March 2011 related to the compensation core cycle 2010.
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Note 31 Equity participation and other compensation plans (continued)
c) Movements during the year
UBS share and performance share awards
UBS share awards | ||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number of | average grant | Number of | average grant | Number of | average grant | |||||||||||||||||||
shares | date fair | shares | date fair | shares | date fair | |||||||||||||||||||
2010 | value CHF | 2009 | value CHF | 2008 | value CHF | |||||||||||||||||||
Outstanding, at the beginning of the year | 86,888,626 | 31 | 84,736,935 | 53 | 59,102,580 | 66 | ||||||||||||||||||
Shares awarded during the year | 125,133,310 | 15 | 39,067,130 | 12 | 90,895,594 | 32 | ||||||||||||||||||
Distributions during the year | (29,669,688 | ) | 42 | (31,293,824 | ) | 66 | (60,105,109 | ) | 61 | |||||||||||||||
Forfeited during the year | (11,267,108 | ) | 21 | (5,621,615 | ) | 38 | (5,156,131 | ) | 54 | |||||||||||||||
Outstanding, at the end of the year | 171,085,140 | 18 | 86,888,626 | 31 | 84,736,935 | 53 | ||||||||||||||||||
of which: shares vested for accounting purposes | 47,366,286 | 40,148,461 | 65,767,017 | |||||||||||||||||||||
The market value of shares that became legally vested during the years ended 31 December 2010, 2009, and 2008 was CHF 421 million, CHF 346 million, and CHF 1,385 million, respectively.
Movements in IPP units are as follows:
Incentive Performance Plan | ||||||||||||
Weighted average | ||||||||||||
Number of | fair value of IPP | Representative of | ||||||||||
performance shares | performance shares | UBS shares | ||||||||||
2010 | at grant date CHF1 | 20102 | ||||||||||
Forfeitable, at the beginning of the year | 0 | 0 | 0 | |||||||||
Awarded during the year | 19,629,916 | 22 | 19,629,916 | |||||||||
Distributions during the year | 0 | 0 | 0 | |||||||||
Forfeited / cancelled during the year | (1,472,674 | ) | 22 | (1,472,674 | ) | |||||||
Increase / decrease of UBS shares to be delivered upon vesting, based on conditions at the end of the year | N/A | N/A | 0 | |||||||||
Forfeitable, at the end of the year | 18,157,242 | 22 | 18,157,242 | |||||||||
of which: performance shares vested for accounting purposes | 4,073,546 | 4,073,546 | ||||||||||
Movements in PEP units are as follows:
Performance Equity Plan | ||||||||||||
Weighted average | ||||||||||||
Number of | fair value of PEP | Representative of | ||||||||||
performance shares | performance shares | UBS shares | ||||||||||
2010 | at grant date CHF1 | 20102 | ||||||||||
Forfeitable, at the beginning of the year | 0 | 0 | 0 | |||||||||
Awarded during the year | 545,642 | 16 | 545,642 | |||||||||
Distributions during the year | 0 | 0 | 0 | |||||||||
Forfeited during the year | (26,805 | ) | 16 | (26,805 | ) | |||||||
Increase / decrease of UBS shares to be delivered upon vesting, based on conditions at the end of the year | N/A | N/A | (251,636 | ) | ||||||||
Forfeitable, at the end of the year | 518,837 | 16 | 267,201 | |||||||||
of which: performance shares vested for accounting purposes | 221,638 | 114,143 | ||||||||||
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Financial information
Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
UBS option awards
Movements in option awards were as follows:
UBS option awards | ||||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||
average | Weighted | Weighted | ||||||||||||||||||||||
Number of | exercise price | Number of | average exercise | Number of | average exercise | |||||||||||||||||||
options 2010 | CHF2 | options 2009 | price CHF2 | options 20081 | price CHF1,2 | |||||||||||||||||||
Outstanding, at the beginning of the year | 228,623,886 | 43 | 236,055,545 | 47 | 198,213,092 | 52 | ||||||||||||||||||
Granted during the year | 0 | 0 | 22,525,624 | 13 | 62,973,879 | 30 | ||||||||||||||||||
Exercised during the year | (40,894 | ) | 14 | (48,241 | ) | 16 | (3,673,657 | ) | 26 | |||||||||||||||
Forfeited during the year | (5,814,986 | ) | 33 | (7,245,512 | ) | 37 | (6,732,080 | ) | 52 | |||||||||||||||
Expired unexercised | (17,222,431 | ) | 54 | (22,663,530 | ) | 48 | (14,725,689 | ) | 46 | |||||||||||||||
Outstanding, at the end of the year | 205,545,575 | 42 | 228,623,886 | 43 | 236,055,545 | 47 | ||||||||||||||||||
Exercisable, at the end of the year | 155,302,104 | 48 | 137,797,186 | 51 | 124,054,442 | 46 | ||||||||||||||||||
The following table provides additional information about option exercises, grants and intrinsic values:
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||
Weighted average share price of options exercised (CHF) | 16 | 18 | 34 | |||||||||
Intrinsic value of options exercised during the year (CHF million) | 0.06 | 0.20 | 29 | |||||||||
Weighted average grant date fair value of options granted (CHF) | N/A | 6.00 | 7.53 | |||||||||
The following table provides additional information about options outstanding and options exercisable as of 31 December 2010:
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||||||
Weighted | Aggregate | average | Weighted | Aggregate | average | |||||||||||||||||||||||||||
Number of | average | intrinsic value | remaining | Number of | average | intrinsic value | remaining | |||||||||||||||||||||||||
options | exercise price | (CHF / USD | contractual | options | exercise price | (CHF / USD | contractual | |||||||||||||||||||||||||
Range of exercise prices | outstanding | (CHF / USD) | million) | term (years) | exercisable | (CHF / USD) | million) | term (years) | ||||||||||||||||||||||||
CHF awards | ||||||||||||||||||||||||||||||||
10.21–15.00 | 17,491,529 | 11.31 | 70.6 | 8.1 | 3,739,473 | 14.47 | 3.3 | 7.9 | ||||||||||||||||||||||||
15.01–25.00 | 10,805,461 | 18.72 | 0.0 | 8.3 | 3,480,569 | 22.45 | 0.0 | 7.7 | ||||||||||||||||||||||||
25.01–35.00 | 43,010,690 | 31.12 | 0.0 | 6.4 | 22,141,540 | 29.88 | 0.0 | 5.6 | ||||||||||||||||||||||||
35.01–45.00 | 22,801,529 | 38.91 | 0.0 | 4.1 | 14,768,284 | 40.65 | 0.0 | 2.4 | ||||||||||||||||||||||||
45.01–55.00 | 19,987,650 | 49.37 | 0.0 | 4.4 | 19,801,910 | 49.33 | 0.0 | 4.4 | ||||||||||||||||||||||||
55.01–65.00 | 4,867,956 | 60.23 | 0.0 | 6.0 | 4,867,956 | 60.23 | 0.0 | 6.0 | ||||||||||||||||||||||||
65.01–75.00 | 57,874,089 | 67.71 | 0.0 | 5.7 | 57,872,067 | 67.71 | 0.0 | 5.7 | ||||||||||||||||||||||||
10.21–75.00 | 176,838,904 | 44.25 | 70.6 | 5.9 | 126,671,799 | 51.97 | 3.3 | 5.2 | ||||||||||||||||||||||||
USD awards | ||||||||||||||||||||||||||||||||
15.51–25.00 | 10,429,351 | 20.19 | 0.0 | 1.8 | 10,409,351 | 20.19 | 0.0 | 1.8 | ||||||||||||||||||||||||
25.01–35.00 | 7,011,857 | 31.68 | 0.0 | 3.3 | 7,011,557 | 31.68 | 0.0 | 3.3 | ||||||||||||||||||||||||
35.01–45.00 | 11,256,014 | 38.61 | 0.0 | 4.1 | 11,200,872 | 38.62 | 0.0 | 4.2 | ||||||||||||||||||||||||
45.01–46.91 | 9,449 | 46.81 | 0.0 | 4.6 | 8,525 | 46.91 | 0.0 | 5.1 | ||||||||||||||||||||||||
15.51–46.91 | 28,706,671 | 30.23 | 0.0 | 3.1 | 28,630,305 | 30.22 | 0.0 | 3.1 | ||||||||||||||||||||||||
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Note 31 Equity participation and other compensation plans (continued)
UBS SARs awards
Movements in SARs granted under the equity participation plans are as follows:
UBS SAR awards | ||||||||||||||||
Weighted | ||||||||||||||||
Number | average | Number | Weighted | |||||||||||||
of SARs | exercise | of SARs | average exercise | |||||||||||||
2010 | price CHF | 2009 | price CHF | |||||||||||||
Outstanding, at the beginning of the year | 60,907,175 | 12 | 0 | 0 | ||||||||||||
Granted during the year | 0 | 0 | 66,126,830 | 12 | ||||||||||||
Exercised during the year | (160,334 | ) | 12 | 0 | 0 | |||||||||||
Forfeited during the year | (2,721,700 | ) | 11 | (5,219,655 | ) | 11 | ||||||||||
Expired unexercised | (10,100 | ) | 11 | 0 | 0 | |||||||||||
Outstanding, at the end of the year | 58,015,041 | 12 | 60,907,175 | 12 | ||||||||||||
Exercisable, at the end of the year | 4,005,317 | 10 | 4,000,000 | 10 | ||||||||||||
The following table provides additional information about SARs exercises, grants and intrinsic values:
31.12.10 | 31.12.09 | |||||||
Weighted average share price of SARs exercised (CHF) | 15.8 | N/A | ||||||
Intrinsic value of SARs exercised during the year (CHF million) | 0.6 | N/A | ||||||
Weighted average grant date fair value of SARs granted (CHF) | N/A | 5.0 | ||||||
The following table provides additional information about SARs outstanding as of 31 December 2010:
SARs outstanding | SARs exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||||||
Weighted | average | Weighted | average | |||||||||||||||||||||||||||||
Number of | average | Aggregate | remaining | Number of | average | Aggregate | remaining | |||||||||||||||||||||||||
SARs | exercise | intrinsic value | contractual | SARs | exercise | intrinsic value | contractual | |||||||||||||||||||||||||
Range of exercise prices | outstanding | price (CHF) | (CHF million) | term (years) | exercisable | price (CHF) | (CHF million) | term (years) | ||||||||||||||||||||||||
CHF | ||||||||||||||||||||||||||||||||
9.35–12.50 | 56,450,205 | 11.26 | 231.2 | 7.8 | 4,000,000 | 10.10 | 21.0 | 3.2 | ||||||||||||||||||||||||
12.51–15.00 | 51,410 | 14.56 | 0.0 | 8.5 | 0 | 0.00 | 0.0 | 0.0 | ||||||||||||||||||||||||
15.01–17.50 | 217,496 | 16.52 | 0.0 | 8.4 | 5,317 | 16.80 | 0.0 | 8.4 | ||||||||||||||||||||||||
17.51–20.00 | 390,930 | 19.25 | 0.0 | 8.7 | 0 | 0.00 | 0.0 | 0.0 | ||||||||||||||||||||||||
35.01–40.00 | 905,000 | 40.00 | 0.0 | 8.2 | 0 | 0.00 | 0.0 | 0.0 | ||||||||||||||||||||||||
9.35–40.00 | 58,015,041 | 11.78 | 231.2 | 7.8 | 4,005,317 | 10.11 | 21.0 | 3.2 | ||||||||||||||||||||||||
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
d) Valuation
UBS share awards
UBS options and SARs awards
31.12.09 | ||||||||||||
CHF awards | range low | range high | ||||||||||
Expected volatility (%) | 48.22 | 40.91 | 53.47 | |||||||||
Risk-free interest rate (%) | 2.16 | 1.50 | 2.57 | |||||||||
Expected dividend (CHF) | 0.27 | 0.00 | 0.29 | |||||||||
Strike price (CHF) | 11.88 | 9.35 | 40.00 | |||||||||
Share price (CHF) | 11.64 | 9.35 | 19.27 | |||||||||
31.12.08 | ||||||||||||
CHF awards | range low | range high | ||||||||||
Expected volatility (%) | 33.86 | 30.00 | 49.32 | |||||||||
Risk-free interest rate (%) | 2.83 | 1.74 | 3.27 | |||||||||
Expected dividend (CHF) | 1.85 | 1.10 | 2.57 | |||||||||
Strike price (CHF) | 30.11 | 14.47 | 46.02 | |||||||||
Share price (CHF) | 28.05 | 14.47 | 43.61 | |||||||||
UBS performance share awards (IPP, PEP)
31.12.10 | ||||||||
IPP CHF awards | PEP CHF awards | |||||||
Expected TSR volatility (%) | 38.07 | 63.00 | ||||||
Expected EP volatility (%) | N/A | 57.00 | ||||||
Risk-free interest rate (%) | 1.06 | 0.60 | ||||||
Expected dividend (CHF) | 0.12 | 0.10 | ||||||
Share price (CHF) | 14.80 | 14.80 | ||||||
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Note 32 Related parties
The Group defines related parties as associated companies (entities which are significantly influenced by UBS), post-employment benefit plans for the benefit of UBS employees, key management personnel, close family members of key management personnel and entities which are, directly or indirectly, controlled or jointly
controlled by 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 revised requirements of IAS 24Related Party Disclosuresissued in November 2009.
a) Remuneration of key management personnel
The non-independent members of the BoD have top management employment contracts and receive pension benefits upon retirement. Total remuneration of the non-independent members of the BoD and GEB including those who stepped down during 20101is as follows:
Remuneration of key management personnel | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Base salaries and other cash payments | 16 | 16 | 12 | |||||||||
Incentive awards – cash | 30 | 3 | 64 | 0 | ||||||||
Employer’s contributions to retirement benefit plans | 1 | 2 | 2 | |||||||||
Benefits in kind, fringe benefits (at market value) | 1 | 1 | 1 | |||||||||
Equity compensation benefits2 | 48 | 4 | 29 | 0 | ||||||||
Total | 96 | 112 | 15 | |||||||||
The independent members of the BoD do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the BoD. Payments to these
individuals for their services as external board members amounted to CHF 6.7 million in 2010, CHF 6.4 million in 2009 and CHF 6.4 million in 2008.
b) Equity holdings | ||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||
Number of stock options from equity participation plans held by non-independent members of the BoD and the GEB1 | 9,085,194 | 9,410,280 | 8,458,037 | |||||||||
Number of shares held by members of the BoD, GEB and parties closely linked to them | 4,850,196 | 4,180,154 | 5,869,952 | |||||||||
Of the share totals above, as of 31 December 2010, 31 December 2009 and 31 December 2008, 5,597 shares, 0 shares and 15,878 shares respectively were held by close family members of key management personnel and 0 shares, 0 shares and 103,841 shares respectively were held by entities which are directly or indirectly con-
trolled or jointly controlled by key management personnel or their close family members. Refer to “Note 31 Equity participation and other compensation plans” in this section for more information. No member of the BoD or GEB is the beneficial owner of more than 1% of the Group’s shares at 31 December 2010.
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Notes to the consolidated financial statements
Note 32 Related parties (continued)
c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have been granted loans, fixed advances and mortgages on the same terms and conditions that are available to other employees, based on terms and conditions granted to third parties adjusted for re-
duced credit risk. Independent BoD members are granted loans and mortgages at general market conditions.
Loans, advances and mortgages to key management personnel | ||||||||
CHF million | 31.12.10 | 31.12.09 | ||||||
Balance at the beginning of the year | 18 | 11 | ||||||
Additions | 8 | 12 | ||||||
Reductions | (4 | ) | (5 | ) | ||||
Balance at the end of the year | 22 | 18 | ||||||
No unsecured loans were granted to key management personnel as of 31 December 2010 and 31 December 2009.
d) Associated companies
All loans to associated companies are transacted at arm’s length:
CHF million | 31.12.10 | 31.12.09 | ||||||
Balance at the beginning of the year | 373 | 301 | ||||||
Additions | 2 | 295 | ||||||
Reductions | (118 | ) | (222 | ) | ||||
Credit loss (expense) / recovery | 0 | (1 | ) | |||||
Foreign currency translation | 2 | 0 | ||||||
Balance at the end of the year | 259 | 373 | ||||||
of which: unsecured loans | 39 | 42 | ||||||
of which: allowances for credit losses | 1 | 1 | ||||||
Other transactions with associated companies transacted at arm’s length:
As of or for the year ended | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Payments to associates for goods and services received | 139 | 130 | 90 | |||||||||
Fees received for services provided to associates | 1 | 2 | 6 | |||||||||
Commitments and contingent liabilities to associates | 68 | 156 | 40 | |||||||||
Note 34 provides a list of significant associates.
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Note 32 Related parties (continued)
e) Other related party transactions
Other related party transactions | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Balance at the beginning of the year | 0 | 6 | 158 | |||||||||
Additions | 0 | 0 | 0 | |||||||||
Reductions | 0 | (6 | ) | (152 | ) | |||||||
Balance at the end of the year1 | 0 | 0 | 6 | |||||||||
Other transactions with these related parties include:
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||
Goods sold and services provided to UBS | 0 | 0 | 1 | |||||||||
Fees received for services provided by UBS | 1 | 0 | 11 | |||||||||
As part of its sponsorship of Team Alinghi, UBS paid CHF 828,090 (EUR 538,000) in basic sponsoring fees for 2008. Team Alinghi’s controlling shareholder is UBS former Board member Ernesto Bertarelli.
f) Additional information
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Notes to the consolidated financial statements
Note 33 Events after the reporting period
Subsequent to the publication of the unaudited fourth quarter 2010 financial report on 8 February 2011, management decided to adjust the annual financial statements 2010. The net impact of these adjustments on net profit attributable to UBS shareholders was a gain of CHF 373 million, which increased basic and diluted earnings per share by CHF 0.10.
Note 34 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 divisions of UBS (namely Investment Bank, Wealth Management Americas, Wealth Management & Swiss Bank and Global Asset Management) nor the Corporate Center are replicated in their own individual legal entities, but rather they generally operate out of UBS AG (Parent Bank) through its Swiss and foreign branches.
Significant subsidiaries |
Share capital | Equity interest | |||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||
CCR Asset Management S.A. | Paris, France | Global AM | EUR | 5.3 | 100.0 | |||||||||
Ellington Co., Ltd. | Tokyo, Japan | IB | JPY | 10.0 | 100.0 | |||||||||
Fondcenter AG | Zurich, Switzerland | Global AM | CHF | 0.1 | 100.0 | |||||||||
OOO UBS Bank | Moscow, Russia | IB | RUB | 1,250.0 | 100.0 | |||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 118,000.0 | 98.6 | |||||||||
Topcard Service AG | Glattbrugg, Switzerland | WM&SB | CHF | 0.2 | 100.0 | |||||||||
UBS (Bahamas) Ltd. | Nassau, Bahamas | WM&SB | USD | 4.0 | 100.0 | |||||||||
UBS (France) S.A. | Paris, France | WM&SB | EUR | 125.7 | 100.0 | |||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
UBS (Italia) S.p.A. | Milan, Italy | WM&SB | EUR | 60.0 | 100.0 | |||||||||
UBS (Luxembourg) S.A. | Luxembourg, Luxembourg | WM&SB | CHF | 150.0 | 100.0 | |||||||||
UBS (Luxembourg) SA Austria Branch | Vienna, Austria | WM&SB | CHF | 0.0 | 100.0 | |||||||||
UBS (Monaco) S.A. | Monte Carlo, Monaco | WM&SB | 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 | |||||||||
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Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share capital | Equity interest | |||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||
UBS Asesores SA | Panama, Panama | WM&SB | USD | 0.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | WMA | CAD | 8.5 | 100.0 | |||||||||
UBS Bank (Netherlands) B.V. | Amsterdam, the Netherlands | WM&SB | EUR | 0.2 | 100.0 | |||||||||
UBS Bank Mexico, S.A. Institucion de Banca Multiple, UBS Grupo Financiero | Mexico City, Mexico | IB | MXN | 706.4 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | WMA | USD | 1,880.0 | 2 | 100.0 | ||||||||
UBS Bank, S.A. | Madrid, Spain | WM&SB | EUR | 82.2 | 100.0 | |||||||||
UBS Belgium SA/NV | Brussels, Belgium | WM&SB | EUR | 28.0 | 100.0 | |||||||||
UBS Brasil Administradora de Valores Mobiliarios Ltda | São Paulo, Brazil | WM&SB | BRL | 0.0 | 100.0 | |||||||||
UBS Capital Securities (Jersey) Limited | St. Helier, Jersey | CC | EUR | 0.0 | 100.0 | |||||||||
UBS Card Center AG | Glattbrugg, Switzerland | WM&SB | CHF | 0.1 | 100.0 | |||||||||
UBS Casa de Bolsa, S.A. de C.V. | Mexico City, Mexico | IB | MXN | 114.9 | 100.0 | |||||||||
UBS Custody Services Singapore Pte. Ltd. | Singapore, Singapore | WM&SB | SGD | 5.5 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 880.0 | 100.0 | |||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | WM&SB | EUR | 176.0 | 100.0 | |||||||||
UBS Fiduciaria S.p.A. | Milan, Italy | WM&SB | EUR | 0.2 | 100.0 | |||||||||
UBS Finance (Curação) N.V. | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
UBS Financial Services Inc. | Delaware, USA | WMA | USD | 3,875.0 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | WMA | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor, L.L.C. | Delaware, USA | WMA | USD | 0.0 | 2 | 100.0 | ||||||||
UBS Fund Management (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | EUR | 10.0 | 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 | 2 | 100.0 | ||||||||
UBS Global Asset Management (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 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 | 5.1 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||
UBS Global Asset Management (UK) Ltd | London, Great Britain | Global AM | GBP | 125.0 | 100.0 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 17.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Funds Ltd | London, Great Britain | Global AM | GBP | 26.0 | 100.0 | |||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 151.4 | 100.0 | |||||||||
UBS Global Asset Management Life Ltd | London, Great Britain | Global AM | GBP | 15.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | WM&SB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | WM&SB | CAD | 0.1 | 100.0 | |||||||||
UBS Hana Asset Management Company Ltd | Seoul, South Korea | Global AM | KRW | 45,000.0 | 51.0 | |||||||||
UBS Hypotheken AG | Zurich, Switzerland | WM&SB | CHF | 0.1 | 98.0 | |||||||||
UBS International Holdings B.V. | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Hong Kong Limited | Hong Kong, China | WMA | USD | 1.7 | 100.0 | |||||||||
UBS International Life Limited | Dublin, Ireland | WM&SB | EUR | 1.0 | 100.0 | |||||||||
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Notes to the consolidated financial statements
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued) | ||||||||||||||||
Share capital | Equity interest | |||||||||||||||
Company | Jurisdiction of incorporation | Business division1 | in millions | accumulated in % | ||||||||||||
UBS Investment Management Canada Inc. | Toronto, Canada | WMA | 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 | WM&SB | CHF | 10.0 | 100.0 | |||||||||||
UBS Life AG | Zurich, Switzerland | WM&SB | CHF | 25.0 | 100.0 | |||||||||||
UBS Life Insurance Company USA | California, USA | WMA | USD | 39.3 | 2 | 100.0 | ||||||||||
UBS Limited | London, Great Britain | IB | GBP | 153.7 | 100.0 | |||||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 2 | 100.0 | ||||||||||
UBS Menkul Degerler AS | Istanbul, Turkey | IB | TRY | 30.0 | 100.0 | |||||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||||
UBS O’Connor Limited | London, Great Britain | Global AM | GBP | 8.8 | 100.0 | |||||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||||
UBS Preferred Funding (Jersey) Limited | St. Helier, Jersey | CC | EUR | 0.0 | 100.0 | |||||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||||
UBS Preferred Funding Company LLC IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||||
UBS Preferred Funding Company LLC V | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 94.9 | |||||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 1,300.4 | 2 | 100.0 | ||||||||||
UBS Realty Investors LLC | Massachusetts, USA | Global AM | USD | 9.3 | 100.0 | |||||||||||
UBS Saudi Arabia | Riyadh, Saudi Arabia | IB | SAR | 110.0 | 73.0 | |||||||||||
UBS Sauerborn Private Equity Komplementär GmbH | Bad Homburg, Germany | WM&SB | 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 | 140.0 | 100.0 | |||||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||||
UBS Securities Israel Limited | Herzliya Pituach, Israel | IB | ILS | 0.0 | 100.0 | |||||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 60,000.0 | 100.0 | |||||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 22,205.6 | 2 | 100.0 | ||||||||||
UBS Securities Malaysia Sdn. Bhd. | Kuala Lumpur, Malaysia | IB | MYR | 80.0 | 100.0 | |||||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 190.0 | 100.0 | |||||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 311.5 | 100.0 | |||||||||||
UBS Securities Pte. Ltd. Seoul Branch | Seoul, South Korea | IB | KRW | 150,000.0 | 100.0 | |||||||||||
UBS Service Centre (Poland) Sp. z o.o. | Krakow, Poland | CC | PLN | 1.4 | 100.0 | |||||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 0.0 | 100.0 | |||||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | WM&SB | CHF | 1.5 | 100.0 | |||||||||||
UBS Trust Company National Association | New York, USA | WMA | USD | 55.0 | 2 | 100.0 | ||||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | WM&SB | USD | 2.0 | 100.0 | |||||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | WM&SB | USD | 2.0 | 100.0 | |||||||||||
UBS Trustees (Jersey) Ltd. | St. Helier, Jersey | WM&SB | GBP | 0.0 | 100.0 | |||||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | WM&SB | SGD | 3.3 | 100.0 | |||||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 132.0 | 100.0 | |||||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | WM&SB | GBP | 2.5 | 100.0 | |||||||||||
UBS Wealth Management Australia Ltd | Sydney, Australia | WM&SB | AUD | 53.9 | 100.0 | |||||||||||
UBS Wealth Management Israel Ltd | Herzliya Pituach, Israel | WM&SB | ILS | 3.5 | 100.0 | |||||||||||
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Note 34 Significant subsidiaries and associates (continued)
Changes in the consolidation scope 2010 | ||||||||
Newly significant, fully consolidated companies | ||||||||
Ellington Co., Ltd. – Tokyo, Japan | ||||||||
UBS Brasil Administradora de Valores Mobiliarios Ltda – Sao Paulo, Brazil | ||||||||
UBS Fund Management (Luxembourg) SA – Luxembourg, Luxembourg | ||||||||
UBS International Hong Kong Limited – Hong Kong, China | ||||||||
UBS Saudi Arabia – Riyadh, Saudi Arabia | ||||||||
UBS Securities Israel Limited – Herzliya Pituach, Israel | ||||||||
UBS Wealth Management Israel Ltd – Herzliya Pituach, Israel | ||||||||
Significant deconsolidated companies | Reason for deconsolidation | |||||||
Caisse Centrale de Réescompte – Paris, France | Merged | |||||||
UBS Convertible Securities (Jersey) Limited – St. Helier, Jersey | Liquidated | |||||||
UBS Fund Holding (Luxembourg) S.A. – Luxembourg, Luxembourg | Liquidated | |||||||
UBS Fund Holding (Switzerland) AG – Basel, Switzerland | Merged | |||||||
UBS Preferred Funding Company LLC I – Delaware, USA | Liquidated | |||||||
Significant associates | ||||||||
Company | Industry | Equity interest in % | ||||||
SIX Group AG – Zurich, Switzerland1 | Financial | 17.3 | ||||||
UBS Securities Co. Limited – Beijing, China | Financial | 20.0 | ||||||
Note 35 Invested assets and net new money
Invested assets include all client assets managed by or deposited with UBS for investment purposes. Invested assets include 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.
Net new money in a period is the net amount of invested assets that are entrusted to UBS by new and existing clients less those withdrawn by existing clients and clients who terminated their relationship with UBS.
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Notes to the consolidated financial statements
Note 35 Invested assets and net new money (continued)
As of or for the year ended | ||||||||
CHF billion | 31.12.10 | 31.12.09 | ||||||
Fund assets managed by UBS | 282 | 319 | ||||||
Discretionary assets | 596 | 590 | ||||||
Other invested assets | 1,274 | 1,325 | ||||||
Total invested assets (double counts included) | 2,152 | 2,233 | ||||||
of which: double count | 225 | 254 | ||||||
of which: acquisitions (divestments) | 0.0 | (48.2 | ) | |||||
Net new money (double counts included) | (14.3 | ) | (147.3 | ) | ||||
Note 36 Business combinations
Business combinations completed in 2010
In 2010 no significant business combinations were completed.
Business combinations completed in 2009
Acquisition of the commodity index business of
AIG Financial Products Corp.
AIG Commodity Index 2009 | ||||||||||||
CHF million | Book value | Step-up to fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 40 | 40 | |||||||||
Goodwill | 0 | 34 | 34 | |||||||||
All other assets | 598 | 0 | 598 | |||||||||
Total assets | 598 | 74 | 672 | |||||||||
Liabilities and equity | ||||||||||||
Liabilities | 598 | 598 | ||||||||||
Equity | 74 | 74 | ||||||||||
Total liabilities and equity | 598 | 74 | 672 | |||||||||
Pro-forma information (unaudited)
The following pro-forma information shows UBS’s total operating income, net profit attributable to UBS shareholders and basic earnings per share as if all of the acquisitions completed
Pro-forma information (unaudited) | ||||||||
For the year ended | ||||||||
CHF million, except where indicated | 31.12.09 | 31.12.08 | ||||||
Total operating income | 22,606 | 910 | ||||||
Net profit | (2,737 | ) | (21,251 | ) | ||||
Basic earnings per share (CHF) | (0.75 | ) | (7.61 | ) | ||||
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Note 37 Discontinued operations
2010
In 2010, private equity investments sold in prior years contributed a subsequent gain of CHF 2 million to UBS’s net profit from discontinued operations.
2009
In 2009, private equity investments sold in prior years contributed a subsequent loss of CHF 7 million to UBS’s net profit from discontinued operations.
2008
Industrial holdings
For the year ended 31.12.08 | ||||||||
CHF million | Private Banks & GAM1, 2 | Industrial Holdings2 | ||||||
Operating income | 0 | 19 | ||||||
Operating expenses | 0 | (15 | ) | |||||
Operating profit from discontinued operations before tax | 0 | 34 | ||||||
Pre-tax gain on sale | 44 | 120 | ||||||
Profit from discontinued operations before tax | 44 | 155 | ||||||
Tax expense on operating profit from discontinued operations before tax | 0 | 0 | ||||||
Tax expense on gain from sale | 1 | 0 | ||||||
Tax expense from discontinued operations | 1 | 0 | ||||||
Net profit from discontinued operations | 43 | 155 | ||||||
Net cash flows from | ||||||||
operating activities | 0 | (1 | ) | |||||
investing activities | 0 | 3 | ||||||
financing activities | 0 | 0 | ||||||
Note 38 Reorganizations and disposals
Sale of investment in New York office building
In January 2010, UBS closed the sale of its investments in several associated entities owning office space in New York. A significant portion of the office space is leased by UBS Group until 2018. The sales price was CHF 187 million with a resulting gain on sale of CHF 180 million.
Restructuring 2010
During 2010, UBS incurred net restructuring charges of CHF 113 million. Wealth Management Americas recognized CHF 90 million for real-estate related costs inGeneral and administrative expensesand CHF 37 million for impairment inDepreciation of property and equipment. In addition, the business division incurred personnel related restructuring charges of CHF 35 million. The Investment Bank released personnel related restructuring provisions of CHF 25 million.
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Notes to the consolidated financial statements
Note 39 Currency translation rates
The following table shows the main rates used to translate the financial information of UBS’s foreign operations into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||
As of | Year ended | |||||||||||||||||||
31.12.10 | 31.12.09 | 31.12.10 | 31.12.09 | 31.12.08 | ||||||||||||||||
1 USD | 0.93 | 1.04 | 1.04 | 1.08 | 1.06 | |||||||||||||||
1 EUR | 1.25 | 1.48 | 1.37 | 1.51 | 1.58 | |||||||||||||||
1 GBP | 1.46 | 1.67 | 1.62 | 1.70 | 1.96 | |||||||||||||||
100 JPY | 1.15 | 1.11 | 1.18 | 1.16 | 0.98 | |||||||||||||||
Note 40 Swiss banking law requirements
The consolidated Financial Statements of UBS are prepared in accordance with International Financial Reporting Standards (IFRS). The Guidelines of the Swiss Financial Market Supervisory Authority (FINMA) require banks which present their financial statements under IFRS to provide a narrative explanation of the main differences between IFRS and Swiss GAAP (FINMA circular 08/2) and the Banking Ordinance. Included in this note are the significant differences in regard to recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the FINMA governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance. The differences outlined in points two through nine also apply to the Parent Bank statutory accounts.
1. Consolidation
Under IFRS, all entities which are controlled by the Group are consolidated.
2. Financial investments available-for-sale
Under IFRS, Financial investments available-for-sale are carried at fair value. Changes in fair value are recorded directly in equity until an investment is sold, collected or otherwise disposed of, or until an investment is determined to be impaired. At the time an available-for-sale investment is determined to be impaired, the cumulative unrealized loss previously recognized in equity is included in net profit or loss for the period. On disposal of a financial investment available-for-sale, the cumulative unrecognized gain or loss previously recognized in equity is recognized in the income statement.
ductions to market value below cost and reversals of such reductions up to original cost as well as gains and losses on disposal are included inOther income. Permanent equity investments are classified on the balance sheet asInvestments in associated companies and are measured at cost less impairment with impairment losses recorded in the income statement.
3. Cash flow hedges
The Group uses derivative instruments to hedge the exposure from varying cash flows. Under IFRS, when hedge accounting is applied the fair value gain or loss on the effective portion of the derivative designated as a cash flow hedge is recognized in equity. When the hedged cash flows materialize, the accumulated unrecognized gain or loss is realized and released to income.
4. Investment property
Under IFRS, investment property is carried at fair value, with changes in fair value recognized in the income statement.
5. Fair value option
Under IFRS, the Group applies the fair value option to certain financial assets and financial liabilities, mainly to hybrid debt instruments. Hybrid instruments are accounted for at fair value with changes in fair value reflected inNet trading income.Furthermore, UBS designated certain loans, loan commitments and fund
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Note 40 Swiss banking law requirements (continued)
investments as financial assets designated at fair value through profit and loss.
6. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not amortized but tested annually for impairment. Intangible assets acquired in a business combination with an indefinite useful life are also not amortized but tested annually for impairment.
7. Discontinued operations
Under certain conditions, IFRS requires that non-current assets or disposal groups be classified as held for sale. Disposal groups that meet the criteria of discontinued operations are presented in the income statement in a single line as net income from discontinued operations.
8. Extraordinary income and expense
Certain items of income and expense are classified as extraordinary items under Swiss law, whereas in the Group Income Statement the amounts are classified as operating income or expense or are included in net profit from discontinued operations, if required.
9. Netting of replacement values
Under IFRS, replacement values are reported on a gross basis, unless certain restrictive requirements are met. Under Swiss law, replacement values and the related cash collateral are reported on a net basis, provided the master netting and the related collateral agreements are legally enforceable.
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Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules
Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc., UBS made a full and unconditional guarantee of the senior and subordinated notes and trust preferred securities (“Debt Securities”) of PaineWebber. Prior to the acquisition, PaineWebber was a SEC registrant. Upon the acquisition, PaineWebber was merged into UBS Americas Inc., a wholly-owned subsidiary of UBS.
the holders of the Debt Securities or the Debt Securities trustee may demand payment from UBS without first proceeding 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.
Supplemental guarantor consolidated income statement | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2010 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 15,732 | 3,388 | 2,723 | (2,971 | ) | 18,872 | ||||||||||||||
Interest expense | (12,153 | ) | (1,409 | ) | (2,067 | ) | 2,971 | (12,657 | ) | |||||||||||
Net interest income | 3,579 | 1,980 | 656 | 0 | 6,215 | |||||||||||||||
Credit loss (expense) / recovery | (2 | ) | (16 | ) | (48 | ) | 0 | (66 | ) | |||||||||||
Net interest income after credit loss expense | 3,577 | 1,964 | 608 | 0 | 6,149 | |||||||||||||||
Net fee and commission income | 7,293 | 6,465 | 3,401 | 0 | 17,160 | |||||||||||||||
Net trading income | 6,979 | (117 | ) | 609 | 0 | 7,471 | ||||||||||||||
Income from subsidiaries | 1,384 | 0 | 0 | (1,384 | ) | 0 | ||||||||||||||
Other income | 1,515 | 1,296 | (1,597 | ) | 0 | 1,214 | ||||||||||||||
Total operating income | 20,749 | 9,608 | 3,022 | (1,384 | ) | 31,994 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,220 | 5,850 | 1,850 | 0 | 16,920 | |||||||||||||||
General and administrative expenses | 2,729 | 2,691 | 1,164 | 0 | 6,585 | |||||||||||||||
Depreciation of property and equipment | 628 | 172 | 117 | 0 | 918 | |||||||||||||||
Impairment of goodwill | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Amortization of intangible assets | 3 | 90 | 24 | 0 | 117 | |||||||||||||||
Total operating expenses | 12,581 | 8,804 | 3,154 | 0 | 24,539 | |||||||||||||||
Operating profit from continuing operations before tax | 8,168 | 804 | (132 | ) | (1,384 | ) | 7,455 | |||||||||||||
Tax expense / (benefit) | 633 | (1,150 | ) | 136 | 0 | (381 | ) | |||||||||||||
Net profit from continuing operations | 7,534 | 1,954 | (268 | ) | (1,384 | ) | 7,836 | |||||||||||||
Net profit from discontinued operations | 0 | 0 | 2 | (1,384 | ) | 2 | ||||||||||||||
Net profit | 7,534 | 1,954 | (266 | ) | (1,384 | ) | 7,838 | |||||||||||||
Net profit attributable to non-controlling interests | 0 | 0 | 304 | 0 | 304 | |||||||||||||||
Net profit attributable to UBS shareholders | 7,534 | 1,954 | (570 | ) | (1,384 | ) | 7,534 | |||||||||||||
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Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2010 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 26,372 | 69 | 498 | 0 | 26,939 | |||||||||||||||
Due from banks | 30,941 | 5,038 | 68,198 | (87,044 | ) | 17,133 | ||||||||||||||
Cash collateral on securities borrowed | 39,315 | 61,314 | 9,572 | (47,746 | ) | 62,454 | ||||||||||||||
Reverse repurchase agreements | 130,977 | 53,203 | 85,331 | (126,721 | ) | 142,790 | ||||||||||||||
Trading portfolio assets | 108,678 | 22,853 | 37,652 | (1,719 | ) | 167,463 | ||||||||||||||
Trading portfolio assets pledged as collateral | 61,428 | 9,412 | 2,162 | (11,649 | ) | 61,352 | ||||||||||||||
Positive replacement values | 393,565 | 8,624 | 115,618 | (116,661 | ) | 401,146 | ||||||||||||||
Cash collateral receivables on derivative instruments | 42,940 | 5,010 | 23,861 | (33,740 | ) | 38,071 | ||||||||||||||
Financial assets designated at fair value | 4,778 | 4,788 | 8,850 | (9,911 | ) | 8,504 | ||||||||||||||
Loans | 258,378 | 37,828 | 12,778 | (46,107 | ) | 262,877 | ||||||||||||||
Financial investments available-for-sale | 59,269 | 11,647 | 3,853 | 0 | 74,768 | |||||||||||||||
Accrued income and prepaid expenses | 1,450 | 3,612 | 942 | (538 | ) | 5,466 | ||||||||||||||
Investments in associates | 62,095 | 6 | 0 | (61,311 | ) | 790 | ||||||||||||||
Property and equipment | 4,493 | 614 | 360 | 0 | 5,467 | |||||||||||||||
Goodwill and intangible assets | 448 | 8,150 | 1,224 | 0 | 9,822 | |||||||||||||||
Deferred tax assets | 6,054 | 2,897 | 571 | 0 | 9,522 | |||||||||||||||
Other assets | 18,504 | 5,938 | 1,914 | (3,675 | ) | 22,681 | ||||||||||||||
Total assets | 1,249,683 | 241,001 | 373,384 | (546,822 | ) | 1,317,247 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 79,842 | 47,430 | 1,261 | (87,044 | ) | 41,490 | ||||||||||||||
Cash collateral on securities lent | 20,374 | 23,613 | 10,410 | (47,746 | ) | 6,651 | ||||||||||||||
Repurchase agreements | 40,713 | 79,920 | 80,883 | (126,721 | ) | 74,796 | ||||||||||||||
Trading portfolio liabilities | 45,191 | 13,433 | 1,215 | (4,865 | ) | 54,975 | ||||||||||||||
Negative replacement values | 383,892 | 8,667 | 117,863 | (116,661 | ) | 393,762 | ||||||||||||||
Cash collateral payables on derivative instruments | 45,024 | 10,543 | 37,097 | (33,740 | ) | 58,924 | ||||||||||||||
Financial liabilities designated at fair value | 94,864 | 295 | 18,457 | (12,859 | ) | 100,756 | ||||||||||||||
Due to customers | 301,976 | 29,266 | 47,166 | (46,107 | ) | 332,301 | ||||||||||||||
Accrued expenses and deferred income | 5,071 | 2,433 | 773 | (538 | ) | 7,738 | ||||||||||||||
Debt issued | 125,113 | 398 | 10,315 | (5,555 | ) | 130,271 | ||||||||||||||
Other liabilities | 23,286 | 20,580 | 23,529 | (3,675 | ) | 63,719 | ||||||||||||||
Total liabilities | 1,165,349 | 236,578 | 348,968 | (485,511 | ) | 1,265,384 | ||||||||||||||
Equity attributable to UBS shareholders | 84,334 | 4,408 | 19,388 | (61,311 | ) | 46,820 | ||||||||||||||
Equity attributable to non-controlling interests | 0 | 15 | 5,028 | 0 | 5,043 | |||||||||||||||
Total equity | 84,334 | 4,423 | 24,416 | (61,311 | ) | 51,863 | ||||||||||||||
Total liabilities and equity | 1,249,683 | 241,001 | 373,384 | (546,822 | ) | 1,317,247 | ||||||||||||||
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Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows | ||||||||||||||||
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2010 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | 7,233 | 4,036 | 695 | 11,963 | ||||||||||||
Cash flow from / (used in) investing activities | �� | |||||||||||||||
Purchase of subsidiaries and associates | (75 | ) | 0 | 0 | (75 | ) | ||||||||||
Disposal of subsidiaries and associates | 307 | 0 | 0 | 307 | ||||||||||||
Purchase of property and equipment | (367 | ) | (88 | ) | (86 | ) | (541 | ) | ||||||||
Disposal of property and equipment | 196 | 22 | 24 | 242 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (17,374 | ) | 1,150 | (9,407 | ) | (25,631 | ) | |||||||||
Net cash flow from / (used in) investing activities | (17,312 | ) | 1,084 | (9,471 | ) | (25,698 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market papers issued / (repaid) | 3,241 | 0 | 1,218 | 4,459 | ||||||||||||
Net movements in treasury shares and own equity derivative activity | (1,456 | ) | 0 | 0 | (1,456 | ) | ||||||||||
Capital issuance | (113 | ) | 0 | 0 | (113 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 75,842 | 8 | 2,568 | 78,418 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (65,968 | ) | (82 | ) | (11,447 | ) | (77,497 | ) | ||||||||
Increase in non-controlling interests | 0 | 0 | 6 | 6 | ||||||||||||
Dividends paid to / decrease in non-controlling interests | 0 | (6 | ) | (2,047 | ) | (2,053 | ) | |||||||||
Net activity in investments in subsidiaries | (122 | ) | 235 | (113 | ) | 0 | ||||||||||
Net cash flow from / (used in) financing activities | 11,424 | 154 | (9,815 | ) | 1,764 | |||||||||||
Effects of exchange rate differences | (10,218 | ) | 1,482 | (3,444 | ) | (12,181 | ) | |||||||||
Net increase / (decrease) in cash and cash equivalents | (8,873 | ) | 6,756 | (22,034 | ) | (24,151 | ) | |||||||||
Cash and cash equivalents at the beginning of the year | 123,580 | 5,238 | 36,154 | 164,973 | ||||||||||||
Cash and cash equivalents at the end of the year | 114,707 | 11,994 | 14,120 | 140,822 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 26,372 | 69 | 498 | 26,939 | ||||||||||||
Money market papers2 | 65,688 | 3,737 | 8,573 | 77,998 | ||||||||||||
Due from banks with original maturity of less than three months3 | 22,647 | 8,188 | 5,050 | 35,885 | ||||||||||||
Total | 114,707 | 11,994 | 14,120 | 140,822 | ||||||||||||
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Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated income statement | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2009 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 18,798 | 4,432 | 6,715 | (6,484 | ) | 23,461 | ||||||||||||||
Interest expense | (16,860 | ) | (1,982 | ) | (4,657 | ) | 6,484 | (17,016 | ) | |||||||||||
Net interest income | 1,939 | 2,450 | 2,058 | 0 | 6,446 | |||||||||||||||
Credit loss (expense) / recovery | (937 | ) | (897 | ) | 2 | 0 | (1,832 | ) | ||||||||||||
Net interest income after credit loss expense | 1,002 | 1,553 | 2,060 | 0 | 4,614 | |||||||||||||||
Net fee and commission income | 7,912 | 6,025 | 3,774 | 0 | 17,712 | |||||||||||||||
Net trading income | (1,487 | ) | (423 | ) | 1,586 | 0 | (324 | ) | ||||||||||||
Income from subsidiaries | 1,114 | 0 | 0 | (1,114 | ) | 0 | ||||||||||||||
Other income | 550 | (872 | ) | 921 | 0 | 599 | ||||||||||||||
Total operating income | 9,092 | 6,282 | 8,341 | (1,114 | ) | 22,601 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 8,577 | 5,566 | 2,400 | 0 | 16,543 | |||||||||||||||
General and administrative expenses | 2,351 | 2,512 | 1,385 | 0 | 6,248 | |||||||||||||||
Depreciation of property and equipment | 686 | 171 | 191 | 0 | 1,048 | |||||||||||||||
Impairment of goodwill | 0 | 0 | 1,123 | 0 | 1,123 | |||||||||||||||
Amortization of intangible assets | 3 | 96 | 101 | 0 | 200 | |||||||||||||||
Total operating expenses | 11,617 | 8,345 | 5,200 | 0 | 25,162 | |||||||||||||||
Operating profit from continuing operations before tax | (2,526 | ) | (2,063 | ) | 3,141 | (1,114 | ) | (2,561 | ) | |||||||||||
Tax expense / (benefit) | 210 | (549 | ) | (104 | ) | 0 | (443 | ) | ||||||||||||
Net profit from continuing operations | (2,736 | ) | (1,514 | ) | 3,245 | (1,114 | ) | (2,118 | ) | |||||||||||
Net profit from discontinued operations | 0 | 0 | (7 | ) | 0 | (7 | ) | |||||||||||||
Net profit | (2,736 | ) | (1,514 | ) | 3,238 | (1,114 | ) | (2,125 | ) | |||||||||||
Net profit attributable to non-controlling interests | 0 | (3 | ) | 613 | 0 | 610 | ||||||||||||||
Net profit attributable to UBS shareholders | (2,736 | ) | (1,511 | ) | 2,625 | (1,114 | ) | (2,736 | ) | |||||||||||
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Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2009 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 15,177 | 75 | 5,647 | 0 | 20,899 | |||||||||||||||
Due from banks | 27,861 | 4,476 | 84,363 | (99,896 | ) | 16,804 | ||||||||||||||
Cash collateral on securities borrowed | 39,807 | 56,402 | 10,700 | (43,402 | ) | 63,507 | ||||||||||||||
Reverse repurchase agreements | 113,891 | 37,914 | 82,474 | (117,590 | ) | 116,689 | ||||||||||||||
Trading portfolio assets | 122,801 | 18,224 | 48,739 | (1,727 | ) | 188,037 | ||||||||||||||
Trading portfolio assets pledged as collateral | 47,954 | 11,422 | 859 | (16,014 | ) | 44,221 | ||||||||||||||
Positive replacement values | 413,822 | 8,260 | 145,265 | (145,654 | ) | 421,694 | ||||||||||||||
Cash collateral receivables on derivative instruments | 56,477 | 5,787 | 23,340 | (31,830 | ) | 53,774 | ||||||||||||||
Financial assets designated at fair value | 5,831 | 5,876 | 11,283 | (12,768 | ) | 10,223 | ||||||||||||||
Loans | 265,689 | 41,871 | 15,955 | (57,039 | ) | 266,477 | ||||||||||||||
Financial investments available-for-sale | 63,459 | 15,441 | 2,857 | 0 | 81,757 | |||||||||||||||
Accrued income and prepaid expenses | 1,664 | 3,880 | 1,100 | (828 | ) | 5,816 | ||||||||||||||
Investments in associates | 61,551 | 24 | 49 | (60,754 | ) | 870 | ||||||||||||||
Property and equipment | 4,920 | 791 | 501 | 0 | 6,212 | |||||||||||||||
Goodwill and intangible assets | 494 | 9,101 | 1,413 | 0 | 11,008 | |||||||||||||||
Deferred tax assets | 6,352 | 2,037 | 479 | 0 | 8,868 | |||||||||||||||
Other assets | 21,241 | 4,352 | 2,169 | (4,078 | ) | 23,682 | ||||||||||||||
Total assets | 1,268,991 | 225,933 | 437,194 | (591,580 | ) | 1,340,538 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 79,245 | 51,091 | 1,482 | (99,896 | ) | 31,922 | ||||||||||||||
Cash collateral on securities lent | 17,662 | 22,993 | 10,742 | (43,402 | ) | 7,995 | ||||||||||||||
Repurchase agreements | 38,563 | 66,545 | 76,657 | (117,590 | ) | 64,175 | ||||||||||||||
Trading portfolio liabilities | 41,884 | 10,792 | 610 | (5,817 | ) | 47,469 | ||||||||||||||
Negative replacement values | 400,432 | 8,173 | 146,992 | (145,654 | ) | 409,943 | ||||||||||||||
Cash collateral payables on derivative instruments | 49,328 | 9,847 | 38,752 | (31,830 | ) | 66,097 | ||||||||||||||
Financial liabilities designated at fair value | 100,768 | 276 | 27,953 | (16,344 | ) | 112,653 | ||||||||||||||
Due to customers | 300,123 | 31,840 | 64,340 | (57,039 | ) | 339,263 | ||||||||||||||
Accrued expenses and deferred income | 5,155 | 2,269 | 2,093 | (828 | ) | 8,689 | ||||||||||||||
Debt issued | 126,965 | 493 | 12,242 | (8,348 | ) | 131,352 | ||||||||||||||
Other liabilities | 31,151 | 18,823 | 26,449 | (4,078 | ) | 72,344 | ||||||||||||||
Total liabilities | 1,191,276 | 223,142 | 408,312 | (530,826 | ) | 1,291,905 | ||||||||||||||
Equity attributable to UBS shareholders | 77,715 | 2,770 | 21,283 | (60,754 | ) | 41,013 | ||||||||||||||
Equity attributable to non-controlling interests | 0 | 21 | 7,599 | 0 | 7,620 | |||||||||||||||
Total equity | 77,715 | 2,791 | 28,882 | (60,754 | ) | 48,633 | ||||||||||||||
Total liabilities and equity | 1,268,991 | 225,933 | 437,194 | (591,580 | ) | 1,340,538 | ||||||||||||||
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Financial information |
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows | ||||||||||||||||
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2009 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | 4,841 | (6,469 | ) | 56,126 | 54,497 | |||||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Purchase of subsidiaries and associates | (42 | ) | 0 | 0 | (42 | ) | ||||||||||
Disposal of subsidiaries and associates | 296 | 0 | 0 | 296 | ||||||||||||
Purchase of property and equipment | (656 | ) | (124 | ) | (75 | ) | (854 | ) | ||||||||
Disposal of property and equipment | 104 | 53 | 6 | 163 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (22,319 | ) | (12,484 | ) | 14,677 | (20,127 | ) | |||||||||
Net cash flow from / (used in) investing activities | (22,616 | ) | (12,555 | ) | 14,608 | (20,563 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market papers issued / (repaid) | (7,020 | ) | (1,596 | ) | (51,424 | ) | (60,040 | ) | ||||||||
Net movements in treasury shares and own equity derivative activity | 673 | 0 | 0 | 673 | ||||||||||||
Capital issuance | 3,726 | 0 | 0 | 3,726 | ||||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 64,956 | 0 | 2,106 | 67,062 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (55,616 | ) | (1,548 | ) | (7,861 | ) | (65,024 | ) | ||||||||
Increase in non-controlling interests | 0 | 0 | 3 | 3 | ||||||||||||
Dividends paid to / decrease in non-controlling interests | 0 | (8 | ) | (576 | ) | (583 | ) | |||||||||
Net activity in investments in subsidiaries | (4,032 | ) | 2,419 | 1,614 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 2,686 | (733 | ) | (56,136 | ) | (54,183 | ) | |||||||||
Effects of exchange rate differences | 5,886 | 574 | (933 | ) | 5,529 | |||||||||||
Net increase / (decrease) in cash and cash equivalents | (9,202 | ) | (19,183 | ) | 13,664 | (14,721 | ) | |||||||||
Cash and cash equivalents at the beginning of the year | 132,782 | 24,421 | 22,490 | 179,693 | ||||||||||||
Cash and cash equivalents at the end of the year | 123,580 | 5,238 | 36,154 | 164,973 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 15,177 | 75 | 5,647 | 20,899 | ||||||||||||
Money market papers2 | 78,025 | 3,714 | 16,694 | 98,432 | ||||||||||||
Due from banks with original maturity of less than three months3 | 30,378 | 1,450 | 13,814 | 45,642 | ||||||||||||
Total | 123,580 | 5,238 | 36,154 | 164,973 | ||||||||||||
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Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated income statement | ||||||||||||||||||||
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2008 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 49,699 | 21,343 | 27,354 | (32,717 | ) | 65,679 | ||||||||||||||
Interest expense | (48,686 | ) | (17,436 | ) | (26,282 | ) | 32,717 | (59,687 | ) | |||||||||||
Net interest income | 1,013 | 3,907 | 1,072 | 0 | 5,992 | |||||||||||||||
Credit loss (expense) / recovery | (861 | ) | (2,050 | ) | (85 | ) | 0 | (2,996 | ) | |||||||||||
Net interest income after credit loss expense | 152 | 1,857 | 987 | 0 | 2,996 | |||||||||||||||
Net fee and commission income | 9,709 | 7,910 | 5,310 | 0 | 22,929 | |||||||||||||||
Net trading income | (8,129 | ) | (19,847 | ) | 2,156 | 0 | (25,820 | ) | ||||||||||||
Income from subsidiaries | (19,882 | ) | 0 | 0 | 19,882 | 0 | ||||||||||||||
Other income | 2,836 | 1,058 | (3,202 | ) | 0 | 692 | ||||||||||||||
Total operating income | (15,314 | ) | (9,022 | ) | 5,251 | 19,882 | 796 | |||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 8,738 | 5,169 | 2,355 | 0 | 16,262 | |||||||||||||||
General and administrative expenses | 3,918 | 4,604 | 1,976 | 0 | 10,498 | |||||||||||||||
Depreciation of property and equipment | 770 | 205 | 266 | 0 | 1,241 | |||||||||||||||
Impairment of goodwill | 0 | 341 | 0 | 0 | 341 | |||||||||||||||
Amortization of intangible assets | 1 | 93 | 119 | 0 | 213 | |||||||||||||||
Total operating expenses | 13,427 | 10,412 | 4,716 | 0 | 28,555 | |||||||||||||||
Operating profit from continuing operations before tax | (28,741 | ) | (19,434 | ) | 535 | 19,882 | (27,758 | ) | ||||||||||||
Tax expense / (benefit) | (7,407 | ) | (4 | ) | 574 | 0 | (6,837 | ) | ||||||||||||
Net profit from continuing operations | (21,335 | ) | (19,430 | ) | (39 | ) | 19,882 | (20,922 | ) | |||||||||||
Net profit from discontinued operations | 43 | 0 | 155 | 0 | 198 | |||||||||||||||
Net profit | (21,292 | ) | (19,430 | ) | 116 | 19,882 | (20,724 | ) | ||||||||||||
Net profit attributable to non-controlling interests | 0 | (9 | ) | 577 | 0 | 568 | ||||||||||||||
Net profit attributable to UBS shareholders | (21,292 | ) | (19,421 | ) | (461 | ) | 19,882 | (21,292 | ) | |||||||||||
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Financial information |
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows | ||||||||||||||||
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2008 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | 69,799 | (438 | ) | 7,646 | 77,007 | |||||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Purchase of subsidiaries and associates | (1,502 | ) | 0 | 0 | (1,502 | ) | ||||||||||
Disposal of subsidiaries and associates | 1,686 | 0 | 0 | 1,686 | ||||||||||||
Purchase of property and equipment | (819 | ) | (258 | ) | (140 | ) | (1,217 | ) | ||||||||
Disposal of property and equipment | 37 | 27 | 5 | 69 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 330 | 156 | (1,198 | ) | (712 | ) | ||||||||||
Net cash flow from / (used in) investing activities | (268 | ) | (75 | ) | (1,333 | ) | (1,676 | ) | ||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market papers issued / (repaid) | (52,815 | ) | 914 | 11,264 | (40,637 | ) | ||||||||||
Net movements in treasury shares and own equity derivative activity | 623 | 0 | 0 | 623 | ||||||||||||
Capital issuance | 23,135 | 0 | 0 | 23,135 | ||||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 91,961 | 0 | 11,126 | 103,087 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (62,822 | ) | (14,500 | ) | (15,572 | ) | (92,894 | ) | ||||||||
Increase in non-controlling interests | 0 | 842 | 819 | 1,661 | ||||||||||||
Dividends paid to / decrease in non-controlling interests | 0 | (112 | ) | (420 | ) | (532 | ) | |||||||||
Net activity in investments in subsidiaries | (11,978 | ) | 21,816 | (9,838 | ) | 0 | ||||||||||
Net cash flow from / (used in) financing activities | (11,896 | ) | 8,960 | (2,621 | ) | (5,557 | ) | |||||||||
Effects of exchange rate differences | (33,963 | ) | 442 | (5,665 | ) | (39,186 | ) | |||||||||
Net increase / (decrease) in cash and cash equivalents | 23,672 | 8,889 | (1,973 | ) | 30,588 | |||||||||||
Cash and cash equivalents at the beginning of the year | 109,110 | 15,532 | 24,463 | 149,105 | ||||||||||||
Cash and cash equivalents at the end of the year | 132,782 | 24,421 | 22,490 | 179,693 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 27,030 | 332 | 5,382 | 32,744 | ||||||||||||
Money market papers2 | 62,777 | 19,875 | 4,080 | 86,732 | ||||||||||||
Due from banks with original maturity of less than three months3 | 42,975 | 4,214 | 13,028 | 60,217 | ||||||||||||
Total | 132,782 | 24,421 | 22,490 | 179,693 | ||||||||||||
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Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Guarantee of other securities
UBS AG, acting through wholly-owned US-domiciled finance subsidiaries, issued the following trust preferred securities:
USD billion, unless otherwise indicated | Outstanding as of 31.12.10 | |||||||
Issuing entity | Type of security | Date issued | Interest (%) | Amount | ||||
UBS Preferred Funding Trust II | Trust preferred securities1 | June 2001 | 7.247 | 0.5 | ||||
UBS Preferred Funding Trust IV | Floating rate non-cumulative trust preferred securities | May 2003 | one-month LIBOR+ 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 2010, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,256 billion.
Guarantee to UBS Ltd.
UBS AG issued a guarantee to each counterparty of UBS Ltd. Under the guarantee UBS AG irrevocably and unconditionally guarantees, for the benefit of each counterparty, each and every obligation that UBS Ltd. entered into. UBS AG promises to pay to that counterpart on demand any unpaid balance of such liabilities under the terms of the guarantee.
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Financial information |
Financial information
UBS AG (Parent Bank)
UBS AG (Parent Bank)
Parent Bank review
Income statement
Net profit for the Parent Bank UBS AG was CHF 6,123 million, an increase of CHF 11,164 million, compared with a loss of CHF 5,041 million in 2009.
Balance sheet
UBS’s Parent Bank assets stood at CHF 863 billion on 31 December 2010, up slightly from CHF 848 billion on 31 December 2009. The total asset increased by CHF 15 billion due to UBS subsidiaries and third-party banks in Asia and Europe increasing their assets and therefore their funding needs from the Parent Bank.
bank lending (up CHF 15 billion), liquid assets (up CHF 11 billion) due to larger holdings of cash and balances at central banks, and investments in associated companies (up CHF 2 billion) in the Americas and European region. These increases were partially offset by lower money market papers (down CHF 19 billion) related to the aforementioned shift to financial investments, customer loans and collateral trading (down CHF 11 billion), and positive replacement values (down CHF 4 billion). Mortgage loans remained stable in 2010 at CHF 142 billion.
Interbank lending
During 2010, interbank collateral trading increased by CHF 14 billion, due to higher trading volumes with UBS subsidiaries, in particular in Asia and Europe. Due from banks on time increased by CHF 4 billion, predominantly due to the higher funding needs of UBS bank subsidiaries in the Americas region. These increases were partially offset by due from banks on demand, which declined slightly by CHF 2 billion in the European region.
Customer lending
Customer loans decreased by CHF 11 billion as a result of lower funding needs of UBS subsidiaries (non-banks) in the Americas region, as well as lower cash collateral requirements on derivative instruments in the Americas and Europe.
Money market papers
The decrease in money market papers was due to a rebalance in our investment portfolio, which led to a shift from money market papers to financial investments. These instruments include highly liquid securities issued by governments and government-controlled institutions in various currencies, mainly US dollar, euro and British pound.
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Financial information
UBS AG (Parent Bank)
Parent bank financial statements
Income statement
For the year ended | % change from | |||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Interest and discount income | 10,853 | 13,764 | (21 | ) | ||||||||
Interest and dividend income from trading portfolio | 4,441 | 4,911 | (10 | ) | ||||||||
Interest and dividend income from financial investments | 312 | 92 | 239 | |||||||||
Interest expense | (12,181 | ) | (16,901 | ) | (28 | ) | ||||||
Net interest income | 3,426 | 1,866 | 84 | |||||||||
Credit-related fees and commissions | 295 | 255 | 16 | |||||||||
Fee and commission income from securities and investment business | 8,433 | 9,294 | (9 | ) | ||||||||
Other fee and commission income | 645 | 624 | 3 | |||||||||
Fee and commission expense | (2,070 | ) | (2,264 | ) | (9 | ) | ||||||
Net fee and commission income | 7,304 | 7,909 | (8 | ) | ||||||||
Net trading income | 6,501 | (476 | ) | |||||||||
Net income from disposal of financial investments | 228 | 123 | 85 | |||||||||
Income from investments in associated companies | 1,703 | 1,154 | 48 | |||||||||
Income from real estate holdings | 31 | 26 | 19 | |||||||||
Sundry income from ordinary activities | 3,632 | 4,761 | (24 | ) | ||||||||
Sundry ordinary expenses | (3,422 | ) | (3,604 | ) | (5 | ) | ||||||
Other income from ordinary activities | 2,172 | 2,460 | (12 | ) | ||||||||
Operating income | 19,402 | 11,759 | 65 | |||||||||
Personnel expenses | 10,300 | 9,101 | 13 | |||||||||
General and administrative expenses | 4,502 | 4,421 | 2 | |||||||||
Operating expenses | 14,802 | 13,522 | 9 | |||||||||
Operating profit | 4,601 | (1,763 | ) | |||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 2,051 | 2,405 | (15 | ) | ||||||||
Allowances, provisions and losses | 181 | 1,432 | (87 | ) | ||||||||
Profit before extraordinary items and taxes | 2,369 | (5,600 | ) | |||||||||
Extraordinary income | 3,957 | 688 | 475 | |||||||||
Extraordinary expenses | (178 | ) | (49 | ) | (263 | ) | ||||||
Tax expense | (25 | ) | (80 | ) | 69 | |||||||
Profit / (loss) for the period | 6,123 | (5,041 | ) | |||||||||
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Financial information |
Balance sheet
% change from | ||||||||||||||||
CHF million | 31.12.101 | 31.12.102 | 31.12.09 | 31.12.09 | ||||||||||||
Assets | ||||||||||||||||
Liquid assets | 26,372 | 26,372 | 15,177 | 74 | ||||||||||||
Money market papers | 73,049 | 73,049 | 91,988 | (21 | ) | |||||||||||
Due from banks | 206,162 | 206,162 | 191,002 | 8 | ||||||||||||
Due from customers | 142,634 | 142,634 | 153,893 | (7 | ) | |||||||||||
Mortgage loans | 141,708 | 141,708 | 140,671 | 0 | ||||||||||||
Trading balances in securities and precious metals | 139,685 | 139,685 | 138,160 | 1 | ||||||||||||
Financial investments | 34,788 | 34,788 | 15,206 | 129 | ||||||||||||
Investments in associated companies | 21,075 | 21,075 | 19,225 | 10 | ||||||||||||
Fixed assets | 4,557 | 4,557 | 4,986 | (9 | ) | |||||||||||
Accrued income and prepaid expenses | 1,643 | 1,643 | 1,754 | (6 | ) | |||||||||||
Positive replacement values | 65,449 | 65,449 | 68,977 | (5 | ) | |||||||||||
Other assets | 6,373 | 6,373 | 6,504 | (2 | ) | |||||||||||
Total assets | 863,495 | 863,495 | 847,543 | 2 | ||||||||||||
Total subordinated assets | 2,287 | 2,287 | 2,617 | (13 | ) | |||||||||||
Total amounts receivable from Group companies | 254,762 | 254,762 | 242,617 | 5 | ||||||||||||
Liabilities and equity | ||||||||||||||||
Money market papers issued | 50,729 | 50,729 | 45,043 | 13 | ||||||||||||
Due to banks | 192,511 | 192,511 | 184,010 | 5 | ||||||||||||
Due to customers on savings and deposit accounts | 78,322 | 78,322 | 72,985 | 7 | ||||||||||||
Other amounts due to customers | 260,404 | 260,404 | 287,156 | (9 | ) | |||||||||||
Medium-term bonds | 2,605 | 2,605 | �� | 2,967 | (12 | ) | ||||||||||
Bonds issued and loans from central mortgage institutions | 89,860 | 89,860 | 155,907 | (42 | ) | |||||||||||
Financial liabilities designated at fair value | 79,847 | 79,847 | ||||||||||||||
Accruals and deferred income | 7,634 | 7,634 | 7,520 | 2 | ||||||||||||
Negative replacement values | 60,723 | 60,723 | 54,468 | 11 | ||||||||||||
Other liabilities | 4,717 | 4,717 | 6,641 | (29 | ) | |||||||||||
Allowances and provisions | 1,424 | 1,424 | 2,277 | (37 | ) | |||||||||||
Share capital | 383 | 383 | 356 | 8 | ||||||||||||
General statutory reserve | 31,904 | 27,379 | 30,377 | (10 | ) | |||||||||||
thereof capital contribution reserves3 | 42,091 | 42,091 | 41,689 | 1 | ||||||||||||
thereof retained earnings | (10,187 | ) | (14,712 | ) | (11,312 | ) | (30 | ) | ||||||||
Reserve for own shares | 432 | 432 | 835 | (48 | ) | |||||||||||
thereof capital contribution reserves3 | 432 | 432 | 835 | (48 | ) | |||||||||||
Other reserves | 2,000 | 402 | 2,042 | (80 | ) | |||||||||||
thereof retained earnings | 2,000 | 402 | 2,042 | (80 | ) | |||||||||||
Profit / (loss) for the period | 6,123 | (5,041 | ) | |||||||||||||
Total liabilities and equity | 863,495 | 863,495 | 847,543 | 2 | ||||||||||||
Total subordinated liabilities | 14,689 | 14,689 | 19,410 | (24 | ) | |||||||||||
Total amounts payable to Group companies | 129,243 | 129,243 | 145,268 | (11 | ) | |||||||||||
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Financial information
UBS AG (Parent Bank)
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting (AGM) on 28 April 2011 approves the following appropriation:
CHF million | ||||
Other reserves | 402 | |||
Profit / (loss) for the financial year 2010 as per the Parent Bank’s Income Statement | 6,123 | |||
Total for appropriation | 6,525 | |||
Appropriation to other reserves | 2,000 | |||
Appropriation to general statutory reserves (retained earnings) | 4,525 | |||
Total appropriation | 6,525 | |||
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Financial information |
Notes to the Parent Bank financial statements
Accounting policies
The Parent Bank Financial Statements are prepared in accordance with Swiss Federal banking law. The accounting policies are principally the same as for the Group Financial Statements outlined in “Note 1, Summary of Significant Accounting Policies.” Major differences between the Swiss Federal banking law requirements and International Financial Reporting Standards are described in Note 40 to the consolidated financial statements. The accounting policies applied for the statutory accounts of the Parent Bank are discussed below. The risk management of UBS AG is described in the context of the risk management for UBS Group. For the statutory required risk assessment refer to the “Risk and treasury management” section of this report. For a description of the business activities refer to the “UBS business divisions and Corporate Center” section of this report.
Treasury shares
Treasury shares are own equity instruments held by an entity. Under Swiss law, treasury shares are recognized in the balance sheet as trading balances or asFinancial investments. Short positions in treasury shares are recognized inDue to banks.Treasury shares recognized as trading balances and short positions in treasury shares are measured at fair value with unrealized gains or losses from remeasurement to fair value included in the income statement. Treasury shares recognized asFinancial investmentsare valued according to the principles of lower of cost or market value. Realized gains and losses on the sale or acquisition of treasury shares are recognized in the income statement.
Foreign currency translation
Assets and liabilities of foreign branches are translated into CHF at the spot exchange rate at the balance sheet date. Income and expense items are translated at weighted average exchange rates for the period. Any exchange differences arising on the translation of each of these foreign branches are recognized in the income statement.1
The main currency translation rates used by the Parent Bank can be found in Note 39 to the consolidated financial statements.
Investments in associated companies
Investments in associated companies are equity interests which are held for the purpose of the Parent Bank’s business activities or for strategic reasons. They include all directly held subsidiaries through which UBS AG conducts its banking business on a global basis. The investments are carried at cost less impairment. The carrying value is tested for impairment when indications for a decrease in value exist, which include incurrence of significant operating losses or a severe depreciation of the currency in which the investment is denominated. If an investment in associate is impaired, its value is generally written down to the net asset value. Subsequent recoveries in value are recognized up to the original cost value based on either the increased net asset value or to a value above the net asset value if in the opinion of management forecasts of future profitability provide sufficient evidence that a carrying value above net asset value is supported. Management may exercise its discretion as to what extent and in which period a recovery in value is recognized.
Deferred taxes
Deferred tax assets are not recognized in the Parent Bank Financial Statements under Swiss Federal banking law. However, deferred tax liabilities may be recognized for taxable temporary differences. The change in the deferred tax liability balance is recognized in profit or loss.
Equity participation and other compensation plans
Equity participation plans
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Financial information
UBS AG (Parent Bank)
awards are classified as liabilities. The employee share option awards are remeasured to fair value at each balance sheet date. However, for employee share options that UBS intends to settle in shares from conditional capital, there is no impact on the income statement and no liability is recognized. Upon exercise of employee options, cash received for payment of the strike price is credited against share capital and general statutory reserve.
Other compensation plans
Changes in accounting policies, comparability and
other adjustments
Equity participation and other compensation plans
Own bonds held for trading and market making activities
as trading assets. Gains and losses from trading and market making activities are reported in trading income.
Financial liabilities designated at fair value
Capital contribution reserves
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Financial information |
Additional income statement information
Net trading income
For the year ended | % change from | |||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Investment Bank equities | 1,890 | 3,005 | (37 | ) | ||||||||
Investment Bank fixed income, currencies and commodities | 2,326 | (4,496 | ) | |||||||||
Other business divisions | 2,285 | 1,014 | 125 | |||||||||
Total | 6,501 | (476 | ) | |||||||||
Extraordinary income and expenses
Extraordinary income2010 was mainly comprised of the following items: merger gains and gains from sale of subsidiaries and associated companies of CHF 601 million; reversal of write-downs of investments in associated companies of CHF 2,337 million (2009: CHF 265 million), mainly in the United States; a number of prior period related valuation corrections aggregating CHF 741 million related to (i) share-based compensation plans, (ii) financial instruments which, unlike under IFRS, cannot be accounted for at
fair value through profit or loss according to FINMA circular 08/2, (iii) financial investments carried at lower of cost or market value, and (iv) miscellaneous other valuation adjustments; and a release of other liabilities of CHF 227 million.
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Financial information
UBS AG (Parent Bank)
Additional balance sheet information
Assets pledged or assigned as security for own obligations and assets subject to reservation of title
31.12.10 | 31.12.09 | Change in % | ||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||
Money market papers1 | 31,575 | 7,876 | 42,898 | 1,368 | (26 | ) | 476 | |||||||||||||||||
Mortgage loans2 | 27,119 | 15,706 | 21,741 | 12,321 | 25 | 27 | ||||||||||||||||||
Securities1 | 60,989 | 26,308 | 47,289 | 31,862 | 29 | (17 | ) | |||||||||||||||||
Other | 5,790 | 0 | 8,578 | 0 | (33 | ) | ||||||||||||||||||
Total | 125,473 | 49,890 | 120,506 | 45,551 | 4 | 10 | ||||||||||||||||||
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions, in connection with derivative transactions, as security deposits for stock exchanges and clearinghouse memberships or transferred for security purposes in connection with the issuance of covered bonds.
Allowances and provisions
Provisions applied | Recoveries, | |||||||||||||||||||||||
in accordance | doubtful interest, | |||||||||||||||||||||||
Balance at | with their | currency translation | Provisions released | New provisions | Balance at | |||||||||||||||||||
CHF million | 31.12.09 | specified purpose | differences | to income | charged to income | 31.12.10 | ||||||||||||||||||
Default risks (credit and country risk) | 1,256 | (383 | ) | 90 | (378 | ) | 380 | 964 | ||||||||||||||||
Litigation risks | 810 | (764 | ) | (29 | ) | (37 | ) | 170 | 151 | |||||||||||||||
Operational risks | 42 | (20 | ) | (6 | ) | (7 | ) | 16 | 25 | |||||||||||||||
Retirement benefit plans | 96 | (30 | ) | (13 | ) | 37 | 90 | |||||||||||||||||
Restructuring provisions | 214 | (112 | ) | (13 | ) | (32 | ) | 21 | 80 | |||||||||||||||
Deferred taxes | 9 | 59 | (64 | ) | 4 | |||||||||||||||||||
Other | 1,024 | (75 | ) | (28 | ) | (74 | ) | 137 | 982 | |||||||||||||||
Total allowances and provisions | 3,451 | (1,384 | ) | 60 | (592 | ) | 761 | 2,296 | ||||||||||||||||
Allowances deducted from assets | 1,174 | 872 | ||||||||||||||||||||||
Total provisions as per balance sheet | 2,277 | 1,424 | ||||||||||||||||||||||
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Financial information |
Statement of shareholders’ equity
Total shareholders' | ||||||||||||||||||||||||
Share | General statutory | Reserves for | Other | Profit / (loss) | equity (before | |||||||||||||||||||
CHF million | capital | reserves | own shares | reserves | for the period | distribution of profit) | ||||||||||||||||||
As of 31.12.08 and 1.1.09 | 293 | 40,910 | 2,877 | 22,115 | (36,489 | ) | 29,706 | |||||||||||||||||
Capital increase | 30 | 3,783 | 3,813 | |||||||||||||||||||||
Capital increase related to mandatory convertible notes (MCNs) | 33 | 58 | 91 | |||||||||||||||||||||
Profit / (loss) allocation | (14,374 | ) | (22,115 | ) | 36,489 | 0 | ||||||||||||||||||
Prior year dividend | 0 | |||||||||||||||||||||||
Profit / (loss) for the period | (5,041 | ) | (5,041 | ) | ||||||||||||||||||||
Changes in reserves for own shares | (2,042 | ) | 2,042 | 0 | ||||||||||||||||||||
As of 31.12.09 and 1.1.10 | 356 | 30,377 | 835 | 2,042 | (5,041 | ) | 28,569 | |||||||||||||||||
Capital increase | 1 | 1 | ||||||||||||||||||||||
Capital increase related to mandatory convertible notes (MCNs) | 27 | �� | 27 | |||||||||||||||||||||
Profit / (loss) allocation | (2,999 | ) | (2,042 | ) | 5,041 | 0 | ||||||||||||||||||
Prior year dividend | 0 | |||||||||||||||||||||||
Profit / (loss) for the period | 6,123 | 6,123 | ||||||||||||||||||||||
Changes in reserves for own shares | (402 | ) | 402 | 0 | ||||||||||||||||||||
As of 31.12.10 | 383 | 27,379 | 432 | 402 | 6,123 | 34,719 | ||||||||||||||||||
Share capital and significant shareholders
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As of 31.12.10 | ||||||||||||||||
Issued and paid up | 3,830,840,513 | 383,084,051 | 3,830,840,513 | 383,084,051 | ||||||||||||
Conditional share capital | 629,920,712 | 62,992,071 | ||||||||||||||
As of 31.12.09 | ||||||||||||||||
Issued and paid up | 3,558,112,753 | 355,811,275 | 3,558,112,753 | 355,811,275 | ||||||||||||
Conditional share capital | 527,773,646 | 52,777,365 | ||||||||||||||
Shares issued
On 5 March 2010, the mandatory convertible notes (MCNs) with a notional value of CHF 13 billion issued in March 2008 to the Government of Singapore Investment Corporation Pte. Ltd. and an investor from the Middle East were converted into UBS shares. The notes were converted at a price of CHF 47.68 per share. As a result, UBS issued 272,651,005 new shares with a nominal value of CHF 0.10 each from existing conditional capital. The MCNs were treated as equity instruments and recognized inShare premium.
Conditional share capital
On 31 December 2010, 149,920,712 shares were available for issue to fund UBS’s employee share option programs. In addition, conditional capital of up to 100,000,000 shares was available in connection with the Swiss National Bank (SNB) transaction. Furthermore, on 14 April 2010 the annual general meeting of UBS AG approved the creation of conditional capital up to a maximum amount of 380,000,000 shares for conversion rights / warrants
granted in connection with the issuance of bonds or similar financial instruments.
Significant shareholders
According to disclosure notifications filed with UBS AG and the SIX Swiss Exchange, on 8 June 2010, The Capital Group Companies, Inc., Los Angeles, disclosed a holding of 4.90% of the total share capital of UBS AG. On 12 March 2010, the Government of Singapore, Singapore, as beneficial owner, disclosed under the Swiss Stock Exchange Act, a holding by the Government of Singapore Investment Corp. of 6.45% of the total share capital of UBS AG. On 17 December 2009, BlackRock Inc., New York, disclosed according to the Swiss Stock Exchange Act, a holding of 3.45% of the total share capital of UBS AG (3.21% of the total share capital as of 11 March 2010).
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UBS AG (Parent Bank)
Shareholders registered in the UBS shares register with 3% or more of shares issued
31.12.10 | 31.12.09 | |||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
nominal | nominal | |||||||||||||||||||||||
value CHF | value CHF | |||||||||||||||||||||||
Quantity | million | Share % | Quantity | million | Share % | |||||||||||||||||||
Chase Nominees Ltd, London | 409,822,353 | 41 | 10.70 | 413,857,854 | 41 | 11.63 | ||||||||||||||||||
DTC (Cede & Co.), New York1 | 280,355,684 | 28 | 7.32 | 299,489,003 | 30 | 8.42 | ||||||||||||||||||
Government of Singapore Investment Corp., Singapore | 245,481,682 | 25 | 6.41 | less than 3 | ||||||||||||||||||||
Nortrust Nominees Ltd, London | 145,038,407 | 15 | 3.79 | 109,365,321 | 11 | 3.07 | ||||||||||||||||||
è | Refer to the “Corporate governance and compensation” section of this report for more information on significant shareholders’ and shareholders participation rights |
Other assets
CHF million | 31.12.10 | 31.12.09 | ||||||
Settlement and clearing accounts | 499 | 592 | ||||||
VAT and other tax receivables | 203 | 128 | ||||||
Prepaid pension costs | 2,839 | 2,664 | ||||||
Other receivables | 2,832 | 3,120 | ||||||
Total other assets | 6,373 | 6,504 | ||||||
Other liabilities
CHF million | 31.12.10 | 31.12.09 | ||||||
VAT and other tax payables | 444 | 484 | ||||||
Settlement and clearing accounts | 581 | 883 | ||||||
Deferral position for hedging instruments | 1,443 | 782 | ||||||
Other payables | 2,250 | 4,493 | ||||||
Total other liabilities | 4,717 | 6,641 | ||||||
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Financial information |
Off-balance-sheet and other information
Commitments and contingent liabilities
% change from | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Contingent liabilities | 102,820 | 119,030 | (14 | ) | ||||||||
Irrevocable commitments | 106,304 | 113,027 | (6 | ) | ||||||||
Irrevocable securities delivery obligations related to forward starting repos and securities lending transactions | 27,215 | 18,623 | 46 | |||||||||
Liabilities for calls on shares and other equities | 168 | 151 | 11 | |||||||||
Documentary credits | 4,278 | 2,083 | 105 | |||||||||
Contingent liabilitiesinclude indemnities and guarantees issued by UBS AG for the benefit of subsidiaries and creditors of subsidiaries. In instances where the indemnity amount issued by the Parent Bank is not defined, the indemnity relates to the solvency or minimum capitalization of a subsidiary, and therefore no amount is included in the table above. This policy has been applied since 2010. The prior year amounts have been adjusted to conform to the current year’s presentation.
From 2010 onwards, collateralized forward starting transactions are presented in this table; the comparative period has been adjusted accordingly. Irrevocable commitments include cash payment obligations from forward starting reverse repos and securities borrowing transactions. Irrevocable securities delivery obligations related to forward starting repos and securities lending transactions are presented on a separate line.
Derivative instruments1
31.12.10 | 31.12.09 | |||||||||||||||||||||||
Notional | Notional | |||||||||||||||||||||||
amount | amount | |||||||||||||||||||||||
CHF million | PRV2 | NRV3 | CHF billion | PRV2 | NRV3 | CHF billion4 | ||||||||||||||||||
Interest rate contracts | 176,918 | 166,919 | 32,963 | 187,506 | 174,632 | 34,726 | ||||||||||||||||||
Credit derivative contracts | 57,812 | 50,578 | 2,345 | 80,008 | 70,586 | 2,525 | ||||||||||||||||||
Foreign exchange contracts | 113,514 | 122,843 | 6,561 | 97,925 | 101,800 | 6,051 | ||||||||||||||||||
Precious metal contracts | 3,784 | 3,755 | 71 | 3,442 | 3,378 | 78 | ||||||||||||||||||
Equity / Index contracts | 16,281 | 19,455 | 483 | 17,314 | 21,353 | 451 | ||||||||||||||||||
Commodities contracts, excluding precious metals contracts | 894 | 927 | 41 | 761 | 697 | 31 | ||||||||||||||||||
Total derivative instruments | 369,203 | 364,477 | 42,463 | 386,956 | 372,447 | 43,862 | ||||||||||||||||||
Replacement value netting | 303,754 | 303,754 | 317,979 | 317,979 | ||||||||||||||||||||
Replacement values after netting | 65,449 | 60,723 | 68,977 | 54,468 | ||||||||||||||||||||
Fiduciary transactions
% change from | ||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Deposits: | ||||||||||||
with third-party banks | 11,529 | 17,088 | (33 | ) | ||||||||
with subsidiaries | 1,740 | 1,810 | (4 | ) | ||||||||
Total | 13,269 | 18,898 | (30 | ) | ||||||||
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UBS AG (Parent Bank)
Due to UBS pension plans
For the year ended | % change from | |||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.09 | |||||||||
Obligations due to UBS pension plans1 | 682 | 543 | 26 | |||||||||
Transactions with related parties
Transactions with related parties (such as securities transactions, payment transfer services, borrowing and compensation for deposits) are conducted at internally agreed transfer prices or at arm’s length.
Outsourcing
Outsourcing of IT and other services through agreements with external service providers is in compliance with FINMA circular 08/7 “Outsourcing banks”.
Dispensations in statutory financial statements
As UBS Group prepares consolidated financial statements in accordance with IFRS, UBS AG (Parent Bank) is exempted from various disclosures in the statutory financial statements. Refer to the IFRS “Consolidated financial statements” in the “Financial Information” section of this report for more information.
Personnel
The Parent Bank employed 36,381 personnel on 31 December 2010 compared with 36,182 personnel on 31 December 2009.
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Financial information |
Corporate governance and compensation report
Total compensation for all GEB members
Variable cash | ||||||||||||||||||||||||||||||||||||||
CHF, except where indicateda | compensation under CBP | |||||||||||||||||||||||||||||||||||||
Contribu- | ||||||||||||||||||||||||||||||||||||||
tions to | ||||||||||||||||||||||||||||||||||||||
Annual | Annual | Annual | retirement | |||||||||||||||||||||||||||||||||||
For the year | Immediate | Deferred | bonus | bonus under | bonus | Benefits in | benefits | |||||||||||||||||||||||||||||||
Name, function | ended | Base salary | cashb | cashb, 3 | under PEPc | SEEOPd | under IPPc | kinde | plansf | Total | ||||||||||||||||||||||||||||
Oswald J. Grübel, Group CEO | 2010 | 3,000,000 | 0 | 0 | 0 | 0 | – | 25,600 | 0 | 3,025,600 | ||||||||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank (highest-paid) | 2010 | 874,626 | 1,002,496 | 2,339,158 | 1,670,827 | 3,341,654 | – | 92,547 | 0 | 9,321,308 | ||||||||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank (highest-paid) | 2009 | 669,092 | 3,002,082 | 2,001,388 | 6,155,869 | – | 1,349,336 | 0 | 12,545 | 13,190,312 | ||||||||||||||||||||||||||||
Aggregate of all GEB members who were in office on 31 December 20101 | 2010 | 14,705,894 | 15,588,145 | 14,451,756 | 15,019,951 | 30,039,901 | – | 381,851 | 843,402 | 91,030,900 | ||||||||||||||||||||||||||||
Aggregate of all GEB members who were in office on 31 December 20091 | 2009 | 12,000,055 | 15,440,827 | 10,293,884 | 13,453,424 | 4 | – | 15,696,333 | 270,971 | 1,551,068 | 68,706,566 | |||||||||||||||||||||||||||
Aggregate of all GEB members who stepped down during 20102 | 2010 | 755,950 | 1,380,000 | 920,000 | 0 | 0 | – | 78,817 | 118,334 | 3,253,101 | ||||||||||||||||||||||||||||
Aggregate of all GEB members who stepped down during 20092 | 2009 | 2,447,544 | 23,065,858 | 15,377,239 | 0 | – | 0 | 215,151 | 171,122 | 41,276,914 | ||||||||||||||||||||||||||||
Explanation of the tables outlining compensation details for GEB members and non-independent BoD members
a. | Local currencies are converted into CHF using the exchange rates as detailed in Note 39 “Currency translation rates” in the “Financial information” section of this report. | |
b. | Of the cash award, 60% is paid out immediately (representing 24% of a GEB member’s total annual bonus). The balance is paid out in equal installments of 20%, each over the subsequent two years, and is subject to forfeiture. | |
c. | Value of each performance share at grant: CHF 18.70 for PEP awards granted in 2011 relating to the performance year 2010; CHF 16.30 for PEP awards granted in 2010 relating to the performance year 2009; and CHF 22.20 for IPP awards granted in 2010 relating to the performance year 2009. These values are based on valuations for accounting purposes which take into account the performance conditions and the range of possible outcomes for these conditions. | |
d. | SEEOP is a pre-existing compensation plan that has been updated and re-introduced. SEEOP awards vest in equal installments over five years and are subject to forfeiture. The grant date accounting value per share granted under SEEOP in 2011 relating to the performance year 2010 at grant is CHF 18.43 or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares). | |
e. | Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances. | |
f. | Swiss executives participate in the same pension plan as all other employees. Under this plan, UBS makes contributions to the plan, which covers compensation of up to CHF 820,800. The retirement benefits consist of a pension, a bridging pension and a one-off payout of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV), but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award components. | |
In both the US and the UK, senior management participates in the same pension plans as all other employees. In the US, there are separate pension plans for Wealth Management Americas compared with the other business divisions. There are generally two different types of pension plans. The grandfathered plans, which are no longer open to new hires, operate (depending on the abovementioned distinction by business division) either on a cash balance basis or a career average salary basis. Participants accrue a pension based on their annual compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined contribution plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 245,000. US management may also participate in a 401(k) defined contribution plan (open to all employees), which provides a limited company matching contribution for employee contributions. In the UK, management participates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010). |
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Financial information
UBS AG (Parent Bank)
Share and option ownership of GEB members on 31 December 2009 / 2010
Number of | Potentially | Potentially | ||||||||||||||||||||||||
For the | unvested | Number of | Total number of | conferred voting | Number of | conferred voting | ||||||||||||||||||||
Name, function1 | year ended | shares / at risk2 | vested shares | shares | rights in % | options held3 | rights in %4 | |||||||||||||||||||
Oswald J. Grübel, Group Chief Executive Officer | 2010 | 0 | 0 | 0 | 0.000 | 4,000,000 | 0.181 | |||||||||||||||||||
2009 | – | – | 0 | 0.000 | 4,000,000 | 0.217 | ||||||||||||||||||||
John Cryan, Group Chief Financial Officer | 2010 | 221,879 | 185,975 | 407,854 | 0.018 | 382,673 | 0.017 | |||||||||||||||||||
2009 | – | – | 235,929 | 0.013 | 382,673 | 0.021 | ||||||||||||||||||||
Markus U. Diethelm, Group General Counsel | 2010 | 178,619 | 75,700 | 254,319 | 0.012 | 0 | 0.000 | |||||||||||||||||||
2009 | – | – | 112,245 | 0.006 | 0 | 0.000 | ||||||||||||||||||||
John A. Fraser, | 2010 | 326,702 | 316,541 | 643,243 | 0.029 | 1,088,795 | 0.049 | |||||||||||||||||||
Chairman and CEO Global Asset Management | 2009 | – | – | 480,464 | 0.026 | 1,088,795 | 0.059 | |||||||||||||||||||
Lukas Gähwiler, CEO UBS Switzerland and | 2010 | 110,000 | 850 | 110,850 | 0.005 | 0 | 0.000 | |||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | 2009 | – | – | – | – | |||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank | 2010 | 916,201 | 363,047 | 1,279,248 | 0.058 | 905,000 | 0.041 | |||||||||||||||||||
2009 | – | – | 516,909 | 0.028 | 905,000 | 0.049 | ||||||||||||||||||||
Ulrich Körner, Group Chief Operating Officer | 2010 | 177,592 | 95,597 | 273,189 | 0.012 | 0 | 0.000 | |||||||||||||||||||
and CEO Corporate Center | 2009 | – | – | 0 | 0.000 | 0 | 0.000 | |||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer | 2010 | 200,009 | 144,603 | 344,612 | 0.016 | 577,723 | 0.026 | |||||||||||||||||||
2009 | – | – | 179,234 | 0.010 | 577,723 | 0.031 | ||||||||||||||||||||
Robert J. McCann, CEO Wealth Management | 2010 | 138,598 | 540,866 | 679,464 | 0.031 | 0 | 0.000 | |||||||||||||||||||
Americas | 2009 | – | – | 602,481 | 0.033 | 0 | 0.000 | |||||||||||||||||||
Francesco Morra, former CEO | 2010 | – | – | – | – | |||||||||||||||||||||
UBS Switzerland5 | 2009 | – | – | 153,860 | 0.008 | 325,086 | 0.018 | |||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman and | 2010 | 274,739 | 213,613 | 488,352 | 0.022 | 353,807 | 0.016 | |||||||||||||||||||
co-CEO Group Asia Pacific | 2009 | – | – | 286,767 | 0.016 | 353,807 | 0.019 | |||||||||||||||||||
Robert Wolf, Chairman and CEO, UBS Group | 2010 | 242,805 | 635,382 | 878,187 | 0.040 | 948,473 | 0.043 | |||||||||||||||||||
Americas/President Investment Bank | 2009 | – | – | 785,631 | 0.043 | 948,473 | 0.051 | |||||||||||||||||||
Chi-Won Yoon, co-Chairman and | 2010 | 184,858 | 318,332 | 503,190 | 0.023 | 623,253 | 0.028 | |||||||||||||||||||
co-CEO Group Asia Pacific | 2009 | – | – | 367,573 | 0.020 | 623,253 | 0.034 | |||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management | 2010 | 113,609 | 9,405 | 123,014 | 0.006 | 205,470 | 0.009 | |||||||||||||||||||
and co-CEO Wealth Management & Swiss Bank | 2009 | – | – | 16,502 | 0.001 | 205,470 | 0.011 | |||||||||||||||||||
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Financial information |
Compensation details and additional information for non-independent BoD members
CHF, except where indicateda | ||||||||||||||||||||||||||
Contributions | ||||||||||||||||||||||||||
For the | Annual bonus | Annual | to retirement | |||||||||||||||||||||||
Name, function1 | year ended | Base salary | (cash) | share award | Benefits in kinde | benefits plansf | Total | |||||||||||||||||||
Kaspar Villiger, Chairman | 2010 | 850,000 | 0 | 500,000 | 2 | 141,308 | 0 | 1,491,308 | ||||||||||||||||||
2009 | 602,083 | 0 | 0 | 74,488 | 0 | 676,571 | ||||||||||||||||||||
Peter Kurer, former Chairman | 2010 | – | – | – | – | – | – | |||||||||||||||||||
2009 | 666,667 | 0 | 0 | 37,561 | 89,780 | 794,008 | ||||||||||||||||||||
Remuneration details and additional information for independent BoD members
CHF, except where indicateda | ||||||||||||||||||||||||||||||||||||||||||
Human | For the | |||||||||||||||||||||||||||||||||||||||||
Resources | Governance & | Corporate | period | Share | ||||||||||||||||||||||||||||||||||||||
Audit | & Compensation | Nominating | Responsibility | Risk | AGM to | Committee | Benefits | Additional | percen- | Number of | ||||||||||||||||||||||||||||||||
Name, function1 | Committee | Committee | Committee | Committee | Committee | AGM | Base fee | retainer(s) | in kind | payments | Total | tage2 | shares3,4 | |||||||||||||||||||||||||||||
Michel Demaré, | M | M | 2010/2011 | 325,000 | 300,000 | 250,000 | 5 | 875,000 | 100 | 52,631 | ||||||||||||||||||||||||||||||||
Vice Chairman | M | 2009/2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 50 | 21,203 | |||||||||||||||||||||||||||||||||
David Sidwell, | C | 2010/2011 | 325,000 | 400,000 | 250,000 | 5 | 975,000 | 50 | 30,893 | |||||||||||||||||||||||||||||||||
Senior Independent Director | C | 2009/2010 | 325,000 | 400,000 | 0 | 0 | 725,000 | 50 | 29,281 | |||||||||||||||||||||||||||||||||
Sally Bott, | C | M | M | 2010/2011 | 325,000 | 450,000 | 775,000 | 50 | 24,556 | |||||||||||||||||||||||||||||||||
member | C | M | 2009/2010 | 325,000 | 350,000 | 0 | 0 | 675,000 | 50 | 27,261 | ||||||||||||||||||||||||||||||||
Rainer-Marc Frey, | M | M | 2010/2011 | 325,000 | 400,000 | 725,000 | 100 | 43,583 | ||||||||||||||||||||||||||||||||||
member | M | 2009/2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 100 | 40,301 | |||||||||||||||||||||||||||||||||
Bruno Gehrig, | M | M | 2010/2011 | 325,000 | 200,000 | 525,000 | 50 | 16,634 | ||||||||||||||||||||||||||||||||||
member | M | M | 2009/2010 | 325,000 | 200,000 | 0 | 0 | 525,000 | 50 | 21,203 | ||||||||||||||||||||||||||||||||
Ann F. Godbehere, | M | M | 2010/2011 | 325,000 | 250,000 | 575,000 | 50 | 18,219 | ||||||||||||||||||||||||||||||||||
member | M | M | 2009/2010 | 325,000 | 250,000 | 575,000 | 50 | 23,222 | ||||||||||||||||||||||||||||||||||
Axel P. Lehmann, | M | 2010/2011 | 325,000 | 200,000 | 525,000 | 100 | 31,519 | |||||||||||||||||||||||||||||||||||
member | M | 2009/2010 | 325,000 | 200,000 | 0 | �� | 0 | 525,000 | 100 | 40,301 | ||||||||||||||||||||||||||||||||
Sergio Marchionne, | 2010/2011 | – | ||||||||||||||||||||||||||||||||||||||||
former Senior Independent Director, | ||||||||||||||||||||||||||||||||||||||||||
former Vice Chairman | M | 2009/2010 | 325,000 | 100,000 | 0 | 250,000 | 5 | 675,000 | 100 | 51,845 | ||||||||||||||||||||||||||||||||
Wolfgang Mayrhuber, | M | M | 2010/2011 | 325,000 | 150,000 | 475,000 | 50 | 15,050 | ||||||||||||||||||||||||||||||||||
member | 2009/2010 | – | ||||||||||||||||||||||||||||||||||||||||
Helmut Panke, | M | M | 2010/2011 | 325,000 | 300,000 | 625,000 | 50 | 19,803 | ||||||||||||||||||||||||||||||||||
member | M | M | 2009/2010 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 25,242 | ||||||||||||||||||||||||||||||||
William G. Parrett, | C | 2010/2011 | 325,000 | 300,000 | 625,000 | 50 | 19,803 | |||||||||||||||||||||||||||||||||||
member | C | 2009/2010 | 325,000 | 300,000 | 0 | 0 | 625,000 | 50 | 25,242 | |||||||||||||||||||||||||||||||||
Peter R. Voser, | 2010/2011 | – | ||||||||||||||||||||||||||||||||||||||||
former member | M | 2009/2010 | 325,000 | 100,000 | 0 | 0 | 425,000 | 50 | 17,164 | |||||||||||||||||||||||||||||||||
Total 2010 | 6,700,000 | |||||||||||||||||||||||||||||||||||||||||
Total 2009 | 6,425,000 | |||||||||||||||||||||||||||||||||||||||||
393
Table of Contents
Financial information
UBS AG (Parent Bank)
Total payments to all BoD members
CHF, except where indicateda | For the year ended | Total | ||||||
Aggregate of all BoD members | 2010 | 8,191,310 | ||||||
2009 | 7,895,579 | |||||||
Share holdings of BoD members on 31 December 2009 / 2010
Name, function1 | For the year ended | Number of shares held | Voting rights in % | |||||||
Kaspar Villiger, Chairman | 2010 | 22,500 | 0.001 | |||||||
2009 | 22,500 | 0.001 | ||||||||
Michel Demaré, Vice Chairman | 2010 | 23,703 | 0.001 | |||||||
2009 | 2,500 | 0.000 | ||||||||
David Sidwell, Senior Independent Director | 2010 | 69,354 | 0.003 | |||||||
2009 | 40,073 | 0.002 | ||||||||
Sally Bott, member | 2010 | 39,542 | 0.002 | |||||||
2009 | 12,281 | 0.001 | ||||||||
Rainer-Marc Frey, member | 2010 | 56,459 | 0.003 | |||||||
2009 | 16,158 | 0.001 | ||||||||
Bruno Gehrig, member | 2010 | 37,775 | 0.002 | |||||||
2009 | 16,572 | 0.001 | ||||||||
Ann F. Godbehere, member | 2010 | 23,222 | 0.001 | |||||||
2009 | 0 | 0.000 | ||||||||
Axel P. Lehmann, member | 2010 | 58,452 | 0.003 | |||||||
2009 | 18,151 | 0.001 | ||||||||
Sergio Marchionne, | 2010 | – | ||||||||
former Senior Independent Director, former Vice Chairman2 | 2009 | 164,154 | 0,009 | |||||||
Wolfgang Mayrhuber, member | 2010 | 0 | 0.000 | |||||||
2009 | – | |||||||||
Helmut Panke, member | 2010 | 89,529 | 0.004 | |||||||
2009 | 64,287 | 0.003 | ||||||||
William G. Parrett, member | 2010 | 42,815 | 0.002 | |||||||
2009 | 17,573 | 0.001 | ||||||||
Peter R. Voser, former member2 | 2010 | – | ||||||||
2009 | 68,310 | 0.004 | ||||||||
394
Table of Contents
Financial information |
Compensation paid to former BoD and GEB members1
CHF, except where indicateda | ||||||||||||||
For the | ||||||||||||||
Name, function | year ended | Compensation | Benefits in kind | Total | ||||||||||
Georges Blum, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 92,399 | 92,399 | ||||||||||
Franz Galliker, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 10,659 | 10,659 | ||||||||||
Walter G. Frehner, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 25,371 | 25,371 | ||||||||||
Hans (Liliane) Strasser, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Swiss Bank Corporation) | 2009 | 0 | 9,758 | 9,758 | ||||||||||
Robert Studer, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Union Bank of Switzerland) | 2009 | 0 | 18,751 | 18,751 | ||||||||||
Alberto Togni, former BoD member | 2010 | 0 | 20,493 | 20,493 | ||||||||||
(UBS) | 2009 | 320,136 | 355,983 | 676,119 | ||||||||||
Philippe (Alix) de Weck, former BoD member | 2010 | 0 | 0 | 0 | ||||||||||
(Union Bank of Switzerland) | 2009 | 0 | 93,135 | 93,135 | ||||||||||
Aggregate of all former GEB members2 | 2010 | 0 | 57,229 | 57,229 | ||||||||||
2009 | 0 | 18,293 | 18,293 | |||||||||||
Aggregate of all former BoD and GEB members | 2010 | 0 | 77,722 | 77,722 | ||||||||||
2009 | 320,136 | 624,349 | 944,485 | |||||||||||
395
Table of Contents
Financial information
UBS AG (Parent Bank)
Vested and unvested options held by GEB members on 31 December 2009 / 20101
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Oswald J. Grübel, Group Chief Executive Officer | ||||||||||||||||||||||||
2010 | 4,000,000 | 4,000,000 | 2009 | 26/02/2009 | 25/02/2014 | CHF 10.10 | ||||||||||||||||||
2009 | 4,000,000 | 4,000,000 | 2009 | 26/02/2009 | 25/02/2014 | CHF 10.10 | ||||||||||||||||||
John Cryan, Group Chief Financial Officer | ||||||||||||||||||||||||
2010 | 382,673 | 21,362 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
20,731 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
20,725 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
5,454 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,294 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,292 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
23,626 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,620 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,612 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
5,526 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
17,072 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,068 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,063 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,207 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
5,330 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,328 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,326 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,760 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
53 285 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
2009 | 382,673 | 21,362 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
20,731 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
20,725 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
5,454 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,294 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,292 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
23,626 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,620 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
23,612 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
5,526 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
5,524 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
17,072 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,068 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
17,063 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,210 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
14,207 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
John Cryan, Group Chief Financial Officer (continued) | ||||||||||||||||||||||||
2009 | 382,673 | 5,330 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||
5,328 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
5,326 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,762 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
17,760 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
53,285 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
Markus U. Diethelm, Group General Counsel | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
John A. Fraser, Chairman and CEO Global Asset Management | ||||||||||||||||||||||||
2010 | 1,088,795 | 76,380 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
127,884 | 2002 | 28/06/2005 | 28/06/2012 | CHF 37.90 | ||||||||||||||||||||
127,884 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||||
170,512 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
202,483 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
213,140 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
170,512 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
2009 | 1,088,795 | 76,380 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
127,884 | 2002 | 28/06/2005 | 28/06/2012 | CHF 37.90 | ||||||||||||||||||||
127,884 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||||
170,512 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
202,483 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
213,140 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
170,512 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
Lukas Gähwiler, CEO UBS Switzerland and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | – | |||||||||||||||||||||||
Carsten Kengeter, CEO Investment Bank | ||||||||||||||||||||||||
2010 | 905,000 | 905,000 | 2009 | 01/03/2012 | 27/12/2019 | CHF 40.00 | ||||||||||||||||||
2009 | 905,000 | 905,000 | 2009 | 01/03/2012 | 27/12/2019 | CHF 40.00 | ||||||||||||||||||
Ulrich Körner, Group Chief Operating Officer and CEO Corporate Center | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer | ||||||||||||||||||||||||
2010 | 577,723 | 11,445 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
11,104 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
11,098 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
1,240 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,464 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
1,199 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 |
396
Table of Contents
Financial information |
Vested and unvested options held by GEB members on 31 December 2009 / 20101 (continued)
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Philip J. Lofts, Group Chief Risk Officer (continued) | ||||||||||||||||||||||||
2010 | 577,723 | 9,985 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||
9,980 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,974 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
1,833 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,521 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
117,090 | 2005 | 01/03/2008 | 28/02/2015 | CHF 52.32 | ||||||||||||||||||||
117,227 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
85,256 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
74,599 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 577,723 | 11,445 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
11,104 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
11,098 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
1,240 | 2002 | 28/02/2003 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
5,464 | 2002 | 28/02/2004 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
1,199 | 2002 | 28/02/2005 | 28/02/2012 | CHF 36.65 | ||||||||||||||||||||
9,985 | 2003 | 01/03/2004 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,980 | 2003 | 01/03/2005 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
9,974 | 2003 | 01/03/2006 | 31/01/2013 | CHF 27.81 | ||||||||||||||||||||
1,833 | 2003 | 01/03/2004 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2005 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
1,830 | 2003 | 01/03/2006 | 28/02/2013 | CHF 26.39 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,524 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
35,521 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
117,090 | 2005 | 01/03/2008 | 28/02/2015 | CHF 52.32 | ||||||||||||||||||||
117,227 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
85,256 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
74,599 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Robert J. McCann, CEO Wealth Management Americas | ||||||||||||||||||||||||
2010 | 0 | |||||||||||||||||||||||
2009 | 0 | |||||||||||||||||||||||
Francesco Morra, former CEO UBS Switzerland4 | ||||||||||||||||||||||||
2010 | – | |||||||||||||||||||||||
2009 | 325,086 | 43,911 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||
66,866 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
114,309 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
100,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific | ||||||||||||||||||||||||
2010 | 353,807 | 53,282 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
2,130 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Alexander Wilmot-Sitwell, co-Chairman und co-CEO Group Asia Pacific (cont.) | ||||||||||||||||||||||||
2010 | 353,807 | 35,524 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||
35,524 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,521 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
85,256 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 353,807 | 53,282 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
2,130 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
35,524 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,524 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
35,521 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
85,256 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Robert Wolf, Chairman and CEO, UBS Group Americas / | ||||||||||||||||||||||||
President Investment Bank | ||||||||||||||||||||||||
2010 | 948,473 | 287,739 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||
213,140 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
127,884 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
106,570 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
106,570 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
2009 | 948,473 | 287,739 | 2003 | 31/01/2006 | 31/01/2013 | USD 22.53 | ||||||||||||||||||
213,140 | 2004 | 01/03/2007 | 27/02/2014 | USD 38.13 | ||||||||||||||||||||
127,884 | 2005 | 01/03/2008 | 28/02/2015 | USD 44.81 | ||||||||||||||||||||
106,570 | 2006 | 01/03/2009 | 28/02/2016 | CHF 72.57 | ||||||||||||||||||||
106,570 | 2007 | 01/03/2010 | 28/02/2017 | CHF 73.67 | ||||||||||||||||||||
106,570 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific | ||||||||||||||||||||||||
2010 | 623,253 | 11,577 | 2002 | 31/01/2002 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
11,229 | 2002 | 31/01/2004 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
11,227 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
2,252 | 2002 | 28/02/2002 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
6,446 | 2002 | 29/02/2004 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
2,184 | 2002 | 28/02/2005 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
8,648 | 2003 | 01/03/2004 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,642 | 2003 | 01/03/2005 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,635 | 2003 | 01/03/2006 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
4,262 | 2003 | 28/02/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,374 | 2003 | 01/03/2004 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2006 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
6,200 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
4,262 | 2004 | 27/02/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,198 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,195 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
10,659 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 |
397
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Financial information
UBS AG (Parent Bank)
Vested and unvested options held by GEB members on 31 December 2009 / 20101 (continued)
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Chi-Won Yoon, co-Chairman und co-CEO Group Asia Pacific (continued) | ||||||||||||||||||||||||
2010 | 623,253 | 10,657 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
10,654 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
21,316 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,314 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,311 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
8,881 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
350,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
2009 | 623,253 | 11,577 | 2002 | 31/01/2002 | 31/01/2012 | USD 21.24 | ||||||||||||||||||
11,229 | 2002 | 31/01/2004 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
11,227 | 2002 | 31/01/2005 | 31/01/2012 | USD 21.24 | ||||||||||||||||||||
2,252 | 2002 | 28/02/2002 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
6,446 | 2002 | 29/02/2004 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
2,184 | 2002 | 28/02/2005 | 28/02/2012 | USD 21.70 | ||||||||||||||||||||
8,648 | 2003 | 01/03/2004 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,642 | 2003 | 01/03/2005 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
8,635 | 2003 | 01/03/2006 | 31/01/2013 | USD 20.49 | ||||||||||||||||||||
4,262 | 2003 | 28/02/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,374 | 2003 | 01/03/2004 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2005 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
3,371 | 2003 | 01/03/2006 | 28/02/2013 | USD 19.53 | ||||||||||||||||||||
6,200 | 2004 | 01/03/2005 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
4,262 | 2004 | 27/02/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,198 | 2004 | 01/03/2006 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
6,195 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
10,659 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
10,657 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
10,654 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
21,316 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,314 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
21,311 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
8,881 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
8,880 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 32.45 | ||||||||||||||||||||
350,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank | ||||||||||||||||||||||||
2010 | 205,470 | 809 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
784 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
784 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
4,972 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 |
Total | ||||||||||||||||||||||||
For the | number of | Number of | Year of | Vesting | Expiry | Strike | ||||||||||||||||||
year ended | options held2 | options3 | grant | date | date | price | ||||||||||||||||||
Jürg Zeltner, CEO UBS Wealth Management and | ||||||||||||||||||||||||
co-CEO Wealth Management & Swiss Bank (continued) | ||||||||||||||||||||||||
2010 | 205,470 | 7,106 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||
7,103 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
93 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
161 | 2005 | 06/06/2007 | 06/06/2015 | CHF 45.97 | ||||||||||||||||||||
149 | 2005 | 09/09/2007 | 09/09/2015 | CHF 50.47 | ||||||||||||||||||||
127 | 2005 | 05/12/2007 | 05/12/2015 | CHF 59.03 | ||||||||||||||||||||
7,106 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
110 | 2006 | 03/03/2008 | 03/03/2016 | CHF 65.91 | ||||||||||||||||||||
242 | 2006 | 09/06/2008 | 09/06/2016 | CHF 61.84 | ||||||||||||||||||||
230 | 2006 | 08/09/2008 | 08/09/2016 | CHF 65.76 | ||||||||||||||||||||
221 | 2006 | 08/12/2008 | 08/12/2016 | CHF 67.63 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,103 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
223 | 2007 | 02/03/2009 | 02/03/2017 | CHF 67.08 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
90,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 | ||||||||||||||||||||
2009 | 205,470 | 809 | 2002 | 31/01/2003 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||
784 | 2002 | 31/01/2004 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
784 | 2002 | 31/01/2005 | 31/01/2012 | CHF 36.49 | ||||||||||||||||||||
4,972 | 2004 | 01/03/2007 | 27/02/2014 | CHF 44.32 | ||||||||||||||||||||
7,106 | 2005 | 01/03/2006 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2007 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
7,103 | 2005 | 01/03/2008 | 28/02/2015 | CHF 47.58 | ||||||||||||||||||||
93 | 2005 | 04/03/2007 | 04/03/2015 | CHF 47.89 | ||||||||||||||||||||
161 | 2005 | 06/06/2007 | 06/06/2015 | CHF 45.97 | ||||||||||||||||||||
149 | 2005 | 09/09/2007 | 09/09/2015 | CHF 50.47 | ||||||||||||||||||||
127 | 2005 | 05/12/2007 | 05/12/2015 | CHF 59.03 | ||||||||||||||||||||
7,106 | 2006 | 01/03/2007 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2008 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
7,103 | 2006 | 01/03/2009 | 28/02/2016 | CHF 65.97 | ||||||||||||||||||||
110 | 2006 | 03/03/2008 | 03/03/2016 | CHF 65.91 | ||||||||||||||||||||
242 | 2006 | 09/06/2008 | 09/06/2016 | CHF 61.84 | ||||||||||||||||||||
230 | 2006 | 08/09/2008 | 08/09/2016 | CHF 65.76 | ||||||||||||||||||||
221 | 2006 | 08/12/2008 | 08/12/2016 | CHF 67.63 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2008 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,105 | 2007 | 01/03/2009 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
7,103 | 2007 | 01/03/2010 | 28/02/2017 | CHF 67.00 | ||||||||||||||||||||
223 | 2007 | 02/03/2009 | 02/03/2017 | CHF 67.08 | ||||||||||||||||||||
42,628 | 2008 | 01/03/2011 | 28/02/2018 | CHF 35.66 | ||||||||||||||||||||
90,000 | 2009 | 01/03/2012 | 27/02/2019 | CHF 11.35 |
398
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Financial information |
Loans granted to GEB members on 31 December 2009 / 2010
CHF, except where indicateda | ||||||||
Name, function1 | For the year ended | Loans2 | ||||||
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank3 | 2010 | 5,739,862 | ||||||
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank3 | 2009 | 5,800,202 | ||||||
Aggregate of all GEB members | 2010 | 20,696,569 | ||||||
2009 | 15,356,483 | |||||||
Loans granted to BoD members on 31 December 2009 / 2010
CHF, except where indicateda | ||||||||
Name, function1 | For the year ended | Loans2 | ||||||
Kaspar Villiger, Chairman | 2010 | 0 | ||||||
2009 | 0 | |||||||
Michel Demaré, Vice Chairman | 2010 | 850,000 | ||||||
2009 | 850,000 | |||||||
David Sidwell, Senior Independent Director | 2010 | 0 | ||||||
2009 | 0 | |||||||
Sergio Marchionne, former Senior Independent Director, former Vice Chairman3 | 2010 | – | ||||||
2009 | 0 | |||||||
Sally Bott, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
Rainer-Marc Frey, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
Bruno Gehrig, member4 | 2010 | 798,000 | ||||||
2009 | 798,000 | |||||||
Ann F. Godbehere, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
Axel P. Lehmann, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
Wolfgang Mayrhuber, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
Helmut Panke, member | 2010 | 0 | ||||||
2009 | 0 | |||||||
William G. Parrett, member4 | 2010 | 0 | ||||||
2009 | 1,260,731 | |||||||
Peter R. Voser, member3 | 2010 | – | ||||||
2009 | 0 | |||||||
Aggregate of all BoD members | 2010 | 1,648,000 | ||||||
2009 | 2,908,731 | |||||||
399
Table of Contents
Financial information
UBS AG (Parent Bank)
Ernst & Young Ltd | ||||
Aeschengraben 9 | ||||
CH-4002 Basel | ||||
Phone | +41 58 286 86 86 | |||
Fax | +41 58 286 86 00 | |||
www.ey.com/ch | ||||
To the General Meeting of
UBS AG, Zurich and Basel
Basel, 3 March 2011
Report of the statutory auditor on the financial statements
As statutory auditor, we have audited the financial statements which comprise the balance sheet, income statement and notes on pages 380 to 399 of UBS AG for the year ended 31 December 2010.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s articles of association. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31 December 2010 comply with Swiss law and the Company’s articles of association.
400
Table of Contents
Financial information |
2 |
Report on other legal requirements
We confirm that we meet the Swiss legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (Art. 728 Code of Obligations (CO) and Art. 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements in accordance with the instructions of the Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the Company’s articles of association. We recommend that the financial statements submitted to you be approved.
Ernst & Young Ltd | ||
Jonathan Bourne | Dr. Andreas Blumer | |
Licensed audit expert | Licensed audit expert | |
(Auditor in charge) |
401
Table of Contents
Financial information
UBS AG (Parent Bank)
Phone 044 444 36 44 | BDO Ltd | |||
Fax 044 444 37 84 | Fabrikstrasse 50 | |||
www.bdo.ch | 8031 Zurich | |||
Confirmation of the auditors concerning conditional capital increase
UBS AG, Zurich and Basel
As special auditors of UBS AG, we have audited the issue of new shares and the preconditions for the adjustment of the provisions regarding the conditional capital increase according to article 4a of the articles of association in the period from 1 January 2010 to 5 March 2010 in accordance with the provisions of article 653f paragraph 1 of the Swiss code of obligations.
According to article 4a of the articles of association, the following possibilities for the issue of conditional capital exist:
• | Paragraph 1; employee stock option plans of Paine Webber Group Inc., New York, based on the resolution of the annual general meeting of 7 September 2000. | ||
• | Paragraph 2; employee stock option plans of UBS AG, based on the resolution of the annual general meeting of 19 April 2006. | ||
• | Paragraph 3; 9% mandatory convertible notes due 2010, based on the resolution of the general meeting of shareholders of 27 February 2008. | ||
• | Paragraph 4; options granted to the Swiss National Bank in connection with its loan granted to the 5NB StabFund Limited Partnership for Collective Investment, based on the resolution of the general meeting of shareholders of 27 November 2008. |
In addition we have audited the expiration of options relating to the employee stock option plans of Paine Webber Group Inc., New York, in accordance with the provisions of article 653i paragraph 1 of the Swiss code of obligations.
The issue of new shares in accordance with the provisions of the company’s articles of association is the responsibility of the board of directors. Our responsibility is to express an opinion on whether the issue of new shares is in accordance with the provisions of Swiss law and the company’s articles of association. In addition, the provision of evidence that the option rights have expired is also the responsibility of the board of directors. Our responsibility is to express an opinion on the accuracy of this statement, based on our audit. We confirm that we meet the legal requirements on licensing and independence.
Our audit was conducted in accordance with the Swiss auditing standards, which require that an audit be planned and performed to obtain reasonable assurance as to whether the issue of new shares, and whether the conclusion as to the expired option rights, were both free of material error. We have performed the audit procedures considered appropriate in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
In our opinion
• | the issue of 3’171 new registered shares of a nominal value of CHF 0.10 per share relating to the employee stock option plans of Paine Webber Group Inc., New York, according to article 4a paragraph 1 of the articles of association, was in accordance with the provisions of Swiss law and the company’s articles of association. Furthermore, no option rights relating to registered shares of a nominal value of CHF 0.10 per share have expired during the reporting period; | ||
• | the issue of 24’561 new registered shares of a nominal value of CHF 0.10 per share relating to the employee stock option plans of UBS AG, according to article 4a paragraph 2 of the articles of association, was in accordance with the provisions of Swiss taw and the company’s articles of association; | ||
• | the issue of 272’651’005 registered shares of a nominal value of CHF 0.10 per share in conjunction with the total conversion of the 9%mandatory convertible notes due in 2010, according to article 4a paragraph 3 of the articles of association, was in accordance with the provisions of Swiss law and the company’s articles of association as well as the defined conditions of the conversion rights; | ||
• | no new registered shares relating to the options granted to the Swiss National Bank, according to article 4a paragraph 4 of the articles of association, were issued in the reporting period. |
Zurich, 8 March 2010 | ||
BDO Ltd | ||
Werner Schiesser | Markus Egli | |
Licensed Audit Expert | Licensed Audit Expert |
402
Table of Contents
Financial information |
Phone 044 444 36 44 | BDO Ltd | |||
Fax 044 444 37 84 | Fabrikstrasse 50 | |||
www.bdo.ch | 8031 Zurich | |||
Confirmation of the auditors concerning conditional capital increase
to the Board of Directors of
UBS AG, Zurich and Basel
As special auditors of UBS AG, we have audited the issue of new shares and the preconditions for the adjustment of the provisions regarding the conditional capital increase according to article 4a of the articles of association in the period from 6 March 2010 to 31 August 2010 in accordance with the provisions of article 653f paragraph 1 of the Swiss code of obligations.
According to article 4a of the articles of association, the following possibilities for the issue of conditional capital exist:
• | Paragraph 1; employee stock option plans of Paine Webber Group Inc., New York, based on the resolution of the annual general meeting of 7 September 2000. | ||
• | Paragraph 2; employee stock option plans of UBS AG, based on the resolution of the annual general meeting of 19 April 2006. | ||
• | Paragraph 3; options granted to the Swiss National Bank in connection with its loan granted to the SNB StabFund Limited Partnership for Collective Investment, based on the resolution of the general meeting of shareholders of 27 November 2008. | ||
• | Paragraph 4; conversion rights and/or warrants granted in connection with the issuance of bonds or similar financial instruments, based on the resolution of the annual general meeting of 14 April 2010. |
In addition we have audited the expiration of options relating to the employee stock option plans of Paine Webber Group Inc., New York, in accordance with the provisions of article 653i paragraph 1 of the Swiss code of obligations.
The issue of new shares in accordance with the provisions of the company’s articles of association is the responsibility of the board of directors. Our responsibility is to express an opinion on whether the issue of new shares is in accordance with the provisions of Swiss law and the company’s articles of association. In addition, the provision of evidence that the option rights have expired is also the responsibility of the board of directors. Our responsibility is to express an opinion on the accuracy of this statement, based on our audit. We confirm that we meet the legal requirements on licensing and independence.
Our audit was conducted in accordance with the Swiss auditing standards, which require that an audit be planned and performed to obtain reasonable assurance as to whether the issue of new shares, and whether the conclusion as to the expired option rights, were both free of material error. We have performed the audit procedures considered appropriate in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
In our opinion
• | the cancellation of 26’179 option rights relating to registered shares of a nominal value of CHF 0.10 per share in connection with the employee stock option plans of Paine Webber Group Inc., New York, according to article 4a paragraph 1 of the articles of association, and the repeal of the related clause of the articles of association, are in accordance with the provisions of Swiss law; | ||
• | the issue of 13’778 new registered shares of a nominal value of CHF 0.10 per share relating to the employee stock option plans of UBS AG, according to article 4a paragraph 2 of the articles of association, was in accordance with the provisions of Swiss law and the company’s articles of association; | ||
• | no new registered shares relating to the options granted to the Swiss National Bank, according to article 4a paragraph 3 of the articles of association, were issued in the reporting period; | ||
• | no new registered shares relating to the conversion rights and/or warrants granted in connection with the issuance of bonds or similar financial instruments, according to article 4a paragraph 4 of the articles of association, were issued in the reporting period. |
Zurich, 7 September 2010 | ||
BDO Ltd | ||
Werner Schiesser | Markus Egli | |
Licensed Audit Expert | Licensed Audit Expert |
403
Table of Contents
Financial information
UBS AG (Parent Bank)
Phone 044 444 36 44 | BDO Ltd | |||
Fax 044 444 37 84 | Fabrikstrasse 50 | |||
www.bdo.ch | 8031 Zurich | |||
Confirmation of the auditors concerning conditional capital increase
to the Board of Directors of
UBS AG, Zurich and Basel
As special auditors of UBS AG, we have audited the issue of new shares and the preconditions for the adjustment of the provisions regarding the conditional capital increase according to article 4a of the articles of association in the period from 1 September 2010 to 31 December 2010 in accordance with the provisions of article 653f paragraph 1 of the Swiss code of obligations.
According to article 4a of the articles of association, the following possibilities for the issue of conditional capital exist:
• | Paragraph 1; employee stock option plans of UBS AG, based on the resolution of the annual general meeting of 19 April 2006. | ||
• | Paragraph 2; options granted to the Swiss National Bank in connection with its loan granted to the SNB StabFund Limited Partnership for Collective Investment, based on the resolution of the general meeting of shareholders of 27 November 2008. | ||
• | Paragraph 3; conversion rights and/or warrants granted in connection with the issuance of bonds or similar financial instruments, based on the resolution of the annual general meeting of 14 April 2010. |
The issue of new shares in accordance with the provisions of the company’s articles of association is the responsibility of the board of directors. Our responsibility is to express an opinion on whether the issue of new shares is in accordance with the provisions of Swiss law and the company’s articles of association. We confirm that we meet the legal requirements on licensing and independence.
Our audit was conducted in accordance with the Swiss auditing standards, which require that an audit be planned and performed to obtain reasonable assurance as to whether the issue of new shares was free of material error. We have performed the audit procedures considered appropriate in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
In our opinion
• | the issue of 35’245 new registered shares of a nominal value of CHF 0.10 per share relating to the employee stock option plans of UBS AG, according to article 4a paragraph 1 of the articles of association, was in accordance with the provisions of Swiss law and the company’s articles of association; | ||
• | no new registered shares relating to the options granted to the Swiss National Bank, according to article 4a paragraph 2 of the articles of association, were issued in the reporting period; | ||
• | no new registered shares relating to the conversion rights and/or warrants granted in connection with the issuance of bonds or similar financial instruments, according to article 4a paragraph 3 of the articles of association, were issued in the reporting period. |
Zurich, 24 January 2011 | ||
BDO Ltd | ||
Werner Schiesser | Markus Egli | |
Licensed Audit Expert | Licensed Audit Expert |
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Financial information |
Financial information
Additional disclosure required under SEC regulations
Additional disclosure required
under SEC regulations
A – Introduction
The following pages contain additional disclosures about UBS Group which are required under SEC regulations.
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Financial information
Additional disclosure required under SEC regulations
B – Selected financial data
The tables below provide information concerning the noon purchase rate for the Swiss franc, expressed in United States dollars per one Swiss franc. The noon purchase rate is the rate in New York City for cable transfers in foreign currencies as cer-
tified 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 | ||||||||||||
2006 | 0.8396 | 0.7575 | 0.8034 | 0.8200 | ||||||||||||
2007 | 0.9087 | 0.7978 | 0.8381 | 0.8827 | ||||||||||||
2008 | 1.0142 | 0.8171 | 0.9298 | 0.9369 | ||||||||||||
2009 | 1.0016 | 0.8408 | 0.9260 | 0.9654 | ||||||||||||
2010 | 1.0673 | 0.8610 | 0.9670 | 1.0673 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2010 | 1.0254 | 0.9828 | ||||||||||||||
October 2010 | 1.0493 | 1.0108 | ||||||||||||||
November 2010 | 1.0438 | 0.9984 | ||||||||||||||
December 2010 | 1.0673 | 1.0003 | ||||||||||||||
January 2011 | 1.0719 | 1.0251 | ||||||||||||||
February 20112 | 1.0808 | 1.0251 | ||||||||||||||
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Key figures | ||||||||||||||||||||
As of or for the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 1,317,247 | 1,340,538 | 2,014,815 | 2,274,891 | 2,348,733 | |||||||||||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 32,531 | 36,875 | 51,037 | |||||||||||||||
Average equity to average assets (%) | 3.0 | 1.9 | 1.5 | 1.8 | 2.0 | |||||||||||||||
Market capitalization | 58,803 | 57,108 | 43,519 | 108,654 | 154,222 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 3,830,840,513 | 3,558,112,753 | 2,932,580,549 | 2,073,547,344 | 2,105,273,286 | |||||||||||||||
Treasury shares | 38,892,031 | 37,553,872 | 61,903,121 | 158,105,524 | 164,475,699 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%)1 | 17.8 | 15.4 | 11.0 | 9.1 | 12.2 | |||||||||||||||
Total BIS (%)1 | 20.4 | 19.8 | 15.0 | 12.2 | 15.0 | |||||||||||||||
Risk-weighted assets1 | 198,875 | 206,525 | 302,273 | 374,421 | 344,015 | |||||||||||||||
Invested assets (CHF billion) | 2,152 | 2,233 | 2,174 | 3,189 | 2,989 | |||||||||||||||
Personnel (full-time equivalents) | ||||||||||||||||||||
Switzerland | 23,284 | 24,050 | 26,406 | 27,884 | 27,022 | |||||||||||||||
United Kingdom | 6,634 | 6,204 | 7,071 | 8,813 | 8,243 | |||||||||||||||
Rest of Europe | 4,122 | 4,145 | 4,817 | 4,776 | 4,338 | |||||||||||||||
Middle East / Africa | 137 | 134 | 145 | 139 | 102 | |||||||||||||||
United States | 22,031 | 22,702 | 27,362 | 29,921 | 29,076 | |||||||||||||||
Rest of Americas | 1,147 | 1,132 | 1,984 | 2,054 | 1,743 | |||||||||||||||
Asia Pacific | 7,263 | 6,865 | 9,998 | 9,973 | 7,616 | |||||||||||||||
Total | 64,617 | 65,233 | 77,783 | 83,560 | 78,140 | |||||||||||||||
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Additional disclosure required under SEC regulations
Income statement data | ||||||||||||||||||||
For the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Interest income | 18,872 | 23,461 | 65,679 | 109,112 | 87,401 | |||||||||||||||
Interest expense | (12,657 | ) | (17,016 | ) | (59,687 | ) | (103,775 | ) | (80,880 | ) | ||||||||||
Net interest income | 6,215 | 6,446 | 5,992 | 5,337 | 6,521 | |||||||||||||||
Credit loss (expense) / recovery | (66 | ) | (1,832 | ) | (2,996 | ) | (238 | ) | 156 | |||||||||||
Net interest income after credit loss (expense) / recovery | 6,149 | 4,614 | 2,996 | 5,099 | 6,677 | |||||||||||||||
Net fee and commission income | 17,160 | 17,712 | 22,929 | 30,634 | 25,456 | |||||||||||||||
Net trading income | 7,471 | (324 | ) | (25,820 | ) | (8,353 | ) | 13,743 | ||||||||||||
Other income | 1,214 | 599 | 692 | 4,341 | 1,608 | |||||||||||||||
Total operating income | 31,994 | 22,601 | 796 | 31,721 | 47,484 | |||||||||||||||
Total operating expenses | 24,539 | 25,162 | 28,555 | 35,463 | 33,365 | |||||||||||||||
Operating profit from continuing operations before tax | 7,455 | (2,561 | ) | (27,758 | ) | (3,742 | ) | 14,119 | ||||||||||||
Tax expense / (benefit) | (381 | ) | (443 | ) | (6,837 | ) | 1,369 | 2,998 | ||||||||||||
Net profit from continuing operations | 7,836 | (2,118 | ) | (20,922 | ) | (5,111 | ) | 11,121 | ||||||||||||
Net profit from discontinued operations | 2 | (7 | ) | 198 | 403 | 899 | ||||||||||||||
Net profit | 7,838 | (2,125 | ) | (20,724 | ) | (4,708 | ) | 12,020 | ||||||||||||
Net profit attributable to non-controlling interests | 304 | 610 | 568 | 539 | 493 | |||||||||||||||
Net profit attributable to UBS shareholders | 7,534 | (2,736 | ) | (21,292 | ) | (5,247 | ) | 11,527 | ||||||||||||
Cost / income ratio (%)1 | 76.5 | 103.0 | 753.0 | 111.0 | 70.5 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | 1.99 | (0.75 | ) | (7.63 | ) | (2.40 | ) | 5.15 | ||||||||||||
Diluted earnings per share2 | 1.96 | (0.75 | ) | (7.63 | ) | (2.41 | ) | 4.95 | ||||||||||||
Operating profit before tax per share | 1.97 | (0.70 | ) | (9.94 | ) | (1.71 | ) | 6.30 | ||||||||||||
Cash dividends declared per share (CHF)3,4 | N/A | N/A | N/A | N/A | 2.20 | |||||||||||||||
Cash dividend declared per share (USD)3,4 | N/A | N/A | N/A | N/A | 1.83 | |||||||||||||||
Dividend payout ratio (%)3,4 | N/A | N/A | N/A | N/A | 42.7 | |||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on equity attributable to UBS shareholders5 | 16.7 | (7.8 | ) | (58.7 | ) | (10.5 | ) | 23.8 | ||||||||||||
Return on average equity | 16.6 | (7.9 | ) | (60.6 | ) | (10.6 | ) | 24.0 | ||||||||||||
Return on average assets | 0.5 | (0.1 | ) | (0.9 | ) | (0.2 | ) | 0.5 | ||||||||||||
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Balance sheet data | ||||||||||||||||||||
For the year ended | ||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 1,317,247 | 1,340,538 | 2,014,815 | 2,274,891 | 2,348,733 | |||||||||||||||
Due from banks | 17,133 | 16,804 | 17,694 | 25,976 | 32,156 | |||||||||||||||
Cash collateral on securities borrowed | 62,454 | 63,507 | 122,897 | 207,063 | 351,590 | |||||||||||||||
Reverse repurchase agreements | 142,790 | 116,689 | 224,648 | 376,928 | 405,834 | |||||||||||||||
Trading portfolio assets | 167,463 | 188,037 | 271,838 | 660,182 | 648,346 | |||||||||||||||
Trading portfolio assets pledged as collateral | 61,352 | 44,221 | 40,216 | 114,190 | 230,168 | |||||||||||||||
Positive replacement values | 401,146 | 421,694 | 854,100 | 428,217 | 292,975 | |||||||||||||||
Cash collateral receivables on derivative instruments | 38,071 | 53,774 | 85,703 | 64,978 | 24,433 | |||||||||||||||
Loans | 262,877 | 266,477 | 291,456 | 271,492 | 258,350 | |||||||||||||||
Financial investments available-for-sale | 74,768 | 81,757 | 5,248 | 4,966 | 8,937 | |||||||||||||||
Other assets | 22,681 | 23,682 | 19,837 | 51,417 | 52,949 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 41,490 | 31,922 | 76,822 | 121,983 | 182,316 | |||||||||||||||
Cash collateral on securities lent | 6,651 | 7,995 | 14,063 | 31,621 | 63,088 | |||||||||||||||
Repurchase agreements | 74,796 | 64,175 | 102,561 | 305,887 | 545,480 | |||||||||||||||
Trading portfolio liabilities | 54,975 | 47,469 | 62,431 | 164,788 | 204,773 | |||||||||||||||
Negative replacement values | 393,762 | 409,943 | 851,864 | 443,539 | 297,063 | |||||||||||||||
Cash collateral payables on derivative instruments | 58,924 | 66,097 | 92,937 | 77,781 | 52,251 | |||||||||||||||
Financial liabilities designated at fair value | 100,756 | 112,653 | 101,546 | 191,853 | 145,687 | |||||||||||||||
Due to customers | 332,301 | 339,263 | 362,639 | 496,279 | 451,020 | |||||||||||||||
Debt issued | 130,271 | 131,352 | 197,254 | 222,077 | 190,143 | |||||||||||||||
Other liabilities | 63,719 | 72,344 | 101,969 | 153,107 | 137,935 | |||||||||||||||
Equity attributable to UBS shareholders | 46,820 | 41,013 | 32,531 | 36,875 | 51,037 | |||||||||||||||
Ratio of earnings to fixed charges
For the year ended | ||||||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | ||||||||||||
1.53 | 0.82 | 0.53 | 0.96 | 1.17 | ||||||||||||
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Financial information
Additional disclosure required under SEC regulations
C – Information on the company
Property, plant and equipment
At 31 December 2010, UBS operated about 907 business and banking locations worldwide, of which about 43% were in Switzerland, 41% in the Americas, 11% in the rest of Europe, Middle East and Africa and 5% in Asia-Pacific. Of the business and banking locations in Switzerland, 36% were owned directly by UBS,
with the remainder, along with most of UBS’s offices outside Switzerland, being held under commercial leases.
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D – Information required by industry guide 3
Selected statistical information
Average balances and interest rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2010, 2009 and 2008.
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||||||||||||||||||||||||||
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 | 3,037 | 13 | 0.4 | 3,420 | 56 | 1.6 | 7,243 | 342 | 4.7 | |||||||||||||||||||||||||||
Foreign | 14,280 | 60 | 0.4 | 16,194 | 260 | 1.6 | 15,946 | 789 | 4.9 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 11,277 | 196 | 1.7 | 10,029 | 244 | 2.4 | 31,642 | 1,208 | 3.8 | |||||||||||||||||||||||||||
Foreign | 296,252 | 1,240 | 0.4 | 381,049 | 2,385 | 0.6 | 669,010 | 21,313 | 3.2 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 14,150 | 231 | 1.6 | 10,976 | 228 | 2.1 | 15,104 | 520 | 3.4 | |||||||||||||||||||||||||||
Foreign taxable | 212,430 | 5,769 | 2.7 | 270,674 | 6,915 | 2.6 | 522,804 | 21,494 | 4.1 | |||||||||||||||||||||||||||
Foreign non-taxable | 2,033 | 15 | 0.7 | 2,160 | 7 | 0.3 | 8,070 | 383 | 4.7 | |||||||||||||||||||||||||||
Foreign total | 214,463 | 5,784 | 2.7 | 272,834 | 6,922 | 2.5 | 530,874 | 21,877 | 4.1 | |||||||||||||||||||||||||||
Cash collateral receivables on derivative instruments | ||||||||||||||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||||||||||||||
Foreign | 49,095 | 306 | 0.6 | 68,482 | 282 | 0.4 | 70,867 | 2,196 | 3.1 | |||||||||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 568 | 0 | 548 | 0 | 945 | 0 | ||||||||||||||||||||||||||||||
Foreign | 9,128 | 262 | 2.9 | 11,674 | 316 | 2.7 | 11,024 | 404 | 3.7 | |||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 179,164 | 4,921 | 2.7 | 179,680 | 5,676 | 3.2 | 188,950 | 6,919 | 3.7 | |||||||||||||||||||||||||||
Foreign | 90,032 | 2,584 | 2.9 | 105,791 | 4,208 | 4.0 | 91,281 | 5,603 | 6.1 | |||||||||||||||||||||||||||
Financial investments available-for-sale | ||||||||||||||||||||||||||||||||||||
Domestic | 1,712 | 18 | 1.1 | 991 | 21 | 2.1 | 1,599 | 72 | 4.5 | |||||||||||||||||||||||||||
Foreign taxable | 74,821 | 539 | 0.7 | 28,295 | 143 | 0.5 | 3,370 | 73 | 2.2 | |||||||||||||||||||||||||||
Foreign non-taxable | 0 | |||||||||||||||||||||||||||||||||||
Foreign total | 74,821 | 539 | 0.7 | 28,295 | 143 | 0.5 | 3,370 | 73 | 2.2 | |||||||||||||||||||||||||||
Other interest-earning assets | ||||||||||||||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign | 15,227 | 484 | 3.2 | 13,785 | 517 | 3.8 | 27,227 | 1,275 | 4.7 | |||||||||||||||||||||||||||
Total interest-earning assets | 973,206 | 16,638 | 1.7 | 1,103,748 | 21,258 | 1.9 | 1,665,082 | 62,591 | 3.8 | |||||||||||||||||||||||||||
Net interest on swaps | 2,234 | 2,203 | 3,088 | |||||||||||||||||||||||||||||||||
Interest income and average interest-earning assets | 973,206 | 18,872 | 1.9 | 1,103,748 | 23,461 | 2.1 | 1,665,082 | 65,679 | 3.9 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 471,046 | 654,651 | 600,073 | |||||||||||||||||||||||||||||||||
Fixed assets | 5,884 | 6,609 | 7,091 | |||||||||||||||||||||||||||||||||
Other | 81,876 | 86,133 | 82,357 | |||||||||||||||||||||||||||||||||
Total average assets | 1,532,012 | 1,851,141 | 2,354,603 | |||||||||||||||||||||||||||||||||
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Average balances and interest rates (continued) | ||||||||||||||||||||||||||||||||||||
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||||||||||||||||||||||||||
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 | 29,400 | 253 | 0.9 | 36,248 | 219 | 0.6 | 51,027 | 1,503 | 2.9 | |||||||||||||||||||||||||||
Foreign | 10,318 | 99 | 1.0 | 34,205 | 245 | 0.7 | 55,731 | 1,930 | 3.5 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 12,089 | 147 | 1.2 | 11,321 | 200 | 1.8 | 31,269 | 1,026 | 3.3 | |||||||||||||||||||||||||||
Foreign | 176,098 | 1,135 | 0.6 | 195,991 | 1,979 | 1.0 | 397,453 | 15,097 | 3.8 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 1,068 | 37 | 3.5 | 1,411 | 55 | 3.9 | 5,525 | 256 | 4.6 | |||||||||||||||||||||||||||
Foreign | 59,672 | 3,757 | 6.3 | 58,091 | 3,823 | 6.6 | 132,901 | 8,906 | 6.7 | |||||||||||||||||||||||||||
Cash collateral payables on derivative instruments | ||||||||||||||||||||||||||||||||||||
Domestic | 361 | 0 | 30 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign | 69,223 | 242 | 0.3 | 84,747 | 278 | 0.3 | 82,969 | 2,343 | 2.8 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 878 | 3 | 0.3 | 934 | 17 | 1.8 | 1,444 | 69 | 4.8 | |||||||||||||||||||||||||||
Foreign | 108,405 | 2,389 | 2.2 | 106,690 | 2,838 | 2.7 | 151,324 | 7,229 | 4.8 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic demand deposits | 85,838 | 106 | 0.1 | 64,872 | 98 | 0.2 | 56,730 | 495 | 0.9 | |||||||||||||||||||||||||||
Domestic savings deposits | 75,802 | 409 | 0.5 | 68,042 | 521 | 0.8 | 65,073 | 604 | 0.9 | |||||||||||||||||||||||||||
Domestic time deposits | 7,977 | 49 | 0.6 | 13,075 | 451 | 3.4 | 35,575 | 1,081 | 3.0 | |||||||||||||||||||||||||||
Domestic total | 169,617 | 564 | 0.3 | 145,989 | 1,070 | 0.7 | 157,378 | 2,180 | 1.4 | |||||||||||||||||||||||||||
Foreign1 | 168,099 | 756 | 0.4 | 220,860 | 1,971 | 0.9 | 271,487 | 8,998 | 3.3 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 1,140 | 9 | 0.8 | 971 | 27 | 2.8 | 1,735 | 63 | 3.6 | |||||||||||||||||||||||||||
Foreign | 53,454 | 394 | 0.7 | 85,904 | 1,280 | 1.5 | 134,920 | 6,216 | 4.6 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 13,462 | 142 | 1.1 | 11,152 | 153 | 1.4 | 5,766 | 148 | 2.6 | |||||||||||||||||||||||||||
Foreign | 68,267 | 2,661 | 3.9 | 76,961 | 2,771 | 3.6 | 74,531 | 2,527 | 3.4 | |||||||||||||||||||||||||||
Other interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign | 37,996 | 69 | 0.2 | 41,139 | 90 | 0.2 | 72,762 | 1,196 | 1.6 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 979,547 | 12,657 | 1.3 | 1,112,644 | 17,016 | 1.5 | 1,628,222 | 59,687 | 3.7 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 459,987 | 641,028 | 605,990 | |||||||||||||||||||||||||||||||||
Other | 40,418 | 54,720 | 77,476 | |||||||||||||||||||||||||||||||||
Total liabilities | 1,479,952 | 1,808,392 | 2,311,688 | |||||||||||||||||||||||||||||||||
Total equity | 52,060 | 42,749 | 42,915 | |||||||||||||||||||||||||||||||||
Total average liabilities and equity | 1,532,012 | 1,851,141 | 2,354,603 | |||||||||||||||||||||||||||||||||
Net interest income | 6,215 | 6,446 | 5,992 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.6 | 0.6 | 0.4 | |||||||||||||||||||||||||||||||||
The percentage of total average interest-earning assets attributable to foreign activities was 78% for 2010 (81% for 2009 and 85% for 2008). The percentage of total average interest-bearing liabilities attributable to foreign activities was 77% for 2010 (81% for 2009 and 84% for 2008). All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at monthly average rates.
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Financial information |
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 2010 compared with the year ended 31 December 2009, and for the year ended 31 December 2009 compared with the year ended 31 December 2008. 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.
2010 compared with 2009 | 2009 compared with 2008 | |||||||||||||||||||||||
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 | (6 | ) | (37 | ) | (43 | ) | (180 | ) | (106 | ) | (286 | ) | ||||||||||||
Foreign | (31 | ) | (169 | ) | (200 | ) | 12 | (541 | ) | (529 | ) | |||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||
Domestic | 30 | (78 | ) | (48 | ) | (821 | ) | (143 | ) | (964 | ) | |||||||||||||
Foreign | (509 | ) | (636 | ) | (1,145 | ) | (9,215 | ) | (9,713 | ) | (18,928 | ) | ||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||
Domestic | 67 | (64 | ) | 3 | (140 | ) | (152 | ) | (292 | ) | ||||||||||||||
Foreign taxable | (1,514 | ) | 368 | (1,146 | ) | (10,337 | ) | (4,242 | ) | (14,579 | ) | |||||||||||||
Foreign non-taxable | 8 | 8 | (278 | ) | (98 | ) | (376 | ) | ||||||||||||||||
Foreign total | (1,514 | ) | 376 | (1,138 | ) | (10,615 | ) | (4,340 | ) | (14,955 | ) | |||||||||||||
Cash collateral receivables on derivative instruments | ||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||
Foreign | (78 | ) | 102 | 24 | (74 | ) | (1,840 | ) | (1,914 | ) | ||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Foreign | (69 | ) | 15 | (54 | ) | 24 | (112 | ) | (88 | ) | ||||||||||||||
Loans | ||||||||||||||||||||||||
Domestic | (17 | ) | (738 | ) | (755 | ) | (343 | ) | (900 | ) | (1,243 | ) | ||||||||||||
Foreign | (630 | ) | (994 | ) | (1,624 | ) | 885 | (2,280 | ) | (1,395 | ) | |||||||||||||
Financial investments available-for-sale | ||||||||||||||||||||||||
Domestic | 15 | (18 | ) | (3 | ) | (27 | ) | (24 | ) | (51 | ) | |||||||||||||
Foreign taxable | 233 | 163 | 396 | 548 | (478 | ) | 70 | |||||||||||||||||
Foreign non-taxable | ||||||||||||||||||||||||
Foreign total | 233 | 163 | 396 | 548 | (478 | ) | 70 | |||||||||||||||||
Other interest-bearing assets | ||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||
Foreign | 55 | (88 | ) | (33 | ) | (632 | ) | (126 | ) | (758 | ) | |||||||||||||
Interest income | ||||||||||||||||||||||||
Domestic | 89 | (935 | ) | (846 | ) | (1,511 | ) | (1,325 | ) | (2,836 | ) | |||||||||||||
Foreign | (2,543 | ) | (1,231 | ) | (3,774 | ) | (19,067 | ) | (19,430 | ) | (38,497 | ) | ||||||||||||
Total interest income from interest-earning assets | (2,454 | ) | (2,166 | ) | (4,620 | ) | (20,578 | ) | (20,755 | ) | (41,333 | ) | ||||||||||||
Net interest on swaps | 31 | (885 | ) | |||||||||||||||||||||
Total interest income | (4,589 | ) | (42,218 | ) | ||||||||||||||||||||
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Additional disclosure required under SEC regulations
Analysis of changes in interest income and expense (continued) | ||||||||||||||||||||||||
2010 compared with 2009 | 2009 compared with 2008 | |||||||||||||||||||||||
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 | (41 | ) | 75 | 34 | (429 | ) | (855 | ) | (1,284 | ) | ||||||||||||||
Foreign | (167 | ) | 21 | (146 | ) | (753 | ) | (932 | ) | (1,685 | ) | |||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 14 | (67 | ) | (53 | ) | (658 | ) | (168 | ) | (826 | ) | |||||||||||||
Foreign | (199 | ) | (645 | ) | (844 | ) | (7,656 | ) | (5,462 | ) | (13,118 | ) | ||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | (13 | ) | (5 | ) | (18 | ) | (189 | ) | (12 | ) | (201 | ) | ||||||||||||
Foreign | 104 | (170 | ) | (66 | ) | (5,012 | ) | (71 | ) | (5,083 | ) | |||||||||||||
Cash collateral payables on derivative instruments | ||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||
Foreign | (47 | ) | 11 | (36 | ) | 50 | (2,115 | ) | (2,065 | ) | ||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||
Domestic | (1 | ) | (13 | ) | (14 | ) | (24 | ) | (28 | ) | (52 | ) | ||||||||||||
Foreign | 46 | (495 | ) | (449 | ) | (2,142 | ) | (2,249 | ) | (4,391 | ) | |||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic demand deposits | 42 | (34 | ) | 8 | 73 | (470 | ) | (397 | ) | |||||||||||||||
Domestic savings deposits | 62 | (174 | ) | (112 | ) | 27 | (110 | ) | (83 | ) | ||||||||||||||
Domestic time deposits | (173 | ) | (229 | ) | (402 | ) | (675 | ) | 45 | (630 | ) | |||||||||||||
Domestic total | (69 | ) | (437 | ) | (506 | ) | (575 | ) | (535 | ) | (1,110 | ) | ||||||||||||
Foreign | (475 | ) | (740 | ) | (1,215 | ) | (1,671 | ) | (5,356 | ) | (7,027 | ) | ||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 5 | (23 | ) | (18 | ) | (28 | ) | (8 | ) | (36 | ) | |||||||||||||
Foreign | (487 | ) | (399 | ) | (886 | ) | (2,255 | ) | (2,681 | ) | (4,936 | ) | ||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | 32 | (43 | ) | (11 | ) | 140 | (135 | ) | 5 | |||||||||||||||
Foreign | (313 | ) | 203 | (110 | ) | 83 | 161 | 244 | ||||||||||||||||
Other interest-bearing liabilities | ||||||||||||||||||||||||
Domestic | ||||||||||||||||||||||||
Foreign | (6 | ) | (15 | ) | (21 | ) | (506 | ) | (600 | ) | (1,106 | ) | ||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | (73 | ) | (513 | ) | (586 | ) | (1,763 | ) | (1,741 | ) | (3,504 | ) | ||||||||||||
Foreign | (1,544 | ) | (2,229 | ) | (3,773 | ) | (19,862 | ) | (19,305 | ) | (39,167 | ) | ||||||||||||
Total interest expense | (1,617 | ) | (2,742 | ) | (4,359 | ) | (21,625 | ) | (21,046 | ) | (42,671 | ) | ||||||||||||
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Financial information |
Deposits
The following table analyzes average deposits and the average rates on each deposit category listed below for the years ended 31 December 2010, 2009 and 2008. The geographic allocation is based on the location of the office or branch where the deposit is
made. Deposits by foreign depositors in domestic offices were CHF 63,953 million, CHF 54,957 million and CHF 45,082 million as of 31 December 2010, 31 December 2009 and 31 December 2008, respectively.
31.12.10 | 31.12.09 | 31.12.08 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 1,315 | 0.0 | 1,154 | 0.1 | 2,341 | 0.5 | ||||||||||||||||||
Time deposits | 1,722 | 2.1 | 2,266 | 0.9 | 4,902 | 3.8 | ||||||||||||||||||
Total domestic offices | 3,037 | 1.2 | 3,420 | 0.6 | 7,243 | 2.7 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 14,280 | 1.0 | 16,194 | 0.7 | 15,946 | 3.5 | ||||||||||||||||||
Total due to banks | 17,317 | 1.0 | 19,614 | 0.7 | 23,189 | 3.2 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 85,838 | 0.1 | 64,872 | 0.2 | 56,730 | 0.9 | ||||||||||||||||||
Savings deposits | 75,802 | 0.5 | 68,042 | 0.8 | 65,073 | 0.9 | ||||||||||||||||||
Time deposits | 7,977 | 0.6 | 13,075 | 3.4 | 35,575 | 3.0 | ||||||||||||||||||
Total domestic offices | 169,617 | 0.3 | 145,989 | 0.7 | 157,378 | 1.4 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Demand deposits | 35,588 | 0.2 | 29,725 | 0.8 | 38,761 | 1.7 | ||||||||||||||||||
Time and savings deposits1 | 132,511 | 0.5 | 191,135 | 0.9 | 232,726 | 3.6 | ||||||||||||||||||
Total foreign offices | 168,099 | 0.4 | 220,860 | 0.9 | 271,487 | 3.3 | ||||||||||||||||||
Total due to customers | 337,716 | 0.4 | 366,849 | 0.8 | 428,865 | 2.6 | ||||||||||||||||||
As of 31 December 2010, 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 | 35,520 | 63,087 | ||||||
3 to 6 months | 2,077 | 4,182 | ||||||
6 to 12 months | 1,718 | 2,386 | ||||||
1 to 5 years | 336 | 411 | ||||||
Over 5 years | 102 | 108 | ||||||
Total time deposits | 39,753 | 70,174 | ||||||
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Financial information
Additional disclosure required under SEC regulations
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 2010, 2009 and 2008.
Money market papers issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.10 | 31.12.09 | 31.12.08 | |||||||||||||||||||||||||||
Period-end balance | 56,039 | 51,579 | 111,619 | 24,332 | 15,086 | 59,106 | 150,024 | 136,811 | 140,039 | |||||||||||||||||||||||||||
Average balance | 54,594 | 86,875 | 136,655 | 22,401 | 50,838 | 83,569 | 178,458 | 195,613 | 404,512 | |||||||||||||||||||||||||||
Maximum month-end balance | 64,941 | 125,812 | 170,503 | 37,886 | 70,985 | 95,979 | 207,828 | 272,443 | 591,005 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 0.7 | 1.5 | 4.6 | 0.9 | 0.7 | 3.2 | 0.4 | 0.7 | 3.5 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 0.7 | 0.9 | 2.9 | 1.0 | 0.6 | 2.3 | 0.4 | 0.3 | 1.4 | |||||||||||||||||||||||||||
Contractual maturities of investments in debt instruments available-for-sale1,2 | ||||||||||||||||||||||||||||||||
Within 1 year | Over 1 up to 5 years | Over 5 up to 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2010 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 3,048 | 0.54 | 95 | 1.34 | 1 | 4.00 | ||||||||||||||||||||||||||
US Treasury and agencies | 18,500 | 0.41 | 6,687 | 1.11 | 8,792 | 1.62 | ||||||||||||||||||||||||||
Foreign governments and official institutions | 20,916 | 0.55 | 843 | 0.78 | 4,552 | 3.28 | 28 | 5.20 | ||||||||||||||||||||||||
Corporate debt securities3 | 5,119 | 1.02 | 652 | 0.81 | 1 | 5.38 | 4 | 15.84 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 4.83 | 1 | 13.09 | 4,089 | 3.04 | ||||||||||||||||||||||||||
Other debt instruments | 51 | 14.52 | 3 | 14.52 | ||||||||||||||||||||||||||||
Total fair value | 47,633 | 8,284 | 13,345 | 4,123 | ||||||||||||||||||||||||||||
Within 1 year | Over 1 up to 5 years | Over 5 up to 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2009 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 623 | 0.47 | 16 | 2.27 | 6 | 1.11 | 1 | 4.00 | ||||||||||||||||||||||||
US Treasury and agencies | 41,451 | 0.16 | 5,044 | 0.02 | ||||||||||||||||||||||||||||
Foreign governments and official institutions | 28,861 | 0.30 | 96 | 2.75 | 25 | 1.88 | 18 | 3.66 | ||||||||||||||||||||||||
Corporate debt securities3 | 1,139 | 0.11 | 1,808 | 0.10 | 0 | 21.80 | 3 | 21.80 | ||||||||||||||||||||||||
Mortgage-backed securities | 27 | 0.00 | 3 | 4.87 | 25 | 3.75 | 752 | 0.43 | ||||||||||||||||||||||||
Other debt instruments | 98 | 2.80 | 3 | 1.21 | ||||||||||||||||||||||||||||
Total fair value | 72,199 | 6,970 | 56 | 774 | ||||||||||||||||||||||||||||
Within 1 year | Over 1 up to 5 years | Over 5 up to 10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2008 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 2 | 3.46 | 1 | 4.00 | ||||||||||||||||||||||||||||
Foreign governments and official institutions | 39 | 1.14 | 0 | 0.00 | 33 | 2.81 | 34 | 5.22 | ||||||||||||||||||||||||
Corporate debt securities | 2,122 | 1.05 | 88 | 3.38 | 38 | 3.12 | 12 | 1.74 | ||||||||||||||||||||||||
Mortgage-backed securities | 42 | 4.00 | 455 | 5.28 | ||||||||||||||||||||||||||||
Other debt instruments | 188 | 9.06 | 3 | 13.47 | 37 | 7.42 | ||||||||||||||||||||||||||
Total fair value | 2,349 | 93 | 113 | 539 | ||||||||||||||||||||||||||||
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Financial information |
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 151.2 billion (53.1% 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 63.8 billion (22.4% of the total). Exposure to banks includes money market deposits with highly rated institutions. Excluding banks and financial institutions, the largest industry sector exposure as
of December 2010 is CHF 15.3 billion (5.4% of the total) to services. For further discussion of the loan portfolio, refer to the “Credit risk” section of this report.
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 1,130 | 609 | 1,056 | 735 | 458 | |||||||||||||||
Construction | 1,356 | 1,381 | 1,554 | 1,594 | 1,742 | |||||||||||||||
Financial institutions | 3,737 | 4,370 | 5,984 | 5,322 | 5,382 | |||||||||||||||
Hotels and restaurants | 1,803 | 1,882 | 1,811 | 1,824 | 1,957 | |||||||||||||||
Manufacturing | 3,192 | 3,373 | 3,795 | 3,766 | 3,578 | |||||||||||||||
Private households | 119,796 | 119,432 | 119,285 | 121,536 | 117,852 | |||||||||||||||
Public authorities | 4,908 | 3,785 | 4,042 | 4,734 | 4,972 | |||||||||||||||
Real estate and rentals | 12,252 | 11,745 | 11,921 | 11,489 | 11,148 | |||||||||||||||
Retail and wholesale | 4,101 | 4,288 | 4,781 | 4,647 | 4,507 | |||||||||||||||
Services | 5,728 | 5,712 | 5,935 | 5,875 | 6,450 | |||||||||||||||
Other2 | 3,107 | 3,413 | 3,539 | 3,712 | 4,710 | |||||||||||||||
Total domestic | 161,109 | 159,990 | 163,705 | 165,233 | 162,757 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 16,474 | 16,891 | 17,629 | 25,905 | 32,374 | |||||||||||||||
Chemicals | 394 | 2,403 | 2,816 | 646 | 1,333 | |||||||||||||||
Construction | 1,008 | 741 | 619 | 867 | 862 | |||||||||||||||
Electricity, gas and water supply | 686 | 759 | 1,655 | 880 | 717 | |||||||||||||||
Financial institutions | 42,470 | 44,143 | 60,775 | 37,074 | 39,361 | |||||||||||||||
Manufacturing | 2,456 | 3,313 | 4,709 | 4,370 | 2,324 | |||||||||||||||
Mining | 2,776 | 2,799 | 3,787 | 4,272 | 3,171 | |||||||||||||||
Private households | 31,361 | 33,166 | 33,216 | 42,219 | 34,861 | |||||||||||||||
Public authorities | 9,880 | 10,808 | 8,104 | 2,825 | 1,318 | |||||||||||||||
Real estate and rentals | 1,578 | 1,240 | 4,069 | 4,813 | 4,021 | |||||||||||||||
Retail and wholesale | 1,765 | 1,558 | 2,045 | 1,954 | 1,648 | |||||||||||||||
Services | 9,621 | 8,363 | 9,913 | 8,720 | 7,074 | |||||||||||||||
Transport, storage and communication | 1,959 | 3,059 | 3,603 | 1,860 | 1,648 | |||||||||||||||
Other3 | 843 | 735 | 584 | 977 | 546 | |||||||||||||||
Total foreign | 123,271 | 129,978 | 153,524 | 137,381 | 131,257 | |||||||||||||||
Total gross | 284,381 | 289,969 | 317,228 | 302,614 | 294,014 | |||||||||||||||
The table above also includes loans designated at fair value.
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Financial information
Additional disclosure required under SEC regulations
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 2010, 2009, 2008, 2007 and 2006. Mortgages are included in the industry categories mentioned on the previous page.
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 136,687 | 136,029 | 134,700 | 135,341 | 134,468 | |||||||||||||||
Foreign | 6,174 | 4,972 | 8,381 | 8,152 | 10,069 | |||||||||||||||
Total gross mortgages | 142,861 | 141,001 | 143,081 | 143,493 | 144,537 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 122,499 | 121,031 | 121,811 | 122,435 | 124,548 | |||||||||||||||
Commercial | 20,362 | 19,970 | 21,270 | 21,058 | 19,989 | |||||||||||||||
Total gross mortgages | 142,861 | 141,001 | 143,081 | 143,493 | 144,537 | |||||||||||||||
Due from banks and loan maturities (gross)1 | ||||||||||||||||
Over 1 up | ||||||||||||||||
CHF million | Within 1 year | to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 1,082 | 48 | 1,130 | |||||||||||||
Mortgages | 52,673 | 58,778 | 25,236 | 136,687 | ||||||||||||
Other loans | 17,577 | 4,384 | 1,331 | 23,292 | ||||||||||||
Total domestic | 71,332 | 63,210 | 26,567 | 161,109 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 15,767 | 183 | 77 | 16,027 | ||||||||||||
Mortgages | 4,038 | 1,583 | 553 | 6,174 | ||||||||||||
Other loans | 61,041 | 8,300 | 28,470 | 97,811 | 2 | |||||||||||
Total foreign | 80,846 | 10,066 | 29,100 | 120,012 | ||||||||||||
Total gross | 152,178 | 73,276 | 55,667 | 281,121 | ||||||||||||
At 31 December 2010, the total amount of Due from banks and loans due after one year granted at fixed and floating rates are as follows:
CHF million | 1 to 5 years | Over 5 years | Total | |||||||||
Fixed-rate loans | 72,595 | 27,857 | 100,452 | |||||||||
Adjustable or floating-rate loans | 681 | 27,810 | 28,491 | |||||||||
Total | 73,276 | 55,667 | 128,943 | |||||||||
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Financial information |
Impaired and non-performing loans
A loan (included inDue from banksorLoans) 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; 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Gross interest income that would have been recorded under non-performing loans: | ||||||||||||||||||||
Domestic | 11 | 13 | 16 | 39 | 50 | |||||||||||||||
Foreign | 35 | 89 | 7 | 6 | 10 | |||||||||||||||
Interest income included in net profit of non-performing loans: | ||||||||||||||||||||
Domestic | 35 | 41 | 32 | 40 | 56 | |||||||||||||||
Foreign | 19 | 30 | 6 | 2 | 8 | |||||||||||||||
The table below provides an analysis of the Group’s non-performing loans. For further information see credit risk in the “Risk and treasury management” section. | ||||||||||||||||||||
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 1,164 | 1,462 | 1,431 | 1,349 | 1,744 | |||||||||||||||
Foreign | 563 | 3,940 | 3,272 | 132 | 174 | |||||||||||||||
Total non-performing loans | 1,727 | 5,402 | 4,703 | 1,481 | 1,918 | |||||||||||||||
UBS does not, as a matter of policy, typically restructure loans to accrue interest at rates different from the original contractual terms or reduce the principal amount of loans. For more information refer to the “Credit risk” section of this report. Instead, specific loan allowances are established as necessary. Unrecognized interest related to restructured loans was not material to the results of operations in 2010, 2009, 2008, 2007 or 2006.
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Financial information
Additional disclosure required under SEC regulations
Cross-border outstandings
Cross-border outstandings consist of exposures in relation to (i) general banking products with third parties, such as loans and advances, (ii) over-the-counter (OTC) derivatives, exchange-traded (ETD) derivatives and securities financing transactions, which are represented as a credit equivalent based on UBS’s internal risk measures, and (iii) 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 largest most developed economies, to which UBS assigns a high rating, and a small number of financial centers, where the credit quality of UBS’s exposures is not correlated with the state of their internal economy, these exposures are rigorously limited.
secured by collateral are recorded against the country where the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Financial Market Supervisory Authority (FINMA).
31.12.10 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 8,039 | 48,145 | 46,332 | 102,516 | 7.8 | |||||||||||||||
Japan | 725 | 3,155 | 39,551 | 43,431 | 3.3 | |||||||||||||||
Germany | 12,842 | 6,455 | 6,044 | 25,341 | 1.9 | |||||||||||||||
United Kingdom | 4,157 | 8,715 | 7,864 | 20,736 | 1.6 | |||||||||||||||
France | 7,521 | 5,665 | 4,715 | 17,901 | 1.4 | |||||||||||||||
Netherlands | 3,814 | 5,276 | 3,315 | 12,405 | 0.9 | |||||||||||||||
31.12.09 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 14,915 | 52,305 | 62,224 | 129,444 | 9.7 | |||||||||||||||
Germany | 14,612 | 9,114 | 12,648 | 36,374 | 2.7 | |||||||||||||||
Japan | 625 | 4,280 | 22,888 | 27,793 | 2.1 | |||||||||||||||
France | 9,672 | 5,672 | 10,848 | 26,192 | 2.0 | |||||||||||||||
United Kingdom | 4,700 | 9,293 | 7,310 | 21,303 | 1.6 | |||||||||||||||
Netherlands | 4,425 | 7,023 | 2,940 | 14,388 | 1.1 | |||||||||||||||
Italy | 1,694 | 2,296 | 8,729 | 12,719 | 0.9 | |||||||||||||||
Luxembourg | 3,950 | 8,509 | 20 | 12,479 | 0.9 | |||||||||||||||
31.12.08 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 13,869 | 71,584 | 14,234 | 99,687 | 4.9 | |||||||||||||||
Japan | 2,093 | 13,159 | 38,922 | 54,174 | 2.7 | |||||||||||||||
Germany | 19,098 | 10,418 | 6,010 | 35,526 | 1.8 | |||||||||||||||
France | 11,469 | 7,048 | 6,807 | 25,324 | 1.3 | |||||||||||||||
United Kingdom | 9,599 | 8,608 | 2,625 | 20,832 | 1.0 | |||||||||||||||
Luxembourg | 2,883 | 17,586 | 0 | 20,469 | 1.0 | |||||||||||||||
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Financial information |
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.
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 | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Balance at beginning of year | 2,820 | 3,070 | 1,164 | 1,332 | 1,776 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Construction | (8 | ) | (15 | ) | (6 | ) | (9 | ) | (14 | ) | ||||||||||
Financial institutions | (47 | ) | (2 | ) | (37 | ) | (9 | ) | (11 | ) | ||||||||||
Hotels and restaurants | (1 | ) | (2 | ) | (3 | ) | (8 | ) | (16 | ) | ||||||||||
Manufacturing | (28 | ) | (21 | ) | (24 | ) | (14 | ) | (37 | ) | ||||||||||
Private households | (66 | ) | (61 | ) | (112 | ) | (69 | ) | (89 | ) | ||||||||||
Public authorities | 0 | 0 | 0 | (1 | ) | 0 | ||||||||||||||
Real estate and rentals | (2 | ) | (19 | ) | (10 | ) | (26 | ) | (44 | ) | ||||||||||
Retail and wholesale | (117 | ) | (41 | ) | (4 | ) | (62 | ) | (20 | ) | ||||||||||
Services | (49 | ) | (3 | ) | (7 | ) | (17 | ) | (43 | ) | ||||||||||
Other1 | (16 | ) | (12 | ) | (8 | ) | (54 | ) | (7 | ) | ||||||||||
Total domestic write-offs | (332 | ) | (177 | ) | (210 | ) | (268 | ) | (281 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (2 | ) | (8 | ) | (134 | ) | (1 | ) | (3 | ) | ||||||||||
Chemicals | (846 | ) | (111 | ) | (1 | ) | 0 | 0 | ||||||||||||
Construction | 0 | (10 | ) | 0 | 0 | 0 | ||||||||||||||
Financial institutions | (267 | ) | (685 | ) | (501 | ) | (15 | ) | 0 | |||||||||||
Manufacturing | (22 | ) | (138 | ) | (6 | ) | (21 | ) | (6 | ) | ||||||||||
Mining | 0 | (5 | ) | 0 | 0 | (1 | ) | |||||||||||||
Private households | (21 | ) | (40 | ) | (4 | ) | (14 | ) | (7 | ) | ||||||||||
Public authorities | (1 | ) | (20 | ) | (2 | ) | (2 | ) | (58 | ) | ||||||||||
Real estate and rentals | (1 | ) | (196 | ) | (1 | ) | 0 | 0 | ||||||||||||
Retail and wholesale | (1 | ) | (122 | ) | 0 | 0 | 0 | |||||||||||||
Services | (9 | ) | (413 | ) | 0 | 0 | 0 | |||||||||||||
Transport, storage and communication | (3 | ) | (37 | ) | (6 | ) | 0 | 0 | ||||||||||||
Other2 | 0 | (80 | ) | (1 | ) | 0 | (5 | ) | ||||||||||||
Total foreign write-offs | (1,173 | ) | (1,865 | ) | (658 | ) | (53 | ) | (80 | ) | ||||||||||
Total specific provisions for off-balance sheet | 0 | (5 | ) | 0 | 0 | (1 | ) | |||||||||||||
Total write-offs | (1,505 | ) | (2,046 | ) | (868 | ) | (321 | ) | (363 | ) | ||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 38 | 44 | 43 | 52 | 51 | |||||||||||||||
Foreign | 41 | 8 | 1 | 3 | 11 | |||||||||||||||
Total recoveries | 79 | 52 | 44 | 55 | 62 | |||||||||||||||
Net write-offs | (1,427 | ) | (1,994 | ) | (824 | ) | (266 | ) | (301 | ) | ||||||||||
Increase / (decrease) in credit loss allowance and provision | 67 | 1,806 | 3,007 | 242 | (108 | ) | ||||||||||||||
Collective loan loss provisions | (2 | ) | 26 | (11 | ) | (4 | ) | (48 | ) | |||||||||||
Other adjustments | (173 | ) | (88 | ) | (266 | ) | (140 | ) | 13 | |||||||||||
Balance at end of year | 1,287 | 2,820 | 3,070 | 1,164 | 1,332 | |||||||||||||||
Net foreign exchange | (173 | ) | (37 | ) | (43 | ) | (9 | ) | 10 | |||||||||||
Other adjustments | 0 | (51 | )3 | (223 | )3 | (131 | ) | 3 | ||||||||||||
Total adjustments | (173 | ) | (88 | ) | (266 | ) | (140 | ) | 13 | |||||||||||
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Financial information
Additional disclosure required under SEC regulations
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 2010, 2009, 2008, 2007
and 2006. For a description of procedures with respect to allowances and provisions for credit losses, refer to the “Credit risk” section of this report.
CHF million | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 1 | 1 | 16 | 10 | 10 | |||||||||||||||
Construction | 23 | 27 | 39 | 43 | 73 | |||||||||||||||
Financial institutions | 28 | 126 | 18 | 52 | 61 | |||||||||||||||
Hotels and restaurants | 5 | 6 | 8 | 10 | 27 | |||||||||||||||
Manufacturing | 93 | 104 | 84 | 98 | 104 | |||||||||||||||
Private households | 91 | 119 | 125 | 190 | 188 | |||||||||||||||
Public authorities | 0 | 1 | 1 | 1 | 4 | |||||||||||||||
Real estate and rentals | 19 | 21 | 50 | 57 | 98 | |||||||||||||||
Retail and wholesale | 165 | 221 | 262 | 247 | 312 | |||||||||||||||
Services | 45 | 99 | 79 | 87 | 94 | |||||||||||||||
Other1 | 27 | 43 | 47 | 53 | 106 | |||||||||||||||
Total domestic | 497 | 768 | 729 | 848 | 1,076 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks2 | 23 | 31 | 6 | 35 | 20 | |||||||||||||||
Chemicals | 8 | 1,037 | 960 | 1 | 4 | |||||||||||||||
Construction | 2 | 1 | 8 | 1 | 1 | |||||||||||||||
Electricity, gas and water supply | 0 | 0 | 2 | 3 | 8 | |||||||||||||||
Financial institutions | 190 | 414 | 530 | 96 | 9 | |||||||||||||||
Manufacturing | 15 | 83 | 25 | 13 | 35 | |||||||||||||||
Mining | 0 | 0 | 4 | 0 | 0 | |||||||||||||||
Private households | 139 | 171 | 226 | 13 | 26 | |||||||||||||||
Public authorities | 171 | 18 | 19 | 20 | 21 | |||||||||||||||
Real estate and rentals | 15 | 36 | 208 | 8 | 3 | |||||||||||||||
Retail and wholesale | 8 | 17 | 81 | 4 | 4 | |||||||||||||||
Services | 12 | 100 | 205 | 7 | 7 | |||||||||||||||
Transport, storage and communication | 29 | 7 | 1 | 1 | 1 | |||||||||||||||
Other3 | 0 | 0 | 12 | 17 | 1 | |||||||||||||||
Total foreign | 613 | 1,913 | 2,287 | 219 | 143 | |||||||||||||||
Collective loan loss provisions | 47 | 49 | 23 | 34 | 38 | |||||||||||||||
Included in other liabilities related to provisions for contingent claims | 130 | 90 | 31 | 63 | 76 | |||||||||||||||
Total allowances and provisions for credit losses | 1,287 | 2,820 | 3,070 | 1,164 | 1,332 | |||||||||||||||
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Financial information |
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 % | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 0.4 | 0.2 | 0.3 | 0.2 | 0.2 | |||||||||||||||
Construction | 0.5 | 0.5 | 0.5 | 0.5 | 0.6 | |||||||||||||||
Financial institutions | 1.3 | 1.5 | 1.9 | 1.8 | 1.8 | |||||||||||||||
Hotels and restaurants | 0.6 | 0.6 | 0.6 | 0.6 | 0.7 | |||||||||||||||
Manufacturing | 1.1 | 1.2 | 1.2 | 1.2 | 1.2 | |||||||||||||||
Private households | 42.1 | 41.2 | 37.6 | 40.2 | 40.1 | |||||||||||||||
Public authorities | 1.7 | 1.3 | 1.3 | 1.6 | 1.7 | |||||||||||||||
Real estate and rentals | 4.3 | 4.1 | 3.8 | 3.8 | 3.8 | |||||||||||||||
Retail and wholesale | 1.4 | 1.5 | 1.5 | 1.5 | 1.5 | |||||||||||||||
Services | 2.0 | 2.0 | 1.9 | 1.9 | 2.2 | |||||||||||||||
Other2 | 1.1 | 1.2 | 1.1 | 1.2 | 1.6 | |||||||||||||||
Total domestic | 56.7 | 55.2 | 51.6 | 54.6 | 55.4 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 5.8 | 5.8 | 5.6 | 8.6 | 11.0 | |||||||||||||||
Chemicals | 0.1 | 0.8 | 0.9 | 0.2 | 0.5 | |||||||||||||||
Construction | 0.4 | 0.3 | 0.2 | 0.3 | 0.3 | |||||||||||||||
Electricity, gas and water supply | 0.2 | 0.3 | 0.5 | 0.3 | 0.2 | |||||||||||||||
Financial institutions | 14.9 | 15.2 | 19.2 | 12.3 | 13.4 | |||||||||||||||
Manufacturing | 0.9 | 1.1 | 1.5 | 1.4 | 0.8 | |||||||||||||||
Mining | 1.0 | 1.0 | 1.2 | 1.4 | 1.1 | |||||||||||||||
Private households | 11.0 | 11.4 | 10.5 | 14.0 | 11.9 | |||||||||||||||
Public authorities | 3.5 | 3.7 | 2.6 | 0.9 | 0.4 | |||||||||||||||
Real estate and rentals | 0.6 | 0.4 | 1.3 | 1.6 | 1.4 | |||||||||||||||
Retail and wholesale | 0.6 | 0.5 | 0.6 | 0.6 | 0.6 | |||||||||||||||
Services | 3.4 | 2.9 | 3.1 | 2.9 | 2.4 | |||||||||||||||
Transport, storage and communication | 0.7 | 1.1 | 1.1 | 0.6 | 0.6 | |||||||||||||||
Other3 | 0.3 | 0.3 | 0.2 | 0.3 | 0.2 | |||||||||||||||
Total foreign | 43.3 | 44.8 | 48.4 | 45.4 | 44.6 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
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Financial information
Additional disclosure required under SEC regulations
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 | 31.12.10 | 31.12.09 | 31.12.08 | 31.12.07 | 31.12.06 | |||||||||||||||
Gross loans1 | 281,121 | 285,960 | 312,076 | 298,498 | 308,332 | |||||||||||||||
Impaired loans | 4,193 | 6,865 | 9,145 | 2,392 | 2,628 | |||||||||||||||
Non-performing loans | 1,727 | 5,402 | 4,703 | 1,481 | 1,918 | |||||||||||||||
Allowances and provisions for credit losses2 | 1,287 | 2,820 | 3,070 | 1,164 | 1,332 | |||||||||||||||
Net write-offs | 1,427 | 1,994 | 824 | 266 | 301 | |||||||||||||||
Credit loss (expense) / recovery | (66 | ) | (1,832 | ) | (2,996 | ) | (238 | ) | 156 | |||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 1.5 | 2.4 | 2.9 | 0.8 | 0.9 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 0.6 | 1.9 | 1.5 | 0.5 | 0.6 | |||||||||||||||
Allowances and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 0.5 | 1.0 | 1.0 | 0.4 | 0.4 | |||||||||||||||
Impaired loans | 30.7 | 41.1 | 33.6 | 48.7 | 50.7 | |||||||||||||||
Non-performing loans | 74.5 | 52.2 | 65.3 | 78.6 | 69.4 | |||||||||||||||
Allocated allowances as a percentage of impaired loans3 | 25.4 | 38.3 | 31.8 | 41.7 | 46.3 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans4 | 30.6 | 41.6 | 41.8 | 58.9 | 58.0 | |||||||||||||||
Net write-offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.5 | 0.7 | 0.3 | 0.1 | 0.1 | |||||||||||||||
Average loans outstanding during the period | 0.5 | 0.7 | 0.3 | 0.1 | 0.1 | |||||||||||||||
Allowances and provisions for credit losses | 110.9 | 70.7 | 26.8 | 22.9 | 22.6 | |||||||||||||||
Allowance and provisions for credit losses as a multiple of net write-offs | 0.90 | 1.41 | 3.73 | 4.38 | 4.43 | |||||||||||||||
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Annual Report 2010
Cautionary Statement Regarding Forward-Looking Statements |This report contains statements that constitute “forward-looking statements”, including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (1) developments in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, currency exchange rates and interest rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties; (2) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings; (3) the ability of UBS to retain earnings and reduce its risk-weighted assets in order to comply with recommended Swiss capital requirements without adversely affecting its business; (4) changes in financial regulation in Switzerland, the US, the UK and other major financial centers which may impose constraints on or necessitate changes in the scope and location of UBS’s business activities and in its legal and booking structures, including the imposition of more stringent capital and liquidity requirements, incremental tax requirements and constraints on remuneration, some of which may affect UBS in a different manner or degree than they affect competing institutions; (5) the liability to which UBS may be exposed due to legal claims and regulatory investigations, including those stemming from market dislocation and losses incurred by clients and counterparties during the financial crisis; (6) the outcome and possible consequences of pending or future inquiries or actions concerning UBS’s cross-border banking business by tax or regulatory authorities in various jurisdictions; (7) the degree to which UBS is successful in effecting organizational changes and implementing strategic plans, and whether those changes and plans will have the effects intended; (8) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses; (9) changes in accounting standards or policies, and accounting determinations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (10) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (11) changes in the size, capabilities and effectiveness of UBS’s competitors, including whether UBS will be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; and (12) the occurrence of operational failures, such as fraud, unauthorized trading and systems failures, either within UBS or within a counterparty. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth 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 2010. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
Rounding |Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages and percent changes are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived based on figures that are not rounded.
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UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com