| | | | |
Components of Operating Income | | |
|
UBS PaineWebberWealth Management USA principally derives its operating income from: | | These fees are based on the market value of invested assets transaction-related activity. As a result, operating income is affected by such factors as fluctuations in invested assets, change in market conditions, investment performance and inflows and outflows of client funds, and investor activity levels. |
| – | | fees for financial planning and wealth management services | |
| – | | fees for discretionary management services and | |
| – | | transaction-related fees. | |
These fees are based on the market value of invested assets and the level of transaction-related activity. As a result, operating income is affected by such factors as fluctuations in invested assets, change in market conditions, investment performance and inflows and outflows of client funds, and investor activity levels.
6766
| | |
| | Review of Business Group Performance
UBS PaineWebber |
2003
Performance indicators
Wealth Management USA had CHF 634 billion in invested assets on 31 December 2003, up 9% from CHF 584 billion on 31 December 2002. The increase was due to inflows of net new money and the effects of market appreciation. In US dollar terms, invested assets were 21% higher on 31 December 2003 than they were a year earlier.
We continue to report consistently strong inflows of net new money. In 2003, inflows were CHF 21.1 billion, 14% above the CHF 18.5 billion result reported for 2002. Including interest and dividends, net new money in 2003 was CHF 36.9 billion, up from CHF 36.4 billion in 2002.
The gross margin on invested assets was 86 basis points for full-year 2003, up from 82 basis points in 2002. The gain from the sale of the CSC business helped the margin by 3 basis points while goodwill funding lowered it by 4 basis points compared to a 6 basis point effect in 2002.
Significant financial events
Excluding these effects, the gross margin fell 1 basis point year on year.
The pre-tax non-cashcost / income ratio dropped to 100% in 2003 from 132% in 2002, primarily reflecting the writedown of CHF 1,234 million for the value of the PaineWebber brand that was held as an intangible asset on our balance sheet was treated as a significant financial event in 2002, and is therefore notthe 3.2 percentage point positive impact of the gain from the sale of CSC in 2003. Excluding these effects and the impact of acquisition costs, the cost / income ratio decreased 2 percentage points, reflecting our continuous cost control as well as the excellent performance of our core private client business. Acquisition costs (net goodwill funding, retention payments, amortization of goodwill and other intangible assets) accounted for 15.3 percentage points of the 2003 cost / income ratio.
In 2003, recurring fees were CHF 1,927 million, down from CHF 2,199 million a year earlier, reflecting the weakening of the US dollar against the Swiss franc. Excluding the impact of currency fluctuations, recurring fees were up 1% in 2003 from 2002, mainly as a result of increased fees from mutual fund products as well as rising asset-based fees that reflected higher asset levels in managed account products. In addition, the gain was accentuated by higher recurring fees in the adjustedmunicipal securities business.
67
Review of Business Group results on the previous page.Performance
Wealth Management USA
The writedown followednumber of financial advisors decreased to 7,766 in 2003 from 8,857 a strategic decision announced in November 2002 to move all our businessesyear earlier due to the single UBS brand. The new brand structure will be implementedcurtailment of our training program and an increase in June 2003.
There were no significantattrition rates among less experienced and less productive financial
events that affected this Business Group in 2001 or 2000. The results inadvisors.
Results
In the discussion below exclude significant financial events.
UBS PaineWebber becameearly part of the year, political, economic and financial uncertainty adversely affected investor activity. Conditions, however, started to improve over the course of second quarter 2003 and continued to do so as the year progressed. The UBS followingIndex of Investor Optimism rose steadily in 2003, reaching its highest level in 21 months by December. Because our business is almost entirely conducted in US dollars, comparisons of 2003 and 2002 results are affected by the merger between UBS and Paine Webber Group, Inc., which was completed on 3 November 2000. Atdepreciation of the merger, it becameUS dollar versus the Swiss franc.
In full-year 2003, Wealth Management USA reported a
business unitpre-tax loss of
UBS Warburg. On 1 January 2002, UBS PaineWebber becameCHF 5 million compared to a
separate Business Group within UBS. The merger was accounted for using purchase accounting, soloss of CHF 1,800 million a year earlier. This change includes the results shown for UBS Paine-Webber for 2000 reflecteffects of write-down of the inclusionvalue of the PaineWebber businesses onlybrand in 2002 and the CSC disposal in 2003. After their exclusion and before acquisition costs, performance improved 5%.
On this basis and in US dollar terms, performance in 2003 was 21% above that in 2002, reflecting higher recurring fee gains and improved transactional revenues. Client activity increased, with daily average trades rising 3% above their 2002 level. In addition, conditions in the municipal securities market remained extremely buoyant, with new issues hitting an all-time high in 2003. At the same time, we continued to benefit from cost-saving initiatives started when we became a part of UBS.
Operating income
In 2003, total operating income was CHF 5,182 million compared to CHF 5,548 million in 2002. Before acquisition costs and excluding the sale of our CSC business, total operating income was 12% lower compared to a year earlier. Excluding the currency effect, operating income actually increased by 2% from 2002. This increase was due to higher recurring fees as well as higher transactional revenue, reflecting the improved market conditions. Further, revenues were accentuated by much stronger revenues from our municipal securities business.
Operating expenses
Total operating expenses decreased 29% to CHF 5,187 million in 2003 from CHF 7,348 million in 2002. Excluding acquisition costs and the write-down of the PaineWebber brand in 2002, the drop was 14%, mainly due to the weakening of the US dollar against the Swiss franc. Excluding currency effects, operating expenses were 1% lower, reflecting lower general and administrative expenses which were nearly offset by higher performance-related compensation. Personnel expenses dropped 13% from CHF 4,245 million in 2002 to CHF 3,712 million in 2003. Excluding
68
the effects of currency translation, personnel expenses were actually slightly higher than in 2002, reflecting higher performance-related compensation due to an increase in revenue partially offset by lower retention payments. General and administrative expenses fell 22% from CHF 1,263 million in 2002 to CHF 988 million in 2003. Excluding the impact of currency fluctuations, general and administrative expenses dropped 10% compared to 2002 due to the strict cost management discipline that we have exerted in the past three years. Operational provisions also fell as 2002 included the equity research settlement charge of CHF 21 million. The drop was further accentuated by the sale of the CSC business. Depreciation increased CHF 2 million to CHF 151 million in 2003 from CHF 149 million in 2002. Excluding currency movements, the increase in depreciation of 16% was due to higher charges for broker workstations purchased in 2003. Goodwill and other intangible amortization decreased from CHF 1,691 million in 2002 to CHF 336 million in 2003. This decrease was due to the period from 3 November 2000 until 31 December 2000. Results for 2001prior-year writedown of the Paine-Webber brand name, and 2002 reflectthe sale of CSC. Excluding the writedown and the sale of CSC, amortization charges dropped by 26% as a full-year’s contribution.result of the weakening US dollar against the Swiss franc.
Headcount
Wealth Management USA’s headcount decreased 8% during 2003 to 18,016, reflecting our continued cost management initiatives, curtailment of the trainee program and the sale of CSC. Non-financial advisor headcount was down by 456 or 4% compared to the end of 2002.
2002
Performance indicators
Key performance indicators
At the end of 2002, UBS PaineWebberWealth Management USA had CHF 584 billion in invested assets, compared to CHF 769 billion on 31 December 2001. This decline of 24% was partly due to the effect of the
US dollar’s weakening against the Swiss franc. Excluding the impact of currency fluctuations, invested assets fell 8% during the year,full-year 2002, mainly due to US equity market declines, although that was partially offset by net new money inflows.
Net new money in 2002 was CHF 18.5 billion, 44% below the CHF 33.2 billion result reported for 2001. The decline reflectsreflected weaker investor sentiment, as well as the closure of the Japanese domestic private client business, resulting in outflows of approximately CHF 1.6 billion.
The gross margin on invested assets was 82 basis points for full-year 2002, down from 84 basis points in 2001. The gross margin on invested assets before acquisition costs (goodwill, net funding costs and retention payments) was 88 basis points, down from 90 basis points in 2001. Revenues declined more than invested assets due to lower customer activity levels. This was partially offset by higher revenues from our municipal securities business which had a record result in 2002. Goodwill funding lowered the 2002 margin by 6 basis points.
The cost/cost / income ratio increased from 111% in 2001 to 132% in 2002, reflecting the writedown of the PaineWebber brand in 2002, which accounted for 22.2 percentage points of the ratio. Excluding the effect of the writedown and before acquisition costs, was 89% for full-year 2002, compared to 90% in 2001. The improvement in the cost/cost / income ratio
68
is improved 1 percentage point from 2001 as a direct result of cost management initiatives implemented in 2002, among them reductions in non-financial advisor headcount, professional fees, advertising and office-related costs.
In 2002, recurring fees were CHF 2,199 million compared to CHF 2,366 million a year earlierin 2001 because of the weakening of the US dollar against the Swiss franc. Excluding currency translation effects, recurring fees rose 2% in 2002 from a year earlier.2001. The increase iswas due to higher account-basedaccount based fees and higher recurring fees in the municipal securities business. These increases were
69
Review of Business Group Performance
Wealth Management USA
offset by lower asset-based fees, which fell in line with the decline in asset levels.
We continue to invest in our distribution channels and advisory personnel. In 2002, the number of financial advisors rose by 139 from 8,718 to 8,857 with recruiting and retention success partially offset by higher attrition rates among less experienced and less productive financial advisors.
Results
In 2002, political, economic and financial uncertainty continued to adversely affect investor activity. The UBS Index of Investor Optimism dropped significantly during 2002, reached an all-timewith a low in October and only slightly recovered by the end of the year.October. Daily average client transaction volumes were 10% lower than in 2001.
Because our business is almost entirely conducted in US dollars, comparisons of 2002 results to 2001 are affected by the depreciation of the US dollar versus the Swiss franc.
Over the full year, UBS PaineWebberfull-year 2002, Wealth Management USA reported a pre-tax loss of CHF 5661,800 million in 2002 compared to a loss of CHF 713 million in 2001. PerformanceThe drop was mainly due to the writedown of the PaineWebber brand. Once this effect is excluded and before tax and acquisition costs, showed a profitperformance declined 9%, reflecting the depreciation of CHF 632 million inthe US dollar versus the Swiss franc.
Due to strict cost management discipline, 2002 compared to CHF 693 million a year earlier. Excluding the effects of currency movements, 2002 performance before tax and acquisition costs was 3% higher than in 2001. Despite2001 on the same basis and in US dollar terms, offsetting a decline in transactional revenues and lower asset-based revenues following further market drops, strict cost management discipline enabled us to improve our full-year operating performance. Excludingdrops. The results for 2002 were also negatively impacted by the USD 15 million (CHF 21 million) equity research settlement charge, full-year results in USD terms would have improved by 6% over 2001. On a US dollar basis, performance was the third best ever for our US private clients business behind 1999 and 2000.charge.
69
| | |
| | Review of Business Group Performance
UBS PaineWebber |
Operating income
For full-year 2002, total operating income was CHF 5,548 million, compared to CHF 6,373 million in 2001. Excluding the effects of currency translation, operating income declined approximately 5% from 2001. This decline in operating income is attributable to lower asset-based fees, a drop in levels of customer activity, lower margin lending, the transfer of prime brokerage business to UBS Warburgthe Investment Bank and the closure of the Japanese domestic private client business. These declines were partially offset by increased revenues in the municipal securities business, which had a record year.business.
Operating expenses
Total operating expenses fell 14%increased 4% to CHF 6,1147,348 million in 2002 from CHF 7,086 million in 2001. Excluding the brand writedown and the effects of the weaker US dollar against the Swiss
franc, operating expenses declined 5% from 2001, reflecting lower performance-driven compensation and lower retention expenses. In addition, cost management initiatives implemented during the course of 2002, the transfer of the prime brokerage business to UBS Warburgthe Investment Bank and the closure of the Japanese domestic private client businesses helped to reduce overall expenses.
Personnel expenses dropped 15% from CHF 5,019 million in 2001 to CHF 4,245 million in 2002. Excluding the effects of currency translation, personnel expenses were 7% lower than 2001, reflecting lower performance-driven compensation due to a decline in revenues, a fall in non-financial advisor headcount, the transfer of the prime brokerage business to UBS Warburg,the Investment Bank, the closure of the Japanese domestic private client business and lower retention expenses.
General and administrative expenses fell 12% from CHF 1,441 million in 2001 to CHF 1,263 million in 2002. Excluding the impact of the falling US dollar against the Swiss franc, general and administrative expenses dropped by 4% compared to 2001 due to the cost management initiatives implemented during the course of 2002, reducing our professional fees, advertising, travel and other office-related costs. In addition, general and administrative expenses were reduced by the transfer of prime brokerage business to UBS Warburgthe Investment Bank and the closure of the Japanese private client businesses. This was partially offset by the equity research settlement charge of CHF 21 million.
Depreciation increased CHF 25 million to CHF 149 million in 2002 from CHF 124 million in 2001. Excluding currency movements, the increase in depreciation of 32% was due to higher technology equipment charges. Goodwill and other intangible amortization droppedincreased from CHF 502 million in 2001 to CHF 4571,691 million in 20022002. This increase was entirely due to the writedown of the PaineWebber brand name. Excluding the writedown, amortization charges would have dropped as a result of the weakening US dollar against the Swiss franc.
Headcount
UBS PaineWebber’sWealth Management USA’s headcount decreased 4% during the year2002 to 19,563, reflecting our continued cost management initiatives. Non-financial advisor headcount was down by 989 or 8% compared to end of 2001. Further, we closed our
70
Japanese domestic private client business and transferred the prime brokerage business to UBS Warburg.the Investment Bank. At the same time, we expanded our financial advisor headcount by 139, reflecting our continued aim to extend the reach of our business.
Comparisons of full-year 2001 results to full-year 2000 reflect the very different scale of this Business Group prior to the acquisition of Paine-Webber in November 2000.
Key performance indicators
At the end of 2001, UBS PaineWebber had CHF 769 billion of invested assets, compared to CHF 765 billion at 31 December 2000, a change of 1%, with negative market performance during the year nearly offset by strong net new money flows.
Net new money for the year was CHF 33.2 billion, compared to CHF 14.5 billion in 2000, more than half of which was earned in the last quarter of 2000 after the integration of Paine-
7071
Webber. UBS PaineWebber’s ability to continue to generate high levels of net new money despite the uncertain markets in 2001 reflects the strength of its client franchise amongst high net worth individuals in the US.
Gross margin on invested assets before acquisition costs (retention payments and goodwill amortization) increased to 90 basis points, from 71 basis points in 2000, reflecting the addition of PaineWebber. Gross margin in the pre-existing business for the nine months to 30 September 2000, before the addition of PaineWebber was 36 basis points. The gross margin fell slightly during 2001, reflecting the effect of uncertain markets on transaction volumes.
The cost/income ratio before acquisition costs was 90% in 2001 compared to 105% in 2000. Until the addition of PaineWebber, the pre-existing business was loss making, reflecting the relatively early stage of its business development. Cost control has remained a strong focus during the year, with the cost/income ratio in fourth quarter 2001 the same as in fourth quarter 2000.
Recurring fees were CHF 2,366 million in 2001. This metric was not tracked prior to the integration of PaineWebber in November 2000. During 2001, recurring fees declined 6% to CHF 566 million in fourth quarter 2001 compared to CHF 601 million in first quarter 2001, due to the effects of market depreciation on client assets -recurring fees are priced based on the asset level at the end of the prior quarter.
At the end of December 2001, UBS PaineWebber had 8,718 financial advisors, a number virtually unchanged from the end of 2000. Although we continued to recruit and train new financial advisors in 2001, the difficult market conditions led to higher turnover amongst the least productive advisors.
Results
Pre-tax loss for 2001 was CHF 713 million. Excluding acquisition costs, UBS PaineWebber posted a profit of CHF 693 million, a strong result relative to our peers, achieved against a particularly poor market environment, with two successive years of market declines in the US for the first time since the late 1970s leading to much lower transaction volumes. In 2000, UBS PaineWebber incurred a loss of CHF 357 million — excluding acquisition costs the loss was CHF 72 million.
Operating income
Operating income for the year was CHF 6,373 million, compared to CHF 1,211 million in 2000. Revenues were resilient during 2001, declining just 12% from first quarter to fourth quarter, despite recession and market uncertainty in the US.
Operating expenses
Total operating expenses were CHF 7,086 million in 2001 compared to CHF 1,568 million in 2000.
UBS PaineWebber implemented a numberReview of cost control initiatives in 2001, aimed at reducing discretionary expenditure and support costs, while protecting the business’s ability to serve its clients to the highest standards.
Personnel expenses were CHF 5,019 million in 2001, compared to CHF 1,098 million in 2000, reflecting the completely different scale of the business. Expenses in 2001 included CHF 436 million of retention payments for key UBS PaineWebber staff, compared to CHF 117 million in 2000. Through 2001 personnel expenses reduced, from CHF 1,296 million in first quarter to CHF 1,200 million in fourth quarter, reflecting lower performance-related and variable compensation and a reduction of support headcount.
General and administrative expenses were CHF 1,441 million in 2001, compared to CHF 344 million in 2000. Cost control efforts drove expenses down during 2001, with fourth quarter general and administrative expenses 3% lower than in first quarter.
Depreciation expenses were CHF 124 million in 2001, compared to CHF 42 million in 2000, reflecting the addition of PaineWebber. Amortization of goodwill and other intangible assets increased from CHF 84 million to CHF 502 million, reflecting the amortization costs due to the PaineWebber acquisition.
Headcount
Headcount decreased 5% in 2001 from 21,567 at 31 December 2000 to 20,413 at 31 December 2001. We continued to monitor market conditions, but prudent cost control in previous years meant that we have not needed to make franchise-threatening cuts to our headcount. Financial advisor headcount is almost unchanged from 2000, but we continued to implement efficiency measures to help manage support head-count downwards.
Business Group PerformanceCorporate Center
71
| | |
| | Review of Business Group Performance
Corporate Center |
Corporate Center
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Group reporting | | | | |
| | | | |
| Business Group Reporting | | | | |
| CHF million, except where indicated | | % change from | | | % change from | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.02 | |
|
| |
| Income | | | 1,387 | | | 800 | | 385 | | 73 | | | | 989 | | | 2,429 1 | | 1,761 | | | (59 | ) |
Credit loss recovery1 | | | 249 | | | 236 | | 1,161 | | 6 | | |
Credit loss (expense) / recovery 2 | | | | 162 | | | 247 | | 233 | | | (34 | ) |
|
| |
Total operating income | | | 1,636 | | | 1,036 | | 1,546 | | 58 | | | | 1,151 | | | 2,676 | | 1,994 | | | (57 | ) |
|
| |
| Personnel expenses | | | 645 | | | 592 | | 522 | | 9 | | | | 762 | | | 1,031 | | 1,011 | | | (26 | ) |
| General and administrative expenses | | | 601 | | | 537 | | 754 | | 12 | | | | 445 | | | 733 | | 723 | | | (39 | ) |
| Depreciation | | | 473 | | | 372 | | 320 | | 27 | | | | 473 | | | 513 | | 428 | | | (8 | ) |
| Amortization of goodwill and other intangible assets | | | 24 | | | 24 | | 43 | | 0 | | | | 101 | | | 122 | | 123 | | | (17 | ) |
|
| |
Total operating expenses | | | 1,743 | | | 1,525 | | 1,639 | | 14 | | | | 1,781 | | | 2,399 | | 2,285 | | | (26 | ) |
|
| |
Business Group performance before tax | | | (107 | ) | | | (489 | ) | | | (93 | ) | | | (78 | ) | | | (630 | ) | | 277 | | | (291 | ) | |
|
| |
Business Group performance before tax and goodwill2 | | | (83 | ) | | | (465 | ) | | | (50 | ) | | | (82 | ) | |
Private Banks & GAM | | |
| Performance before tax | | | | 208 | | | 384 3 | | 198 | | | (46 | ) |
| Invested assets (CHF billion) | | | | 84 | | | 70 | | 86 | | 20 | |
Net new money (CHF billion) 4 | | | | 7.2 | | | 4.2 | | 5.4 | |
| | | |
| Additional information | | % change from | | |
| As at | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | |
| |
| Regulatory equity allocated (average) | | | 9,400 | | | 8,250 | | 12,300 | | 14 | | |
| Fair value of employee stock options granted | | | 32 | 3 | | |
| Headcount (full-time equivalents) | | | 1,185 | | | 1,132 | | 986 | | 5 | | | | 1,672 | | | 1,702 | | 1,908 | | | (2 | ) |
|
| |
| | | |
| Business Group reporting adjusted for Significant Financial Events | |
| | | |
| CHF million, except where indicated | | % change from | | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | |
| |
| Income | | | 1,315 | 4 | | 800 | | 385 | | 64 | | |
Credit loss recovery1 | | | 249 | | | 236 | | 1,161 | | 6 | | |
| |
Total operating income | | | 1,564 | | | 1,036 | | 1,546 | | 51 | | |
| |
| Personnel expenses | | | 645 | | | 592 | | | 490 | 5 | | 9 | | |
| General and administrative expenses | | | 601 | | | 537 | | | 604 | 5 | | 12 | | |
| Depreciation | | | 473 | | | 372 | | 320 | | 27 | | |
| Amortization of goodwill and other intangible assets | | | 24 | | | 24 | | 43 | | 0 | | |
| |
Total operating expenses | | | 1,743 | | | 1,525 | | 1,457 | | 14 | | |
| |
Business Group performance before tax | | | (179 | ) | | | (489 | ) | | 89 | | | (63 | ) | |
| |
Business Group performance before tax and goodwill2 | | | (155 | ) | | | (465 | ) | | 132 | | | (67 | ) | |
| |
| | | | | | | | | | | | | | | | | |
| Additional information | | | | | | | | | | | | | | % change from | |
| As at | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Regulatory equity allocated (average) | | | 9,150 | | | | 10,250 | | | | 9,300 | | | | (11 | ) |
Fair value of employee stock options granted 5 | | | 18 | | | | 37 | | | | | | | | (51 | ) |
| Total headcount (full-time equivalents) | | | 2,878 | | | | 2,887 | | | | 3,040 | | | | 0 | |
| |
1Includes gain on disposal of Hyposwiss of CHF 155 million and gain on disposal of Klinik Hirslanden of CHF 72 million. 2In order to show the relevant Business Group performance over time, adjusted expected credit loss figures rather than the net IFRS actual credit loss expenses are reported for all Business Groups. The difference between the adjusted expected credit loss figures and the net IFRS actual credit loss expenses recorded at Group level is reported in the Corporate Center (see Note 2 to the Financial Statements).2 3Includes gain on disposal of Hyposwiss of CHF 155 million. 4Excludes the amortization of goodwillinterest and other intangible assets. dividend income.3 5For informational purposes only. These pre-tax amounts have not been recorded in the Income statement. For details on the fair value calculation, refer to Note 32e to the Financial Statements.4 Excludes significant financial event: Income, CHF 72 million (Gain on disposal of Klinik Hirslanden). 5 Excludes significant financial events: Personnel expenses, CHF 32 million (PaineWebber integration costs); General and administrative expenses, CHF 150 million (Net additional provision relating to the US Global Settlement).
72
2003
Significant financial events
There were no significant financial events in Corporate Center in 2001.
Significant financial events booked in Corporate Center in 2002 and 2000 were:
– | | Operating income of CHF 72 million from the sale of Klinik Hirslanden in 2002. |
– | | Personnel expenses of CHF 32 million relating to the integration of PaineWebber into UBS in 2000. |
– | | General and administrative costs of CHF 150 million in 2000 in connection with the US Global Settlement of World War II-related claims. |
None of these events are reflected in the adjusted Business Group results in the table on the previous page. The results in the discussion below exclude significant financial events.
Corporate Center recorded a pre-tax loss of CHF 179630 million in full-year 2003, down from the CHF 277 million profit reported a year earlier.
Operating income
The credit loss expense or recovery booked in Corporate Center represents the difference between the expected loss-based amounts charged to the business units and the credit loss expense recognized in the Financial Statements. UBS recorded an credit loss expense of CHF 116 million in 2003, compared to a credit loss expense of CHF 206 million in 2002. In both periods, credit loss expense was lower than the sums charged to the business units, leading to a credit loss recovery of CHF 162 million in 2003 and CHF 247 million in 2002 in the Corporate Center.
Total operating income dropped by 57% from CHF 2,676 million in 2002 to CHF 1,151 million in 2003. Excluding the divestment gains of CHF 227 million from Hyposwiss and Hirslanden in 2002, the drop was 53%. This was mainly due to a fall-off in income of Klinik Hirslanden, and lower gains from financial investments. It also reflected lower interest income from our treasury activities following a decrease in revenues from our invested equity as we continued to buy back shares and experienced low interest rates. The impact of falling interest rates was partially offset by the diversification of our invested equity into currencies other than Swiss francs which led to higher returns and increased currency hedging revenues. Results also reflected the CHF 85 million fall in credit loss recoveries.
Operating expenses
Total operating expenses fell to CHF 1,781 million in 2003, down from CHF 2,399 million a year earlier. Personnel expenses declined 26% from CHF 1,031 million in 2002 to CHF 762 million in 2003. The drop was due to the deconsolidation of Klinik Hirslanden, but was partially offset by higher expenses for performance-related compensation. In the same period, general and administrative expenses fell to CHF
445 million from CHF 733 million. This was mainly due to lower legal provisions, the disposal of Klinik Hirslanden and lower project-related expenses, partially offset by higher branding costs. Depreciation dropped from CHF 513 million in 2002 to CHF 473 million in 2003. The decrease is mainly due to the absence of depreciation expenses from Klinik Hirslanden and lower depreciation in the Private Banks & GAM unit. At CHF 101 million in 2003, amortization of goodwill and other intangibles dropped by 17% from CHF 122 million in 2002, reflecting the drop of the US dollar against the Swiss franc.
Headcount
Corporate Center headcount, excluding Private Banks & GAM, was 1,206 on 31 December 2003, an increase of 21 from the 1,185 on 31 December 2002. The increase was mainly due to the first-time consolidation of Hotel Widder as well as an increase in our human resources and risk functions. This was nearly offset by a decline in the number of trainees, a transfer of some employees to the Business Groups and lower headcount in the Chief Communication Officer area.
Private Banks & GAM
Invested assets in Private Banks & GAM totaled CHF 84 billion on 31 December 2003, up from CHF 70 billion on 31 December 2002, reflecting strong net new money inflows, and positive financial markets as well as the acquisition of Banque Notz Stucki S.A. by Ferrier Lullin & Cie S.A., which was completed in December 2003.
Net new money was CHF 7.2 billion in 2003, up from CHF 4.2 billion in 2002, driven by excellent inflows into GAM.
Pre-tax profit, at CHF 208 million in 2003, dropped by 9% from CHF 229 million a year earlier, mainly reflecting higher legal provisions, as well as restructuring costs related to the merger of Cantrade, Bank Ehinger and Armand von Ernst to form Ehinger & Armand von Ernst.
Headcount Private Banks & GAM
Headcount decreased by 30 to 1,672 on 31 December 2003 from 1,702 a year earlier, mainly due to the rationalization within the individual private banks. This was partially offset by the
73
Review of Business Group Performance
Corporate Center
acquisition of Banque Notz Stucki S.A. as well as an increase in headcount at GAM due to the growth of the business.
2002
Results
Corporate Center recorded a pre-tax gain of CHF 277 million in 2002, compared to the pre-taxpretax loss of CHF 489291 million in 2001.
Operating income
UBS GroupWe recorded an actual credit loss of CHF 206 million in 2002 and CHF 498 million in 2001. The difference between the adjusted expected lossescredit loss charged to the business units and the actual credit loss expense recognized in the Group Financial Statements is booked as a credit loss expense or recovery in the Corporate Center. In 2002, the actual loss was lower than the overall adjusted credit loss expense charged to the business units, resulting in a credit loss recovery in Corporate Center of
CHF 249247 million, compared to a credit loss recovery of CHF 236233 million in 2001.
Full-year 2002 total operating income increased by 51%34% from CHF 1,0361,994 million in 2001 to CHF 1,5642,676 million in 2002. This was primarily due to the divestment gains of Klinik Hirslanden and Hyposwiss, higher interest income at Group Treasury, gains from the sale of financial investments and an unrealized gain on derivatives used to economically hedge interest rate risk related to structured notes issued. These developments, however, were partially offset by writedownswrite-downs on financial investments.
Operating expenses
Total operating expenses were CHF 1,7432,399 million in 2002, 14%5% higher than in 2001.
Over the full year,full-year 2002, personnel expenses increased by 9%2% from CHF 5921,011 million in 2001 to CHF 6451,031 million in 2002, mainly reflecting higher expenses at Klinik Hirslanden, although that was partially offset by lower performance-related compensation.
General and administrative expenses for 2002, at CHF 601733 million, were CHF 6410 million higher than in 2001. This was mainly due to higher provisions for legal cases, advertising expenditures and higher expenses at Klinik Hirslanden.
At CHF 473513 million in 2002, depreciation increased by 27%20% compared to a year earlier.2001. This was mainly due to higher software depreciation, which was previously capitalized, as well as higher depreciation levels for Klinik Hirslanden.
Headcount
HeadcountCorporate Center headcount, excluding Private Banks & GAM, increased 5% during 2002 to 1,185 at 31 December 2002, reflecting hiringnew hires in Group Human Resources and Group Controller areas as well as transfers of staff from the Business Groups.
Results
Corporate Center recorded a pre-tax loss of CHF 489 million in 2001, compared to a pre-tax profit of CHF 89 million in 2000, adjusted for significant financial events.
Operating income
The credit loss expense or recovery booked in Corporate Center represents the difference between the adjusted expected losses charged to the business units and the actual credit loss recognized in the Group income statement. UBS Group’s credit loss expense increased to CHF 498 million in 2001, compared to a recovery of CHF 130 million in 2000. For both 2000 and 2001, actual credit loss was less than the charge to the business units, resulting in a credit loss recovery in Corporate Center of CHF 236 million in 2001, compared to a recovery of CHF 1,161 million in 2000.
73
| | |
| | Review of Business Group Performance
Corporate Center |
Operating income decreased by CHF 510 million from 2000 to CHF 1,036 million in 2001, principally reflecting the swing in the credit loss results, offset by higher income from treasury activities.
Operating expenses
Total operating expenses were CHF 1,525 million in 2001, 5% higher than in 2000.
In 2001 personnel expenses were CHF 592 million, an increase of 21% compared to 2000, driven by severance payments and the full-year cost of senior management and other additional personnel added through the PaineWebber merger.
General and administrative expenses for 2001, at CHF 537 million, were CHF 67 million lower
than in 2000. This was due to lower corporate real estate costs and lower professional fees connected to the US Global Settlement of World War II-related claims, offset by higher IT costs and one-off charges relating to the bankruptcy of SAir Group.
Headcount
Headcount increased 15% during 2001 to 1,132 at 31 December 2001, driven by the transfer of International Mobility Program participants to Corporate Center headcount and the transfer of human resources staff from UBS Warburg. The International Mobility Program provides outstanding young employees of UBS with opportunities for work experience overseas.
74
75
76
77
UBS Group Financial Statements
TablePrivate Banks & GAM
Invested assets were CHF 70 billion on 31 December 2002, down from CHF 86 billion a year earlier, reflecting the drop in equity markets in 2002.
Net new money was CHF 4.2 billion in 2002, slightly down from CHF 5.4 billion a year earlier. The slight drop reflects the much more difficult market environment in 2002 compared to a year earlier.
Pre-tax profit increased from CHF 198 million in 2001 to CHF 384 million in 2002. Excluding the divestment gains of ContentsCHF 155 mil-
lion of Hyposwiss and after goodwill, the increase was CHF 31 million or 16%. On the same basis, operating income was down CHF 73 million due to generally weaker income as a result of unfavorable market conditions. On the other hand, expenses were CHF 104 million lower as a result of rigid cost control. The decline in revenues and expenses includes the divestment of Hyposwiss (two months of business in 2002).
Headcount Private Banks & GAM
Headcount in Private Banks & GAM decreased by 206 during 2002 to 1,702 at 31 December 2002, mainly reflecting the sale of Hyposwiss.
75
Financial Statements
Table of Contents
| | | | | |
| Financial Statements | | 80 |
| | | | | |
| UBS Group Income Statement | | 80 |
| UBS Group Balance Sheet | | 81 |
| UBS Group Statement of Changes in Equity | | 82 |
| UBS Group Statement of Cash Flows | | 84 |
| | | | | |
| Notes to the Financial Statements | | 86 |
| | | | | |
| 1 | | Summary of Significant Accounting Policies | | 86 |
| 2a | | Segment Reporting by Business Group | | 96 |
| 2b | | Segment Reporting by Geographic Location | | 99 |
| | | | | |
| Income Statement | | 100 |
| 3 | | Net Interest and Trading Income | | 100 |
| 4 | | Net Fee and Commission Income | | 101 |
| 5 | | Other Income | | 101 |
| 6 | | Personnel Expenses | | 102 |
| 7 | | General and Administrative Expenses | | 102 |
| 8 | | Earnings per Share (EPS) and Shares Outstanding | | 103 |
| | | | | |
| Balance Sheet: Assets | | 104 |
| 9a | | Due from Banks and Loans | | 104 |
| 9b | | Allowances and Provisions for Credit Losses | | 105 |
| 9c | | Impaired Loans | | 105 |
| 9d | | Non-Performing Loans | | 106 |
| 10 | | Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements | | 107 |
| 11 | | Trading Portfolio | | 108 |
| 12 | | Financial Investments | | 109 |
| 13 | | Investments in Associates | | 110 |
| 14 | | Property and Equipment | | 111 |
| 15 | | Goodwill and Other Intangible Assets | | 111 |
| 16 | | Other Assets | | 113 |
| | | | | |
| Balance Sheet: Liabilities | | 114 |
| 17 | | Due to Banks and Customers | | 114 |
| 18 | | Debt Issued | | 114 |
| 19 | | Other Liabilities | | 120 |
| 20 | | Provisions | | 120 |
| 21 | | Income Taxes | | 120 |
| 22 | | Minority Interests | | 122 |
| 23 | | Derivative Instruments | | 122 |
7876
| | | | | | | | | |
| Off-Balance Sheet Information | | 127 |
| 24 | | Fiduciary Transactions | | 127 |
| 25 | | Commitments and Contingent Liabilities | | 127 |
| 26 | | Operating Lease Commitments | | 129 |
| | | | | | | | | |
| Additional Information | | 130 |
| 27 | | Pledged Assets | | 130 |
| 28 | | Litigation | | 130 |
| 29 | | Financial Instruments Risk Position | | 130 |
| | | a) | | Market Risk | | 131 |
| | | | | (a)(i) | | Overview | | 131 |
| | | | | (a)(ii) | | Interest Rate Risk | | 131 |
| | | | | (a)(iii) | | Currency Risk | | 133 |
| | | | | (a)(iv) | | Equity Risk | | 135 |
| | | | | (a)(v) | | Issuer Risk | | 135 |
| | | b) | | Credit Risk | | 135 |
| | | c) | | Liquidity Risk | | 138 |
| | | d) | | Capital Adequacy | | 139 |
| 30 | | Fair Value of Financial Instruments | | 141 |
| 31 | | Retirement Benefit Plans and Other Employee Benefits | | 143 |
| 32 | | Equity Participation Plans | | 147 |
| | | a) | | Equity Participation Plans Offered | | 147 |
| | | b) | | UBS Share Awards | | 148 |
| | | c) | | UBS Option Awards | | 149 |
| | | d) | | Compensation Expense | | 150 |
| | | e) | | Pro-Forma Net Income | | 150 |
| 33 | | Related Parties | | 151 |
| 34 | | Post-Balance Sheet Events | | 153 |
| 35 | | Significant Subsidiaries and Associates | | 153 |
| 36 | | Acquisition of Paine Webber Group, Inc. | | 157 |
| 37 | | Currency Translation Rates | | 157 |
| 38 | | Swiss Banking Law Requirements | | 157 |
| 39 | | Reconciliation to US GAAP | | 160 |
| 40 | | Additional Disclosures Required under
US GAAP and SEC Rules | | 172 |
| | | | | | | | | |
| Report of the Group Auditors | | 177 |
79
UBS Group Financial Statements
Financial Statements
Financial Statements
UBS Group Income Statement
| | | | | | | | | | | | | | | | | | | | | |
| CHF million, except per share data | | | | | | | | | | | | | | | | | | % change from | |
| For the year ended | | Note | | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
Operating income | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 3 | | | | 39,963 | | | | 52,277 | | | | 51,745 | | | | (24 | ) |
| Interest expense | | | 3 | | | | (29,417 | ) | | | (44,236 | ) | | | (43,615 | ) | | | (33 | ) |
|
| Net interest income | | | | | | | 10,546 | | | | 8,041 | | | | 8,130 | | | | 31 | |
| Credit loss (expense)/recovery | | | | | | | (206 | ) | | | (498 | ) | | | 130 | | | | (59 | ) |
|
| Net interest income after credit loss expense | | | | | | | 10,340 | | | | 7,543 | | | | 8,260 | | | | 37 | |
|
| Net fee and commission income | | | 4 | | | | 18,221 | | | | 20,211 | | | | 16,703 | | | | (10 | ) |
| Net trading income | | | 3 | | | | 5,572 | | | | 8,802 | | | | 9,953 | | | | (37 | ) |
| Other income | | | 5 | | | | (12 | ) | | | 558 | | | | 1,486 | | | | | |
|
| Total operating income | | | | | | | 34,121 | | | | 37,114 | | | | 36,402 | | | | (8 | ) |
|
Operating expenses | | | | | | | | | | | | | | | | | | | | |
| Personnel expenses | | | 6 | | | | 18,524 | | | | 19,828 | | | | 17,163 | | | | (7 | ) |
| General and administrative expenses | | | 7 | | | | 7,072 | | | | 7,631 | | | | 6,765 | | | | (7 | ) |
| Depreciation of property and equipment | | | 14 | | | | 1,521 | | | | 1,614 | | | | 1,608 | | | | (6 | ) |
| Amortization of goodwill and other intangible assets | | | 15 | | | | 2,460 | | | | 1,323 | | | | 667 | | | | 86 | |
|
| Total operating expenses | | | | | | | 29,577 | | | | 30,396 | | | | 26,203 | | | | (3 | ) |
|
Operating profit before tax and minority interests | | | | | | | 4,544 | | | | 6,718 | | | | 10,199 | | | | (32 | ) |
|
| Tax expense | | | 21 | | | | 678 | | | | 1,401 | | | | 2,320 | | | | (52 | ) |
|
Net profit before minority interests | | | | | | | 3,866 | | | | 5,317 | | | | 7,879 | | | | (27 | ) |
|
| Minority interests | | | 22 | | | | (331 | ) | | | (344 | ) | | | (87 | ) | | | (4 | ) |
|
Net profit | | | | | | | 3,535 | | | | 4,973 | | | | 7,792 | | | | (29 | ) |
|
| Basic earnings per share (CHF) | | | 8 | | | | 2.92 | | | | 3.93 | | | | 6.44 | | | | (26 | ) |
Basic earnings per share before goodwill (CHF)1 | | | 8 | | | | 4.73 | | | | 4.97 | | | | 7.00 | | | | (5 | ) |
| Diluted earnings per share (CHF) | | | 8 | | | | 2.87 | | | | 3.78 | | | | 6.35 | | | | (24 | ) |
Diluted earnings per share before goodwill (CHF)1 | | | 8 | | | | 4.65 | | | | 4.81 | | | | 6.89 | | | | (3 | ) |
|
1 | | Excludes the amortization of goodwill and other intangible assets. |
80
UBS Group Balance Sheet
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % change from | |
| CHF million | | Note | | | 31.12.02 | | | 31.12.01 | | | 31.12.01 | |
|
Assets | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | | | | | 4,271 | | | | 20,990 | | | | (80 | ) |
| Due from banks | | | 9 | | | | 32,468 | | | | 27,526 | | | | 18 | |
| Cash collateral on securities borrowed | | | 10 | | | | 139,052 | | | | 162,938 | | | | (15 | ) |
| Reverse repurchase agreements | | | 10 | | | | 294,086 | | | | 269,256 | | | | 9 | |
| Trading portfolio assets | | | 11 | | | | 371,436 | | | | 397,886 | | | | (7 | ) |
| Positive replacement values | | | 23 | | | | 82,092 | | | | 73,447 | | | | 12 | |
| Loans | | | 9 | | | | 211,647 | | | | 226,545 | | | | (7 | ) |
| Financial investments | | | 12 | | | | 8,391 | | | | 28,803 | | | | (71 | ) |
| Accrued income and prepaid expenses | | | | | | | 6,453 | | | | 7,554 | | | | (15 | ) |
| Investments in associates | | | 13 | | | | 705 | | | | 697 | | | | 1 | |
| Property and equipment | | | 14 | | | | 7,869 | | | | 8,695 | | | | (9 | ) |
| Goodwill and other intangible assets | | | 15 | | | | 13,696 | | | | 19,085 | | | | (28 | ) |
| Other assets | | | 16, 21 | | | | 8,952 | | | | 9,875 | | | | (9 | ) |
|
Total assets | | | | | | | 1,181,118 | | | | 1,253,297 | | | | (6 | ) |
|
Total subordinated assets1 | | | | | | | 3,652 | | | | 2,732 | | | | 34 | |
|
Liabilities | | | | | | | | | | | | | | | | |
| Due to banks | | | 17 | | | | 83,178 | | | | 106,531 | | | | (22 | ) |
| Cash collateral on securities lent | | | 10 | | | | 36,870 | | | | 30,317 | | | | 22 | |
| Repurchase agreements | | | 10 | | | | 366,858 | | | | 368,620 | | | | 0 | |
| Trading portfolio liabilities | | | 11 | | | | 106,453 | | | | 105,798 | | | | 1 | |
| Negative replacement values | | | 23 | | | | 81,282 | | | | 71,443 | | | | 14 | |
| Due to customers | | | 17 | | | | 306,876 | | | | 333,781 | | | | (8 | ) |
| Accrued expenses and deferred income | | | | | | | 15,331 | | | | 17,289 | | | | (11 | ) |
| Debt issued | | | 18 | | | | 129,411 | | | | 156,218 | | | | (17 | ) |
| Other liabilities | | | 19, 20, 21 | | | | 12,339 | | | | 15,658 | | | | (21 | ) |
|
Total liabilities | | | | | | | 1,138,598 | | | | 1,205,655 | | | | (6 | ) |
|
| Minority interests | | | 22 | | | | 3,529 | | | | 4,112 | | | | (14 | ) |
|
Shareholders’ equity | | | | | | | | | | | | | | | | |
| Share capital | | | | | | | 1,005 | | | | 3,589 | | | | (72 | ) |
| Share premium account | | | | | | | 12,638 | | | | 14,408 | | | | (12 | ) |
| Net gains/(losses) not recognized in the income statement, net of tax | | | | | | | (159 | ) | | | (193 | ) | | | 18 | |
| Retained earnings | | | | | | | 32,638 | | | | 29,103 | | | | 12 | |
| Treasury shares | | | | | | | (7,131 | ) | | | (3,377 | ) | | | (111 | ) |
|
Total shareholders’ equity | | | | | | | 38,991 | | | | 43,530 | | | | (10 | ) |
|
Total liabilities, minority interests and shareholders’ equity | | | | | | | 1,181,118 | | | | 1,253,297 | | | | (6 | ) |
|
Total subordinated liabilities | | | | | | | 10,102 | | | | 13,818 | | | | (27 | ) |
|
1 | | The subordinated assets for 2001 have been restated to include the subordinated traded assets of CHF 2,325 million. |
81
77
Financial Statements
Table of Contents
Financial Statements
Table of Contents
80
Financial Statements
Report of the Group Auditors
Report of the Group Auditors
81
Financial Statements
UBS Income Statement
| | | | | | | | | | | | | | | | | | | | | |
| CHF million, except per share data | | | | | | | | | | | | | | % change from | |
| For the year ended | | Note | | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Operating income | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 3 | | | | 40,159 | | | | 39,963 | | | | 52,277 | | | | 0 | |
| Interest expense | | | 3 | | | | (27,860 | ) | | | (29,417 | ) | | | (44,236 | ) | | | (5 | ) |
| |
| Net interest income | | | | | | | 12,299 | | | | 10,546 | | | | 8,041 | | | | 17 | |
| Credit loss (expense) / recovery | | | | | | | (116 | ) | | | (206 | ) | | | (498 | ) | | | (44 | ) |
| |
| Net interest income after credit loss expense | | | | | | | 12,183 | | | | 10,340 | | | | 7,543 | | | | 18 | |
| |
| Net fee and commission income | | | 4 | | | | 17,345 | | | | 18,221 | | | | 20,211 | | | | (5 | ) |
| Net trading income | | | 3 | | | | 3,883 | | | | 5,572 | | | | 8,802 | | | | (30 | ) |
| Other income | | | 5 | | | | 561 | | | | (12 | ) | | | 558 | | | | | |
| |
| Total operating income | | | | | | | 33,972 | | | | 34,121 | | | | 37,114 | | | | 0 | |
| |
Operating expenses | | | | | | | | | | | | | | | | | | | | |
| Personnel expenses | | | 6 | | | | 17,231 | | | | 18,524 | | | | 19,828 | | | | (7 | ) |
| General and administrative expenses | | | 7 | | | | 6,086 | | | | 7,072 | | | | 7,631 | | | | (14 | ) |
| Depreciation of property and equipment | | | 14 | | | | 1,364 | | | | 1,521 | | | | 1,614 | | | | (10 | ) |
| Amortization of goodwill and other intangible assets | | | 15 | | | | 943 | | | | 2,460 | | | | 1,323 | | | | (62 | ) |
| |
| Total operating expenses | | | | | | | 25,624 | | | | 29,577 | | | | 30,396 | | | | (13 | ) |
| |
Operating profit before tax and minority interests | | | | | | | 8,348 | | | | 4,544 | | | | 6,718 | | | | 84 | |
| |
| Tax expense | | | 21 | | | | 1,618 | | | | 678 | | | | 1,401 | | | | 139 | |
| |
Net profit before minority interests | | | | | | | 6,730 | | | | 3,866 | | | | 5,317 | | | | 74 | |
| |
| Minority interests | | | 22 | | | | (345 | ) | | | (331 | ) | | | (344 | ) | | | 4 | |
| |
Net profit | | | | | | | 6,385 | | | | 3,535 | | | | 4,973 | | | | 81 | |
| |
| Basic earnings per share (CHF) | | | 8 | | | | 5.72 | | | | 2.92 | | | | 3.93 | | | | 96 | |
| Diluted earnings per share (CHF) | | | 8 | | | | 5.61 | | | | 2.87 | | | | 3.78 | | | | 95 | |
| |
82
UBS Balance Sheet
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | % change from | |
| CHF million | | Note | | | 31.12.03 | | | 31.12.02 | | | 31.12.02 | |
| |
Assets | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | | | | | 3,584 | | | | 4,271 | | | | (16 | ) |
| Due from banks | | | 9 | | | | 31,667 | | | | 32,468 | | | | (2 | ) |
| Cash collateral on securities borrowed | | | 10 | | | | 213,932 | | | | 139,052 | | | | 54 | |
| Reverse repurchase agreements | | | 10 | | | | 320,587 | | | | 294,086 | | | | 9 | |
| Trading portfolio assets | | | 11 | | | | 461,772 | | | | 371,436 | | | | 24 | |
| Positive replacement values | | | 23 | | | | 84,334 | | | | 82,092 | | | | 3 | |
| Loans | | | 9 | | | | 212,504 | | | | 211,647 | | | | 0 | |
| Financial investments | | | 12 | | | | 5,139 | | | | 8,391 | | | | (39 | ) |
| Accrued income and prepaid expenses | | | | | | | 6,218 | | | | 6,453 | | | | (4 | ) |
| Investments in associates | | | 13 | | | | 1,616 | | | | 705 | | | | 129 | |
| Property and equipment | | | 14 | | | | 7,659 | | | | 7,869 | | | | (3 | ) |
| Goodwill and other intangible assets | | | 15 | | | | 11,529 | | | | 13,696 | | | | (16 | ) |
| Other assets | | | 16,21 | | | | 25,459 | | | | 8,952 | | | | 184 | |
| |
Total assets | | | | | | | 1,386,000 | | | | 1,181,118 | | | | 17 | |
| |
Total subordinated assets | | | | | | | 4,794 | | | | 3,652 | | | | 31 | |
| |
Liabilities | | | | | | | | | | | | | | | | |
| Due to banks | | | 17 | | | | 127,153 | | | | 83,178 | | | | 53 | |
| Cash collateral on securities lent | | | 10 | | | | 53,278 | | | | 36,870 | | | | 45 | |
| Repurchase agreements | | | 10 | | | | 415,863 | | | | 366,858 | | | | 13 | |
| Trading portfolio liabilities | | | 11 | | | | 143,957 | | | | 106,453 | | | | 35 | |
| Negative replacement values | | | 23 | | | | 93,646 | | | | 81,282 | | | | 15 | |
| Due to customers | | | 17 | | | | 347,358 | | | | 306,876 | | | | 13 | |
| Accrued expenses and deferred income | | | | | | | 13,673 | | | | 15,331 | | | | (11 | ) |
| Debt issued | | | 18 | | | | 120,237 | | | | 129,411 | | | | (7 | ) |
| Other liabilities | | | 19,20,21 | | | | 31,316 | | | | 12,339 | | | | 154 | |
| |
Total liabilities | | | | | | | 1,346,481 | | | | 1,138,598 | | | | 18 | |
| |
| Minority interests | | | 22 | | | | 4,073 | | | | 3,529 | | | | 15 | |
| |
Shareholders’ equity | | | | | | | | | | | | | | | | |
| Share capital | | | | | | | 946 | | | | 1,005 | | | | (6 | ) |
| Share premium account | | | | | | | 6,938 | | | | 12,638 | | | | (45 | ) |
| Net gains / (losses) not recognized in the income statement, net of tax | | | | | | | (983 | ) | | | (159 | ) | | | (518 | ) |
| Retained earnings | | | | | | | 36,725 | | | | 32,638 | | | | 13 | |
| Treasury shares | | | | | | | (8,180 | ) | | | (7,131 | ) | | | (15 | ) |
| |
Total shareholders’ equity | | | | | | | 35,446 | | | | 38,991 | | | | (9 | ) |
| |
Total liabilities, minority interests and shareholders’ equity | | | | | | | 1,386,000 | | | | 1,181,118 | | | | 17 | |
| |
Total subordinated liabilities | | | | | | | 9,301 | | | | 10,102 | | | | (8 | ) |
| |
83
| 1 | | On 16 July 2001, UBS made a distribution to shareholders of CHF 1.60 per share, paid in the form of a reduction in the par value of its shares, from CHF 10.00 to CHF 8.40. At the same time, UBS split its share 3 for 1, resulting in a new par value of CHF 2.80 per share. On 10 July 2002, UBS made a distribution of CHF 2.00 per share to shareholders which reduced the par value from CHF 2.80 to CHF 0.80.0.80 per share. A dividend of CHF 2.00 per share was paid out on 23 April 2003. There was no capital repayment by par value reduction in 2003. |
| |
| 2 | | Included are gains and losses from match-funding of net investments in foreign entities as follows: CHF 93 million net gain for 2003, CHF 849 million net gain for 2002 and CHF 43 million net loss for 2001. |
| |
| 3 | | Opening adjustments to reflect the adoption of IAS 39 (see Note 1: Summary of Significant Accounting Policies). |
|
4 | | Dividends declared per share were CHF 1.50 in 2000 and CHF 1.83 in 1999, both paid in the year 2000. |
UBS Group Financial Statements
Financial Statements
UBS Group Statement of Changes in Equity
| | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | |
| For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
Issued and paid up share capital | | |
| Balance at the beginning of the year | | | 3,589 | | | 4,444 | | 4,309 | | | 1,005 | | 3,589 | | 4,444 | |
| Issue of share capital | | | 6 | | | 12 | | 135 | | | 2 | | 6 | | 12 | |
Capital repayment by par value reduction1 | | | (2,509 | ) | | | (683 | ) | | | | (2,509 | ) | | | (683 | ) |
| Cancellation of second trading line treasury shares (2000 Program) | | | (184 | ) | | | | (184 | ) |
| Cancellation of second trading line treasury shares (2001 Program) | | | (81 | ) | | | | (81 | ) | |
| Cancellation of second trading line treasury shares (2002 Program) | | | | (61 | ) | |
|
| |
Balance at the end of the year | | | 1,005 | | | 3,589 | | 4,444 | | | 946 | | 1,005 | | 3,589 | |
|
| |
Share premium | | |
| Balance at the beginning of the year | | | 14,408 | | | 20,885 | | 14,437 | | | 12,638 | | 14,408 | | 20,885 | |
| Premium on shares issued and warrants exercised | | | 157 | | | 80 | | 139 | | | 92 | | 157 | | 80 | |
| Net premium/(discount) on treasury share and own equity derivative activity | | | 282 | | | | (239 | ) | | | (391 | ) | |
| Share premium increase due to PaineWebber acquisition | | 4,198 | | |
| Borrow of own shares to be delivered | | 5,895 | | |
| Net premium / (discount) on treasury share and own equity derivative activity | | | | (324 | ) | | 282 | | | (239 | ) |
| Settlement of own shares to be delivered | | | (2,502 | ) | | | (3,393 | ) | | | (2,502 | ) |
| Cancellation of second trading line treasury shares (2000 Program) | | | (3,816 | ) | | | | (3,816 | ) |
| Cancellation of second trading line treasury shares (2001 Program) | | | (2,209 | ) | | | | (2,209 | ) | |
| Cancellation of second trading line treasury shares (2002 Program) | | | | (5,468 | ) | |
|
| |
Balance at the end of the year | | | 12,638 | | | 14,408 | | 20,885 | | | 6,938 | | 12,638 | | 14,408 | |
|
| |
| Net gains/(losses) not recognized in the income statement, net of taxes | |
| Net gains / (losses) not recognized in the income statement, net of taxes | | Net gains / (losses) not recognized in the income statement, net of taxes |
Foreign currency translation | | |
| Balance at the beginning of the year | | | (769 | ) | | | (687 | ) | | | (442 | ) | | | (849 | ) | | | (769 | ) | | | (687 | ) |
Movements during the year2 | | | (80 | ) | | | (82 | ) | | | (245 | ) | | | (795 | ) | | | (80 | ) | | | (82 | ) |
|
| |
Subtotal — balance at the end of the year | | | (849 | ) | | | (769 | ) | | | (687 | ) | |
Subtotal – balance at the end of the year | | | | (1,644 | ) | | | (849 | ) | | | (769 | ) |
|
| |
| Net unrealized gains/(losses) on available for sale investments, net of taxes | |
| Net unrealized gains / (losses) on available-for-sale investments, net of taxes | | Net unrealized gains / (losses) on available-for-sale investments, net of taxes |
| Balance at the beginning of the year | | | 1,035 | | | 0 | | | 946 | | 1,035 | | 0 | |
| Change in accounting policy | | 1,577 | 3 | | | 1,577 | 3 |
| Net unrealized gains/(losses) on available for sale investments | | | (144 | ) | | | (139 | ) | | |
| Net unrealized gains / (losses) on available-for-sale investments | | | | (108 | ) | | | (144 | ) | | | (139 | ) |
| Impairment charges reclassified to the income statement | | | 635 | | | 47 | | | 285 | | 635 | | 47 | |
| Gains reclassified to the income statement | | | (600 | ) | | | (461 | ) | | | | (340 | ) | | | (600 | ) | | | (461 | ) |
| Losses reclassified to the income statement | | | 20 | | | 11 | | | 22 | | 20 | | 11 | |
|
| |
Subtotal — balance at the end of the year | | | 946 | | | 1,035 | | |
Subtotal – balance at the end of the year | | | 805 | | 946 | | 1,035 | |
|
| |
| Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | Change in fair value of derivative instruments designated as cash flow hedges, net of taxes | Change in fair value of derivative instruments designated as cash flow hedges, net of taxes |
| Balance at the beginning of the year | | | (459 | ) | | 0 | | | | (256 | ) | | | (459 | ) | | 0 | |
| Change in accounting policy | | (380 | )3 | | | (380) | 3 |
| Net unrealized gains/(losses) on the revaluation of cash flow hedges | | | (11 | ) | | | (316 | ) | | |
| Net (gains)/losses reclassified to the income statement | | | 214 | | | 237 | | |
| Net unrealized gains / (losses) on the revaluation of cash flow hedges | | | 116 | | | (11 | ) | | | (316 | ) |
| Net (gains) / losses reclassified to the income statement | | | | (4 | ) | | 214 | | 237 | |
|
| |
Subtotal — balance at the end of the year | | | (256 | ) | | | (459 | ) | | |
Subtotal – balance at the end of the year | | | | (144 | ) | | | (256 | ) | | | (459 | ) |
|
| |
Balance at the end of the year | | | (159 | ) | | | (193 | ) | | | (687 | ) | | | (983 | ) | | | (159 | ) | | | (193 | ) |
|
| |
Retained earnings | | |
| Balance at the beginning of the year | | | 29,103 | | | 24,191 | | 20,327 | | | 32,638 | | 29,103 | | 24,191 | |
| Change in accounting policy | | (61 | )3 | | | (61) | 3 |
| Balance at the beginning of the year (restated) | | | 29,103 | | | 24,130 | | 20,327 | | | 32,638 | | 29,103 | | 24,130 | |
| Net profit for the year | | | 3,535 | | | 4,973 | | 7,792 | | | 6,385 | | 3,535 | | 4,973 | |
Dividends paid1, 4 | | | (3,928 | ) | |
Dividends paid 1 | | | | (2,298 | ) | |
|
| |
Balance at the end of the year | | | 32,638 | | | 29,103 | | 24,191 | | | 36,725 | | 32,638 | | 29,103 | |
|
| |
Treasury shares, at cost | | |
| Balance at the beginning of the year | | | (3,377 | ) | | | (4,000 | ) | | | (8,023 | ) | | | (7,131 | ) | | | (3,377 | ) | | | (4,000 | ) |
| Acquisitions | | | (8,313 | ) | | | (13,506 | ) | | | (16,330 | ) | | | (8,424 | ) | | | (8,313 | ) | | | (13,506 | ) |
| Disposals | | | 2,269 | | | 10,129 | | 20,353 | | | 1,846 | | 2,269 | | 10,129 | |
| Cancellation of second trading line treasury shares (2000 Program) | | 4,000 | | | 4,000 | |
| Cancellation of second trading line treasury shares (2001 Program) | | | 2,290 | | | | 2,290 | |
| Cancellation of second trading line treasury shares (2002 Program) | | | 5,529 | |
|
| |
Balance at the end of the year | | | (7,131 | ) | | | (3,377 | ) | | | (4,000 | ) | | | (8,180 | ) | | | (7,131 | ) | | | (3,377 | ) |
|
| |
Total shareholders’ equity | | | 38,991 | | | 43,530 | | 44,833 | | | 35,446 | | 38,991 | | 43,530 | |
|
| |
8284
UBS Group Statement of Changes in Equity (continued)
Shares issued
| | | | | | | | | | | | | | | | | |
| | | Number of shares | | % change from | | | | | | | | | | | | | | | | | |
| | |
| |
| | | Number of shares | | % change from | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 1,281,717,499 | | | 1,333,139,187 | | 1,292,679,486 | | | (4 | ) | | 1,256,297,678 | | 1,281,717,499 | | 1,333,139,187 | | | (2 | ) |
| Issue of share capital | | | 3,398,869 | | | 3,843,661 | | 4,459,701 | | | (12 | ) | | 2,719,166 | | 3,398,869 | | 3,843,661 | | | (20 | ) |
| Issue of share capital due to PaineWebber acquisition | | 36,000,000 | | |
| Cancellation of second trading line treasury shares (2000 Program) | | | (55,265,349 | ) | | | | (55,265,349 | ) | |
| Cancellation of second trading line treasury shares (2001 Program) | | | (28,818,690 | ) | | | | (28,818,690 | ) | |
| Cancellation of second trading line treasury shares (2002 Program) | | | | (75,970,080 | ) | |
|
| |
Balance at the end of the year | | | 1,256,297,678 | | | 1,281,717,499 | | 1,333,139,187 | | | (2 | ) | | 1,183,046,764 | | 1,256,297,678 | | 1,281,717,499 | | | (6 | ) |
|
| |
Treasury shares
| | | | | | | | | | | | | | | | | |
| | | Number of shares | | % change from | | | | | | | | | | | | | | | | | |
| | |
| |
| | | Number of shares | | % change from | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 41,254,951 | | | 55,265,349 | | 110,621,142 | | | (25 | ) | | 97,181,094 | | 41,254,951 | | 55,265,349 | | 136 | |
| Acquisitions | | | 110,710,741 | | | 162,818,045 | | 257,121,477 | 1 | | | (32 | ) | | 116,080,976 | | 110,710,741 | | 162,818,045 | | 5 | |
| Disposals | | | (25,965,908 | ) | | | (121,563,094 | ) | | (312,477,270 | )1 | | | (79 | ) | | | (25,931,298 | ) | | | (25,965,908 | ) | | | (121,563,094 | ) | | 0 | |
| Cancellation of second trading line treasury shares (2000 Program) | | | (55,265,349 | ) | | | | (55,265,349 | ) | |
| Cancellation of second trading line treasury shares (2001 Program) | | | (28,818,690 | ) | | | | (28,818,690 | ) | |
| Cancellation of second trading line treasury shares (2002 Program) | | | | (75,970,080 | ) | |
|
| |
Balance at the end of the year | | | 97,181,094 | | | 41,254,951 | | 55,265,349 | | 136 | | | 111,360,692 | | 97,181,094 | | 41,254,951 | | 15 | |
|
| |
1 Number of shares in 2000 has been adjusted.
During the year a total of 28,818,69075,970,080 shares acquired under the second trading line buyback program 20012002 were cancelled. At 31 December 2002,2003, a maximum of 9,590,9186,871,752 shares can be issued against the exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the UBS AG (Parent Bank) disclosure. Out of the total number of 97,181,094111,360,692 treasury
shares, 74,035,08056,707,000 shares (CHF 5,4164,266 million) were acquired under the second trading line buyback program 20022003 and are earmarked for cancellation. The Board of Directors will propose to the Annual General Meeting on 1615 April 20032004 to reduce the issuedoutstanding number of shares and the share capital by the number of shares purchased for cancellation. All issued shares are fully paid.
8385
UBS Group Financial Statements
Financial Statements
UBS Group Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | CHF million | | | | | | | | | | | | | | |
| For the year ended | For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
Cash flow from/(used in) operating activities | | |
Cash flow from / (used in) operating activities | | |
| Net profit | Net profit | | | 3,535 | | | 4,973 | | 7,792 | | | 6,385 | | 3,535 | | 4,973 | |
Adjustments to reconcile net profit to cash flow from/(used in) operating activities | | |
Adjustments to reconcile net profit to cash flow from / (used in) operating activities | | |
| Non-cash items included in net profit and other adjustments: | Non-cash items included in net profit and other adjustments: | | |
| | Depreciation of property and equipment | | | 1,521 | | | 1,614 | | 1,608 | | |
| | Amortization of goodwill and other intangible assets | | | 2,460 | | | 1,323 | | 667 | | |
| | Credit loss expense/(recovery) | | | 206 | | | 498 | | | (130 | ) | |
| | Equity in income of associates | | | (7 | ) | | | (72 | ) | | | (58 | ) | |
| | Deferred tax expense/(benefit) | | | (509 | ) | | 292 | | 544 | | |
| | Net loss/(gain) from investing activities | | | 986 | | | 513 | | | (730 | ) | |
| Net (increase)/decrease in operating assets: | | |
| | Net due from/to banks | | | (22,382 | ) | | 27,306 | | | (915 | ) | |
| | Reverse repurchase agreements and cash collateral on securities borrowed | | | (944 | ) | | | (60,536 | ) | | | (81,054 | ) | |
| | Trading portfolio and net replacement values | | | 21,967 | | | | (78,456 | ) | | 11,553 | | |
| | Loans/due to customers | | | (11,537 | ) | | 42,813 | | 12,381 | | |
| | Accrued income, prepaid expenses and other assets | | | 2,875 | | | | (424 | ) | | 6,923 | | |
| Net increase/(decrease) in operating liabilities: | | |
| | Repurchase agreements, cash collateral on securities lent | | | 4,791 | | | 80,006 | | 50,762 | | |
| | Accrued expenses and other liabilities | | | (4,754 | ) | | | (5,235 | ) | | 3,313 | | |
| Depreciation of property and equipment | | | 1,364 | | 1,521 | | 1,614 | |
| Amortization of goodwill and other intangible assets | | | 943 | | 2,460 | | 1,323 | |
| Credit loss expense / (recovery) | | | 116 | | 206 | | 498 | |
| Equity in income of associates | | | | (123 | ) | | | (7 | ) | | | (72 | ) |
| Deferred tax expense / (benefit) | | | 514 | | | (509 | ) | | 292 | |
| Net loss / (gain) from investing activities | | | | (63 | ) | | 986 | | 513 | |
| Net (increase) / decrease in operating assets: | | |
| Net due from / to banks | | | 42,921 | | | (22,382 | ) | | 27,306 | |
| Reverse repurchase agreements and cash collateral on securities borrowed | | | | (101,381 | ) | | | (944 | ) | | | (60,536 | ) |
| Trading portfolio and net replacement values | | | | (52,264 | ) | | 21,967 | | | (78,456 | ) |
| Loans / due to customers | | | 38,594 | | | (11,537 | ) | | 42,813 | |
| Accrued income, prepaid expenses and other assets | | | | (16,100 | ) | | 2,875 | | | (424 | ) |
| Net increase / (decrease) in operating liabilities: | | |
| Repurchase agreements and cash collateral on securities lent | | | 65,413 | | 4,791 | | 80,006 | |
| Accrued expenses and other liabilities | | | 18,188 | | | (4,754 | ) | | | (5,235 | ) |
| Income taxes paid | Income taxes paid | | | (572 | ) | | | (1,742 | ) | | | (959 | ) | | | (1,104 | ) | | | (572 | ) | | | (1,742 | ) |
|
| |
Net cash flow from/(used in) operating activities | | | (2,364 | ) | | 12,873 | | 11,697 | | |
Net cash flow from / (used in) operating activities | | | 3,403 | | | (2,364 | ) | | 12,873 | |
|
| |
Cash flow from/(used in) investing activities | | |
Cash flow from / (used in) investing activities | | |
| Investments in subsidiaries and associates | Investments in subsidiaries and associates | | | (60 | ) | | | (467 | ) | | | (9,729 | ) | | | (428 | ) | | | (60 | ) | | | (467 | ) |
| Disposal of subsidiaries and associates | Disposal of subsidiaries and associates | | | 984 | | | 95 | | 669 | | | 834 | | 984 | | 95 | |
| Purchase of property and equipment | Purchase of property and equipment | | | (1,763 | ) | | | (2,021 | ) | | | (1,640 | ) | | | (1,376 | ) | | | (1,763 | ) | | | (2,021 | ) |
| Disposal of property and equipment | Disposal of property and equipment | | | 67 | | | 380 | | 335 | | | 123 | | 67 | | 380 | |
| Net (investment in)/divestment of financial investments | | | 2,153 | | | | (5,770 | ) | | | (8,770 | ) | |
| Net (investment in) / divestment of financial investments | | | 2,317 | | 2,153 | | | (5,770 | ) |
|
| |
Net cash flow from/(used in) investing activities | | | 1,381 | | | | (7,783 | ) | | | (19,135 | ) | |
Net cash flow from / (used in) investing activities | | | 1,470 | | 1,381 | | | (7,783 | ) |
|
| |
Cash flow from/(used in) financing activities | | |
| Net money market paper issued/(repaid) | | | (26,206 | ) | | 24,226 | | 10,125 | | |
| Net movements in treasury shares and own equity derivative activity | | | (5,605 | ) | | | (6,038 | ) | | | (647 | ) | |
Cash flow from / (used in) financing activities | | |
| Net money market paper issued / (repaid) | | | | (14,737 | ) | | | (26,206 | ) | | 24,226 | |
| Net movements in treasury shares and treasury share contract activity | | | | (6,810 | ) | | | (5,605 | ) | | | (6,038 | ) |
| Capital issuance | Capital issuance | | | 6 | | | 12 | | 15 | | | 2 | | 6 | | 12 | |
| Capital repayment by par value reduction | Capital repayment by par value reduction | | | (2,509 | ) | | | (683 | ) | | | 0 | | | (2,509 | ) | | | (683 | ) |
| Dividends paid | Dividends paid | | | (3,928 | ) | | | | (2,298 | ) | |
| Issuance of long-term debt | Issuance of long-term debt | | | 17,132 | | | 18,233 | | 14,884 | | | 23,644 | | 17,132 | | 18,233 | |
| Repayment of long-term debt | Repayment of long-term debt | | | (14,911 | ) | | | (18,477 | ) | | | (24,640 | ) | | | (13,615 | ) | | | (14,911 | ) | | | (18,477 | ) |
| Increase in minority interests | | | 0 | | | 1,291 | | 2,683 | | |
| Dividend payments to/and purchase from minority interests | | | (377 | ) | | | (461 | ) | | | (73 | ) | |
Increase in minority interests1 | | | 755 | | 0 | | 1,291 | |
| Dividend payments to / and purchase from minority interests | | | | (278 | ) | | | (377 | ) | | | (461 | ) |
|
| |
Net cash flow from/(used in) financing activities | | | (32,470 | ) | | 18,103 | | | (1,581 | ) | |
Net cash flow from / (used in) financing activities | | | | (13,337 | ) | | | (32,470 | ) | | 18,103 | |
| Effects of exchange rate differences | Effects of exchange rate differences | | | (462 | ) | | | (304 | ) | | 112 | | | | (524 | ) | | | (462 | ) | | | (304 | ) |
|
| |
Net increase/(decrease) in cash equivalents | | | (33,915 | ) | | 22,889 | | | (8,907 | ) | |
Net increase / (decrease) in cash and cash equivalents | | | | (8,988 | ) | | | (33,915 | ) | | 22,889 | |
| Cash and cash equivalents, beginning of the year | Cash and cash equivalents, beginning of the year | | | 116,259 | | | 93,370 | | 102,277 | | | 82,344 | | 116,259 | | 93,370 | |
|
| |
Cash and cash equivalents, end of the year | Cash and cash equivalents, end of the year | | | 82,344 | | | 116,259 | | 93,370 | | | 73,356 | | 82,344 | | 116,259 | |
|
| |
Cash and cash equivalents comprise: | Cash and cash equivalents comprise: | | |
| Cash and balances with central banks | Cash and balances with central banks | | | 4,271 | | | 20,990 | | 2,979 | | | 3,584 | | 4,271 | | 20,990 | |
Money market paper1 | | | 46,183 | | | 69,938 | | 66,454 | | |
Money market paper2 | | | 40,599 | | 46,183 | | 69,938 | |
| Due from banks maturing in less than three months | Due from banks maturing in less than three months | | | 31,890 | | | 25,331 | | 23,937 | | | 29,173 | | 31,890 | | 25,331 | |
|
| |
Total | Total | | | 82,344 | | | 116,259 | | 93,370 | | | 73,356 | | 82,344 | | 116,259 | |
|
| |
1 Includes issuance of trust preferred securities of CHF 372 million for the year ended 31 December 2003 and CHF 1,291 million for the year ended 31 December 2001. 2 Money market paper is included in the Balance sheet under Trading portfolio assets and Financial investments. CHF 10,4756,208 million, CHF 29,89510,475 million and CHF 28,39529,895 million were pledged at 31 December 2003, 31 December 2002 and 31 December 2001, and 31 December 2000, respectively.
8486
UBS Group Statement of Cash Flows (continued)
Significant non-cash investing and financing activities
| | | | | | | | | | | | | | | | | | | | | | | |
| Significant non-cash investing and financing activities | | | | | | | | |
| CHF million | CHF million | | | | | | | | | | | | | | |
| For the year ended | For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Paine Webber Group, Inc. acquisition | | |
| Hyposwiss, Zurich, deconsolidation | | |
| Financial investments | | | 0 | | 53 | | 0 | |
| Property and equipment | | | 0 | | 18 | | 0 | |
| Debt issued | | | 0 | | 63 | | 0 | |
| Hirslanden Holding AG, Zurich, deconsolidation | | |
| Financial investments | | | 0 | | 3 | | 0 | |
| Property and equipment | | | 0 | | 718 | | 0 | |
| Goodwill and other intangible assets | | | 0 | | 15 | | 0 | |
| Consolidation of special purpose entities | | |
| Debt issued | | | 0 | | 2,322 | | 0 | |
| Provisions for reinstatement costs | | |
| Property and equipment | | | 137 | | 0 | | 0 | |
| | Value of shares issued (121,741,710 shares issued) | | | 0 | | | 0 | | 10,246 | | |
| | Value of options issued (18,975,810 options issued) | | | 0 | | | 0 | | 992 | | |
| Solothurner Bank SOBA, Solothurn, deconsolidation | | |
| | Investments in associates | | | 0 | | | 0 | | 1 | | |
| | Property and equipment | | | 0 | | | 0 | | 77 | | |
| | Debt issued | | | 0 | | | 0 | | 493 | | |
| Hyposwiss, Zurich, deconsolidation | | |
| | Financial investments | | | 53 | | | 0 | | 0 | | |
| | Property and equipment | | | 18 | | | 0 | | 0 | | |
| | Debt issued | | | 63 | | | 0 | | 0 | | |
| Hirslanden Holding AG, Zurich, deconsolidation | | |
| | Financial investments | | | 3 | | | 0 | | 0 | | |
| | Property and equipment | | | 718 | | | 0 | | 0 | | |
| | Goodwill and other intangible assets | | | 15 | | | 0 | | 0 | | |
| Consolidation of special purpose entities | | |
| | Debt issued | | | 2,322 | | | 0 | | 0 | | |
| |
8587
UBS Group Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Basis of accounting
UBS AG and subsidiaries (“UBS” or the “Group”) provide a broad range of financial services including advisory services, underwriting, financing, market making, asset management, brokerage, and retail banking on a global level. The Group was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzerland merged. The merger was accounted for using the uniting of interests method of accounting.
The consolidated financial statements of the GroupUBS (the “Financial Statements”) are prepared in accordance with International Financial Reporting Standards (“IFRS”) and stated in Swiss francs (CHF), the currency of the country in which UBS AG is incorporated. On 114 February 20032004 the Board of Directors approved them for issue.
b) Use of estimates in the preparation of Financial Statements
In preparing the Financial Statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgement are inherent in the formation of estimates. Actual results in the future could differ from such estimates and the differences may be material to the Financial Statements.
c) Consolidation
The Financial Statements comprise those of the parent company (UBS AG), its subsidiaries and certain special purposespecial-purpose entities, presented as a single economic entity. The effects of intra-group transactions are eliminated in preparing the Financial Statements. Subsidiaries and special purposespecial-purpose entities which are directly or indirectly controlled by the Group are consolidated. Subsidiaries acquired are consolidated from the
date control is transferred to the Group. Subsidiaries to be divested are consolidated up to the date of disposal. Temporarily controlled entities that are acquired
and held with a view to their subsequent disposal, are recorded as Financial investments.
Assets held in an agency or fiduciary capacity are not assets of the Group and are not reported in the Financial Statements.
Equity and net income attributable to minority interests are shown separately in the Balance sheet and Income statement, respectively.
Investments in associates in which the GroupUBS has a significant influence are accounted for under the equity method of accounting. Significant influence is normally evidenced when UBS owns 20% or more of a company’s voting rights. Investments in associates are initially recorded at cost and the carrying amount is increased or decreased to recognize the Group’s share of the investee’s profits or losses after the date of acquisition. Investments in associates for which significant influence is intended to be temporary because the investments are acquired and held exclusively with a view to their subsequent disposal, are recorded as Financial investments.
The Group sponsors the formation of companies, which may or may not be directly or indirectly owned subsidiaries, for the purpose of asset securitization transactions and structured debt issuance, and to accomplish certain narrow and well defined objectives. These companies may acquire assets directly or indirectly from UBS or its affiliates. Some of these companies are bankruptcy-remote entities whose assets are not available to satisfy the claims of creditors of the Group or any of its subsidiaries. Such companies are consolidated in the Group’s Financial Statements when the substance of the relationship between the Group and the company indicates that the company is controlled by the Group. Certain transactions of consolidated enti-
86
tiesentities meet the criteria for derecognition of financial assets. Derecognition of a financial asset takes place when the Group loses control of the contractual rights that comprise the financial asset.asset, which is normally the case when the asset is sold, or all the cash flows attributable to
88
the asset are passed through to an independent third party. These transactions do not affect the consolidation status of an entity.
d) Foreign currency translation
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognized in the income statement.
ExchangeUnrealized exchange differences on non-monetary financial assets (investments in equity instruments) are a component of the change in their entire fair value. Depending on the classification ofFor a non-monetary financial asset classified as held for trading, unrealized exchange differences are either recognized in the income statement (applicable for example for equity securities held for trading), or within Shareholder’s equity ifstatement. For non-monetary financial assetsFinancial investments, which are classified as available-for-sale, financial investments.unrealized exchange differences are recorded directly in Shareholder’s equity until the asset is sold.
When preparing consolidated financial statements, assets and liabilities of foreign entities are translated at the exchange rates at the balance sheet date, while income and expense items are translated at weighted average rates for the period. Differences resulting from the use of closing and weighted average exchange rates and from revaluing a foreign entity’s opening net asset balance at closing rate are recognized directly in Foreign currency translation within Shareholders’ equity.
e) Business and geographical segmentsSegment reporting
The GroupUBS is organized on a worldwide basis into four Business Groups and the Corporate Center. This organizational structure is the basis upon which the Group reports its primary segment information.
Segment income, segment expenses and segment performance include transfers between business segments and between geographicalgeographic segments. Such transfers are accounted forconducted at prices in line with charges to unaffiliated customers for similar services.arm’s length.
f) Cash and cash equivalents
Cash and cash equivalents consist of Cash and balances with central banks, balances included in Due from banks that mature in less than three months, and Money market paper included in Trading portfolio assets and Financial investments.
g) Fee income
Brokerage feesUBS earns fee income from a diverse range of services it provides to its customers. Fee income can be divided into two broad categories: income earned from executing securities transactionsservices that are recordedprovided over a certain period of time, for which customers are generally billed on an annual or semi-annual basis, and income earned from providing transaction-type services. Fees earned from services that are provided over a certain period of time are recognized ratably over the service period. Fees earned from providing transaction-type services are recognized when the service has been provided. Portfoliocompleted. Fees or components of fees that are performance linked are recognized when the performance criteria are fulfilled.
The following fee income is predominantly earned from services that are provided over a period of time: investment fund fees, fiduciary fees, custodian fees, portfolio and other management and advisory fees, insurance-related fees, credit-related fees and other service fees are recognized based on the terms of the applicable service contracts. Asset management fees related to investment funds are recognized ratably over the period the service is provided. The same principle is applied for fees earned for wealth management, financial planning and custody services that are continuously provided over an extended period of time. Transaction-related feescommission income. Fees predominantly earned from mergerproviding transaction type services include underwriting fees, corporate finance fees, and acquisition and other advisory services, securities underwriting, fund raising, and from other investment banking and similar services that have a non-recurring character, are recognized at the time the service has been completed.brokerage fees.
h) Securities borrowing and lending
Securities borrowedborrowing and securities lentlending transactions are generally entered into on a collateralized basis, with securities predominantly advanced or received as collateral. Transfer of the securities themselves, whether in a borrowing / lending transaction or as collateral, is not reflected on the balance sheet unless the risks and rewards of ownership are also transferred. If cash collateral is advanced or received, securities borrowing and lending activities are recorded at the amount of cash collateral advanced (Cash collateral on securities borrowed) or received plus accrued interest.(Cash collateral on securities lent).
Securities borrowed and securities received as collateral under securities lending transactions are not recognized in the balance sheet unless control of the contractual rights that comprise these securities received is gained. Securities lent and securities provided as collateral under securities borrowing transactions are not derecognized from the balance sheet unless control of the contractual rights that comprise these securities transferred is relinquished. The GroupUBS monitors the market value of the securities borrowed and lent on a daily basis and provides or requests additional collateral in accordance with the underlying agreements.
Fees and interest received or paid are recognized on an accrual basis and recorded as interest income or interest expense, on an accrual basis.expense.
i) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (reverse repurchase agreements) and securities
87
UBS Group Financial Statements
Notes to the Financial Statements
sold under agreements to repurchase (repurchase agreements) are generally treated as collateralizedcollateral-
89
Financial Statements
Notes to the Financial Statements
ized financing transactions and are carried attransactions. In reverse repurchase agreements, the amounts of cash advanced, orincluding accrued interest, is recognized on the balance sheet as Reverse repurchase agreements. In repurchase agreements, the cash received, plusincluding accrued interest.
Securities received under reverse repurchase agreements and securities delivered under repurchase agreements are not recognized in the balance sheeton or derecognized from the balance sheet, unless control of the contractual rights that comprise these securities is relinquished. The GroupUBS monitors the market value of the securities received or delivered on a daily basis and provides or requests additional collateral in accordance with the underlying agreements.
Interest earned on reverse repurchase agreements and interest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.
The Group offsets reverse repurchase agreements and repurchase agreements with the same counterparty for transactions covered by legally enforceable master netting agreements when net or simultaneous settlement is intended.
j) Trading portfolio
Trading portfolio assets consist of money market paper, other debt instruments, including traded loans, equity instruments and precious metals which are owned by the Group (“long” positions). ObligationsTrading portfolio liabilities consist of obligations to deliver trading securities sold but not yet purchased are reportedsuch as Trading portfolio liabilities. Trading portfolio liabilities consist of money market paper, other debt instruments and equity instruments which the Group has sold to third parties but does not own (“short” positions).
The trading portfolio is carried at fair value, which includes valuation allowances for instruments for which liquidactive markets do not exist. Gains and losses realized on disposal or redemption and unrealized gains and losses from changes in the fair value of trading portfolio assets or liabilities are reported as Net trading income. Interest and dividend income and expense on trading portfolio assets or liabilities are included in Interest and dividend income or Interest and dividend expense, respectively.
The Group uses settlement date accounting when recording trading portfolio transactions. It recognizes from the date the transaction is entered into (trade date) in the income statement
any unrealized profits and losses
arising from revaluing that contract to fair value.value in the income statement. Subsequent to the trade date, when the transaction is consummated (settlement date) a resulting financial asset or liability is recognized on the balance sheet at the fair value of the consideration given or received plus or minus the change in fair value of the contract since the trade date. When the Group becomes party to a sales contract of a financial asset classified in its trading portfolio, it derecognizes the asset on the day of its transfer.
The determination of fair values of trading portfolio assets or liabilities is based on quoted market prices in active markets or dealer price quotations pricingfrom active markets, valuation models (using assumptions based on market and economic conditions), or management’s estimates, as applicable.
k) Loans originated by the Group
Loans originated by the Group include loans where money is provided directly to the borrower, other than those that are originated with the intent to be sold immediately or in the short term, which are recorded as Trading portfolio assets. A participation in a loan from another lender is considered to be originated by the Group, provided it is funded on the date the loan is originated by the lender. Purchased loans are classified either as Financial investments available for sale,available-for-sale, or as Trading portfolio assets, as appropriate.
Loans originated by the Group are recognized when cash is advanced to borrowers. They are initially recorded at cost, which is the fair value of the cash given to originate the loan, including any transaction costs, and are subsequently measured at amortized cost using the effective interest rate method.
Interest on loans originated by the Group is included in Interest earned on loans and advances and is recognized on an accrual basis. Fees and direct costs relating to loan origination, financingre-financing or restructuring and to loan commitments are deferred and amortized to Interest earned on loans and advances over the life of the loan using the straight-line method which approximates the effective interest rate method. Fees received for commitments which are not expected to result in a loan are included in Credit-related fees and commissions over the commitment period. Loan syndication fees where UBS does not retain a portion of the syndicated loan are credited to commission income.
8890
l) Allowance and provision for credit losses
An allowance for credit losses is established if there is objective evidence that the Group will be unable to collect all amounts due on a claim according to the original contractual terms or the equivalent value. A “claim” means a loan, a commitment such as a letter of credit, a guarantee, ora commitment to extend credit, or a derivative or other credit product.
An allowance for credit losslosses is reported as a reduction of the carrying value of a claim on the balance sheet, whereas for an off-balance sheet item such as a commitment a provision for credit loss is reported in Other liabilities. Additions to the allowances and provisions for credit losses are made through credit loss expense.
Allowances and provisions for credit losses are evaluated at a counterparty-specific and/and / or country-specific level based on the following principles:
Counterparty-specific: A claim is considered impaired when management determines that it is probable that the Group will not be able to collect all amounts due according to the original contractual terms or the equivalent value.
Individual credit exposures are evaluated based upon the borrower’s character, overall financial condition, resources and payment record; the prospects for support from any financially responsible guarantors; and, where applicable, the realizable value of any collateral.
The estimated recoverable amount is the present value of expected future cash flows, which may result from restructuring or liquidation. Impairment is measured and allowances for credit losses are established for the difference between the carrying amount and itsthe estimated recoverable amount.
If there are indications of significant probable losses in the portfolio that have not been specifically identified, allowances for credit losses would also be provided for on a portfolio basis.
Upon impairment the accrual of interest income based on the original terms of the claim is discontinued, but the increase of the present value of impaired claims due to the passage of time is reported as interest income.
An impaired loan is classified as non-performing when the contractual payments of principal and/or interest are in arrears for 90 days or more.
All impaired claims are reviewed and analyzed at least annually. Any subsequent changes to the
amounts and timing of the expected future cash flows compared to the prior estimates will
result in a change in the allowance for credit losses and be charged or credited to credit loss expense.
An allowance for an impairment is reversed only when the credit quality has improved such that there is reasonable assurance of timely collection of principal and interest in accordance with the original contractual terms of the claim agreement.
A write-off is made when all or part of a claim is deemed uncollectible or forgiven. Write-offs are charged against previously established allowances for credit losses or directly to credit loss expense and reduce the principal amount of a claim. Recoveries in part or in full of amounts previously written off are credited to credit loss expense.
A loan is classified as non-performing when the contractual payments of principal and / or interest are in arrears for 90 days or more, bankruptcy proceedings have been initiated or concessionary terms have been granted in restructuring procedures.
Country-specific: Where, in management’s opinion, it is probable that some claims may be affected by systemic crisis, transfer restrictions or non-enforceability, specific country allowances for probable losses are established. They are based on country-specific scenarios, taking into consideration the nature of the individual exposures, but excluding those amounts covered by counterparty-specific allowances.
m) Securitizations
The GroupUBS securitizes various consumer and commercial financial assets, which generally results in the sale of these assets to special-purpose vehiclesentities, which, in turn issue securities to investors. Financial assets are partially or wholly derecognized when the Group gives up control of the contractual rights that comprise the financial asset.asset or portions thereof.
Interests in the securitized financial assets may be retained in the form of senior or subordinated tranches, interest-only strips or other residual interests (“retained interests”). Retained interests are primarily recorded in Trading portfolio assets and carried at fair value. The determination of fair values of retained interestinterests is generally based on quoted market prices or, to a lesser extent, by determining the present value of expected future cash flows using pricing models that incorporate management’s best estimates of critical assumptionsassump-
91
Financial Statements
Notes to the Financial Statements
tions which may include credit losses, discount rates, yield curves and other factors.
Gains or losses on securitization depend in part on the carrying amount of the transferred
89
UBS Group Financial Statements
Notes to the Financial Statements
financial assets, allocated between the financial assets derecognized and the retained interests based on their relative fair values at the date of the transfer. Gains or losses on securitization are recorded in Net trading income.
n) Financial investments
Financial investments are classified as available-for-sale and recorded on a settlement date basis. Management determines the appropriate classificationAvailable-for-sale financial investments are instruments which, in management’s opinion, may be sold in response to or in anticipation of its investments at the time of the purchase.needs for liquidity or changes in interest rates, foreign exchange rates or equity prices. Financial investments consist of money market paper, other debt instruments and equity instruments, including private equity investments.
Available-for-sale financial investments may be sold in response to needs for liquidity or changes in interest rates, foreign exchange rates or equity prices.
Available-for-sale financial investments are carried at fair value. Unrealized gains or losses on available-for-sale investments are reported in Shareholders’ equity, net of applicable income taxes, until such investment isinvestments are sold, collected or otherwise disposed of, or until such investment is determined to be impaired.
The determination of fair values of available-for-sale financial investments is generally based on quoted market prices in active markets, dealer price quotations, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment or based upon review of the investee’s financial results, condition and prospects including comparisons to similar companies for which quoted market prices are available.
If an available-for-sale investment is determined to be impaired, the cumulative unrealized loss previously recognized in Shareholders’ equity is included in net profit or loss for the period and reported in Other income. A financial investment is considered impaired if its cost exceeds the recoverable amount. For non-quoted equity investments, the recoverable amount is determined by applying recognized valuation techniques. The standard method applied is based on multiple of earnings observed in the market for comparable companies. For quoted financial investments, the recoverable amount is determined by reference to the market price. They are considered impaired if objective evidence indicates that the decline in market price has reached a level that recovery of the cost
value cannot be reasonably expected within the foreseeable future.
On disposal of an available-for-sale investment, the accumulated unrealized gain or loss included in Shareholders’ equity is transferred to net profit or loss for the period and reported in Other income. Gains and losses on disposal are determined using the average cost method.
Interest and dividend income on available-for-sale financial investments is included in Interest and dividend income from financial investments.
The determination of fair values of available-for-sale financial investments is generally based on quoted market prices in active markets, dealer price quotations or discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment, or is based upon review of the investee’s financial results, condition and prospects including comparisons to similar companies for which quoted market prices are available.
If an available-for-sale investment is determined to be impaired, the cumulative unrealized loss previously recognized in Shareholders’ equity is included in net profit or loss for the period and
reported in Other income. A financial investment is considered impaired if its cost exceeds the recoverable amount. For non-quoted equity investments, the recoverable amount is determined by applying recognized valuation techniques. The standard method applied is based on the multiple of earnings observed in the market for comparable companies. Management may adjust valuations determined in this way based on its judgement. For quoted financial investments, the recoverable amount is determined by reference to the market price. They are considered impaired if objective evidence indicates that the decline in market price has reached such a level that recovery of the cost value cannot be reasonably expected within the foreseeable future.
o) Property and equipment
Property and equipment includes bank-occupiedown-used properties, investment properties, leasehold improvements, IT, software IT and communication, and other machines and equipment.
Bank-occupiedOwn-used property is defined as property held by the Group for use in the supply of services or for administrative purposes whereas investment property is defined as property held by the Group to earn rentals and/and / or for capital appreciation. If a property of the Group includes a portion that is bank-occupiedown-used and another portion that is held to earn rentals or for capital appreciation, the classification is based on whether or not these portions can be sold separately. If boththe portions of the property can be sold separately these portionsthey are accounted for as bank-occupiedown-used property and investment property, respectively.property. If the portions cannotcan not be sold separately, the whole property is classified as bank-occupiedown-used property unless the portion used by the bank is minor. The classification of property is reviewed on a regular basis to account for major changes in its usage.
Leasehold improvements are investments made to customize buildings and offices occupied under operating lease contracts to make them suitable for the intended purpose. The estimated reinstatement costs to bring a leased property into its original condition at the end of the lease, if required, is capitalized as part of the total leasehold improvements costs. At the same time, a corresponding liability is recognized to reflect the obligation incurred. Reinstatement costs are recognized in profit and loss through depreciation of the capitalized leasehold improvements over their estimated useful life.
92
Software development costs are capitalized when they meet certain criteria relating to identifiability, it is probable that future economic benefits will flow to the enterprise, and the cost can be measured reliably. Internally developed software meeting these criteria and purchased software are classified in Property and equipment on the balance sheet.
Property and equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Property and equipment is periodically reviewed for impairment.
Property and equipment is depreciated on a straight-line basis over its estimated useful life as follows:
90
| | |
|
| 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 35 years |
|
Property formerly bank-occupiedown-used or leased to third parties under an operating lease which the Group has decided to dispose of, and foreclosed property are defined as Properties held for resale and disclosedrecorded in Other assets. They are carried at the lower of cost or recoverable value.
When theFor investment property carried at cost model is applied, IAS 40, Investment Property, requires the disclosure ofless accumulated depreciation, the investment property’s fair value (see Note 14) and details of how fair value is determined.determined are disclosed in Note 14. UBS employs internal real estate experts who determine the fair value of investment property by applying recognized valuation techniques. In cases where prices of recent market transactions of comparable objectsproperties are available, fair value is determined by reference to these transactions.
p) Goodwill and other intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired entity at the date of acquisition.
Other intangible assets are comprised of separately identifiable intangible items arising from acquisitions and certain purchased trademarks and similar items.
Goodwill and other intangible assets are recognized as assetson the balance sheet at cost determined at the date of acquisition and are amortized using the straight-line basismethod over their estimated useful economiceco-
nomic life, not exceeding 20 years. At each balance sheet date, goodwill and other intangible assets are reviewed for indications of impairment or changes in estimated future benefits. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill or other intangible assets is fully recoverable. A write-downwritedown is made if the carrying amount exceeds the recoverable amount.
q) Income taxes
Income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction is recognized as an expense in the period in which profits arise. The tax effects of income tax losses available for carry-forward are recognized as ana deferred tax asset whenif it is probable that future taxable profit will be available against which those losses can be utilized.
Deferred tax liabilities are recognized for temporary differences between the carrying amounts of assets and liabilities in the Group balance sheet and their amounts as measured for tax purposes, which will result in taxable amounts in future periods. Deferred tax assets are recognized for temporary differences which will result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset will be realized or the liability will be settled based on enacted rates.
Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting group and relate to the same tax authority and when the legal right to offset exists.
Current and deferred taxes are recognized as income tax benefit or expense except for (i) deferred taxes recognized or disposed of upon the acquisition or disposal of a subsidiary, and (ii) unrealized gains or losses on available for saleavailable-for-sale investments and changes in fair value of derivative instruments designated as cash flow hedges, which are recorded net of taxes in Gainsgains or losses not recognized in the income statement within Shareholders’ equity.
r) Debt issued
Debt issued is initially measured at cost, which is the fair value of the consideration received, net of transaction costs incurred. Subsequent measurementmeasure-
93
Financial Statements
Notes to the Financial Statements
ment is at amortized cost, using the effective interest rate method to amortize cost at inception to the redemption value over the life of the debt.
Combined debt instruments that are related to non-UBS AG equity instruments, foreign exchange, credit instruments or indices are considered structured instruments. The embedded derivative is separated from the host contract and accounted for as a stand-alone derivative if the criteria for separation are met. The host contract is subsequently measured at amortized cost.
Debt instruments with embedded derivatives that are related to UBS AG shares or to a derivative instrument that has UBS AG shares as underlying are separated into a liability and an equity component at issue date, if they will be physically settled.require or provide UBS with a choice of physical settlement. Initially, a portion of the net proceeds from issuing the combined debt instru-
91
UBS Group Financial Statements
Notes to the Financial Statements
mentinstrument are allocated to the equity component based on its fair value and reported in Share premium account. The determination of fair values is generally based on quoted market prices or option pricing models. Subsequent changes in fair value of the separated equity component are not recognized. The remaining amount is allocated to the liability component and reported as Debt issued. The liability component is subsequently measured at amortized cost. However, if the combined instrument or the embedded derivative related to UBS AG shares is cash settled or the holder of the hybrid instrument has the right to require cash settlement, then the separated derivative is accounted for as a trading instrument with changes in fair value recorded in income.
It is the Group’s policy to hedge the fixed interest rate risk on debt issues (except for certain subordinated long-term notesnote issues, see Note 30a)29a) and apply fair value hedge accounting. The effect is such that whenWhen hedge accounting is applied to fixed rate debt instruments, the carrying valuevalues of debt issues isare adjusted for changes in fair value related to the hedged exposure rather than carried at amortized cost. See v) Derivative instruments for further discussion.
Own bonds held as a result of market making activities or deliberate purchases in the market are treated as a redemption of debt. A gain or loss on redemption is recorded depending on whether the repurchase price of the bond was lower or higher than its carrying value in the books.value. A subsequent sale of own bonds in the market is treated as a re-issuance of debt.
Interest expense on debt instruments is included in Interest on debt issued.
s) Treasury shares
UBS AG shares held by the Group are classified in Shareholders’ equity as Treasury shares and accounted for at weighted average cost. The difference between the proceeds from sales of treasury shares and their cost (net of tax, if any) is classified as Share premium.
Contracts that require physical settlement or net share settlement in UBS AG shares or provide the Group with a choice to physically settle are classified as Shareholders’ equity and reported as Share premium. Upon settlement of such contracts the proceeds received less cost (net of tax, if any), are reported as Share premium.
Contracts on UBS AG shares that require net cash settlement or provide the counterparty with a choice of net cash settlement are classified as trading instruments, with the changes in fair value reported in the income statement.
t) Retirement benefits
The GroupUBS sponsors a number of retirement benefit plans for its employees worldwide. These plans include both defined benefit and defined contribution plans and various other retirement benefits such as post-employment medical benefits. Group contributionsContributions to defined contribution plans are expensed when employees have rendered services in exchange for such contributions, generally in the year of contribution.
The Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related current service cost and, where applicable, past service cost.
The principal actuarial assumptions used by the actuary are set out in Note 32.31.
The Group recognizes a portion of its actuarial gains and losses as income or expensesexpense if the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of:
| | | |
|
| a) | | 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and |
|
| b) | | 10% of the fair value of any plan assets at that date. |
|
The unrecognized actuarial gains and losses exceeding the greater of the two values are recognized in the income statement over the
94
expected average remaining working lives of the employees participating in the plans.
If an excess of the fair value of the plan assets over the present value of the defined benefit obligationobligations cannot be recovered fully through refunds or reductions in future contributions, no gain is recognized solely as a result of deferral of an actuarial loss or past service cost in the current period or no loss is recognized solely as a result of deferral of an actuarial gain in the current period.
u) Equity participation plans
The GroupUBS provides various equity participation plans in the form of stock plans and stock option plans. UBS generally uses the intrinsic
92
value method of accounting for such awards. Consequently, compensation expense is measured as the difference between the quoted market price of the stock at the grant date less the amount, if any, that the employee is required to pay, or by the excess of stock price over option strike price, if any. The Group’s policy is to recognize compensation expense for equity awards at the date of grant.
v) Derivative instruments and hedging
All derivative instruments of the Group are carried at fair value on the balance sheet and are reported as Positive or Negative replacement values. Fair values are obtained from quoted market prices, dealer price quotations, discounted cash flow models and option pricing models, which incorporate current market and contractual prices for the underlying instrument, time to expiry, yield curves and volatility of the underlying. Inputs used in pricing models are generally market observable or can be derived from market observable data. If market observable data are not available, the initial increase in fair value indicated by valuation techniques but based on unobservable inputs is amortized to income over the life of the transactions. The Group offsets positive and negative replacement values with the same counter-partycounterparty for transactions covered by legally enforceable master netting agreements, as explained in Note 23.
Where the Group enters into derivatives for trading purposes, realized and unrealized gains and losses are recognized in Net trading income.
The Group also uses derivative instruments as part of its asset and liability management activities to manage exposures to interest rate, foreign currency and credit risks, including exposures
arising from forecast transactions. The Group applies either fair value or cash flow hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment.
At the time a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including. Documentation includes its risk management objectives and its strategy in undertaking the hedge transaction, which must be in accordance with the Group’s risk management policies, together with the methods that will be used to assess the effectiveness of the hedging relationship. Accordingly, the Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been “highly effective” in offsetting changes in the fair value or cash flows of the hedged items. A hedge is normally regarded as highly effective if, at inception and throughout its
life, the Group can expect, and actual results indicate, changes in the fair value or cash flows of the hedged item to be almost fullyare offset by the changes in the fair value or cash flows of the hedging instrument, and actual results are within a range of 80% to 125%. In the case of hedging a forecast transaction, the transaction must be highly probablehave a high probability of occurring and must present an exposure to variations in cash flows that could ultimately affect reported net profit or loss. The Group discontinues hedge accounting when it is determined thatthat: a derivative 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 or is sold or repaid; or when a forecast transaction is no longer deemed highly probable.
“Hedge ineffectiveness” represents the amount by which the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged item or the amount by which changes in the cash flow of the hedging derivative differ from changes (or expected changes) in the cash flow of the hedged item. Such gains and losses are recorded in current period earnings, as are gains and losses on components of a hedging derivative that are excluded from assessing hedge effectiveness.
For qualifying fair value hedges, the change in fair value of the hedging derivative is recognized in net profit and loss. Those changes in fair value of the hedged item which are attributable to the risks hedged with the derivative instrument are reflected in an adjustment to the carrying value of the
95
Financial Statements
Notes to the Financial Statements
hedged item, which is also recognized in net profit or loss. If the hedge relationship is terminated for reasons other than the derecognition of the hedged item, the difference between the carrying value of the hedged item at that point and the value at which it would have been carried had the hedge never existed (the “unamortized fair value adjustment”), is, in the case of interest bearing instruments, amortized to net profit or loss over the remaining term of the original hedge, while for non-interest bearing instruments that amount is immediately recognized in earnings. If the hedged instrument is derecognized, e.g. is sold or repaid, the unamortized fair value adjustment is recognized immediately in net profit and loss.
A fair valuation gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognized initially in Share-
93
UBS Group Financial Statements
Notes to the Financial Statements
holders’Shareholders’ equity. When the cash flows that the derivative is hedging (including cash flows from transactions that were only forecast when the derivative hedge was effected) materialize, resulting in income or expense, then the associated gain or loss on the hedging derivative is simultaneously transferred from Shareholders’ equity to the corresponding income or expense line item.
If a cash flow hedge for a forecast transaction is deemed to be no longer effective, or the hedge relationship is terminated, the cumulative gain or loss on the hedging derivative previously reported in Shareholders’ equity remains in Shareholders’ equity until the committed or forecast transaction occurs, at which point it is transferred from Shareholders’ equity to net trading income.the income statement.
Derivative instruments transacted as economic hedges but not qualifying for hedge accounting are treated in the same way as derivative instruments used for trading purposes, i. e. realized and unrealized gains and losses are recognized in Net trading income. In particular, the Group has entered into economic hedges of credit risk within the loan portfolio using credit default swaps to which it does notcannot apply hedge accounting. In the event that the Group recognizes an impairment on a loan that is economically hedged in this way, the impairment is recognized in Credit loss expense whereas theany gain on the credit default swap is recorded in Net trading income - -– see Note 23 for additional information.
A derivative may be embedded in a “host contract”. Such combinations are known as hybrid instruments and arise predominantly from
the issuance of certain structured debt instruments. If the host contract is not carried at fair value with changes in fair value reported in net profit or loss, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative instrument at fair value if, and only if: the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract and the embedded derivative actually meets the definition of a derivative.
w) Earnings per Share (EPS)
Basic earnings per share isare calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share isare computed using the same method as for basic EPS, but the determinants are adjusted to reflect the potential dilution that could occur if options, warrants, convertible debt securities or other contracts to issue ordinary shares were converted or exercised into ordinary shares.
x) Comparability
Amended IAS 19, Employee Benefits
The GroupUBS adopted in 2002 the amended standard IAS 19 “Employee Benefits”. The amendments introduce an asset ceiling provision that applies for defined benefit plans that have a surplus of plan assets over benefit obligations. The implementation of the amended standard had no material impact.
IFRIC Interpretations
Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) became effective during 2002 but had no impact on the Group’s Financial Statements.
Segment Reporting
As at 1 January 2003, the five private label banks (three of which were subsequently merged into one bank) owned by UBS were transferred out of Wealth Management & Business Banking into Corporate Center. At the same time, GAM was transferred out of Global Asset Management into Corporate Center. All prior period comparative amounts of the affected Business Groups have been restated to conform to the current year presentation.
As at 1 January 2002, UBS PaineWebberWealth Management USA was separated from UBS WarburgInvestment Bank and became a stand-alone Business Group. Note 2 to these Group Financial Statements reflects the new Business Group structure. Comparative
96
prior year amounts have been restated to conform to the current year presentation.
IAS 39, Recognition and Measurement of Financial Instruments
The GroupUBS adopted IAS 39 prospectively as at 1 January 2001. The Standardstandard provides comprehensive guidance on accounting for financial instruments.
Upon adoption, the Group decided to record unrealized gains and losses arising from changes in the fair value of available-for-sale financial investments directly in Shareholders’ equity until such investment is disposed of or until such investment is determined to be impaired.
As a result of the adoption of IAS 39, the following adjustments or changes in classification occurred:
Gains/Gains / losses not recognized in the income statement is a new component of Shareholders’
94
equity as at 1 January 2001. It includes unrealized gains and losses on available for saleavailable-for-sale financial investments and on derivatives designated as cash flow hedges as well as Foreign currency translation. The opening adjustment as at 1 January 2001 to financial investments recorded as available for sale was a net unrealized gain of CHF 1,769 million (CHF 1,577 million net of taxes), and for derivatives designated as cash flow hedges an unrealized net loss of CHF 506 million (CHF 380 million net of taxes).
Available-for-sale financial investments were previously carried at the lower of cost or market value and private equity investments were carried at cost less write-downs for impairments in value. Reductions of the carrying amount of available-for-sale financial investments and private equity investments and reversals of such reductions as well as gains and losses on disposal are included in Other income. As at 1 January 2001 these financial investments are now classified as available-for-sale financial investments and carried at fair value. Changes in fair value are reported in Gains/losses not recognized in the income state-
ment within Shareholders’ equity until these investments are disposed of. At the time an available-for-sale financial investment is determined to be impaired, the cumulative unrealized loss previously recognized in Shareholders’ equity is included in net profit or loss for the period.
The opening adjustment to Retained earnings, a net debit of CHF 61 million as at 1 January 2001, consisted of CHF 19 million reflecting the impact of adopting the new hedge accounting rules and CHF 42 million reflecting the impact of remeasuring assets to either amortized cost or fair value as required under IAS 39.
y) Recently issued International Financial Reporting Standards
Revised IAS 32 and 39
In December 2003, the International Accounting Standards Board (IASB) issued revised IAS 32, Financial Instruments: Disclosure and Presentation, and IAS 39, Financial Instruments: Recognition and Measurement. Both standards are effective for financial years beginning on or after 1 January 2005, with earlier application of both standards together being permitted. Together the two standards provide comprehensive guidance on recognition, measurement, presentation and disclosure of financial instruments. The standards are to be applied retrospectively, with the exception of portions of the guidance relating to
derecognition of financial assets and liabilities, which is to be applied prospectively.
Properties held for resale include properties formerly bank-occupied or leased to third parties under an operating lease, which the Group hasUBS decided to disposeearly adopt these revised standards as of 1 January 2004. Therefore, comparative prior years 2003 and foreclosed properties2002 presented in the 2004 financial statements will need to be restated appropriately.
Revised IAS 39 permits any financial instrument that is not a derivative or included in the trading portfolio to be designated at inception, or at adoption of this standard, as at fair value through profit and loss. UBS has designated the majority of its compound instruments issued as at fair value through the income statement, which will eliminate the Group receivedrequirement to separate the embedded derivative instrument from the host contract. Instead, the instrument in satisfactionits entirety will be carried at fair value, with changes in fair value being recorded in income.
The guidance governing recognition and derecognition of a secured loanfinancial asset is considerably more complex under revised IAS 39 and may require a multi-step decision process to determine whether derecognition is appropriate. The impact, if any, from the prospective application of this changed accounting guidance is currently not expected to be material to UBS.
Revised IAS 39 includes guidance that in the absence of quoted market prices or market observable inputs into a valuation model, the fair value of financial instruments on the transaction date is equal to the transaction price. Differences between the transaction price and the value obtained by a valuation model, for which it doesmarket observable inputs are not intendavailable, can not be recognized immediately. The new guidance may retroactively affect profit booked at inception on certain transactions entered into in 2002 and earlier years, which could need to occupy. Asbe restated.
Financial guarantees have to be recognized on the balance sheet under revised IAS 39 at 1 January 2001, Properties held for resale infair value upon issuance. Previously, they were kept off-balance sheet unless a provision had to be recognized because a loss had been incurred. Guarantees provided against a fee are now initially recognized as a liability equal to the amount of CHF 984 million were reclassified from Financial investments to Other assets. Comparative amounts havefee receivable over the contractual life of the guarantee issued. They are subsequently carried at the higher of the initial amount less cumulative amortization or, if it is probable that a loss has been reclassified accordingly.incurred, at the estimated amount of that loss. This change in accounting does not affect revenue
9597
UBS Group Financial Statements
Notes to the Financial Statements
recognition related to guarantees, and the effect from restating prior periods is insignificant.
Under revised IAS 39, loan commitments that can be settled net meet the definition of a derivative. Additionally, any loan commitment may be designated at inception as held at fair value through profit and loss. If the loan is subsequently funded, it must also be carried at fair value. A loan commitment provided at a below-market interest rate not designated as held at fair value is initially recorded at fair value (liability) and a loss has to be recognized. The liability can subsequently be amortized to income, as appropriate, unless a provision needs to be recorded to cover an incurred loss. The change in accounting will not have a material impact on the financial statements as loan commitments are generally issued at market conditions.
Revised IAS 32 requires that certain derivative contracts linked to an entity’s own shares be treated as assets or liabilities and not as equity instruments. Obligations to repurchase own shares against cash, for example through a forward purchase contract, must be recognized as a liability on the balance sheet by transferring the fair value of the obligation out of shareholders’ equity. Subsequently, the obligation is accreted to the settlement amount through recognizing interest expense. All net share settled contracts on own shares have to be accounted for as derivatives, whereas under old IAS 32 they were classified as equity instruments. The impact from restatement on our prior period net profit, earnings per share and shareholders’ equity is insignificant.
Revised IAS 32 provides that netting is permitted only if normal settlement is also intended to take place on a net basis. In general, that condition is not met and therefore certain replacement values that were previously offset will be reported gross. This will increase the total amount of assets and liabilities on our balance sheet by approximately CHF 165 billion at 31 December 2003. There will be no effect on net profit, shareholders’ equity, earnings per share or regulatory capital from the change.
UBS is currently completing its assessment of the effect the adoption of the two revised standards will have on its financial statements. It is possible that the effect from restating prior comparative periods may have a significant impact on the financial statements.
IASB Improvements Project
In December 2003, the IASB issued 13 revised International Accounting Standards under its Improvement Project in an attempt to clarify language, to remove inconsistencies and to achieve convergence with other accounting standards, notably US GAAP. All revised standards are effective for financial years beginning on or after 1 January 2005. Of these 13 improved standards only two are expected to have a significant influence on UBS. These are IAS 27, Consolidated and Separate Financial Statements, and IAS 28, Investments in Associates.
IAS 27 has been amended to limit the exemption from consolidating a subsidiary over which control is exercised temporarily to a twelve-month period. UBS has several private equity investments where it owns a controlling interest. As they are held longer than a twelve-month period, these investments need to be consolidated commencing 1 January 2005 with retrospective restatement of comparative prior years 2004 and 2003. The initial calculations of the effect from consolidating these investments indicate that the balance sheet and income statement impact could be material and could lead to the addition of a new business segment that comprises the operations of these industrial and non-financial services businesses.
IAS 28 has been amended in the same way as IAS 27 to limit the exemption from equity method accounting to investments that are held with a view to their disposal within twelve months. Private equity investments, where UBS exercises significant influence, need to be accounted for using the equity method instead of as financial investments available-for-sale. UBS’s share in income or loss will be recognized in profit and loss, whereas currently unrealized gains and losses from fair value changes are directly recorded in shareholders’ equity, unless an investment is impaired, in which case the loss is recognized in income. UBS is currently in the process of determining the effect this change in accounting will have on its financial statements.
All other revised standards under the Improvement Project will primarily affect presentation and disclosure, but not recognition and measurement of assets and liabilities, and will, therefore, not have a material impact on the financial statements.
IFRS 2 Share-based Payment
On 19 February 2004, the IASB issued IFRS 2 Share-based Payment, which governs the account-
98
ing for share-based payments. When share-based payments are made to employees, for example through awards of shares or share options, the fair value of these awards measured at the date of grant must be recognized as compensation expense. The new standard is effective for financial years beginning on or after 1 January 2005 and applies to equity-settled awards granted after 7 November 2002 that have not vested at 1 January 2005 and to liabilities arising from share-based awards that exist at the effective date. Comparative prior periods need to be restated and the opening balance of retained earnings at 1 January 2003 has to be adjusted. UBS discloses the compensation expense attributable to share-based awards in Note 32, but the amounts disclosed are based on the requirements under US generally accepted accounting principles, which may differ from IFRS 2. UBS is currently evaluating the impact the new standard will have on its financial statements.
z) Accounting changes effective in 2004
Investment Properties
Effective 1 January 2004, UBS changed its accounting for investment property from historical cost less accumulated depreciation to the fair value model. All changes in the fair value of investment property will now be recognized in the profit and loss account, and depreciation expense will no longer be recorded for these properties. Investment property is held exclusively to earn rental income and benefit from appreciation in value. Therefore, carrying investment property at fair value better reflects the business rationale behind acquiring and managing these assets.
This change in accounting will lead to restatement of the 2002 and 2003 comparative financial years. The effects from restatement will be:
| – | | to credit (increase) retained earnings as of 1 January 2002 by CHF 202 million, net of |
| | taxes of CHF 64 million, for the then existing difference between book value and fair value of the investment property portfolio; |
| – | | to reduce net profit for 2003 by CHF 64 million; and |
| – | | to reduce net profit for 2002 by CHF 117 million. |
Credit risk losses incurred on OTC derivatives
Effective 1 January 2004, the accounting for credit risk losses incurred on over-the-counter (OTC) derivatives has been changed. All such credit risk losses will now be reported in net trading income and will no longer be reported in credit loss expense. This change better reflects how the business is run and simplifies the current treatment. It does not affect net profit or earnings per share results. The change will, however, affect segment reporting, as actual losses reported as credit loss expense are currently deferred over a three-year period in the Business Group accounts, whereas actual losses in trading income are not subject to such a deferral. In the segment report, therefore, actual losses on OTC derivatives will now be reported as incurred. The changed accounting will not have a material effect on the Investment Bank’s performance before tax for 2003.
Change in treatment of corporate client assets
Effective 1 January 2004, UBS re-classified corporate client assets of Business Banking Switzerland (except for pension funds) to exclude them from invested assets. This change was made because UBS has a minimal advisory role for such clients and asset flows are erratic as they are often driven more by liquidity requirements than pure investment reasons. This change will reduce invested assets at 31 December 2003 by approximately CHF 75 billion and increase net new money for 2003 by CHF 7.5 billion.
99
Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group
Based on our integrated business model, UBS is organized into the four Business Groups: UBS Wealth Management & Business Banking, UBS Global Asset Management, UBS WarburgInvestment Bank and UBS PaineWebber,Wealth Management USA, and our Corporate Center.
UBS Effective 1 January 2003, our independent private banks – Ehinger & Armand von Ernst (formerly Ehinger, Armand von Ernst and Cantrade), Banco di Lugano and Ferrier Lullin – and GAM, our specialist asset management firm, were transferred from Wealth Management &
Business Banking and Global Asset Management into a separate new holding company held by the Corporate Center. While this restructuring had no impact on the UBS Financial Statements, we have restated all prior periods for all Business Groups affected to reflect these changes.
Wealth Management & Business Banking
UBS Wealth Management & Business Banking comprises two business units.
Private BankingWealth Management offers a comprehensive range of products and services individually tailored to affluent international and Swiss clients, operating from offices around the world.
Business Banking Switzerland provides individual and corporate clients in Switzerland with a complete portfolio of banking and securities services, focused on customer service excellence, profitability and growth, by using a multi-channel distribution.
The two business units share technological and physical infrastructure, and have joint departments supporting major functions such as e-commerce, financial planning and wealth management, investment policy and strategy.
UBS Global Asset Management
UBS Global Asset Management provides investment products and services to institutional investors and wholesale intermediaries around the globe. Clients include corporate and public
pension plans, financial institutions and advisors, central banks as well as charities, foundations and individual investors.
UBS WarburgInvestment Bank
UBS WarburgInvestment Bank operates globally as a client-driven investment banking and securities firm with two business units.
Corporate and Institutional ClientsInvestment Banking & Securities provides innovative products, research, advice and completecom-
plete access to the world’s capital markets for intermediaries, governments, corporate and institutional clients and other parts of UBS.
UBS CapitalPrivate Equity is the private equity business unit of UBS Warburg,Investment Bank, investing UBS and third partythird-party funds, primarily in unlisted companies.
UBS PaineWebberWealth Management USA
UBS PaineWebberWealth Management USA is a US financial services firm providing sophisticated wealth management services to affluent US clients through a highly trained financial advisor network.
Corporate Center
Corporate Center ensures that the Business Groups operate as a coherent and effective whole with a common set of values and principles in such areas as risk management, financial reporting, marketing and communications, funding, capital and balance sheet management and management of foreign exchange earnings. It also holds our private label banks and GAM, which provide clients with a complete range of private banking services in Switzerland and specialized asset management services, respectively.
Credit Loss Expense
a) Principles for Segment Reporting
As discussed in Note 1(l), under IFRS an allowance for credit losses is established if there is objective evidence that the Group will be unable to collect all amounts due on a claim according to the original contractual terms or the equivalent value. Credit losses reported in the income statement in any given period are the total of net allowances and direct write-offs less recoveries, representing the adjustment necessary to maintain the total of Allowances and provisions for credit losses at an adequate level.
The credit losses incurred in each Business Group are reflected in their segment contribution to pre-tax profit shown on pages 102 to 104 in the first table for each year.
The occurrence of credit losses is erratic in timing and usually relates to transactions entered into in previous accounting periods by previous generations of management. Performance measurement for Business Groups which is solely based on credit losses actually incurred in a period in our view does not adequately reflect these particular circumstances. For that reason, our executive management reviews
96100
Business Group performance based on an adjusted measure of credit loss which varies with the current portfolio composition and recent loss experience.
The risk of credit loss exists in every credit engagement, and credit loss expenses must be expected as an inherent cost of doing business. Expected credit loss is the average annual cost that is expected to arise over time from losses on transactions in the current portfolio which become impaired in the future. For sound credit risk management and appropriate pricing, it is essential that Expected credit loss is adequately taken into account in each individual credit decision. Therefore, Expected credit loss is used internally as the basis for measurement of Business Group performance.
In order to hold the Business Groups accountable for credit losses actually incurred, we adjust the Expected credit loss by a charge or refund for the difference between Credit loss expense and Expected credit loss, amortized over a three-year period. The sum of the Expected credit loss plus the amortization of the recent differences from credit loss expense (Deferral amounts) is charged to the Business Groups as Adjusted expected credit loss. To reconcile the total of Adjusted expected credit losses charged to the Business Groups with the Credit loss expense reported in the consolidated income statement, we record a balancing item in Corporate Center.
Charging Adjusted expected credit loss to the Business Groups as a basis for performance measurement may result in a materially different segment result from a result based on Credit loss expense (Business Group contribution). While both concepts require that each Business Group, over time, bears the credit loss it actually incurs, a timing difference is introduced.
b) Expected Credit Loss
Expected credit loss is an estimate of the annual costs that will arise, on average over time, from positions that become impaired in the future. The Expected credit loss is a probabilistic measure calculated at the level of each individual transaction, based on three components:
| – | | the probability that the counterparty will default — referred to as probability of default (PD), i.e. the likelihood that a counterparty (or obligor) will not be able to meet its obligations. UBS rates counterparties to determine a counterparty specific PD by means of rating tools tailored to customer segments. Clients are segmented into 15 |
| | rating classes. We have assigned to each rating class a fixed probability of default except for the two lowest categories which are used to classify clients where a loss event has already occured due to default and impairment. |
| – | | the current and likely future exposure should default occur, known as Exposure at Default (EAD): this is the amount of exposure to the obligor – the value of the transaction – which we expect to be outstanding at the time when default occurs. |
| – | | the likely severity of the loss should default occur, typically described as Loss Given Default (LGD), expressed as a rate per unit of exposure. LGDs are typically differentiated by type of counterparty, claim and seniority, taking into account any available collateral. |
The determination of the three components is founded on UBS’s historical loss experience and all elements are regularly reviewed by specialist teams.
The summation of the Expected credit losses from all transactions with all counterparties entered into by a Business Group represents the Expected credit loss from its credit portfolio, which is used as the basis for performance measurement, as explained above. Expected credit loss changes over time as a result of changes in the individual components: individual credit quality (PD) may change, for instance as a result of rating migration over an economic cycle; the volume of outstanding transactions and their exposure (EAD) changes over time; and the likely level of loss (LGD) may change, for example due to deterioration in collateral values.
Going forward, the three components will also be used as the main input parameters for the determination of minimum regulatory capital under the Advanced Internal Rating Based Approach of Basel II and consequently will be subject to high validation standards.
c) Computation of Adjusted Expected Credit Loss
Each month we establish the relevant data for Expected credit loss and Credit loss expense. The difference between the two is amortised on a linear basis over a 3-year period.
The Business Group performance shown for each reporting period is the relevant Expected credit loss calculated for the portfolio plus the amortized amount from previous differences between Credit loss expenses and Expected credit loss (Deferral amounts).
101
Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group (continued)
The Business Group results are presented on a management reporting basis. Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at arm’s length.
For the year ended 31 December 2003
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Wealth | | | | | | | | | | | Wealth | | | | | | | |
| | | Management & | | | Global Asset | | | Investment | | | Management | | | Corporate | | | | |
| CHF million | | Business Banking | | | Management | | | Bank | | | USA | | | Center | | | UBS | |
| |
Income1 | | | 12,052 | | | | 1,737 | | | | 14,120 | | | | 5,190 | | | | 989 | | | | 34,088 | |
| Credit loss (expense) / recovery | | | (75 | ) | | | 0 | | | | (40 | ) | | | (3 | ) | | | 2 | | | | (116 | ) |
| |
| Total operating income | | | 11,977 | | | | 1,737 | | | | 14,080 | | | | 5,187 | | | | 991 | | | | 33,972 | |
| |
| Personnel expenses | | | 4,584 | | | | 816 | | | | 7,357 | | | | 3,712 | | | | 762 | | | | 17,231 | |
| General and administrative expenses | | | 2,116 | | | | 407 | | | | 2,130 | | | | 988 | | | | 445 | | | | 6,086 | |
| Depreciation | | | 384 | | | | 29 | | | | 327 | | | | 151 | | | | 473 | | | | 1,364 | |
Amortization of goodwill and other intangible assets2 | | | 75 | | | | 153 | | | | 278 | | | | 336 | | | | 101 | | | | 943 | |
| |
| Total operating expenses | | | 7,159 | | | | 1,405 | | | | 10,092 | | | | 5,187 | | | | 1,781 | | | | 25,624 | |
| |
Business Group contribution before tax | | | 4,818 | | | | 332 | | | | 3,988 | | | | 0 | | | | (790 | ) | | | 8,348 | |
| Tax expense | | | | | | | | | | | | | | | | | | | | | | | 1,618 | |
| |
Net profit before minority interests | | | | | | | | | | | | | | | | | | | | | | | 6,730 | |
| Minority interests | | | | | | | | | | | | | | | | | | | | | | | (345 | ) |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | 6,385 | |
| |
Additional information3 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | 312,520 | | | | 21,928 | | | | 1,151,750 | | | | 46,837 | | | | (147,035 | ) | | | 1,386,000 | |
| Total liabilities and minority interests | | | 303,382 | | | | 20,917 | | | | 1,138,133 | | | | 41,732 | | | | (153,610 | ) | | | 1,350,554 | |
| Capital expenditure | | | 436 | | | | 17 | | | | 424 | | | | 68 | | | | 436 | | | | 1,381 | |
| |
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The segment reporting for all periodstable below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the changesaverage annual costs that are expected to arise from positions in the structure implemented during 2002. Priorcurrent portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between Credit loss expense and Expected credit loss, amortized over a three year amounts have been restated to conform to currentperiod. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Wealth | | | | | | | | | | | Wealth | | | | | | | |
| | | Management & | | | Global Asset | | | Investment | | | Management | | | Corporate | | | | |
| CHF million | | Business Banking | | | Management | | | Bank | | | USA | | | Center | | | UBS | |
| |
Income1 | | | 12,052 | | | | 1,737 | | | | 14,120 | | | | 5,190 | | | | 989 | | | | 34,088 | |
| |
Expected credit loss | | | (542 | ) | | | 0 | | | | (94 | ) | | | (8 | ) | | | 528 | | | | (116 | ) |
Deferral | | | 411 | | | | 0 | | | | (45 | ) | | | 0 | | | | (366 | ) | | | 0 | |
| |
| Adjusted expected credit loss | | | (131 | ) | | | 0 | | | | (139 | ) | | | (8 | ) | | | 162 | | | | (116 | ) |
| |
| Total operating income | | | 11,921 | | | | 1,737 | | | | 13,981 | | | | 5,182 | | | | 1,151 | | | | 33,972 | |
| |
| Personnel expenses | | | 4,584 | | | | 816 | | | | 7,357 | | | | 3,712 | | | | 762 | | | | 17,231 | |
| General and administrative expenses | | | 2,116 | | | | 407 | | | | 2,130 | | | | 988 | | | | 445 | | | | 6,086 | |
| Depreciation | | | 384 | | | | 29 | | | | 327 | | | | 151 | | | | 473 | | | | 1,364 | |
Amortization of goodwill and other intangible assets2 | | | 75 | | | | 153 | | | | 278 | | | | 336 | | | | 101 | | | | 943 | |
| |
| Total operating expenses | | | 7,159 | | | | 1,405 | | | | 10,092 | | | | 5,187 | | | | 1,781 | | | | 25,624 | |
| |
Business Group performance before tax | | | 4,762 | | | | 332 | | | | 3,889 | | | | (5 | ) | | | (630 | ) | | | 8,348 | |
| Tax expense | | | | | | | | | | | | | | | | | | | | | | | 1,618 | |
| |
Net profit before minority interests | | | | | | | | | | | | | | | | | | | | | | | 6,730 | |
| Minority interests | | | | | | | | | | | | | | | | | | | | | | | (345 | ) |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | 6,385 | |
| |
1 Impairments on private equity and other financial investments for the year presentation.ended 31 December 2003 were as follows: Wealth Management & Business Banking CHF 18 million; Global Asset Management CHF 2 million; Investment Bank CHF 371 million; Wealth Management USA CHF 1 million; Corporate Center CHF 149 million. 2 For further information regarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwill and Other Intangible Assets. 3 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
102
For the year ended 31 December 2002
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | UBS Wealth | | UBS | | | | | | | | | | | Wealth | | Wealth | | | | | |
| | | Management & | | Global Asset | | UBS | | UBS | | Corporate | | | | | Management & | | Global Asset | | Investment | | Management | | Corporate | | | |
| CHF million | | Business Banking | | Management | | Warburg | | PaineWebber | | Center | | UBS Group | | | Business Banking | | Management | | Bank | | USA | | Center | | UBS | |
|
| |
Income1 | | 12,928 | | 1,953 | | 12,498 | | 5,561 | | 1,387 | | 34,327 | | | 12,184 | | 1,655 | | 12,498 | | 5,561 | | 2,429 | | 34,327 | |
Credit loss expense2 | | | (314 | ) | | 0 | | | (128 | ) | | | (13 | ) | | 249 | | | (206 | ) | |
| Credit loss (expense) / recovery | | | | (238 | ) | | 0 | | 35 | | | (15 | ) | | 12 | | | (206 | ) |
|
| |
| Total operating income | | 12,614 | | 1,953 | | 12,370 | | 5,548 | | 1,636 | | 34,121 | | | 11,946 | | 1,655 | | 12,533 | | 5,546 | | 2,441 | | 34,121 | |
|
| |
| Personnel expenses | | 4,810 | | 946 | | 7,878 | | 4,245 | | 645 | | 18,524 | | | 4,596 | | 774 | | 7,878 | | 4,245 | | 1,031 | | 18,524 | |
| General and administrative expenses | | 2,317 | | 513 | | 2,378 | | 1,263 | | 601 | | 7,072 | | | 2,251 | | 447 | | 2,378 | | 1,263 | | 733 | | 7,072 | |
| Depreciation | | 480 | | 37 | | 382 | | 149 | | 473 | | 1,521 | | | 448 | | 29 | | 382 | | 149 | | 513 | | 1,521 | |
Amortization of goodwill and other intangible assets3 | | 111 | | 270 | | 364 | | 1,691 | | 24 | | 2,460 | | |
Amortization of goodwill and other intangible assets2 | | | 97 | | 186 | | 364 | | 1,691 | | 122 | | 2,460 | |
|
| |
| Total operating expenses | | 7,718 | | 1,766 | | 11,002 | | 7,348 | | 1,743 | | 29,577 | | | 7,392 | | 1,436 | | 11,002 | | 7,348 | | 2,399 | | 29,577 | |
|
| |
Business Group performance before tax | | | 4,896 | | | | 187 | | | | 1,368 | | | | (1,800 | ) | | | (107 | ) | | | 4,544 | | |
Business Group contribution before tax | | | 4,554 | | 219 | | 1,531 | | | (1,802 | ) | | 42 | | 4,544 | |
| Tax expense | | 678 | | | 678 | |
|
| |
Net profit before minority interests | | | 3,866 | | | 3,866 | |
| Minority interests | | | (331 | ) | | | (331 | ) |
|
| |
Net profit | | | 3,535 | | | 3,535 | |
|
| |
Other information as at 31 December 20024 | | |
Additional information3 | | |
| Total assets | | 310,722 | | 4,428 | | 933,962 | | 39,610 | | | (107,604 | ) | | | 1,181,118 | | | 310,722 | | 4,428 | | 933,962 | | 39,610 | | | (107,604 | ) | | 1,181,118 | |
| Total liabilities and minority interests | | 302,272 | | 2,937 | | 921,446 | | 33,225 | | | (117,753 | ) | | | 1,142,127 | | | 302,272 | | 2,937 | | 921,446 | | 33,225 | | | (117,753 | ) | | 1,142,127 | |
| Capital expenditure | | 380 | | 20 | | 473 | | 185 | | 705 | | | 1,763 | | | 380 | | 20 | | 473 | | 185 | | 705 | | 1,763 | |
|
| |
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The table below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between Credit loss expense and Expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Wealth | | | | | | | | | | | Wealth | | | | | | | |
| | | Management & | | | Global Asset | | | Investment | | | Management | | | Corporate | | | | |
| CHF million | | Business Banking | | | Management | | | Bank | | | USA | | | Center | | | UBS | |
| |
Income1 | | | 12,184 | | | | 1,655 | | | | 12,498 | | | | 5,561 | | | | 2,429 | | | | 34,327 | |
| |
Expected credit loss | | | (567 | ) | | | 0 | | | | (126 | ) | | | (13 | ) | | | 500 | | | | (206 | ) |
Deferral | | | 255 | | | | 0 | | | | (2 | ) | | | 0 | | | | (253 | ) | | | 0 | |
| |
| Adjusted expected credit loss | | | (312 | ) | | | 0 | | | | (128 | ) | | | (13 | ) | | | 247 | | | | (206 | ) |
| |
| Total operating income | | | 11,872 | | | | 1,655 | | | | 12,370 | | | | 5,548 | | | | 2,676 | | | | 34,121 | |
| |
| Personnel expenses | | | 4,596 | | | | 774 | | | | 7,878 | | | | 4,245 | | | | 1,031 | | | | 18,524 | |
| General and administrative expenses | | | 2,251 | | | | 447 | | | | 2,378 | | | | 1,263 | | | | 733 | | | | 7,072 | |
| Depreciation | | | 448 | | | | 29 | | | | 382 | | | | 149 | | | | 513 | | | | 1,521 | |
Amortization of goodwill and other intangible assets2 | | | 97 | | | | 186 | | | | 364 | | | | 1,691 | | | | 122 | | | | 2,460 | |
| |
| Total operating expenses | | | 7,392 | | | | 1,436 | | | | 11,002 | | | | 7,348 | | | | 2,399 | | | | 29,577 | |
| |
Business Group performance before tax | | | 4,480 | | | | 219 | | | | 1,368 | | | | (1,800 | ) | | | 277 | | | | 4,544 | |
| Tax expense | | | | | | | | | | | | | | | | | | | | | | | 678 | |
| |
Net profit before minority interests | | | | | | | | | | | | | | | | | | | | | | | 3,866 | |
| Minority interests | | | | | | | | | | | | | | | | | | | | | | | (331 | ) |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | 3,535 | |
| |
1Impairments on private equity and other financial investments for the year ended 31 December 2002 were as follows: UBS Wealth Management & Business Banking CHF 32 million; UBS Global Asset Management CHF 1 million; UBS WarburgInvestment Bank CHF 1,703 million; Corporate Center CHF 208 million. 2In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IFRS actual net credit loss expense are reported for each Business Group. The adjusted expected loss is the statistically derived actuarial expected loss which reflects the inherent counterparty and country risks in the respective portfolios, plus the deferred releases representing the amortized historical differences between actual credit losses and actuarial expected loss. The difference between the adjusted expected loss figures and the IFRS actual net credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss expense for financial reporting purposes of CHF 206 million for the year ended 31 December 2002 is as follows: UBS Wealth Management & Business Banking CHF 241 million expense, UBS Warburg CHF 35 million recovery, UBS PaineWebber CHF 15 million expense and Corporate Center CHF 15 million recovery. 3For further information aboutregarding goodwill and other intangible assets by Business Group, please see Note 15: Goodwill and Other Intangible Assets. 43The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
97103
UBS Group Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2001
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | UBS Wealth | | UBS | | | | | | | | | | | Wealth | | Wealth | | | | | |
| | | Management & | | Global Asset | | UBS | | UBS | | Corporate | | | | | Management & | | Global Asset | | Investment | | Management | | Corporate | | | |
| CHF million | | Business Banking | | Management | | Warburg | | PaineWebber | | Center | | UBS Group | | | Business Banking | | Management | | Bank | | USA | | Center | | UBS | |
|
| |
Income1 | | 13,488 | | 2,218 | | 14,715 | | 6,391 | | 800 | | 37,612 | | | 12,782 | | 1,963 | | 14,715 | | 6,391 | | 1,761 | | 37,612 | |
Credit loss expense2 | | | (604 | ) | | 0 | | | (112 | ) | | | (18 | ) | | 236 | | | (498 | ) | |
| Credit loss (expense) / recovery | | | | (124 | ) | | 0 | | | (360 | ) | | | (15 | ) | | 1 | | | (498 | ) |
|
| |
| Total operating income | | 12,884 | | 2,218 | | 14,603 | | 6,373 | | 1,036 | | 37,114 | | | 12,658 | | 1,963 | | 14,355 | | 6,376 | | 1,762 | | 37,114 | |
|
| |
| Personnel expenses | | 4,825 | | 1,038 | | 8,354 | | 5,019 | | 592 | | 19,828 | | | 4,558 | | 886 | | 8,354 | | 5,019 | | 1,011 | | 19,828 | |
| General and administrative expenses | | 2,434 | | 569 | | 2,650 | | 1,441 | | 537 | | 7,631 | | | 2,319 | | 498 | | 2,650 | | 1,441 | | 723 | | 7,631 | |
| Depreciation | | 616 | | 46 | | 456 | | 124 | | 372 | | 1,614 | | | 568 | | 38 | | 456 | | 124 | | 428 | | 1,614 | |
| Amortization of goodwill and other intangible assets | 109 | | 286 | | 402 | | 502 | | 24 | | 1,323 | | |
Amortization of goodwill and other intangible assets2 | | | 100 | | 196 | | 402 | | 502 | | 123 | | 1,323 | |
|
| |
| Total operating expenses | | 7,984 | | 1,939 | | 11,862 | | 7,086 | | 1,525 | | 30,396 | | | 7,545 | | 1,618 | | 11,862 | | 7,086 | | 2,285 | | 30,396 | |
|
| |
Business Group performance before tax | | | 4,900 | | | | 279 | | | | 2,741 | | | | (713 | ) | | | (489 | ) | | | 6,718 | | |
Business Group contribution before tax | | | 5,113 | | 345 | | 2,493 | | | (710 | ) | | | (523 | ) | | 6,718 | |
| Tax expense | | 1,401 | | | 1,401 | |
|
| |
Net profit before minority interests | | | 5,317 | | | 5,317 | |
| Minority interests | | | (344 | ) | | | (344 | ) |
|
| |
Net profit | | | 4,973 | | | 4,973 | |
|
| |
Other information as at 31 December 20013 | | |
Additional information3 | | |
| Total assets | | 313,800 | | 6,335 | | 1,005,397 | | 39,747 | | | (111,982 | ) | | | 1,253,297 | | | 313,800 | | 6,335 | | 1,005,397 | | 39,747 | | | (111,982 | ) | | 1,253,297 | |
| Total liabilities and minority interests | | 304,988 | | 4,367 | | 992,272 | | 31,556 | | | (123,416 | ) | | | 1,209,767 | | | 304,988 | | 4,367 | | 992,272 | | 31,556 | | | (123,416 | ) | | 1,209,767 | |
| Capital expenditure | | 540 | | 37 | | 337 | | 296 | | 811 | | | 2,021 | | | 540 | | 37 | | 337 | | 296 | | 811 | | 2,021 | |
|
| |
For internal management reporting purposes we measure credit loss expense using an expected loss concept. The table below shows Business Group performance consistent with the way in which our businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired in the future. The Adjusted expected credit loss reported for each Business Group is the Expected credit loss on its portfolio, plus the difference between credit loss expense and Expected credit loss, amortized over a three year period. The difference between these Adjusted expected credit loss figures and the Credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Wealth | | | | | | | | | | | Wealth | | | | | | | |
| | | Management & | | | Global Asset | | | Investment | | | Management | | | Corporate | | | | |
| CHF million | | Business Banking | | | Management | | | Bank | | | USA | | | Center | | | UBS | |
| |
Income1 | | | 12,782 | | | | 1,963 | | | | 14,715 | | | | 6,391 | | | | 1,761 | | | | 37,612 | |
| |
Expected credit loss | | | (719 | ) | | | 0 | | | | (150 | ) | | | (18 | ) | | | 389 | | | | (498 | ) |
Deferral | | | 118 | | | | 0 | | | | 38 | | | | 0 | | | | (156 | ) | | | 0 | |
| |
| Adjusted expected credit loss | | | (601 | ) | | | 0 | | | | (112 | ) | | | (18 | ) | | | 233 | | | | (498 | ) |
| |
| Total operating income | | | 12,181 | | | | 1,963 | | | | 14,603 | | | | 6,373 | | | | 1,994 | | | | 37,114 | |
| |
| Personnel expenses | | | 4,558 | | | | 886 | | | | 8,354 | | | | 5,019 | | | | 1,011 | | | | 19,828 | |
| General and administrative expenses | | | 2,319 | | | | 498 | | | | 2,650 | | | | 1,441 | | | | 723 | | | | 7,631 | |
| Depreciation | | | 568 | | | | 38 | | | | 456 | | | | 124 | | | | 428 | | | | 1,614 | |
Amortization of goodwill and other intangible assets2 | | | 100 | | | | 196 | | | | 402 | | | | 502 | | | | 123 | | | | 1,323 | |
| |
| Total operating expenses | | | 7,545 | | | | 1,618 | | | | 11,862 | | | | 7,086 | | | | 2,285 | | | | 30,396 | |
| |
Business Group performance before tax | | | 4,636 | | | | 345 | | | | 2,741 | | | | (713 | ) | | | (291 | ) | | | 6,718 | |
| Tax expense | | | | | | | | | | | | | | | | | | | | | | | 1,401 | |
| |
Net profit before minority interests | | | | | | | | | | | | | | | | | | | | | | | 5,317 | |
| Minority interests | | | | | | | | | | | | | | | | | | | | | | | (344 | ) |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | 4,973 | |
| |
1Impairments on private equity and other financial investments for the year ended 31 December 2001 were as follows: UBS Wealth Management & Business Banking CHF 109 million; UBS Global Asset Management CHF 3 million; UBS WarburgInvestment Bank CHF 1,143 million; Corporate Center CHF 39 million. 2In order to show the relevant For further information regarding goodwill and other intangible assets by Business Group, performance over time, adjusted expected loss figures rather than the IFRS actual net credit loss expense are reported for each Business Group. The adjusted expected loss is the statistically derived actuarial expected loss which reflects the inherent counterpartyplease see Note 15: Goodwill and country risks in the respective portfolios, plus the deferred releases representing the amortized historical differences between actual credit losses and actuarial expected loss. The difference between the adjusted expected loss figures and the IFRS actual net credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss expense for financial reporting purposes of CHF 498 million for the year ended 31 December 2001 is as follows: UBS Wealth Management & Business Banking CHF 123 million expense, UBS Warburg CHF 360 million expense and UBS PaineWebber CHF 15 million expense.Other Intangible Assets. 3The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
For the year ended 31 December 2000
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | UBS Wealth | | | UBS | | | | | | | | | | | | | |
| | | Management & | | | Global Asset | | | UBS | | | UBS | | | Corporate | | | | |
| CHF million | | Business Banking | | | Management | | | Warburg | | | PaineWebber | | | Center | | | UBS Group | |
|
Income1 | | | 14,355 | | | | 2,078 | | | | 18,240 | | | | 1,214 | | | | 385 | | | | 36,272 | |
Credit loss expense/recovery2 | | | (785 | ) | | | 0 | | | | (243 | ) | | | (3 | ) | | | 1,161 | | | | 130 | |
|
| Total operating income | | | 13,570 | | | | 2,078 | | | | 17,997 | | | | 1,211 | | | | 1,546 | | | | 36,402 | |
|
| Personnel expenses | | | 5,151 | | | | 941 | | | | 9,451 | | | | 1,098 | | | | 522 | | | | 17,163 | |
| General and administrative expenses | | | 2,478 | | | | 434 | | | | 2,755 | | | | 344 | | | | 754 | | | | 6,765 | |
| Depreciation | | | 633 | | | | 49 | | | | 564 | | | | 42 | | | | 320 | | | | 1,608 | |
| Amortization of goodwill and other intangible assets | 81 | | | | 267 | | | | 192 | | | | 84 | | | | 43 | | | | 667 | |
|
| Total operating expenses | | | 8,343 | | | | 1,691 | | | | 12,962 | | | | 1,568 | | | | 1,639 | | | | 26,203 | |
|
Business Group performance before tax | | | 5,227 | | | | 387 | | | | 5,035 | | | | (357 | ) | | | (93 | ) | | | 10,199 | |
| Tax expense | | | | | | | | | | | | | | | | | | | | | | | 2,320 | |
|
Net profit before minority interests | | | | | | | | | | | | | | | | | | | | | | | 7,879 | |
| Minority interests | | | | | | | | | | | | | | | | | | | | | | | (87 | ) |
|
Net profit | | | | | | | | | | | | | | | | | | | | | | | 7,792 | |
|
Other information as at 31 December 20003 | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | 281,984 | | | | 7,558 | | | | 817,264 | | | | 50,691 | | | | (69,945 | ) | | | 1,087,552 | |
| Total liabilities and minority interests | | | 272,173 | | | | 5,787 | | | | 803,159 | | | | 41,826 | | | | (80,226 | ) | | | 1,042,719 | |
|
1Impairments on private equity and other financial investments for the year ended 31 December 2000 were as follows: UBS Warburg CHF 442 million; Corporate Center CHF 65 million. 2In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IFRS actual net credit loss expense are reported for each Business Group. The adjusted expected loss is the statistically derived actuarial expected loss which reflects the inherent counterparty and country risks in the respective portfolios, plus the deferred releases representing the amortized historical differences between actual credit losses and actuarial expected loss. The difference between the adjusted expected loss figures and the IFRS actual net credit loss expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss recovery for financial reporting purposes of CHF 130 million for the year ended 31 December 2000 is as follows: UBS Wealth Management & Business Banking CHF 695 million recovery, UBS Warburg CHF 562 million expense and UBS PaineWebber CHF 3 million expense. 3The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
98104
Note 2b Segment Reporting by Geographic Location
The geographic analysis of total assets is based on customer domicile whereas operating income and capital expenditure is based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line. The geographicalgeo-
graphic analysis of operating income, total assets, and capital expenditure is provided in order to comply with IFRS, and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 2a to these Financial Statements, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2003
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total operating income | | Total assets | | Capital expenditure |
| | | CHF million | | | Share % | | | CHF million | | | Share % | | | CHF million | | | Share % | |
| |
| Switzerland | | | 13,278 | | | | 39 | | | | 180,629 | | | | 13 | | | | 689 | | | | 50 | |
| Rest of Europe / Africa / Middle East | | | 6,057 | | | | 18 | | | | 430,901 | | | | 31 | | | | 247 | | | | 18 | |
| Americas | | | 12,923 | | | | 38 | | | | 688,762 | | | | 50 | | | | 411 | | | | 30 | |
| Asia Pacific | | | 1,714 | | | | 5 | | | | 85,708 | | | | 6 | | | | 34 | | | | 2 | |
| |
Total | | | 33,972 | | | | 100 | | | | 1,386,000 | | | | 100 | | | | 1,381 | | | | 100 | |
| |
For the year ended 31 December 2002
| | | | | | | | | | | | | | | | | | | | |
| | | Total operating income | | Total assets | | Capital expenditure | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | Total operating income | | Total assets | | Capital expenditure |
| | | CHF million | | Share % | | CHF million | | Share % | | CHF million | | Share % | | | CHF million | | Share % | | CHF million | | Share % | | CHF million | | Share % | |
|
| |
| Switzerland | | 14,307 | | 42 | | 174,878 | | 15 | | 885 | | 51 | | | 14,307 | | 42 | | 174,878 | | 15 | | 885 | | 51 | |
| Rest of Europe | | 6,837 | | 20 | | 256,110 | | 22 | | 199 | | 11 | | |
| Rest of Europe / Africa / Middle East | | | 6,850 | | 20 | | 258,147 | | 22 | | 199 | | 11 | |
| Americas | | 11,055 | | 32 | | 669,823 | | 56 | | 635 | | 36 | | | 11,055 | | 32 | | 669,823 | | 56 | | 635 | | 36 | |
| Asia/Pacific | | 1,909 | | 6 | | 78,270 | | 7 | | 44 | | 2 | | |
| Africa/Middle East | | 13 | | 0 | | 2,037 | | 0 | | 0 | | 0 | | |
| Asia Pacific | | | 1,909 | | 6 | | 78,270 | | 7 | | 44 | | 2 | |
|
| |
Total | | | 34,121 | | | | 100 | | | | 1,181,118 | | | | 100 | | | | 1,763 | | | | 100 | | | 34,121 | | 100 | | 1,181,118 | | 100 | | 1,763 | | 100 | |
|
| |
For the year ended 31 December 2001
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total operating income | | | | Total assets | | | Capital expenditure | |
| | |
| | |
| | |
| |
| | | CHF million | | | Share % | | | CHF million | | | Share % | | | CHF million | | | Share % | |
|
| Switzerland | | | 14,223 | | | | 38 | | | | 195,321 | | | | 16 | | | | 1,039 | | | | 52 | |
| Rest of Europe | | | 7,411 | | | | 20 | | | | 236,775 | | | | 19 | | | | 303 | | | | 15 | |
| Americas | | | 13,587 | | | | 37 | | | | 691,157 | | | | 55 | | | | 630 | | | | 31 | |
| Asia/Pacific | | | 1,859 | | | | 5 | | | | 126,725 | | | | 10 | | | | 48 | | | | 2 | |
| Africa/Middle East | | | 34 | | | | 0 | | | | 3,319 | | | | 0 | | | | 1 | | | | 0 | |
|
Total | | | 37,114 | | | | 100 | | | | 1,253,297 | | | | 100 | | | | 2,021 | | | | 100 | |
|
For the year ended 31 December 2000
| | | | | | | | | | | | | | | | | | | | |
| | | Total operating income | | Total assets | | Capital expenditure | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | Total operating income | | Total assets | | Capital expenditure |
| | | CHF million | | Share % | | CHF million | | Share % | | CHF million | | Share % | | | CHF million | | Share % | | CHF million | | Share % | | CHF million | | Share % | |
|
| |
| Switzerland | | 15,836 | | 44 | | 211,851 | | 19 | | 1,135 | | 43 | | | 14,223 | | 38 | | 195,321 | | 16 | | 1,039 | | 52 | |
| Rest of Europe | | 10,907 | | 30 | | 305,342 | | 28 | | 311 | | 12 | | |
| Rest of Europe / Africa / Middle East | | | 7,445 | | 20 | | 240,094 | | 19 | | 304 | | 15 | |
| Americas | | 6,976 | | 19 | | 474,617 | | 44 | | 1,169 | | 44 | | | 13,587 | | 37 | | 691,157 | | 55 | | 630 | | 31 | |
| Asia/Pacific | | 2,626 | | 7 | | 87,831 | | 8 | | 36 | | 1 | | |
| Africa/Middle East | | 57 | | 0 | | 7,911 | | 1 | | 8 | | 0 | | |
| Asia Pacific | | | 1,859 | | 5 | | 126,725 | | 10 | | 48 | | 2 | |
|
| |
Total | | | 36,402 | | | | 100 | | | | 1,087,552 | | | | 100 | | | | 2,659 | | | | 100 | | | 37,114 | | 100 | | 1,253,297 | | 100 | | 2,021 | | 100 | |
|
| |
99105
UBS Group Financial Statements
Notes to the Financial Statements
Income Statement
Note 3 Net Interest and Trading Income
NetAccounting standards require separate disclosure of net interest Income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
Interest income | | | | | | | | | | | | | | | | |
| Interest earned on loans and advances | | | 11,600 | | | | 16,955 | | | | 20,413 | | | | (32 | ) |
| Interest earned on securities borrowed and reverse repurchase agreements | | | 11,184 | | | | 18,337 | | | | 19,088 | | | | (39 | ) |
| Interest and dividend income from financial investments | | | 165 | | | | 453 | | | | 402 | | | | (64 | ) |
| Interest and dividend income from trading portfolio | | | 17,014 | | | | 16,532 | | | | 11,842 | | | | 3 | |
|
| Total | | | 39,963 | | | | 52,277 | | | | 51,745 | | | | (24 | ) |
|
Interest expense | | | | | | | | | | | | | | | | |
| Interest on amounts due to banks and customers | | | 6,383 | | | | 14,088 | | | | 15,660 | | | | (55 | ) |
| Interest on securities lent and repurchase agreements | | | 10,081 | | | | 14,517 | | | | 14,915 | | | | (31 | ) |
| Interest and dividend expense from trading portfolio | | | 8,366 | | | | 7,815 | | | | 5,309 | | | | 7 | |
| Interest on debt issued | | | 4,587 | | | | 7,816 | | | | 7,731 | | | | (41 | ) |
|
| Total | | | 29,417 | | | | 44,236 | | | | 43,615 | | | | (33 | ) |
|
Net interest income | | | 10,546 | | | | 8,041 | | | | 8,130 | | | | 31 | |
|
Netincome and net trading income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
| Equities | | | 2,638 | | | | 4,026 | | | | 7,754 | | | | (34 | ) |
Fixed income1 | | | 1,061 | | | | 2,731 | | | | 912 | | | | (61 | ) |
| Foreign exchange and other | | | 1,873 | | | | 2,045 | | | | 1,287 | | | | (8 | ) |
|
Net trading income | | | 5,572 | | | | 8,802 | | | | 9,953 | | | | (37 | ) |
|
1 Includes commodities trading income.
Net (see the tables on the following page). This required disclosure, however, does not take into account that net interest and trading income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
| Net interest income | | | 10,546 | | | | 8,041 | | | | 8,130 | | | | 31 | |
| Net trading income | | | 5,572 | | | | 8,802 | | | | 9,953 | | | | (37 | ) |
|
Total net interest and trading income | | | 16,118 | | | | 16,843 | | | | 18,083 | | | | (4 | ) |
|
| | | | | | | | | | | | | | | | | |
| Breakdown by business activity: | | | | | | | | | | | | | | | | |
|
| Net income from interest margin products | | | 5,275 | | | | 5,694 | | | | 5,430 | | | | (7 | ) |
| Net income from trading activities | | | 10,605 | | | | 11,529 | | | | 12,642 | | | | (8 | ) |
| Net income from treasury activities | | | 1,667 | | | | 1,424 | | | | 762 | | | | 17 | |
Other1 | | | (1,429 | ) | | | (1,804 | ) | | | (751 | ) | | | 21 | |
|
Total net interest and trading income | | | 16,118 | | | | 16,843 | | | | 18,083 | | | | (4 | ) |
|
and trading income according to the business activity generating it. The table below provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable to the breakdown provided in the third table on the next page (Net trading income only).
Net Interest and Trading Income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Net interest income | | | 12,299 | | | | 10,546 | | | | 8,041 | | | | 17 | |
| Net trading income | | | 3,883 | | | | 5,572 | | | | 8,802 | | | | (30 | ) |
| |
Total net interest and trading income | | | 16,182 | | | | 16,118 | | | | 16,843 | | | | 0 | |
| |
Breakdown by business activity
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Net income from interest margin products | | | 5,077 | | | | 5,275 | | | | 5,694 | | | | (4 | ) |
| |
| Equities | | | 2,464 | | | | 2,794 | | | | 3,661 | | | | (12 | ) |
| Fixed Income | | | 6,530 | | | | 6,041 | | | | 6,294 | | | | 8 | |
| Foreign Exchange | | | 1,501 | | | | 1,500 | | | | 1,490 | | | | 0 | |
| Other | | | 315 | | | | 270 | | | | 84 | | | | 17 | |
| |
Net income from trading activities | | | 10,810 | | | | 10,605 | | | | 11,529 | | | | 2 | |
| |
Net income from treasury activities | | | 1,415 | | | | 1,667 | | | | 1,424 | | | | (15 | ) |
| |
Other1 | | | (1,120 | ) | | | (1,429 | ) | | | (1,804 | ) | | | 22 | |
| |
Total net interest and trading income | | | 16,182 | | | | 16,118 | | | | 16,843 | | | | 0 | |
| |
1 Principally external funding costs of the Paine Webber Group, Inc. acquisition.
106
Note 3 Net Interest and Trading Income (continued)
Net interest Income1
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Interest income | | | | | | | | | | | | | | | | |
| Interest earned on loans and advances | | | 10,542 | | | | 11,600 | | | | 16,955 | | | | (9 | ) |
| Interest earned on securities borrowed and reverse repurchase agreements | | | 11,148 | | | | 11,184 | | | | 18,337 | | | | 0 | |
| Interest and dividend income from financial investments | | | 75 | | | | 165 | | | | 453 | | | | (55 | ) |
| Interest and dividend income from trading portfolio | | | 18,394 | | | | 17,014 | | | | 16,532 | | | | 8 | |
| |
Total | | | 40,159 | | | | 39,963 | | | | 52,277 | | | | 0 | |
| |
Interest expense | | | | | | | | | | | | | | | | |
| Interest on amounts due to banks and customers | | | 5,093 | | | | 6,383 | | | | 14,088 | | | | (20 | ) |
| Interest on securities lent and repurchase agreements | | | 9,623 | | | | 10,081 | | | | 14,517 | | | | (5 | ) |
| Interest and dividend expense from trading portfolio | | | 10,101 | | | | 8,366 | | | | 7,815 | | | | 21 | |
| Interest on debt issued | | | 3,043 | | | | 4,587 | | | | 7,816 | | | | (34 | ) |
| |
Total | | | 27,860 | | | | 29,417 | | | | 44,236 | | | | (5 | ) |
| |
Net interest income | | | 12,299 | | | | 10,546 | | | | 8,041 | | | | 17 | |
| |
Net trading income1
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Equities | | | 1,679 | | | | 2,638 | | | | 4,026 | | | | (36 | ) |
Fixed income2 | | | 452 | | | | 1,061 | | | | 2,731 | | | | (57 | ) |
| Foreign exchange and other | | | 1,752 | | | | 1,873 | | | | 2,045 | | | | (6 | ) |
| |
Net trading income | | | 3,883 | | | | 5,572 | | | | 8,802 | | | | (30 | ) |
| |
1 Please refer to the table “Net Interest and Trading Income” on the previous page for the Equities, Fixed Income, Foreign exchange and Other business results (for an explanation, read the corresponding introductory comment). 2 Includes commodities trading income.
Note 4 Net Fee and Commission Income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Underwriting fees | | | 2,354 | | | | 2,134 | | | | 2,158 | | | | 10 | |
| Corporate finance fees | | | 761 | | | | 848 | | | | 1,339 | | | | (10 | ) |
| Brokerage fees | | | 5,608 | | | | 5,987 | | | | 6,445 | | | | (6 | ) |
| Investment fund fees | | | 3,895 | | | | 4,033 | | | | 4,276 | | | | (3 | ) |
| Fiduciary fees | | | 241 | | | | 300 | | | | 355 | | | | (20 | ) |
| Custodian fees | | | 1,201 | | | | 1,302 | | | | 1,356 | | | | (8 | ) |
| Portfolio and other management and advisory fees | | | 3,855 | | | | 4,065 | | | | 4,650 | | | | (5 | ) |
| Insurance-related and other fees | | | 355 | | | | 417 | | | | 538 | | | | (15 | ) |
| |
| Total securities trading and investment activity fees | | | 18,270 | | | | 19,086 | | | | 21,117 | | | | (4 | ) |
| |
| Credit-related fees and commissions | | | 249 | | | | 275 | | | | 307 | | | | (9 | ) |
| Commission income from other services | | | 1,087 | | | | 1,006 | | | | 946 | | | | 8 | |
| |
| Total fee and commission income | | | 19,606 | | | | 20,367 | | | | 22,370 | | | | (4 | ) |
| |
| Brokerage fees paid | | | 1,483 | | | | 1,349 | | | | 1,281 | | | | 10 | |
| Other | | | 778 | | | | 797 | | | | 878 | | | | (2 | ) |
| |
| Total fee and commission expense | | | 2,261 | | | | 2,146 | | | | 2,159 | | | | 5 | |
| |
Net fee and commission income | | | 17,345 | | | | 18,221 | | | | 20,211 | | | | (5 | ) |
| |
107
Financial Statements
Notes to the Financial Statements
Note 5 Other Income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Gains / losses from disposal of associates and subsidiaries | | | | | | | | | | | | | | | | |
| Net gain from disposal of: | | | | | | | | | | | | | | | | |
| Consolidated subsidiaries | | | 160 | | | | 228 | | | | 3 | | | | (30 | ) |
| Investments in associates | | | 2 | | | | 0 | | | | 0 | | | | | |
| |
Total | | | 162 | | | | 228 | | | | 3 | | | | (29 | ) |
| |
Financial investments available for sale | | | | | | | | | | | | | | | | |
| Net gain from disposal of: | | | | | | | | | | | | | | | | |
| Private equity investments | | | 352 | | | | 273 | | | | 454 | | | | 29 | |
| Other financial investments | | | 90 | | | | 457 | | | | 256 | | | | (80 | ) |
| Impairment charges on private equity investments and other financial investments | | | (541 | ) | | | (1,944 | ) | | | (1,294 | ) | | | 72 | |
| |
Total | | | (99 | ) | | | (1,214 | ) | | | (584 | ) | | | 92 | |
| |
| Net income from investments in property | | | 75 | | | | 90 | | | | 68 | | | | (17 | ) |
| Equity in income of associates | | | 123 | | | | 7 | | | | 72 | | | | | |
| Other | | | 300 | | | | 877 | | | | 999 | | | | (66 | ) |
| |
Total other income | | | 561 | | | | (12 | ) | | | 558 | | | | | |
| |
Note 6 Personnel Expenses
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Salaries and bonuses | | | 13,478 | | | | 14,219 | | | | 15,238 | | | | (5 | ) |
| Contractors | | | 539 | | | | 579 | | | | 729 | | | | (7 | ) |
| Insurance and social contributions | | | 923 | | | | 939 | | | | 984 | | | | (2 | ) |
| Contribution to retirement plans | | | 721 | | | | 676 | | | | 603 | | | | 7 | |
| Other personnel expenses | | | 1,570 | | | | 2,111 | | | | 2,274 | | | | (26 | ) |
| |
Total personnel expenses | | | 17,231 | | | | 18,524 | | | | 19,828 | | | | (7 | ) |
| |
Note 7 General and Administrative Expenses
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
| Occupancy | | | 1,304 | | | | 1,354 | | | | 1,314 | | | | (4 | ) |
| Rent and maintenance of machines and equipment | | | 708 | | | | 665 | | | | 632 | | | | 6 | |
| Telecommunications and postage | | | 864 | | | | 1,019 | | | | 1,213 | | | | (15 | ) |
| Administration | | | 599 | | | | 819 | | | | 906 | | | | (27 | ) |
| Marketing and public relations | | | 398 | | | | 453 | | | | 574 | | | | (12 | ) |
| Travel and entertainment | | | 526 | | | | 600 | | | | 700 | | | | (12 | ) |
| Professional fees | | | 589 | | | | 568 | | | | 667 | | | | 4 | |
| IT and other outsourcing | | | 844 | | | | 1,036 | | | | 1,224 | | | | (19 | ) |
| Other | | | 254 | | | | 558 | | | | 401 | | | | (54 | ) |
| |
Total general and administrative expenses | | | 6,086 | | | | 7,072 | | | | 7,631 | | | | (14 | ) |
| |
100108
Note 4 Net Fee and Commission Income
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | | | | 31.12.01 | |
|
| Underwriting fees | | | 2,134 | | | | 2,158 | | | | 1,434 | | | | (1 | ) |
| Corporate finance fees | | | 848 | | | | 1,339 | | | | 1,772 | | | | (37 | ) |
| Brokerage fees | | | 5,987 | | | | 6,445 | | | | 5,742 | | | | (7 | ) |
| Investment fund fees | | | 4,033 | | | | 4,276 | | | | 2,821 | | | | (6 | ) |
| Fiduciary fees | | | 300 | | | | 355 | | | | 351 | | | | (15 | ) |
| Custodian fees | | | 1,302 | | | | 1,356 | | | | 1,439 | | | | (4 | ) |
| Portfolio and other management and advisory fees | | | 4,065 | | | | 4,650 | | | | 3,666 | | | | (13 | ) |
| Insurance-related and other fees | | | 417 | | | | 538 | | | | 111 | | | | (22 | ) |
|
| Total securities trading and investment activity fees | | | 19,086 | | | | 21,117 | | | | 17,336 | | | | (10 | ) |
|
| Credit-related fees and commissions | | | 275 | | | | 307 | | | | 310 | | | | (10 | ) |
| Commission income from other services | | | 1,006 | | | | 946 | | | | 802 | | | | 6 | |
|
| Total fee and commission income | | | 20,367 | | | | 22,370 | | | | 18,448 | | | | (9 | ) |
|
| Brokerage fees paid | | | 1,349 | | | | 1,281 | | | | 1,084 | | | | 5 | |
| Other | | | 797 | | | | 878 | | | | 661 | | | | (9 | ) |
|
| Total fee and commission expense | | | 2,146 | | | | 2,159 | | | | 1,745 | | | | (1 | ) |
|
| Net fee and commission income | | | 18,221 | | | | 20,211 | | | | 16,703 | | | �� | (10 | ) |
|
Note 5 Other Income
| | | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | | | | 31.12.01 | |
|
| Gains/losses from disposal of associates and subsidiaries | | | | | | | | | | | | | | | | |
| Net gain from disposal of: | | | | | | | | | | | | | | | | |
| | Consolidated subsidiaries | | | 228 | | | | 3 | | | | 57 | | | | | |
| | Investments in associates | | | 0 | | | | 0 | | | | 26 | | | | | |
|
| Total | | | 228 | | | | 3 | | | | 83 | | | | | |
|
| Financial investments available for sale | | | | | | | | | | | | | | | | |
| Net gain from disposal of: | | | | | | | | | | | | | | | | |
| | Private equity investments | | | 273 | | | | 454 | | | | 919 | | | | (40 | ) |
| | Other financial investments | | | 457 | | | | 256 | | | | 162 | | | | 79 | |
| Impairment charges on private equity investments and other financial investments | | | (1,944 | ) | | | (1,294 | ) | | | (507 | ) | | | (50 | ) |
|
| Total | | | (1,214 | ) | | | (584 | ) | | | 574 | | | | (108 | ) |
|
| Net income from investments in property | | | 90 | | | | 68 | | | | 96 | | | | 32 | |
| Equity in income of associates | | | 7 | | | | 72 | | | | 58 | | | | (90 | ) |
| Other | | | 877 | | | | 999 | | | | 675 | | | | (12 | ) |
|
| Total other income | | | (12 | ) | | | 558 | | | | 1,486 | | | | | |
|
101
UBS Group Financial Statements
Notes to the Financial Statements
Note 6 Personnel Expenses
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | | | | 31.12.01 | |
|
| Salaries and bonuses | | | 14,219 | | | | 15,238 | | | | 13,523 | | | | (7 | ) |
| Contractors | | | 579 | | | | 729 | | | | 725 | | | | (21 | ) |
| Insurance and social contributions | | | 939 | | | | 984 | | | | 959 | | | | (5 | ) |
| Retirement benefit expenses | | | 676 | | | | 603 | | | | 475 | | | | 12 | |
| Other personnel expenses | | | 2,111 | | | | 2,274 | | | | 1,481 | | | | (7 | ) |
|
| Total personnel expenses | | | 18,524 | | | | 19,828 | | | | 17,163 | | | | (7 | ) |
|
Note 7 General and Administrative Expenses
| | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | % change from | |
| For the year ended | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | | | | 31.12.01 | |
|
| Occupancy | | | 1,354 | | | | 1,314 | | | | 979 | | | | 3 | |
| Rent and maintenance of machines and equipment | | | 665 | | | | 632 | | | | 520 | | | | 5 | |
| Telecommunications and postage | | | 1,019 | | | | 1,213 | | | | 914 | | | | (16 | ) |
| Administration | | | 819 | | | | 906 | | | | 750 | | | | (10 | ) |
| Marketing and public relations | | | 453 | | | | 574 | | | | 480 | | | | (21 | ) |
| Travel and entertainment | | | 600 | | | | 700 | | | | 656 | | | | (14 | ) |
| Professional fees | | | 568 | | | | 667 | | | | 660 | | | | (15 | ) |
| IT and other outsourcing | | | 1,036 | | | | 1,224 | | | | 1,246 | | | | (15 | ) |
| Other | | | 558 | | | | 401 | | | | 560 | | | | 39 | |
|
| Total general and administrative expenses | | | 7,072 | | | | 7,631 | | | | 6,765 | | | | (7 | ) |
|
102
Note 8 Earnings per Share (EPS) and Shares Outstanding
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | % change from | | | % change from | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.02 | |
|
| |
| Basic Earnings (CHF million) | | |
| Net profit | | | 3,535 | | | 4,973 | | 7,792 | | | (29 | ) | | 6,385 | | 3,535 | | 4,973 | | 81 | |
| Amortization of goodwill and other intangible assets | | | 2,179 | 2 | | 1,323 | | 667 | | 65 | | |
| |
| Net profit before goodwill amortization1 | | | 5,714 | | | 6,296 | | 8,459 | | | (9 | ) | |
|
| |
| Diluted Earnings (CHF million) | | |
| Net profit | | | 3,535 | | | 4,973 | | 7,792 | | | (29 | ) | | 6,385 | | 3,535 | | 4,973 | | 81 | |
| Less: profit on own equity derivative contracts deemed dilutive | | | (20 | ) | | | (99 | ) | | | (14 | ) | | 80 | | | 1 | | | (20 | ) | | | (99 | ) | |
|
| |
| Net profit for diluted EPS | | | 3,515 | | | 4,874 | | 7,778 | | | (28 | ) | | 6,386 | | 3,515 | | 4,874 | | 82 | |
|
| |
| Amortization of goodwill and other intangible assets | | | 2,179 | 2 | | 1,323 | | 667 | | 65 | | |
| |
| Net profit for diluted EPS before goodwill amortization1 | | | 5,694 | | | 6,197 | | 8,445 | | | (8 | ) | |
| |
| Weighted average shares outstanding | | |
|
| |
| Weighted average shares outstanding | | | 1,208,586,678 | | | 1,266,038,193 | | 1,209,087,927 | | | (5 | ) | | 1,116,953,623 | | 1,208,586,678 | | 1,266,038,193 | | | (8 | ) |
| Potentially dilutive ordinary shares resulting from options and warrants outstanding3 | | | 14,796,264 | | | 22,539,745 | | 16,489,773 | | | (34 | ) | |
Potentially dilutive ordinary shares resulting from options and warrants outstanding1 | | | 21,847,002 | | 14,796,264 | | 22,539,745 | | 48 | |
|
| |
| Weighted average shares outstanding for diluted EPS | | | 1,223,382,942 | | | 1,288,577,938 | | 1,225,577,700 | | | (5 | ) | | 1,138,800,625 | | 1,223,382,942 | | 1,288,577,938 | | | (7 | ) |
|
| |
| Earnings per share (CHF) | | |
|
| |
| Basic EPS | | | 2.92 | | | 3.93 | | 6.44 | | | (26 | ) | | 5.72 | | 2.92 | | 3.93 | | 96 | |
| Basic EPS before goodwill amortization1 | | | 4.73 | | | 4.97 | | 7.00 | | | (5 | ) | |
| Diluted EPS | | | 2.87 | | | 3.78 | | 6.35 | | | (24 | ) | | 5.61 | | 2.87 | | 3.78 | | 95 | |
| Diluted EPS before goodwill amortization1 | | | 4.65 | | | 4.81 | | 6.89 | | | (3 | ) | |
|
| |
1 Excludes the amortization of goodwill and other intangible assets. 2 Includes an income tax benefit of CHF 281 million for the writedown of the PaineWebber brandname. 3 Total equivalent shares outstanding on options that were not dilutive for the respective periods but could potentially dilute earnings per share in the future were 37,234,538, 75,385,368 28,741,886 and 27,524,28028,741,886 for the years ended 31 December 2003, 31 December 2002 and 31 December 2001, and 31 December 2000, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares outstanding | Shares outstanding | | % change from | | | % change from | |
| As at | As at | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.02 | |
|
| |
| Total ordinary shares issued | Total ordinary shares issued | | | 1,256,297,678 | | | 1,281,717,499 | | 1,333,139,187 | | | (2 | ) | | 1,183,046,764 | | 1,256,297,678 | | 1,281,717,499 | | | (6 | ) |
| Own shares to be delivered | | 28,444,788 | | |
| Second trading line treasury shares | Second trading line treasury shares | | |
| | 2000 program | | 55,265,349 | | |
| | 2001 program | | 23,064,356 | | |
| | 2002 first program | | | 67,700,000 | | | |
| | 2002 second program | | | 6,335,080 | | | |
| 2001 program | | | 23,064,356 | |
| 2002 first program | | | 67,700,000 | |
| 2002 second program | | | 6,335,080 | |
| 2003 program | | | 56,707,000 | |
| Other treasury shares | Other treasury shares | | | 23,146,014 | | | 18,190,595 | | 0 | | 27 | | | 54,653,692 | | 23,146,014 | | 18,190,595 | | 136 | |
|
| |
| Total treasury shares | Total treasury shares | | | 97,181,094 | | | 41,254,951 | | 55,265,349 | | 136 | | | 111,360,692 | | 97,181,094 | | 41,254,951 | | 15 | |
|
| |
| Shares outstanding | Shares outstanding | | | 1,159,116,584 | | | 1,240,462,548 | | 1,306,318,626 | | | (7 | ) | | 1,071,686,072 | | 1,159,116,584 | | 1,240,462,548 | | | (8 | ) |
|
| |
103109
UBS Group Financial Statements
Notes to the Financial Statements
Balance Sheet: Assets
Note 9a Due from Banks and Loans
By type of exposure
| | | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Banks | | | 32,911 | | | | 28,261 | |
| Allowance for credit losses | | | (443 | ) | | | (735 | ) |
|
| Net due from banks | | | 32,468 | | | | 27,526 | |
|
| Loans | | | | | | | | |
| | Mortgages | | | 127,869 | | | | 126,211 | |
| | Other loans | | | 88,590 | | | | 107,512 | |
|
| Subtotal | | | 216,459 | | | | 233,723 | |
| Allowance for credit losses | | | (4,812 | ) | | | (7,178 | ) |
|
| Net loans | | | 211,647 | | | | 226,545 | |
|
| Net due from banks and loans | | | 244,115 | | | | 254,071 | |
|
| thereof subordinated | | | 115 | | | | 249 | |
|
By geographical region(based on the location of the borrower)
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Switzerland | | | 151,604 | | | | 158,996 | |
| Rest of Europe | | | 38,131 | | | | 42,279 | |
| Americas | | | 48,412 | | | | 42,809 | |
| Asia/Pacific | | | 10,002 | | | | 15,986 | |
| Africa/Middle East | | | 1,221 | | | | 1,914 | |
|
| Subtotal | | | 249,370 | | | | 261,984 | |
| Allowance for credit losses | | | (5,255 | ) | | | (7,913 | ) |
|
| Net due from banks and loans | | | 244,115 | | | | 254,071 | |
|
By type of collateral
| | | | | | | | | | |
| CHF million | | | 31.12.03 | | 31.12.02 | |
| | | |
| Banks | | | 32,024 | | 32,911 | |
| Allowance for credit losses | | | | (357 | ) | | | (443 | ) |
| | | |
| Net due from banks | | | 31,667 | | 32,468 | |
| | | |
| Loans | | |
| Residential mortgages | | | 110,239 | | 108,779 | |
| Commercial mortgages | | | 18,903 | | 19,090 | |
| Other loans | | | 87,041 | | 88,590 | |
| | | |
| Subtotal | | | 216,183 | | 216,459 | |
| Allowance for credit losses | | | | (3,679 | ) | | | (4,812 | ) |
| | | |
| Net loans | | | 212,504 | | 211,647 | |
| | | |
Net due from banks and loans | | | 244,171 | | 244,115 | |
| | | |
thereof subordinated | | | 23 | | 115 | |
| | | |
| | | |
| By geographic region (based on the location of the borrower) | | By geographic region (based on the location of the borrower) |
| | | |
CHF million | | | 31.12.03 | | 31.12.02 | |
| | | |
| Switzerland | | | 152,374 | | 151,604 | |
| Rest of Europe / Africa / Middle East | | | 43,842 | | 39,352 | |
| Americas | | | 42,653 | | 48,412 | |
| Asia Pacific | | | 9,338 | | 10,002 | |
| | | |
| Subtotal | | | 248,207 | | 249,370 | |
| Allowance for credit losses | | | | (4,036 | ) | | | (5,255 | ) |
| | | |
Net due from banks and loans | | | 244,171 | | 244,115 | |
| | | |
| | | |
By type of collateral | | |
| | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Secured by real estate | | | 129,525 | | | 128,259 | | | 130,740 | | 129,525 | |
| Collateralized by securities | | | 26,769 | | | 30,635 | | | 28,062 | | 26,769 | |
| Guarantees and other collateral | | | 12,398 | | | 20,217 | | | 18,507 | | 12,398 | |
| Unsecured | | | 80,678 | | | 82,873 | | | 70,898 | | 80,678 | |
|
| |
| Subtotal | | | 249,370 | | | 261,984 | | | 248,207 | | 249,370 | |
| Allowance for credit losses | | | (5,255 | ) | | | (7,913 | ) | | | (4,036 | ) | | | (5,255 | ) |
|
| |
| Net due from banks and loans | | | 244,115 | | | 254,071 | | | 244,171 | | 244,115 | |
|
| |
104110
Note 9b Allowances and Provisions for Credit Losses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Specific | | Country risk | | | Specific | | Country risk | | | | | |
| | | allowances and | | allowances and | | Total | | Total | | | allowances and | | allowances and | | Total | | Total | |
| CHF million | | provisions | | provisions | | | 31.12.02 | | | 31.12.01 | | | provisions | | provisions | | 31.12.03 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 7,212 | | | | 1,006 | | | | 8,218 | | | 10,581 | | | 4,885 | | 736 | | 5,621 | | 8,218 | |
| Write-offs | | | (2,508 | ) | | | (28 | ) | | | (2,536 | ) | | | (3,008 | ) | | | (1,413 | ) | | | (23 | ) | | | (1,436 | ) | | | (2,536 | ) |
| Recoveries | | | 63 | | | | 7 | | | | 70 | | | 81 | | | 87 | | 0 | | 87 | | 70 | |
| Increase/(decrease) in credit loss allowance and provision | | | 365 | | | | (159 | ) | | | 206 | | | 498 | | |
| Increase / (decrease) in credit loss allowance and provision | | | 191 | | | (75 | ) | | | 116 | | | 206 | |
| Foreign currency translation and other adjustments | | | (247 | ) | | | (90 | ) | | | (337 | ) | | 66 | | | | (28 | ) | | | (34 | ) | | | (62 | ) | | | (337 | ) |
Transfers1 | | | 318 | | | (318 | ) | | 0 | | 0 | |
|
| |
| Balance at the end of the year | | | 4,885 | | | | 736 | | | | 5,621 | | | 8,218 | | | 4,040 | | 286 | | | 4,326 | | | 5,621 | |
| | | |
|
| |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | | 31.12.03 | | | 31.12.02 | |
|
| |
| As a reduction of Due from banks | | | 443 | | | 735 | | | | 357 | | | 443 | |
| As a reduction of Loans | | | 4,812 | | | 7,178 | | | | 3,679 | | | 4,812 | |
|
| |
| Subtotal | | | 5,255 | | | 7,913 | | | 4,036 | | 5,255 | |
| Included in other liabilities | | |
| related to commitments and contingent liabilities | | | 366 | | | 305 | | |
| Included in other liabilities related to commitments and contingent liabilities | | | 290 | | 366 | |
|
| |
| Total allowances and provisions for credit losses | | | 5,621 | | | 8,218 | | | 4,326 | | 5,621 | |
|
| |
1 Transfer to identified counterparties of specifically allocated country provisions against rescheduled and/or defaulted sovereign and quasi-sovereign claims.
Note 9c Impaired Due from Banks and Loans
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Impaired loans1, 2 | | | 10,365 | | | | 14,629 | |
| Amount of allowance for credit losses related to impaired loans | | | 4,892 | | | | 7,294 | |
| Average impaired loans3 | | | 12,623 | | | | 16,555 | |
|
| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
Total gross impaired due from banks and loans1, 2 | | | 7,606 | | | | 10,365 | |
| Allowance for impaired due from banks | | | 245 | | | | 291 | |
| Allowance for impaired loans | | | 3,561 | | | | 4,601 | |
| |
| Total allowances for credit losses related to impaired due from banks and loans | | | 3,806 | | | | 4,892 | |
Average total gross impaired due from banks and loans3 | | | 8,985 | | | | 12,623 | |
| |
1 All impaired due from banks and loans have a specific allowance for credit losses. 2 Interest income on impaired due from banks and loans was CHF 279 million for 2003 and CHF 428 million for 2002 and CHF 504 million for 2001.2002. 3 Average balances were calculated from quarterly data.
| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
| Total gross impaired due from banks and loans | | | 7,606 | | | | 10,365 | |
| Estimated liquidation proceeds of collateral | | | 2,465 | | | | 3,531 | |
| |
| Net impaired due from banks and loans | | | 5,141 | | | | 6,834 | |
| Specific allowances and provisions | | | 3,806 | | | | 4,892 | |
| |
105111
UBS Group Financial Statements
Notes to the Financial Statements
Note 9d Non-Performing Due from Banks and Loans
An impairedA loan (included in due from banks or loans) is classified as non-performing when the contractual paymentspayment of interest, principal and/or interest are in arrears forfees is overdue by more than 90 days or more.– as required by Swiss regulatory guidelines as at 31 December 2003 – when insolvency proceedings have commenced or obligations have been restructured on concessionary terms. Prior year numbers have not been restated.
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Non-performing loans | | | 6,029 | | | | 8,639 | |
| Amount of allowance for credit losses related to non-performing loans | | | 3,485 | | | | 5,374 | |
| Average non-performing loans1 | | | 7,361 | | | | 9,648 | |
|
| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
| Total gross non-performing due from banks and loans | | | 4,959 | | | | 6,029 | |
| Total allowances for credit losses related to non-performing due from banks and loans | | | 2,815 | | | | 3,485 | |
Average total gross non-performing due from banks and loans1 | | | 5,482 | | | | 7,361 | |
| |
1 Average balances are calculated from quarterly data.
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Non-performing loans at beginning of the year | | | 8,639 | | | | 10,452 | |
| Net additions/(reductions) | | | (509 | ) | | | 1,111 | |
| Write-offs and disposals | | | (2,101 | ) | | | (2,924 | ) |
|
| Non-performing loans at the end of the year | | | 6,029 | | | | 8,639 | |
|
By type of exposure
| | | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Banks | | | 311 | | | | 386 | |
|
| Loans | | | | | | | | |
| | Mortgages | | | 1,972 | | | | 2,659 | |
| | Other | | | 3,746 | | | | 5,594 | |
|
| Total loans | | | 5,718 | | | | 8,253 | |
|
| Total non-performing loans | | | 6,029 | | | | 8,639 | |
|
By geographical region(based on the location of the borrower)
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Switzerland | | | 4,609 | | | | 6,531 | |
| Rest of Europe | | | 379 | | | | 466 | |
| Americas | | | 499 | | | | 737 | |
| Asia/Pacific | | | 300 | | | | 653 | |
| Africa/Middle East | | | 242 | | | | 252 | |
|
| Total non-performing loans | | | 6,029 | | | | 8,639 | |
|
| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
| Non-performing due from banks and loans at the beginning of the year | | | 6,029 | | | | 8,639 | |
| Net additions / (reductions) | | | 346 | | | | (509 | ) |
| Write-offs and disposals | | | (1,416 | ) | | | (2,101 | ) |
| |
Non-performing due from banks and loans at the end of the year | | | 4,959 | | | | 6,029 | |
| |
| | | | | | | | | |
By type of exposure | | | | | | | | |
| | | | | | | | | |
CHF million | | | 31.12.03 | | | | 31.12.02 | |
| |
| Banks | | | 253 | | | | 311 | |
| |
| Loans | | | | | | | | |
| Mortgages | | | 1,470 | | | | 1,972 | |
| Other | | | 3,236 | | | | 3,746 | |
| |
| Total loans | | | 4,706 | | | | 5,718 | |
| |
Total non-performing due from banks and loans | | | 4,959 | | | | 6,029 | |
| |
| | | | | | | | | |
By geographic region (based on the location of the borrower) | | | | | | | | |
| | | | | | | | | |
CHF million | | | 31.12.03 | | | | 31.12.02 | |
| |
| Switzerland | | | 4,012 | | | | 4,609 | |
| Rest of Europe / Africa / Middle East | | | 488 | | | | 621 | |
| Americas | | | 366 | | | | 499 | |
| Asia Pacific | | | 93 | | | | 300 | |
| |
Total non-performing due from banks and loans | | | 4,959 | | | | 6,029 | |
| |
106112
Note 10 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements
The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group controls credit risk associated with these activities by monitoring counterparty credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash collateral | | Reverse | | Cash collateral | | Reverse | | | Cash collateral | | Reverse | | Cash collateral | | Reverse | |
| | | on securities | | Repurchase | | on securities | | Repurchase | | | on securities | | repurchase | | on securities | | repurchase | |
| | | borrowed | | agreements | | borrowed | | agreements | | | borrowed | | agreements | | borrowed | | agreements | |
| CHF million | | | 31.12.02 | | | | 31.12.02 | | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| By counterparty: | | |
| Banks | | | 122,764 | | | | 201,269 | | | 155,214 | | 197,902 | | | 172,783 | | 237,212 | | 122,764 | | 201,269 | |
| Customers | | | 16,288 | | | | 92,817 | | | 7,724 | | 71,354 | | | 41,149 | | 83,375 | | 16,288 | | 92,817 | |
|
| |
| Total | | | 139,052 | | | | 294,086 | | | 162,938 | | 269,256 | | | 213,932 | | 320,587 | | 139,052 | | 294,086 | |
|
| |
Balance sheet liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash collateral | | Cash collateral | | | Cash collateral | | Cash collateral | | | |
| | | on securities | | Repurchase | | on securities | | Repurchase | | | on securities | | Repurchase | | on securities | | Repurchase | |
| | | lent | | agreements | | lent | | agreements | | | lent | | agreements | | lent | | agreements | |
| CHF million | | | 31.12.02 | | | | 31.12.02 | | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| By counterparty: | | |
| Banks | | | 29,748 | | | | 200,904 | | | 27,640 | | 213,942 | | | 39,587 | | 263,905 | | 29,748 | | 200,904 | |
| Customers | | | 7,122 | | | | 165,954 | | | 2,677 | | 154,678 | | | 13,691 | | 151,958 | | 7,122 | | 165,954 | |
|
| |
| Total | | | 36,870 | | | | 366,858 | | | 30,317 | | 368,620 | | | 53,278 | | 415,863 | | 36,870 | | 366,858 | |
|
| |
Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms as at 31 December 20022003 and 31 December 20012002 were as follows:
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Securities received under reverse repurchase and/or securities borrowing arrangements which can be repledged or resold | | | 641,341 | | | | 592,903 | |
|
| thereof repledged/transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | | | 530,188 | | | | 474,963 | |
|
| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
| Securities received under reverse repurchase and /or securities borrowing arrangements which can be repledged or resold | | | 827,602 | | | | 641,341 | |
| |
thereof repledged /transferred to others in connection with financing activities or to satisfy commitments under short sale transactions | | | 593,049 | | | | 530,188 | |
| |
107113
UBS Group Financial Statements
Notes to the Financial Statements
Note 11 Trading Portfolio
The Group trades money market paper, debt and equity instruments, loans, precious metals foreign currency and derivatives to meet the financial needs of its customers and to generate revenue through its trading activities.revenue. Note 23 provides a description of the various classes of derivatives together with the related notional amounts, whereaswhile Note 10 provides further details about cash collateral on securities borrowed and lent and repurchase and reverse repurchase agreements.
| | | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Trading portfolio assets | | |
| Money market paper | | | 45,310 | | | 63,164 | | | 40,003 | | 45,310 | |
|
| |
| thereof pledged as collateral with central banks | | | 10,475 | | | | 29,895 | | | 6,208 | | 10,475 | |
|
| |
| Debt instruments | | |
| Swiss government and government agencies | | | 1,140 | | | 1,246 | | | 1,011 | | 1,140 | |
| US Treasury and government agencies | | | 71,884 | | | 95,203 | | | 92,250 | | 71,884 | |
| Other government agencies | | | 50,296 | | | 18,811 | | | 69,755 | | 50,296 | |
| Corporate listed | | | 73,268 | | | 108,114 | | | 152,413 | | 73,268 | |
| Other unlisted | | | 39,613 | | | 26,642 | | | 8,457 | | 39,613 | |
|
| |
| Total | | | 236,201 | | | 250,016 | | | 323,886 | | 236,201 | |
|
| |
| thereof pledged as collateral | | | 132,221 | | | | 153,464 | | | 130,093 | | 132,221 | |
| thereof can be repledged or resold by the counterparty | | | 92,460 | | | | 101,517 | | | 104,402 | | 92,460 | |
|
| |
| Equity instruments | | |
| Listed | | | 66,150 | | | 67,772 | | | 64,116 | | 66,150 | |
| Unlisted | | | 4,841 | | | 6,367 | | | 10,507 | | 4,841 | |
|
| |
| Total | | | 70,991 | | | 74,139 | | | 74,623 | | 70,991 | |
|
| |
| thereof pledged as collateral | | | 18,614 | | | | 21,264 | | | 16,426 | | 18,614 | |
| thereof can be repledged or resold by the counterparty | | | 17,905 | | | | 19,939 | | | 16,357 | | 17,905 | |
|
| |
| Traded loans | | | 11,533 | | | 6,139 | | | 12,650 | | 11,533 | |
|
| |
| Precious metals | | | 7,401 | | | 4,428 | | | 10,610 | | 7,401 | |
|
| |
| Total trading portfolio assets | | | 371,436 | | | 397,886 | | | 461,772 | | 371,436 | |
|
| |
| | | |
| Trading portfolio liabilities | | |
| | | |
| Debt instruments | | |
| Swiss government and government agencies | | | 1,807 | | | 565 | | | 586 | | 1,807 | |
| US Treasury and government agencies | | | 38,327 | | | 25,117 | | | 52,377 | | 38,327 | |
| Other government agencies | | | 19,722 | | | 12,187 | | | 38,369 | | 19,722 | |
| Corporate listed | | | 14,177 | | | 10,868 | | | 13,537 | | 14,177 | |
| Other unlisted | | | 8,296 | | | 30,793 | | | 10,851 | | 8,296 | |
|
| |
| Total | | | 82,329 | | | 79,530 | | | 115,720 | | 82,329 | |
|
| |
| Equity instruments | | | 24,124 | | | 26,268 | | | 28,237 | | 24,124 | |
|
| |
| Total trading portfolio liabilities | | | 106,453 | | | 105,798 | | | 143,957 | | 106,453 | |
|
| |
108114
Note 12 Financial Investments (available for sale)(available-for-sale)
| | | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Money market paper | | | 873 | | | 6,774 | | | 596 | | 873 | |
|
| |
| Other debt instruments | | |
| Listed | | | 290 | | | 1,194 | | | 189 | | 290 | |
| Unlisted | | | 885 | | | 10,348 | | | 72 | | 885 | |
|
| |
| Total | | | 1,175 | | | 11,542 | | | 261 | | 1,175 | |
|
| |
| Equity investments | | |
| Listed | | | 596 | | | 1,949 | | | 387 | | 596 | |
| Unlisted | | | 1,443 | | | 1,819 | | | 630 | | 1,443 | |
|
| |
| Total | | | 2,039 | | | 3,768 | | | 1,017 | | 2,039 | |
|
| |
| Private equity investments | | | 4,304 | | | 6,719 | | | 3,265 | | 4,304 | |
|
| |
| Total financial investments | | | 8,391 | | | 28,803 | | | 5,139 | | 8,391 | |
|
| |
| thereof eligible for discount at central banks | | | 261 | | | | 10,370 | | | 196 | | 261 | |
|
| |
115
Financial Statements
Notes to the Financial Statements
Note 12 Financial Investments (available-for-sale) (continued)
The following tables show the unrealized gains and losses not recognized in the income statement for the years ended 20022003 and 2001.2002:
| | | | | | | | | | | | | | |
| | | Unrealized gains/losses not recognized in the income statement | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Unrealized gains / losses not recognized in the income statement |
| CHF million | | Fair value | | Gross gains | | Gross losses | | Net, before tax | | Tax effect | | Net, after tax | | | Fair value | | Gross gains | | Gross losses | | Net, before tax | | Tax effect | | Net, after tax | |
|
| |
| 31 December 2002 | | |
31 December 2003 | | |
| Money market paper | | 873 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 596 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Debt securities issued by the Swiss national government and agencies | | 16 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 14 | | 2 | | 0 | | 2 | | 0 | | 2 | |
| Debt securities issued by Swiss local governments | | 42 | | 2 | | 0 | | 2 | | 0 | | 2 | | | 25 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Debt securities issued by US Treasury and agencies | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Debt securities issued by foreign governments and official institutions | | 81 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 54 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Corporate debt securities | | 964 | | 7 | | 0 | | 7 | | 1 | | 6 | | | 156 | | 3 | | 8 | | | (5 | ) | | 1 | | | (6 | ) |
| Mortgage-backed securities | | 23 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Other debt securities | | 49 | | 1 | | 1 | | 0 | | 0 | | 0 | | | 12 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Equity securities | | 2,039 | | 335 | | 31 | | 304 | | 82 | | 222 | | | 1,017 | | 296 | | 7 | | 289 | | 58 | | 231 | |
| Private equity investments | | 4,304 | | 966 | | 223 | | 743 | | 30 | | 713 | | | 3,265 | | 781 | | 216 | | 565 | | 0 | | 565 | |
|
| |
| Total | | | 8,391 | | | 1,314 | | | 255 | | | 1,059 | | | 113 | | | 946 | | | 5,139 | | 1,082 | | 231 | | 851 | | 59 | | 792 | |
|
| |
| | | | | | | | | | | | | | |
| | | Unrealized gains/losses not recognized in the income statement | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Unrealized gains / losses not recognized in the income statement |
| CHF million | | Fair value | | Gross gains | | Gross losses | | Net, before tax | | Tax effect | | Net, after tax | | | Fair value | | Gross gains | | Gross losses | | Net, before tax | | Tax effect | | Net, after tax | |
|
| |
| 31 December 2001 | | |
31 December 2002 | | |
| Money market paper | | 6,774 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 873 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Debt securities issued by the Swiss national government and agencies | | 36 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 16 | | 1 | | 0 | | 1 | | 0 | | 1 | |
| Debt securities issued by Swiss local governments | | 45 | | 1 | | 0 | | 1 | | 0 | | 1 | | | 42 | | 2 | | 0 | | 2 | | 0 | | 2 | |
| Debt securities issued by US Treasury and agencies | | 32 | | 2 | | 0 | | 2 | | 1 | | 1 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Debt securities issued by foreign governments and official institutions | | 10,089 | | 31 | | 1 | | 30 | | 11 | | 19 | | | 81 | | 1 | | 0 | | 1 | | 0 | | 1 | |
| Corporate debt securities | | 1,218 | | 4 | | 2 | | 2 | | 0 | | 2 | | | 964 | | 7 | | 0 | | 7 | | 1 | | 6 | |
| Mortgage-backed securities | | 5 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 23 | | 1 | | 0 | | 1 | | 0 | | 1 | |
| Other debt securities | | 117 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 49 | | 1 | | 1 | | 0 | | 0 | | 0 | |
| Equity securities | | 3,768 | | 627 | | 65 | | 562 | | 187 | | 375 | | | 2,039 | | 335 | | 31 | | 304 | | 82 | | 222 | |
| Private equity investments | | 6,719 | | 1,189 | | 539 | | 650 | | 15 | | 635 | | | 4,304 | | 966 | | 223 | | 743 | | 30 | | 713 | |
|
| |
| Total | | | 28,803 | | | 1,856 | | | 607 | | | 1,249 | | | 214 | | | 1,035 | | | 8,391 | | 1,314 | | 255 | | 1,059 | | 113 | | 946 | |
|
| |
109116
UBS Group Financial Statements
Notes to the Financial Statements
Note 12 Financial Investments (available(available-for-sale) (continued)
The unrealized losses not recognized in the income statement are considered to be temporary on the basis that the investments are intended to be held for sale) (continued)a period of time sufficient to recover their cost, and UBS believes that the evidence indicating that the cost of the investments should be recoverable within a reasonable period of time outweighs the evidence to the contrary. This includes the nature of the investments, valuations and research undertaken by UBS, the current outlook for each investment, offers under negotiation at favourable prices, the duration of the unrealized losses, and the relationship of unrealized losses with unrealized gains on other investments.
The following table shows the duration of unrealized losses not recognized in the income statement for the year ended 2003:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value | | Unrealized Losses |
| | | Investments | | | Investments | | | | | | | Investments | | | Investments | | | | |
| | | with unrealized | | | with unrealized | | | | | | | with unrealized | | | with unrealized | | | | |
| | | loss less than | | | loss more than | | | | | | | loss less than | | | loss more than | | | | |
| CHF million | | 12 months | | | 12 months | | | Total | | | 12 months | | | 12 months | | | Total | |
| |
31 December 2003 | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market paper | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Debt securities issued by the Swiss national government and agencies | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Debt securities issued by Swiss local governments | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Debt securities issued by US Treasury and agencies | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Debt securities issued by foreign governments and official institutions | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Corporate debt securities | | | 0 | | | | 0 | | | | 0 | | | | 8 | | | | 0 | | | | 8 | |
| Mortgage-backed securities | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other debt securities | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Equity securities | | | 6 | | | | 44 | | | | 50 | | | | 3 | | | | 4 | | | | 7 | |
| Private equity investments | | | 98 | | | | 359 | | | | 457 | | | | 86 | | | | 130 | | | | 216 | |
| |
Total | | | 104 | | | | 403 | | | | 507 | | | | 97 | | | | 134 | | | | 231 | |
| |
Contractual maturities of the investments in debt instruments1
| | | | | | | | | | | | | | | | | | | | | |
| | | Within 1 year | | 1-5 years | | 5-10 years | | Over 10 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| |
| | Within 1 year | | 1-5 years | | 5-10 years | | Over 10 years |
| CHF million, except percentages | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | |
|
| |
| 31 December 2002 | | |
31 December 2003 | | |
| Swiss national government and agencies | | 0 | | 0.00 | | 7 | | 4.88 | | 8 | | 3.86 | | 1 | | 4.00 | | | 3 | | 6.61 | | 4 | | 2.92 | | 6 | | 3.80 | | 1 | | 4.00 | |
| Swiss local governments | | 8 | | 4.02 | | 30 | | 3.94 | | 4 | | 3.59 | | 0 | | 0.00 | | | 5 | | 3.90 | | 20 | | 2.01 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Foreign governments and official institutions | | 35 | | 4.63 | | 45 | | 3.13 | | 1 | | 6.12 | | 0 | | 0.00 | | | 45 | | 1.89 | | 9 | | 1.49 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Corporate debt securities | | 675 | | 2.23 | | 249 | | 2.64 | | 19 | | 3.41 | | 21 | | 8.02 | | | 81 | | 1.09 | | 68 | | 3.53 | | 7 | | 7.38 | | 0 | | 0.00 | |
| Mortgage-backed securities | | 4 | | 2.25 | | 15 | | 3.97 | | 4 | | 4.03 | | 0 | | 0.00 | | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Other debt securities | | 1 | | 4.77 | | 48 | | 2.65 | | 0 | | 0.00 | | 0 | | 0.00 | | | 4 | | 0.00 | | 8 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | |
|
| |
| Total fair value | | | 723 | | | 394 | | | 36 | | | 22 | | | 138 | | 109 | | 13 | | 1 | |
|
| |
1 Money market papers have contractual maturities of less than one year.
Proceeds from sales and maturities of investment securities available for sale, excluding private equity, were as follows:
| | | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Proceeds | | | 1,820 | | | 27,910 | | | 1379 | | 1,820 | |
| Gross realized gains | | | 479 | | | 223 | | | 112 | | 479 | |
| Gross realized losses | | | (21 | ) | | | (28 | ) | | | (23 | ) | | | (21 | ) |
|
| |
Note 13 Investments in Associates
| | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Carrying amount at the beginning of the year | | | 697 | | | | 880 | |
| Additions | | | 51 | | | | 11 | |
| Disposals | | | (1 | ) | | | (216 | )1 |
| Income | | | 24 | | | | 74 | |
| Write-offs | | | (17 | ) | | | (2 | ) |
| Dividend paid | | | (44 | ) | | | (48 | ) |
| Foreign currency translation | | | (5 | ) | | | (2 | ) |
|
| Carrying amount at the end of the year | | | 705 | | | | 697 | |
|
1 Includes a transfer of CHF 172 million to Financial Investments following a review of the level of influence by the bank over certain investees. The impact of this reclassification on net profit is immaterial.
110117
Notes to the Financial Statements
Financial Statements
Note 13 Investments in Associates| | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | |
| |
| Carrying amount at the beginning of the year | | | 705 | | | | 697 | |
| Additions | | | 1,232 | | | | 51 | |
| Disposals | | (285 | )1 | | | (1 | ) |
| Income | | | 123 | | | | 24 | |
| Write-offs | | | 0 | | | | (17 | ) |
| Dividend paid | | | (30 | ) | | | (44 | ) |
| Foreign currency translation | | | (129 | ) | | | (5 | ) |
| |
Carrying amount at the end of the year | | | 1,616 | | | | 705 | |
| |
1 CHF 123 million of the amount in disposals has been transferred to financial investments (available-for-sale) or relates to investments which have been fully consolidated at 31 December 2003.
Note 14 Property and Equipment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | IT, soft- | | Other | | | Other | | | | | | | |
| | | Bank- | | ware and | | machines | | | Leasehold | | IT, software | | machines | | | | | | | |
| | | occupied | | Investment | | communi- | | and | | | Own-used | | Investment | | improve- | | and com- | | and | | Projects in | | | | | |
| CHF million | | properties | | properties1 | | cation | | equipment | | | 31.12.02 | | | 31.12.01 | | | properties | | properties | 1 | | ments | | munication | | equipment | | progress | | 31.12.03 | | 31.12.02 | |
|
| |
| Historical cost | | |
| Balance at the beginning of the year | | 9,297 | | 893 | | 5,146 | | 4,143 | | | 19,479 | | | 18,631 | | | 9,307 | | 560 | | 1,312 | | 4,105 | | 2,432 | | 234 | | 17,950 | | 19,479 | |
| Additions | | 147 | | 366 | | 811 | | 439 | | | 1,763 | | | 2,021 | | | 297 | | 5 | | 83 | | 674 | | 120 | | 178 | | 1,357 | | 1,763 | |
| Disposals/write-offs2 | | | (62 | ) | | | (747 | ) | | | (1,330 | ) | | | (449 | ) | | | (2,588 | ) | | | (715 | ) | |
| Additions from acquired companies | | | 3 | | 0 | | 14 | | 3 | | 4 | | 0 | | 24 | | 0 | |
Disposals / write-offs2 | | | | (118 | ) | | | (89 | ) | | | (59 | ) | | | (720 | ) | | | (126 | ) | | | (7 | ) | | | (1,119 | ) | | | (2,588 | ) |
| Reclassifications | | | (34 | ) | | 50 | | 51 | | | (53 | ) | | | 14 | | | | (482 | ) | | | (46 | ) | | | (257 | ) | | 1,257 | | 313 | | | (928 | ) | | | (125 | ) | | 214 | | 14 | |
| Foreign currency translation | | | (41 | ) | | | (2 | ) | | | (339 | ) | | | (336 | ) | | | (718 | ) | | 24 | | | | (35 | ) | | | (1 | ) | | | (62 | ) | | | (134 | ) | | | (77 | ) | | 0 | | | (309 | ) | | | (718 | ) |
| Balance at the end of the year | | 9,307 | | 560 | | | 4,339 | 4 | | 3,744 | | | 17,950 | | | 19,479 | | | 9,408 | | 218 | | 2,545 | | 4,241 | | 1,425 | | 280 | | 18,117 | | 17,950 | |
|
| |
| Accumulated depreciation | | |
| Balance at the beginning of the year | | 4,039 | | 239 | | 3,932 | | 2,574 | | | 10,784 | | | 9,721 | | | 4,210 | | 211 | | 757 | | 3,240 | | 1,663 | | 0 | | 10,081 | | 10,784 | |
| Depreciation | | 224 | | 28 | | 926 | | 343 | | | 1,521 | | | 1,654 | | | 221 | | 14 | | 184 | | 859 | | 86 | | 0 | | 1,364 | | 1,521 | |
| Disposals/write-offs2 | | | (34 | ) | | | (100 | ) | | | (1,316 | ) | | | (336 | ) | | | (1,786 | ) | | | (403 | ) | |
Disposals / write-offs2 | | | | (114 | ) | | | (60 | ) | | | (50 | ) | | | (709 | ) | | | (63 | ) | | 0 | | | (996 | ) | | | (1,786 | ) |
| Reclassifications | | | (10 | ) | | 44 | | | (2 | ) | | 3 | | | 35 | | | | (189 | ) | | 49 | | | (145 | ) | | 715 | | 61 | | | (499 | ) | | 4 | | 185 | | 35 | |
| Foreign currency translation | | | (9 | ) | | 0 | | | (300 | ) | | | (164 | ) | | | (473 | ) | | 1 | | | | (1 | ) | | 0 | | | (36 | ) | | | (117 | ) | | | (22 | ) | | 0 | | | (176 | ) | | | (473 | ) |
| Balance at the end of the year | | 4,210 | | 211 | | 3,240 | | 2,420 | | | 10,081 | | | 10,784 | | | 4,365 | | 20 | | 1,570 | | 3,334 | | 1,165 | | 4 | | 10,458 | | 10,081 | |
|
| |
| Net book value at the end of the year3 | | 5,097 | | 349 | | 1,099 | | 1,324 | | | 7,869 | | | 8,695 | | | 5,043 | | 198 | | 975 | | 907 | | 260 | | 276 | | 7,659 | | 7,869 | |
|
| |
1 The fair value of Investment properties was CHF 236 million at 31 December 2003 and CHF 539 million at 31 December 2002 and CHF 990 million at 31 December 2001.2002. 2 Includes write-offs of fully depreciated assets.3 Fire insurance value of property and equipment is CHF 14,021 million (2002: CHF 14,221 million (2001: CHF 15,531 million).4 Includes accumulated costs for projects in progress of CHF 234 million at 31 December 2002 (CHF 351 million at 31 December 2001).
118
Note 15 Goodwill and Other Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Goodwill | | Other intangible assets | | | | | | | Goodwill | | Other intangible assets | | | | | |
| | |
| |
| | | | | | | | | Customer | | | | | | | |
| | | Customer | | | | | | | | | | | relation- | | | | | | | |
| | | Brand- | | Infra- | | lists | | | | | | | | | | | Infra- | | ships | | | | | | | |
| CHF million | | Total | | name | | structure | | and other | | Total | | 31.12.02 | | 31.12.01 | | | Total | | structure | | and other | | Total | | 31.12.03 | | 31.12.02 | |
|
| |
| Historical cost | | |
| Balance at the beginning of the year | | 16,819 | | 1,293 | | 1,293 | | 2,387 | | 4,973 | | | 21,792 | | | 21,166 | | | 13,957 | | 1,069 | | 1,996 | | 3,065 | | 17,022 | | 21,792 | |
| Additions and reallocations | | 9 | | 281 | | 0 | | 0 | | 281 | | | 290 | | | 456 | | | 241 | | 0 | | 99 | | 99 | | 340 | | 290 | |
| Disposals and other reductions | | | (98 | ) | | 0 | | 0 | | | (17 | ) | | | (17 | ) | | | (115 | ) | | 0 | | | | (368 | ) | | 0 | | | (3 | ) | | | (3 | ) | | | (371 | ) | | | (115 | ) |
| Write-offs1 | | 0 | | | (1,350 | ) | | 0 | | 0 | | | (1,350 | ) | | | (1,350 | ) | | | (247 | ) | | | (508 | ) | | 0 | | 0 | | 0 | | | (508 | ) | | | (1,350 | ) |
| Foreign currency translation | | | (2,773 | ) | | | (224 | ) | | | (224 | ) | | | (374 | ) | | | (822 | ) | | | (3,595 | ) | | 417 | | | | (1,290 | ) | | | (111 | ) | | | (177 | ) | | | (288 | ) | | | (1,578 | ) | | | (3,595 | ) |
| Balance at the end of the year | | 13,957 | | 0 | | 1,069 | | 1,996 | | 3,065 | | | 17,022 | | | 21,792 | | | 12,032 | | 958 | | 1,915 | | 2,873 | | 14,905 | | 17,022 | |
|
| |
| Accumulated amortization | | |
| Balance at the beginning of the year | | 2,241 | | 76 | | 76 | | 314 | | 466 | | | 2,707 | | | 1,629 | | | 2,776 | | 116 | | 434 | | 550 | | 3,326 | | 2,707 | |
| Amortization | | 930 | | 1,306 | | 54 | | 170 | | 1,530 | | | 2,460 | | | 1,323 | | | 756 | | 52 | | 135 | | 187 | | 943 | | 2,460 | |
| Disposals | | | (13 | ) | | 0 | | 0 | | | (15 | ) | | | (15 | ) | | | (28 | ) | | 0 | | | | (68 | ) | | 0 | | | (2 | ) | | | (2 | ) | | | (70 | ) | | | (28 | ) |
| Write-offs1 | | 0 | | | (1,350 | ) | | 0 | | 0 | | | (1,350 | ) | | | (1,350 | ) | | | (247 | ) | | | (508 | ) | | 0 | | 0 | | 0 | | | (508 | ) | | | (1,350 | ) |
| Foreign currency translation | | | (382 | ) | | | (32 | ) | | | (14 | ) | | | (35 | ) | | | (81 | ) | | | (463 | ) | | 2 | | | | (272 | ) | | | (16 | ) | | | (27 | ) | | | (43 | ) | | | (315 | ) | | | (463 | ) |
| Balance at the end of the year | | 2,776 | | 0 | | 116 | | 434 | | 550 | | | 3,326 | | | 2,707 | | | 2,684 | | 152 | | 540 | | 692 | | 3,376 | | 3,326 | |
|
| |
| Net book value at the end of the year | | 11,181 | | 0 | | 953 | | 1,562 | | 2,515 | | | 13,696 | | | 19,085 | | | 9,348 | | 806 | | 1,375 | | 2,181 | | 11,529 | | 13,696 | |
|
| |
1 Represents write-offs of fully amortized goodwill and other intangible assets.
111
UBS Group Financial Statements
Notes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets (continued)
The following table presents the disclosure of goodwill and other intangible assets by Business Group for the year ended 31 December 2002.2003.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance | | | Additions | | | Disposals | | | | | | | | | | | | | |
| | | at the | | | and | | | and | | | | | | | Foreign | | | Balance | |
| | | beginning | | | reallo- | | | other | | | | | | | currency | | | at the end | |
| CHF million | | of the year | | | cations | | | reductions | | | Amortization | | | translation | | | of the year | |
|
| Goodwill | | | | | | | | | | | | | | | | | | | | | | | | |
| UBS Wealth Management & Business Banking | | | 1,305 | | | | 0 | | | | (8 | ) | | | (81 | ) | | | (213 | ) | | | 1,003 | |
| UBS Global Asset Management | | | 2,926 | | | | 0 | | | | (5 | ) | | | (269 | ) | | | (467 | ) | | | 2,185 | |
| UBS Warburg | | | 4,950 | | | | 0 | | | | (25 | ) | | | (315 | ) | | | (817 | ) | | | 3,793 | |
| UBS PaineWebber | | | 5,390 | | | | 0 | | | | (33 | ) | | | (264 | ) | | | (894 | ) | | | 4,199 | |
| Corporate Center | | | 7 | | | | 9 | | | | (14 | ) | | | (1 | ) | | | 0 | | | | 1 | |
|
| UBS Group | | | 14,578 | | | | 9 | | | | (85 | ) | | | (930 | ) | | | (2,391 | ) | | | 11,181 | |
|
| Other Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| UBS Wealth Management & Business Banking | | | 65 | | | | 0 | | | | (2 | ) | | | (30 | ) | | | 0 | | | | 33 | |
| UBS Global Asset Management | | | 2 | | | | 0 | | | | 0 | | | | (1 | ) | | | 0 | | | | 1 | |
| UBS Warburg | | | 390 | | | | 0 | | | | 0 | | | | (49 | ) | | | (63 | ) | | | 278 | |
| UBS PaineWebber | | | 3,942 | | | | 281 | | | | 0 | | | | (1,427 | ) | | | (662 | ) | | | 2,134 | |
| Corporate Center | | | 108 | | | | 0 | | | | 0 | | | | (23 | ) | | | (16 | ) | | | 69 | |
|
| UBS Group | | | 4,507 | | | | 281 | | | | (2 | ) | | | (1,530 | ) | | | (741 | ) | | | 2,515 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance | | | Additions | | | Disposals | | | | | | | | | | | |
| | | at the | | | and | | | and | | | | | | | Foreign | | | Balance | |
| | | beginning | | | reallo- | | | other | | | Amorti- | | | currency | | | at the end | |
| CHF million | | of the year | | | cations | 1 | | reductions | | | zation | | | translation | | | of the year | |
| |
Goodwill | | | | | | | | | | | | | | | | | | | | | | | | |
| Wealth Management & Business Banking | | | 1,003 | | | | (10 | ) | | | (4 | ) | | | (54 | ) | | | (98 | ) | | | 837 | |
| Global Asset Management | | | 2,185 | | | | (525 | ) | | | (1 | ) | | | (152 | ) | | | (106 | ) | | | 1,401 | |
| Investment Bank | | | 3,793 | | | | 218 | | | | (16 | ) | | | (251 | ) | | | (372 | ) | | | 3,372 | |
| Wealth Management USA | | | 4,199 | | | | (1 | ) | | | (270 | ) | | | (220 | ) | | | (393 | ) | | | 3,315 | |
| Corporate Center | | | 1 | | | | 559 | | | | (9 | ) | | | (79 | ) | | | (49 | ) | | | 423 | |
| |
UBS | | | 11,181 | | | | 241 | | | | (300 | ) | | | (756 | ) | | | (1,018 | ) | | | 9,348 | |
| |
Other Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Wealth Management & Business Banking | | | 33 | | | | (8 | ) | | | 0 | | | | (21 | ) | | | 0 | | | | 4 | |
| Global Asset Management | | | 1 | | | | 0 | | | | 0 | | | | (1 | ) | | | 0 | | | | 0 | |
| Investment Bank | | | 278 | | | | 99 | | | | 0 | | | | (27 | ) | | | (26 | ) | | | 324 | |
| Wealth Management USA | | | 2,134 | | | | 0 | | | | 0 | | | | (116 | ) | | | (213 | ) | | | 1,805 | |
| Corporate Center | | | 69 | | | | 8 | | | | (1 | ) | | | (22 | ) | | | (6 | ) | | | 48 | |
| |
UBS | | | 2,515 | | | | 99 | | | | (1 | ) | | | (187 | ) | | | (245 | ) | | | 2,181 | |
| |
Until 31 December 2001, goodwill and other intangible assets relating
1 Includes amounts reallocated due to the mergertransfer of UBS and PaineWebber were reported in the UBS Warburg Business Group. With the separation of UBS PaineWebber from UBS Warburg at 1 January 2002, goodwill and other intangible assets have been allocatedPrivate Banks & GAM to the Business Groups that have benefited from the merger with PaineWebber. Corporate Center.
For further information about disclosure by Business Group, including the amortization of goodwill and other intangible assets of previous years, please see Note 2a: Segment Reporting by Business Group.
119
Financial Statements
Notes to the Financial Statements
Note 15 Goodwill and Other Intangible Assets (continued)
The estimated, aggregated amortization expenses for Goodwill and Other intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other | | | Other | | | |
| CHF million | | Goodwill | | intangible assets | | Total | | | Goodwill | | intangible assets | | Total | |
|
| |
| Estimated, aggregated amortization expenses for: | | |
| 2003 | | 817 | | 189 | | | 1,006 | | |
| 2004 | | 769 | | 170 | | | 939 | | | 709 | | 162 | | 871 | |
| 2005 | | 738 | | 166 | | | 904 | | | 704 | | 159 | | 863 | |
| 2006 | | 702 | | 153 | | | 855 | | | 695 | | 146 | | 841 | |
| 2007 | | 646 | | 144 | | | 790 | | | 668 | | 139 | | 807 | |
| 2008 and thereafter | | 7,509 | | 1,693 | | | 9,202 | | |
| 2008 | | | 588 | | 138 | | 726 | |
| 2009 and thereafter | | | 5,984 | | 1,437 | | 7,421 | |
|
| |
| Total | | 11,181 | | 2,515 | | | 13,696 | | | 9,348 | | 2,181 | | 11,529 | |
|
| |
If the IASB issues in 2004 a final standard following ED3 Business Combinations, as proposed, goodwill amortization will cease as of 1 January 2005.
Note 16 Other Assets
| | | | | | | | | | | | | |
| CHF million | | Note | | | 31.12.03 | | | 31.12.02 | |
| |
| Deferred tax assets | | | 21 | | | | 2,276 | | | | 2,800 | |
| Settlement and clearing accounts | | | | | | | 2,874 | | | | 1,449 | |
| VAT and other tax receivables | | | | | | | 338 | | | | 436 | |
| Prepaid pension costs | | | | | | | 862 | | | | 250 | |
| Properties held for resale | | | | | | | 754 | | | | 1,071 | |
| Receivables under life insurance policies | | | | | | | 13,544 | | | | 0 | |
| Other receivables | | | | | | | 4,811 | | | | 2,946 | |
| |
Total other assets | | | | | | | 25,459 | | | | 8,952 | |
| |
112120
Note 16 Other Assets
| | | | | | | | | | | | | |
| CHF million | | Note | | | | 31.12.02 | | | | 31.12.01 | |
|
| Deferred tax assets | | | 21 | | | | 2,800 | | | | 3,449 | |
| Settlement and clearing accounts | | | | | | | 1,449 | | | | 1,431 | |
| VAT and other tax receivables | | | | | | | 436 | | | | 452 | |
| Prepaid pension costs | | | | | | | 250 | | | | 567 | |
| Properties held for resale | | | | | | | 1,071 | | | | 844 | |
| Other receivables | | | | | | | 2,946 | | | | 3,132 | |
|
| Total other assets | | | | | | | 8,952 | | | | 9,875 | |
|
113
UBS Group Financial Statements
Notes to the Financial Statements
Balance Sheet: Liabilities
Note 17 Due to Banks and Customers
| | | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Due to banks | | | 83,178 | | | 106,531 | | | 127,153 | | 83,178 | |
|
| |
| Due to customers in savings and investment accounts | | | 76,884 | | | 67,782 | | | 94,914 | | 76,884 | |
| Other amounts due to customers | | | 229,992 | | | 265,999 | | | 252,444 | | 229,992 | |
|
| |
| Total due to customers | | | 306,876 | | | 333,781 | | | 347,358 | | 306,876 | |
|
| |
| Total due to banks and customers | | | 390,054 | | | 440,312 | | | 474,511 | | 390,054 | |
|
| |
Note 18 Debt Issued
The Group issues both CHF and non-CHF denominated fixed and floating rate debt. Floating rate debt generally pays interest based on the three-month or six-month London Interbank Offered Rate (LIBOR).
Subordinated debt securities are unsecured obligations of the Group and are subordinated in right of payment to all present and future senior indebtedness and certain other obligations of the Group. At 31 December 20022003 and 31 December 2001,2002, the Group had CHF 9,9338,014 million and CHF 13,5719,933 million, respectively, in subordinated debt. Subordinated debt usually pays interest annually and provides for single principal payments upon maturity. At 31 December 20022003 and 31 December 2001,2002, the Group had CHF 46,67854,108 million and CHF 43,64146,678 million, respectively, in unsubordinated debt (excluding money market paper).
The Group issues debt with returns linked to equity, interest rates, foreign exchange and credit instruments or indices. As described in Note 1r),
derivatives embedded in these instruments are separated from the host debt contract and reported as stand-alone derivatives. The amount recorded within Debt Issued represents the host contract after the separation of the embedded derivative. At 31 December 20022003 and 31 December 2001,2002, the Group had CHF 1,389427 million and CHF 1,3971,389 million, respectively, in convertible and exchangeable debtbonds with attached warrants on UBS shares and notes withoutstanding. At year end 2003 all warrants attached on UBS shares outstanding.related to those bonds have expired.
In addition, the Group uses interest rate and foreign exchange derivatives to manage the risks inherent in certain debt issues. In the case of interest rate risk management, the Group applies hedge accounting as discussed in Note 1 -Summary- Summary of Significant Accounting Policies and Note 23 - Derivative Instruments. As a result of applying hedge accounting, the carrying value of debt issued is CHF 1,361610 million higher reflecting changes in fair value due to interest rate movements.
114121
| | |
PIP | | Protected Index Participation |
PEP | | Protected Equity Participation |
GOAL | | Geld- oder Aktien-Lieferung (cash or share delivery) |
BULS | | Bullish Underlying Linked Securities |
GROI | | Guaranteed Return On Investment |
FRN | | Floating Rate Note |
CLN | | Credit Linked Note |
Financial Statements
Notes to the Financial Statements
Note 18 Debt Issued (continued)
| | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Money market paper issued | | | 72,800 | | | 99,006 | | |
| Bonds issued | | | 51,872 | | | 51,061 | | |
| Short-term debt: Money market paper issued | | | 58,115 | | 72,800 | |
| Long-term debt: | | |
| Bonds | | |
| Senior | | | 51,324 | | 41,939 | |
| Subordinated | | | 8,014 | | 9,933 | |
| Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions | | | 517 | | | 934 | | | 210 | | 517 | |
| Medium-term notes | | | 4,222 | | | 5,217 | | | 2,574 | | 4,222 | |
|
| |
| Subtotal long-term debt | | | 62,122 | | 56,611 | |
| | | |
| Total debt issued | | | 129,411 | | | 156,218 | | | 120,237 | | 129,411 | |
|
| |
The following table shows the split between fixed and floating rate debt issues based on the contractual terms. However, it should be noted that the Group uses interest rate swaps to hedge many of the fixed rate debt issues which changes their re-pricing characteristics into thosethat of floating rate debt.
Contractual maturity date
| | | | | | | | | | | | | | | | | | | | | |
| | | UBS AG (Parent Bank) | | Subsidiaries | | | | |
| | |
| |
| | | | |
| | | Fixed | | | Floating | | | Fixed | | | Floating | | | Total | |
| CHF million | | rate | | | rate | | | rate | | | rate | | | | 31.12.02 | |
|
| 2003 | | | 24,010 | | | | 244 | | | | 52,095 | | | | 70 | | | | 76,419 | |
| 2004 | | | 4,965 | | | | 609 | | | | 1,432 | | | | 574 | | | | 7,580 | |
| 2005 | | | 4,998 | | | | 726 | | | | 907 | | | | 382 | | | | 7,013 | |
| 2006 | | | 3,359 | | | | 790 | | | | 8,000 | | | | 439 | | | | 12,588 | |
| 2007 | | | 3,166 | | | | 1,564 | | | | 1,105 | | | | 70 | | | | 5,905 | |
| 2008-2010 | | | 1,714 | | | | 1,048 | | | | 2,476 | | | | 1,949 | | | | 7,187 | |
| Thereafter | | | 2,726 | | | | 6,672 | | | | 269 | | | | 3,052 | | | | 12,719 | |
|
| Total | | | 44,938 | | | | 11,653 | | | | 66,284 | | | | 6,536 | | | | 129,411 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual maturity dates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | |
| CHF million, except where indicated | | 2004 | | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009-2013 | | | Thereafter | | | 31.12.03 | |
| |
UBS AG Parent Bank | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed rate | | | 28,981 | | | | 4,299 | | | | 5,958 | | | | 4,419 | | | | 3,702 | | | | 1,446 | | | | 377 | | | | 49,182 | |
| Interest rates (range in %) | | | 0.00-20.00 | | | | 0.00-19.00 | | | | 0.00-16.50 | | | | 0.00-11.00 | | | | 0.00-20.00 | | | | 0.00-13.50 | | | | 0.00-8.50 | | | | | |
| Floating rate | | | 65 | | | | 339 | | | | 138 | | | | 179 | | | | 791 | | | | 2,236 | | | | 7,941 | | | | 11,689 | |
| Subordinated debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed rate | | | 1,036 | | | | 1,505 | | | | 1,772 | | | | 1,430 | | | | 0 | | | | 525 | | | | 1,199 | | | | 7,467 | |
| Interest rates (range in %) | | | 4.25-7.38 | | | | 4.00-8.75 | | | | 4.25-7.25 | | | | 5.75-8.00 | | | | | | | | 5.88 | | | | 0.00-8.75 | | | | | |
| Floating rate | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 506 | | | | 506 | |
| |
| Subtotal | | | 30,082 | | | | 6,143 | | | | 7,868 | | | | 6,028 | | | | 4,493 | | | | 4,207 | | | | 10,023 | | | | 68,844 | |
| |
Subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed rate | | | 35,336 | | | | 535 | | | | 2,377 | | | | 1,237 | | | | 2,712 | | | | 1,135 | | | | 247 | | | | 43,579 | |
| Interest rates (range in %) | | | 0.00-10.00 | | | | 0.00-10.00 | | | | 0.00-10.00 | | | | 0.00-10.00 | | | | 0.00-10.00 | | | | 0.00-35.00 | | | | 0.00-20.00 | | | | | |
| Floating rate | | | 199 | | | | 592 | | | | 1,360 | | | | 25 | | | | 236 | | | | 1,689 | | | | 3,672 | | | | 7,773 | |
| Subordinated debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed rate | | | 23 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 18 | | | | 41 | |
| Interest rates (range in %) | | | 6.90-8.06 | | | | | | | | | | | | | | | | | | | | | | | | 9.00 | | | | | |
| Floating rate | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| |
| Subtotal | | | 35,558 | | | | 1,127 | | | | 3,737 | | | | 1,262 | | | | 2,948 | | | | 2,824 | | | | 3,937 | | | | 51,393 | |
| |
Total | | | 65,640 | | | | 7,270 | | | | 11,605 | | | | 7,290 | | | | 7,441 | | | | 7,031 | | | | 13,960 | | | | 120,237 | |
| |
The table below shows the notional amount and statedabove indicates fixed interest raterates coupons ranging from 0 up to 35 percent on the Group’s publicly placed bondsbonds. These high or low coupons generally relate to structured debt issues prior to the separation of any embedded derivatives or the application of hedge accounting, where applicable.derivatives. As a result, the notional amount shown does not necessarily correspond to the carrying amount of the debt and the stated interest rate on thesuch debt issues generally does not necessarily reflect the effective interest rate the Group is paying to service its debt after the separation of embedded derivativesderivative has been separated and, where applicable, the application of hedge accounting, where applicable.accounting.
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Notional | |
| | | | | | | | | | | | | | | | | | | | | | | amounts | |
| | | | | | | | | | | | | | | Early | | | | | | | in millions | |
| Year of | | Interest | | | | | | | | | | | redemption | | | | | | | in local | |
| issue | | rate in % | | | | Remarks | | Maturity | | | option | | | Currency | | | currency | |
|
| 2001 | | | 16.000 | | | GOAL on Siemens | | | 17.01.2003 | | | | | | | EUR | | | | 55 | |
| 2002 | | | 0.000 | | | CLN Linked to GECC | | | 18.02.2003 | | | | | | | EUR | | | | 50 | |
| 2001 | | | 8.000 | | | GOAL on UBS | | | 26.02.2003 | | | | | | | CHF | | | | 220 | |
| 2002 | | | 11.250 | | | GOAL on Royal Dutch Petroleum | | | 28.02.2003 | | | | | | | EUR | | | | 95 | |
| 1993 | | | 4.875 | | | subordinated | | | 03.03.2003 | | | | | | | CHF | | | | 200 | |
| 2001 | | | 8.750 | | | GOAL on General Electric | | | 07.03.2003 | | | | | | | USD | | | | 125 | |
| 2001 | | | 13.500 | | | GOAL on Nokia Oyj | | | 10.03.2003 | | | | | | | EUR | | | | 45 | |
| 2002 | | | 0.000 | | | Linked to 30yr OAT | | | 11.03.2003 | | | | | | | GBP | | | | 50 | |
| 2002 | | FRN | | | CLN Linked to GECC | | | 14.03.2003 | | | | | | | USD | | | | 100 | |
| 1997 | | | 1.500 | | | Indexed to UBS Currency Portfolio | | | 14.03.2003 | | | | | | | EUR | | | | 51 | |
| | | | | | | Convertible into | | | | | | | | | | | | | | | | |
| 1998 | | FRN | | | UBS Dutch Corporate Basket | | | 20.03.2003 | | | | | | | EUR | | | | 57 | |
| 1993 | | | 3.500 | | | subordinated | | | 31.03.2003 | | | | | | | CHF | | | | 200 | |
| 1993 | | | 4.000 | | | subordinated | | | 31.03.2003 | | | | | | | CHF | | | | 200 | |
|
115
| | |
PIP | | Protected Index Participation |
PEP | | Protected Equity Participation |
GOAL | | Geld- oder Aktien-Lieferung (cash or share delivery) |
BULS | | Bullish Underlying Linked Securities |
GROI | | Guaranteed Return On Investment |
FRN | | Floating Rate Note |
CLN | | Credit Linked Note |
UBS Group Financial Statements
Notes to the Financial Statements
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Notional | |
| | | | | | | | | | | | | | | | | | | | | | | amounts | |
| | | | | | | | | | | | | | | Early | | | | | | | in millions | |
| Year of | | Interest | | | | | | | | | | | redemption | | | | | | | in local | |
| issue | | rate in % | | | | Remarks | | Maturity | | | option | | | Currency | | | currency | |
|
| 2001 | | | 0.000 | | | BULS on technology stock basket | | | 10.04.2003 | | | | | | | USD | | | | 78 | |
| 2001 | | | 0.000 | | | BULS on Celestica and others | | | 28.04.2003 | | | | | | | USD | | | | 40 | |
| 2002 | | | 9.500 | | | GOAL on UBS | | | 22.05.2003 | | | | | | | CHF | | | | 110 | |
| 2001 | | | 10.250 | | | GOAL on Deutsche Bank | | | 30.05.2003 | | | | | | | EUR | | | | 40 | |
| 2002 | | | 9.500 | | | GOAL on DJ Euro Stoxx 50 index | | | 02.06.2003 | | | | | | | EUR | | | | 50 | |
| 2001 | | | 7.250 | | | GOAL on Aventis | | | 05.06.2003 | | | | | | | EUR | | | | 75 | |
| 2001 | | | 6.000 | | | GOAL on Total SA | | | 11.06.2003 | | | | | | | EUR | | | | 45 | |
| 2001 | | | 7.750 | | | GOAL on E.ON AG | | | 17.06.2003 | | | | | | | EUR | | | | 40 | |
| 1995 | | | 5.250 | | | subordinated | | | 20.06.2003 | | | | | | | CHF | | | | 200 | |
| 2001 | | | 8.250 | | | GOAL on Pfizer | | | 16.07.2003 | | | | | | | USD | | | | 70 | |
| 2002 | | | 9.500 | | | GOAL on SUEZ SA (Suez) | | | 04.09.2003 | | | | | | | EUR | | | | 35 | |
| 2002 | | | 13.000 | | | GOAL on Royal Dutch Petroleum | | | 06.10.2003 | | | | | | | EUR | | | | 35 | |
| 2002 | | FRN | | | CLN Linked to Allianz AG | | | 24.10.2003 | | | | | | | USD | | | | 150 | |
| 1993 | | | 3.000 | | | | | | | | 26.11.2003 | | | | | | | CHF | | | | 200 | |
| 2002 | | | 0.000 | | | Linked to Basket of Common Stock | | | 02.12.2003 | | | | | | | USD | | | | 63 | |
| 1994 | | | 6.250 | | | subordinated | | | 06.01.2004 | | | | | | | USD | | | | 300 | |
| 2002 | | | 7.750 | | | GOAL on Novartis | | | 28.01.2004 | | | | | | | CHF | | | | 100 | |
| 2002 | | | 5.125 | | | GOAL on General Electric Company | | | 30.01.2004 | | | | | | | USD | | | | 75 | |
| 2002 | | | 6.000 | | | GOAL on Unilever NV | | | 06.02.2004 | | | | | | | EUR | | | | 40 | |
| 2002 | | | 6.250 | | | GOAL on Nestlé AG | | | 14.05.2004 | | | | | | | CHF | | | | 100 | |
| 2001 | | | 0.000 | | | Cliquet GROI on NASDAQ 100 Index | | | 27.05.2004 | | | | | | | USD | | | | 42 | |
| 1991 | | | 4.250 | | | subordinated | | | 25.06.2004 | | | | | | | CHF | | | | 300 | |
| 1999 | | | 3.500 | | | | | | | | 01.07.2004 | | | | | | | EUR | | | | 250 | |
| 2001 | | | 1.750 | | | Exchangeable bonds on Yukos | | | 31.08.2004 | | | | | | | USD | | | | 310 | |
| 1997 | | | 7.380 | | | subordinated | | | 26.11.2004 | | | | | | | GBP | | | | 250 | |
| 1995 | | | 4.000 | | | subordinated | | | 07.02.2005 | | | | | | | CHF | | | | 150 | |
| 1995 | | | 5.500 | | | Convertible into Nasdaq 100 Index | | | 10.02.2005 | | | | | | | CHF | | | | 150 | |
| 2002 | | | 0.000 | | | Equity GROI | | | 07.03.2005 | | | | | | | AUD | | | | 233 | |
| 2002 | | | 0.500 | | | Convertible into STOXX 50 Index | | | 21.03.2005 | | | | | | | EUR | | | | 75 | |
| 1995 | | | 5.625 | | | subordinated | | | 13.04.2005 | | | | | | | CHF | | | | 150 | |
| 2002 | | | 0.000 | | | GROI on FTSE 100 Index | | | 25.04.2005 | | | | | | | GBP | | | | 46 | |
| | | | | | | Principal Protected Note Linked | | | | | | | | | | | | | | | | |
| 2002 | | | 0.000 | | | to NASDAQ 100-Index | | | 04.05.2005 | | | | | | | USD | | | | 46 | |
| 2002 | | | 0.000 | | | Exchangeable Bonds on Yukos | | | 19.06.2005 | | | | | | | USD | | | | 120 | |
| 1995 | | | 8.750 | | | subordinated | | | 20.06.2005 | | | | | | | GBP | | | | 249 | |
| | | | | | | GROI - Australian | | | | | | | | | | | | | | | | |
| 2002 | | | 0.000 | | | Growth Guaranteed Fund II | | | 21.06.2005 | | | | | | | AUD | | | | 67 | |
| 1998 | | | 6.750 | | | subordinated | | | 15.07.2005 | | | | | | | USD | | | | 200 | |
| 1995 | | | 5.250 | | | subordinated | | | 18.07.2005 | | | | | | | CHF | | | | 200 | |
| 2002 | | | 0.000 | | | Cliquet GROI - Units on SMI Index | | | 25.07.2005 | | | | | | | CHF | | | | 53 | |
| 1995 | | | 5.000 | | | subordinated | | | 24.08.2005 | | | | | | | CHF | | | | 250 | |
| 2002 | | | 0.125 | | | Exchangeable Bonds on Yukos | | | 19.09.2005 | | | | | | | USD | | | | 120 | |
| 1995 | | | 4.500 | | | | | | | | 21.11.2005 | | | | | | | CHF | | | | 300 | |
| 2002 | | | 0.250 | | | Exchangeable Bonds on Yukos | | | 19.12.2005 | | | | | | | USD | | | | 160 | |
| 1999 | | | 3.500 | | | Straight Bond | | | 26.01.2006 | | | | | | | EUR | | | | 650 | |
| | | | | | | Equity Exchangeables into | | | | | | | | | | | | | | | | |
| 2001 | | | 1.000 | | | Euro. Insurance Basket | | | 01.02.2006 | | | | 01.02.2004 | | | EUR | | | | 100 | |
| 1996 | | | 4.250 | | | subordinated | | | 06.02.2006 | | | | | | | CHF | | | | 250 | |
| 1996 | | | 4.000 | | | | | | | | 14.02.2006 | | | | | | | CHF | | | | 200 | |
| 2000 | | | 2.500 | | | Straight Bond | | | 29.03.2006 | | | | | | | CHF | | | | 250 | |
| 1996 | | | 7.250 | | | subordinated | | | 17.07.2006 | | | | | | | USD | | | | 500 | |
| 2001 | | | 0.000 | | | BULS on S&P 500 | | | 01.09.2006 | | | | | | | USD | | | | 54 | |
|
116
| | |
PIP | | Protected Index Participation |
PEP | | Protected Equity Participation |
GOAL | | Geld- oder Aktien-Lieferung (cash or share delivery) |
BULS | | Bullish Underlying Linked Securities |
GROI | | Guaranteed Return On Investment |
FRN | | Floating Rate Note |
CLN | | Credit Linked Note |
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20021
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Notional | |
| | | | | | | | | | | | | | | | | | | | | | | amounts | |
| | | | | | | | | | | | | | | Early | | | | | | | in millions | |
| Year of | | Interest | | | | | | | | | | | redemption | | | | | | | in local | |
| issue | | rate in % | | | Remarks | | Maturity | | | option | | | Currency | | currency | |
|
| 1996 | | | 7.250 | | | subordinated | | | 01.09.2006 | | | | | | | USD | | | 150 | |
| 2001 | | | 5.500 | | | GOAL on UBS | | | 02.10.2006 | | | | | | | CHF | | | 106 | |
| | | | | | | Cliquet GROI-Units | | | | | | | | | | | | | | | | |
| 2001 | | | 0.000 | | | on Nasdaq 100-Index | | | 19.10.2006 | | | | | | | USD | | | 39 | |
| 2002 | | FRN | | | Callable Daily Range Accrual Note | | | 07.11.2006 | | | | 07.02.2003 | | | USD | | | 56 | |
| 1995 | | | 5.000 | | | subordinated | | | 07.11.2006 | | | | | | | CHF | | | 250 | |
| 2002 | | FRN | | | Callable Daily Range Accrual Note | | | 13.11.2006 | | | | 12.02.2003 | | | USD | | | 40 | |
| 1996 | | | 6.250 | | | subordinated | | | 06.12.2006 | | | | | | | EUR | | | 254 | |
| 2001 | | | 0.000 | | | Zero-rate Note O'Connor Fund | | | 29.12.2006 | | | | | | | EUR | | | 40 | |
| 1997 | | | 8.000 | | | subordinated | | | 08.01.2007 | | | | | | | GBP | | | 242 | |
| 1997 | | | 8.000 | | | subordinated | | | 08.01.2007 | | | | | | | GBP | | | 302 | |
| 1997 | | | 5.750 | | | subordinated | | | 12.03.2007 | | | | | | | EUR | | | 204 | |
| | | | | | | Step-Up Callable | | | | | | | | | | | | | | | | |
| 2002 | | FRN | | | Daily Range Accrual Note | | | 15.07.2007 | | | | 15.01.2003 | | | USD | | | 67 | |
| 2002 | | | 1.000 | | | Exchangeable on DJ Euro Stoxx 50E | | | 23.07.2007 | | | | | | | EUR | | | 50 | |
| 2002 | | FRN | | | CLN | | | 01.09.2007 | | | | | | | USD | | | 50 | |
| | | | | | | Exchangeable Bond | | | | | | | | | | | | | | | | |
| 2002 | | | 0.500 | | | on the S&P 500 Index | | | 05.09.2007 | | | | | | | USD | | | 40 | |
| | | | | | | Exchangeable Bond | | | | | | | | | | | | | | | | |
| 2002 | | | 0.500 | | | on the DJ Euro STOXX 50 | | | 05.09.2007 | | | | | | | EUR | | | 35 | |
| 2002 | | | 0.250 | | | Exchangeable Bond on the SMI | | | 05.09.2007 | | | | | | | CHF | | | 75 | |
| 2002 | | FRN | | | Callable Daily Range Accrual Note | | | 02.10.2007 | | | | 02.01.2003 | | | USD | | | 61 | |
| | | | | | | Exchangeable bond | | | | | | | | | | | | | | | | |
| 2002 | | | 0.500 | | | on Royal Dutch Petroleum | | | 30.10.2007 | | | | | | | EUR | | | 100 | |
| | | | | | | Principal Protected Notes Linked | | | | | | | | | | | | | | | | |
| 2002 | | | 0.000 | | | to the S&P 500 Index | | | 07.11.2007 | | | | | | | USD | | | 52 | |
| 2002 | | | 7.250 | | | GOAL on Royal Dutch Petroleum | | | 14.11.2007 | | | | | | | EUR | | | 150 | |
| 2002 | | | 1.250 | | | Linked to Nikkei 225 Index | | | 28.11.2007 | | | | | | | JPY | | | 7,742 | |
| 2002 | | | 5.000 | | | Linked to Nikkei 225 Index | | | 19.12.2007 | | | | | | | JPY | | | 5,537 | |
| 1998 | | | 3.500 | | | | | | | | 27.08.2008 | | | | | | | CHF | | | 300 | |
| 1997 | | | 5.875 | | | subordinated | | | 18.08.2009 | | | | | | | EUR | | | 305 | |
| 2002 | | FRN | | | Callable Daily Range Accrual Note | | | 23.10.2012 | | | | 23.01.2003 | | | USD | | | 64 | |
| 1995 | | | 7.375 | | | subordinated | | | 15.07.2015 | | | | | | | USD | | | 150 | |
| 1995 | | | 7.000 | | | subordinated | | | 15.10.2015 | | | | | | | USD | | | 300 | |
| 1997 | | | 7.375 | | | subordinated | | | 15.06.2017 | | | | | | | USD | | | 300 | |
| 1995 | | | 7.500 | | | subordinated | | | 15.07.2025 | | | | | | | USD | | | 350 | |
| 1995 | | | 8.750 | | | subordinated | | | 18.12.2025 | | | | | | | GBP | | | 149 | |
| 1996 | | | 7.750 | | | subordinated | | | 01.09.2026 | | | | | | | USD | | | 300 | |
|
117
| | |
PIP | | Protected Index Participation |
PEP | | Protected Equity Participation |
GOAL | | Geld- oder Aktien-Lieferung (cash or share delivery) |
BULS | | Bullish Underlying Linked Securities |
GROI | | Guaranteed Return On Investment |
FRN | | Floating Rate Note |
CLN | | Credit Linked Note |
UBS Group Financial Statements
Notes to the Financial Statements
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.20021
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Notional | |
| | | | | | | | | | | | | | | | | | | | | | | amounts | |
| | | | | | | | | | | | | | | Early | | | | | | | in millions | |
| Year of | | Interest | | | | | | | | | | | redemption | | | | | | | in local | |
| issue | | rate in % | | | Remarks | | Maturity | | | option | | | Currency | | currency | |
|
| Brooklands Euro Referenced Linked Notes 2001-1 Ltd | | | | | | | | | | | | | | | | |
| 2002 | | | 2.594 | | | | | | | | 15.12.2012 | | | | | | | EUR | | | 100 | |
| 2002 | | | 3.480 | | | | | | | | 15.12.2012 | | | | | | | EUR | | | 75 | |
| 2002 | | | 3.293 | | | | | | | | 23.12.2012 | | | | | | | EUR | | | 75 | |
| 2002 | | | 3.893 | | | | | | | | 23.12.2012 | | | | | | | EUR | | | 35 | |
| 2001 | | FRN | | | | | | | | 20.12.2013 | | | | | | | EUR | | | 50 | |
| 2001 | | FRN | | | | | | | | 20.12.2013 | | | | | | | EUR | | | 50 | |
|
| Alpine Partners L.P. | | | | | | | | | | | | | | | | |
| 2000 | | FRN | | | | | | | | 08.10.2009 | | | | 08.01.2003 | | | USD | | | 445 | |
|
| North Street | | | | | | | | | | | | | | | | | | | | | |
| 2000 | | FRN | | | | | | | | 28.04.2011 | | | | | | | USD | | | 40 | |
| 2002 | | FRN | | | | | | | | 28.04.2011 | | | | | | | USD | | | 100 | |
| 2002 | | FRN | | | | | | | | 28.04.2011 | | | | | | | USD | | | 50 | |
| 2000 | | | 20.000 | | | | | | | | 28.04.2011 | | | | | | | USD | | | 43 | |
| 2000 | | FRN | | | | | | | | 30.10.2011 | | | | | | | USD | | | 61 | |
| 2000 | | | 18.000 | | | | | | | | 30.10.2011 | | | | | | | USD | | | 43 | |
| 2002 | | FRN | | | | | | | | 30.01.2016 | | | | | | | USD | | | 40 | |
| 2002 | | | 20.000 | | | | | | | | 30.01.2016 | | | | | | | USD | | | 49 | |
| 2002 | | FRN | | | | | | | | 30.01.2016 | | | | | | | USD | | | 46 | |
| 2002 | | | 5.160 | | | | | | | | 30.01.2016 | | | | | | | USD | | | 61 | |
| 2002 | | FRN | | | | | | | | 30.01.2016 | | | | | | | USD | | | 353 | |
| 2002 | | FRN | | | | | | | | 20.08.2030 | | | | 20.08.2003 | | | USD | | | 100 | |
| 2001 | | FRN | | | | | | | | 30.04.2031 | | | | | | | USD | | | 60 | |
| 2001 | | FRN | | | | | | | | 30.04.2031 | | | | | | | USD | | | 100 | |
| 2001 | | FRN | | | | | | | | 30.07.2031 | | | | | | | USD | | | 100 | |
| 2001 | | FRN | | | | | | | | 30.07.2031 | | | | | | | USD | | | 60 | |
|
| UBS Americas Inc. (former PaineWebber) | | | | | | | | | | | | | | | | |
| 1993 | | | 7.875 | | | | | | | | 17.02.2003 | | | | | | | USD | | | 100 | |
| 2000 | | | 1.270 | | | | | | | | 13.03.2003 | | | | | | | JPY | | | 9,000 | |
| 1998 | | | 6.320 | | | | | | | | 18.03.2003 | | | | | | | USD | | | 45 | |
| 1998 | | | 6.450 | | | | | | | | 01.12.2003 | | | | | | | USD | | | 340 | |
| 1999 | | FRN | | | | | | | | 11.05.2004 | | | | | | | USD | | | 45 | |
| 1999 | | | 6.375 | | | | | | | | 17.05.2004 | | | | | | | USD | | | 525 | |
| 1995 | | | 8.875 | | | | | | | | 15.03.2005 | | | | | | | USD | | | 125 | |
| 1999 | | | 2.210 | | | | | | | | 15.03.2005 | | | | | | | USD | | | 45 | |
| 1993 | | | 6.500 | | | | | | | | 01.11.2005 | | | | | | | USD | | | 200 | |
| 1996 | | | 6.750 | | | | | | | | 01.02.2006 | | | | | | | USD | | | 100 | |
| 1998 | | | 6.720 | | | | | | | | 01.04.2008 | | | | | | | USD | | | 35 | |
| 1998 | | | 6.730 | | | | | | | | 03.04.2008 | | | | | | | USD | | | 43 | |
| 1998 | | | 6.550 | | | | | | | | 15.04.2008 | | | | | | | USD | | | 250 | |
| 1996 | | | 7.625 | | | | | | | | 15.10.2008 | | | | | | | USD | | | 150 | |
| 1999 | | | 7.625 | | | | | | | | 01.12.2009 | | | | | | | USD | | | 275 | |
| 1994 | | | 7.625 | | | | | | | | 17.02.2014 | | | | | | | USD | | | 200 | |
|
| Eisberg Finance Ltd. | | | | | | | | | | | | | | | | |
| 1998 | | FRN | | | | | | | | 15.06.2004 | | | | 10.10.2003 | | | USD | | | 83 | |
| 1998 | | FRN | | | | | | | | 15.06.2004 | | | | 10.10.2003 | | | USD | | | 65 | |
| 1998 | | FRN | | | | | | | | 15.06.2004 | | | | 10.10.2003 | | | USD | | | 41 | |
|
118
| | |
PIP | | Protected Index Participation |
PEP | | Protected Equity Participation |
GOAL | | Geld- oder Aktien-Lieferung (cash or share delivery) |
BULS | | Bullish Underlying Linked Securities |
GROI | | Guaranteed Return On Investment |
FRN | | Floating Rate Note |
CLN | | Credit Linked Note |
Note 18 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.20021
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Notional | |
| | | | | | | | | | | | | | | | | | | | | | | amounts | |
| | | | | | | | | | | | | | | Early | | | | | | | in millions | |
| Year of | | Interest | | | | | | | | | | | redemption | | | | | | | in local | |
| issue | | rate in % | | | Remarks | | Maturity | | | option | | | Currency | | currency | |
|
| UBS Finance N.V., Curaçao | | | | | | | | | | | | | | | | |
| 1997 | | | 0.000 | | | Zero Coupons | | | 29.01.2027 | | | | | | | EUR | | | 226 | |
| 1998 | | | 0.000 | | | Zero Coupons | | | 03.03.2028 | | | | 03.03.2003 | | | EUR | | | 81 | |
|
| UBS Australia Holdings Ltd. | | | | | | | | | | | | | | | | |
| 1999 | | | 5.000 | | | European commercial paper | | | 25.02.2004 | | | | | | | AUD | | | 104 | |
|
| UBS Warburg AG | | | | | | | | | | | | | | | | | | | | | | | | |
| 1998 | | | 0.000 | | | | | | | | 19.12.2005 | | | | | | | EUR | | | 56 | |
| 2001 | | | 0.000 | | | | | | | | 30.06.2006 | | | | 30.06.2003 | | | EUR | | | 505 | |
| 2001 | | | 0.000 | | | | | | | | 30.06.2006 | | | | 30.06.2003 | | | USD | | | 202 | |
| 2001 | | | 0.000 | | | | | | | | 31.07.2006 | | | | 30.06.2003 | | | EUR | | | 500 | |
| 2001 | | | 0.000 | | | | | | | | 08.08.2006 | | | | | | | EUR | | | 77 | |
| 2001 | | | 0.000 | | | | | | | | 30.09.2006 | | | | 30.06.2003 | | | USD | | | 200 | |
| 2001 | | | 0.000 | | | | | | | | 30.09.2006 | | | | 30.06.2003 | | | CHF | | | 200 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | USD | | | 350 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | EUR | | | 300 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | USD | | | 350 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | EUR | | | 450 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | EUR | | | 300 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | EUR | | | 450 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | USD | | | 250 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | EUR | | | 250 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | CHF | | | 250 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | USD | | | 250 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2006 | | | | 30.06.2003 | | | USD | | | 250 | |
| 2001 | | | 0.000 | | | | | | | | 02.01.2007 | | | | 30.06.2003 | | | EUR | | | 100 | |
| 2001 | | | 0.000 | | | | | | | | 02.01.2007 | | | | 30.06.2003 | | | EUR | | | 100 | |
| 2001 | | | 0.000 | | | | | | | | 02.01.2007 | | | | 30.06.2003 | | | EUR | | | 100 | |
| 2002 | | | 0.000 | | | | | | | | 30.03.2007 | | | | 30.06.2003 | | | EUR | | | 60 | |
| 2002 | | | 0.000 | | | | | | | | 31.12.2007 | | | | 30.06.2003 | | | EUR | | | 50 | |
| 2001 | | | 0.000 | | | | | | | | 30.09.2011 | | | | 31.03.2003 | | | EUR | | | 50 | |
| 2001 | | | 0.000 | | | | | | | | 31.12.2011 | | | | 30.06.2003 | | | EUR | | | 150 | |
| 2002 | | | 0.000 | | | | | | | | 28.09.2012 | | | | 30.06.2003 | | | EUR | | | 50 | |
|
1 In this table only publicly placed bonds with a carrying value exceeding CHF 50 million (prior to the elimination of own bonds held) have been disclosed. The total carrying amount of the bonds disclosed in this table is CHF 34,320 million. The total carrying amount of publicly placed bonds of UBS Group (prior to the elimination of own bonds held) is CHF 44,759 million of the total bond issues.
119122
UBS Group Financial Statements
Notes to the Financial Statements
Note 19 Other Liabilities
| | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | Note | | | 31.12.02 | | | 31.12.01 | | | Note | | 31.12.03 | | 31.12.02 | |
|
| |
| Provisions | | 20 | | | 1,375 | | | 1,748 | | | 20 | | | 1,361 | | | 1,375 | |
| Provision for commitments and contingent liabilities | | 9b | | | 366 | | | 305 | | | 9b | | | 290 | | | 366 | |
| Current tax liabilities | | | 2,079 | | | 1,799 | | | | 1,754 | | | 2,079 | |
| Deferred tax liabilities | | 21 | | | 2,239 | | | 2,827 | | | 21 | | | 2,214 | | | 2,239 | |
| VAT and other tax payables | | | 613 | | | 622 | | | | 544 | | | 613 | |
| Settlement and clearing accounts | | | 1,354 | | | 4,473 | | |
| Settlement and clearing account | | | | 2,608 | | | 1,354 | |
| Obligations under life insurance policies | | | | 13,544 | | | 0 | |
| Other payables | | | 4,313 | | | 3,884 | | | | 9,001 | | | 4,313 | |
|
| |
| Total other liabilities | | | 12,339 | | | 15,658 | | | | 31,316 | | | 12,339 | |
|
| |
Note 20 Provisions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total | | Total | | | Total | | Total | |
| CHF million | | Operational | | Litigation | | | 31.12.02 | | | 31.12.01 | | | Operational | | Litigation | | 31.12.03 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | 1,036 | | 712 | | | 1,748 | | | 2,294 | | | 721 | | 654 | | | 1,375 | | | 1,748 | |
| New provisions charged to income | | 210 | | 478 | | | 688 | | | 384 | | | 136 | | 194 | | | 330 | | | 688 | |
| Capitalized reinstatement costs | | | 155 | | | 155 | | |
| Recoveries | | 16 | | 9 | | | 25 | | | 95 | | | 17 | | 23 | | 40 | | 25 | |
| Provisions applied | | | (439 | ) | | | (463 | ) | | | (902 | ) | | | (1,115 | ) | | | (135 | ) | | | (317 | ) | | | (452 | ) | | | (902 | ) |
| Reclassifications | | | (9 | ) | | 9 | | | 0 | | | 64 | | | 4 | | | (4 | ) | | 0 | | 0 | |
| Foreign currency translation | | | (93 | ) | | | (91 | ) | | | (184 | ) | | 26 | | | | (43 | ) | | | (44 | ) | | | (87 | ) | | | (184 | ) |
|
| |
| Balance at the end of the year | | 721 | | 654 | | | 1,375 | | | 1,748 | | | 855 | | 506 | | | 1,361 | | | 1,375 | |
|
| |
Note 21 Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | |
CHF million
For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | |
| CHF million | | | | | | | | |
| For the year ended | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Domestic | Domestic | | |
| Current | Current | | | 938 | | | 563 | | 1,325 | | | 810 | | 938 | | 563 | |
| Deferred | Deferred | | | (32 | ) | | 231 | | 233 | | | 143 | | | (32 | ) | | 231 | |
| Foreign | Foreign | | |
| Current | Current | | | 249 | | | 546 | | 451 | | | 294 | | 249 | | 546 | |
| Deferred | Deferred | | | (477 | ) | | 61 | | 311 | | | 371 | | | (477 | ) | | 61 | |
|
| |
| Total income tax expense | Total income tax expense | | | 678 | | | 1,401 | | 2,320 | | | 1,618 | | 678 | | 1,401 | |
|
| |
The Group made net tax payments, including domestic and foreign taxes, of CHF 5721,104 million, CHF 1,742572 million and CHF 9591,742 million for the full years of 2003, 2002 2001 and 2000,2001, respectively.
120123
Financial Statements
Notes to the Financial Statements
Note 21 Income Taxes (continued)
The components of operating profit before tax, and the differences between income tax expense reflected in the financial statements and the amounts calculated at the Swiss statutory rate of 25% are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | CHF million | | | | | | | | |
| For the year ended | For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Operating profit before tax | Operating profit before tax | | | 4,544 | | | 6,718 | | 10,199 | | | 8,348 | | 4,544 | | 6,718 | |
| Domestic | | | 5,491 | | 6,510 | | 5,565 | |
| Foreign | | | 2,857 | | | (1,966 | ) | | 1,153 | |
| | Domestic | | | 6,510 | | | 5,565 | | 7,079 | | |
| | Foreign | | | (1,966 | ) | | 1,153 | | 3,120 | | |
| |
| Income taxes at Swiss statutory rate of 25% | | | 1,136 | | | 1,680 | | 2,550 | | |
| | |
| Increase/(decrease) resulting from: | | |
| Income taxes at Swiss statutory rate of 24% in 2003 and 25% in 2002 and 2001, respectively | | | 2,004 | | 1,136 | | 1,680 | |
| Increase / (decrease) resulting from: | | |
| Applicable tax rates differing from Swiss statutory rate | Applicable tax rates differing from Swiss statutory rate | | | (341 | ) | | | (239 | ) | | | (336 | ) | | | (250 | ) | | | (341 | ) | | | (239 | ) |
| Tax losses not recognized | Tax losses not recognized | | | 51 | | | 77 | | 164 | | | 42 | | 51 | | 77 | |
| Previously unrecorded tax losses now recognized | Previously unrecorded tax losses now recognized | | | (349 | ) | | | (630 | ) | | | (655 | ) | | | (291 | ) | | | (349 | ) | | | (630 | ) |
| Lower taxed income | Lower taxed income | | | (378 | ) | | | (499 | ) | | | (401 | ) | | | (366 | ) | | | (378 | ) | | | (499 | ) |
| Non-deductible goodwill amortization | Non-deductible goodwill amortization | | | 291 | | | 429 | | 159 | | | 386 | | 291 | | 429 | |
| Other non-deductible expenses | Other non-deductible expenses | | | 301 | | | 134 | | 432 | | | 186 | | 301 | | 134 | |
| Adjustments related to prior years and other | Adjustments related to prior years and other | | | (122 | ) | | 371 | | 245 | | | | (191 | ) | | | (122 | ) | | 371 | |
| Change in deferred tax valuation allowance | Change in deferred tax valuation allowance | | | 89 | | | 78 | | 162 | | | 98 | | 89 | | 78 | |
|
| |
| Income tax expense | Income tax expense | | | 678 | | | 1,401 | | 2,320 | | | 1,618 | | 678 | | 1,401 | |
|
| |
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | | |
|
| | |
| Deferred tax assets | | |
| Compensation and benefits | | | 1,559 | | | 1,778 | | | 1,538 | | 1,559 | | | |
| Allowance for credit losses | | | 84 | | | 122 | | | 4 | | 84 | |
| Net operating loss carry forwards | | | 2,883 | | | 2,902 | | | 2,626 | | 2,883 | |
| Trading assets | | | 330 | | | 259 | | | 306 | | 330 | |
| Other | | | 779 | | | 1,365 | | | 685 | | 779 | |
|
| | |
| Total | | | 5,635 | | | 6,426 | | | 5,159 | | 5,635 | |
| Valuation allowance | | | (2,835 | ) | | | (2,977 | ) | | | (2,883 | ) | | | (2,835 | ) | |
|
| | |
| Net deferred tax assets | | | 2,800 | | | 3,449 | | | 2,276 | | 2,800 | |
|
| | |
| Deferred tax liabilities | | |
| Property and equipment | | | 412 | | | 449 | | | 307 | | 412 | |
| Investments | | | 430 | | | 464 | | | 388 | | 430 | |
| Other provisions | | | 470 | | | 571 | | | 401 | | 470 | |
| Trading assets | | | 182 | | | 298 | | | 348 | | 182 | |
| Other | | | 745 | | | 1,045 | | | 770 | | 745 | |
|
| | |
| Total deferred tax liabilities | | | 2,239 | | | 2,827 | | | 2,214 | | 2,239 | |
|
| | |
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is due to the effect of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF.
124
Note 21 Income Taxes (continued)
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry forwards and other items. Due to realization of these assets being uncertain, the Group has established valuation allowances of CHF 2,8352,883 million (CHF 2,9772,835 million at 31 December 2001)2002). For companies that suffered tax losses in either the current or preceding year an amount of CHF 947542 million (CHF 965947 million at 31 December 2001)2002) has been recognized as deferred tax assets based on expectations that sufficient taxable income will be generated in future years to utilize the tax loss carry forwards.
The Group provides deferred income taxes on undistributed earnings of non-Swiss subsidiaries except to the extent that such earnings are indefinitely invested. In the event these earnings were distributed, additional taxes of approximately CHF 4025 million would be due.
121
UBS Group Financial Statements
Notes to the Financial Statements
Note 21 Income Taxes (continued)
At 31 December 20022003 net operating loss carry forwards totaling CHF 6,5726,989 million (not recognized as a deferred tax asset) are available to reduce future taxable income of certain branches and subsidiaries.
| | | | | | | | |
| The carry forwards expire as follows: | | | | | 31.12.0231.12.03 | |
|
| Within 1 year | | | | | | | 2997 | |
| From 2 to 4 years | | | | | | | 252469 | |
| After 4 years | | | 6,291 | |
|
Total | | | 6,5726,423 | |
|
Total | | | | | | | 6,989 | |
|
Note 22 Minority Interests
| | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 4,112 | | | 2,885 | | | 3,529 | | 4,112 | |
| Issuance of trust preferred securities | | | 0 | | | 1,291 | | | 372 | | 0 | |
| Other increases | | | 172 | | | 0 | | | 573 | | 172 | |
| Decreases and dividend payments | | | (377 | ) | | | (461 | ) | | | (357 | ) | | | (377 | ) |
| Foreign currency translation | | | (709 | ) | | 53 | | | | (389 | ) | | | (709 | ) |
| Minority interest in net profit | | | 331 | | | 344 | | | 345 | | 331 | |
|
| |
| Balance at the end of the year | | | 3,529 | | | 4,112 | | | 4,073 | | 3,529 | |
|
| |
125
Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments
Type of derivatives
The Group uses the following derivative financial instruments for both trading and hedging purposes:
Swapsare transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period. The major types of swap transactiontransactions undertaken by the Group are as follows:
| – | | Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and an interest reference rate. |
| – | | Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and interest reference rates and generally also entail exchange of principal amounts at the start and/and / or end of the contract. |
| – | | Credit default swaps (CDS) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection during |
| | the life of the swap in exchange for an undertaking by the seller to make a payment to the buyer following a credit event, as defined in the contract, with respect to a third party. Settlement following a credit event may be a cash amount, or cash in return for physical delivery of one or more deliverable obligations of the credit entity, as defined in the contract, and is made regardless of whether the protection buyer has suffered a loss. After a credit event and settlement, the contract is terminated. |
| – | | Total Rate of Return Swaps give the total return receiver exposure to all of the cash flow and economic benefits and risks of an underlying security without actually owning the security, while the total return payer has a synthetic short position in the underlying reference security. |
Forwards and futuresare 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 over-the-counterover-
the-counter (OTC) market, whereas futures are
122
standardized contracts transacted on regulated exchanges.
Optionsare contractual agreements under which 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 amount of a financial instrument or commodity at a predetermined price. The seller receives a premium from the purchaser for this right. Options may be traded OTC or on a regulated exchange.
Derivatives transacted for trading purposes
Most of the Group’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative products to customers at competitive prices to enable them to take, transfer, modify or reduce current or expected risks. Trading includes market-making, positioning and arbitrage activities: market-making involves quoting bid and offer prices to other market participants with the intention of generating revenues based on spread and volume; positioning means managing market risk positions with the expectation of profiting from favorable movements in prices, rates or indices; arbitrage activities involve identifying and profiting from price differentials between markets and products.
Derivatives transacted for hedging purposes
The Group enters into derivative transactions which are designated and qualify as either fair value or cash flow hedges for recognized assets or liabilities or forecast transactions. It also enters into derivative transactions which provide economic hedges for risk exposures but do not meet the accounting requirements for hedge accounting treatment. As stated in Note 1, Summary of Significant Accounting Policies, part v) Derivative instruments and hedging, the Group uses CDSs as economic hedges for credit risk exposures in the loan and traded product portfolios but cannot apply hedge accounting to such positions. Gains or losses on these CDSs have therefore been recorded in trading income.
126
Derivatives designated and accounted
for
as hedging instruments
The Group’s accounting policies for derivatives designated and accounted for as hedging instru-
mentsinstruments are explained in Note 1 v) where terms used in the following sections are explained.
Fair value hedges
The Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term debt due to changes in market interest rates. For the year ended 31 December 2002,2003, the Group recognized a net lossgain of CHF 1021 million (reported as Net trading income in the Financial Statements), which represents the ineffective portion of fair value hedges.
As at 31 December 2002,2003, the fair value of outstanding derivatives designated as fair value hedges was a CHF 1,925797 million net positive replacement value.
Cash flow hedges of individual variable
rate assets and liabilities
The Group uses interest rate swaps to protect against changes in cash flows of certain variable rate debt issues. ForDuring the year ended 31 December 2002,2003, all hedged financial instruments have matured and there has been no material gain or loss associated with ineffective portions of the cash flow hedges.
Gains and losses on derivative contracts designated as cash flow hedges are initially recorded in Shareholders’ equity but are reclassified to current period earnings when the hedged cash flows occur, as explained in Note 1, part v) Derivative instruments and hedging. As at 31 December 2002, deferred net gains on derivative instruments designated as cash flow hedges accumulated in Shareholders’ equity were CHF 2 million.
Cash flow hedges of forecast transactions
The Group applies hedge accounting for its non-trading interest rate risk in major currencies by analyzing expected cash flows on an enterprise basis. The objective is to protect against changes in future interest cash flows resulting from the impact of changes in market interest rates on the reinvestment or reborrowing of current balances and expected future cash flows. The Group accumulates information about financial assets and liabilities, and thereby estimates and aggregates the amounts and timing of future period cash flows, based on the contractual terms of instruments and other factors including estimates of prepayments and defaults. The aggregate cash flows form the basis for identifying the non-trad-
123
UBS Group Financial Statements
Notes to the Financial Statements
ingnon-trading interest rate risk of the Group, which is hedged with interest rate swaps, which extend over a twenty-four-yeartwenty-three-year period.
The schedule of forecast principal cash flows as at 31 December 20022003 is as follows:follows.
| | | | | | | | | | | | | | | | | | | | | |
| CHF billion | | < 1 year | | | 1-3 years | | | 3-5 years | | | 5-10 years | | | over 10 years | |
|
| Cash inflows (Assets) | | | 119 | | | | 202 | | | | 124 | | | | 128 | | | | 8 | |
| Cash outflows (Liabilities) | | | 159 | | | | 247 | | | | 193 | | | | 324 | | | | 237 | |
|
| Net cash flows | | | (40 | ) | | | (45 | ) | | | (69 | ) | | | (196 | ) | | | (229 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| CHF billion | | < 1 year | | | 1–3 years | | | 3–5 years | | | 5–10 years | | | over 10 years | |
| |
| Cash inflows (Assets) | | | 170 | | | | 261 | | | | 181 | | | | 191 | | | | 16 | |
| Cash outflows (Liabilities) | | | 148 | | | | 250 | | | | 183 | | | | 287 | | | | 167 | |
| |
Net cash flows | | | 22 | | | | 11 | | | | (2 | ) | | | (96 | ) | | | (151 | ) |
| |
127
Financial Statements
Notes to the Financial Statements
Gains and losses on derivatives designated as cash flow hedges of forecast transactions are initially recorded in Shareholders’ equity as “Gains/Gains / losses not recognized in the income statement”statement and transferred to current period earnings when the forecast cash flows occur.affect net profit or loss. As at 31 December 2002,2003, the fair value of outstanding derivatives designated as cash flow hedges of forecast transactions was a CHF 181871 million net unrealizednegative replacement value. During the year, certain CHF hedging interest rate swaps with a positive replacement value of CHF 867 million were terminated. At this year-end, the unrecognized income of CHF 805 million associated with swaps has remained deferred in shareholders’ equity to be removed from the equity when the underlying previously hedged cash flows impact net profit or loss. Amounts reclassified from Gains/Gains / losses not recognized in the income statement to current period earnings due to discontinuation of hedge accounting were immaterial.CHF 7 million net gain which is recorded in net interest income.
Notional amounts and replacement values
The following table provides the notional amounts and the positive and negative replacement values of the Group’s derivative transactions.
The notional amount is a derivative’s underlying contract amount and is the basis upon which changes in the value of derivatives are measured. It provides an indication of the underlying volume of business transacted by the Group but does not provide any measure of risk.
The majority of derivatives are negotiated as to amount, tenor and price, between the bank and its counterparty, whether other professionals or customers (OTC). The rest are standardized in terms of their amounts and settlement dates and are bought and sold in organized markets (exchange traded).
Positive replacement value represents the cost to the Group of replacing all transactions with a
fair value in the Group’s favourfavor if all the relevant counterparties of the Group were to default at the same time, and transactions could be replaced instantaneously. Negative replacement
value is the cost to the Group’s counterparties of replacing all their transactions with the Group where the fair value is in their favor if the Group were to default. The total positive and negative replacement values are included in the balance sheet separately. For internal credit risk measurement the potential evolution of the value of the portfolio of trades with each counterparty is also modelledmodeled over its life (potential future exposure), taking into account legally enforceable close outclose-out netting agreements where applicable (see below).
Credit mitigation
The Group seeks, wherever possible, to enter into master netting agreements with OTC derivative counterparties. Where the Group has such an agreement and it has a legal opinion that it is enforceable by UBS in the event of insolvency of the counterparty, positive and negative replacement values of transactions covered by the agreement are netted and a single payable or receivable amount is included in the balance sheet. The impact of master netting agreements as at 31 December 20022003 is to reduce positive and negative replacement values on OTC derivative instruments by approximately CHF 167165 billion. The impact can change substantially over short periods of time, because the exposure is affected by each transaction subject to the arrangement.
In line with general market trends, the Group has also entered into bilateral collateral agreements with major market participants to mitigate the potential concentrations of exposure arising from industry consolidation and the continuing increase in volumes of OTC derivatives traded. The figures in the tables do not, however, reflect the risk mitigatingrisk-mitigating effects of such collateral agreements.
124128
Note 23 Derivative Instruments (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at 31 December 2002 | | Term to maturity | | Total | | |
| As at 31 December 2003 | | | Term to maturity | | Total | |
| | | | | | notional | | | | | notional | |
| | | | Within 3 months | | 3-12 months | | 1-5 years | | over 5 years | | Total | | Total | | amount | | | Within 3 months | | 3–12 months | | 1–5 years | | over 5 years | | Total | | Total | | amount | |
| CHF million | CHF million | | PRV1 | | NRV2 | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | CHF bn | | | PRV1 | | NRV2 | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | CHF bn | |
|
| |
| Interest rate contracts | Interest rate contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 3,785 | | 4,127 | | 93 | | 121 | | 141 | | 333 | | 33 | | 8 | | | 4,052 | | | | 4,589 | | | 1,517.3 | | |
| | Swaps | | 2,862 | | 3,778 | | 9,451 | | 8,127 | | 78,413 | | 76,244 | | 55,377 | | 51,917 | | | 146,103 | | | | 140,066 | | | 5,753.0 | | |
| | Options | | 338 | | 706 | | 1,143 | | 1,488 | | 4,216 | | 5,484 | | 3,905 | | 4,464 | | | 9,602 | | | | 12,142 | | | 663.2 | | |
| Forward contracts | | | 423 | | 588 | | 258 | | 312 | | 71 | | 130 | | 6 | | 4 | | 758 | | 1,034 | | 1,128.4 | |
| Swaps | | | 3,831 | | 4,388 | | 9,715 | | 9,918 | | 66,959 | | 65,074 | | 52,019 | | 50,517 | | 132,524 | | 129,897 | | 8,064.4 | |
| Options | | | 464 | | 977 | | 868 | | 992 | | 4,579 | | 5,967 | | 4,223 | | 5,334 | | 10,134 | | 13,270 | | 815.4 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 40.3 | | |
| | Options | | 4 | | 16 | | 1 | | | 4 | | | | 17 | | | 101.1 | | |
| Futures | | | 243.7 | |
| Options | | | 7 | | 9 | | 2 | | 8 | | 9 | | 17 | | 63.4 | |
|
| |
| Total | Total | | | 6,989 | | | | 8,627 | | | | 10,687 | | | | 9,737 | | | | 82,770 | | | | 82,061 | | | | 59,315 | | | | 56,389 | | | | 159,761 | | | | 156,814 | | | | 8,074.9 | | | 4,725 | | 5,962 | | 10,843 | | 11,230 | | 71,609 | | 71,171 | | 56,248 | | 55,855 | | 143,425 | | 144,218 | | 10,315.3 | |
|
| |
| Credit derivative contracts | Credit derivative contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Credit default swaps | | 2 | | 7 | | 95 | | 504 | | 1,636 | | 2,740 | | 2,852 | | 958 | | | 4,585 | | | | 4,209 | | | 164.6 | | |
| | Total rate of return swaps | | 15 | | 21 | | 194 | | 782 | | 2,308 | | 1,726 | | 162 | | 35 | | | 2,679 | | | | 2,564 | | | 14.5 | | |
| Credit default swaps | | | 109 | | 102 | | 39 | | 61 | | 3,443 | | 3,537 | | 2,105 | | 1,880 | | 5,696 | | 5,580 | | 289.3 | |
| Total rate of return swaps | | | 27 | | 2 | | 29 | | 576 | | 197 | | 470 | | 112 | | 305 | | 365 | | 1,353 | | 12.0 | |
|
| |
| Total | Total | | | 17 | | | | 28 | | | | 289 | | | | 1,286 | | | | 3,944 | | | | 4,466 | | | | 3,014 | | | | 993 | | | | 7,264 | | | | 6,773 | | | | 179.1 | | | 136 | | 104 | | 68 | | 637 | | 3,640 | | 4,007 | | 2,217 | | 2,185 | | 6,061 | | 6,933 | | 301.3 | |
|
| |
| Foreign exchange contracts | Foreign exchange contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 2,406 | | 3,100 | | 1,005 | | 1,732 | | 232 | | 270 | | 11 | | 1 | | | 3,654 | | | | 5,103 | | | 252.0 | | |
| | Interest and currency swaps | | 21,561 | | 20,641 | | 8,962 | | 10,292 | | 8,627 | | 8,907 | | 3,360 | | 3,990 | | | 42,510 | | | | 43,830 | | | 1,843.1 | | |
| | Options | | 2,223 | | 2,219 | | 1,681 | | 1,636 | | 361 | | 312 | | 7 | | | 4,272 | | | | 4,167 | | | 500.8 | | |
| Forward contracts | | | 3,045 | | 3,879 | | 1,978 | | 2,573 | | 161 | | 317 | | 15 | | 12 | | 5,199 | | 6,781 | | 298.4 | |
| Interest and currency swaps | | | 24,929 | | 25,242 | | 14,258 | | 12,428 | | 17,804 | | 14,394 | | 6,002 | | 5,250 | | 62,993 | | 57,314 | | 2,254.4 | |
| Options | | | 3,232 | | 3,348 | | 3,211 | | 2,550 | | 360 | | 356 | | 9 | | 1 | | 6,812 | | 6,255 | | 576.8 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 0.0 | | |
| | Options | | 1 | | 1 | | | 1 | | | | 1 | | | 0.1 | | |
| Futures | | | 5.0 | |
| Options | | | 3 | | 3 | | 119 | | 116 | | 122 | | 119 | | 13.2 | |
|
| |
| Total | Total | | | 26,190 | | | | 25,961 | | | | 11,649 | | | | 13,660 | | | | 9,220 | | | | 9,489 | | | | 3,378 | | | | 3,991 | | | | 50,437 | | | | 53,101 | | | | 2,596.0 | | | 31,209 | | 32,472 | | 19,566 | | 17,667 | | 18,325 | | 15,067 | | 6,026 | | 5,263 | | 75,126 | | 70,469 | | 3,147.8 | |
|
| |
| Precious metals contracts | Precious metals contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 329 | | 231 | | 235 | | 257 | | 150 | | 121 | | 9 | | 8 | | | 723 | | | | 617 | | | 18.0 | | |
| | Options | | 205 | | 217 | | 325 | | 289 | | 407 | | 373 | | 86 | | 63 | | | 1,023 | | | | 942 | | | 38.6 | | |
| Forward contracts | | | 246 | | 247 | | 377 | | 306 | | 333 | | 270 | | 18 | | 23 | | 974 | | 846 | | 15.9 | |
| Options | | | 304 | | 193 | | 308 | | 386 | | 668 | | 629 | | 116 | | 54 | | 1,396 | | 1,262 | | 35.1 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | 0.0 | | |
| | Options | | 1 | | 1 | | 4 | | | 0 | | | | 6 | | | 0.2 | | |
| Futures | | | 1.1 | |
| Options | | | 9 | | 40 | | 21 | | 63 | | 3 | | 4 | | 33 | | 107 | | 2.3 | |
|
| |
| Total | Total | | | 534 | | | | 449 | | | | 560 | | | | 547 | | | | 557 | | | | 498 | | | | 95 | | | | 71 | | | | 1,746 | | | | 1,565 | | | | 56.8 | | | 559 | | 480 | | 706 | | 755 | | 1,004 | | 903 | | 134 | | 77 | | 2,403 | | 2,215 | | 54.4 | |
|
| |
| Equity/Index contracts | | |
Equity / Index contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 5,393 | | 1,406 | | 583 | | 512 | | 917 | | 205 | | 124 | | 219 | | | 7,017 | | | | 2,342 | | | 33.2 | | |
| | Options | | 8,676 | | 12,441 | | 2,515 | | 3,496 | | 6,650 | | 7,125 | | 403 | | 794 | | | 18,244 | | | | 23,856 | | | 99.3 | | |
| Forward contracts | | | 510 | | 529 | | 760 | | 583 | | 923 | | 449 | | 1,408 | | 500 | | 3,601 | | 2,061 | | 57.9 | |
| Options | | | 1,843 | | 2,788 | | 3,476 | | 7,847 | | 8,584 | | 13,646 | | 1,329 | | 4,560 | | 15,232 | | 28,841 | | 213.8 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 7.4 | | |
| | Options | | 861 | | 246 | | 316 | | 247 | | 443 | | 338 | | | 1,620 | | | | 831 | | | 7.5 | | |
| Futures | | | 8.6 | |
| Options | | | 708 | | 858 | | 892 | | 1,363 | | 886 | | 768 | | 54 | | 117 | | 2,540 | | 3,106 | | 62.6 | |
|
| |
| Total | Total | | | 14,930 | | | | 14,093 | | | | 3,414 | | | | 4,255 | | | | 8,010 | | | | 7,668 | | | | 527 | | | | 1,013 | | | | 26,881 | | | | 27,029 | | | | 147.4 | | | 3,061 | | 4,175 | | 5,128 | | 9,793 | | 10,393 | | 14,863 | | 2,791 | | 5,177 | | 21,373 | | 34,008 | | 342.9 | |
|
| |
| Commodity contracts | Commodity contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 5 | | 3 | | 2,629 | | 2,670 | | 346 | | 304 | | | 2,980 | | | | 2,977 | | | 24.9 | | |
| | Options | | | 0 | | | | 0 | | | 0.0 | | |
| Forward contracts | | | 206 | | 181 | | 456 | | 424 | | 93 | | 42 | | 755 | | 647 | | 10.6 | |
| Options | | | 168 | | 153 | | 73 | | 53 | | 241 | | 206 | | 1.6 | |
|
| |
| Total | Total | | | 5 | | | | 3 | | | | 2,629 | | | | 2,670 | | | | 346 | | | | 304 | | | | 0 | | | | 0 | | | | 2,980 | | | | 2,977 | | | | 24.9 | | | 374 | | 334 | | 529 | | 477 | | 93 | | 42 | | 0 | | 0 | | 996 | | 853 | | 12.2 | |
|
| |
| Total derivative instruments | Total derivative instruments | | | 48,665 | | | | 49,161 | | | | 29,228 | | | | 32,155 | | | | 104,847 | | | | 104,486 | | | | 66,329 | | | | 62,457 | | | | 249,069 | | | | 248,259 | | | | 40,064 | | 43,527 | | 36,840 | | 40,559 | | 105,064 | | 106,053 | | 67,416 | | 68,557 | | 249,384 | | 258,696 | |
| Replacement value netting | Replacement value netting | | | 166,977 | | | | 166,977 | | | | 165,050 | | 165,050 | |
|
| |
| Replacement values after netting | Replacement values after netting | | | 82,092 | | | | 81,282 | | | | 84,334 | | 93,646 | |
|
| |
1 PRV: Positive replacement value. 2NRV: Negative replacement value. 3Exchange-traded products include proprietary trades only.
125129
UBS Group Financial Statements
Notes to the Financial Statements
Note 23 Derivative Instruments (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at 31 December 2001 | | Term to maturity | | Total | | |
| As at 31 December 2002 | | | Term to maturity | | Total | |
| | | | | | notional | | | | | notional | |
| | | | Within 3 months | | 3-12 months | | 1-5 years | | over 5 years | | Total | | Total | | amount | | | Within 3 months | | 3–12 months | | 1–5 years | | over 5 years | | Total | | Total | | amount | |
| CHF million | CHF million | | PRV1 | | NRV2 | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | CHF bn | | | PRV1 | | NRV2 | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | PRV | | NRV | | CHF bn | |
|
| |
| Interest rate contracts | Interest rate contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 2,844 | | 3,260 | | 114 | | 530 | | 108 | | 245 | | 48 | | 134 | | | 3,114 | | | | 4,169 | | | 1,768.7 | | |
| | Swaps | | 2,807 | | 4,322 | | 5,724 | | 6,393 | | 49,043 | | 45,029 | | 25,232 | | 22,866 | | | 82,806 | | | | 78,610 | | | 4,552.4 | | |
| | Options | | 388 | | 950 | | 670 | | 2,095 | | 3,037 | | 4,048 | | 2,830 | | 3,336 | | | 6,925 | | | | 10,429 | | | 784.9 | | |
| Forward contracts | | | 3,785 | | 4,127 | | 93 | | 121 | | 141 | | 333 | | 33 | | 8 | | 4,052 | | 4,589 | | 1,517.3 | |
| Swaps | | | 2,862 | | 3,778 | | 9,451 | | 8,127 | | 78,413 | | 76,244 | | 55,377 | | 51,917 | | 146,103 | | 140,066 | | 5,753.0 | |
| Options | | | 338 | | 706 | | 1,143 | | 1,488 | | 4,216 | | 5,484 | | 3,905 | | 4,464 | | 9,602 | | 12,142 | | 663.2 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 83.6 | | |
| | Options | | 3 | | 24 | | | 3 | | | | 24 | | | 63.2 | | |
| Futures | | | 40.3 | |
| Options | | | 4 | | 16 | | 1 | | 4 | | 17 | | 101.1 | |
|
| |
| Total | Total | | | 6,042 | | | | 8,532 | | | | 6,508 | | | | 9,042 | | | | 52,188 | | | | 49,322 | | | | 28,110 | | | | 26,336 | | | | 92,848 | | | | 93,232 | | | | 7,252.8 | | | 6,989 | | 8,627 | | 10,687 | | 9,737 | | 82,770 | | 82,061 | | 59,315 | | 56,389 | | 159,761 | | 156,814 | | 8,074.9 | |
|
| |
| Credit derivative contracts | Credit derivative contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Credit default swaps | | 6 | | 18 | | 707 | | 1,104 | | 1,020 | | 1,490 | | 773 | | 1,184 | | | 2,506 | | | | 3,796 | | | 75.7 | | |
| | Total rate of return swaps | | 84 | | 621 | | 636 | | 12 | | 0 | | | 96 | | | | 1,257 | | | 3.6 | | |
| Credit default swaps | | | 2 | | 7 | | 95 | | 504 | | 1,636 | | 2,740 | | 2,852 | | 958 | | 4,585 | | 4,209 | | 164.6 | |
| Total rate of return swaps | | | 15 | | 21 | | 194 | | 782 | | 2,308 | | 1,726 | | 162 | | 35 | | 2,679 | | 2,564 | | 14.5 | |
|
| |
| Total | Total | | | 6 | | | | 18 | | | | 791 | | | | 1,725 | | | | 1,020 | | | | 2,126 | | | | 785 | | | | 1,184 | | | | 2,602 | | | | 5,053 | | | | 79.3 | | | 17 | | 28 | | 289 | | 1,286 | | 3,944 | | 4,466 | | 3,014 | | 993 | | 7,264 | | 6,773 | | 179.1 | |
|
| |
| Foreign exchange contracts | Foreign exchange contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 3,615 | | 3,163 | | 1,639 | | 1,899 | | 755 | | 428 | | 20 | | | 6,029 | | | | 5,490 | | | 279.7 | | |
| | Interest and currency swaps | | 19,344 | | 11,224 | | 8,991 | | 7,763 | | 7,463 | | 7,673 | | 3,465 | | 2,312 | | | 39,263 | | | | 28,972 | | | 1,699.3 | | |
| | Options | | 2,138 | | 1,942 | | 2,148 | | 1,888 | | 445 | | 433 | | 23 | | 1 | | | 4,754 | | | | 4,264 | | | 1,033.7 | | |
| Forward contracts | | | 2,406 | | 3,100 | | 1,005 | | 1,732 | | 232 | | 270 | | 11 | | 1 | | 3,654 | | 5,103 | | 252.0 | |
| Interest and currency swaps | | | 21,561 | | 20,641 | | 8,962 | | 10,292 | | 8,627 | | 8,907 | | 3,360 | | 3,990 | | 42,510 | | 43,830 | | 1,843.1 | |
| Options | | | 2,223 | | 2,219 | | 1,681 | | 1,636 | | 361 | | 312 | | 7 | | 4,272 | | 4,167 | | 500.8 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 0.0 | | |
| | Options | | 1 | | 2 | | | 1 | | | | 2 | | | 0.8 | | |
| Futures | | | 0.0 | |
| Options | | | 1 | | 1 | | 1 | | 1 | | 0.1 | |
|
| |
| Total | Total | | | 25,097 | | | | 16,329 | | | | 12,779 | | | | 11,552 | | | | 8,663 | | | | 8,534 | | | | 3,508 | | | | 2,313 | | | | 50,047 | | | | 38,728 | | | | 3,013.5 | | | 26,190 | | 25,961 | | 11,649 | | 13,660 | | 9,220 | | 9,489 | | 3,378 | | 3,991 | | 50,437 | | 53,101 | | 2,596.0 | |
|
| |
| Precious metals contracts | Precious metals contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 242 | | 223 | | 210 | | 198 | | 195 | | 179 | | 6 | | | 653 | | | | 600 | | | 17.0 | | |
| | Options | | 177 | | 164 | | 535 | | 507 | | 740 | | 805 | | 90 | | 81 | | | 1,542 | | | | 1,557 | | | 54.1 | | |
| Forward contracts | | | 329 | | 231 | | 235 | | 257 | | 150 | | 121 | | 9 | | 8 | | 723 | | 617 | | 18.0 | |
| Options | | | 205 | | 217 | | 325 | | 289 | | 407 | | 373 | | 86 | | 63 | | 1,023 | | 942 | | 38.6 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | 0.0 | | |
| | Options | | 2 | | 3 | | 1 | | | 3 | | | | 3 | | | 0.9 | | |
| Futures | | | 0.0 | |
| Options | | | 1 | | 1 | | 4 | | 0 | | 6 | | 0.2 | |
|
| |
| Total | Total | | | 419 | | | | 389 | | | | 748 | | | | 706 | | | | 935 | | | | 984 | | | | 96 | | | | 81 | | | | 2,198 | | | | 2,160 | | | | 72.0 | | | 534 | | 449 | | 560 | | 547 | | 557 | | 498 | | 95 | | 71 | | 1,746 | | 1,565 | | 56.8 | |
|
| |
| Equity/Index contracts | | |
Equity / Index contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 1,402 | | 1,422 | | 445 | | 1,713 | | 1,461 | | 1,464 | | 111 | | 85 | | | 3,419 | | | | 4,684 | | | 35.3 | | |
| | Options | | 6,140 | | 6,222 | | 4,294 | | 5,105 | | 4,076 | | 6,991 | | 1,087 | | 2,844 | | | 15,597 | | | | 21,162 | | | 238.0 | | |
| Forward contracts | | | 5,393 | | 1,406 | | 583 | | 512 | | 917 | | 205 | | 124 | | 219 | | 7,017 | | 2,342 | | 33.2 | |
| Options | | | 8,676 | | 12,441 | | 2,515 | | 3,496 | | 6,650 | | 7,125 | | 403 | | 794 | | 18,244 | | 23,856 | | 99.3 | |
|
| |
| Exchange-traded contracts3 | Exchange-traded contracts3 | | |
| | Futures | | | 0 | | | | 0 | | | 12.4 | | |
| | Options | | 1,497 | | 1,080 | | 1,187 | | 1,431 | | 601 | | 463 | | 21 | | 14 | | | 3,306 | | | | 2,988 | | | 440.3 | | |
| Futures | | | 7.4 | |
| Options | | | 861 | | 246 | | 316 | | 247 | | 443 | | 338 | | 1,620 | | 831 | | 7.5 | |
|
| |
| Total | Total | | | 9,039 | | | | 8,724 | | | | 5,926 | | | | 8,249 | | | | 6,138 | | | | 8,918 | | | | 1,219 | | | | 2,943 | | | | 22,322 | | | | 28,834 | | | | 726.0 | | | 14,930 | | 14,093 | | 3,414 | | 4,255 | | 8,010 | | 7,668 | | 527 | | 1,013 | | 26,881 | | 27,029 | | 147.4 | |
|
| |
| Commodity contracts | Commodity contracts | | |
| Over the counter (OTC) contracts | Over the counter (OTC) contracts | | |
| | Forward contracts | | 8 | | 14 | | 1 | | 1 | | | 9 | | | | 15 | | | 6.4 | | |
| | Options | | | 0 | | | | 0 | | | 0.0 | | |
| Forward contracts | | | 5 | | 3 | | 2,629 | | 2,670 | | 346 | | 304 | | 2,980 | | 2,977 | | 24.9 | |
| Options | | | 0 | | 0 | | 0.0 | |
|
| |
| Total | Total | | | 8 | | | | 14 | | | | 1 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 9 | | | | 15 | | | | 6.4 | | | 5 | | 3 | | 2,629 | | 2,670 | | 346 | | 304 | | 0 | | 0 | | 2,980 | | 2,977 | | 24.9 | |
|
| |
| Total derivative instruments | Total derivative instruments | | | 40,611 | | | | 34,006 | | | | 26,753 | | | | 31,275 | | | | 68,944 | | | | 69,884 | | | | 33,718 | | | | 32,857 | | | | 170,026 | | | | 168,022 | | | | 48,665 | | 49,161 | | 29,228 | | 32,155 | | 104,847 | | 104,486 | | 66,329 | | 62,457 | | 249,069 | | 248,259 | |
| Replacement value netting | Replacement value netting | | | 96,579 | | | | 96,579 | | | | 166,977 | | 166,977 | |
|
| |
| Replacement values after netting | Replacement values after netting | | | 73,447 | | | | 71,443 | | | | 82,092 | | 81,282 | |
|
| |
1PRV: Positive replacement value. 2NRV: Negative replacement value. 3Exchange-traded products include proprietary trades only.
126130
| Off-Balance Sheet Information |
Note 24 Fiduciary Transactions
Fiduciary placement represents funds which customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors of the Group have a claim on the assets placed.
| | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Placements with third parties | | | 43,440 | | | 58,466 | | | 37,851 | | 43,440 | |
| Fiduciary credits and other fiduciary financial transactions | | | 774 | | | 1,136 | | | 74 | | 774 | |
|
| |
| Total fiduciary transactions | | | 44,214 | | | 59,602 | | | 37,925 | | 44,214 | |
|
| |
The Group also acts in its own name as trustee or in fiduciary capacities for the account of third parties. The assets managed in such capacities are not reported on the balance sheet unless they are invested with UBS. UBS earns commission and fee income from such transactions and assets. These activities potentially expose UBS to liability risks in cases of gross negligence with regard to non-compliance ofwith its fiduciary and contractual duties. The risks associated with this business are covered by the standard UBS risk framework.
Note 25 Commitments and Contingent Liabilities
The Group utilizes various lending-related financial instruments in order to meet the financial needs of its customers. The Group issues commitments to extend credit, standby and other letters of credit, guarantees, commitments to enter into repurchase agreements, note issuance facilities and revolving underwriting facilities. Guarantees represent irrevocable assurances, subject to the satisfaction of certain conditions, that the Group will make payment in the event that the customer fails to fulfill its obligation to third parties. The Group also enters into commitments to extend credit in the form of credit lines which are available to secure the liquidity needs of ourits customers, but not yet drawn upon by them, the majority of which range in maturity from 1 month to 5 years.
The contractual amount of these instruments is the maximum amount at risk for the Group if the customer fails to meet its obligations. The risk is similar to the risk involved in extending
loan facilities and is monitored with the same risk control processes and specific credit risk policies. For the years ended 31 December 2003, 2002 2001 and 20002001 the Group recognized CHF 23 million expense recovery, CHF 13 million expense and CHF 25 million expense, respectively, in the income statement related to obligations incurred for contingencies and commitments of CHF 13 million, CHF 25 million and CHF 1 million, respectively.
The Group generally enters into sub-participations to mitigate the risks from the Group’s commitments and contingencies. A sub-participation is an agreement with another party to fund a portion of the credit facility and to take a share of the loss in the event that the borrower fails to fulfill its obligations. The Group retains the contractual relationship with the borrower and the sub-participant has only an indirect relationship with the borrower. The Group will only enter into sub-participation agreements with banks whose rating is at least equal to or higher than that of the borrower.
127131
UBS Group Financial Statements
Notes to the Financial Statements
Note 25 Commitments and Contingent Liabilities (continued)
| | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Contingent liabilities | | |
| Credit guarantees and similar instruments1 | | | 11,522 | | | 18,566 | | | 10,832 | | 11,522 | |
| Sub-participations | | | (650 | ) | | | (4,944 | ) | | | (765 | ) | | | (650 | ) |
|
| |
| Total | | | 10,872 | | | 13,622 | | | 10,067 | | 10,872 | |
|
| |
| Performance guarantees and similar instruments2 | | | 3,216 | | | 4,865 | | | 2,760 | | 3,216 | |
| Sub-participations | | | (348 | ) | | | (4 | ) | | | (276 | ) | | | (348 | ) |
|
| |
| Total | | | 2,868 | | | 4,861 | | | 2,484 | | 2,868 | |
|
| |
| Irrevocable commitments under documentary credits | | | 1,856 | | | 2,056 | | | 1,971 | | 1,856 | |
| Sub-participations | | | (259 | ) | | 0 | | | | (373 | ) | | | (259 | ) |
|
| |
| Total | | | 1,597 | | | 2,056 | | | 1,598 | | 1,597 | |
|
| |
| Gross contingent liabilities | | | 16,594 | | | 25,487 | | | 15,563 | | 16,594 | |
| Sub-participations | | | (1,257 | ) | | | (4,948 | ) | | | (1,414 | ) | | | (1,257 | ) |
|
| |
| Net contingent liabilities | | | 15,337 | | | 20,539 | | | 14,149 | | 15,337 | |
|
| |
| Irrevocable commitments | | |
| Undrawn irrevocable credit facilities | | | 39,306 | | | 50,608 | | | 46,623 | | 39,306 | |
| Sub-participations | | | (446 | ) | | | (532 | ) | | | (235 | ) | | | (446 | ) |
|
| |
| Total | | | 38,860 | | | 50,076 | | | 46,388 | | 38,860 | |
|
| |
| Liabilities for calls on shares and other equities | | | 21 | | | 98 | | | 337 | | 21 | |
|
| |
| Gross irrevocable commitments | | | 39,327 | | | 50,706 | | | 46,960 | | 39,327 | |
| Sub-participations | | | (446 | ) | | | (532 | ) | | | (235 | ) | | | (446 | ) |
|
| |
| Net irrevocable commitments | | | 38,881 | | | 50,174 | | | 46,725 | | 38,881 | |
|
| |
| Gross commitments and contingent liabilities | | | 55,921 | | | 76,193 | | | 62,523 | | 55,921 | |
| Sub-participations | | | (1,703 | ) | | | (5,480 | ) | | | (1,649 | ) | | | (1,703 | ) |
|
| |
| Net commitments and contingent liabilities | | | 54,218 | | | 70,713 | | | 60,874 | | 54,218 | |
|
| |
1Credit guarantees in the form of bills of exchange and other guarantees, including guarantees in the form of irrevocable letters of credit, endorsement liabilities from bills rediscounted, advance payment guarantees and similar facilities. 2Bid bonds, performance bonds, builders’ guarantees, letters of indemnity, other performance guarantees in the form of irrevocable letters of credit and similar facilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mortgage | | Other | | | | | | | Mortgage | | Other | | | | | |
| CHF million | | collateral | | collateral | | Unsecured | | Total | | | collateral | | collateral | | Unsecured | | Total | |
|
| |
| Overview of collateral | | |
| Gross contingent liabilities | | 275 | | 8,254 | | 8,065 | | | 16,594 | | | 142 | | 7,297 | | 8,124 | | 15,563 | |
| Gross irrevocable commitments | | 1,084 | | 14,956 | | 23,266 | | | 39,306 | | | 2,495 | | 23,573 | | 20,555 | | 46,623 | |
| Liabilities for calls on shares and other equities | | 21 | | | 21 | | | 337 | | 337 | |
|
| |
Total 31.12.2003 | | | 2,637 | | 30,870 | | 29,016 | | 62,523 | |
| | | |
| Total 31.12.2002 | | | 1,359 | | | | 23,210 | | | | 31,352 | | | | 55,921 | | | 1,359 | | 23,210 | | 31,352 | | 55,921 | |
|
| |
| Total 31.12.2001 | | 1,711 | | 25,625 | | 48,857 | | 76,193 | | |
| |
Other commitments
The Group enters into commitments to fund external private equity funds and investments, which typically expire within five years. The commitments themselves do not involve credit or market risk as the funds purchase investments at mar-
ketmarket value at the time the commitments are drawn. The maximum amount available to fund these investments at 31 December 20022003 and 31 December 20012002 was CHF 1,537 million and CHF 2,245 million, and CHF 3,548 million, respectively.
128132
Note 26 Operating Lease Commitments
At 31 December 2002,2003, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease agreements do not contain contingent rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
Our minimum commitments for non-cancellable leases of premises and equipment are presented as follows:
| | | | | |
| CHF million | | 31.12.02 | | | 31.12.03 | |
|
| |
| Operating leases due | | |
| 2003 | | | 1,038 | | |
| 2004 | | | 913 | | | 876 | |
| 2005 | | | 777 | | | 770 | |
| 2006 | | | 663 | | | 707 | |
| 2007 | | | 623 | | | 632 | |
| 2008 and thereafter | | | 5,082 | | |
| 2008 | | | 595 | |
| 2009 and thereafter | | | 3,992 | |
|
| |
| Total commitments for minimum payments under operating leases | | | 9,096 | | |
| Subtotal commitments for minimum payments under operating leases | | | 7,572 | |
|
| |
| Less: Sublease rentals under non-cancellable leases | | | 645 | |
| | | |
Net commitments for minimum payments under operating leases | | | 6,927 | |
| | | |
Operating expenses for the year ended 31 December 2003 include CHF 1,233 million of gross operating lease rentals which were reduced by CHF 43 million of sublease income. Operating expenses include CHF 1,193 million CHF 1,092 million and CHF 8161,092 million in respect of operating lease rentals for the yearyears ended 31 December 2002 and 31 December 2001, and 31 December 2000, respectively.
129133
UBS Group Financial Statements
Notes to the Financial Statements
Note 27 Pledged Assets
Assets are pledged as collateral for collateralized credit lines with central banks, loans from central mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock exchange membership and mortgages on the Group’s property. The following table shows additional information about assets pledged or assigned as security for liabilities and assets subject to reservation of title for the years ended 31 December 20022003 and 31 December 2001. The securities presented in the table below2002.| | | | | | | | | | | | | | | | | |
| | | Carrying | | | Related | | | Carrying | | | Related | |
| | | amount | | | liability | | | amount | | | liability | |
| CHF million | | 31.12.03 | | | 31.12.03 | | | 31.12.02 | | | 31.12.02 | |
| |
| Mortgage loans | | | 428 | | | | 209 | | | | 808 | | | | 506 | |
Securities1 | | | 157,639 | | | | 121,984 | | | | 50,945 | | | | 37,038 | |
| Property and equipment | | | 0 | | | | 0 | | | | 129 | | | | 33 | |
| Other | | | 0 | | | | 0 | | | | 2 | | | | 0 | |
| |
Total pledged assets | | | 158,067 | | | | 122,193 | | | | 51,884 | | | | 37,577 | |
| |
1 Amounts for 2003 include securities pledged in respect of securities lending and repurchase
agreements.| | | | | | | | | | | | | | | | | |
| | | Carrying | | | Related | | | Carrying | | | Related | |
| | | amount | | | liability | | | amount | | | liability | |
| CHF million | | 31.12.02 | | | 31.12.02 | | | 31.12.01 | | | 31.12.01 | |
|
| Mortgage loans | | | 808 | | | | 506 | | | | 1,311 | | | | 873 | |
| Securities | | | 50,945 | | | | 37,038 | | | | 204,623 | | | | 163,134 | |
| Property and equipment | | | 129 | | | | 33 | | | | 160 | | | | 89 | |
| Other | | | 2 | | | | 0 | | | | 2 | | | | 0 | |
|
| Total pledged assets | | | 51,884 | | | | 37,577 | | | | 206,096 | | | | 164,096 | |
|
agreements: assets CHF 125,411 million and liabilities CHF 121,939 million. Note 28 Litigation
Due to the nature of their business, the bank and other companies within the UBS Group are involved in various claims, disputes and legal proceedings, arising in the ordinary course of business. The Group makes provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated (see Note 20).
In respect of the further claims asserted against the Group of which management is aware (and which, according to the principles outlined above, have not been provided for), it is the opinion of the management that such claims are either without merit, can be successfully defended or will not have a material adverse effect on the Group’s financial condition, results of operations or liquidity.
Note 29 Financial Instruments Risk Position
This section presents information about the Group’sUBS’s exposure to and its management and control of risks, in particular the primary risks associated with its use of financial instruments:
| – | | market risk is exposure to observable market variables such as interest rates, exchange rates and equity markets |
| – | | credit risk is the risk of loss resulting from client or counterparty default and arises on |
| | credit exposure in all forms, including settlement risk |
| – | | liquidityfunding and fundingliquidity risk is the risk that the GroupUBS is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured, or even secured basis at an acceptable price to fund assetsactual or meet obligations at a reasonable price or, in extreme situations, at any price.proposed commitments. |
This section also presents and explains the Group’s regulatory capital position.
130134
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk
(a)(i) Overview
Market risk is the risk of loss arising from movements in observable market variables such as interest rates, exchange rates and equity markets. In addition to these and other general market risk factors, theThe risk of price movements on securities resulting from general credit and country risk factors and events specific to an individual issuer of securitiesissuers is also considered market risk.
Market risk is incurred in UBS primarily through trading activities, which are centered in the Corporate and Institutional Clients business of UBS Warburg.Investment Bank. It arises primarily from market making, client facilitation and proprietary positions in equities, fixed income and interest rate products, foreign exchange and, to a lesser extent, precious metals and energy. Such activities are mainly in OECD markets, with some business in emerging markets.
Group Treasury assumes non-trading risk positions that arise from its balance sheet and capital management activities.
Further marketMarket risks arise, but to a much lesser extent, in other businessesBusiness Groups primarily from the facilitation of customer business.
Each Business Group has a Chief Risk Officer (CRO), reporting functionally to the Group CRO, responsible for independent risk control of market risk.
Market risk measures are applied to all trading activities, to foreign exchange, precious metal and energy positions, to the trading books of UBS Warburg,exposures wherever they arise, and to interest rate risk in the banking books of all business groups including Group Treasury book and the independent private banks, and to any other material market risk arising.banks.
The principal risk measures and controls on market risk are Value at Risk (VaR) and stress loss. VaR expresses the potential loss on the current portfolio from adverse market movements assuming a specified time horizon before positions can be adjusted (holding period), and measured to a specified level of confidence, based on historical market movements. Stress loss is assessed against a set of forward-looking scenarios approved by the Board of Directors, using stress moves in market variables.variables, which are regularly reviewed. Complementary controls are also applied, where appropriate, to prevent undue concentrations, including limitstaking into account varia-
tions in price volatility and market depth and liquidity. They include controls on exposure to individual market risk variables, such as individual interest or
exchange rates, and limits on positions in the securities of individual issuers. These controls are set at levels which reflect variations in price volatility and market depth and liquidity.issuers (‘issuer risk’).
(a)(ii) Interest Rate Risk
Interest rate risk is the risk of loss resulting from changes in interest rates. It is controlled primarily through the limit structure described in (a)(i) above. Exposure to interest rate movements can be expressed for all interest rate sensitive positions, whether marked to market or subject to accrual accounting, as the impact on their fair values of a one basis point (0.01%) change in interest rates. This sensitivity, analyzed by time band, is set out below. Interest rate sensitivity is one of the inputs to the VaR model.
It should be noted that, in management’s view, any representation of interest rate risk at a specific date offers only a snapshot of the risks taken, by the Group, since both trading and non-trading positions can vary significantly on a daily basis, because they are actively managed. As such, it may not be representative of the level of risk at other times, either in general or in specific currencies or tenors. Furthermore, the presence in the portfolio of option products means that only limited inferences can be drawn about exposure to larger movements in interest rates.
The table sets out the extent to which the GroupUBS was exposed to interest rate risk at 31 December 20012003 and 2002. It shows the net impact of a one basis point (0.01%) increase in market interest rates across all time bands on the fair values of interest rate sensitive positions, including balance sheet assets and liabilities and derivatives. The impact of such an increase in interest rates depends on theUBS’s net asset or net liability position of the Group in each category, currency and time band in the table. A negative amount in the table reflects a potential reduction in fair value, as a result of an increase in interest rates, while a positive amount reflects a potential increase in fair value.
131135
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Interest rate sensitivity position (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Interest rate sensitivity by time bands at 31.12.2003
|
| CHF thousand | | Within 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | Over 5 | | | | |
| per basis point increase | | month | | | months | | | months | | | years | | | years | | | Total | |
| |
| CHF | | Trading | | | 19 | | | | (185 | ) | | | (6 | ) | | | 311 | | | | (91 | ) | | | 48 | |
| | | Non-trading | | | (38 | ) | | | (99 | ) | | | (359 | ) | | | (4,288 | ) | | | (3,587 | ) | | | (8,371 | ) |
| |
| USD | | Trading | | | (17 | ) | | | (690 | ) | | | (638 | ) | | | (941 | ) | | | 1,190 | | | | (1,096 | ) |
| | | Non-trading | | | 50 | | | | (55 | ) | | | (92 | ) | | | (2,213 | ) | | | (1,702 | ) | | | (4,012 | ) |
| |
| EUR | | Trading | | | (84 | ) | | | (206 | ) | | | 398 | | | | (1,018 | ) | | | 649 | | | | (261 | ) |
| | | Non-trading | | | 4 | | | | 6 | | | | (21 | ) | | | (131 | ) | | | (196 | ) | | | (338 | ) |
| |
| GBP | | Trading | | | 24 | | | | 31 | | | | 131 | | | | (736 | ) | | | 536 | | | | (14 | ) |
| | | Non-trading | | | 0 | | | | (10 | ) | | | (55 | ) | | | (40 | ) | | | 481 | | | | 376 | |
| |
| JPY | | Trading | | | 59 | | | | (326 | ) | | | (34 | ) | | | 410 | | | | (273 | ) | | | (164 | ) |
| | | Non-trading | | | (4 | ) | | | 3 | | | | (1 | ) | | | (5 | ) | | | (2 | ) | | | (9 | ) |
| |
| Others | | Trading | | | (43 | ) | | | 22 | | | | 80 | | | | (464 | ) | | | 335 | | | | (70 | ) |
| | | Non-trading | | | (1 | ) | | | 0 | | | | (6 | ) | | | (1 | ) | | | (3 | ) | | | (11 | ) |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Interest rate sensitivity by time bands at 31.12.2002
|
| CHF thousand | | Within 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | Over 5 | | | | |
| per basis point increase | | month | | | months | | | months | | | years | | | years | | | Total | |
| |
| CHF | | Trading | | | (10 | ) | | | 211 | | | | (287 | ) | | | (47 | ) | | | (18 | ) | | | (151 | ) |
| | | Non-trading | | | (42 | ) | | | (153 | ) | | | (365 | ) | | | (6,504 | ) | | | (5,119 | ) | | | (12,183 | ) |
| |
| USD | | Trading | | | (93 | ) | | | (256 | ) | | | (1,021 | ) | | | (2,668 | ) | | | 2,445 | | | | (1,593 | ) |
| | | Non-trading | | | 26 | | | | (82 | ) | | | (72 | ) | | | (927 | ) | | | (230 | ) | | | (1,285 | ) |
| |
| EUR | | Trading | | | 114 | | | | 33 | | | | 12 | | | | (1,387 | ) | | | 728 | | | | (500 | ) |
| | | Non-trading | | | (1 | ) | | | 10 | | | | (2 | ) | | | (86 | ) | | | (193 | ) | | | (272 | ) |
| |
| GBP | | Trading | | | (78 | ) | | | 200 | | | | (227 | ) | | | (453 | ) | | | (269 | ) | | | (827 | ) |
| | | Non-trading | | | (1 | ) | | | (6 | ) | | | (39 | ) | | | 92 | | | | 587 | | | | 633 | |
| |
| JPY | | Trading | | | 21 | | | | 12 | | | | (502 | ) | | | (249 | ) | | | (204 | ) | | | (922 | ) |
| | | Non-trading | | | 0 | | | | 1 | | | | 0 | | | | 18 | | | | (24 | ) | | | (5 | ) |
| |
| Others | | Trading | | | (46 | ) | | | (61 | ) | | | 500 | | | | (54 | ) | | | (286 | ) | | | 53 | |
| | | Non-trading | | | 0 | | | | 0 | | | | (4 | ) | | | (1 | ) | | | (3 | ) | | | (8 | ) |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Interest rate sensitivity by time bands at 31.12.2001 | | | | |
| | | | | | | | | |
| CHF thousand | | Within 1 | | | 1 to 3 | | | 3 to 12 | | | 1 to 5 | | | Over 5 | | | | |
| per basis point increase | | month | | | months | | | months | | | years | | | years | | | Total | |
|
| CHF | | Trading | | | 22 | | | | (121 | ) | | | (35 | ) | | | (297 | ) | | | (314 | ) | | | (745 | ) |
| | | | | Non-trading | | | 3 | | | | (24 | ) | | | (366 | ) | | | (7,656 | ) | | | (6,030 | ) | | | (14,073 | ) |
|
| USD | | Trading | | | (299 | ) | | | 35 | | | | 96 | | | | (960 | ) | | | (2,115 | ) | | | (3,243 | ) |
| | | | | Non-trading | | | 35 | | | | (113 | ) | | | (157 | ) | | | (274 | ) | | | (15 | ) | | | (524 | ) |
|
| EUR | | Trading | | | (129 | ) | | | 73 | | | | (269 | ) | | | (308 | ) | | | (806 | ) | | | (1,439 | ) |
| | | | | Non-trading | | | (2 | ) | | | (6 | ) | | | (38 | ) | | | 182 | | | | 0 | | | | 136 | |
|
| GBP | | Trading | | | (89 | ) | | | 27 | | | | (520 | ) | | | 65 | | | | 172 | | | | (345 | ) |
| | | | | Non-trading | | | 0 | | | | (7 | ) | | | (57 | ) | | | 175 | | | | 624 | | | | 735 | |
|
| JPY | | Trading | | | 175 | | | | 695 | | | | (98 | ) | | | (1,386 | ) | | | 246 | | | | (368 | ) |
| | | | | Non-trading | | | 1 | | | | 0 | | | | (3 | ) | | | 1 | | | | (4 | ) | | | (5 | ) |
|
| Others | | Trading | | | (51 | ) | | | 167 | | | | 126 | | | | (404 | ) | | | 369 | | | | 207 | |
| | | | | Non-trading | | | 0 | | | | (1 | ) | | | 0 | | | | (1 | ) | | | (4 | ) | | | (6 | ) |
|
Positions shown as “trading”‘trading’ are those which contribute to market risk regulatory capital, i. e. those considered “trading book”‘trading book’ for regulatory capital purposes (see section d). “Non-trading”‘Non-trading’ includes all other interest rate sensitive assets and liabilities including derivatives designated as hedges for accounting purposes (as explained in Note 23). This distinction differs somewhat from the accounting classification of trading and non-trading assets and liabilities.
Details of money market paper and debt instruments defined as trading portfolio for accounting purposes are included in Note 11 and
of debt instruments defined as financial invest-
mentsinvestments for accounting purposes in Note 12. Both contribute to the interest rate sensitivity shown in the table. Details of derivatives are shown in Note 23 but it should be noted that interest rate risk arises not only on interest rate contracts but also on other forwards, swaps and options, and, in particular on forward foreign exchange contracts.
Trading
The major part of this risk arises in UBS Warburg’s fixed income securities, currency forwardsthe Investment Bank’s Fixed Income Rates and other derivatives, and money market trading activities.Currencies business.
132136
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Non-trading
Interest rate risk is inherent in many of UBS’s businesses and arises from factors such as differences in timing between contractual maturity or re-pricing of assets, liabilities and derivative instruments, and the difference in re-pricing characteristics of floating rate indices, such as the savings rate and six-month LIBOR.instruments.
Most non-trading interest rate risk is captured at the point of business origination and transferred to a risk management unit —– primarily the Cash and Collateral Trading unit of UBS Warburgthe Investment Bank or Group Treasury —– where it is managed within the market risk limits described in (a)(i). The margin risks embedded in retail products remain with, and are subject to additional analysis and control withinby, the originating business units.
Many client products have no contractual maturity date or directly market-linked rate. Their interest rate risk is transferred on a pooled basis through “replication” portfolios —– portfolios of revolving transactions between the originating business unit and Group Treasury at market rates designed to approximate their average cash flow and re-pricing behavior. The structure and parameters of the replication portfolios are set in accordance with long-term observations of market and client behavior, and are reviewed periodically. The current extraordinarilyIn response to both the extremely low interestdomestic yield environment in Switzerland in 2002 and 2003 and the increased client demand for floating rate environment, especially in Swiss franc rates, led, atinvestment accounts, temporary adjustments deviating from long-term observations were made to the end of 2002, to some temporary adjustment of the replication portfolios for variable rate liabilities.model that replicates client behavior.
Interest rate risk also arises from balance sheet items such as the financing of the Group’s real estatebank property and equity investments in equity of associated companies, and in particular, the investment of the Group’s equity. TheseThe risk on these items areis also transferred to Group Treasury, through replicating portfolios designed to approximate the desired investment or funding profile mandated by the Group Executive Board.profile.
The investment of the Group’s equity accounts for CHF 14.2 million of the non-tradingis invested at longer-term fixed interest rate sensitivity, with CHF 11.9 million arisingrates in CHF, USD, EUR and the remainder mainly in USD and a smaller amount in EUR. At 31
December 2002, the Group’s equity was invested in a portfolio of fixed-rate assetsGBP with an average duration of three and a halfapproximately four years, in line with the strategic investment targets set by the Group Executive Board.Board (GEB).
These investments account for CHF 13.1 million of the non-trading interest rate sensitivity,
with CHF 8.1 million arising in CHF, CHF 4.3 million in USD and the remainder in EUR and GBP. The interest rate sensitivity of these investments is directly related to the chosen investment duration and it should be recognized that, although investing in significantly shorter maturities would lead to a reduction in apparent interest rate sensitivity, it would lead to higher volatility in the Group’s interest earnings.
For the currencies EUR and GBP the additional interest rate sensitivity arises mainly from subordinated note issues which are intentionally unhedged as they are regarded as part of the Group’s equity for asset and liability management purposes. The additional interest rate sensitivity in USD results predominantly from the write-down of USD intangibles.
(a)(iii) Currency Risk
Currency risk is the risk of loss resulting from changes in exchange rates.
Trading
UBS is an active participant in currency markets and carries currency risk from these trading activities, conducted primarily in UBS Warburg.the Investment Bank. These trading exposures are subject to VaR, stress and concentration limits as described in (a)(i). Details of foreign exchange contracts, most of which arise from trading activities and contribute to currency risk, are shown in Note 23.
Non-tradingNon-Trading
The Group’sUBS’s reporting currency is the Swiss franc but its assets, liabilities, income and expense are denominated in many currencies, with significant amounts in USD, EUR and GBP, as well as CHF.
Reported profits or losses are exchanged monthly into CHF, reducing volatility in the Group’s earnings from changes in exchange rates. Group Treasury also, from time to time, proactively hedges significant expected foreign currency earnings/earnings / costs (mainly USD, EUR and GBP) within a time horizon ofup to one year, in accordance with the instructions of the
133
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)
Group Executive Board and subject to its VaR limit. Economic hedging strategies employed include a cost-efficient option strategy, providing a safety net against unfavorable currency fluctuations while preserving upside potential.
137
Financial Statements
Notes to the Group has begunFinancial Statements
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (Continued)
The Group’s equity investment is managed in order to diversifyreflect the investmentcurrency distribution of its equityrisk-weighted assets and is diversified into CHF, USD, EUR and EUR in proportionGBP. This creates structural foreign currency exposures, the gains or losses on which are recorded through equity, leading to the currencies of its
fluctuations in UBS’s capital base in line with the fluctuations in risk-weighted assets, in order to protect itsthereby protecting the BIS Tier 1 capital ratio against adverse exchange rate movements against CHF. Other foreign currency assets and liabilities of the business units are required to be match-funded/invested in the relevant currency or otherwise hedged to avoid currency risk.
The table below shows the major currency breakdown of the Group’sUBS’s balance sheet.
sheet and net position by currency at 31 December 2003.
Breakdown of assets and liabilities by currencies
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| | | 31.12.03 | | 31.12.02 |
| CHF billion | | CHF | | USD | | EUR | | Other | | CHF | | USD | | EUR | | Other | | | CHF | | USD | | EUR | | Other | | CHF | | USD | | EUR | | Other | |
|
| |
| Assets | | |
| Cash and balances with central banks | | | 2.4 | | | | 0.1 | | | | 0.6 | | | | 1.2 | | | 3.0 | | 0.3 | | 0.6 | | 17.1 | | | 2.4 | | 0.1 | | 0.8 | | 0.3 | | 2.4 | | 0.1 | | 0.6 | | 1.2 | |
| Due from banks | | | 5.2 | | | | 11.4 | | | | 7.4 | | | | 8.5 | | | 5.0 | | 8.6 | | 5.2 | | 8.7 | | | 4.6 | | 11.8 | | 8.2 | | 7.1 | | 5.2 | | 11.4 | | 7.4 | | 8.5 | |
| Cash collateral on securities borrowed | | | 0.1 | | | | 126.7 | | | | 2.7 | | | | 9.5 | | | 0.1 | | 156.4 | | 2.5 | | 3.9 | | | 0.7 | | 192.5 | | 7.3 | | 13.4 | | 0.1 | | 126.7 | | 2.7 | | 9.5 | |
| Reverse repurchase agreements | | | 1.9 | | | | 164.6 | | | | 61.0 | | | | 66.5 | | | 5.1 | | 142.9 | | 40.2 | | 81.1 | | | 1.2 | | 162.4 | | 73.8 | | 83.2 | | 1.9 | | 164.6 | | 61.0 | | 66.5 | |
| Trading portfolio assets | | | 6.1 | | | | 247.6 | | | | 51.7 | | | | 66.0 | | | 9.6 | | 265.2 | | 47.2 | | 75.9 | | | 8.9 | | 288.9 | | 77.6 | | 86.4 | | 6.1 | | 247.6 | | 51.7 | | 66.0 | |
| Positive replacement values | | | 10.4 | | | | 8.1 | | | | 0.8 | | | | 62.8 | | | 30.6 | | 11.4 | | 1.2 | | 30.2 | | | 14.6 | | 7.6 | | 0.8 | | 61.3 | | 10.4 | | 8.1 | | 0.8 | | 62.8 | |
| Loans | | | 147.8 | | | | 39.5 | | | | 11.5 | | | | 12.8 | | | 151.4 | | 43.1 | | 11.9 | | 20.1 | | | 149.7 | | 39.2 | | 12.9 | | 10.7 | | 147.8 | | 39.5 | | 11.5 | | 12.8 | |
| Financial investments | | | 1.1 | | | | 5.0 | | | | 1.5 | | | | 0.8 | | | 2.9 | | 7.4 | | 1.5 | | 17.0 | | | 0.6 | | 2.4 | | 1.2 | | 0.9 | | 1.1 | | 5.0 | | 1.5 | | 0.8 | |
| Accrued income and prepaid expenses | | | 0.5 | | | | 4.0 | | | | 0.3 | | | | 1.7 | | | 0.7 | | 4.9 | | 0.8 | | 1.2 | | | 0.3 | | 3.0 | | 1.8 | | 1.1 | | 0.5 | | 4.0 | | 0.3 | | 1.7 | |
| Investments in associates | | | 0.7 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | 0.7 | | 0.0 | | 0.0 | | 0.0 | | | 0.5 | | 1.1 | | 0.0 | | 0.0 | | 0.7 | | 0.0 | | 0.0 | | 0.0 | |
| Property and equipment | | | 5.6 | | | | 1.3 | | | | 0.1 | | | | 0.9 | | | 6.3 | | 1.5 | | 0.1 | | 0.8 | | | 5.9 | | 1.2 | | 0.1 | | 0.5 | | 5.6 | | 1.3 | | 0.1 | | 0.9 | |
| Goodwill and other intangible assets | | | 0.7 | | | | 12.7 | | | | 0.0 | | | | 0.3 | | | 0.2 | | 18.5 | | 0.0 | | 0.4 | | | 0.1 | | 11.1 | | 0.0 | | 0.3 | | 0.7 | | 12.7 | | 0.0 | | 0.3 | |
| Other assets | | | 1.4 | | | | 5.0 | | | | 1.0 | | | | 1.6 | | | 2.1 | | 5.6 | | 0.8 | | 1.4 | | | 2.4 | | 4.2 | | 1.8 | | 17.1 | | 1.4 | | 5.0 | | 1.0 | | 1.6 | |
|
| |
| Total assets | | | 183.9 | | | | 626.0 | | | | 138.6 | | | | 232.6 | | | | 217.7 | | | 665.8 | | | 112.0 | | | 257.8 | | |
Total balance sheet assets | | | 191.9 | | 725.5 | | 186.3 | | 282.3 | | 183.9 | | 626.0 | | 138.6 | | 232.6 | |
| | | |
Receivables from FX spot, FX forwards, FX options and currency swaps1 | | | 189.5 | | 1,210.5 | | 604.5 | | 871.2 | |
| | | |
Total assets including FX derivatives1 | | | 381.4 | | 1,936.0 | | 790.8 | | 1,153.5 | |
|
| |
| Liabilities | | |
| Due to banks | | | 7.6 | | | | 48.0 | | | | 13.8 | | | | 13.8 | | | 8.0 | | 68.6 | | 12.9 | | 17.0 | | | 5.8 | | 58.7 | | 39.2 | | 23.5 | | 7.6 | | 48.0 | | 13.8 | | 13.8 | |
| Cash collateral on securities lent | | | 0.0 | | | | 21.6 | | | | 5.2 | | | | 10.1 | | | 0.0 | | 24.3 | | 3.2 | | 2.8 | | | 0.1 | | 35.4 | | 6.8 | | 11.0 | | 0.0 | | 21.6 | | 5.2 | | 10.1 | |
| Repurchase agreements | | | 17.8 | | | | 260.8 | | | | 51.9 | | | | 36.4 | | | 12.8 | | 271.1 | | 30.7 | | 54.0 | | | 17.9 | | 277.8 | | 76.4 | | 43.7 | | 17.8 | | 260.8 | | 51.9 | | 36.4 | |
| Trading portfolio liabilities | | | 3.7 | | | | 68.6 | | | | 11.3 | | | | 22.9 | | | 2.8 | | 65.2 | | 12.5 | | 25.3 | | | 2.4 | | 90.8 | | 20.3 | | 30.5 | | 3.7 | | 68.6 | | 11.3 | | 22.9 | |
| Negative replacement values | | | 10.1 | | | | 7.1 | | | | 0.7 | | | | 63.5 | | | 25.7 | | 6.5 | | 1.6 | | 37.7 | | | 15.8 | | 7.0 | | 0.4 | | 70.4 | | 10.1 | | 7.1 | | 0.7 | | 63.5 | |
| Due to customers | | | 123.5 | | | | 111.5 | | | | 43.6 | | | | 28.2 | | | 123.3 | | 138.8 | | 41.5 | | 30.2 | | | 137.1 | | 126.4 | | 51.8 | | 32.1 | | 123.5 | | 111.5 | | 43.6 | | 28.2 | |
| Accrued expenses and deferred income | | | 1.9 | | | | 8.1 | | | | 0.9 | | | | 4.3 | | | 2.4 | | 10.0 | | 0.9 | | 4.0 | | | 2.0 | | 7.1 | | 0.8 | | 3.8 | | 1.9 | | 8.1 | | 0.9 | | 4.3 | |
| Debt issued | | | 11.4 | | | | 96.1 | | | | 14.3 | | | | 7.6 | | | 15.7 | | 120.0 | | 8.8 | | 11.7 | | | 10.0 | | 68.1 | | 21.0 | | 21.1 | | 11.4 | | 96.1 | | 14.3 | | 7.6 | |
| Other liabilities | | | 5.4 | | | | 4.1 | | | | 0.9 | | | | 1.9 | | | 7.2 | | 6.1 | | 0.9 | | 1.5 | | | 6.6 | | 5.3 | | 2.9 | | 16.5 | | 5.4 | | 4.1 | | 0.9 | | 1.9 | |
| Minority interests | | | 0.0 | | | | 3.4 | | | | 0.0 | | | | 0.1 | | | 0.1 | | 3.9 | | 0.0 | | 0.1 | | | 0.0 | | 3.9 | | 0.1 | | 0.1 | | 0.0 | | 3.4 | | 0.0 | | 0.1 | |
| Shareholders’ equity | | | 39.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | 43.5 | | 0.0 | | 0.0 | | 0.0 | | | 35.4 | | 0.0 | | 0.0 | | 0.0 | | 39.0 | | 0.0 | | 0.0 | | 0.0 | |
| Of which foreign currency capital in subsidiaries | | | | (13.2 | ) | | 10.2 | | 1.3 | | 1.7 | |
|
| |
Total liabilities, minority interests
and shareholders’ equity | | | 220.4 | | | | 629.3 | | | | 142.6 | | | | 188.8 | | | | 241.5 | | | 714.5 | | | 113.0 | | | 184.3 | | | 219.9 | | 690.7 | | 221.0 | | 254.4 | | 220.4 | | 629.3 | | 142.6 | | 188.8 | |
|
| |
Payables from FX spot, FX forwards, FX options and currency swaps1 | | | 160.6 | | 1,246.2 | | 569.7 | | 899.2 | |
| | | |
Total liabilities, minority interests and shareholders’ equity including FX derivatives1 | | | 380.5 | | 1,936.9 | | 790.7 | | 1,153.6 | |
| | | |
Net position by currency1 | | | 0.9 | | | (0.9 | ) | | 0.1 | | | (0.1 | ) | |
| | | |
1 Information required by Swiss banking law for 2003 onwards. This information is not available for 2002.
134138
Note 29 Financial Instruments Risk Position (continued)
a) Market Risk (continued)(Continued)
(a)(iv) Equity Risk
Equity risk is the risk of loss resulting from changes in the levels of equity indices and values of individual stocks.
UBS WarburgThe Investment Bank is a significant player in major equity markets and carries equity risk from these activities. These exposures are subject to VaR, stress and concentration limits as described in (a)(i) and, in the case of individual stocks, to issuer risk controls as described in (a)(v).
Details of equity derivatives contracts (on indices and individual equities), which arise primarily from these activities, are shown in Note 23.
(a)(v) Issuer Risk
The values of tradable assets —– equities, bonds and other traded debt instruments —held for trading – are affected by factors specific to individual issuers as well as general market moves. This can include short termshort-term factors influencing price but also more fundamental causes including severe financial deterioration.
As an active trader and market maker in equities and bonds, UBS Warburgthe Investment Bank holds positions in tradable assets, which are not only included in VaR, but are also subject to concentration limits on individual issuers, including positions arising from derivatives as well as physical holdings.
Credit risk represents the loss which UBS would suffer if a client or counterparty failed to meet its contractual obligations. It is inherent in traditional banking products —– loans, commitments to lend and other contingent liabilities, such as letters of credit —– and in foreign exchange and derivativestraded products – derivative contracts such as forwards, swaps and options, (“traded products”).and repo and securities borrowing and lending transactions.
Reductions in the market values of tradable assets (securities and other obligations in tradable form held for trading) resulting from changes in the credit quality of individual obligors are considered market risk. This is explained in a (v) above.
To ensure a consistent and unified approach, with appropriate checks and balances, all Business Groups wheretaking material credit risk is taken have independent credit risk control (CRC) functions within whichheaded by Chief Credit officers (CCOs) reporting functionally to the Group CCO. They are responsible for counterparty ratings and credit approvalrisk assessment.
Credit risk authority, including authority to establish allowances and provisions for credit loss, is exercised by authorized credit officers. CRC has authority over counterparty rating,the Chairman’s Office (by delegation to an Executive Vice Chairman),
by the GEB (by delegation to the Group CCO) and within the Business Groups.
UBS manages and controls concentrations of credit risk assessmentwherever they are identified, in particular to individual counterparties and approval,groups and the establishment of allowancesto industries and provisions.countries.
The Group restrictsUBS sets limits on its credit exposure to both individual counterparties and counterparty groups by credit limits. The size of limit depends on the assessment of their financial strength, particularly the sustainable free cash flow to service obligations, and on the economic environment, industry position, and qualitative factors such as management strength.groups. Exposure against limits is measured on a continuous basis and is subject to standard exception reporting.
Exposure against limits for banking products is measured atas the face value.value amount. For loans, this is shown on the balance sheet and detailed in Note 9a), and for commitments, detailed in Note 25. Both are included in the table below.
For all traded products, credit exposure is measured for internal risk control purposes based on not only on the current replacement value of contracts but also on potential future changes in replacement value, and credit limits are applied on this basis. The replacement values of derivatives are included in the balance sheet and in the table below. For further information about derivatives see Note 23. Securities borrowing and lending transactions are represented on the balance sheet by the values of cash collateral placed with or received from counterparties while repo/repo / reverse repo transactions are represented by the amounts of the forward commitments —– for
139
Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
details see Note 10. The credit exposure is generally only a small percentage of the balance sheet amounts. The amounts shown in the table below represent the mark to market values of these
transactions, i.e.i. e. the difference in value between the cash or securities lent or given as collateral by UBS and the value of cash or securities borrowed or taken as collateral by UBS.
135
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
Breakdown of credit exposure
Amounts for each product type are shown gross before allowances and provisions.
| | | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Banking products | | |
| Loans and due from banks1 | | | 249,370 | | | 261,984 | | |
| Contingent liabilities (gross — before participations)2 | | | 16,594 | | | 25,487 | | |
| Undrawn irrevocable commitments (gross — before participations)2 | | | 39,306 | | | 50,608 | | |
Loans to customers and due from banks1 | | | 248,207 | | 249,370 | |
Contingent liabilities (gross – before participations)2 | | | 15,563 | | 16,594 | |
Undrawn irrevocable commitments (gross – before participations)2 | | | 46,623 | | 39,306 | |
|
| |
| Traded products3 | | |
| Derivatives positive replacement values (before collateral but after netting)4 | | | 82,092 | | | 73,447 | | | 84,334 | | 82,092 | |
| Securities borrowing and lending, repos and reverse repos5, 6 | | | 20,120 | | | 14,074 | | | 30,833 | | 20,120 | |
|
| |
| Allowances and provisions7 | | | (5,621 | ) | | | (8,218 | ) | | | (4,326 | ) | | | (5,621 | ) |
|
| |
| Total credit exposure net of allowances and provisions8 | | | 401,861 | | | 417,382 | | | 421,234 | | 401,861 | |
|
| |
1 See Note 9a —– Due from Banks and Loans and the section about the Information Required by Industry Guide 3 in the Additional Disclosures Required under SEC Regulations for further information. 2See Note 25 —– Commitments and Contingent Liabilities for further information. 3Does not include future potential credit exposure arising from changes in value of products with variable value, i.e. traded products. Potential future credit exposure is however included in internal measures of credit exposure for risk management and control purposes. 4See Note 23 —– Derivative Instruments: Positive Replacement ValuesInstruments for further information. 5This figure represents the difference in value between the cash or securities lent or given as collateral to counterparties, and the value of cash or securities borrowed or taken as collateral from the same counterparties under stock borrow/borrow / lend and repo/repo / reverse repo transactions. 6See Note 10 —– Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements for further information forabout these types of transactions. 7See Note 9b —– Allowances and Provisions for Credit Losses for further information. 8The values of bonds, equities and other tradable obligations in the Group’s trading business area are also affected by credit events and default. They are not included in this table —– exposure is controlled under the market risk control structure described in Note 29 —– Financial Instruments Risk Position, section a).
136140
Note 29 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
The GroupUBS is an active user of credit derivatives to hedge credit risk in banking and traded products. It also makes use of master netting agreements where possible in its OTC derivatives trading and, in line with general market trends, UBS Warburg has also entered into bilateral collateral agreements with market participants. Further information is given in Note 23.
Concentrations of credit risk exist if clients are engaged in similar activities, or are located in the same geographic region or have comparable economic characteristics such that their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. The GroupStress measures are therefore applies stress measuresapplied to assess the impact of variations in bankruptcy rates and asset values, taking into account risk concentrations in each portfolio. Stress loss limits are applied where considered necessary, including limits on exposure to all but the best ratedbest-rated countries.
The GroupUBS classifies a claim as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods —– loan interest payments and scheduled principal repayments, or other payments due, (forfor example on derivatives transactions),guarantees, and including liqui-
dationliquidation of collateral where available. Loans are further classi-
fied as non-performing where payment of interest, principal or fees is overdue by more than 90 days or (as now required by Swiss regulatory guidelines) when insolvency proceedings have commenced or obligations have been restructured on concessionary terms. Allowances or provisions are established to ensuredetermined such that the carrying values of impaired claims are determined in accordanceconsistent with the principles of IAS 39. For further information about accounting policy for allowance and provision for credit losses see Note 1 l). For the amounts of allowance and provision for credit losses and amounts of impaired and non-performing loans, see Note 9 b), c) and d).
The occurrence of actual credit losses is erratic in both timing and amount and those that arise usually relate to transactions entered into in previous accounting periods. In order to make the business ultimately accountableaccount for anyaverage credit losses they suffer but alsoloss over time and to give them the incentive to align their credit risk decisions and risk adjustedencourage risk-adjusted pricing, with the medium term risk profile of their credit transactions, the GroupUBS uses the concept of “expected loss”‘expected loss’ for management purposes. Expected loss is a statistically based measure intended to reflect the annual costcosts that will arise, on average, over time, from transactionspositions that become impaired, and is a function of the probability of default (given by the counterparty rating), current and likely future exposure to the counterparty and the likely severity of the loss should default actually occur.
137141
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
c) Liquidity Risk
The Group’sUBS’s approach to liquidity management is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without compromising its ability to respond quickly to strategic market opportunities. The Group’sA centralized approach is adopted, based on an integrated framework incorporating the assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required. The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors. Scenarios
factors. Scenarios encompass both normal market conditions and stressed conditions, including both UBS-specific and general market crises. The impact on both trading and client businesses is considered, taking account of potential collateral with which funds might be raised, and the possibility that customers might seek to withdraw funds or draw down unutilized committed credit lines.
The breakdown by contractual maturity of assets and liabilities, which is the basis of the “normal market conditions” scenario, at 31 December 20022003 is shown in the table below.
Maturity analysis of assets and liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Due | | Due | | | | | | | Due | | Due | | | | | |
| | | Due | | between | | between | | Due | | | | | Due | | between | | between | | Due | | | |
| | | On | | Subject | | within | | 3 and | | 1 and | | after | | | | | On | | Subject | | within | | 3 and | | 1 and | | after | | | |
| CHF billion | | demand | | to notice1 | | 3 mths | | 12 mths | | 5 years | | 5 years | | Total | | | demand | | to notice1 | | 3 mths | | 12 mths | | 5 years | | 5 years | | Total | |
|
| |
| Assets | | |
| Cash and balances with central banks | | 4.3 | | 4.3 | | | 3.6 | | 3.6 | |
| Due from banks | | 10.5 | | 0.0 | | 20.5 | | 0.8 | | 0.5 | | 0.2 | | 32.5 | | | 22.4 | | 0.8 | | 6.0 | | 0.9 | | 1.4 | | 0.2 | | 31.7 | |
| Cash collateral on securities borrowed | | 0.0 | | 0.0 | | 138.7 | | 0.0 | | 0.4 | | 0.0 | | 139.1 | | | 9.5 | | 166.2 | | 37.4 | | 0.7 | | 0.1 | | 0.0 | | 213.9 | |
| Reverse repurchase agreements | | 0.0 | | 2.7 | | 230.8 | | 55.3 | | 3.7 | | 1.5 | | 294.0 | | | 44.0 | | 35.1 | | 193.7 | | 43.0 | | 3.7 | | 1.1 | | 320.6 | |
| Trading portfolio assets | | 371.4 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 371.4 | | |
| Positive replacement values | | 82.1 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 82.1 | | |
Trading portfolio assets2 | | | 461.8 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 461.8 | |
Positive replacement values2 | | | 84.3 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 84.3 | |
| Loans | | 0.0 | | 21.0 | | 86.6 | | 34.4 | | 64.6 | | 4.9 | | 211.5 | | | 20.6 | | 44.9 | | 33.5 | | 37.8 | | 66.8 | | 8.9 | | 212.5 | |
| Financial investments | | 5.9 | | 0.0 | | 1.5 | | 0.2 | | 0.5 | | 0.3 | | 8.4 | | | 4.0 | | 0.0 | | 0.6 | | 0.2 | | 0.2 | | 0.1 | | 5.1 | |
| Accrued income and prepaid expenses | | 6.5 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 6.5 | | | 6.2 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 6.2 | |
| Investments in associates | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.7 | | 0.7 | | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 1.6 | | 1.6 | |
| Property and equipment | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 7.9 | | 7.9 | | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 7.7 | | 7.7 | |
| Goodwill and other intangible assets | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 13.7 | | 13.7 | | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 11.5 | | 11.5 | |
| Other assets | | 9.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 9.0 | | | 11.9 | | 13.6 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 25.5 | |
|
| |
Total 31.12.2003 | | | 668.3 | | 260.6 | | 271.2 | | 82.6 | | 72.2 | | 31.1 | | 1,386.0 | |
| | | |
| Total 31.12.2002 | | | 489.7 | | | | 23.7 | | | | 478.1 | | | | 90.7 | | | | 69.7 | | | | 29.2 | | | | 1,181.1 | | | 489.7 | | 23.7 | | 478.1 | | 90.7 | | 69.7 | | 29.2 | | 1,181.1 | |
| |
| Total 31.12.2001 | | 529.7 | | 30.0 | | 513.4 | | 74.2 | | 63.6 | | 42.4 | | 1,253.3 | | |
|
| |
| Liabilities | | |
| Due to banks | | 10.7 | | 2.9 | | 64.7 | | 2.5 | | 2.2 | | 0.1 | | 83.1 | | | 52.0 | | 4.6 | | 66.3 | | 3.4 | | 0.8 | | 0.1 | | 127.2 | |
| Cash collateral on securities lent | | 0.0 | | 0.0 | | 36.8 | | 0.0 | | 0.0 | | 0.0 | | 36.8 | | | 5.1 | | 46.8 | | 1.4 | | 0.0 | | 0.0 | | 0.0 | | 53.3 | |
| Repurchase agreements | | 0.0 | | 0.3 | | 329.5 | | 36.9 | | 0.1 | | 0.1 | | 366.9 | | | 158.5 | | 13.2 | | 186.0 | | 57.8 | | 0.3 | | 0.0 | | 415.8 | |
| Trading portfolio liabilities | | 106.5 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 106.5 | | |
| Negative replacement values | | 81.3 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 81.3 | | |
Trading portfolio liabilities2 | | | 144.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 144.0 | |
Negative replacement values2 | | | 93.6 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 93.6 | |
| Due to customers | | 147.3 | | 2.2 | | 150.2 | | 5.1 | | 1.3 | | 0.9 | | 307.0 | | | 146.3 | | 109.7 | | 83.1 | | 5.3 | | 1.8 | | 1.2 | | 347.4 | |
| Accrued expenses and deferred income | | 15.3 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 15.3 | | | 13.7 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 13.7 | |
| Debt issued | | 0.0 | | 0.0 | | 54.8 | | 21.6 | | 33.1 | | 19.9 | | 129.4 | | | 0.0 | | 0.0 | | 1.7 | | 63.9 | | 33.6 | | 21.0 | | 120.2 | |
| Other liabilities | | 12.3 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 12.3 | | | 17.6 | | 13.7 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 31.3 | |
|
| |
Total 31.12.2003 | | | 630.8 | | 188.0 | | 338.5 | | 130.4 | | 36.5 | | 22.3 | | 1,346.5 | |
| | | |
| Total 31.12.2002 | | | 373.4 | | | | 5.4 | | | | 636.0 | | | | 66.1 | | | | 36.7 | | | | 21.0 | | | | 1,138.6 | | | 373.4 | | 5.4 | | 636.0 | | 66.1 | | 36.7 | | 21.0 | | 1,138.6 | |
|
| |
| Total 31.12.2001 | | 362.8 | | 6.4 | | 700.0 | | 93.9 | | 29.3 | | 13.3 | | 1,205.7 | | |
| |
1 Deposits without a fixed term, on which notice of withdrawal or termination has not been given (such funds may be withdrawn by the depositor or repaid by the borrower subject to an agreed period of notice).2 Trading and derivative positions are shown within ‘on demand’ which management believes most accurately reflects the short-term nature of trading activities. The contractual maturity of the instruments may however extend over significantly longer periods.
138142
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy
The Group monitors the adequacy of itsUBS’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (“BIS rules/rules / ratios”). The BIS ratios compare the amount of the Group’s eligible capital (in total and Tier 1) with the total of its risk weightedrisk-weighted assets (RWAs).
While the GroupUBS monitors and reports its capital ratios under BIS rules, it is the rules established by the Swiss regulator, the EBK, which ultimately determine the capital required to underpin its business, and these rules, on balance, result in higher RWAs than the BIS rules. As a result, UBS’s ratios are lower when calculated under the EBK regulations than they would be if calculated under the BIS guidelines.rules.
The GroupUBS has complied with all BIS and EBK regulatory capital rules for all periods reported.
BIS Eligible capital
BIS eligible capital consists of two parts: Tier 1 capital comprises share capital, share premium, retained earnings including current year profit, foreign currency translation and minority interests less accrued dividends, net long positions in own shares and goodwill; Tier 2 capital includes the Group’s subordinated long-term debt. Tier 1 capital is required to be at least 4% and Total eligible capital at least 8% of RWAs.
BIS Risk-Weighted Assets (RWAs)
Three elements make up total RWAs - -– credit risk, other assets and market risk, each of which is described below.
The credit risk component consists of onon- and off-balance sheet claims, measured according to regulatory formulae outlined below, weighted according to type of counterparty and collateral at 0%, 20%, 50% or 100%. The least risky claims, such as claims on OECD governments and claims collateralized by cash, are weighted at 0%, meaning that no capital support is required, while the claims deemed most risky, including
unsecured claims on corporates and
private customers, are weighted at 100%, meaning that 8% capital support is required.
Securities not held for trading are included as claims, based on the net long position in the securities of each issuer, including both physical holdings and positions derived from other transactions such as options.
Claims arising from derivatives transactions include not only the current positive replacement value (shown in the table below under Balance sheet assets), but also an “add-on”‘add-on’ to reflect their potential future exposure (shown in the table below under Off-balance sheet and other positions —– Forward and swap contracts, and Purchased options).
Claims arising from contingent commitments and irrevocable facilities granted are converted to credit equivalent amounts based on specified percentages of nominal value.
There are other assets,types of asset, most notably property and equipment investments and intangibles, which, while not subject to credit risk, represent a risk to the bank in respect of their potential for write-down and impairment and which therefore require capital underpinning. They are weighted at 100% of book value under BIS rules but EBK weightings are generally higher.
Capital is required to support market risk arising in all foreign exchange, precious metals and energy positions, and all positions held for trading in interest rate instruments and equities, including risks on individual equities, and traded debt obligations such as bonds. UBS computes this risk using a Value at Risk model approved in 1999 by the EBK, from which the market risk capital requirement is derived. Unlike the calculations for credit risk and other assets, this produces the capital requirement itself rather than the RWA amount. In order to compute a total capital ratio, the market risk capital requirement is therefore converted to a “RWA equivalent”‘RWA equivalent’ (shown in the table below as Market risk positions) such that the capital requirement is 8% of this RWA equivalent, i. e.i.e. the market risk capital requirement is multiplied by 12.5.
139143
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
d) Capital Adequacy (continued)
Risk-weighted assets (BIS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance | | Balance | | | | | Balance | | Balance | | | |
| | | sheet/ | | Risk- | | sheet/ | | Risk- | | | sheet/ | | Risk- | | sheet / | | Risk- | |
| | | notional | | weighted | | notional | | weighted | | | notional | | weighted | | notional | | weighted | |
| | | amount | | amount | | amount | | amount | | | amount | | amount | | amount | | amount | |
| CHF million | | 31.12.02 | | 31.12.02 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| Balance sheet assets | | |
| Due from banks and other collateralized lendings1 | | | 356,501 | | | | 8,877 | | | 380,641 | | 7,640 | | | 441,662 | | 8,565 | | 356,501 | | 8,877 | |
| Net positions in securities2 | | | 9,096 | | | | 8,193 | | | 29,500 | | 10,992 | | | 6,755 | | 6,182 | | 9,096 | | 8,193 | |
| Positive replacement values3 | | | 82,092 | | | | 21,680 | | | 73,447 | | 19,556 | | | 84,334 | | 22,324 | | 82,092 | | 21,680 | |
| Loans and other collateralized lendings1 | | | 320,752 | | | | 147,703 | | | 305,624 | | 154,908 | | |
Loans, net of allowances for credit losses and other collateralized lendings1 | | | 337,028 | | 153,537 | | 320,752 | | 147,703 | |
| Accrued income and prepaid expenses | | | 6,453 | | | | 3,025 | | | 7,554 | | 3,679 | | | 6,218 | | 4,284 | | 6,453 | | 3,025 | |
| Property and equipment | | | 10,384 | | | | 10,149 | | | 13,202 | | 13,202 | | | 9,840 | | 9,614 | | 10,384 | | 10,149 | |
| Other assets | | | 8,952 | | | | 5,774 | | | 9,875 | | 4,504 | | | 25,459 | | 7,670 | | 8,952 | | 5,774 | |
|
| |
| Off-balance sheet and other positions | | |
| Contingent liabilities | | | 16,594 | | | | 8,224 | | | 25,487 | | 9,868 | | | 15,563 | | 8,167 | | 16,594 | | 8,224 | |
| Irrevocable commitments | | | 39,327 | | | | 4,622 | | | 50,705 | | 5,034 | | | 46,960 | | 6,863 | | 39,327 | | 4,622 | |
| Forward and swap contracts4 | | | 9,455,928 | | | | 4,253 | | | 8,362,374 | | 9,256 | | | 11,746,880 | | 4,710 | | 9,455,928 | | 4,253 | |
| Purchased options4 | | | 298,800 | | | | 1,023 | | | 365,100 | | 1,777 | | | 1,183,708 | | 1,716 | | 298,800 | | 1,023 | |
|
| |
| Market risk positions5 | | | 15,267 | | | 13,319 | | | 18,269 | | 15,267 | |
|
| |
| Total risk-weighted assets | | | 238,790 | | | 253,735 | | | 251,901 | | 238,790 | |
|
| |
1 Includes securities lending and reverse repo transactions. 2 Excluding positions in the trading book, which are included in Market risk positions. 3 Represents the mark to market values of Forward and swap contracts and Purchased options, where positive. 4 Risk-weighted amount represents the “add-ons” for these contracts. 5 Regulatory capital adequacy requirements for market risk, calculated using the approved Value at Risk model, multiplied by 12.5 to give the “risk-weighted asset equivalent”.
BIS capital ratios
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Capital | | Ratio | | Capital | | Ratio | | | Capital | | Ratio | | Capital | | Ratio | |
| | | CHF million | | % | | CHF million | | % | | | CHF million | | % | | CHF million | | % | |
| | | 31.12.02 | | 31.12.02 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| Tier 1 | | | 27,047 | | | | 11.3 | | | 29,322 | | 11.6 | | | 29,765 | | 11.8 | | 27,047 | | 11.3 | |
| of which hybrid Tier 1 | | | 3,182 | | | | 1.3 | | | 3,848 | | 1.5 | | | 3,224 | | 1.3 | | 3,182 | | 1.3 | |
| Tier 2 | | | 5,962 | | | | 2.5 | | | 8,149 | | 3.2 | | | 3,816 | | 1.5 | | 5,962 | | 2.5 | |
|
| |
| Total BIS | | | 33,009 | | | | 13.8 | | | 37,471 | | 14.8 | | | 33,581 | | 13.3 | | 33,009 | | 13.8 | |
|
| |
The Tier 1 capital includes CHF 3,1823,224 million (USD 2,3002,600 million) trust preferred securities at 31 December 20022003 and CHF 3,8483,182 million (USD 2,300 million) at 31 December 2001.2002.
140144
Note 30 Fair Value of Financial Instruments
The following table presents the fair value of financial instruments based on the following valuation methods and assumptions. It is presented because not all financial instruments are reflected in the financial statements at fair value.
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. Market prices are used to determine fair value, where an active market (such as a recognized stock exchange) exists, as it is the best evidence of the fair value of a financial instrument. Market prices are not, however, available for a significant number of the financial assets and liabilities held and issued by the Group. Therefore, for financial instruments where no market price is available, the fair values presented in the following table have been estimated using present value or other estimation and valuation techniques based on market conditions existing at balance sheet dates.
The values derived from applying these techniques are significantly affected by the underlying assumptions made concerning both the amounts and timing of future cash flows and the discount rates. The following methods and assumptions have been used:
| (a) | | trading assets, derivatives and other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or discounted cash flows. Fair value is equal to the carrying amount for these items; |
| (b) | | financial investments classified as available for sale are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognized valuation techniques. Prior to the adoption of IAS 39 in 2001, financial investments were carried at cost or if considered held for sale, at the |
| | | lower of cost or market. Upon the adoption of the standard, all financial investments are carried at fair value. Unrealized gains and unrealized losses, excluding impairment writedowns, are recorded in Shareholders’shareholders’ equity until an asset is sold, collected or otherwise disposed of; |
| (c) | | the carrying amount of liquid assets and other assets maturing within 12 months is assumed to approximate their fair value. This assumption is applied to liquid assets and the short termshort-term elements of all other financial assets and financial liabilities; |
| (d) | | the fair value of demand deposits and savings accounts with no specific maturity is assumed to be the amount payable on demand at the balance sheet date; |
| (e) | | the fair value of variable rate financial instruments is assumed to be approximated by their carrying amounts and, in the case of loans, does not, therefore, reflect changes in their credit quality as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both book and fair values; |
| (f) | | the fair value of fixed rate loans and mortgages is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both book and fair values. |
The assumptions and techniques have been developed to provide a consistent measurement of fair value for the Group’s assets and liabilities in the following table. However, because other institutions may use different methods and assumptions, such fair value disclosures in this Note cannot necessarily be compared from one financial institution to another.
141145
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying | | Fair | | Unrealized | | Carrying | | Fair | | Unrealized | | | Carrying | | Fair | | Unrealized | | Carrying | | Fair | | Unrealized | |
| | | value | | value | | gain/(loss) | | value | | value | | gain/(loss) | | | value | | value | | gain/(loss) | | value | | value | | gain/(loss) | |
| CHF billion | CHF billion | | 31.12.02 | | 31.12.02 | | 31.12.02 | | 31.12.01 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.03 | | 31.12.03 | | 31.12.02 | | 31.12.02 | | 31.12.02 | |
|
| |
| Assets | Assets | | |
| Cash and balances with central banks | Cash and balances with central banks | | | 4.3 | | | | 4.3 | | | | 0.0 | | | 21.0 | | 21.0 | | 0.0 | | | 3.6 | | 3.6 | | 0.0 | | 4.3 | | 4.3 | | 0.0 | |
| Due from banks | Due from banks | | | 32.5 | | | | 32.5 | | | | 0.0 | | | 27.7 | | 27.7 | | 0.0 | | | 31.7 | | 31.7 | | 0.0 | | 32.5 | | 32.5 | | 0.0 | |
| Cash collateral on securities borrowed | Cash collateral on securities borrowed | | | 139.1 | | | | 139.1 | | | | 0.0 | | | 162.9 | | 162.9 | | 0.0 | | | 213.9 | | 213.9 | | 0.0 | | 139.1 | | 139.1 | | 0.0 | |
| Reverse repurchase agreements | Reverse repurchase agreements | | | 294.1 | | | | 294.1 | | | | 0.0 | | | 269.3 | | 269.3 | | 0.0 | | | 320.6 | | 320.6 | | 0.0 | | 294.1 | | 294.1 | | 0.0 | |
| Trading portfolio assets | Trading portfolio assets | | | 371.4 | | | | 371.4 | | | | 0.0 | | | 397.9 | | 397.9 | | 0.0 | | | 461.8 | | 461.8 | | 0.0 | | 371.4 | | 371.4 | | 0.0 | |
| Positive replacement values | Positive replacement values | | | 82.1 | | | | 82.1 | | | | 0.0 | | | 73.4 | | 73.4 | | 0.0 | | | 84.3 | | 84.3 | | 0.0 | | 82.1 | | 82.1 | | 0.0 | |
| Loans | Loans | | | 211.8 | | | | 214.1 | | | | 2.3 | | | 226.7 | | 227.0 | | 0.3 | | | 212.5 | | 213.8 | | 1.3 | | 211.8 | | 214.1 | | 2.3 | |
| Financial investments | Financial investments | | | 8.4 | | | | 8.4 | | | | 0.0 | | | 28.8 | | 28.8 | | 0.0 | | | 5.1 | | 5.1 | | 0.0 | | 8.4 | | 8.4 | | 0.0 | |
|
| |
| Liabilities | Liabilities | | |
| Due to banks | Due to banks | | | 83.4 | | | | 83.4 | | | | 0.0 | | | 107.2 | | 107.2 | | 0.0 | | | 127.2 | | 127.2 | | 0.0 | | 83.4 | | 83.4 | | 0.0 | |
| Cash collateral on securities lent | Cash collateral on securities lent | | | 36.9 | | | | 36.9 | | | | 0.0 | | | 30.3 | | 30.3 | | 0.0 | | | 53.3 | | 53.3 | | 0.0 | | 36.9 | | 36.9 | | 0.0 | |
| Repurchase agreements | Repurchase agreements | | | 366.9 | | | | 366.9 | | | | 0.0 | | | 368.6 | | 368.6 | | 0.0 | | | 415.9 | | 415.9 | | 0.0 | | 366.9 | | 366.9 | | 0.0 | |
| Trading portfolio liabilities | Trading portfolio liabilities | | | 106.5 | | | | 106.5 | | | | 0.0 | | | 105.8 | | 105.8 | | 0.0 | | | 144.0 | | 144.0 | | 0.0 | | 106.5 | | 106.5 | | 0.0 | |
| Negative replacement values | Negative replacement values | | | 81.3 | | | | 81.3 | | | | 0.0 | | | 71.4 | | 71.4 | | 0.0 | | | 93.6 | | 93.6 | | 0.0 | | 81.3 | | 81.3 | | 0.0 | |
| Due to customers | Due to customers | | | 307.4 | | | | 307.5 | | | | (0.1 | ) | | 334.0 | | 334.0 | | 0.0 | | | 347.3 | | 347.3 | | 0.0 | | 307.4 | | 307.5 | | | (0.1 | ) |
| Debt issued | Debt issued | | | 129.8 | | | | 131.7 | | | | (1.9 | ) | | 157.5 | | 158.6 | | | (1.1 | ) | | 120.2 | | 121.5 | | | (1.3 | ) | | 129.8 | | 131.7 | | | (1.9 | ) |
|
| |
| Subtotal | Subtotal | | | 0.3 | | | | (0.8 | ) | | 0.0 | | 0.3 | |
|
| |
| Unrealized gains and losses recorded in shareholders’ equity before tax on: | Unrealized gains and losses recorded in shareholders’ equity before tax on: | | |
| | Financial investments | | | 1.1 | | | 1.2 | | |
| | Derivative instruments designated as cash flow hedges | | | (0.3 | ) | | | (0.6 | ) | |
| Financial investments | | | 0.8 | | 1.1 | |
| Derivative instruments designated as cash flow hedges | | | | (0.2 | ) | | | (0.3 | ) |
| Net unrealized gains and losses not recognized in the income statement | Net unrealized gains and losses not recognized in the income statement | | | 1.1 | | | | (0.2 | ) | | 0.6 | | 1.1 | |
|
| |
The table does not reflect the fair values of non-financial assets and liabilities such as property, equipment, goodwill, prepayments and non-interest accruals. Where applicable, the interest accrued to date on financial instruments is included, for purposes of the above fair value disclosure, in the carrying value of the financial instruments.
Substantially all of the Group’s commitments to extend credit are at variable rates. Accordingly, the Group has no significant exposure to fair value fluctuations resulting from interest rate movements related to these commitments.
The fair values of the Group’s fixed rate loans, long- and medium-term notes and bonds issued are predominantly hedged by derivative instruments, mainly interest rate swaps, as explained in Note 23. The interest rate risk inherent in balance sheet positions with no specific maturity is also hedged with derivative instruments based on management’s view on the effective interest repricing date of the products.
The hedging derivative instruments are carried on the balance sheet at fair values, which are
included in the Positive or Negative replacement values in the above table. When the interest rate risk on a fixed rate financial instrument is hedged with a derivative in a fair value hedge, the fixed rate financial instrument (or hedged portion thereof) is reflected in the above table at fair value only in relation to the interest rate risk, not the credit risk as explained in (f) above. Fair value changes are recorded in net profit. The treatment of derivatives designated as cash flow hedges is explained in Note 1v). The amount shown in the table as “derivative instruments designated as cash flow hedges” is the net change in fair values on such derivatives that is recorded in Shareholders’ equity and not yet transferred to income or expense.
The increasedecrease in the Net unrealizedfair value gains and losses during 20022003 of CHF 1.30.5 billion is mainly attributable to the change in the unrealized gains and losses of fixed rate long-term assets, which have increaseddecreased by CHF 2.01.0 billion from the prior year as a result of declininghigher interest rates during 2002.in 2003. This was partially offset by an increasea decrease in fair valueunrealized loss from fixed rate long-term debt.
142146
Note 31 RetirementPension and Other Post-Retirement Benefit Plans and Other Employee Benefits
a) Defined benefit plans
The Group has established various pension plans inside and outside of Switzerland. The major plans are located in Switzerland, the UK, the US and Germany. Independent actuarial valuations are performed for the plans in these locations. The measurement date of these plans is the 31 December for each year presented.
The overall investment policy and strategy for the Group’s defined benefit pension plans is guided by the objective to achieve an investment return which, together with the contributions paid, is sufficient to maintain reasonable control over the various funding risks of the plans. The investment advisors appointed by plan trustees are responsible for determining the mix of asset types and target allocations which are reviewed by the plan trustees on an ongoing basis. Actual asset allocation is determined by a variety of current economic and market conditions and in consideration of specific asset class risk.
The expected long-term rates of return on plan assets are based on long-term expected inflation, interest rates, risk premiums and targeted asset class allocations. These estimates take into consideration historical asset class returns and are determined together with the plans’ investment and actuarial advisors.
Swiss pension plan
The pension plan covers practically all employees in Switzerland and exceeds the minimum benefit requirements under Swiss law. Contributions to the pension plan are paid for by employees and the Group. The employee contributions are calculated as a percentage of insured annual salary and are deducted monthly. The percentages deducted from salary for full benefit coverage (including risk benefits) depend on age and vary between 7% and 10%. The Group pays a variable contribution that ranges between 150% and 220% of the sum of employees’ contributions. The employer contributions expected to be made in 2004 to the pension plan are CHF 350 million.
The pension plan formulacomputation of the benefits is based on years of contributions andthe final covered salary. The benefits covered include retirement benefits, disability, death and survivor pension.
In 1999, the Group recognized a prepaid pension asset of CHF 456 million representing
excess employer contributions. In 2002,2003, the remaining CHF 33 million (2002 CHF 323 million, (20012001 CHF 0 million, 2000 CHF 100 million) of this asset was used to fund the employer contributions and was recognized as a pension expenses.expense.
The accumulated benefit obligation (which is the current value of accrued benefits without allowance for future salary increases) was CHF 16,817 million as of 31 December 2003 (2002 CHF 15,853 million, 2001 CHF 14,750 million).
Foreign pension plans
The foreign locations of UBS operate various pension plans in accordance with local regulations and practices. Among these plans are defined contribution plans as well as defined benefit plans. The locations with defined benefit plans of a material nature are in the UK, the US and Germany. The UK and the US defined benefit plans are closed to new entrants who are covered by defined contribution plans.
The amounts shown for foreign plans reflect the net funded positions of the major foreign plans. The retirement plans provide benefits in the event of retirement, death, disability or employment termination. The plans’ retirement benefits depend on age, contributions and level of compensation. The principal plans are financed in full by the Group. The employer contributions expected to be made in 2004 to these pension plans are CHF 63 million. The funding policy for these plans is consistent with local government and tax requirements.
The assumptions used in foreign plans take into account local economic conditions.
The amounts shownaccumulated benefit obligation for foreignthese pension plans reflectwas CHF 3,609 million as of 31 December 2003 (2002 CHF 3,376 million, 2001 CHF 3,195 million).
For pension plans with an accumulated benefit obligation in excess of plan assets, the net funded positionsaggregate projected benefit obligation and accumulated benefit obligation was CHF 944 million and CHF 930 million as of 31 December 2003 (2002 CHF 3,436 million and 3,376 million, 2001 CHF 1,411 million and 1,373 million). The fair value of plan assets for these plans was 677 million as of 31 December 2003 (2002 CHF 2,382 million, 2001 CHF 1,010 million).
147
Financial Statements
Notes to the major foreign plans.
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
b) Post-retirement medical and life plans
In the US and the UK the Group offers retiree medical benefits that contribute to the health care coverage of employees and beneficiaries after retirement. In addition to retiree medical benefits, the Group in the US also provides retiree life insurance benefits.
The benefit obligation in excess of fair value of plan assets for those plans amounts to CHF 164179 million as of 31 December 2002 (20012003 (2002 CHF 142164 million, 20002001 CHF 111142 million) and the total accrued post-retirement cost to CHF 130137 million as of 31 December 2002 (20012003 (2002 CHF 130 million, 20002001 CHF 108130 million). The net periodic post-retirement costs for the years ended 31 December
2003, 31 December 2002 and 31 December 2001 and 31 December 2000 were CHF 22 million, CHF 25 million and CHF 24 million, and CHF 22 million, respectively.
c) Defined contribution plans
The Group also sponsors a number of defined contribution plans primarily in the UK and the US. Certain plans permit employees to make contributions and earn matching or other contributions from the Group. The contributions to these plans recognized as expense for the years ended 31 December 2003, 31 December 2002 and 31 December 2001 and 31 December 2000 were CHF 141 million, CHF 133 million and CHF 117 million, and CHF 66 million, respectively.
143
a) Defined benefit plans
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Swiss | | Foreign |
| CHF million | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Defined benefit obligation at the beginning of the year | | | (19,204 | ) | | | (17,879 | ) | | | (17,712 | ) | | | (3,436 | ) | | | (3,553 | ) | | | (3,406 | ) |
| Service cost | | | (564 | ) | | | (554 | ) | | | (541 | ) | | | (91 | ) | | | (108 | ) | | | (121 | ) |
| Interest cost | | | (703 | ) | | | (699 | ) | | | (674 | ) | | | (197 | ) | | | (210 | ) | | | (204 | ) |
| Plan amendments | | | | | | | | | | | | | | | | | | | | | | | (1 | ) |
| Special termination benefits | | | (70 | ) | | | (209 | ) | | | (262 | ) | | | | | | | | | | | | |
| Actuarial gain / (loss) | | | 1,395 | | | | (681 | ) | | | 421 | | | | (201 | ) | | | (177 | ) | | | (345 | ) |
| Benefits paid | | | 930 | | | | 818 | | | | 889 | | | | 124 | | | | 111 | | | | 107 | |
| Curtailment / settlement | | | | | | | | | | | | | | | | | | | 74 | | | | | |
| Foreign currency translation | | | | | | | | | | | | | | | 138 | | | | 427 | | | | (12 | ) |
| Other | | | | | | | | | | | | | | | | | | | | | | | 429 | |
| |
Defined benefit obligation at the end of the year | | | (18,216 | ) | | | (19,204 | ) | | | (17,879 | ) | | | (3,663 | ) | | | (3,436 | ) | | | (3,553 | ) |
| |
| Fair value of plan assets at the beginning of the year | | | 16,566 | | | | 18,289 | | | | 19,074 | | | | 2,382 | | | | 2,887 | | | | 3,378 | |
| Actual return on plan assets | | | 1,411 | | | | (1,350 | ) | | | (765 | ) | | | 429 | | | | (240 | ) | | | (220 | ) |
| Employer contributions | | | 370 | | | | 236 | | | | 656 | | | | 831 | | | | 164 | | | | 258 | |
| Plan participant contributions | | | 202 | | | | 209 | | | | 213 | | | | | | | | | | | | | |
| Benefits paid | | | (930 | ) | | | (818 | ) | | | (889 | ) | | | (124 | ) | | | (111 | ) | | | (107 | ) |
| Foreign currency translation | | | | | | | | | | | | | | | (116 | ) | | | (318 | ) | | | 7 | |
| Other | | | | | | | | | | | | | | | | | | | | | | | (429 | ) |
| |
Fair value of plan assets at the end of the year | | | 17,619 | | | | 16,566 | | | | 18,289 | | | | 3,402 | | | | 2,382 | | | | 2,887 | |
| |
Funded status | | | (597 | ) | | | (2,638 | ) | | | 410 | | | | (261 | ) | | | (1,054 | ) | | | (666 | ) |
| Unrecognized net actuarial (gains) / losses | | | 1,716 | | | | 3,892 | | | | 961 | | | | 970 | | | | 1,126 | | | | 673 | |
| Unrecognized prior service cost | | | | | | | | | | | | | | | 1 | | | | 1 | | | | 2 | |
| Unrecognized asset | | | (1,119 | ) | | | (1,221 | ) | | | (1,015 | ) | | | | | | | | | | | | |
| |
(Accrued) / prepaid pension cost | | | 0 | | | | 33 | | | | 356 | | | | 710 | | | | 73 | | | | 9 | |
| |
148
UBS Group Financial Statements
Notes to the Financial Statements
Note 31 RetirementPension and Other Post-Retirement Benefit Plans and Other Employee Benefits
(continued)
a) Defined benefit plans
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Swiss | | | Foreign | |
| | |
| | |
| |
| CHF million | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
Defined benefit obligation
at the beginning of the year | | | (17,879 | ) | | | (17,712 | ) | | | (17,011 | ) | | | (3,553 | ) | | | (3,406 | ) | | | (2,444 | ) |
| Service cost | | | (554 | ) | | | (541 | ) | | | (545 | ) | | | (108 | ) | | | (121 | ) | | | (165 | ) |
| Interest cost | | | (699 | ) | | | (674 | ) | | | (666 | ) | | | (210 | ) | | | (204 | ) | | | (162 | ) |
| Plan amendments | | | | | | | | | | | | | | | | | | | (1 | ) | | | | |
| Special termination benefits | | | (209 | ) | | | (262 | ) | | | (211 | ) | | | | | | | | | | | (3 | ) |
| Actuarial gain/(loss) | | | (681 | ) | | | 421 | | | | | | | | (177 | ) | | | (345 | ) | | | (99 | ) |
| Benefits paid | | | 818 | | | | 889 | | | | 721 | | | | 111 | | | | 107 | | | | 84 | |
| Curtailment/settlement | | | | | | | | | | | | | | | 74 | | | | | | | | | |
| Acquisition of PaineWebber | | | | | | | | | | | | | | | | | | | | | | | (740 | ) |
| Foreign currency translation | | | | | | | | | | | | | | | 427 | | | | (12 | ) | | | 123 | |
| Other | | | | | | | | | | | | | | | | | | | 429 | | | | | |
|
Defined benefit obligation
at the end of the year | | | (19,204 | ) | | | (17,879 | ) | | | (17,712 | ) | | | (3,436 | ) | | | (3,553 | ) | | | (3,406 | ) |
|
Fair value of plan assets
at the beginning of the year | | | 18,289 | | | | 19,074 | | | | 18,565 | | | | 2,887 | | | | 3,378 | | | | 2,880 | |
| Actual return on plan assets | | | (1,350 | ) | | | (765 | ) | | | 535 | | | | (240 | ) | | | (220 | ) | | | | |
| Employer contributions | | | 236 | | | | 656 | | | | 490 | | | | 164 | | | | 258 | | | | 13 | |
| Plan participant contributions | | | 209 | | | | 213 | | | | 205 | | | | | | | | | | | | 23 | |
| Benefits paid | | | (818 | ) | | | (889 | ) | | | (721 | ) | | | (111 | ) | | | (107 | ) | | | (84 | ) |
| Acquisition of PaineWebber | | | | | | | | | | | | | | | | | | | | | | | 676 | |
| Foreign currency translation | | | | | | | | | | | | | | | (318 | ) | | | 7 | | | | (130 | ) |
| Other | | | | | | | | | | | | | | | | | | | (429 | ) | | | | |
|
| Fair value of plan assets at the end of the year | | | 16,566 | | | | 18,289 | | | | 19,074 | | | | 2,382 | | | | 2,887 | | | | 3,378 | |
|
| Funded status | | | (2,638 | ) | | | 410 | | | | 1,362 | | | | (1,054 | ) | | | (666 | ) | | | (28 | ) |
| Unrecognized net actuarial (gains)/losses | | | 3,892 | | | | 961 | | | | (331 | ) | | | 1,126 | | | | 673 | | | | (81 | ) |
| Unrecognized transition amount | | | | | | | | | | | | | | | | | | | | | | | 1 | |
| Unrecognized prior service cost | | | | | | | | | | | | | | | 1 | | | | 2 | | | | 2 | |
| Unrecognized asset | | | (1,221 | ) | | | (1,015 | ) | | | (675 | ) | | | | | | | | | | | (47 | ) |
|
| (Accrued)/prepaid pension cost | | | 33 | | | | 356 | | | | 356 | | | | 73 | | | | 9 | | | | (153 | ) |
|
| Movement in the net (liability) or asset | | | | | | | | | | | | | | | | | | | | | | | | |
| (Accrued)/prepaid pension cost at the beginning of the year | | | 356 | | | | 356 | | | | 456 | | | | 9 | | | | (153 | ) | | | (63 | ) |
| Net periodic pension cost | | | (559 | ) | | | (656 | ) | | | (590 | ) | | | (83 | ) | | | (97 | ) | | | (55 | ) |
| Employer contributions | | | 236 | | | | 656 | | | | 490 | | | | 164 | | | | 258 | | | | 13 | |
| Acquisition of PaineWebber | | | | | | | | | | | | | | | | | | | | | | | (63 | ) |
| Foreign currency translation | | | | | | | | | | | | | | | (17 | ) | | | 1 | | | | 15 | |
|
| (Accrued)/prepaid pension cost | | | 33 | | | | 356 | | | | 356 | | | | 73 | | | | 9 | | | | (153 | ) |
|
| Amounts recognized in the Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid pension cost | | | 33 | | | | 356 | | | | 356 | | | | 220 | | | | 185 | | | | 53 | |
| Accrued pension liability | | | | | | | | | | | | | | | (147 | ) | | | (176 | ) | | | (206 | ) |
|
| (Accrued)/prepaid pension cost | | | 33 | | | | 356 | | | | 356 | | | | 73 | | | | 9 | | | | (153 | ) |
|
144
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | Swiss | | | Foreign |
| CHF million | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
Movement in the net (liability) or asset | | | | | | | | | | | | | | | | | | | | | | | | |
| (Accrued) / prepaid pension cost at the beginning of the year | | | 33 | | | | 356 | | | | 356 | | | | 73 | | | | 9 | | | | (153 | ) |
| Net periodic pension cost | | | (403 | ) | | | (559 | ) | | | (656 | ) | | | (168 | ) | | | (83 | ) | | | (97 | ) |
| Employer contributions | | | 370 | | | | 236 | | | | 656 | | | | 831 | | | | 164 | | | | 258 | |
| Foreign currency translation | | | | | | | | | | | | | | | (26 | ) | | | (17 | ) | | | 1 | |
| |
(Accrued) / prepaid pension cost | | | 0 | | | | 33 | | | | 356 | | | | 710 | | | | 73 | | | | 9 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in the Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid pension cost | | | | | | | 33 | | | | 356 | | | | 862 | | | | 220 | | | | 185 | |
| Accrued pension liability | | | | | | | | | | | | | | | (152 | ) | | | (147 | ) | | | (176 | ) |
| |
(Accrued) / prepaid pension cost | | | 0 | | | | 33 | | | | 356 | | | | 710 | | | | 73 | | | | 9 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CHF million
For the year ended | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Components of net periodic pension cost | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | | 564 | | | | 554 | | | | 541 | | | | 91 | | | | 108 | | | | 121 | |
| Interest cost | | | 703 | | | | 699 | | | | 674 | | | | 197 | | | | 210 | | | | 204 | |
| Expected return on plan assets | | | (818 | ) | | | (900 | ) | | | (947 | ) | | | (178 | ) | | | (199 | ) | | | (228 | ) |
| Increase / (decrease) of unrecognized assets | | | (102 | ) | | | 206 | | | | 339 | | | | | | | | | | | | | |
| Special termination benefits | | | 70 | | | | 209 | | | | 262 | | | | | | | | | | | | | |
| Amortization of unrecognized prior service cost | | | | | | | | | | | | | | | | | | | 1 | | | | | |
| Amortization of unrecognized net (gains) / losses | | | 188 | | | | | | | | | | | | 58 | | | | 22 | | | | | |
| Curtailment / settlement | | | | | | | | | | | | | | | | | | | (59 | ) | | | | |
| Employee contributions | | | (202 | ) | | | (209 | ) | | | (213 | ) | | | | | | | | | | | | |
| |
Net periodic pension cost | | | 403 | | | | 559 | | | | 656 | | | | 168 | | | | 83 | | | | 97 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Principal actuarial assumptions used (%) | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Assumptions used to determine defined benefit obligations at the end of the year | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 3.8 | | | | 3.8 | | | | 4.0 | | | | 5.7 | | | | 5.8 | | | | 6.2 | |
| Expected rate of salary increase | | | 2.5 | | | | 2.5 | | | | 2.5 | | | | 4.6 | | | | 4.4 | | | | 4.4 | |
| Rate of pension increase | | | 1.0 | | | | 1.5 | | | | 1.5 | | | | 1.9 | | | | 1.5 | | | | 1.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Assumptions used to determine net periodic pension cost for the year ended | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 3.8 | | | | 4.0 | | | | 4.0 | | | | 5.8 | | | | 6.2 | | | | 6.3 | |
| Expected rate of return on plan assets | | | 5.0 | | | | 5.0 | | | | 5.0 | | | | 7.1 | | | | 7.3 | | | | 7.9 | |
| Expected rate of salary increase | | | 2.5 | | | | 2.5 | | | | 2.5 | | | | 4.4 | | | | 4.4 | | | | 4.4 | |
| Rate of pension increase | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.6 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Plan assets | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Actual plan asset allocation (%) | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity instruments | | | 39 | | | | 35 | | | | 45 | | | | 52 | | | | 57 | | | | 57 | |
| Debt instruments | | | 43 | | | | 47 | | | | 39 | | | | 30 | | | | 36 | | | | 35 | |
| Real estate | | | 12 | | | | 13 | | | | 13 | | | | 1 | | | | 1 | | | | 1 | |
| Other | | | 6 | | | | 5 | | | | 3 | | | | 17 | | | | 6 | | | | 7 | |
| |
Total | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | | | | 100 | |
| |
149
Financial Statements
Notes to the Financial Statements
Note 31 RetirementPension and Other Post-Retirement Benefit Plans and Other Employee Benefits
(continued)
a) Defined benefit plans (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Swiss | | | Foreign | |
| | |
| | |
| |
| CHF million | | | | | | | | | | | | | | | | | | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| Components of net periodic pension cost | | | | | | | | | | | | | | | | | | | | | | | | |
| Current service cost | | | 554 | | | | 541 | | | | 545 | | | | 108 | | | | 121 | | | | 165 | |
| Interest cost | | | 699 | | | | 674 | | | | 666 | | | | 210 | | | | 204 | | | | 162 | |
| Expected return on plan assets | | | (900 | ) | | | (947 | ) | | | (927 | ) | | | (199 | ) | | | (228 | ) | | | (243 | ) |
| Adjustment to limit prepaid pension cost | | | 206 | | | | 339 | | | | 300 | | | | | | | | | | | | | |
| Amortization of unrecognized prior service cost | | | 209 | | | | 262 | | | | 211 | | | | 1 | | | | | | | | 3 | |
| Amortization of unrecognized net (gains)/losses | | | | | | | | | | | | | | | 22 | | | | | | | | (9 | ) |
| Curtailment/settlement | | | | | | | | | | | | | | | (59 | ) | | | | | | | | |
| Employee contributions | | | (209 | ) | | | (213 | ) | | | (205 | ) | | | | | | | | | | | (23 | ) |
|
| Net periodic pension cost | | | 559 | | | | 656 | | | | 590 | | | | 83 | | | | 97 | | | | 55 | |
|
| Actual return on plan assets (%) | | | (7.5 | ) | | | (4.0 | ) | | | 2.9 | | | | (8.7 | ) | | | (7.3 | ) | | | (0.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal actuarial assumptions used (%) | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Discount rate | | | 3.8 | | | | 4.0 | | | | 4.0 | | | | 5.8 | | | | 6.2 | | | | 6.3 | |
| Expected rate of return on plan assets | | | 5.0 | | | | 5.0 | | | | 5.0 | | | | 7.3 | | | | 7.9 | | | | 8.1 | |
| Expected rate of salary increase | | | 2.5 | | | | 2.5 | | | | 2.5 | | | | 4.4 | | | | 4.4 | | | | 4.4 | |
| Rate of pension increase | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.5 | | | | 1.6 | |
|
| | | Swiss
| | | | | | | | | | | | |
| Additional details to fair value of plan assets | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | | | | | | | | | | | | | |
|
| UBS financial instruments and UBS bank accounts | | | 814 | | | | 476 | | | | 920 | | | | | | | | | | | | | |
| UBS AG shares1 | | | 206 | | | | 305 | | | | 291 | | | | | | | | | | | | | |
| Securities lent to UBS included in plan assets | | | 2,645 | | | | 824 | | | | 3,432 | | | | | | | | | | | | | |
| Other assets used by UBS included in plan assets | | | 90 | | | | 104 | | | | 179 | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Swiss | | | Foreign |
| | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
Long-term target plan asset allocation (%) | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity instruments | | | 35–53 | | | | | | | | | | | | 51–55 | | | | | | | | | |
| Debt instruments | | | 30–48 | | | | | | | | | | | | 44–46 | | | | | | | | | |
| Real estate | | | 12–19 | | | | | | | | | | | | 0–1 | | | | | | | | | |
| Other | | | 0 | | | | | | | | | | | | 1–2 | | | | | | | | | |
| |
Actual return on plan assets (%) | | | 8.6 | | | | (7.5 | ) | | | (4.0 | ) | | | 17.8 | | | | (8.7 | ) | | | (7.3 | ) |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CHF million | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Additional details to fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | |
| UBS financial instruments and UBS bank accounts | | | 1,005 | | | | 814 | | | | 476 | | | | | | | | | | | | | |
UBS AG shares1 | | | 246 | | | | 206 | | | | 305 | | | | | | | | | | | | | |
| Securities lent to UBS included in plan assets | | | 2,930 | | | | 2,645 | | | | 824 | | | | | | | | | | | | | |
| Other assets used by UBS included in plan assets | | | 84 | | | | 90 | | | | 104 | | | | | | | | | | | | | |
| |
1 The number of UBS AG shares were 2,908,699, 3,072,500 3,639,800 and 3,295,8003,639,800 as of 31 December 2002,2003, 31 December 20012002 and 31 December 2000,2001, respectively. The amount of capital repayment and dividend received on UBS AG shares for the years ended 31 December 2002,2003, 31 December 20012002 and 31 December 20002001 were CHF 7 million, CHF 27 million and CHF 112 million, respectively.
145
UBS Group Financial Statements
Notes to the Financial Statements
Note 31 Retirement Benefit Plans and Other Employee Benefits
(continued)
b) Post-retirement medical and life plans
| | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Post-retirement benefit obligation at the beginning of the year | | | (145 | ) | | | (115 | ) | | | (117 | ) | | | (166 | ) | | | (145 | ) | | | (115 | ) |
| Service cost | | | (8 | ) | | | (7 | ) | | | (6 | ) | | | (11 | ) | | | (8 | ) | | | (7 | ) |
| Interest cost | | | (9 | ) | | | (9 | ) | | | (8 | ) | | | (10 | ) | | | (9 | ) | | | (9 | ) |
| Plan amendments | | | (3 | ) | | | (10 | ) | | | (7 | ) | | | (3 | ) | | | (10 | ) |
| Actuarial gain/(loss) | | | (31 | ) | | | (6 | ) | | 27 | | |
| Actuarial gain / (loss) | | | | (14 | ) | | | (31 | ) | | | (6 | ) |
| Benefits paid | | | 4 | | | 4 | | 5 | | | 6 | | 4 | | 4 | |
| Acquisition of PaineWebber | | | (9 | ) | |
| Foreign currency translation | | | 26 | | | | (2 | ) | | 0 | | | 16 | | 26 | | | (2 | ) |
|
| |
| Post-retirement benefit obligation at the end of the year | | | (166 | ) | | | (145 | ) | | | (115 | ) | | | (179 | ) | | | (166 | ) | | | (145 | ) |
|
| |
| Fair value of plan assets at the beginning of the year | | | 3 | | | 4 | | 4 | | | 2 | | 3 | | 4 | |
| Actual return on plan assets | | | 0 | | | 0 | | 0 | | | 0 | | 0 | | 0 | |
| Employer contributions | | | 3 | | | 3 | | 4 | | | 4 | | 3 | | 3 | |
| Benefits paid | | | (4 | ) | | | (4 | ) | | | (4 | ) | | | (6 | ) | | | (4 | ) | | | (4 | ) |
|
| |
| Fair value of plan assets at the end of the year | | | 2 | | | 3 | | 4 | | | 0 | | 2 | | 3 | |
|
| |
The assumed average health care cost trend rates used in determining post-retirement benefit expense is assumed to be 10.4%10.3% for 20022003 and to decrease to an ultimate trend rate of 5% in 2008.2010. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rates would change the US post-retirement benefit obligation and the service and interest cost components of the net periodic post-retirement benefit costs as follows:
| | | | | | | | | | | | | |
| CHF million | | 1% increase | | 1% decrease | | | 1% increase | | 1% decrease | |
|
| |
| Effect on total service and interest cost | | | 4 | | | | (3 | ) | | 5 | | | (4 | ) |
| Effect on the post-retirement benefit obligation | | | 17 | | | | (13 | ) | | 25 | | | (19 | ) |
|
| |
146150
Note 32 Equity Participation Plans
a) Equity Participation Plans Offered
UBS has established several equity participation plans to further align the long-term interests of executives, managers, staff and shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules and investment offerings may vary by country.
Equity Plus Program (EPP)(EP): This voluntary plan replaced the Equity Investment Plan (EIP) in 2002 (see below). Prior to that time, it was only available to UBS PaineWebber employees. EPP gives eligible employees the opportunity to purchase UBS shares at fair market value on the purchase date and receive at no additional cost two UBS options for each share purchased, up to a maximum annual limit. The options have a strike price equal to the fair market value of the stock on the date the option is granted. Share purchases can be made annually from bonus compensation or quarterly based on regular deductions from salary. Shares purchased under EPPEP are restricted from resale for two years from the time of purchase, and the options granted have either a two- or three-yeartwo-year vesting requirement and generally expire either seven orfrom ten years to ten and one-half years after the date of grant.
Discounted Purchase Plans: All employeesEmployees in Switzerland are entitled to purchase a specified number of UBS shares at a predetermined discounted price each year. The number of shares that can be purchased depends primarily on years of service and rank. Any such shares purchased must be held for a specified period of time. The discount is recorded as compensation expense.
Equity Ownership Plan (EOP): Selected personnel receive a mandatory portion of their performance-related compensation in UBS shares orand in some cases UBS options, and most are also awardedeligible to receive a matching contribution in the form of UBS options. Participants in certain countries are eligible to receive a portion of their award in Alternative Investment Vehicles (AIVs). These are generally money market funds, UBS
UBS and non-UBS mutual funds and other UBS sponsored funds. EOP awards normally vest in one-third increments over a three-year vesting period. Under certain conditions, these awards are fully forfeitable by the employee.
Key employee option plans: Under these plans, key and high potential employees are granted UBS options with a strike price not less than the fair market value of the shares on the date the option is granted. Some optionOption grants have a three- to five-year vesting period during which they cannot be exercised. Other grantsgenerally vest in one-third increments over a three-year period. Expiration of the options is generally from sixten to ten and one-half years. One option gives the right to purchase one registered UBS share at the option’s strike price. In some grants,one outstanding prior year grant, accelerated vesting or non-forfeitability may occur if certain share appreciation targets are met.
Other deferred compensation plans: UBS sponsors other deferred compensation plans for selected eligible employees. Generally, contributions are made on a tax deferred basis. Participantsbasis, and participants are allowed to invest in UBS shares or AIVs. No additional company match is granted, and the plan is generally not forfeitable. In addition, UBS also grants deferred compensation awards to new recruits, senior management and other key employees in the form of UBS shares, options or other leveraged interests in non-UBS instruments.
Equity Investment Plan (EIP) (now discontinued): Prior to the discontinuance of new awards under this plan in 2001, employees had the choice to invest part of their annual bonus in UBS shares, warrants or other derivatives on UBS shares. A holding period, generally three years, applied during which the instruments could not be sold or exercised. In addition, participants in the plan received a matching contribution of additional UBS shares or derivatives. Only the UBS-matching contribution was forfeitable. The last EIP vesting will take place in 2004. Staff who had the possibility to take part in EIP are now offered the opportunity to take part in EPP.EP.
147151
UBS Group Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
b) UBS share awards
i) Stock compensation plans
SharesMovements in shares granted under the various equity participation plans mentioned on the previous page are as follows:
| | | | | | | | | | | | | |
| Stock bonus plans | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| Unvested shares outstanding, at the beginning of the year | | | 52,299,332 | | | | 47,458,928 | | | | 14,418,646 | |
| Shares awarded during the year | | | 13,511,655 | | | | 16,850,859 | 1 | | | 39,188,528 | 1 |
| Vested during the year | | | (16,333,832 | ) | | | (10,740,466 | )1 | | | (5,215,503 | )1 |
| Forfeited during the year | | | (1,340,594 | ) | | | (1,269,989 | ) | | | (932,743 | ) |
|
| Unvested shares outstanding, at the end of the year | | | 48,136,561 | | | | 52,299,332 | | | | 47,458,928 | |
|
| Weighted-average fair market value of shares awarded (in CHF) | | | 71 | | | | 90 | | | | 76 | |
|
| Fair market value of outstanding shares at the end of the year (CHF billion) | | | 3.2 | | | | 4.4 | | | | 4.2 | |
|
1 Restated for shares granted and fully vested at grant date.| | | | | | | | | | | | | |
| Stock compensation plans | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Unvested shares outstanding, at the beginning of the year | | | 48,136,561 | | | | 52,299,332 | | | | 47,458,928 | |
| Shares awarded during the year | | | 11,023,553 | | | | 13,511,655 | | | | 16,850,859 | |
| Vested during the year | | | (26,915,860 | ) | | | (16,333,832 | ) | | | (10,740,466 | ) |
| Forfeited during the year | | | (860,364 | ) | | | (1,340,594 | ) | | | (1,269,989 | ) |
| |
| Unvested shares outstanding, at the end of the year | | | 31,383,890 | | | | 48,136,561 | | | | 52,299,332 | |
| |
| Weighted-average fair market value of shares awarded (in CHF) | | | 61 | | | | 71 | | | | 90 | |
| |
| Fair market value of outstanding shares at the end of the year (CHF billion) | | | 2.7 | | | | 3.2 | | | | 4.4 | |
| |
The stock bonus awards for 2000 include approximately 19.8 million shares granted under the retention agreements with key employees of UBS PaineWebber at the time of merger.
ii) Stock purchase plans
The following table shows the shares awarded and the weighted-average fair value per share for the Group’s stock purchase plans.
| | | | | | | | | | | | | |
| Stock purchase plans | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| Share quantity purchased | | | 3,822,907 | | | | 2,922,515 | | | | 1,264,725 | |
| Weighted-average purchase price (in CHF)1 | | | 63 | | | | 63 | | | | 44 | |
|
1 Some of the shares purchased are denominated in US dollars and were converted into CHF for purposes of this table.| | | | | | | | | | | | | |
| Stock purchase plans | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Share quantity purchased through discounted purchase plans | | | 1,722,492 | | | | 1,339,223 | | | | 1,701,099 | |
| Weighted-average purchase price (in CHF) | | | 31 | | | | 40 | | | | 47 | |
| Share quantity purchased through EP at fair market value | | | 2,593,391 | | | | 2,483,684 | | | | 1,221,416 | |
| Weighted-average purchase price (in CHF) | | | 61 | | | | 77 | | | | | |
| Weighted-average purchase price (in USD) | | | 49 | | | | 46 | | | | 51 | |
| |
148152
Note 32 Equity Participation Plans (continued)
c) UBS option awards
Movements in options granted under the various equity participation plans mentioned aboveon the previous page are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted | | Weighted | | Weighted | | | Weighted- | | Weighted- | | Weighted- | |
| | | average | | average | | average | | | average | | average | | average | |
| | | exercise | | exercise | | exercise | | | exercise | | exercise | | exercise | |
| | | Number of | | price | | Number of | | price | | Number of | | price | | | Number of | | price | | Number of | | price | | Number of | | price | |
| | | options | | (in CHF) | | options | | (in CHF) | | options | | (in CHF) | | | options | | (in CHF) | | options | | (in CHF) | | options | | (in CHF) | |
| | | | 31.12.02 | | | | 31.12.021 | | | 31.12.01 | | 31.12.011 | | 31.12.00 | | 31.12.00 | | | 31.12.03 | | 31.12.031 | | 31.12.02 | | 31.12.021 | | 31.12.01 | | 31.12.011 | |
|
| |
| Outstanding, at the beginning of the year | | | 63,286,669 | | | | 66 | | | 63,308,502 | | 58 | | 30,415,386 | | 66 | | | 88,164,227 | | 67 | | 63,286,669 | | 66 | | 63,308,502 | | 58 | |
| Options due to the acquisition of PaineWebber | | 18,975,8102 | | 34 | | |
| Granted during the year | | | 37,060,178 | | | | 71 | | | 11,070,992 | | 94 | | 21,248,0463 | | 72 | | | 38,969,319 | | 59 | | 37,060,178 | | 71 | | 11,070,992 | | 94 | |
| Exercised during the year | | | (9,595,133 | ) | | | 54 | | | | (10,083,075 | ) | | 49 | | | (5,390,307 | ) | | 50 | | | | (14,782,471 | ) | | 54 | | | (9,595,133 | ) | | 54 | | | (10,083,075 | ) | | 49 | |
| Forfeited during the year | | | (2,082,356 | ) | | | 71 | | | | (1,009,750 | ) | | 74 | | | (1,940,433 | ) | | 64 | | | | (2,721,970 | ) | | 64 | | | (2,082,356 | ) | | 71 | | | (1,009,750 | ) | | 74 | |
| Expired unexercised | | | (505,131 | ) | | | 77 | | | 0 | | 0 | | 0 | | 0 | | | | (589,079 | ) | | 76 | | | (505,131 | ) | | 77 | | 0 | | 0 | |
|
| |
| Outstanding, at the end of the year | | | 88,164,227 | | | | 67 | | | 63,286,669 | | 66 | | 63,308,502 | | 58 | | | 109,040,026 | | 63 | | 88,164,227 | | 67 | | 63,286,669 | | 66 | |
|
| |
| Exercisable, at the end of the year | | | 21,765,482 | | | | 51 | | | 25,550,932 | | 50 | | 18,310,839 | | 34 | | | 34,726,720 | | 59 | | 21,765,482 | | 51 | | 25,550,932 | | 50 | |
|
| |
1 Some of the options in this table have exercise prices denominated in US dollars which have been converted into CHF at the year-end spot exchange rate for purposes of this table.2 UBS AG issued options in exchange for options of PaineWebber which have been included in the purchase price for PaineWebber at a fair value of CHF 992 million. 3 Includes options granted to key employees of UBS PaineWebber, vesting over a 3-year period, subject to employee’s continued employment and other restrictions.
The following table summarizes additional information about stock options outstanding at 31 December 2002:2003:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options outstanding | | | Options exercisable | |
| | |
| | |
| |
| Range of exercise | | Number of options | | | Weighted-average | | | Weighted-average | | | Number of | | | Weighted-average | |
| prices per share | | outstanding | | | exercise price | | | remaining contractual life | | | options exercisable | | | exercise price | |
|
|
| CHF | | | | | | CHF | | Years | | | | | | CHF |
|
| 56.67-70.00 | | | 18,132,696 | | | | 63.02 | | | | 2.3 | | | | 5,643,680 | | | | 58.37 | |
|
| 70.01-85.00 | | | 25,733,308 | | | | 77.99 | | | | 7.1 | | | | 6,406,246 | | | | 79.00 | |
|
| 85.01-106.00 | | | 5,565,873 | | | | 98.51 | | | | 5.2 | | | | 31,800 | | | | 90.00 | |
|
| 56.67-106.00 | | | 49,431,877 | | | | 74.81 | | | | 5.1 | | | | 12,081,726 | | | | 69.39 | |
|
| USD | | | | | | USD | | Years | | | | | | USD |
|
| 6.34-15.00 | | | 3,986,289 | | | | 8.91 | | | | 1.8 | | | | 3,986,289 | | | | 8.91 | |
|
| 15.01-25.00 | | | 2,340,754 | | | | 22.52 | | | | 2.2 | | | | 2,340,754 | | | | 22.52 | |
|
| 25.01-35.00 | | | 2,870,675 | | | | 27.05 | | | | 4.0 | | | | 2,870,675 | | | | 27.05 | |
|
| 35.01-45.00 | | | 222,175 | | | | 39.24 | | | | 9.6 | | | | 0 | | | | 0 | |
|
| 45.01-55.00 | | | 27,328,610 | | | | 46.85 | | | | 7.7 | | | | 451,038 | | | | 47.72 | |
|
| 55.01-66.08 | | | 1,983,847 | | | | 57.96 | | | | 5.1 | | | | 35,000 | | | | 57.80 | |
|
| 6.34-66.08 | | | 38,732,350 | | | | 40.54 | | | | 6.4 | | | | 9,683,756 | | | | 19.56 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Options outstanding | | Options exercisable |
| Range of exercise | | Number of options | | | Weighted-average | | | Weighted-average | | | Number of | | | Weighted-average | |
| prices per share | | outstanding | | | exercise price | | | remaining contractual life | | | options exercisable | | | exercise price | |
| |
| | | | | | | | | | | | | | | | | | | | | |
| |
CHF | | | | | | | CHF | | | Years | | | | | | | CHF | |
| |
| 53.37–70.00 | | | 27,389,634 | | | | 61.17 | | | | 6.4 | | | | 10,496,007 | | | | 63.76 | |
| |
| 70.01–85.00 | | | 23,708,208 | | | | 78.13 | | | | 6.7 | | | | 8,845,007 | | | | 78.52 | |
| |
| 85.01–106.00 | | | 5,686,709 | | | | 98.66 | | | | 4.7 | | | | 420,348 | | | | 87.56 | |
| |
53.37–106.00 | | | 56,784,551 | | | | 72.00 | | | | 6.3 | | | | 19,761,362 | | | | 70.87 | |
| |
| | | | | | | | | | | | | | | | | | | | | |
| |
USD | | | | | | USD | | | Years | | | | | | | USD | |
| |
| 6.48–35.00 | | | 6,342,786 | | | | 19.32 | | | | 2.0 | | | | 6,342,786 | | | | 19.32 | |
| |
| 35.01–45.00 | | | 14,530,862 | | | | 43.15 | | | | 9.1 | | | | 79,679 | | | | 39.52 | |
| |
| 45.01–55.00 | | | 26,951,159 | | | | 47.30 | | | | 7.1 | | | | 8,500,619 | | | | 46.57 | |
| |
| 55.01–65.31 | | | 4,430,668 | | | | 59.11 | | | | 7.4 | | | | 42,274 | | | | 57.87 | |
| |
6.48–65.31 | | | 52,255,475 | | | | 43.75 | | | | 7.1 | | | | 14,965,358 | | | | 35.02 | |
| |
Options are normally granted with a strike price either equal to fair market value or approximately 10% greater than the fair value of the underlying share on the grant date.
149153
UBS Group Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation Plans (continued)
d) Compensation Expense
Generally the Group’s policy is to recognize expense at the date of grantunder IFRS, for all equity participation instruments (shares, cash-settled warrants options and other cash-settled derivatives for which the underlying is UBS shares) except options, UBS accrues expense in the Group’s own shares). Theperformance year and determines the number of instruments granted to employees based on the instrument’s market price at the grant date, which is generally in the year following the performance year. For options, the amount of expense recognized is equal to the intrinsic value of the instrument at suchgrant date and is calculated as follows: 1) For stock options, it is(i. e. the difference between the strike price and fair
market value of shares at the date of grant, if any. 2) For UBS shares and other
derivative instruments, itgrant. This difference is generally zero, as option strike prices are generally at or above the fair market value. 3)prices of the shares). For discounted share plans, the expense is equal to the difference between the fair market value and the discounted value.value and is accrued for in the performance year. Management’s estimate of the accrued expense before tax for share-based compensation for the years ended 31 December 2003, 2002 and 2001 and 2000 was CHF 833 million, CHF 592 million and CHF 974 million, and CHF 1,749 million, respectively. The accruals include awards earned currently but issued in the following year.
The following table presents IFRS Net incomeprofit and Earnings per share for 2003, 2002 2001 and 20002001 as if the GroupUBS had adoptedapplied the fair value method of accounting for its equity participation plans, ratherplans. The
fair value method would recognize expense equal to the fair value of option awards at grant, which is higher than the intrinsic value method describedbecause of the time value of options.
in paragraph d) above. In addition, the table shows amounts already recorded in the Income statement for equity participation plans and the total expense that would have been recognized had the fair value method been applied.
| | | | | | | | | | | | | | |
| CHF million, except per share data | | | 31.12.02 | | | | 31.12.01 | | | | 31.12.00 | |
|
| Net Income, as reported | | | 3,535 | | | | 4,973 | | | | 7,792 | |
Add: Equity-based employee compensation expense
included in reported net income, net of tax | | | 493 | | | | 769 | | | | 1,347 | |
Deduct: Total equity-based employee compensation expense
determined under the fair-value-based method for all awards, net of tax | | | (1,183 | ) | | | (1,116 | ) | | | (1,505 | ) |
| Net income, pro-forma | | | 2,845 | | | | 4,626 | | | | 7,634 | |
| Earnings per share | |
| | Basic, as reported | | 2.92 | | | | 3.93 | | | | 6.44 | |
| | Basic, pro-forma | | | 2.35 | | | | 3.65 | | | | 6.31 | |
| | Diluted, as reported | | | 2.87 | | | | 3.78 | | | | 6.35 | |
| | Diluted, pro-forma | | | 2.31 | | | | 3.51 | | | | 6.22 | |
|
| | | | | | | | | | | | | |
| CHF million, except per share data | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Net Profit, as reported | | | 6,385 | | | | 3,535 | | | | 4,973 | |
| Add: Equity-based employee compensation expense included in reported net income, net of tax | | | 630 | | | | 493 | | | | 769 | |
| Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | | | (1,069 | ) | | | (1,183 | ) | | | (1,116 | ) |
| |
| Net profit, pro-forma | | | 5,946 | | | | 2,845 | | | | 4,626 | |
| |
| Earnings per share | | | | | | | | | | | | |
| Basic, as reported | | | 5.72 | | | | 2.92 | | | | 3.93 | |
| Basic, pro-forma | | | 5.32 | | | | 2.35 | | | | 3.65 | |
| Diluted, as reported | | | 5.61 | | | | 2.87 | | | | 3.78 | |
| Diluted, pro-forma | | | 5.22 | | | | 2.31 | | | | 3.51 | |
| |
The fair value of options granted was determined using a proprietary option pricing model, substantially similar to the Black-Scholes model, with the following assumptions:
| | | | | | | | | | | | | | | | | | | | |
| | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Expected volatility | | | 35 | % | | | 30 | % | | | 30 | % | | | 35% | | | 35% | | | 30% | |
| Risk free interest rate (CHF) | | | 3.28 | % | | | 3.51 | % | | | 3.27 | % | |
| Risk free interest rate (USD) | | | 4.65 | % | | | 5.81 | % | | | 5.66 | % | |
| Risk-free interest rate (CHF) | | | | 1.70% | | | 3.28% | | | 3.51% | |
| Risk-free interest rate (USD) | | | | 3.17% | | | 4.65% | | | 5.81% | |
| Expected dividend rate | | | 3.35 | % | | | 2.67 | % | | | 2.44 | % | | | 4.43% | | | 3.35% | | | 2.67% | |
| Expected life (years) | | | 4.5 | | | 4.5 | | 4.4 | | | 4.5 | | 4.5 | | 4.5 | |
|
| |
The weighted-average fair value of options granted in 2003, 2002 2001 and 20002001 was CHF 15, CHF 20 and CHF 23 and CHF 16 per share, respectively.
150154
For its 2003 and 2002 Financial Statements, the Group defines related parties as Associated companies, private equity investees, the Board of Directors, the Group Executive Board, close family members and enterprises which are controlled by these individuals through their majority shareholding or their role as chairman and/and / or CEO in those companies. In 2001, and 2000, the Group Managing Board was also included in the above definition.
The change in definition is due to the “Directive on Information Relating to Corporate Governance” issued by the SWX Swiss Exchange, effective from 1 July 2002 for all listed companies in Switzerland. Included in the new rules are specific disclosure requirements for members of the Board of Directors and “management board”. For UBS, the Group Executive Board meets the definition of “management board” under the directive. Members of the Group Managing Board, however, are excluded from the new SWX requirements. The modification is also a response to the expansion of the Group Executive Board and the Group Managing Board during 2002. The number of Group Executive Board members increased from six to ten and the Group Managing Board members from thirty to fifty-two.
Prior period figuresAmounts and share and option quantities for 2001 are based on the definition applied for 2001 and 2000.in that year.
a) Remuneration and equity holdings
The executive members of the Board of Directors have top-management employment contracts and receive pension benefits upon retirement. Total remuneration to the executive members of the Board of Directors and Group Executive Board recognized in the income statement including cash, shares and accrued pension benefits amounted to CHF 144.6 million in 2003 and CHF 131.8 million in 2002. Total compensation numbers exclude merger-related retention payments for the two ex-PaineWebber executives of CHF 21.1 million (USD 17.0 million) in 2003 and CHF 20.6 million (USD 14.9 million) in 2002. These retention payments were committed to at the time of the merger in 2000 and fully disclosed at the time. Total remuneration to the executive members of
the Board of Directors, Group Executive Board and Group Managing Board including accrued pension benefits amounted to CHF 321.4 million in 2001 and CHF 272.3 million in 2000.
The external members of the Board of Directors do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the Board of Directors. Total fees paid to these individuals for their services as external board members amounted to CHF 5.4 million in 2003, CHF 3.5 million in 2002 CHF 3.3 million in 2001 and CHF 3.3 million in 2000.2001.
The number of long-term stock options and warrants outstanding to the executive members of the Board of Directors and Group Executive Board from equity participation plans was 6,218,011 (equivalent to the same number of shares) and 120,264 (equivalent to 7,214 shares) at 31 December 2003 and 5,410,172 (equivalent to the same number of shares) and 24,558,529 (equivalent to 1,473,217 UBS shares) at 31 December 2002. The number of long-term stock options and warrants to these two groups plus the Group Managing Board amounted to 8,366,103 (equivalent to the same number of shares) and 60,578,417 (equivalent to 6,002,599 shares) at 31 December 2001. These plans are further explained in Note 32, Equity Participation Plans.
The total number of shares held by members of the Board of Directors, and the Group Executive Board and parties closely linked to them was 3,150,217 at 31 December 2003 and 2,139,371 at 31 December 2002. The total number of shares held by these two groups plus the Group Managing Board was 4,068,918 at 31 December 2001. No member of the Board of Directors Group Executive Board or Group ManagingExecutive Board is the beneficial owner of more than 1% of the Group’s shares at 31 December 2002 and 31 December 2001.2003.
b) Loans and advances to Board of Directors and senior executives
The outstanding balance of loans to the members of the Board of Directors, and the Group Executive Board and close family members amounted to CHF 25.2 million at 31 December 2003 and CHF 28 million at 31 December 2002. The outstanding balanceIn the past, executive members of the Board and GEB
155
Financial Statements
Notes to the Financial Statements
Note 33 Related Parties (continued)
members were granted loans, to these two groups plus the Group Managing Board amounted to CHF 32 millionfixed advances and mortgages at 31 December 2001. The 2001 amount only included mortgages. Loans and advances are granted with the same terms and conditions that are available to other employees. Theemployees, based on terms and conditions are based on those granted to third parties adjusted for reduced credit risk.
are now granted at general market conditions with no preferential rates, following the US Sarbanes-Oxley Act of 2002. Non-executive Board members are granted loans and mortgages at general market conditions.
151
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Related Parties (continued)
c) Loans, advances to and transactions with significant associated companies
| | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 65 | | | 0 | | | 40 | | 65 | |
| Additions | | | 10 | | | 65 | | | 48 | | 10 | |
| Reductions | | | (35 | ) | | 0 | | | | (25 | ) | | | (35 | ) |
|
| |
| Balance at the end of the year | | | 40 | | | 65 | | | 63 | | 40 | |
|
| |
All loans and advances to associated companies are transacted at arm’s length. At 31 December 20022003 and 2001,2002, there were trading exposures and guarantees to significant associated companies of CHF 13635 million and CHF 306136 million, respectively. In addition, the Group routinely receives services from associated companies at arm’s length terms. For the years ended 31 December 2003, 31 December 2002 and 31 December 2001, the amount paid to significant associates for these services was CHF 106 million, CHF 60 million and CHF 98 million, respectively.
During 2003, UBS sold its VISA acquiring business to Telekurs Holding AG, an associated company. UBS realized a CHF 90 million gain from this divestment.
Note 3536 provides a list of significant associates.
d) Loans, advances to and transactions with private equity investees
| | | | | | | | | | | | | | | |
| CHF million | | | 31.12.02 | | | 31.12.01 | | | 31.12.03 | | 31.12.02 | |
|
| |
| Balance at the beginning of the year | | | 489 | | | 682 | | | 338 | | 489 | |
| Additions | | | 328 | | | 65 | | | 153 | | 328 | |
| Reductions | | | (479 | ) | | | (258 | ) | | | (125 | ) | | | (479 | ) |
|
| |
| Balance at the end of the year | | | 338 | | | 489 | | | 366 | | 338 | |
|
| |
At 31 December 20022003 and 31 December 20012002, there were trading exposures and guarantees or commitments to private equity companies of CHF 7323 million and CHF 17773 million, respectively. In addition the Group purchased services from private equity companies at arm’s length terms for the years ended 31 December 2003, 31 December 2002 and 31 December 2001 in the amount of CHF 14 million, CHF 116 million and CHF 196 million, respectively.
156
Note 33 Related Parties (continued)
e) Other related party transactions
During 20012003 and 2002, UBS entered into the following transactions at arm’s length with companies whose Chairman and/and / or CEO is an external member of UBS’the Board of Directors of UBS or of which an external director is a controlling shareholder.
In 20012003 and 2002 these companies included Unisys (Switzerland), a wholly owned subsidiary of Unisys Corporation (USA) and, J Sainsbury plc. (UK). In 2002, in addition to those previously mentioned, related parties included, Serono Group and its various subsidiary companies and Bertarelli & Cie (Switzerland). In 2003, in addition to those mentioned previously, related parties included Sika AG (Switzerland), Kedge Capital Partners Ltd. (Jersey) and Team Alinghi SA (Switzerland).
| | | | | | | | | | | | | |
| CHF million | | | 2002 | | | 2001 | | | 2003 | | 2002 | |
|
| |
| Goods sold and services provided by related parties to UBS | | | 54 | | | 38 | | | 43 | | 54 | |
| Services provided to related parties by UBS (fees received) | | | 13 | | | 17 | | | 7 | | 13 | |
| Loans granted to related parties by UBS | | | 140 | | | 0 | | | 79 | 1 | | 140 | |
|
| |
1Includes guarantees, contingent liabilities and committed credit facilities of CHF 58.5 million, but excludes uncommitted working capital facilities of CHF 119.6 million.
As part of its sponsorship of Team Alinghi, UBS paid CHF 12 million to AC 2003 SA during 2002. AC 2003 SA, whose controlling shareholder is UBS board member Ernesto Bertarelli, is Team Alinghi’s management company.
152157
Financial Statements
Notes to the Financial Statements
Note 34 Sales of Financial Assets in Securitizations
During the years ended 31 December 2003, 2002 and 2001, UBS securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. UBS’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests.
Proceeds received at the time of securitization were as follows:
| | | | | | | | | | | | | |
| | | Proceeds Received |
| CHF billion | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Residential mortgage securitizations | | | 131 | | | | 143 | | | | 68 | |
| Commercial mortgage securitizations | | | 4 | | | | 4 | | | | 4 | |
| Other financial asset securitizations | | | 2 | | | | 6 | | | | 3 | |
| |
Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were as follows:
| | | | | | | | | | | | | |
| | | Pre-tax gains / (losses) recognized |
| CHF million | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Residential mortgage securitizations | | | 338 | | | | 524 | | | | 113 | |
| Commercial mortgage securitizations | | | 214 | | | | 206 | | | | 130 | |
| Other financial asset securitizations | | | 2 | | | | (5 | ) | | | 21 | |
| |
At 31 December 2003 and 2002, UBS retained CHF 3.8 billion and CHF 5.2 billion, respectively in agency residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The fair value of retained interests in residential mortgage securities is generally determined using observable market prices. Retained interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2003 and 2002.
Note 35 Post-Balance Sheet Events
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 20022003 Financial Statements.
Bond issues have decreasedincreased by CHF 850697 million from the balance sheet date to 114 February 2003.2004.
On 114 February 2003,2004, the Board of Directors reviewed the Financial Statements and authorized them for issue. These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 1615 April 20032004 for approval.
158
Note 36 Significant Subsidiaries and Associates
Note 35 Significant Subsidiaries and Associates
The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely UBS Warburg, UBS PaineWebber, UBS Wealth Management & Business Banking, Global Asset Management, Investment Bank and UBS Asset Management)Wealth Management USA) nor Corporate Center are replicated in their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.
The parent bank structure allows UBS to capitalize on the advantages offered by the use of
of one legal platform by all the Business Groups. It provides for the most cost-efficient and flexible structure and facilitates efficient allocation and use of capital, comprehensive risk management and straightforward funding processes.
Where, usually due to local legal, tax or regulatory rules or due to additional legal entities joining the UBS Group via acquisition, it is either not possible or not efficient to operate out of the parent bank, then local subsidiary companies host the appropriate businesses. The significant operating subsidiary companies in the Group are listed below:
Footnotes
| 1 | | WM&BB: Wealth Management & Business Banking, Global AM: Global Asset Management, IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. |
| 2 | | Share Capital and Share Premium. |
Significant subsidiaries
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumu- |
| Company | | of incorporation | | Group1 | | | | in millions | | | lated in % | |
| |
| Aventic AG | | Zurich, Switzerland | | WM&BB | | CHF | | | 30.0 | | | | 100.0 | |
| Banco UBS SA | | Rio de Janeiro, Brazil | | IB | | BRL | | | 52.9 | | | | 100.0 | |
| BDL Banco di Lugano | | Lugano, Switzerland | | CC | | CHF | | | 50.0 | | | | 100.0 | |
| BDL Banco di Lugano (Singapore) Ltd | | Singapore, Singapore | | CC | | SGD | | | 25.0 | | | | 100.0 | |
| Brunswick UBS Ltd | | George Town, Cayman Islands | | IB | | USD | | | 25.0 | | | | 50.0 | |
| Cantrade Private Bank | | | | | | | | | | | | | | |
| Switzerland (CI) Limited | | St. Helier, Jersey | | CC | | GBP | | | 0.7 | | | | 100.0 | |
| Crédit Industriel SA | | Zurich, Switzerland | | WM&BB | | CHF | | | 10.0 | | | | 100.0 | |
| Ehinger & Armand von Ernst AG | | Zurich, Switzerland | | CC | | CHF | | | 21.0 | | | | 100.0 | |
| Factors AG | | Zurich, Switzerland | | WM&BB | | CHF | | | 5.0 | | | | 100.0 | |
| Ferrier Lullin & Cie SA | | Geneva, Switzerland | | CC | | CHF | | | 30.0 | | | | 100.0 | |
| GAM Holding AG | | Zurich, Switzerland | | CC | | CHF | | | 116.0 | | | | 100.0 | |
| GAM Limited | | Hamilton, Bermuda | | CC | | USD | | | 2.0 | | | | 100.0 | |
| Giubergia UBS SIM SpA | | Milan, Italy | | IB | | EUR | | | 15.1 | | | | 50.0 | |
| Noriba Bank BSC | | Manama, Bahrain | | WM&BB | | USD | | | 10.0 | | | | 100.0 | |
| PaineWebber Capital Inc | | Delaware, USA | | WM-US | | USD | | | 25.8 | 2 | | | 100.0 | |
| PT UBS Securities Indonesia | | Jakarta, Indonesia | | IB | | IDR | | | 25,000.0 | | | | 93.4 | |
| SBC Wealth Management AG | | Zug, Switzerland | | CC | | CHF | | | 290.1 | | | | 100.0 | |
| SBCI IB Limited | | London, Great Britain | | IB | | GBP | | | 100.0 | | | | 100.0 | |
| SG Warburg & Co International BV | | Amsterdam, the Netherlands | | IB | | GBP | | | 40.5 | | | | 100.0 | |
| Thesaurus Continentale | | | | | | | | | | | | | | |
| Effekten-Gesellschaft in Zürich | | Zurich, Switzerland | | WM&BB | | CHF | | | 30.0 | | | | 100.0 | |
| UBS (Bahamas) Ltd | | Nassau, Bahamas | | WM&BB | | USD | | | 4.0 | | | | 100.0 | |
| UBS (France) SA | | Paris, France | | WM&BB | | EUR | | | 10.7 | | | | 100.0 | |
| UBS (Italia) SpA | | Milan, Italy | | WM&BB | | EUR | | | 42.0 | | | | 100.0 | |
| UBS (Luxembourg) SA | | Luxembourg, Luxembourg | | WM&BB | | CHF | | | 150.0 | | | | 100.0 | |
| UBS (Monaco) SA | | Monte Carlo, Monaco | | WM&BB | | EUR | | | 9.2 | | | | 100.0 | |
| UBS (Trust and Banking) Limited | | Tokyo, Japan | | Global AM | | JPY | | | 10,900.0 | | | | 100.0 | |
| UBS Advisory and | | | | | | | | | | | | | | |
| Capital Markets Australia Ltd | | Sydney, Australia | | IB | | AUD | | | 580.8 | 2 | | | 100.0 | |
| UBS Americas Inc | | Delaware, USA | | IB | | USD | | | 4,490.8 | 2 | | | 100.0 | |
| UBS Asesores SA | | Panama, Panama | | WM&BB | | USD | | | – | | | | 100.0 | |
| UBS Australia Limited | | Sydney, Australia | | IB | | AUD | | | 50.0 | | | | 100.0 | |
| UBS Bank (Canada) | | Toronto, Canada | | WM&BB | | CAD | | | 8.5 | | | | 100.0 | |
| UBS Bank USA | | Utah, USA | | WM-US | | USD | | | 1,700.0 | 2 | | | 100.0 | |
| UBS Belgium SA / NV | | Brussels, Belgium | | WM&BB | | EUR | | | 14.5 | | | | 100.0 | |
| UBS Beteiligungs-GmbH & Co KG | | Frankfurt am Main, Germany | | IB | | EUR | | | 398.8 | | | | 100.0 | |
| |
159
Financial Statements
Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
Footnotes
| 1 | | WB: UBSWM&BB: Wealth Management & Business Banking, Global AM: UBS Global Asset Management, WA: UBS Warburg, PW: UBS PaineWebber,IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. |
| 2 | | Share Capital and Share Premium. |
Significant subsidiaries
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumul- | |
| Company | | of incorporation | | Group1 | | | | in millions | | | ated in % | |
|
| Armand von Ernst & Cie AG | | Berne, Switzerland | | WB | | CHF | | | 5.0 | | | | 100.0 | |
| Aventic AG | | Zurich, Switzerland | | WB | | CHF | | | 30.0 | | | | 100.0 | |
| Banco UBS Warburg SA | | Rio de Janeiro, Brazil | | WA | | BRL | | | 52.9 | | | | 100.0 | |
| Bank Ehinger & Cie AG | | Basel, Switzerland | | WB | | CHF | | | 6.0 | | | | 100.0 | |
| BDL Banco di Lugano | | Lugano, Switzerland | | WB | | CHF | | | 50.0 | | | | 100.0 | |
| BDL Banco di Lugano (Singapore) Ltd | | Singapore, Singapore | | WB | | CHF | | | 22.5 | | | | 100.0 | |
| Brunswick UBS Warburg Ltd | | George Town, Cayman Islands | | WA | | USD | | | 25.0 | 2 | | | 50.0 | |
| Cantrade Privatbank AG | | Zurich, Switzerland | | WB | | CHF | | | 10.0 | | | | 100.0 | |
| Cantrade Private Bank | | | | | | | | | | | | | | |
| Switzerland (CI) Limited | | St. Helier, Jersey | | WB | | GBP | | | 0.7 | | | | 100.0 | |
| Crédit Industriel SA | | Zurich, Switzerland | | WB | | CHF | | | 10.0 | | | | 100.0 | |
| EIBA AG | | Zurich, Switzerland | | WA | | CHF | | | 1.4 | | | | 100.0 | |
| Factors AG | | Zurich, Switzerland | | WB | | CHF | | | 5.0 | | | | 100.0 | |
| Ferrier Lullin & Cie SA | | Geneva, Switzerland | | WB | | CHF | | | 30.0 | | | | 100.0 | |
| Fondvest AG | | Zurich, Switzerland | | AM | | CHF | | | 4.3 | | | | 100.0 | |
| GAM Holding AG | | Zurich, Switzerland | | AM | | CHF | | | 200.0 | | | | 100.0 | |
| Global Asset Management Limited, Bermuda | | Hamilton, Bermuda | | AM | | USD | | | 2.0 | | | | 100.0 | |
| IL Immobilien-Leasing AG | | Opfikon, Switzerland | | WB | | CHF | | | 5.0 | | | | 100.0 | |
| Noriba Bank BSC | | Manama, Bahrain | | WB | | USD | | | 10.0 | | | | 100.0 | |
| PaineWebber Capital Inc | | Delaware, USA | | PW | | USD | | | 25.8 | 2 | | | 100.0 | |
| PT UBS Warburg Indonesia | | Jakarta, Indonesia | | WA | | IDR | | | 11,000.0 | | | | 85.0 | |
| PW Trust Company | | New Jersey, USA | | PW | | USD | | | 4.4 | 2 | | | 99.6 | |
| SG Warburg & Co International BV | | Amsterdam, the Netherlands | | WA | | GBP | | | 40.5 | | | | 100.0 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumu- |
| Company | | of incorporation | | Group1 | | | | in millions | | | lated in % | |
| |
| UBS Capital (Jersey) Ltd | | St. Helier, Jersey | | IB | | GBP | | | 226.0 | | | | 100.0 | |
| UBS Capital AG | | Zurich, Switzerland | | IB | | CHF | | | 5.0 | | | | 100.0 | |
| UBS Capital Americas Investments II LLC | | Delaware, USA | | IB | | USD | | | 130.0 | 2 | | | 100.0 | |
| UBS Capital Americas Investments III Ltd | | George Town, Cayman Islands | | IB | | USD | | | 61.1 | 2 | | | 100.0 | |
| UBS Capital Asia Pacific Limited | | George Town, Cayman Islands | | IB | | USD | | | 5.0 | | | | 100.0 | |
| UBS Capital BV | | Amsterdam, the Netherlands | | IB | | EUR | | | 118.8 | 2 | | | 100.0 | |
| UBS Capital II LLC | | Delaware, USA | | IB | | USD | | | 2.6 | 2 | | | 100.0 | |
| UBS Capital Latin America LDC | | George Town, Cayman Islands | | IB | | USD | | | 113.0 | 2 | | | 100.0 | |
| UBS Capital LLC | | Delaware, USA | | IB | | USD | | | 378.5 | 2 | | | 100.0 | |
| UBS Capital SpA | | Milan, Italy | | IB | | EUR | | | 25.8 | | | | 100.0 | |
| UBS Card Center AG | | Glattbrugg, Switzerland | | WM&BB | | CHF | | | 40.0 | | | | 100.0 | |
| UBS Corporate Finance Italia SpA | | Milan, Italy | | IB | | EUR | | | 1.9 | | | | 100.0 | |
| UBS Corporate Finance | | | | | | | | | | | | | | |
| South Africa (Proprietary) Limited | | Sandton, South Africa | | IB | | ZAR | | | – | | | | 100.0 | |
| UBS Derivatives Hong Kong Limited | | Hong Kong, China | | IB | | HKD | | | 20.0 | | | | 100.0 | |
| UBS Employee Benefits Trust Limited | | St. Helier, Jersey | | CC | | CHF | | | – | | | | 100.0 | |
| UBS Equity Research Malaysia Sdn Bhd | | Kuala Lumpur, Malaysia | | IB | | MYR | | | 0.5 | | | | 70.0 | |
| UBS España SA | | Madrid, Spain | | WM&BB | | EUR | | | 115.3 | | | | 100.0 | |
| UBS Fiduciaria SpA | | Milan, Italy | | WM&BB | | EUR | | | 0.2 | | | | 100.0 | |
| UBS Fiduciary Trust Company | | New Jersey, USA | | WM-US | | USD | | | 4.4 | 2 | | | 99.6 | |
| UBS Finance (Cayman Islands) Ltd | | George Town, Cayman Islands | | CC | | USD | | | 0.5 | | | | 100.0 | |
| UBS Finance (Curação) NV | | Willemstad, Netherlands Antilles | | CC | | USD | | | 0.1 | | | | 100.0 | |
| UBS Finance (Delaware) LLC | | Delaware, USA | | IB | | USD | | | 37.3 | 2 | | | 100.0 | |
| UBS Financial Services Inc. | | Delaware, USA | | WM-US | | USD | | | 1,672.3 | 2 | | | 100.0 | |
| UBS Financial Services | | | | | | | | | | | | | | |
| Incorporated of Puerto Rico | | Hato Rey, Puerto Rico | | WM-US | | USD | | | 31.0 | 2 | | | 100.0 | |
| UBS Finanzholding AG | | Zurich, Switzerland | | CC | | CHF | | | 10.0 | | | | 100.0 | |
| UBS Fund Advisor LLC | | Delaware, USA | | WM-US | | USD | | | – | | | | 100.0 | |
| UBS Fund Holding (Luxembourg) SA | | Luxembourg, Luxembourg | | Global AM | | CHF | | | 42.0 | | | | 100.0 | |
| UBS Fund Holding (Switzerland) AG | | Basel, Switzerland | | Global AM | | CHF | | | 18.0 | | | | 100.0 | |
| UBS Fund Management (Switzerland) AG | | Basel, Switzerland | | Global AM | | CHF | | | 1.0 | | | | 100.0 | |
| UBS Fund Services (Cayman) Ltd | | George Town, Cayman Islands | | Global AM | | USD | | | 5.6 | | | | 100.0 | |
| UBS Fund Services (Luxembourg) SA | | Luxembourg, Luxembourg | | Global AM | | CHF | | | 2.5 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Americas) Inc | | Delaware, USA | | Global AM | | USD | | | – | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Australia) Ltd | | Sydney, Australia | | Global AM | | AUD | | | 8.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Canada) Co | | Halifax, Canada | | Global AM | | CAD | | | 117.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (France) SA | | Paris, France | | WM&BB | | EUR | | | 2.1 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Hong Kong) Limited | | Hong Kong, China | | Global AM | | HKD | | | 25.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Italia) SIM SpA | | Milan, Italy | | Global AM | | EUR | | | 2.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Japan) Ltd | | Tokyo, Japan | | Global AM | | JPY | | | 2,200.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Singapore) Ltd | | Singapore, Singapore | | Global AM | | SGD | | | 4.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Taiwan) Ltd | | Taipei, Taiwan | | Global AM | | TWD | | | 340.0 | | | | 84.1 | |
| UBS Global Asset Management (US) Inc | | Delaware, USA | | Global AM | | USD | | | 35.2 | 2 | | | 100.0 | |
| UBS Global Asset Management Holding Ltd | | London, Great Britain | | Global AM | | GBP | | | 8.0 | | | | 100.0 | |
| |
153160
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries continued)
Footnotes
| 1 | | WB: UBSWM&BB: Wealth Management & Business Banking, Global AM: UBS Global Asset Management, WA: UBS Warburg, PW: UBS PaineWebber,IB: Investment Bank, WM-US: Wealth Management USA, CC: Corporate Center. |
| 2 | | Share Capital and Share Premium.
|
UBS Group Financial Statements
Notes to the Financial Statements
Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumul- | |
| Company | | of incorporation | | Group1 | | | | in millions | | | ated in % | |
|
| Thesaurus Continentale | | | | | | | | | | | | | | |
| Effekten-Gesellschaft in Zürich | | Zurich, Switzerland | | WB | | CHF | | | 30.0 | | | | 100.0 | |
| UBS (Bahamas) Ltd | | Nassau, Bahamas | | WB | | USD | | | 4.0 | | | | 100.0 | |
| UBS (France) SA | | Paris, France | | WB | | EUR | | | 10.0 | | | | 100.0 | |
| UBS (Italia) SpA | | Milan, Italy | | WB | | EUR | | | 22.2 | | | | 100.0 | |
| UBS (Luxembourg) SA | | Luxembourg, Luxembourg | | WB | | CHF | | | 150.0 | | | | 100.0 | |
| UBS (Monaco) SA | | Monte Carlo, Monaco | | WB | | EUR | | | 9.2 | | | | 100.0 | |
| UBS (Sydney) Limited | | Sydney, Australia | | WA | | AUD | | | 12.7 | | | | 100.0 | |
| UBS (Trust and Banking) Limited | | Tokyo, Japan | | AM | | JPY | | | 10,900.0 | | | | 100.0 | |
| UBS (USA) Inc | | Delaware, USA | | WA | | USD | | | 315.0 | | | | 100.0 | |
| UBS Americas Inc | | Delaware, USA | | WA | | USD | | | 4,490.82 | | | | 100.0 | |
| UBS Australia Limited | | Sydney, Australia | | WA | | AUD | | | 50.0 | | | | 100.0 | |
| UBS Bank (Canada) | | Toronto, Canada | | WB | | CAD | | | 20.7 | | | | 100.0 | |
| UBS Beteiligungs-GmbH & Co KG | | Frankfurt, Germany | | WA | | EUR | | | 398.8 | | | | 100.0 | |
| UBS Bunting Warburg Inc | | Toronto, Canada | | WA | | CAD | | | 33.3 | | | | 50.0 | |
| UBS Capital (Jersey) Ltd | | St. Helier, Jersey | | WA | | GBP | | | 226.0 | | | | 100.0 | |
| UBS Capital AG | | Zurich, Switzerland | | WA | | CHF | | | 5.0 | | | | 100.0 | |
| UBS Capital Americas Investments II LLC | | Delaware, USA | | WA | | USD | | | 130.0 | 2 | | | 100.0 | |
| UBS Capital Americas Investments III Ltd | | George Town, Cayman Islands | | WA | | USD | | | 61.0 | 2 | | | 100.0 | |
| UBS Capital Asia Pacific Limited | | George Town, Cayman Islands | | WA | | USD | | | 5.0 | | | | 100.0 | |
| UBS Capital BV | | Amsterdam, the Netherlands | | WA | | EUR | | | 104.1 | 2 | | | 100.0 | |
| UBS Capital II LLC | | Delaware, USA | | WA | | USD | | | 2.6 | 2 | | | 100.0 | |
| UBS Capital Latin America LDC | | George Town, Cayman Islands | | WA | | USD | | | 113.0 | 2 | | | 100.0 | |
| UBS Capital LLC | | Delaware, USA | | WA | | USD | | | 378.5 | 2 | | | 100.0 | |
| UBS Capital Partners Limited | | London, Great Britain | | WA | | GBP | | | 6.7 | | | | 100.0 | |
| UBS Capital SpA | | Milan, Italy | | WA | | EUR | | | 25.8 | | | | 100.0 | |
| UBS Card Center AG | | Glattbrugg, Switzerland | | WB | | CHF | | | 40.0 | | | | 100.0 | |
| UBS Employee Benefits Trust Limited | | St. Helier, Jersey | | CC | | CHF | | | — | | | | 100.0 | |
| UBS España SA | | Madrid, Spain | | WB | | EUR | | | 85.3 | | | | 100.0 | |
| UBS Fiduciaria SpA | | Milan, Italy | | WB | | EUR | | | 0.2 | | | | 100.0 | |
| UBS Finance (Cayman Islands) Ltd | | George Town, Cayman Islands | | CC | | USD | | | 0.5 | | | | 100.0 | |
| UBS Finance (Curação) NV | | Willemstad, Netherlands | | CC | | USD | | | 0.1 | | | | 100.0 | |
| | | Antilles | | | | | | | | | | | | |
| UBS Finance (Delaware) LLC | | Delaware, USA | | WA | | USD | | | 37.3 | 2 | | | 100.0 | |
| UBS Finanzholding AG | | Zurich, Switzerland | | CC | | CHF | | | 10.0 | | | | 100.0 | |
| UBS Fund Holding (Luxembourg) SA | | Luxembourg, Luxembourg | | AM | | CHF | | | 42.0 | | | | 100.0 | |
| UBS Fund Holding (Switzerland) AG | | Basel, Switzerland | | AM | | CHF | | | 18.0 | | | | 100.0 | |
| UBS Fund Management (Switzerland) AG | | Basel, Switzerland | | AM | | CHF | | | 1.0 | | | | 100.0 | |
| UBS Fund Services (Cayman) Ltd | | George Town, Cayman Islands | | AM | | USD | | | 5.6 | | | | 100.0 | |
| UBS Fund Services (Luxembourg) SA | | Luxembourg, Luxembourg | | AM | | CHF | | | 2.5 | | | | 100.0 | |
| UBS Global Asset Management (Americas) Inc | | Delaware, USA | | AM | | USD | | | — | | | | 100.0 | |
| UBS Global Asset Management (Australia) Ltd | | Sydney, Australia | | AM | | AUD | | | 8.0 | | | | 100.0 | |
| UBS Global Asset Management (Canada) Co | | Halifax, Canada | | AM | | CAD | | | 117.0 | | | | 100.0 | |
| UBS Global Asset Management (France) SA | | Paris, France | | AM | | EUR | | | 1.5 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Hong Kong) Limited | | Hong Kong, China | | AM | | HKD | | | 25.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Italia) SIM SpA | | Milan, Italy | | AM | | EUR | | | 2.0 | | | | 100.0 | |
| UBS Global Asset Management (Japan) Ltd | | Tokyo, Japan | | AM | | JPY | | | 2,200.0 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (New York) Inc | | New York, USA | | AM | | USD | | | 0.5 | | | | 100.0 | |
| UBS Global Asset Management | | | | | | | | | | | | | | |
| (Singapore) Ltd | | Singapore, Singapore | | AM | | SGD | | | 4.0 | | | | 100.0 | |
| UBS Global Asset Management (Taiwan) Ltd | | Taipei, Taiwan | | AM | | TWD | | | 340.0 | | | | 84.1 | |
| UBS Global Asset Management (US) Inc | | Delaware, USA | | AM | | USD | | | 35.3 | 2 | | | 100.0 | |
|
154
Footnotes
1 | | WB: UBS Wealth Management & Business Banking, AM: UBS Global Asset Management, WA: UBS Warburg, PW: UBS PaineWebber, CC: Corporate Center. |
2 | | Share Capital and Share Premium. |
Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | capital | | | accumul- | |
| Company | | of incorporation | | Group1 | | in millions | | | ated in % | |
|
| UBS Global Asset Management Holding Ltd | | London, Great Britain | | AM | | GBP | | | 8.0 | 2 | | | 100.0 | |
| UBS Global Trust Corporation | | St. John, Canada | | WB | | CAD | | | 0.1 | | | | 100.0 | |
| UBS Immoleasing AG | | Zurich, Switzerland | | WB | | CHF | | | 3.0 | | | | 100.0 | |
| UBS International Holdings BV | | Amsterdam, the Netherlands | | CC | | CHF | | | 13.8 | | | | 100.0 | |
| UBS Invest Kapitalanlagegesellschaft mbH | | Frankfurt, Germany | | AM | | EUR | | | 6.4 | | | | 100.0 | |
| UBS Investment Bank Limited | | London, Great Britain | | WA | | GBP | | | 10.0 | | | | 100.0 | |
| UBS Leasing AG | | Brugg, Switzerland | | WB | | CHF | | | 10.0 | | | | 100.0 | |
| UBS Life AG | | Zurich, Switzerland | | WB | | CHF | | | 25.0 | | | | 100.0 | |
| UBS Limited | | London, Great Britain | | WA | | GBP | | | 10.0 | | | | 100.0 | |
| UBS O’Connor LLC | | Delaware, USA | | AM | | USD | | | 1.0 | | | | 100.0 | |
| UBS O’Connor Trading Limited | | George Town, Cayman Islands | | AM | | USD | | | 350.0 | | | | 100.0 | |
| UBS PaineWebber Inc | | Delaware, USA | | PW | | USD | | | 1,707.5 | 2 | | | 100.0 | |
| UBS PaineWebber Incorporated of | | | | | | | | | | | | | | |
| Puerto Rico | | Hato Rey, Puerto Rico | | PW | | USD | | | 31.6 | 2 | | | 100.0 | |
| UBS PaineWebber Life Insurance Company | | California, USA | | PW | | USD | | | 39.3 | 2 | | | 100.0 | |
| UBS Portfolio LLC | | New York, USA | | WA | | USD | | | 0.1 | | | | 100.0 | |
| UBS Preferred Funding Company LLC I | | Delaware, USA | | WA | | USD | | | — | | | | 100.0 | |
| UBS Preferred Funding Company LLC II | | Delaware, USA | | WA | | USD | | | — | | | | 100.0 | |
| UBS Preferred Funding Company LLC III | | Delaware, USA | | WA | | USD | | | — | | | | 100.0 | |
| UBS Principal Finance LLC | | Delaware, USA | | WA | | USD | | | 0.1 | | | | 100.0 | |
| UBS Private Banking (Belgium) SA | | Brussels, Belgium | | WB | | EUR | | | 7.3 | | | | 100.0 | |
| UBS Private Banking Deutschland AG | | Hamburg, Germany | | WB | | EUR | | | 51.0 | | | | 100.0 | |
| UBS Realty Investors LLC | | Massachusetts, USA | | AM | | USD | | | — | | | | 100.0 | |
| UBS Trust (Canada) | | Toronto, Canada | | WB | | CAD | | | 12.5 | | | | 100.0 | |
| UBS Trustees (Bahamas) Ltd | | Nassau, Bahamas | | WB | | USD | | | 2.0 | | | | 100.0 | |
| UBS Trustees (Cayman) Ltd | | George Town, Cayman Islands | | WB | | USD | | | 2.0 | | | | 100.0 | |
| UBS Trustees (Jersey) Ltd | | St. Helier, Jersey | | WB | | GBP | | | 0.7 | | | | 100.0 | |
| UBS Trustees (Singapore) Limited | | Singapore, Singapore | | WB | | SGD | | | 3.3 | | | | 100.0 | |
| UBS UK Holding Limited | | London, Great Britain | | WA | | GBP | | | 5.0 | | | | 100.0 | |
| UBS UK Limited | | London, Great Britain | | WA | | GBP | | | 609.0 | | | | 100.0 | |
| UBS Warburg (France) SA | | Paris, France | | WA | | EUR | | | 22.9 | | | | 100.0 | |
| UBS Warburg (Italia) SpA | | Milan, Italy | | WA | | EUR | | | 1.9 | | | | 100.0 | |
| UBS Warburg (Japan) Limited | | George Town, Cayman Islands | | WA | | JPY | | | 50,000.0 | | | | 100.0 | |
| UBS Warburg (Malaysia) Sdn Bhd | | Kuala Lumpur, Malaysia | | WA | | MYR | | | 0.5 | | | | 70.0 | |
| UBS Warburg (Nederland) BV | | Amsterdam, the Netherlands | | WA | | EUR | | | 10.9 | | | | 100.0 | |
| UBS Warburg AG | | Frankfurt, Germany | | WA | | EUR | | | 155.7 | | | | 100.0 | |
| UBS Warburg Asia Limited | | Hong Kong, China | | WA | | HKD | | | 20.0 | | | | 100.0 | |
| UBS Warburg | | | | | | | | | | | | | | |
| Australia Corporate Finance Ltd | | Sydney, Australia | | WA | | AUD | | | — | | | | 100.0 | |
| UBS Warburg | | | | | | | | | | | | | | |
| Australia Corporation Pty Limited | | Sydney, Australia | | WA | | AUD | | | 50.4 | 2 | | | 100.0 | |
| UBS Warburg Australia Equities Ltd | | Sydney, Australia | | WA | | AUD | | | 190.0 | 2 | | | 100.0 | |
| UBS Warburg Australia Limited | | Sydney, Australia | | WA | | AUD | | | 571.5 | 2 | | | 100.0 | |
| UBS Warburg Derivatives Limited | | Hong Kong, China | | WA | | HKD | | | 20.0 | | | | 100.0 | |
| UBS Warburg Hong Kong Limited | | Hong Kong, China | | WA | | HKD | | | 30.0 | | | | 100.0 | |
| UBS Warburg International Ltd | | London, Great Britain | | WA | | GBP | | | 18.0 | | | | 100.0 | |
| UBS Warburg Investments Ltd | | Sydney, Australia | | WA | | AUD | | | 0.1 | | | | 100.0 | |
| UBS Warburg LLC | | Delaware, USA | | WA | | USD | | | 948.1 | | | | 100.0 | |
| UBS Warburg Ltd | | London, Great Britain | | WA | | GBP | | | 17.5 | | | | 100.0 | |
| UBS Warburg New Zealand Equities Ltd | | Auckland, New Zealand | | WA | | NZD | | | 7.5 | | | | 100.0 | |
| UBS Warburg Private Clients Ltd | | Melbourne, Australia | | WA | | AUD | | | 53.9 | | | | 100.0 | |
| UBS Warburg Pte Ltd | | Singapore, Singapore | | WA | | SGD | | | 55.0 | | | | 100.0 | |
| UBS Warburg Real Estate Securities Inc | | Delaware, USA | | WA | | USD | | | 0.4 | | | | 100.0 | |
| UBS Warburg Securities (España) SV SA | | Madrid, Spain | | WA | | EUR | | | 15.0 | | | | 100.0 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumu- |
| Company | | of incorporation | | Group1 | | | | in millions | | | lated in % | |
| |
| UBS Global Trust Corporation | | St. John, Canada | | WM&BB | | CAD | | | 0.1 | | | | 100.0 | |
| UBS International Holdings BV | | Amsterdam, the Netherlands | | CC | | EUR | | | 6.8 | | | | 100.0 | |
| UBS International Inc | | New York, USA | | WM&BB | | USD | | | 34.3 | 2 | | | 100.0 | |
| UBS International Life Limited | | Dublin, Ireland | | WM&BB | | EUR | | | 1.0 | | | | 100.0 | |
| UBS Invest Kapitalanlagegesellschaft mbH | | Frankfurt am Main, Germany | | Global AM | | EUR | | | 7.7 | | | | 100.0 | |
| UBS Investment Bank AG | | Frankfurt am Main, Germany | | IB | | EUR | | | 155.7 | | | | 100.0 | |
| UBS Investment Bank Nederland BV | | Amsterdam, the Netherlands | | IB | | EUR | | | 10.9 | | | | 100.0 | |
| UBS Leasing AG | | Brugg, Switzerland | | WM&BB | | CHF | | | 10.0 | | | | 100.0 | |
| UBS Life AG | | Zurich, Switzerland | | WM&BB | | CHF | | | 25.0 | | | | 100.0 | |
| UBS Limited | | London, Great Britain | | IB | | GBP | | | 21.2 | | | | 100.0 | |
| UBS Loan Finance LLC | | Delaware, USA | | IB | | USD | | | 16.7 | | | | 100.0 | |
| UBS Mortgage Holdings LLC | | Delaware, USA | | WM-US | | USD | | | – | | | | 100.0 | |
| UBS New Zealand Limited | | Auckland, New Zealand | | IB | | NZD | | | 7.5 | | | | 100.0 | |
| UBS O’Connor LLC | | Delaware, USA | | Global AM | | USD | | | 1.0 | | | | 100.0 | |
| UBS PaineWebber Life Insurance Company | | California, USA | | WM-US | | USD | | | 39.3 | 2 | | | 100.0 | |
| UBS Portfolio LLC | | New York, USA | | IB | | USD | | | 0.1 | | | | 100.0 | |
| UBS Preferred Funding Company LLC I | | Delaware, USA | | IB | | USD | | | – | | | | 100.0 | |
| UBS Preferred Funding Company LLC II | | Delaware, USA | | IB | | USD | | | – | | | | 100.0 | |
| UBS Preferred Funding Company LLC III | | Delaware, USA | | IB | | USD | | | – | | | | 100.0 | |
| UBS Preferred Funding Company LLC IV | | Delaware, USA | | IB | | USD | | | – | | | | 100.0 | |
| UBS Principal Finance LLC | | Delaware, USA | | IB | | USD | | | 0.1 | | | | 100.0 | |
| UBS Private Clients Australia Ltd | | Melbourne, Australia | | IB | | AUD | | | 53.9 | | | | 100.0 | |
| UBS Real Estate Investments Inc | | Delaware, USA | | IB | | USD | | | 0.3 | | | | 100.0 | |
| UBS Real Estate Securities Inc | | Delaware, USA | | IB | | USD | | | 0.4 | | | | 100.0 | |
| UBS Realty Investors LLC | | Connecticut, USA | | Global AM | | USD | | | 9.3 | | | | 100.0 | |
| UBS Securities (Thailand) Ltd | | Bangkok, Thailand | | IB | | THB | | | 400.0 | | | | 100.0 | |
| UBS Securities Asia Limited | | Hong Kong, China | | IB | | HKD | | | 20.0 | | | | 100.0 | |
| UBS Securities Australia Ltd | | Sydney, Australia | | IB | | AUD | | | 209.8 | 2 | | | 100.0 | |
| UBS Securities Canada Inc | | Toronto, Canada | | IB | | CAD | | | 10.0 | | | | 50.0 | |
| UBS Securities España | | | | | | | | | | | | | | |
| Sociedad de Valores SA | | Madrid, Spain | | IB | | EUR | | | 15.0 | | | | 100.0 | |
| UBS Securities France SA | | Paris, France | | IB | | EUR | | | 22.9 | | | | 100.0 | |
| UBS Securities Hong Kong Limited | | Hong Kong, China | | IB | | HKD | | | 30.0 | | | | 100.0 | |
| UBS Securities India Private Limited | | Mumbai, India | | IB | | INR | | | 237.8 | | | | 75.0 | |
| UBS Securities International Limited | | London, Great Britain | | IB | | GBP | | | 18.0 | | | | 100.0 | |
| UBS Securities Japan Ltd | | George Town, Cayman Islands | | IB | | JPY | | | 50,000.0 | | | | 100.0 | |
| UBS Securities Limited | | London, Great Britain | | IB | | GBP | | | 140.0 | | | | 100.0 | |
| UBS Securities LLC | | Delaware, USA | | IB | | USD | | | 2,141.4 | 2 | | | 100.0 | |
| UBS Securities Philippines Inc | | Makati City, Philippines | | IB | | PHP | | | 150.0 | | | | 100.0 | |
| UBS Securities Singapore Pte Ltd | | Singapore, Singapore | | IB | | SGD | | | 55.0 | | | | 100.0 | |
| UBS Securities South Africa | | | | | | | | | | | | | | |
| (Proprietary) Limited | | Sandton, South Africa | | IB | | ZAR | | | 87.1 | 2 | | | 100.0 | |
| UBS Trust (Canada) | | Toronto, Canada | | WM&BB | | CAD | | | 12.5 | | | | 100.0 | |
| UBS Trust Company National Association | | New York, USA | | WM-US | | USD | | | 5.0 | 2 | | | 100.0 | |
| UBS Trustees (Bahamas) Ltd | | Nassau, Bahamas | | WM&BB | | USD | | | 2.0 | | | | 100.0 | |
| UBS Trustees (Cayman) Ltd | | George Town, Cayman Islands | | WM&BB | | USD | | | 2.0 | | | | 100.0 | |
| UBS Trustees (Jersey) Ltd | | St. Helier, Jersey | | WM&BB | | GBP | | | – | | | | 100.0 | |
| UBS Trustees (Singapore) Limited | | Singapore, Singapore | | WM&BB | | SGD | | | 3.3 | | | | 100.0 | |
| UBS UK Holding Limited | | London, Great Britain | | IB | | GBP | | | 5.0 | | | | 100.0 | |
| UBS Wealth Management AG | | Hamburg, Germany | | WM&BB | | EUR | | | 51.0 | | | | 100.0 | |
| |
155161
UBS Group Financial Statements
Notes to the Financial Statements
Note 3536 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Equity | |
| | | | | | | | | Share | | | interest | |
| | | Jurisdiction | | Business | | | | capital | | | accumul- | |
| Company | | of incorporation | | Group1 | | | | in millions | | | ated in % | |
|
| UBS Warburg Securities | |
| (South Africa) (Pty) Limited | | Sandton, South Africa | | WA | | ZAR | | | 87.1 | | | | 100.0 | |
| UBS Warburg Securities Co Ltd | | Bangkok, Thailand | | WA | | THB | | | 400.0 | | | | 100.0 | |
| UBS Warburg Securities India Private Limited | | Mumbai, India | | WA | | INR | | | 237.8 | | | | 75.0 | |
| UBS Warburg Securities Ltd | | London, Great Britain | | WA | | GBP | | | 140.0 | | | | 100.0 | |
| UBS Warburg Securities Philippines Inc | | Makati City, Philippines | | WA | | PHP | | | 150.0 | | | | 100.0 | |
|
Consolidated companies: changes in 2002
Significant new companies
BDL Banco di Lugano (Singapore) Ltd — Singapore, Singapore |
GAM Holding AG — Zurich, Switzerland |
Noriba Bank BSC — Manama, Bahrain |
UBS Fiduciaria SpA — Milan, Italy |
UBS Private Banking (Belgium) SA — Brussels, Belgium |
Deconsolidated companies2003
| | | |
| Significant new companies | | |
|
| Giubergia UBS SIM SpA – Milan, Italy | | |
SBC Wealth Management AG – Zug, Switzerland
UBS Bank USA – Utah, USA | | |
| UBS International Life Limited – Dublin, Ireland | | |
| UBS Preferred Funding Company LLC IV – Delaware, USA | | |
|
Deconsolidated companies
| | | |
| Significant deconsolidated companies | | Reason for deconsolidation |
| |
Bank Ehinger & Cie AG – Basel, Switzerland | | Merged |
Hirslanden HoldingCantrade Privatbank AG —– Zurich, Switzerland | | SoldMerged |
HYPOSWISS Schweizerische Hypotheken- und Handelsbank — Zurich, SwitzerlandUBS (USA) Inc – Delaware, USA | | Sold |
Merged |
Significant associates
| | | | | | | | | | | | | | | |
| | | | | Equity interest | | | Share capital | |
| Company | | Industry | | in % | | | in millions | |
|
| SIS Swiss Financial Services Group AG — Zurich, Switzerland | | Financial | | | 32.9 | | | CHF | | | 26 | |
| Giubergia UBS Warburg SIM SpA — Milan, Italy | | Financial | | | 49.9 | | | EUR | | | 15 | |
| Motor Columbus AG — Baden, Switzerland | | Electricity | | | 35.6 | | | CHF | | | 253 | |
| Telekurs Holding AG — Zurich, Switzerland | | Financial | | | 33.3 | | | CHF | | | 45 | |
| Volbroker.com Limited — London, Great Britain | | Financial | | | 21.0 | | | GBP | | | 18 | |
|
| | | | | | | | | | | | |
| | | | | Equity interest | | | Share capital |
| Company | | Industry | | in % | | | in millions |
| |
| Motor Columbus AG – Baden, Switzerland | | Electricity | | | 36 | | | CHF | | 253 | |
| SIS Swiss Financial Services Group AG – Zurich, Switzerland | | Financial | | | 33 | | | CHF | | 26 | |
| Telekurs Holding AG – Zurich, Switzerland | | Financial | | | 33 | | | CHF | | 45 | |
| O’Connor Global Convertible Portfolio – | | Private Investment | | | | | | | | | |
| Luxembourg, Luxembourg | | Company | | | 60 | | | USD | | 33 | 1 |
| UBS Currrency Portfolio Ltd – | | Private Investment | | | | | | | | | |
| George Town, Cayman Islands | | Company | | | 20 | | | USD | | 1,750 | 1 |
| UBS Global Equity Arbitrage Ltd – | | Private Investment | | | | | | | | | |
| George Town, Cayman Islands | | Company | | | 52 | | | USD | | 823 | 1 |
| UBS Neutral Alpha Strategies Ltd – | | Private Investment | | | | | | | | | |
| George Town, Cayman Islands | | Company | | | 12 | | | USD | | 695 | 1 |
| Volbroker.com Limited – London, Great Britain | | Financial | | | 21 | | | GBP | | 18 | |
| |
1 For Hedge Funds Net Asset Value instead of share capital.
None of the above investments carry voting rights that are significantly different from the proportion of shares held.
156162
Note 36 Acquisition of Paine Webber Group, Inc.37 Invested Assets and Net New Money
On 3 November 2000,Invested assetsinclude all client assets managed by or deposited with UBS completed its acquisitionfor investment purposes only. They therefore exclude all assets held for purely transactional purposes. Assets included are, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. Custody-only assets and transactional cash or current accounts as well as non-bankable assets (e.g. art collections) and deposits from third-party banks for funding or trading purposes are excluded.
Discretionary assetsare defined as those where the bank decides on how a client’s assets are invested. Other invested assets are those where the client decides on how the assets are invested.
When a single product is created in one Business Group and sold in another, it is counted in
both the Business Group that does the investment management and the one that distributes it. This results in double counting within UBS total invested assets, as both Business Groups are providing a service independently to their respective clients, and both add value and generate revenue.
Net new moneyis the net amount of 100%invested assets that are acquired by the bank from new clients, invested assets that are lost when clients terminate their relationship with UBS and the inflows and outflows of the outstanding common stock of the Paine Webber Group, Inc. (“Paine-Webber”), a full-service broker-dealerinvested assets from existing UBS clients. Interest and one of the largest securities and commodities firms in the United States servicing both individual and institutional clients. The transaction was accounted for using the purchase method of accounting, making PaineWebber a wholly owned subsidiary of UBS. Results of operations of PaineWebber have beendividend income from invested assets is not included in the consolidated results beginningnet new money result. Market and currency movements are also excluded, as are the effects resulting from any acquisition or divestment of a UBS subsidiary or business. Interest expense on the date of acquisition. Under IFRS, the valuation of shares and
options issued was measured on the date of acquisition, 3 November 2000.
Purchase consideration amounted to CHF 22.0 billion (USD 12.5 billion) consisting of shares, options and cash. Total goodwill recordedloans result in connection with the acquisition amounted to CHF 12.8 billion (USD 7.3 billion) at 3 November 2000 and is being amortized using the straight-line method over an estimated useful life of 20 years. At 31 December 2002 and 2001, the net book value of goodwill related to the Paine-Webber acquisition amounted to CHF 9.0 billion and CHF 11.6 billion respectively.
new money outflows.
| | | | | | | | | |
| CHF billion | | 31.12.03 | | | 31.12.02 | |
| |
| Fund assets managed by UBS | | | 339 | | | | 322 | |
| Discretionary assets | | | 511 | | | | 446 | |
| Other invested assets | | | 1,359 | | | | 1,269 | |
| |
Total invested assets | | | 2,209 | | | | 2,037 | |
| |
thereof double count | | | 287 | | | | 295 | |
| |
Net new money | | | 61.6 | | | | 36.9 | |
| |
Note 3738 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
| | | | | | | | | | | | | | | | | | |
| | | Spot rate | | Average rate | | | | | | | | | | | | | | | | | | | | | |
| | | As at | | Year ended | | | Spot rate | | Average rate |
| | |
| |
| | As at | | Year ended |
| | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| 1 USD | | | 1.38 | | | 1.67 | | | 1.54 | | | 1.69 | | 1.69 | | | 1.24 | | 1.38 | | 1.34 | | 1.54 | | 1.69 | |
| 1 EUR | | | 1.45 | | | 1.48 | | | 1.46 | | | 1.50 | | 1.56 | | | 1.56 | | 1.45 | | 1.54 | | 1.46 | | 1.50 | |
| 1 GBP | | | 2.23 | | | 2.43 | | | 2.33 | | | 2.44 | | 2.57 | | | 2.22 | | 2.23 | | 2.20 | | 2.33 | | 2.44 | |
| 100 JPY | | | 1.17 | | | 1.27 | | | 1.24 | | | 1.40 | | 1.57 | | | 1.15 | | 1.17 | | 1.16 | | 1.24 | | 1.40 | |
|
| |
163
Financial Statements
Notes to the Financial Statements
Note 3839 Swiss Banking Law Requirements
The consolidated financial statements of UBS are prepared in accordance with International Financial Reporting Standards. Set out below are the deviations which would result ifsignificant differences regarding recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Federal Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance were applied in the preparation of the consolidated financial statements of UBS.Ordinance.
1. Treasury sharesFinancial investments
Under IFRS, treasury shares are presented in the balance sheet as a deduction from Shareholders’ equity and accounted for at weighted average cost. Contracts that require physical settlement
or net share settlement in UBS AG shares are classified in Shareholders’ equity as Share premium and accounted for at weighted average cost. The difference between the proceeds from sales of treasury shares or contracts that require physical settlement or contracts that require net share settlement and their cost (net of tax) is reported as Share premium. The par value of shares repurchased and cancelled is debited to the issued and paid up share capital for the par value, with the remainder of the cost of the repurchased shares debited to Share premium. No dividends are paid on treasury shares.
Under Swiss law, own shares held for market-making purposes are presented in the balance sheet as Trading portfolio assets. Own shares
157
UBS Group Financial Statements
Notes to the Financial Statements
held for other purposes are classified as Financial investments and a corresponding reserve for own shares is established within Shareholders’ equity. All derivative contracts on own shares are reported as Positive or Negative replacement values. Traded own shares and derivatives on own shares are carried at fair value. Gains and losses realized on disposal and unrealized gains and losses from changes in the fair value are recorded as Net trading income. Own shares reported within Financial investments are reported at the lower of cost or market value. Reductions to market value and reversals of such reductions, as well as gains and losses on disposal, are included in Other income. Own shares repurchased for cancellation are reported as financial investments and accounted for at cost. Upon cancellation, the par value of shares repurchased and cancelled is debited against Share capital for the par value, with the remainder of the purchase cost debited against General statutory reserve.
2. Financial investments
Under IFRS, available for saleavailable-for-sale financial investments are carried at fair value. Changes in the fair value of available for sale financial investments are recorded as increases or decreases todirectly in Shareholders’ 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 saleavailable-for-sale investment is determined to be impaired, the cumulative unrealized loss previously recognized in Shareholders’ equity is included in net profit or loss for the period. On disposal of an available for salea financial investment, the difference between the net disposal proceeds and the carrying amount includingplus any previously recognizedattributable unrealized gain
or loss arising from a changebalance recognized in fair value reported within Shareholders’ equity, is included in net profit or loss for the period.
Under Swiss law, financial investments are carried at the lower of cost or market value. Reductions to market value below cost and reversals of such reductions as well as gains and losses on disposal are included in Other income.
3.2. Cash flow hedges
The Group also uses derivative instruments to hedge against the exposure from varying cash flows receivable and payable. Under IFRS, when hedge accounting is applied for these instruments, the unrealized gain or loss on the effective portion of the derivatives is recorded in Shareholders’ equity until the hedged cash flows occur, at which time the accumulated gain or loss is realized and released to income.
Under Swiss law, the unrealized gains or losses on the effective portion of the derivative instruments used to hedge cash flow exposures are deferred on the balance sheet.sheet as assets or liabilities. The deferred amounts are released to income when the hedged cash flows occur.
4. Gains/losses not recognized in the income statement
Gains/losses not recognized in the income statement is a separate line within Shareholders’ equity where under IFRS unrealized gains and losses from currency translation, changes in fair value of financial investments available for sale and of derivative instruments designated as cash flow hedges are reported.
Under Swiss law, only foreign currency translation differences are reported in Shareholders’ equity. The other two components are reported according to the methods described in captions 2. and 3. above.
5. Extraordinary income and expense
Under IFRS, items of income and expense can only be classified as extraordinary if they are clearly distinct from the ordinary activities and their occurrence is expected to be rare.
Under Swiss law, income and expense related to other accounting periods and/or not directly related to the core business activities of the enterprise (e. g. realized gains or losses on sale of Investments in associated companies or Property and equipment) are recorded as extraordinary income or expense.
The significant differences between IFRS and Swiss banking law are as follows:
158164
Note 38 Swiss Banking Law Requirements (continued)
| | | | | | | | | | |
| CHF million | | | 31.12.02 | | | | 31.12.01 | |
|
| Differences in the Balance Sheet | | | | | | | | |
| Treasury shares |
| | Trading portfolio | | | 371 | | | | 128 | |
| | Financial investments | | | 6,623 | | | | 3,253 | |
| | Due to banks | | | 23 | | | | 24 | |
| | Negative replacement values | | | (2 | ) | | | 0 | |
| | Other liabilities | | | 293 | | | | 0 | |
| | Shareholders’ equity | | | 6,680 | | | | 3,357 | |
Financial investments |
| | Financial investments | | | (1,314 | ) | | | (1,856 | ) |
| | Other liabilities | | | (113 | ) | | | (215 | ) |
| | Shareholders’ equity | | | (1,201 | ) | | | (1,641 | ) |
Cash flow hedges |
| | Other liabilities | | | (256 | ) | | | (459 | ) |
| | Shareholders’ equity | | | 256 | | | | 459 | |
|
| Differences in the Income Statement | | | | | | | | |
| Treasury shares | | | | | | | | |
| | Net trading income | | | (70 | ) | | | (70 | ) |
| | Other income | | | (269 | ) | | | (231 | ) |
| | Personnel expenses | | | 4 | | | | | |
| | Tax expenses | | | (53 | ) | | | (71 | ) |
| Financial investments |
| | Other income | | | (255 | ) | | | (607 | ) |
Reclassification of extraordinary income and expense |
| | Other income | | | (350 | ) | | | (95 | ) |
| | Extraordinary income | | | 361 | | | | 109 | |
| | Extraordinary expense | | | 11 | | | | 14 | |
|
159
UBS Group Financial Statements
Notes to the Financial Statements
Note 3940 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally Accepted Accounting Principles (US GAAP)
Note 40.1 Valuation and income recognition differences between IFRS and US GAAP
Note 39.1 Valuation and income recognition differences between IFRS and US GAAP |
The consolidated financial statements of the GroupUBS have been prepared in accordance with IFRS. The principles of IFRS differ in certain respects from United States Generally Accepted Accounting Principles (“US GAAP”). The following is a summary of the relevant significant accounting and valuation differences between IFRS and US GAAP.
| a. Purchase accounting (merger of Union Bank of Switzerland and Swiss Bank Corporation) |
Under IFRS, the Group accounted for the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation was accounted for under the uniting of interests method. The balance sheets and income statements of the banks were combined, and no adjustments were made to the carrying values of the assets and liabilities. Under US GAAP, the business combination creating UBS AG is accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. Under the purchase method, the cost of acquisition is measured at fair value and the acquirer’s interests in identifiable tangible assets and liabilities of the acquiree are restated to fair values at the date of acquisition. Any excess consideration paid over the fair value of net tangible assets acquired is allocated, first to identifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.
Goodwill and intangible assets
For US GAAP purposes, the excess of the consideration paid for Swiss Bank Corporation over the fair value of the net tangible assets received has been recorded as goodwill and was amortized on a straight linestraight-line basis using a weighted averageweighted-average life of 13 years from 29 June 1998 to 31 December 2001.
Under US GAAP until 31 December 2001, goodwill acquired before 30 June 2001 was capitalized and amortized over its estimated useful life with adjustments for any impairment.
On 1 January 2002, the GroupUBS adopted SFAS 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets”. SFAS 141 requires reclassification of intangible assets to goodwill which no longer meet the recognition criteria under the new standard. SFAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but be tested annually for impairment. Identifiable intangible assets with finite lives will continue to be amortized.
Upon adoption, the amortization charges related to the 1998 business combination of Union Bank of Switzerland and Swiss Bank Corporation ceased to be recorded under US GAAP. For the year ended 31 December 2002, these charges would have been CHF 1,477 million.
In 20022003 and 2001,2002, goodwill recorded under US GAAP was reduced by CHF 4339 million and CHF 5343 million respectively, due to recognition of deferred tax assets of Swiss Bank Corporation which had previously been subject to valuation reserves.
Other purchase accounting adjustments
The restatement of Swiss Bank Corporation’s net assets to fair value in 1998 resulted in decreasing net tangible assets by CHF 1,077 million for US GAAP. This amount is being amortized over periods ranging from two years to 20 years.
| b. Reversal of IFRS goodwill amortization |
The adoption of SFAS 142 “Goodwill and Intangible Assets” resulted in two new reconciling itemsitems: 1) Intangible assets on the IFRS Balancebalance sheet with a book value of CHF 1.8 billion at 31 December 2001 were reclassified to goodwill for US GAAP.GAAP; 2) The amortization of IFRS goodwill and the intangible assets reclassified to goodwill for US GAAP (CHF 831 million and CHF 1,017 million for the yearyears ended 31 December 2002)2003 and 31 December 2002, respectively) was reversed for US GAAP.
Had the GroupUBS been required to adopt SFAS 142 for its US GAAP Financial Statements in prior years,2001, reported Net profit and Earnings per share would have been as follows:
160165
Financial Statements
Notes to the Financial Statements
| | | | | | | | | | | | | | | | | | | | |
| CHF million, except for per share data | | | | | | | | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Reported Net profit under US GAAP | | | 5,546 | | | 3,234 | | 4,437 | | | 6,513 | | 5,546 | | 3,234 | |
| Add back: SBC purchase accounting goodwill | | | 0 | | | 1,657 | | 1,679 | | | 0 | | 0 | | 1,657 | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | | | 0 | | | 886 | | 315 | | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | | | 0 | | 0 | | 886 | |
|
| |
| Adjusted net profit under US GAAP | | | 5,546 | | | 5,777 | | 6,431 | | | 6,513 | | 5,546 | | 5,777 | |
|
| |
| Reported basic earnings per share under US GAAP | | | 4.59 | | | 2.58 | | 3.70 | | | 5.83 | | 4.59 | | 2.58 | |
| Add back: SBC purchase accounting goodwill | | | 0.00 | | | 1.32 | | 1.40 | | | 0.00 | | 0.00 | | 1.32 | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | | | 0.00 | | | 0.71 | | 0.26 | | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | | | 0.00 | | 0.00 | | 0.71 | |
|
| |
| Adjusted basic earnings per share under US GAAP | | | 4.59 | | | 4.61 | | 5.36 | | | 5.83 | | 4.59 | | 4.61 | |
|
| |
| Reported diluted earnings per share under US GAAP | | | 4.51 | | | 2.46 | | 3.64 | | | 5.72 | | 4.51 | | 2.46 | |
| Add back: SBC purchase accounting goodwill | | | 0.00 | | | 1.30 | | 1.38 | | | 0.00 | | 0.00 | | 1.30 | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and/or IFRS goodwill | | | 0.00 | | | 0.70 | | 0.26 | | |
| Add back: Amortization of intangibles reclassified to goodwill for US GAAP and / or IFRS goodwill | | | 0.00 | | 0.00 | | 0.70 | |
|
| |
| Adjusted diluted earnings per share under US GAAP | | | 4.51 | | | 4.46 | | 5.28 | | | 5.72 | | 4.51 | | 4.46 | |
|
| |
The table below shows the estimated, aggregated amortization expenses for other intangible assets, which are still subject to an annual amortization, on a US GAAP basis:
| | | | | | | | | |
| CHF million | | |
|
| |
| Estimated, aggregated amortization expense for: | | |
| 2003 | | | 116 | | |
| 2004 | | | 97 | | | 93 | |
| 2005 | | | 93 | | | 90 | |
| 2006 | | | 80 | | | 77 | |
| 2007 | | | 71 | | | 70 | |
| 2008 and thereafter | | | 765 | | |
| 2008 | | | 69 | |
| 2009 and thereafter | | | 775 | |
|
| |
| Total | | | 1,222 | | | 1,174 | |
|
| |
| c. Restructuring provision |
Under IFRS, restructuring provisions are recognized when a legal or constructive obligation has been incurred. In 1997, the Group recognized a CHF 7,000 million restructuring provision was recognized to cover personnel, IT, premises and other costs associated with combining and restructuring the merged Group.banks. A further CHF 300 million provision was recognized in 1999, reflecting the impact of increased precision in the estimation of certain leased and owned property costs.
Under US GAAP, the criteria for establishing restructuring provisions were more stringent than under IFRS prior to 2000. For US GAAP, the aggregate CHF 7,300 million restructuring provision was reversed. As a result of the business combination with Swiss Bank Corporation and the decision to combine and streamline certain activities of the banks for the purpose of reducing costs and improving efficiencies, Union Bank of Switzerland recognized a restruc-restructuring
turing provision of CHF 1,575 million during 1998 for US GAAP. CHF 759 million of this provision related to estimated costs for restructuring the operations and activities of Swiss Bank Corporation, and that amount was recorded as a liability of the acquired business. The remaining CHF 816 million of estimated costs were charged to restructuring expense during 1998. The US GAAP restructuring provision was increased by CHF 600 million and CHF 130 million in 1999 and 2000, respectively.
During 2001, CHF 112 million restructuring costs were expensed as incurred under US GAAP. These costs were already part of the restructuring provision under IFRS, but were not eligible for recognition under US GAAP until 2001. The restructuring plan was completed and the remaining balance of the US GAAP restructuring provision was used substantially in accordance with previously disclosed plans. At 31 December 2001, the restructuring provision for both IFRS and US GAAP hadhas been fully utilized.
161166
UBS Group Financial Statements
Notes to the Financial Statementsd. Derivative instruments
d. Derivative instruments |
Derivative instruments held or issued for hedging activities
Prior to 1 January 2001, the Group applied no hedge accounting for derivative instruments under US GAAP. As a result, all derivative instruments were carried on the balance sheet at fair value, with changes in fair value recorded in the Income statement. Under IFRS, the Group accounted for derivative instruments hedging non-trading positions in the Income statement using the accrual or deferral method, which was the same as the accounting methodology applied to the underlying item hedged.
On 1 January 2001, the GroupUBS adopted IAS 39 for its IFRS Financial Statements and SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” for its US GAAP Financial Statements. These standards introduceintroduced new rules for the accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, and of hedging activities. The adoption of SFAS 133 did not result in any transition items for the GroupUBS on 1 January 2001 as the Groupit previously did not apply hedge accounting under US GAAP for derivative instruments.
With the adoption of IAS 39 on 1 January 2001, an opening adjustment was made in 2001 to reduce Retained earnings by CHF 61 million, consisting of CHF 19 million reflecting the impact of the new hedge accounting rules and CHF 42 million reflecting the impact of remeasuring assets to either amortized cost or fair value as required under the standard. For US GAAP purposes, the first adjustment was not required (because all derivatives were previouslyalready recorded in the Income statement)statement prior to 1 January 2001) and was reversed, and the second adjustment was recorded in the Income statement.
Under IAS 39, the GroupUBS is permitted to hedge interest rate risk based on forecastedforecast cash inflows and outflows on a group basis. For this purpose, the GroupUBS accumulates information about financial assets and financial liabilities, and forward commitments which is then used to estimate and aggregate cash flows and to schedule the future periods in which these cash flows are expected to occur. Appropriate derivative instruments are then used to hedge the estimated future cash flows. SFAS 133 does not permit hedge accounting for hedges of future cash flows determined by this methodology.
Accordingly, for US GAAP such items continue to be carried at fair value with changes in fair value recognized in Net trading income.
Since 1 January 2001, the Group’sUBS’s derivative hedging relationships have been treated the same under both IFRS and US GAAP, except for hedges of interest rate risk of forecastedforecast cash flows on a group basis as mentioned in the previous paragraph.
In addition, amounts deferred under previous hedging relationships that now do not qualify as hedges under IAS 39 are being amortized against IFRS net profit over the remaining life of the hedging relationship. Such amounts have been reversed for US GAAP as they have never been treated as hedges.
Derivative instruments indexed to UBS shares
US GAAP, like IFRS, generally requires that derivatives instruments indexed to a company’s own stockshares be recorded as an equity instrument in Shareholders’ equity if gross physical settlement is required in actualits own shares or if the company has the choice to settle the contractinstrument by delivery or receipt of its own shares. If, however, the derivative contractinstrument requires cash settlement or if the counterparty may choose cash settlement, then the derivativeinstrument must be classified as an asset or liability,a derivative, with changes in fair value recorded in income.
Asset or liabilityDerivative classification is also required under US GAAP if a company may not have sufficient issuable shares available to settle a contract in its own shares. This is determined by the maximum number of shares a company could be forced to issue to settle a contract. Under IFRS, however, such contracts are recorded as equity instruments in Shareholders’ equity.
In 2003 and 2001, and 2000, the GroupUBS had no contractsinstruments indexed to its own shares for which the accounting treatment under US GAAP differed from IFRS, andso there was no reconciling item for these derivative instruments. In 2002, however, the GroupUBS issued net-share settled put options as part of its share repurchases in 2002. Such contracts are recorded under IFRS as equity instruments in Shareholders’ equity and under US GAAP as a liabilityderivatives with changes in fair value reflected in Net income. Such contracts increased US GAAP Net income by CHF 12 million in 2002.
UBS Warburg acts as a liquidity provider to the equity futures markets and as a market maker in UBS shares and derivatives. Trading income of CHF 22 million under both IFRS and US GAAP in 2003, CHF 125 million under IFRS (CHF 137 million under US GAAP) in 2002 and CHF 261 million under both IFRS and US GAAP in 2001 and CHF
162
42 million under both IFRS and US GAAP in 2000 was recorded in the financial statements from trading in potentially cash settled derivative instruments indexed to UBS shares.
167
Financial Statements
Notes to the Financial Statements
Bifurcation of embedded issuer calls out of structured debt instruments
The GroupUBS issues certain structured debt instruments that contain an embedded issuer call option. If the embedded derivatives contained in the structured debt are not clearly and closely related to the host debt instrument, IFRS requires that a combined derivative is separated, including the issuer call, and accounted for as a stand alonestand-alone derivative contract. Under US GAAP, however, certain issuer calls must remain with the host contract and are therefore not separated. This results in different values of the bifurcated derivatives and the related host contracts. Because the host contract under US GAAP includes the issuer call option, and therefore, its fair value changes differently from the host contract under IFRS, hedge effectiveness criteria under US GAAP can generally not be met for those contracts that are hedged under IFRS. The impact of not separating these issuer call features including the disallowance of the hedge accounting was to increase US GAAP Net income by CHF 14 million before tax at 31 December 2003 and to reduce US GAAP Net income by CHF 55 million before tax at 31 December 2002.
e. Financial investments
(prior to the adoption of IAS 39) |
e. Financial investments and private equityPrior to the adoption of IAS 39 on 1 January 2001, financial investments were classified as either current investments or long-term investments under IFRS. The Group considered current financial investments to be held for sale and carried at lower of cost or market value (“LOCOM”). The Group accounted for long-term financial investments at cost, less any impairments. Under US GAAP, the Group’s financial investments are classified as available for sale (debt and marketable equity securities), and are carried at fair value with changes in fair value recorded in Other comprehensive income. Gains and losses are recognized in Net profit in the period sold, and losses are recognized in the period of impairment for IFRS and US GAAP. For the IFRS to US GAAP reconciliation, debt and marketable equity securities were adjusted from LOCOM to fair value and classified as available for sale investments. Unrealized gains or unrealized losses relating to these investments were recorded in Other comprehensive income.
f. Financial investments and private equity |
Financial investments available for sale
With the adoption of IAS 39 on 1 January 2001, the accounting for financial investments avail-
ableavailable for sale generally became the same under IFRS and US GAAP. Three exceptions exist, however: 1) Non-marketable equity financial investments (excluding private equity investments discussed below), which are classified as available for sale and carried at fair value under IFRS, continue to be carried at cost less “other than temporary” impairments under US GAAP. The opening adjustment and subsequent changes in fair value recorded directly in Shareholders’ equity on non-marketable equity financial instruments due to the implementation onof IAS 39 have been reversed under US GAAP to reflect the difference between the two standards in measuring such investments. 2) Write-downsWritedowns on impaired assets can be fully or partially reversed under IFRS if the value of the impaired assets increases. Such reversals of impairment write-downswritedowns are not allowed under US GAAP. Reversals under IFRS were not significant in 2003, 2002 or 2001. 3) Private equity investments, as described below.
Private equity investments
Since the adoption of IAS 39 on 1 January 2001, the GroupUBS has accounted for private equity investments as available for saleavailable-for-sale securities in its primary Financial Statements under IFRS, with changes in fair value recognized in Shareholders’ equity. Under US GAAP, these investments continued to be accounted for at cost less “other than temporary” impairments.
On 1 January 2002, the GroupUBS adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” for its US GAAP Financial Statements. The statement primarily addresses financial accounting and reporting for the impairment or disposal of long-lived assets. In addition, SFAS 144 eliminated the exception to consolidation for subsidiaries for which control is likely to be temporary, as previously contained in Accounting Research Bulletin 51 “Consolidated Financial Statements” as amended by SFAS 94 “Consolidation of All Majority-Owned Subsidiaries”. Therefore, on adopting SFAS 144, the GroupUBS changed its US GAAP accounting for certain private equity investments by accounting for those investments held within separate investment subsidiaries in accordance with the “AICPA Audit and Accounting Guide, Audits of Investment Companies”. The effect of this change for US GAAP reporting pur-
163
UBS Group Financial Statements
Notes to the Financial Statements
posespurposes is that certain private equity investments are now recorded at fair value, with changes in fair value recognized in US GAAP net profit. The remaining private equity investments continue to be accounted for at cost less “other than temporary” impairment.
For the IFRS to US GAAP reconciliation, fair value adjustments on certain private equity investments recorded directly in Shareholders’ equity under IFRS had to be shown in the Income statement for US GAAP purposes. At 1 January 2002, the date of adoption of SFAS 144, the
cumulative effect of this change in accounting on US GAAP net profit was an increase of CHF 639 million, after tax. For the yearyears ended 31 December 2003 and 31 December 2002, the effect of applying the new standard on the reconciliation of IFRS net profit to US GAAP was to increasedecrease US GAAP net profit by an additional CHF 19 million, after tax and to increase US GAAP net profit by CHF 83 million, after tax.tax, respectively.
The pro-forma Net profit assuming that the change in accounting principle were applied retroactively for all periods presented, would be as follows:
168
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million, except for per share data | | | pro-forma | | pro-forma | | pro-forma | |
| For the year ended | | | 31.12.02 | | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Net profit under US GAAP | | | 4,907 | | | 2,763 | | 5,523 | | | 6,513 | | 4,907 | | 2,763 | |
| Basic earnings per share | | | 4.06 | | | 2.21 | | 4.61 | | | 5.83 | | 4.06 | | 2.21 | |
| Diluted earnings per share | | | 3.99 | | | 2.09 | | 4.53 | | | 5.72 | | 3.99 | | 2.09 | |
|
| |
See Note 2 for information regarding impairment charges recorded for private equity investments.
g. Retirement benefitf. Pension plans |
Under IFRS, the GroupUBS recognizes pension expense based on a specific method of actuarial valuation used to determine the projected plan liabilities for accrued service, including future expected salary increases, and expected return on plan assets. Plan assets are recorded at fair value and are held in a separate trust to satisfy plan liabilities. Under IFRS the recognition of a prepaid asset is subject to certain limitations, and any unrecognized prepaid asset is recorded as pension expense. US GAAP does not allow a limitation on the recognition of prepaid assets recorded in the Balance Sheet.sheet.
Under US GAAP, pension expense is based on the same actuarial method of valuation of liabilities and assets as under IFRS. Differences in the amounts of expense and liabilities (or prepaid assets) exist due to different transition date rules, stricter provisions for recognition of a prepaid asset, and the treatment of the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation.
In addition, under US GAAP, if the fair value of plan assets falls below the accumulated benefit obligation (current(which is the current value of accrued benefits without allowance for future salary increases), an additional minimum liability must be shown in the balance sheet. If an additional minimum
liability is recognized, an equal amount will be recognized as an intangible asset up to the amount of any unrecognized past service cost. Any amount not recognized as an intangible asset is reported in Other comprehensive income. The additional minimum liability required under US GAAP before tax amounts to CHF 306 million, CHF 1,225 million and CHF 306 million as at 31 December 2003, 2002 and 2001, respectively. The amount recognized in intangible assets was CHF 0 million, CHF 2 million and CHF 3 million and the amount recognized in Other comprehensive income before tax was CHF 306 million, CHF 1,223 million before taxes and CHF
303 million before taxes as at 31 December 2003, 2002 and 2001, respectively.
h. Other employee benefits |
g. Other post-retirement benefit plansUnder IFRS, the GroupUBS has recorded expenses and liabilities for post-retirement, medical and life insurance benefits, determined under a methodology similar to that described above under retirement benefitpension plans.
Under US GAAP, expenses and liabilities for post-retirement medical and life insurance benefits are determined under the same methodology as under IFRS. Differences in the levels of expenses and liabilities have occurred due to different transition date rules and the treatment of the merger of Union Bank of Switzerland and Swiss Bank Corporation under the purchase method.
h. Equity participation plans
164
i. Equity participation plans |
IFRS does not specifically address the recognition and measurement requirements for equity participation plans.
US GAAP permits the recognition of compensation cost on the grant date for the estimated fair value of equity instruments issued (SFAS 123) or based on the intrinsic value of equity instruments issued (Accounting Principles Board “APB” No. 25), with the disclosure of the pro-forma effects of equity participation plans on net profit and earnings per share, as if the fair value had been recorded on the grant date. Under IFRS, the GroupUBS recognizes only intrinsic values at the grant date with subsequent changes in value not recognized. Under US GAAP, the GroupUBS applies the APB No. 25 intrinsic value method, which requires adjustments to intrinsic values subsequent to the grant date in certain circumstances.
The shares and other diversified instruments of the Group’sUBS’s equity participation plans are held in trusts on behalf of the participants. Certain of these trusts are recorded on the Group’sUBS’s balance sheet for US GAAP presentation, the effect of which is
169
Financial Statements
Notes to the Financial Statements
to increase assets by CHF 396460 million and CHF 1,485396 million, liabilities by CHF 429483 million and CHF 1,607429 million, and decrease Shareholders’ equity by CHF 3323 million and CHF 12233 million (for UBS AG shares held by the trusts which are treated as treasury shares) at 31 December 2003 and 2002 and 2001 respectively.
For US GAAP, certain of the Group’sUBS’s option awards have been determined to be variable pursuant to APB No. 25, primarily because they may be settled in cash or because the GroupUBS has offered to hedge the value of the award. The effect of applying variable accounting to the option awards in the US GAAP reconciliation for the years ended 31 December 2003, 2002 2001 and 2000,2001, is a CHF 28 million increase in compensation expense, CHF 51 million decrease in compensation expense and CHF 30 million decrease in compensation expense and CHF 85 million increase in compensation expense, respectively. In addition, certain of the Group’sUBS’s share plans have been deemed variable under APB No. 25 or required a new expense measurement date due to diversification or cash settlement of awards. Additional expense was also recorded related to social tax payments on exercised optionsequity instruments recorded directly in Shareholders’ equity for IFRS. For US GAAP, the net effect of these transactions is
an increase to compensation expense of CHF 118 million, a decrease to compensation expense of CHF 12 million, and an increase to compensation expense of CHF 41 million and an increase to compensation expense of CHF 82 million for the years ended 31 December 2003, 2002 2001 and 2000,2001, respectively.
j.i. Software capitalization |
Under IFRS, effective 1 January 2000, certain costs associated with the acquisitions or development of internal useinternal-use software musthad to be capitalized. Once the software iswas ready for its intended use, the costs capitalized arewere amortized to the Income statement over the estimated life of the software. Under US GAAP, the same principle applies,applied, however this standard was effective 1 January 1999. For US GAAP, the costs associated with the acquisition or development of internal useinternal-use software that met the US GAAP software capitalization criteria in 1999 have beenwere reversed from Operating expenses and amortized over a life of two years from the time that the software iswas ready for its intended use. From 1 January 2000, the only remaining reconciliationrecon-
ciliation item iswas the amortization of software capitalized in 1999 for US GAAP purposes. At 31 December 2002, this amount was fully utilized and there is no longer a difference between IFRS and US GAAP.
j. Consolidation of Variable Interest Entities (VIEs)
k. Recently issued US accounting standards |
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “RescissionUS GAAP, like IFRS, generally requires consolidation of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. The new standard is effective for fiscal years beginning after 15 May 2002. UBS will adopt the new standard for its fiscal year 2003, but does not expect that it will have a significant effectentities on the financial statements.basis of controlling a majority of voting rights. In certain situations, control over the majority of voting rights is not a reliable indicator of the need to consolidate, such as when there are no voting rights, or when voting rights and exposure to risks and rewards are largely disproportionate. However, there are differences in the approach of IFRS and US GAAP to those situations.
In June 2002,Under IFRS, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exitassessment of control over an entity is based on controlling a majority of voting rights, or, Disposal Activities”. SFAS No. 146 addresses primarily recognition and measurement of cost for employee termination benefits, contract terminations, closure or consolidation of facilities, relocation, and similar items associated with exit or disposal activities. The new standard requires that a liability for such costs should be recog-
165
UBS Group Financial Statements
Notesif control is exercised through other means, consideration is given to the Financial Statements
nized at its fair valuesubstance of the relationship. Indicators of these situations include: predetermination of the entity’s activities; the entity’s activities being conducted on behalf of the enterprise; decision-making powers being held by the enterprise; the right to obtain the majority of the benefits or be exposed to the risks inherent in the periodactivities of the entity; or retaining the majority of the residual or ownership risks related to the entity’s assets in which the liability is incurred and not at the time an entity commitsorder to an exit or disposal plan. SFAS No. 146 is applicable prospectively for exit or disposal activities initiated after 31 December 2002. UBS does not expect that the new standard will have a significant impact onobtain benefits from its financial statements.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-based Compensation - Transition and Disclosure”, an amendment of FASB Statement No. 123, which was effective for financial years ending after 15 December 2002. UBS adopted SFAS No. 148 for the year ended 31 December 2002. The new standard requires additional disclosures in respect to pro-forma disclosures had the fair value based method for valuing employee stock option awards been applied. These additional disclosures are included in Note 32. Other than additional disclosures, SFAS No. 148 currently has no impact on the financial statements.activities.
In January 2003, theUS GAAP consolidation considerations are subject to FASB issued FASB Interpretation (FIN) No.interpretation FIN 46, “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51.51, which was issued on 17 January 2003. A revised version of FIN 46 was issued in December 2003.
FIN 46 requires that control over an entity be assessed first based on voting interests. If voting interests do not exist or differ significantly from economic interests, then an entity is considered to be a “Variable Interest Entity” (“VIE”). Specifically, VIEs are entities in which the equity investors:
| – | | do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties |
| – | | do not have the characteristics of a controlling financial interest |
170
| – | | have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of an investor with disproportionately small voting interest. |
FIN 46 requires an enterprise – the “primary beneficiary” – to consolidate a VIE if it has variable interests that will absorb a majority of the VIE’s “expected losses”, receive a majority of the VIE’s “expected residual returns”, or both. In addition, the primary beneficiary is required to make certain disclosures in relation to the VIE.
FIN 46 requires an enterprise which is the holder of a “significant variable interest” to provide certain disclosures in relation to its involvement with the VIE. UBS considers its variable interests to be significant if it expects to receive more than 20% of a VIE’s expected losses, expected residual returns, or both.
At 31 December 2003, FIN 46 applies to certain entities in which equity investors do not haveUBS’s US GAAP financial statements with respect to transitional disclosure requirements and the characteristicsconsolidation and disclosure of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Such entities are called variable interest entities (VIE) under the new interpretation, which requires consolidation of a VIE if the variable interest either absorbs the majority of the expected losses, or receives the majority of the expected gains, or both. FIN 46 applies to all VIEs created before 1 February 2003 no later than the beginning of the first interim or annual reporting period beginning after 15 June 2003. The new interpretation applies immediately to all VIEs created after 31 January 2003.2003, in which UBS is the primary beneficiary.
In many cases the assessment of consolidation under IFRS and US GAAP is the same, however the application of FIN 46 also establishesfor US GAAP purposes results in certain differences from IFRS. The result of consolidating certain entities at 31 December 2003 for US GAAP purposes, which are not otherwise consolidated in UBS’s primary consolidated Financial Statements under IFRS, has been a CHF 4.1 billion increase in the US GAAP Balance sheet.
A discussion of FIN 46 measurement requirements, the disclosure requirements
forand consolidation in the US GAAP Balance sheet of VIEs that an enterprise will consolidate or in which it will have a significant variable interest. These disclosure requirements became effective for financial statements issuedcreated after 31 January 2003 in which UBS is the primary beneficiary, and FIN 46 transitional disclosures, are providedset out in Note 40.2.41.1.
k. Recently issued US accounting standards
On 1 January 2003, UBS adopted SFAS 145, Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The adoption of this new accounting standard did not affect the Financial Statements for the year ended 31 December 2003.
On 1 January 2003, UBS adopted FASB Interpretation No. (FIN) 45, Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability be recognized at inception of certain guarantees equal to the fair value of the obligation assumed, which extends over the period of the guarantee. FIN 45 is applicable prospectively for certain guarantees issued or modified after 31 December 2002. The adoption of FIN 45 had no material impact on the results of operations and financial position of UBS.
In November 2002,April 2003, the Emerging Issues Task Force (EITF) reachedFASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The new standard amends Statement 133 for decisions made as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133, but more importantly in relation to the definition of a consensusderivative. SFAS 149 is effective prospectively for contracts entered into or modified after 30 June 2003, and for hedging relationships designated after 30 June 2003. The adoption of the new standard by UBS had no material effect on EITF Issue No. 02-3, “Issues Involvedthe 2003 Financial Statements prepared in accordance with US GAAP.
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The new standard is applicable to free-standing financial instruments which embody obligations for the issuer and changes their classification from equity to liabilities or assets in the Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involvedfollowing situations:
| – | | for a financial instrument linked to an entity’s own shares that embodies an obligation to repurchase the equity shares or settle the obligation by transferring assets. |
| – | | for an obligation that the entity must or may settle by issuing a variable number of its equity shares whereby the counterparty receiving the equity shares has no or only little exposure to changes in the entity’s share price. |
| – | | for an instrument whose fair value is inversely related to the change in fair value of the entity’s equity shares, for example a written put option that could be net share settled. |
SFAS 150 does not apply to financial instruments with embedded conversion features, conditional redemption features or other embedded features in Energy Trading and Risk Management”. The consensus precludes mark-to-market accounting for energy trading contractsfinancial instruments that are not derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”.in their entirety. UBS has adopted the provisions of EITF Issue 02-3 related to energy trading contractsSFAS 150 as at 1 JanuaryJune 2003 for contracts that existed on or before 25 October 2002, the date when this consensus was issued. For contracts entered into after 25 October 2002, the consensus was applied with immediate effect. The effect of adoption was not material either for contracts entered into after or those that existed on 25 October 2002.
Included in EITF Issue 02-3 is the FASB staff’s view that an entity should not recognize an unrealized gain or loss at inception of a derivative instrument unless the fair value of that instrument is obtained from a quoted market price in an active market or is otherwise evidenced by comparison to observable market data. Management is in the process of completing the evaluation of the impact of this view on the Group’s financial condition and profit. As required, the Group applied this view to transactions entered into after the effective date of 21 November 2002. The impact was not significant. The impact of this issue is dependent upon the level of transactions executed that rely on data not observable in the market. Accordingly, it is not possible to project the impact this matter could have on the Group’s 2003 financial statements.instru-
166171
Financial Statements
Notes to the Financial Statements
ments entered into or modified after that date, and adopted the standard as at 1 July 2003 for financial instruments entered into on or before 31 May 2003.
At 31 December, 2003, UBS had no financial instruments outstanding that were within the scope of SFAS 150, nor had it entered into transactions after 31 May 2003, that were settled on or before 31 December 2003, and would have been accounted for under the new standard. Therefore, the adoption of SFAS 150 had no impact on UBS’s 2003 Financial Statements prepared in accordance with US GAAP.
In November 2003, the FASB’s Emerging Issues Task Force (EITF) issued EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Task Force reached a consensus that the following disclosures are required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statements 115 and 124 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. For those investments with unrealized losses that have not been recognized as other-than-temporary impairments, the investor should disclose:
a) Quantitative information, aggregated by each category of financial investment that the investor discloses in tabular form:
Note 39.2 Reconciliation– | | the aggregate amount of IFRS Shareholders’ equityunrealized losses (that is, the amount by which cost or amortized cost exceeds fair value) and Net profit to US GAAP |
| – | | the aggregate related fair value of investments with unrealized losses. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Shareholders’ equity | | | Net profit | |
| | | Note 39.1 | | |
| | |
| |
| CHF million | | Reference | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| Amounts determined in accordance with IFRS | | | | | | | 38,991 | | | | 43,530 | | | | 3,535 | | | | 4,973 | | | | 7,792 | |
| Adjustments in respect of: | | | | | | | | | | | | | | | | | | | | | | | | |
| SBC purchase accounting goodwill and other purchase accounting adjustments | | | a | | | | 15,285 | | | | 15,413 | | | | (128 | ) | | | (1,614 | ) | | | (1,669 | ) |
| Reversal of IFRS goodwill amortization | | | b | | | | 1,017 | | | | 0 | | | | 1,017 | | | | 0 | | | | 0 | |
| Restructuring provision | | | c | | | | 0 | | | | 0 | | | | 0 | | | | (112 | ) | | | (238 | ) |
| Derivative instruments | | | d | | | | (138 | ) | | | (169 | ) | | | 354 | | | | 25 | | | | (1,353 | ) |
| Financial investments (prior to the adoption of IAS 39) | | | e | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 28 | |
| Financial investments and private equity | | | f | | | | (30 | ) | | | (709 | ) | | | 767 | | | | 0 | | | | 0 | |
| Retirement benefit plans | | | g | | | | 621 | | | | 1,714 | | | | (156 | ) | | | 119 | | | | 59 | |
| Other employee benefits | | | h | | | | (1 | ) | | | (8 | ) | | | 7 | | | | 8 | | | | 8 | |
| Equity participation plans | | | i | | | | (164 | ) | | | (186 | ) | | | 63 | | | | (12 | ) | | | (167 | ) |
| Software capitalization | | | j | | | | 0 | | | | 60 | | | | (60 | ) | | | (169 | ) | | | (160 | ) |
| Tax adjustments | | | | | | | (5 | ) | | | (363 | ) | | | 147 | | | | 16 | | | | 137 | |
|
| Total adjustments | | | | | | | 16,585 | | | | 15,752 | | | | 2,011 | | | | (1,739 | ) | | | (3,355 | ) |
|
| Amounts determined in accordance with US GAAP | | | | | | | 55,576 | | | | 59,282 | | | | 5,546 | | | | 3,234 | | | | 4,437 | |
|
b) Additional information, in narrative form, that provides sufficient information to understand the quantitative disclosures and the information that the investor considered (both positive and negative) in reaching the conclusion that the impairments are not other-than-temporary. This disclosure could include:
Note 39.3 Earnings per share– | | the nature of the investment(s) |
| – | | the cause(s) of the impairment(s) |
| – | | the number of investment positions that are in an unrealized loss position |
| – | | the severity and duration of the impairment(s) |
| – | | other evidence considered by the investor in reaching its conclusion that the investment(s) is not other-than-temporarily impaired, including, for example, industry analyst reports, sector credit ratings, volatility of the security’s market price, and / or any other information that the investor considers relevant. |
EITF 03-1 is effective for financial years ending after 15 December 2003. UBS has included these additional disclosures in Note 12 Financial Investments.
In December 2003, the FASB issued revised SFAS 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits. Except for some of the new disclosures, this revised standard is effective for financial years ending after 15 December 2003. Additional disclosures required under the revised standard include information about major categories of assets held by benefit plans, a narrative description of the investment strategy and how the expected long-term rate of return on plan assets has been determined, the accumulated benefit obligation, benefits expected to be paid in each of the next five financial years and the aggregate for the five financial years thereafter, the measurement dates for the benefit plans, and the employer’s best estimate of contributions expected to be paid to the plan during the next financial year. Those new disclosures which are effective for the year ended 31 December 2003, are included in Note 31 Pension and Other Post-Retirement Benefit Plans. Revised SFAS 132 requires that certain disclosures are made in interim financial statements starting in 2004. The components of periodic pension cost and employer’s contribution paid or expected to be paid during the current fiscal year have to be disclosed.
In December 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” was passed in the USA, which adds prescription drug coverage for Medicare-eligible employees. Since the Group sponsors post-retirement health care plans in the USA, the Group has a range of options for coordinating with the new government-sponsored program, including supplementing the government program on a secondary payer basis or accepting a direct subsidy from the government to support a portion of the cost of the employer’s program.
172
Pursuant to guidance included in FASB Staff Position FAS 106-1, the Group has chosen to defer recognition of the potential effects of the Act. This decision was made largely due to the number of open issues about various provisions of the Act and a lack of authoritative accounting guidance concerning certain technical matters. Therefore, the retiree health obligation and cost reported in these Financial Statements and the accompanying notes as at and for the year ended 31 December 2003 do not yet reflect any poten-
tial impact of the Act. Specific authoritative guidance on the accounting for the government subsidy is pending and that guidance, when issued, could require the Group to change previously reported information. It is expected that a change would decrease the obligation and cost attributable to post-retirement medical coverage.
Several other interpretations and FASB Staff Positions were recently issued, none of which has or is expected to have a material impact on UBS’s Financial Statements.
Note 40.2 Reconciliation of IFRS Shareholders’ equity and Net profit to US GAAP
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Note 40.1 | | | Shareholders' equity | | Net profit |
| CHF million | | Reference | | | 31.12.03 | | | 31.12.02 | | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
Amounts determined in accordance with IFRS | | | | | | | 35,446 | | | | 38,991 | | | | 6,385 | | | | 3,535 | | | | 4,973 | |
| Adjustments in respect of: | | | | | | | | | | | | | | | | | | | | | | | | |
| SBC purchase accounting goodwill and other purchase accounting adjustments | | | a | | | | 15,196 | | | | 15,285 | | | | (89 | ) | | | (128 | ) | | | (1,614 | ) |
| Reversal of IFRS goodwill amortization | | | b | | | | 1,825 | | | | 1,017 | | | | 808 | | | | 1,017 | | | | 0 | |
| Restructuring provision | | | c | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (112 | ) |
| Derivative instruments | | | d | | | | (94 | ) | | | (138 | ) | | | 188 | | | | 354 | | | | 25 | |
| Financial investments and private equity | | | e | | | | (84 | ) | | | (30 | ) | | | (159 | ) | | | 767 | | | | 0 | |
| Pension plans | | | f | | | | 1,303 | | | | 621 | | | | (235 | ) | | | (156 | ) | | | 119 | |
| Other post-retirement benefit plans | | | g | | | | (1 | ) | | | (1 | ) | | | 0 | | | | 7 | | | | 8 | |
| Equity participation plans | | | h | | | | (112 | ) | | | (164 | ) | | | (152 | ) | | | 63 | | | | (12 | ) |
| Software capitalization | | | i | | | | 0 | | | | 0 | | | | 0 | | | | (60 | ) | | | (169 | ) |
| Consolidation of variable interest entities (VIEs) | | | j | | | | (10 | ) | | | 0 | | | | (10 | ) | | | 0 | | | | 0 | |
| Tax adjustments | | | | | | | (295 | ) | | | (5 | ) | | | (223 | ) | | | 147 | | | | 16 | |
| |
Total adjustments | | | | | | | 17,728 | | | | 16,585 | | | | 128 | | | | 2,011 | | | | (1,739 | ) |
| |
Amounts determined in accordance with US GAAP | | | | | | | 53,174 | | | | 55,576 | | | | 6,513 | | | | 5,546 | | | | 3,234 | |
| |
Note 40.3 Earnings per share
Under both IFRS and US GAAP, basic earnings per share (“EPS”) isare computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includesinclude the determinants of basic EPS and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.
The computations of basic and diluted EPS for the years ended 31 December 2002,2003, 31 December 20012002 and 31 December 20002001 are presented in the following table.
| | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| For the year ended | | US GAAP | | IFRS | | US GAAP | | IFRS | | US GAAP | | IFRS | | | US GAAP | | IFRS | | US GAAP | | IFRS | | US GAAP | | IFRS | |
|
| |
| Net profit available for ordinary shares (CHF million) | | | 5,546 | | | | 3,535 | | | 3,234 | | 4,973 | | 4,437 | | 7,792 | | | 6,513 | | 6,385 | | 5,546 | | 3,535 | | 3,234 | | 4,973 | |
| Net profit for diluted EPS (CHF million) | | | 5,520 | | | | 3,515 | | | 3,135 | | 4,874 | | 4,423 | | 7,778 | | | 6,514 | | 6,386 | | 5,520 | | 3,515 | | 3,135 | | 4,874 | |
| Weighted-average shares outstanding | | | 1,208,055,132 | | | | 1,208,586,678 | | | 1,251,180,815 | | 1,266,038,193 | | 1,198,680,193 | | 1,209,087,927 | | | 1,116,602,289 | | 1,116,953,623 | | 1,208,055,132 | | 1,208,586,678 | | 1,251,180,815 | | 1,266,038,193 | |
| Diluted weighted average shares outstanding | | | 1,222,862,165 | | | | 1,223,382,942 | | | 1,273,720,560 | | 1,288,577,938 | | 1,215,169,966 | | 1,225,577,700 | | |
| Diluted weighted-average shares outstanding | | | 1,138,800,625 | | 1,138,800,625 | | 1,222,862,165 | | 1,223,382,942 | | 1,273,720,560 | | 1,288,577,938 | |
| Basic earnings per share (CHF) | | | 4.59 | | | | 2.92 | | | 2.58 | | 3.93 | | 3.70 | | 6.44 | | | 5.83 | | 5.72 | | 4.59 | | 2.92 | | 2.58 | | 3.93 | |
| Diluted earnings per share (CHF) | | | 4.51 | | | | 2.87 | | | 2.46 | | 3.78 | | 3.64 | | 6.35 | | | 5.72 | | 5.61 | | 4.51 | | 2.87 | | 2.46 | | 3.78 | |
|
| |
167173
UBS Group Financial Statements
Notes to the Financial Statements
Note 39.440.4 Presentation differences between IFRS and US GAAP
In addition to the differences in valuation and income recognition, other differences, essentially related to presentation, exist between IFRS and US GAAP. Although there is no impact on IFRS and US GAAP reported Shareholders’ equity and Net profit due to these differences, it may be useful to understand them to interpret the financial statements presented in accordance with US GAAP. The following is a summary of presentation differences that relate to the basic IFRS financial statements.
1. Settlement date vs. trade date accounting
The Group’sUBS’s transactions from securities activities are recorded under IFRS on the settlement date. This results in recording a forward transaction during the period between the trade date and the settlement date. Forward positions relating to trading activities are revalued to fair value and any unrealized profits and losses are recognized in Net profit.
Under US GAAP, trade date accounting is required for spot purchases and sales of securities. Therefore, all such transactions with a trade date on or before the balance sheet date with a settlement date after the balance sheet date have been recorded at trade date for US GAAP. This has resulted in receivables and payables to broker-dealers and clearing organizations recorded in Other assets and Other liabilities in the US GAAP Balance sheet.
2. Financial investments
Under IFRS, the Group’sUBS’s private equity investments and non-marketable equity financial investments are included in Financial investments. For US GAAP presentation, non-marketable equity financial investments are reclassified to Other assets, and private equity investments are shown separately on the Balance sheet.
3. Securities received as proceeds in a securities for securities lending transaction
When the GroupUBS acts as the lender in a securities lending agreement and receives securities as collateral that can be pledged or sold, it recognizes the securities received and a corresponding obligation to return them. These securities are reflected on the US GAAP balanceBalance sheet in the line “Securities received as collateral” on the asset side of the balanceBalance sheet. The offsetting liability is presented in the line “Obligation to return securities received as collateral”.
4. Reverse repurchase, repurchase, securities borrowing and securities lending transactions
The GroupUBS enters into certain specific reverse repurchase, repurchase, securities borrowing and securities lending transactions that result in a difference between IFRS and US GAAP. Under IFRS, they are considered borrowing and lending transactions which are not reflected in the balance sheet except to the extent of cash collateral advanced or received. Under US GAAP, however, they are considered purchase and sale transactions due to the fact that the contracts do not meet specific collateral or margining requirements under SFAS 140. Due to the different treatment of these transactions under IFRS and US GAAP, interest income and expense recorded under IFRS must be reclassified to Net trading income or Other income for US GAAP. Additionally under US GAAP, the securities received are recognized on the balance sheet as a spot purchase (Trading portfolio assets) with a corresponding forward sale transaction (Replacement values) and a receivable (Cash collateral on securities borrowed) is reclassified, as applicable. The securities delivered are recognized as a spot sale (Trading portfolio liabilities) with a corresponding forward repurchase transaction (Replacement values) and a liability (Cash collateral on securities lent) is reclassified, as applicable.
168174
Note 39.5Note 40.5 Consolidated Income Statement |
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2002,2003, 31 December 20012002 and 31 December 2000,2001, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| For the year ended | | Reference | | US GAAP | | IFRS | | US GAAP | | IFRS | | US GAAP | | IFRS | | | Reference | | US GAAP | | IFRS | | US GAAP | | IFRS | | US GAAP | | IFRS | |
|
| |
| Operating income | | |
| Interest income | | a, d, 4 | | | 39,679 | | | | 39,963 | | | 51,907 | | 52,277 | | 51,565 | | 51,745 | | | a, d, 4, j | | | 39,940 | | | | 40,159 | | | 39,679 | | 39,963 | | 51,907 | | 52,277 | |
| Interest expense | | a, 4 | | | (29,334 | ) | | | (29,417 | ) | | | (44,096 | ) | | | (44,236 | ) | | | (43,584 | ) | | | (43,615 | ) | | a, 4 | | | (27,700 | ) | | | (27,860 | ) | | | (29,334 | ) | | | (29,417 | ) | | | (44,096 | ) | | | (44,236 | ) |
|
| |
| Net interest income | | | 10,345 | | | | 10,546 | | | 7,811 | | 8,041 | | 7,981 | | 8,130 | | | | 12,240 | | | | 12,299 | | | 10,345 | | 10,546 | | 7,811 | | 8,041 | |
| Credit loss expense/(recovery) | | | (206 | ) | | | (206 | ) | | | (498 | ) | | | (498 | ) | | 130 | | 130 | | |
| Credit loss expense / (recovery) | | | | (116 | ) | | | (116 | ) | | | (206 | ) | | | (206 | ) | | | (498 | ) | | | (498 | ) |
|
| |
| Net interest income after credit loss expense/(recovery) | | | 10,139 | | | | 10,340 | | | 7,313 | | 7,543 | | 8,111 | | 8,260 | | |
| Net interest income after credit loss expense / (recovery) | | | | 12,124 | | | | 12,183 | | | 10,139 | | 10,340 | | 7,313 | | 7,543 | |
|
| |
| Net fee and commission income | | | 18,221 | | | | 18,221 | | | 20,211 | | 20,211 | | 16,703 | | 16,703 | | | | 17,345 | | | | 17,345 | | | 18,221 | | 18,221 | | 20,211 | | 20,211 | |
| Net trading income | | d, 4 | | | 6,031 | | | | 5,572 | | | 8,959 | | 8,802 | | 8,597 | | 9,953 | | | d, 4, h, j | | | 4,065 | | | | 3,883 | | | 6,031 | | 5,572 | | 8,959 | | 8,802 | |
| Other income1 | | e, f, 4 | | | 96 | | | | (12 | ) | | 534 | | 558 | | 1,514 | | 1,486 | | | b, e, 4 | | | 380 | | | | 561 | | | 96 | | | (12 | ) | | 534 | | 558 | |
|
| |
| Total operating income | | | 34,487 | | | | 34,121 | | | 37,017 | | 37,114 | | 34,925 | | 36,402 | | | | 33,914 | | | | 33,972 | | | 34,487 | | 34,121 | | 37,017 | | 37,114 | |
|
| |
| Operating expenses | | |
| Personnel expenses | | c, g, h, i | | | 18,610 | | | | 18,524 | | | 19,713 | | 19,828 | | 17,262 | | 17,163 | | | f, g, h | | | 17,615 | | | | 17,231 | | | 18,610 | | 18,524 | | 19,713 | | 19,828 | |
| General and administrative expenses | | c | | | 7,072 | | | | 7,072 | | | 7,631 | | 7,631 | | 6,813 | | 6,765 | | | | 6,086 | | | | 6,086 | | | 7,072 | | 7,072 | | 7,631 | | 7,631 | |
| Depreciation of property and equipment | | a, j | | | 1,613 | | | | 1,521 | | | 1,815 | | 1,614 | | 1,800 | | 1,608 | | | a, i | | | 1,396 | | | | 1,364 | | | 1,613 | | 1,521 | | 1,815 | | 1,614 | |
| Amortization of goodwill | | a, b | | | 0 | | | | 930 | | | 2,484 | | 1,025 | | 2,018 | | 533 | | | a, b | | 0 | | | 756 | | | 0 | | 930 | | 2,484 | | 1,025 | |
| Amortization of other intangible assets | | b | | | 1,443 | | | | 1,530 | | | 298 | | 298 | | 134 | | 134 | | | b | | | 112 | | | | 187 | | | 1,443 | | 1,530 | | 298 | | 298 | |
| Restructuring costs | | c | | | 0 | | | | 0 | | | 112 | | 0 | | 191 | | 0 | | | c | | 0 | | | 0 | | | 0 | | 0 | | 112 | | 0 | |
|
| |
| Total operating expenses | | | 28,738 | | | | 29,577 | | | 32,053 | | 30,396 | | 28,218 | | 26,203 | | | | 25,209 | | | | 25,624 | | | 28,738 | | 29,577 | | 32,053 | | 30,396 | |
|
| |
| Operating profit/(loss) before tax and minority interests | | | 5,749 | | | | 4,544 | | | 4,964 | | 6,718 | | 6,707 | | 10,199 | | |
Operating profit / (loss) before tax and minority interests | | | | 8,705 | | | | 8,348 | | | 5,749 | | 4,544 | | 4,964 | | 6,718 | |
|
| |
| Tax expense/(benefit) | | | 511 | | | | 678 | | | 1,386 | | 1,401 | | 2,183 | | 2,320 | | |
| Tax expense / (benefit) | | | | 1,842 | | | | 1,618 | | | 511 | | 678 | | 1,386 | | 1,401 | |
|
| |
| Net profit/(loss) before minority interests | | | 5,238 | | | | 3,866 | | | 3,578 | | 5,317 | | 4,524 | | 7,879 | | |
Net profit / (loss) before minority interests | | | | 6,863 | | | | 6,730 | | | 5,238 | | 3,866 | | 3,578 | | 5,317 | |
|
| |
| Minority interests | | | (331 | ) | | | (331 | ) | | | (344 | ) | | | (344 | ) | | | (87 | ) | | | (87 | ) | | j | | | (350 | ) | | | (345 | ) | | | (331 | ) | | | (331 | ) | | | (344 | ) | | | (344 | ) |
| Change in accounting principle: | | |
| cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | | f | | | 639 | | | | 0 | | | 0 | | 0 | | 0 | | 0 | | | e | | 0 | | | 0 | | | 639 | | 0 | | 0 | | 0 | |
|
| |
| Net profit | | | 5,546 | | | | 3,535 | | | 3,234 | | 4,973 | | 4,437 | | 7,792 | | | | 6,513 | | | | 6,385 | | | 5,546 | | 3,535 | | 3,234 | | 4,973 | |
|
| |
1The CHF 159 million loss and CHF 108 million of the differencegain included in US GAAP Other income between IFRS and US GAAP at 31 December 2003 and 31 December 2002, isrespectively are due to the Group’sUBS’s adoption of the “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain private equity investments for its US GAAP financial statements. This amount representsThese amounts represent the increasechange in fair value of these investments during 2003 and 2002.
Note: References above coincide with the discussions in Note 39.140.1 and Note 39.4.40.4. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption. Certain prior year amounts have been reclassified to conform to the current year’s presentation.
169175
UBS Group Financial Statements
Notes to the Financial Statements
Note 39.6Note 40.6 Condensed Consolidated Balance Sheet |
The following is a Condensed Consolidated Balance Sheet of the Group, as ofat 31 December 20022003 and 31 December 2001,2002, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
| | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| | | 31.12.03 | | 31.12.02 |
| CHF million | | Reference | | US GAAP | | IFRS | | US GAAP | | IFRS | | | Reference | | US GAAP | | IFRS | | US GAAP | | IFRS | |
|
| |
| Assets | | |
| Cash and balances with central banks | | | 4,271 | | | | 4,271 | | | 20,990 | | 20,990 | | | | 3,584 | | | | 3,584 | | | 4,271 | | 4,271 | |
| Due from banks | | a | | | 32,481 | | | | 32,468 | | | 27,550 | | 27,526 | | | a, j | | | 31,685 | | | | 31,667 | | | 32,481 | | 32,468 | |
| Cash collateral on securities borrowed | | 4 | | | 139,073 | | | | 139,052 | | | 162,566 | | 162,938 | | | 4 | | | 211,058 | | | | 213,932 | | | 139,073 | | 139,052 | |
| Reverse repurchase agreements | | | 294,086 | | | | 294,086 | | | 269,256 | | 269,256 | | | | 320,587 | | | | 320,587 | | | 294,086 | | 294,086 | |
| Trading portfolio assets (including assets pledged as collateral of CHF 110,365 million at 31.12.02 and CHF 121,456 million at 31.12.01) | | 1, 4 | | | 441,845 | | | | 371,436 | | | 455,406 | | 397,886 | | |
| Trading portfolio assets (including assets pledged as collateral of CHF 125,411 million at 31.12.03 and CHF 110,365 million at 31.12.02) | | | 1, 4, h, j | | | 544,492 | | | | 461,772 | | | 441,845 | | 371,436 | |
| Positive replacement values | | 1, 4 | | | 83,757 | | | | 82,092 | | | 73,474 | | 73,447 | | | 1,4, j | | | 84,034 | | | | 84,334 | | | 83,757 | | 82,092 | |
| Loans | | a, d | | | 211,755 | | | | 211,647 | | | 226,747 | | 226,545 | | | a, d | | | 212,554 | | | | 212,504 | | | 211,755 | | 211,647 | |
| Financial investments | | f, 2 | | | 2,846 | | | | 8,391 | | | 20,676 | | 28,803 | | | e, 2 | | | 1,303 | | | | 5,139 | | | 2,846 | | 8,391 | |
| Securities received as collateral | | 3 | | | 16,308 | | | 10,931 | | | 3 | | | 13,071 | | | 16,308 | |
| Accrued income and prepaid expenses | | 4 | | | 6,462 | | | | 6,453 | | | 7,545 | | 7,554 | | | 4, h | | | 6,219 | | | | 6,218 | | | 6,462 | | 6,453 | |
| Investments in associates | | | 705 | | | | 705 | | | 697 | | 697 | | | | 1,616 | | | | 1,616 | | | 705 | | 705 | |
| Property and equipment | | a, j | | | 8,358 | | | | 7,869 | | | 9,276 | | 8,695 | | | a | | | 8,116 | | | | 7,659 | | | 8,358 | | 7,869 | |
| Goodwill | | a, b | | | 28,127 | | | | 11,181 | | | 29,255 | | 14,578 | | | a, b | | | 26,775 | | | | 9,348 | | | 28,127 | | 11,181 | |
| Other intangible assets | | b, g | | | 1,222 | | | | 2,515 | | | 4,510 | | 4,507 | | | b | | | 1,174 | | | | 2,181 | | | 1,222 | | 2,515 | |
| Private equity investments | | 2 | | | 4,328 | | | 6,069 | | | e, 2 | | | 3,308 | | | 4,328 | |
| Other assets | | d, f, g, h, i, 1, 2 | | | 21,314 | | | | 8,952 | | | 36,972 | | 9,875 | | | d, e, f, h, j, l, 2 | | | 64,381 | | | | 25,459 | | | 21,314 | | 8,952 | |
|
| |
| Total assets | | | 1,296,938 | | | | 1,181,118 | | | 1,361,920 | | 1,253,297 | | | | 1,533,957 | | | | 1,386,000 | | | 1,296,938 | | 1,181,118 | |
|
| |
| Liabilities | | |
| Due to banks | | | 83,178 | | | | 83,178 | | | 106,531 | | 106,531 | | | | 127,385 | | | | 127,153 | | | 83,178 | | 83,178 | |
| Cash collateral on securities lent | | | 36,870 | | | | 36,870 | | | 30,317 | | 30,317 | | | 4 | | | 51,157 | | | | 53,278 | | | 36,870 | | 36,870 | |
| Repurchase agreements | | | 366,858 | | | | 366,858 | | | 368,620 | | 368,620 | | | | 415,863 | | | | 415,863 | | | 366,858 | | 366,858 | |
| Trading portfolio liabilities | | 1, 4 | | | 117,721 | | | | 106,453 | | | 119,528 | | 105,798 | | | 1,4 | | | 149,380 | | | | 143,957 | | | 117,721 | | 106,453 | |
| Obligation to return securities received as collateral | | 3 | | | 16,308 | | | 10,931 | | | 3 | | | 13,071 | | | 16,308 | |
| Negative replacement values | | 1, 4 | | | 132,354 | | | | 81,282 | | | 116,666 | | 71,443 | | | 1,4, j | | | 161,086 | | | | 93,646 | | | 132,354 | | 81,282 | |
| Due to customers | | a, d | | | 306,872 | | | | 306,876 | | | 333,766 | | 333,781 | | | a, d | | | 347,358 | | | | 347,358 | | | 306,872 | | 306,876 | |
| Accrued expenses and deferred income | | 4 | | | 15,330 | | | | 15,331 | | | 17,289 | | 17,289 | | | 4 | | | 13,673 | | | | 13,673 | | | 15,330 | | 15,331 | |
| Debt issued | | a, d | | | 129,527 | | | | 129,411 | | | 156,462 | | 156,218 | | | a, d, j, 1 | | | 123,259 | | | | 120,237 | | | 129,527 | | 129,411 | |
| Other liabilities | | d, g, h, i, 1 | | | 32,815 | | | | 12,339 | | | 38,416 | | 15,658 | | | d, f, g, h, j, 1 | | | 74,044 | | | | 31,316 | | | 32,815 | | 12,339 | |
|
| |
| Total liabilities | | | 1,237,833 | | | | 1,138,598 | | | 1,298,526 | | 1,205,655 | | | | 1,476,276 | | | | 1,346,481 | | | 1,237,833 | | 1,138,598 | |
|
| |
| Minority interests | | | 3,529 | | | | 3,529 | | | 4,112 | | 4,112 | | | j | | | 4,507 | | | | 4,073 | | | 3,529 | | 3,529 | |
|
| |
| Total shareholders’ equity | | | 55,576 | | | | 38,991 | | | 59,282 | | 43,530 | | | | 53,174 | | | | 35,446 | | | 55,576 | | 38,991 | |
|
| |
| Total liabilities, minority interests and shareholders’ equity | | | 1,296,938 | | | | 1,181,118 | | | 1,361,920 | | 1,253,297 | | | | 1,533,957 | | | | 1,386,000 | | | 1,296,938 | | 1,181,118 | |
|
| |
Note: References above coincide with the discussions in Note 39.140.1 and Note 39.4.40.4. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption. Amounts have been adjusted to reflect the treatment of reverse repurchase, repurchase, securities borrowing and securities lending transactions on a consistent basis. See Note 39.4.4 for details.
170176
Note 40.7 Comprehensive income
Note 39.7 Comprehensive Income |
Comprehensive income under US GAAP is defined as the change in Shareholders’ equity excluding transactions with shareholders. Comprehensive income has two major components: Net profit, as reported in the income statement, and Other comprehensive income. Other comprehensive income includes such items as foreign currency translation, unrealized gains/gains / losses on available for saleavailable-for-sale securities, unrealized gains/gains / losses on changes in fair value of derivative instruments designated as cash flow hedges and additional minimum pension liability. The components and accumulated other comprehensive income amounts on a US GAAP basis for the years ended 31 December 2003, 31 December 2002 and 31 December 2001 and 31 December 2000 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Unrealized | | | Unrealized | | | Additional | | | Accumulated | | | | |
| | | Foreign | | | gains/(losses) | | | gains/(losses) | | | minimum | | | other | | | | |
| | | currency | | | on available for | | | on cash flow | | | pension | | | comprehensive | | | Comprehensive | |
| CHF million | | translation | | | sale securities | | | hedges | | | liability | | | income/(loss) | | | income/(loss) | |
|
| Balance at 1 January 2000 | | | (442 | ) | | | 16 | | | | | | | | | | | | (426 | ) | | | | |
| Net profit | | | | | | | | | | | | | | | | | | | | | | | 4,437 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | (245 | ) | | | | | | | | | | | | | | | (245 | ) | | | | |
| Net unrealized gains on available for sale investments arising during the year, net of CHF 152 million tax | | | | | | | 456 | | | | | | | | | | | | 456 | | | | | |
| Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 40 million tax | | | | | | | (121 | ) | | | | | | | | | | | (121 | ) | | | | |
|
| Other comprehensive income/(loss) | | | | | | | | | | | | | | | | | | | | | | | 90 | |
|
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 4,527 | |
|
| Balance at 31 December 2000 | | | (687 | ) | | | 351 | | | | | | | | | | | | (336 | ) | | | | |
|
| Net profit | | | | | | | | | | | | | | | | | | | | | | | 3,234 | |
| Other comprehensive income: |
| Foreign currency translation | | | (82 | ) | | | | | | | | | | | | | | | (82 | ) | | | | |
| Net unrealized gains on available for sale investments arising during the year, net of CHF 27 million tax | | | | | | | 109 | | | | | | | | | | | | 109 | | | | | |
| Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 26 million tax | | | | | | | (104 | ) | | | | | | | | | | | (104 | ) | | | | |
| Net unrealized gains on cash flow hedges arising during the year, net of CHF 1 million tax | | | | | | | | | | | 4 | | | | | | | | 4 | | | | | |
| Reclassification adjustment for losses on cash flow hedges realized in net profit, net of CHF 1 million tax | | | | | | | | | | | 3 | | | | | | | | 3 | | | | | |
| Additional minimum pension liability, net of CHF 108 million tax | | | | | | | | | | | | | | | (195 | ) | | | (195 | ) | | | | |
|
| Other comprehensive income/(loss) | | | | | | | | | | | | | | | | | | | | | | | (265 | ) |
|
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 2,969 | |
|
| Balance at 31 December 2001 | | | (769 | ) | | | 356 | | | | 7 | | | | (195 | ) | | | (601 | ) | | | | |
|
| Net profit | | | | | | | | | | | | | | | | | | | | | | | 5,546 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | (80 | ) | | | | | | | | | | | | | | | (80 | ) | | | | |
| Net unrealized gains on available for sale investments arising during the year, net of CHF 34 million tax | | | | | | | 109 | | | | | | | | | | | | 109 | | | | | |
| Impairment charges reclassified to the income statement, net of CHF 26 million tax | | | | | | | 95 | | | | | | | | | | | | 95 | | | | | |
| Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 102 million tax | | | | | | | (368 | ) | | | | | | | | | | | (368 | ) | | | | |
| Net unrealized losses on cash flow hedges arising during the year, net of CHF 3 million tax | | | | | | | | | | | (1 | ) | | | | | | | (1 | ) | | | | |
| Reclassification adjustment for gains on cash flow hedges realized in net profit, net of CHF 0 million tax | | | | | | | | | | | (8 | ) | | | | | | | (8 | ) | | | | |
| Additional minimum pension liability, net of CHF 93 million tax | | | | | | | | | | | | | | | (827 | ) | | | (827 | ) | | | | |
|
| Other comprehensive income/(loss) | | | | | | | | | | | | | | | | | | | | | | | (1,080 | ) |
|
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 4,466 | |
|
| Balance at 31 December 2002 | | | (849 | ) | | | 192 | | | | (2 | ) | | | (1,022 | ) | | | (1,681 | ) | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Unrealized | | | | | | | | | | | | | | | Accumu- | | | | |
| | | | | | | gains/ | | | Unrealized | | | | | | | | | | | lated other | | | | |
| | | | | | | (losses) on | | | gains/ | | | Additional | | | | | | | compre- | | | Compre- | |
| | | Foreign | | | available- | | | (losses) on | | | minimum | | | Deferred | | | hensive | | | hensive | |
| | | currency | | | for-sale | | | cash flow | | | pension | | | income | | | income/ | | | income / | |
| CHF million | | translation | | | investments | | | hedges | | | liability | | | taxes | | | (loss) | | | (loss) | |
| |
Balance at 1 January 2001 | | | (687 | ) | | | 463 | | | | 0 | | | | 0 | | | | (112 | ) | | | (336 | ) | | | | |
| Net profit | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,234 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | (82 | ) | | | | | | | | | | | | | | | | | | | (82 | ) | | | (82 | ) |
| Net unrealized gains on available-for-sale investments | | | | | | | 136 | | | | | | | | | | | | (27 | ) | | | 109 | | | | 109 | |
| Reclassification of gains on available-for-sale investments realized in net profit | | | | | | | (130 | ) | | | | | | | | | | | 26 | | | | (104 | ) | | | (104 | ) |
| Net unrealized gains on cash flow hedges | | | | | | | | | | | 5 | | | | | | | | (1 | ) | | | 4 | | | | 4 | |
| Reclassification of losses on cash flow hedges realized in net profit | | | | | | | | | | | 4 | | | | | | | | (1 | ) | | | 3 | | | | 3 | |
| Additional minimum pension liability | | | | | | | | | | | | | | | (303 | ) | | | 108 | | | | (195 | ) | | | (195 | ) |
| |
Other comprehensive income / (loss) | | | (82 | ) | | | 6 | | | | 9 | | | | (303 | ) | | | 105 | | | | (265 | ) | | | (265 | ) |
| |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,969 | |
| |
Balance at 31 December 2001 | | | (769 | ) | | | 469 | | | | 9 | | | | (303 | ) | | | (7 | ) | | | (601 | ) | | | | |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,546 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | (80 | ) | | | | | | | | | | | | | | | | | | | (80 | ) | | | (80 | ) |
| Net unrealized gains on available-for-sale investments | | | | | | | 143 | | | | | | | | | | | | (34 | ) | | | 109 | | | | 109 | |
| Impairment charges reclassified to the income statement | | | | | | | 121 | | | | | | | | | | | | (26 | ) | | | 95 | | | | 95 | |
| Reclassification of gains on available-for-sale investments realized in net profit | | | | | | | (470 | ) | | | | | | | | | | | 102 | | | | (368 | ) | | | (368 | ) |
| Net unrealized losses on cash flow hedges | | | | | | | | | | | (4 | ) | | | | | | | 3 | | | | (1 | ) | | | (1 | ) |
| Reclassification of gains on cash flow hedges realized in net profit | | | | | | | | | | | (8 | ) | | | | | | | 0 | | | | (8 | ) | | | (8 | ) |
| Additional minimum pension liability | | | | | | | | | | | | | | | (920 | ) | | | 93 | | | | (827 | ) | | | (827 | ) |
| |
Other comprehensive income / (loss) | | | (80 | ) | | | (206 | ) | | | (12 | ) | | | (920 | ) | | | 138 | | | | (1,080 | ) | | | (1,080 | ) |
| |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,466 | |
| |
Balance at 31 December 2002 | | | (849 | ) | | | 263 | | | | (3 | ) | | | (1,223 | ) | | | 131 | | | | (1,681 | ) | | | | |
| |
Net profit | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,513 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | (795 | ) | | | | | | | | | | | | | | | | | | | (795 | ) | | | (795 | ) |
| Net unrealized losses on available-for-sale investments | | | | | | | (130 | ) | | | | | | | | | | | 49 | | | | (81 | ) | | | (81 | ) |
| Impairment charges reclassified to the income statement | | | | | | | 111 | | | | | | | | | | | | (18 | ) | | | 93 | | | | 93 | |
| Reclassification of gains on available-for-sale investments realized in net profit | | | | | | | (69 | ) | | | | | | | | | | | 11 | | | | (58 | ) | | | (58 | ) |
| Reclassification of losses on cash flow hedges realized in net profit | | | | | | | | | | | 3 | | | | | | | | (1 | ) | | | 2 | | | | 2 | |
| Additional minimum pension liability | | | | | | | | | | | | | | | 917 | | | | (82 | ) | | | 835 | | | | 835 | |
| |
Other comprehensive income / (loss) | | | (795 | ) | | | (88 | ) | | | 3 | | | | 917 | | | | (41 | ) | | | (4 | ) | | | (4 | ) |
| |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,509 | |
| |
Balance at 31 December 2003 | | | (1,644 | ) | | | 175 | | | | 0 | | | | (306 | ) | | | 90 | | | | (1,685 | ) | | | | |
| |
171177
UBS Group Financial Statements
Notes to the Financial Statements
Note 4041 Additional Disclosures Required under US GAAP and SEC Rules
Note 40.1 Sales of financial assets in securitizations |
Note 41.1 Variable interest entities
During the years ended 31 December 2002 and 2001, the Group securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. The Group’s continuing involvement in these transactionsFIN 46 was primarily limited to the temporary retention of various security interests. Proceeds received at the time of securitization from residential mortgage, commercial mortgage and other financial asset securitizations were CHF 143.5 billion, CHF 4.0 billion and CHF 5.8 billion, respectively in 2002 and CHF 67.6 billion, CHF 4.1 billion and CHF 2.8 billion, respectively in 2001. Related pre-tax gains (losses) recognized, including unrealized gains (losses) on retained interests, at the time of securitization were CHF 523.9 million, CHF 206.4 million and CHF (4.5) million, respectively in 2002 and CHF 112.9 million, CHF 129.7 mil-
ion and CHF 20.6 million, respectively in 2001. A significant portion of the securitization activities conducted in 2002 and 2001 were derived from businesses acquired in the purchase of PaineWebber Group Inc. in November 2000. During 2000, the Group did not engage in significant securitization transactions involving the transfer of its financial assets.
At 31 December 2002 and 2001, the Group retained CHF 5.2 billion and CHF 6.8 billion, respectively in agency residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The fair value of retained interests in residential mortgage securities is generally determined using observable market prices. Retained interests in other residential mortgage, commercial mortgage and other securities were not material at 31 December 2002 and 2001.
Note 40.2 Variable interest entities |
FASB interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, wasoriginally issued on 17 January 2003. Subsequently, in December 2003, and provides guidance for determining whether or not such entities are subject to consolidation.the FASB issued a revised version of FIN 46. FIN 46 requires that control over a special purposean entity be assessed first assessed based on voting interests, and onlyinterests; if voting interests do not exist, or differ significantly from economic interests, then an entity is considered to be a “Variable Interest Entity” (“VIE”), and the assessment of control is based on its variable interests. SuchFIN 46 provides guidance for determining whether entities are referredconsidered to as Variable Interest Entities. (“VIE’s”)be VIEs, and whether “variable interests” in such VIEs result in an enterprise being the “primary beneficiary”, or the holder of a “significant variable interest”. UBS considers a variable interest to be significant if it expects to receive more than 20% of a VIE’s residual losses, residual gains, or both.
Variable interests are contractual, ownership, or other pecuniary interests in an entity that varychange with changes in the fair value of that entity’s net asset value,
includingassets exclusive of variable interests. Variable interests may include fee payments to decision makers and to providers of guarantees (including writers of put options and other instruments with similar results) as well as. In assessing the extent of an entity’s variable interests, FIN 46 requires that the interests of an enterprise’s related parties (including management, employees, affiliates and agents). be evaluated as if owned directly by the enterprise.
When fully effective, FIN 46 requires that the primary beneficiary of a VIE must consolidate that VIE, requires certain disclosures by the enterprise which is the primary beneficiary of that VIE, and requires certain other disclosures by any holder of a significant variable interest in a VIE.
At 31 December 2003, FIN 46 has application to UBS with respect to transitional disclosure requirements, and the consolidation and disclosure of VIEs created after 31 January 2003, in which UBS is the primary beneficiary.
Measurement
Measurement of a VIE’s size is usually determined using the fair value of the VIE’s assets.
Some VIEs function as a passive intermediary to a derivative transaction and are generally established to facilitate the transfer of credit risk on portfolios to investors. The size of such VIEs may also be measured using the “notional amount” of the derivatives’ underlying referenced assets, i.e. the size of the portfolio for which credit risk has been transferred. These notional amounts are also included in Note 23. In measuring the total size of VIEs quantified below, the most appropriate measure has been taken for each specific VIE on an individual basis.
FIN 46 requires disclosures of UBS’s maximum exposure to loss as a result of its involvement with VIEs in which it has a significant variable interest. Generally, UBS’s maximum exposure to loss is measured as its net investment in the VIE, plus any additional amounts it may be obligated to invest. In cases where the Group has provided guarantees or other types of credit protection to a VIE it is measured as the notional amount of the credit protection instruments or derivatives. In cases where the Group is a non-credit derivative counterpart to a VIE or has received credit protection, it is measured as the positive replacement value (if any) of the derivatives. These measures of maximum exposure to loss do not consider the offsetting effects of hedges outside the VIE. It is UBS’s general practice to hedge interest rate risk, credit risk, and other market risk exposures. See Note 29 for a further discussion of UBS’s risk mitigation strategies.
VIEs created after 31 January 2003
For VIEs created after 31 January 2003, FIN 46 is fully effective at 31 December 2003 regarding consolidation treatment and disclosures. The tables on the following page include information for all such VIEs:
178
VIEs, created after 31 January 2003, for all newly acquired orwhich UBS is the primary beneficiary1
| | | | | | | | | | | | | | | |
| | | | | | | Consolidated assets that are collateral | | | | | | Creditors' | |
| (CHF million) | | | | | | for the VIEs' obligations | | | | | | recourse | |
| Nature, purpose and activities of VIEs | | Total assets | | | Classification | | Amount | | | to UBS | |
| |
| Passive intermediary to a derivative transaction | | | 1,013 | | | Cash, corporate debt securities | | | 494 | | | | 0 | |
| Credit protection vehicles | | | 3,548 | | | Credit derivatives, corporate debt securities | | | 2,795 | | | | 0 | |
| Investment funds managed by UBS | | | 541 | | | Debt, equity | | | 428 | | | | 0 | |
| |
Total 31.12.2003 | | | 5,102 | | | | | | 3,717 | | | | 0 | |
| |
VIEs, created interestsafter 31 January 2003, in VIE’swhich UBS has a significant variable interest
| | | | | | | | | | | | | | | |
| | | | | | | | | Maximum | | | | |
| (CHF million) | | | | | | | | exposure | | | | |
| Nature, purpose and activities of VIEs | | Total assets | | | Nature of involvement | | to loss | | | | |
| | | | | |
| Credit protection vehicles | | | 281 | | | SPE used for credit protection – | | | | | | | | |
| | | | | | | (UBS sells credit risk on portfolios to investors) | | | 1 | | | | | |
| | | | | |
Total 31.12.2003 | | | 281 | | | | | | 1 | | | | | |
| | | | | |
1The above table of VIEs created after 31 January 2003, for which UBS is the primary beneficiary, includes VIEs with a total size of CHF 1,014 million which are already consolidated in UBS’s Financial Statements based on the determination of exercise of control under IFRS, and for periodsVIEs with a total size of CHF 4,089 million which are not currently consolidated under IFRS.
VIEs created prior to 1 February 2003
For VIEs created prior to 1 February 2003, FIN 46 becomes fully effective from the first reporting period beginning after 15 June 2003, for all interests in VIE’s existingregarding both consolidation treatment and owneddisclosures, and is therefore not fully effective at 31 December 2003. Accordingly, with respect to VIEs created prior to 1 February 2003, only the transitional disclosure requirements are applicable to UBS at 31 December 2003. The table below includes information for all entitiesThose transitional disclosure provisions require assessment of cases where it is reasonably possible“reasonably possible” that UBS holdswill be the primary beneficiary of a VIE, or be the holder of a significant variable interest in a VIE, and to make certain disclosures about such entities, pending final evaluation and conclusions about those entities. UBS has sought to determine the extent of significant variable interests, and situations where it is the primary beneficiary in VIEs created before 1 February 2003.
UBS expects the key impact to be the consolidation of VIEs in which willit is the primary beneficiary for US GAAP purposes, which are not otherwise consolidated in UBS’s primary consolidated Financial Statements under IFRS.
The total size of VIEs which are currently not consolidated under IFRS, which may become consolidated for US GAAP purposes, is estimated to be characterized as a VIE.in the order of CHF 5.1 billion total assets. Of this amount, approximately CHF 4.6 billion relates to employee equity compensation trusts
172
Note 40.2 Variable interest entities (continued) |
| | | | | | | | | | | | | | | |
| (in CHF million) | | | | | | Notional amount | | | | | Maximum loss | |
| SPE category | | Total assets | | | of derivatives | | | Description of primary assets | | exposure | |
|
| Trust vehicles for awards to UBS employees | | | 4,624.6 | | | | 37,717.0 | | | UBS shares and derivatives thereon, alternative | | | | |
| | | | | | | | | | | investments | | | 4,982.2 | 1 |
| Private equity investments | | | 784.6 | | | | 0 | | | Private equity investments | | | 318.4 | |
| Hedge fund products including | | | | | | | | | | Bonds, equities, derivatives | | | | |
| direct investment funds and funds of funds | | | 4,970.6 | | | | 8,665.0 | | | and alternative investments | | | 1,643.6 | |
| Passive intermediary to a derivative transaction2 | | | 2,131.1 | | | | 37,248.2 | | | Cash/corporate securities | | | 876.9 | |
| Dispersion of risk in a pool of investments | | | 2,689.1 | | | | 8,125.6 | | | Debt securities, loan receivables and credit linked notes | | | 333.8 | |
| | | | | | | | | | | Cash, debt securities, | | | | |
| Other credit protection vehicles | | | 1,639.0 | | | | 2,922.5 | | | asset-backed securities and credit default swaps | | | 528.9 | |
| Other miscellaneous structures | | | 205.3 | | | | 205.3 | | | Corporate debt and equities | | | 194.8 | |
|
| Total 31.12.2002 | | | 17,044.3 | | | | 94,883.6 | | | | | | 8,878.6 | |
|
1In connection withestablished to hold UBS shares, UBS share options, and alternative investment vehicles; approximately CHF 93 million relates to certain leveraged investment opportunities available to key employees, and approximately CHF 370 million relates to other VIEs. UBS has a maximum exposure to loss, according to the provisions of FIN 46, of approximately CHF 4.6 billion in relation to the employee equity compensation trusts (see below), approximately CHF 503 million in relation to the leveraged investment plans (see below), and approximately CHF 370 million in relation to other VIEs which may become consolidated. In addition to the above VIEs, UBS has identified other VIEs which are still being assessed, and which are discussed in more detail below. The CHF 4.6 billion size and maximum exposure to loss mentioned above in relation to employee equity compensation trusts does not represent an exposure of UBS, as the assets are held in trust for employees. The employees would bear all exposure to loss, however the provisions of FIN 46 treat employees as related parties, and require that their variable interests be added to those of UBS. The result is that UBS expects to be treated as the primary beneficiary of these trusts, and to consolidate them for US GAAP purposes.
In connection with the leveraged investment opportunities available to key employees, UBS
179
Financial Statements
Notes to the Financial Statements
has committed to provide up to CHF 440.8394 million in loans to employee investment partnerships. At 31 December 2002,2003, a total of CHF 35.577 million in loans had actually been drawn down. Repayment of these loans is on a non recourse basis but is senior to the employees’ investment in the partnerships. The remaining unfunded portion of these commitments is also included in Note 25. In addition, if employees default on their future investment commitments, the GroupUBS is obliged to assume the remaining unfunded portion, which amounted to CHF 137.7109 million at 31 December 2002.2003. In the event that all the investments made by these partnerships became worthless, UBS could be exposed to the loss of the entire committed amount of CHF 578.5503 million which is included in the CHF 4,982.2503 million maximum exposure to loss noted for these VIEs.
It should be noted that for most VIEs required to be consolidated under US GAAP as mentioned above, that in some cases the total figures above may increase both total assets and total liabilities of the US GAAP accounts, and in other cases may result in a reclassification of existing assets or liabilities to other types of assets or liabilities. In the case of the employee equity compensation trusts, the CHF 4.6 billion total size comprises assets of approximately CHF 2.1 billion in UBS shares, CHF 1.6 billion in UBS share options, and CHF 0.9 billion in alternative investment vehicles. Depending on the impact of possible changes in employee equity compensation expense accounting, the consolidation of these trusts would result in a portion of these amounts being recognized as changes to either shareholders’ equity or liabilities.
A significant percentage of entities which may meet the definition of a VIE under FIN 46 in which UBS is the primary beneficiary are already consolidated in UBS’s Financial Statements, based on the determination of exercise of control under IFRS. The total size of such VIEs is estimated to be CHF 9.0 billion, which is measured by fair value of assets except for CHF 50 million measured by notional amounts of underlying
assets in relation to derivatives. UBS has a maximum exposure to loss of approximately CHF 1.8 billion in relation to these VIEs, which are used primarily as credit protection vehicles, or passive intermediaries to derivative transactions.
In certain cases an entity which has been consolidated under IFRS may be considered to be non-consolidated under FIN 46. UBS has issued trust preferred securities amounting to CHF 3.2 billion which in future periods would be de-consolidated for US GAAP purposes.
In addition to the primary beneficiary situations noted above, UBS has identified that it holds significant variable interests in other VIEs. It is estimated that the total assets of such VIEs amount to approximately CHF 1.6 billion, and that UBS has a maximum exposure to loss of approximately CHF 592 million in relation to these VIEs.
In addition to the table above. 2VIEs noted above, UBS has identified other VIEs which are still being assessed. UBS holds at least a significant variable interest in these VIEs. Once the assessment is complete, it may be determined that UBS is the primary beneficiary for a portion of them. These VIEs are currently not consolidated under IFRS or US GAAP. The maximum loss exposure relatingtotal size of these VIEs is estimated to SPE’sbe CHF 4.5 billion, which function as a “Passive intermediary to a derivative transaction” is calculated as the discountedmeasured by fair value of the Group’s gross contractual swap payment obligations pursuantassets. UBS has a maximum exposure to the underlying derivative contracts. In calculating the maximum loss the Group has not included the effect of positive or negative replacement valuesapproximately CHF 253 million in relation to these VIEs, which are already reflectedused primarily as credit protection vehicles, or passive intermediaries to derivative transactions.
As the guidance for the Group in total on the Balance sheet and further discussed in Note 23.
The table above includes information for consolidated and non-consolidated special purpose entities. Certain entities subject to the above disclosure have been consolidatedFIN 46 has seen continued development, UBS is still in the Group’s Financial Statements under IFRSprocess of evaluating the full impact FIN 46 may have on its US GAAP financial position, results, and US GAAPreporting, including possible changes in employee equity compensation expense accounting due to the Group’s significant economic interest. However, in many special purpose entities UBS has a less than significant variable interest, or control is determined based on voting interest. These entities are not included in the table.
In addition, the “maximum exposure to loss” presented in the table represents worst-case scenarios and does not consider the offsetting effectsconsolidation of hedges. It is the Group’s practice to hedge
interest rate, credit and other market risk exposures. See Note 29 for a further discussioncertain of the Group’s risk mitigation strategies.
Someemployee equity compensation trusts. Therefore it is not possible to predict the impact of consolidation on the special purpose entitiesconsolidated income statement under US GAAP, but it is expected that additional volatility would be introduced in the table above function as passive intermediaries to derivatives transactions and are generally established to facilitate the transfer of credit risk on portfolios to investors. The relevant size of such entities is measured by the “notional amount” of the derivatives’ underlying referenced assets; i.e., the size of the portfolio for which credit risk has been transferred. These notional amounts are also included in Note 23, Derivative Instruments.
future periods.173180
UBS Group Financial Statements
Notes to the Financial Statements
Note 40.3Note 41.2 Supplemental Guarantor Information |
Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc., UBS AG made a full and unconditional guarantee of the senior and subordinated notes and trust preferred securities (“Debt Securities”) of PaineWebber. Prior to the acquisition, Paine-WebberPaineWebber was an SEC Registrant. Upon the acquisition, PaineWebberPaine Webber was merged into UBS Americas Inc., a wholly owned subsidiary of UBS.
Under the guarantee, if UBS Americas Inc. fails to make any timely payment under the Debt Securities agreements, 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 obligationsobliga-
tions under the subordinated note guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of
UBS. At 31 December 2002,2003, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,1291,337 billion.
The information presented in this note is prepared in accordance with IFRS and should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements of the GroupUBS of which this information is a part. At the bottom of each column, Net profit and Shareholders’ equity has been reconciled to US GAAP. See Note 3940 for a detailed reconciliation of the IFRS financial statements to US GAAP for the GroupUBS on a consolidated basis.
Effective 1 January 2002, the ownership of all major US subsidiaries of UBS AG was transferred to UBS Americas Inc. through a capital contribution. As a result, the current disclosure note is not comparable with those presented in previous periods.
Supplemental Guarantor Consolidating Income Statement
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | UBS AG | | UBS | | Consolidating | | | | | UBS AG | | UBS | | Consolidating | | | |
| For the year ended 31 December 2002 | | Parent Bank1 | | Americas Inc. | | Subsidiaries | | Entries | | UBS Group | | |
| For the year ended 31 December 2003 | | | Parent Bank1 | | Americas Inc. | | Subsidiaries | | Entries | | UBS Group | |
|
| |
| Operating income | | |
| Interest income | | 25,253 | | 16,693 | | 4,520 | | | (6,503 | ) | | 39,963 | | | 28,749 | | 13,091 | | 9,280 | | | (10,961 | ) | | 40,159 | |
| Interest expense | | 18,187 | | 14,273 | | 3,460 | | | (6,503 | ) | | 29,417 | | | 20,033 | | 10,292 | | 8,496 | | | (10,961 | ) | | 27,860 | |
|
| |
| Net interest income | | 7,066 | | 2,420 | | 1,060 | | 0 | | 10,546 | | | 8,716 | | 2,799 | | 784 | | 0 | | 12,299 | |
| Credit loss expense | | | (134 | ) | | | (15 | ) | | | (57 | ) | | 0 | | | (206 | ) | | | (124 | ) | | | (12 | ) | | 20 | | 0 | | | (116 | ) |
|
| |
| Net interest income after credit loss expense | | 6,932 | | 2,405 | | 1,003 | | 0 | | 10,340 | | | 8,592 | | 2,787 | | 804 | | 0 | | 12,183 | |
|
| |
| Net fee and commission income | | 6,841 | | 7,325 | | 4,055 | | 0 | | 18,221 | | | 6,873 | | 6,711 | | 3,761 | | 0 | | 17,345 | |
| Net trading income | | 4,420 | | 773 | | 379 | | 0 | | 5,572 | | | 1,525 | | 1,540 | | 818 | | 0 | | 3,883 | |
| Income from subsidiaries | | | (1,429 | ) | | 0 | | 0 | | 1,429 | | 0 | | | 2,466 | | 0 | | 0 | | | (2,466 | ) | | 0 | |
| Other income | | | (131 | ) | | | (26 | ) | | 145 | | 0 | | | (12 | ) | | 337 | | 230 | | | (6 | ) | | 0 | | 561 | |
|
| |
| Total operating income | | 16,633 | | 10,477 | | 5,582 | | 1,429 | | 34,121 | | | 19,793 | | 11,268 | | 5,377 | | | (2,466 | ) | | 33,972 | |
|
| |
| Operating expenses | | |
| Personnel expenses | | 8,370 | | 7,531 | | 2,623 | | 0 | | 18,524 | | | 8,853 | | 6,886 | | 1,492 | | 0 | | 17,231 | |
| General and administrative expenses | | 2,627 | | 2,003 | | 2,443 | | 0 | | 7,073 | | | 2,861 | | 1,620 | | 1,605 | | 0 | | 6,086 | |
| Depreciation of property and equipment | | 1,062 | | 204 | | 255 | | 0 | | 1,521 | | | 682 | | 186 | | 496 | | 0 | | 1,364 | |
| Amortization of goodwill and other intangible assets | | 144 | | 2,211 | | 104 | | 0 | | 2,459 | | | 104 | | 789 | | 50 | | 0 | | 943 | |
|
| |
| Total operating expenses | | 12,203 | | 11,949 | | 5,425 | | 0 | | 29,577 | | | 12,500 | | 9,481 | | 3,643 | | 0 | | 25,624 | |
|
| |
| Operating profit/(loss) before tax and minority interests | | 4,430 | | | (1,472 | ) | | 157 | | 1,429 | | 4,544 | | |
Operating profit / (loss) before tax and minority interests | | | 7,293 | | 1,787 | | 1,734 | | | (2,466 | ) | | 8,348 | |
|
| |
| Tax expense/(benefit) | | 895 | | | (460 | ) | | 243 | | 0 | | 678 | | |
| Tax expense / (benefit) | | | 908 | | 344 | | 366 | | 0 | | 1,618 | |
|
| |
| Net profit/(loss) before minority interests | | 3,535 | | | (1,012 | ) | | | (86 | ) | | 1,429 | | 3,866 | | |
Net profit /(loss) before minority interests | | | 6,385 | | 1,443 | | 1,368 | | | (2,466 | ) | | 6,730 | |
|
| |
| Minority interests | | 0 | | 0 | | | (331 | ) | | 0 | | | (331 | ) | | 0 | | 0 | | | (345 | ) | | 0 | | | (345 | ) |
|
| |
| Net profit/(loss) | | 3,535 | | | (1,012 | ) | | | (417 | ) | | 1,429 | | 3,535 | | |
Net profit / (loss) | | | 6,385 | | 1,443 | | 1,023 | | | (2,466 | ) | | 6,385 | |
|
| |
| Net profit/(loss) US GAAP2 | | 5,214 | | | (65 | ) | | 397 | | 0 | | 5,546 | | |
Net profit / (loss) US GAAP2 | | | 3,389 | | 2,120 | | 1,004 | | 0 | | 6,513 | |
|
| |
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2 Refer to Note 39 for a description of the differences between IFRS and US GAAP.
174
Supplemental Guarantor Consolidating Balance Sheet
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | | UBS AG | | | UBS | | | | | | | Consolidating | | | | |
| For the year ended 31 December 2002 | | Parent Bank1 | | | Americas Inc. | | | Subsidiaries | | | Entries | | | UBS Group | |
|
| Assets | | | | | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | 3,609 | | | | 7 | | | | 655 | | | | 0 | | | | 4,271 | |
| Due from banks | | | 65,992 | | | | 14,205 | | | | 82,384 | | | | (130,113 | ) | | | 32,468 | |
| Cash collateral on securities borrowed | | | 32,248 | | | | 139,424 | | | | 1,056 | | | | (33,676 | ) | | | 139,052 | |
| Reverse repurchase agreements | | | 197,168 | | | | 150,717 | | | | 40,725 | | | | (94,524 | ) | | | 294,086 | |
| Trading portfolio assets | | | 197,184 | | | | 148,430 | | | | 25,823 | | | | 0 | | | | 371,437 | |
| Positive replacement values | | | 82,087 | | | | 3,249 | | | | 17,168 | | | | (20,413 | ) | | | 82,091 | |
| Loans | | | 252,625 | | | | 25,904 | | | | 14,796 | | | | (81,678 | ) | | | 211,647 | |
| Financial investments | | | 1,613 | | | | 1,684 | | | | 5,094 | | | | 0 | | | | 8,391 | |
| Accrued income and prepaid expenses | | | 2,343 | | | | 3,143 | | | | 1,458 | | | | (491 | ) | | | 6,453 | |
| Investments in associates | | | 9,730 | | | | 20 | | | | 81 | | | | (9,126 | ) | | | 705 | |
| Property and equipment | | | 6,144 | | | | 731 | | | | 994 | | | | 0 | | | | 7,869 | |
| Goodwill and other intangible assets | | | 128 | | | | 12,946 | | | | 622 | | | | 0 | | | | 13,696 | |
| Other assets | | | 3,989 | | | | 4,009 | | | | 3,603 | | | | (2,649 | ) | | | 8,952 | |
|
| Total assets | | | 854,860 | | | | 504,469 | | | | 194,459 | | | | (372,670 | ) | | | 1,181,118 | |
|
| Liabilities | | | | | | | | | | | | | | | | | | | | |
| Due to banks | | | 85,634 | | | | 89,815 | | | | 37,842 | | | | (130,113 | ) | | | 83,178 | |
| Cash collateral on securities lent | | | 35,800 | | | | 32,625 | | | | 2,121 | | | | (33,676 | ) | | | 36,870 | |
| Repurchase agreements | | | 136,797 | | | | 295,885 | | | | 28,700 | | | | (94,524 | ) | | | 366,858 | |
| Trading portfolio liabilities | | | 56,105 | | | | 43,784 | | | | 6,564 | | | | 0 | | | | 106,453 | |
| Negative replacement values | | | 89,135 | | | | 3,524 | | | | 9,036 | | | | (20,413 | ) | | | 81,282 | |
| Due to customers | | | 339,787 | | | | 19,957 | | | | 28,810 | | | | (81,678 | ) | | | 306,876 | |
| Accrued expenses and deferred income | | | 7,779 | | | | 6,580 | | | | 1,463 | | | | (491 | ) | | | 15,331 | |
| Debt issued | | | 58,704 | | | | 7,111 | | | | 63,596 | | | | 0 | | | | 129,411 | |
| Other liabilities | | | 6,933 | | | | 2,604 | | | | 5,451 | | | | (2,649 | ) | | | 12,339 | |
|
| Total liabilities | | | 816,674 | | | | 501,885 | | | | 183,583 | | | | (363,544 | ) | | | 1,138,598 | |
|
| Minority interests | | | 0 | | | | 55 | | | | 3,474 | | | | 0 | | | | 3,529 | |
|
| Total shareholders’ equity | | | 38,186 | | | | 2,529 | | | | 7,402 | | | | (9,126 | ) | | | 38,991 | |
|
| Total liabilities, minority interests and shareholders’ equity | | | 854,860 | | | | 504,469 | | | | 194,459 | | | | (372,670 | ) | | | 1,181,118 | |
|
| Total shareholders’ equity — US GAAP 2 | | | 44,852 | | | | 3,176 | | | | 7,548 | | | | 0 | | | | 55,576 | |
|
1UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2Refer to Note 3940 for a description of the differences between IFRS and US GAAP.
175181
UBS Group Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Cash Flow StatementBalance Sheet
| | | | | | | | | | | | | | | | | |
| CHF million | | UBS AG | | | UBS | | | | | | | |
| For the year ended 31 December 2002 | | Parent Bank1 | | | Americas Inc. | | | Subsidiaries | | | UBS Group | |
|
| Net cash flow from/(used in) operating activities | | | 8,422 | | | | (927 | ) | | | (9,859 | ) | | | (2,364 | ) |
|
| Cash flow from/(used in) investing activities | |
| Investments in subsidiaries and associates | | | (23 | ) | | | (16 | ) | | | (21 | ) | | | (60 | ) |
| Disposal of subsidiaries and associates | | | 984 | | | | 0 | | | | 0 | | | | 984 | |
|
|
|
|
|
| Purchase of property and equipment | | | (1,019 | ) | | | (189 | ) | | | (555 | ) | | | (1,763 | ) |
|
|
|
|
|
| Disposal of property and equipment | | | 22 | | | | 28 | | | | 17 | | | | 67 | |
|
|
|
|
|
| Net (investment in)/divestment of financial investments | | | 931 | | | | 307 | | | | 915 | | | | 2,153 | |
|
| Net cash flow from/(used in) investing activities | | | 895 | | | | 130 | | | | 356 | | | | 1,381 | |
|
| Cash flow from/(used in) investing activities | |
|
|
|
|
|
| Net money market paper issued/(repaid) | | | (30,635 | ) | | | 471 | | | | 3,958 | | | | (26,206 | ) |
|
|
|
|
|
| Net movements in treasury shares and own equity derivative activity | | | (5,605 | ) | | | 0 | | | | 0 | | | | (5,605 | ) |
| Capital issuance | | | 6 | | | | 0 | | | | 0 | | | | 6 | |
| Capital repayment by par value reduction | | | (2,509 | ) | | | 0 | | | | 0 | | | | (2,509 | ) |
| Issuance of long-term debt | | | 8,414 | | | | 915 | | | | 7,803 | | | | 17,132 | |
| Repayment of long-term debt | | | (11,099 | ) | | | (2,780 | ) | | | (1,032 | ) | | | (14,911 | ) |
| Increase in minority interests | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Dividend payments to/and purchase from minority interests | | | 0 | | | | 0 | | | | (377 | ) | | | (377 | ) |
| Net activity in investments in subsidiaries | | | 2,775 | | | | (161 | ) | | | (2,614 | ) | | | 0 | |
|
| Net cash flow from/(used in) financing activities | | | (38,653 | ) | | | (1,555 | ) | | | 7,738 | | | | (32,470 | ) |
| Effects of exchange rate differences | | | (2,608 | ) | | | 1,919 | | | | 227 | | | | (462 | ) |
|
| Net increase/(decrease) in cash equivalents | | | (31,944 | ) | | | (433 | ) | | | (1,538 | ) | | | (33,915 | ) |
| Cash and cash equivalents, beginning of the year | | | 89,856 | | | | 15,552 | | | | 10,851 | | | | 116,259 | |
|
| Cash and cash equivalents, end of the year | | | 57,912 | | | | 15,119 | | | | 9,313 | | | | 82,344 | |
|
| Cash and cash equivalents comprise: | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | 3,609 | | | | 7 | | | | 655 | | | | 4,271 | |
| Money market paper2 | | | 33,509 | | | | 9,615 | | | | 3,059 | | | | 46,183 | |
| Due from banks maturing in less than three months | | | 20,794 | | | | 5,497 | | | | 5,599 | | | | 31,890 | |
|
| Total | | | 57,912 | | | | 15,119 | | | | 9,313 | | | | 82,344 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | | UBS AG | | | UBS | | | | | | | Consolidating | | | | |
| For the year ended 31 December 2003 | | Parent Bank1 | | | Americas Inc. | | | Subsidiaries | | | Entries | | | UBS Group | |
| |
Assets | | | | | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | 2,894 | | | | 8 | | | | 682 | | | | 0 | | | | 3,584 | |
| Due from banks | | | 76,780 | | | | 12,106 | | | | 109,713 | | | | (166,932 | ) | | | 31,667 | |
| Cash collateral on securities borrowed | | | 75,609 | | | | 190,993 | | | | 76,773 | | | | (129,443 | ) | | | 213,932 | |
| Reverse repurchase agreements | | | 197,765 | | | | 149,507 | | | | 219,444 | | | | (246,129 | ) | | | 320,587 | |
| Trading portfolio assets | | | 248,999 | | | | 182,346 | | | | 30,427 | | | | 0 | | | | 461,772 | |
| Positive replacement values | | | 111,612 | | | | 849 | | | | 25,474 | | | | (53,601 | ) | | | 84,334 | |
| Loans | | | 234,356 | | | | 23,001 | | | | 40,420 | | | | (85,273 | ) | | | 212,504 | |
| Financial investments | | | 826 | | | | 739 | | | | 3,574 | | | | 0 | | | | 5,139 | |
| Accrued income and prepaid expenses | | | 3,665 | | | | 1,868 | | | | 3,391 | | | | (2,706 | ) | | | 6,218 | |
| Investments in associates | | | 14,077 | | | | 11 | | | | 594 | | | | (13,066 | ) | | | 1,616 | |
| Property and equipment | | | 5,891 | | | | 787 | | | | 981 | | | | 0 | | | | 7,659 | |
| Goodwill and other intangible assets | | | 218 | | | | 11,270 | | | | 41 | | | | 0 | | | | 11,529 | |
| Other assets | | | 5,194 | | | | 3,356 | | | | 19,958 | | | | (3,049 | ) | | | 25,459 | |
| |
Total assets | | | 977,886 | | | | 576,841 | | | | 531,472 | | | | (700,199 | ) | | | 1,386,000 | |
| |
Liabilities | | | | | | | | | | | | | | | | | | | | |
| Due to banks | | | 139,525 | | | | 83,193 | | | | 71,367 | | | | (166,932 | ) | | | 127,153 | |
| Cash collateral on securities lent | | | 59,356 | | | | 46,313 | | | | 77,052 | | | | (129,443 | ) | | | 53,278 | |
| Repurchase agreements | | | 112,245 | | | | 337,030 | | | | 212,717 | | | | (246,129 | ) | | | 415,863 | |
| Trading portfolio liabilities | | | 79,714 | | | | 55,351 | | | | 8,892 | | | | 0 | | | | 143,957 | |
| Negative replacement values | | | 125,925 | | | | 1,157 | | | | 20,165 | | | | (53,601 | ) | | | 93,646 | |
| Due to customers | | | 343,297 | | | | 34,530 | | | | 54,804 | | | | (85,273 | ) | | | 347,358 | |
| Accrued expenses and deferred income | | | 7,034 | | | | 6,026 | | | | 3,319 | | | | (2,706 | ) | | | 13,673 | |
| Debt issued | | | 64,264 | | | | 7,331 | | | | 48,642 | | | | 0 | | | | 120,237 | |
| Other liabilities | | | 11,222 | | | | 1,873 | | | | 21,270 | | | | (3,049 | ) | | | 31,316 | |
| |
Total liabilities | | | 942,582 | | | | 572,804 | | | | 518,228 | | | | (687,133 | ) | | | 1,346,481 | |
| |
| Minority interests | | | 0 | | | | 42 | | | | 4,031 | | | | 0 | | | | 4,073 | |
| |
Total shareholders’ equity | | | 35,304 | | | | 3,995 | | | | 9,213 | | | | (13,066 | ) | | | 35,446 | |
| |
Total liabilities, minority interests and shareholders’ equity | | | 977,886 | | | | 576,841 | | | | 531,472 | | | | (700,199 | ) | | | 1,386,000 | |
| |
Total shareholders’ equity – US GAAP2 | | | 38,129 | | | | 5,471 | | | | 9,574 | | | | 0 | | | | 53,174 | |
| |
1UBS AG Parent Bank prepares its Financial Statementsfinancial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2Refer to Note 40 for a description of the differences between IFRS and US GAAP.
182
Supplemental Guarantor Consolidating Cash Flow Statement
| | | | | | | | | | | | | | | | | |
| CHF million | | UBS AG | | | UBS | | | | | | | |
| For the year ended 31 December 2003 | | Parent Bank | 1 | | Americas Inc. | | | Subsidiaries | | | UBS Group | |
| |
Net cash flow from / (used in) operating activities | | | (12,936 | ) | | | 1,366 | | | | 14,973 | | | | 3,403 | |
| |
Cash flow from / (used in) investing activities
Investments in subsidiaries and associates | | | (428 | ) | | | 0 | | | | 0 | | | | (428 | ) |
| Disposal of subsidiaries and associates | | | 123 | | | | 667 | | | | 44 | | | | 834 | |
| Purchase of property and equipment | | | (862 | ) | | | (338 | ) | | | (176 | ) | | | (1,376 | ) |
| Disposal of property and equipment | | | 88 | | | | 17 | | | | 18 | | | | 123 | |
| Net (investment in) / divestment of financial investments | | | 524 | | | | 867 | | | | 926 | | | | 2,317 | |
| |
Net cash flow from / (used in) investing activities | | | (555 | ) | | | 1,213 | | | | 812 | | | | 1,470 | |
| |
Cash flow from / (used in) financing activities
Net money market paper issued / (repaid) | | | 1,910 | | | | (333 | ) | | | (16314 | ) | | | (14737 | ) |
| Net movements in treasury shares and treasury share contract activity | | | (6,810 | ) | | | 0 | | | | 0 | | | | (6810 | ) |
| Capital issuance | | | 2 | | | | 0 | | | | 0 | | | | 2 | |
| Dividends paid | | | (2,298 | ) | | | 0 | | | | 0 | | | | (2,298 | ) |
| Issuance of long-term debt | | | 15,932 | | | | 2,362 | | | | 5,350 | | | | 23,644 | |
| Repayment of long-term debt | | | (8,324 | ) | | | (1,254 | ) | | | (4,037 | ) | | | (13,615 | ) |
Increase in minority interests2 | | | 0 | | | | 0 | | | | 755 | | | | 755 | |
| Dividend payments to / and purchase from minority interests | | | 0 | | | | (8 | ) | | | (270 | ) | | | (278 | ) |
| Net activity in investments in subsidiaries | | | (773 | ) | | | 1,007 | | | | (234 | ) | | | 0 | |
| |
Net cash flow from / (used in) financing activities | | | (361 | ) | | | 1,774 | | | | (14,750 | ) | | | (13,337 | ) |
| Effects of exchange rate differences | | | (751 | ) | | | (661 | ) | | | 888 | | | | (524 | ) |
| |
Net increase / (decrease) in cash equivalents | | | (14,603 | ) | | | 3,692 | | | | 1,923 | | | | (8,988 | ) |
| Cash and cash equivalents, beginning of the year | | | 57,912 | | | | 15,119 | | | | 9,313 | | | | 82,344 | |
| |
Cash and cash equivalents, end of the year | | | 43,309 | | | | 18,811 | | | | 11,236 | | | | 73,356 | |
| |
| Cash and cash equivalents comprise: | | | | | | | | | | | | | | | | |
| Cash and balances with central banks | | | 2,894 | | | | 8 | | | | 682 | | | | 3,584 | |
Money market paper3 | | | 21,232 | | | | 15,812 | | | | 3,555 | | | | 40,599 | |
| Due from banks maturing in less than three months | | | 19,183 | | | | 2,991 | | | | 6,999 | | | | 29,173 | |
| |
Total | | | 43,309 | | | | 18,811 | | | | 11,236 | | | | 73,356 | |
| |
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2 Includes issuance of trust preferred securities of CHF 372 million. 3 Money market paper is included in the Balance sheet under Trading portfolio assets and Financial investments. CHF 10,4756,430 million was pledged at 31 December 2002.2003.
Guarantee of other securities
In October 2000, UBS AG, acting through a wholly owned subsidiary, issued USD 1.5 billion (CHF 2.6 billion at issuance) 8.622% UBS Trust Preferred securities. In June 2001, UBS issued an additional USD 800 million (CHF 1.3 billion at issuance) of such securities (USD 300 million at 7.25% and USD 500 million at 7.247%). In May 2003, UBS issued USD 300 million of Floating Rate Noncumulative Trust Preferred Securities (CHF 390 million at issuance) at 0.7% above
one-month LIBOR of such securities. UBS AG has fully and unconditionally guaranteed
these securities. UBS’s obligations under the trust preferred securities guarantee are subordinated to the prior payment in full of the deposit liabilities of UBS and all other liabilities of UBS. At 31 December 2002,2003, the amount of senior liabilities of UBS to which the holders of the subordinated debt securities would be subordinated is approximately CHF 1,1291,337 billion.
183
176184
UBS Group Financial Statements
Report of the Group AuditorsAG (Parent Bank)
177185
178
179
| |
| UBS AG (Parent Bank) |
| Table of Contents |
UBS AG (Parent Bank)
Table of Contents
UBS AG (Parent Bank)
Table of Contents
| | | | | |
| | | 181187 | |
| | | | | |
| | | 182188 | |
| | | | | |
| | | 182188 | |
| | | 183189 | |
| | | 183189 | |
| | | | | |
| | | 184190 | |
| | | | | |
| | | 185191 | |
| | | 185191 | |
| | | 185191 | |
| | | | | |
| | | 186192 | |
| | | 186192 | |
| | | 187193 | |
| | | 187193 | |
| | | | | |
| | | 188194 | |
| | | 188194 | |
| | | 188194 | |
| | | 188194 | |
| | | | | |
| | | 189195 | |
| | | | | |
| | | 190196 | |
180186
| |
| UBS AG (Parent Bank)
Parent Bank Review |
UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
The Parent Bank UBS AG net profit increaseddecreased CHF 1,1791,637 million from CHF 4,6555,834 million to CHF 5,8344,197 million. Income from investments in associates increaseddecreased to CHF 1,914 million from CHF 3,417 million from CHF 1,532 million in 20012002 mainly due to higherless distribution received. Sundry expense from ordinary activities was CHF 381 million, up from CHF 139 million in 2001. This was mainly due to higher net writedown of financial investments. Depreciation and write-offswriteoffs were CHF 919 million, down from CHF 3,025 million up from CHF 1,650 million in 20012002 mainly caused by higher writedownlower writeoffs on investments in
associated companies. Extraordinary income contains CHF 26033 million (2001:(2002: CHF 87260 million) from the sale of subsidiaries.associates and CHF 59 million from release of provisions.
Total assets increasedoverall decreased by CHF 4869 billion to CHF 1,064995 billion by 31 December 2002.2003. This movementreduction is mostly impactedcaused by the first-time netting of the positive and negative replacement values on the Parent Bank level in accordance with the RRV-EBK requirement of CHF 141 billion in 2003 (netting impact in 2002 would have been CHF 167 billion). This change was partially offset by the increased trading-related assets where mainlypositions in due from banks and trading balances in securities and positive replacement values have increased. Liquid assets have significantly decreased due to reduction of deposits with the Bank of Japan.securities.
181
| |
| UBS AG (Parent Bank)
Financial Statements |
Financial Statements
Income Statement
| | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | | 31.12.02 | | | | 31.12.01 | | | 31.12.01 | |
|
| Interest and discount income | | | 20,059 | | | | 29,967 | | | | (33 | ) |
| Interest and dividend income from trading portfolio | | | 7,074 | | | | 8,089 | | | | (13 | ) |
| Interest and dividend income from financial investments | | | 23 | | | | 185 | | | | (88 | ) |
| Interest expense | | | (20,125 | ) | | | (31,444 | ) | | | (36 | ) |
|
| Net interest income | | | 7,031 | | | | 6,797 | | | | 3 | |
|
| Credit-related fees and commissions | | | 252 | | | | 291 | | | | (13 | ) |
| Fee and commission income from securities and investment business | | | 7,249 | | | | 8,232 | | | | (12 | ) |
| Other fee and commission income | | | 515 | | | | 524 | | | | (2 | ) |
| Fee and commission expense | | | (1,167 | ) | | | (1,176 | ) | | | (1 | ) |
|
| Net fee and commission income | | | 6,849 | | | | 7,871 | | | | (13 | ) |
|
| Net trading income | | | 4,634 | | | | 5,015 | | | | (8 | ) |
|
| Net income from disposal of financial investments | | | 125 | | | | 15 | | | | 733 | |
| Income from investments in associated companies | | | 3,417 | | | | 1,532 | | | | 123 | |
| Income from real estate holdings | | | 50 | | | | 54 | | | | (7 | ) |
| Sundry income from ordinary activities | | | 1,908 | | | | 1,183 | | | | 61 | |
| Sundry ordinary expenses | | | (381 | ) | | | (139 | ) | | | 174 | |
|
| Other income from ordinary activities | | | 5,119 | | | | 2,645 | | | | 94 | |
|
| Operating income | | | 23,633 | | | | 22,328 | | | | 6 | |
|
| Personnel expenses | | | 8,916 | | | | 9,443 | | | | (6 | ) |
| General and administrative expenses | | | 4,379 | | | | 4,869 | | | | (10 | ) |
|
| Operating expenses | | | 13,295 | | | | 14,312 | | | | (7 | ) |
|
| Operating profit | | | 10,338 | | | | 8,016 | | | | 29 | |
|
| Depreciation and write-offs on investments in | | | | | | | | | | | | |
| associated companies and fixed assets | | | 3,025 | | | | 1,650 | | | | 83 | |
| Allowances, provisions and losses | | | 1,053 | | | | 1,140 | | | | (8 | ) |
|
| Profit before extraordinary items and taxes | | | 6,260 | | | | 5,226 | | | | 20 | |
|
| Extraordinary income | | | 265 | | | | 95 | | | | 179 | |
| Extraordinary expenses | | | 7 | | | | 7 | | | | 0 | |
| Tax expense/(benefit) | | | 684 | | | | 659 | | | | 4 | |
|
| Profit for the period | | | 5,834 | | | | 4,655 | | | | 25 | |
|
182187
UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement
| | | | | | | | | | | | | |
| CHF million | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.02 | |
| |
| Interest and discount income | | | 19,417 | | | | 20,059 | | | | (3 | ) |
| Interest and dividend income from trading portfolio | | | 9,325 | | | | 7,074 | | | | 32 | |
| Interest and dividend income from financial investments | | | 11 | | | | 23 | | | | (52 | ) |
| Interest expense | | | (20,034 | ) | | | (20,125 | ) | | | 0 | |
| |
| Net interest income | | | 8,719 | | | | 7,031 | | | | 24 | |
| |
| Credit-related fees and commissions | | | 228 | | | | 252 | | | | (10 | ) |
| Fee and commission income from securities and investment business | | | 6,998 | | | | 7,249 | | | | (3 | ) |
| Other fee and commission income | | | 826 | | | | 515 | | | | 60 | |
| Fee and commission expense | | | (1,180 | ) | | | (1,167 | ) | | | 1 | |
| |
| Net fee and commission income | | | 6,872 | | | | 6,849 | | | | 0 | |
| |
| Net trading income | | | 521 | | | | 4,634 | | | | (89 | ) |
| |
| Net income from disposal of financial investments | | | (69 | ) | | | 125 | | | | | |
| Income from investments in associated companies | | | 1,914 | | | | 3,417 | | | | (44 | ) |
| Income from real estate holdings | | | 43 | | | | 50 | | | | (14 | ) |
| Sundry income from ordinary activities | | | 1,213 | | | | 1,908 | | | | (36 | ) |
| Sundry ordinary expenses | | | (96 | ) | | | (381 | ) | | | (75 | ) |
| |
| Other income from ordinary activities | | | 3,005 | | | | 5,119 | | | | (41 | ) |
| |
Operating income | | | 19,117 | | | | 23,633 | | | | (19 | ) |
| |
| Personnel expenses | | | 8,889 | | | | 8,916 | | | | 0 | |
| General and administrative expenses | | | 3,943 | | | | 4,379 | | | | (10 | ) |
| |
Operating expenses | | | 12,832 | | | | 13,295 | | | | (3 | ) |
| |
Operating profit | | | 6,285 | | | | 10,338 | | | | (39 | ) |
| |
| Depreciation and writeoffs on investments in associated companies and fixed assets | | | 919 | | | | 3,025 | | | | (70 | ) |
| Allowances, provisions and losses | | | 658 | | | | 1,053 | | | | (38 | ) |
| |
Profit before extraordinary items and taxes | | | 4,708 | | | | 6,260 | | | | (25 | ) |
| |
| Extraordinary income | | | 92 | | | | 265 | | | | (65 | ) |
| Extraordinary expenses | | | 1 | | | | 7 | | | | (86 | ) |
| Tax expense / (benefit) | | | 602 | | | | 684 | | | | (12 | ) |
| |
Profit for the period | | | 4,197 | | | | 5,834 | | | | (28 | ) |
| |
188
Balance Sheet
| | | | | | | | | | | | | |
| | | | | | | | | | | % change from | |
| CHF million | | 31.12.02 | | | 31.12.01 | | | 31.12.01 | |
|
| Assets | | | | | | | | | | | | |
| Liquid assets | | | 3,609 | | | | 20,215 | | | | (82 | ) |
| Money market paper | | | 33,671 | | | | 54,384 | | | | (38 | ) |
| Due from banks | | | 265,106 | | | | 252,226 | | | | 5 | |
| Due from customers | | | 165,938 | | | | 173,690 | | | | (4 | ) |
| Mortgage loans | | | 117,677 | | | | 117,706 | | | | 0 | |
| Trading balances in securities and precious metals | | | 199,546 | | | | 185,306 | | | | 8 | |
| Financial investments | | | 8,377 | | | | 17,253 | | | | (51 | ) |
| Investments in associated companies | | | 10,275 | | | | 11,331 | | | | (9 | ) |
| Tangible fixed assets | | | 4,633 | | | | 5,624 | | | | (18 | ) |
| Accrued income and prepaid expenses | | | 2,342 | | | | 3,231 | | | | (28 | ) |
| Positive replacement values | | | 249,064 | | | | 171,798 | | | | 45 | |
| Other assets | | | 3,734 | | | | 3,725 | | | | 0 | |
|
| Total assets | | | 1,063,972 | | | | 1,016,489 | | | | 5 | |
|
| Total subordinated assets1 | | | 4,717 | | | | 4,219 | | | | 12 | |
| Total amounts receivable from Group companies | | | 218,915 | | | | 213,954 | | | | 2 | |
|
| Liabilities | | | | | | | | | | | | |
| Money market paper issued | | | 22,131 | | | | 52,604 | | | | (58 | ) |
| Due to banks | | | 303,023 | | | | 303,036 | | | | 0 | |
| Due to customers on savings and deposit accounts | | | 76,687 | | | | 67,664 | | | | 13 | |
| Other amounts due to customers | | | 274,431 | | | | 288,684 | | | | (5 | ) |
| Medium-term note issues | | | 4,220 | | | | 5,213 | | | | (19 | ) |
| Bond issues and loans from central mortgage institutions | | | 67,759 | | | | 65,471 | | | | 3 | |
| Accruals and deferred income | | | 7,846 | | | | 8,707 | | | | (10 | ) |
| Negative replacement values | | | 256,278 | | | | 172,469 | | | | 49 | |
| Other liabilities | | | 3,281 | | | | 5,795 | | | | (43 | ) |
| Value adjustments and provisions | | | 4,177 | | | | 3,959 | | | | 6 | |
| Share capital | | | 1,005 | | | | 3,589 | | | | (72 | ) |
| General statutory reserve | | | 12,392 | | | | 14,507 | | | | (15 | ) |
| Reserve for own shares | | | 6,623 | | | | 3,253 | | | | 104 | |
| Other reserves | | | 18,285 | | | | 16,883 | | | | 8 | |
| Profit brought forward | |
| Profit for the period | | | 5,834 | | | | 4,655 | | | | 25 | |
|
| Total liabilities | | | 1,063,972 | | | | 1,016,489 | | | | 5 | |
|
| Total subordinated liabilities | | | 13,315 | | | | 16,444 | | | | (19 | ) |
| Total amounts payable to Group companies | | | 142,139 | | | | 126,182 | | | | 13 | |
|
1 The subordinated assets for 2001 have been restated to include the subordinated traded assets of CHF 2,325 million.| | | | | | | | | | | | | |
| | | | | | | | | | | % change from | |
| CHF million | | 31.12.03 | | | 31.12.02 | | | 31.12.02 | |
| |
Assets | | | | | | | | | | | | |
| Liquid assets | | | 2,895 | | | | 3,609 | | | | (20 | ) |
| Money market paper | | | 21,233 | | | | 33,671 | | | | (37 | ) |
| Due from banks | | | 321,796 | | | | 265,106 | | | | 21 | |
| Due from customers | | | 130,814 | | | | 165,938 | | | | (21 | ) |
| Mortgage loans | | | 131,900 | | | | 117,677 | | | | 12 | |
| Trading balances in securities and precious metals | | | 236,096 | | | | 199,546 | | | | 18 | |
| Financial investments | | | 8,955 | | | | 8,377 | | | | 7 | |
| Investments in associated companies | | | 14,757 | | | | 10,275 | | | | 44 | |
| Tangible fixed assets | | | 4,367 | | | | 4,633 | | | | (6 | ) |
| Accrued income and prepaid expenses | | | 3,666 | | | | 2,342 | | | | 57 | |
| Positive replacement values | | | 111,612 | | | | 249,064 | | | | (55 | ) |
| Other assets | | | 6,585 | | | | 3,734 | | | | 76 | |
| |
Total assets | | | 994,676 | | | | 1,063,972 | | | | (7 | ) |
| |
Total subordinated assets | | | 4,450 | | | | 4,717 | | | | (6 | ) |
Total amounts receivable from Group companies | | | 397,410 | | | | 218,915 | | | | 82 | |
Liabilities | | | | | | | | | | | | |
| Money market paper issued | | | 23,879 | | | | 22,131 | | | | 8 | |
| Due to banks | | | 377,447 | | | | 303,023 | | | | 25 | |
| Due to customers on savings and deposit accounts | | | 84,360 | | | | 76,687 | | | | 10 | |
| Other amounts due to customers | | | 274,408 | | | | 274,431 | | | | 0 | |
| Medium-term bonds | | | 2,403 | | | | 4,220 | | | | (43 | ) |
| Bond issues and loans from central mortgage institutions | | | 45,968 | | | | 67,759 | | | | (32 | ) |
| Accruals and deferred income | | | 7,060 | | | | 7,846 | | | | (10 | ) |
| Negative replacement values | | | 127,885 | | | | 256,278 | | | | (50 | ) |
| Other liabilities | | | 6,802 | | | | 3,281 | | | | 107 | |
| Value adjustments and provisions | | | 3,894 | | | | 4,177 | | | | (7 | ) |
| Share capital | | | 946 | | | | 1,005 | | | | (6 | ) |
| General statutory reserve | | | 7,212 | | | | 12,392 | | | | (42 | ) |
| Reserve for own shares | | | 8,024 | | | | 6,623 | | | | 21 | |
| Other reserves | | | 20,191 | | | | 18,285 | | | | 10 | |
| Profit brought forward | | | | | | | | | | | | |
| Profit for the period | | | 4,197 | | | | 5,834 | | | | (28 | ) |
| |
Total liabilities | | | 994,676 | | | | 1,063,972 | | | | (7 | ) |
| |
Total subordinated liabilities | | | 12,471 | | | | 13,315 | | | | (6 | ) |
Total amounts payable to Group companies | | | 257,955 | | | | 142,139 | | | | 81 | |
| |
Statement of Appropriation of Retained Earnings
| | | | | |
| CHF million | | | | |
|
| The Board of Directors proposes to the Annual General Meeting the following appropriation: | | | | |
|
Profit for the financial year 20022003 as per the Parent Bank’s Income Statement | | | 5,8344,197 | |
|
| Appropriation to general statutory reserve | | | 232288 | |
| Appropriation to other reserves | | | 3,237980 | |
| Proposed dividends | | | 2,3652,929 | |
|
| Total appropriation | | | 5,8344,197 | |
|
Dividend Distribution
The Board of Directors will recommend to the Annual General Meeting on 1615 April 20032004 that UBS should pay a dividend of CHF 2.002.60 per share of CHF 0.80 par value. If the dividend is approved, the payment of CHF 2.002.60 per share, after deduction of 35% Swiss withholding tax, would be made on 2320 April 20032004 for shareholders who hold UBS shares on 1615 April 2003.2004.
183189
| |
| UBS AG (Parent Bank) |
| Notes to the Financial Statements |
UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the Financial Statements
Accounting and Valuation Principles
The Parent Bank’s accounting and valuation policies are in compliance with Swiss banking law. The accounting and valuation policies are principally the same as for the Group Financial Statements outlined in Note 1:1, Summary of Significant Accounting Policies. Major differences between the Swiss banking law requirements and International Financial Reporting Standards are described in Note 3839 to the Group Financial Statements.
In addition, the following principles are applied for the Parent Bank:
Treasury shares
Treasury shares is the term used to describe when an enterprise holds its own equity instruments. Under IFRS, treasury shares are presented in the balance sheet as a deduction from equity. No gain or loss is recognized in the income statement on the sale, issuance, acquisition, or cancellation of those shares. Consideration received or paid is presented in the financial statement as a change in equity.
Under Swiss law, treasury shares are classified in the balance sheet as trading balances or as financial assets, short positions are included in Due to banks. Realized gains and losses on the sale, issuance or acquisition of treasury shares, and unrealized gains or losses from remeasurement of treasury shares in the trading portfolio to market
value are included in the incomeIncome statement. Treasury shares included in Financial investments are carried at the lower of cost or market value.
Foreign currency translationForeign currency transactions and translation of assets and liabilities denominated in foreign currencies into the Parent Bank’s or a branch’s reporting currency are accounted for as described
in Note 1d). Assets and liabilities of foreign branches are translated into CHF at the exchange rates at the balance sheet date, while income and expense items are translated at weighted average rates for the period. Exchange differences arising on the translation of each of these foreign branches are credited to a provision account (other liabilities) in case of a gain, while any losses are firstly debited to that provision account until such provision is fully utilized, and secondly to profit and loss.
Investments in associated companies
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 are carried at cost less valuation reserves, if needed.
Property and equipment
Bank buildings and other real estate are carried at cost less accumulated depreciation. Depreciation of computer and telecommunication equipment, other office equipment, fixtures and fittings is recognized on a straight-line basis over the estimated useful lives of the related assets. The useful lives of Property and equipment are summarized in Note 1, Summary of Significant Accounting Policies, of the Group Financial Statements.
Extraordinary income and expenses
Certain items of income and expense appear as extraordinary within the Parent Bank Financial Statements, whereas in the Group Financial Statements they are considered to be operating income or expenses and appear within the appropriate income or expense category. These items are separately identified below.on page 191.
184190
| Additional Income Statement Information |
Net Trading Income
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | % change from | | | % change from | |
| For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| Equities | | | 2,208 | | | 2,435 | | | (9 | ) | | 1,708 | | 2,208 | | | (23 | ) |
Fixed income1 | | | 565 | | | 829 | | | (32 | ) | | | (1,307 | ) | | 565 | |
| Foreign exchange and other | | | 1,861 | | | 1,751 | | 6 | | | 120 | | 1,861 | | | (94 | ) |
|
| |
| Total | | | 4,634 | | | 5,015 | | | (8 | ) | | 521 | | 4,634 | | | (89 | ) |
|
| |
1Includes commodities trading income.
Extraordinary Income and Expenses
Extraordinary income contains CHF 33 million (2002: CHF 260 million) from the sale of associates and CHF 59 million from release of provisions (2002: CHF 5 million from other disposals).
Extraordinary expenses consist of immaterial items.
191
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Balance Sheet Information
Extraordinary Income and Expenses
Extraordinary income contains CHF 260 million (2001: CHF 87 million) from the sale of subsidiaries and CHF 5 million (2001: CHF 8 million)
from other disposals. Extraordinary expenses consist of immaterial items.
185
| |
| UBS AG (Parent Bank) |
| Notes to the Financial Statements |
Additional Balance Sheet Information |
Value Adjustments and Provisions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Provisions | | Recoveries, | | | | | | | Provisions | | Recoveries, | | | | | |
| | | applied in | | doubtful | | | | | | | applied in | | doubtful | | | | | |
| | | accordance | | interest, | | New | | | | | accordance | | interest, | | New | | | |
| | | with their | | currency | | provisions | | | | | with their | | currency | | provisions | | | |
| | | Balance at | | specified | | translation | | charged | | Balance at | | | Balance at | | specified | | translation | | charged | | Balance at | |
| CHF million | | 31.12.01 | | purpose | | differences | | to income | | 31.12.02 | | | 31.12.02 | | purpose | | differences | | to income | | 31.12.03 | |
|
| |
| Default risks (credit and country risk) | | 8,032 | | | (2,451 | ) | | | (310 | ) | | 135 | | | 5,406 | | | 5,406 | | | (1,372 | ) | | 66 | | 118 | | 4,218 | |
| Trading portfolio risks | | 2,133 | | | (285 | ) | | 511 | | | 2,359 | | | 2,359 | | | (221 | ) | | 585 | | 2,723 | |
| Litigation risks | | 528 | | | (235 | ) | | | (39 | ) | | 191 | | | 445 | | | 445 | | | (98 | ) | | | (20 | ) | | 65 | | 392 | |
| Operational risks | | 1,264 | | | (630 | ) | | | (90 | ) | | 893 | | | 1,437 | | | 1,437 | | | (332 | ) | | 151 | | 615 | | 1,871 | |
| Capital and income taxes | | 901 | | | (394 | ) | | 6 | | 766 | | | 1,279 | | | 1,279 | | | (743 | ) | | | (96 | ) | | 678 | | 1,118 | |
|
| |
| Total allowance for general credit losses and other provisions | | | 12,858 | | | | (3,710 | ) | | | (718 | ) | | | 2,496 | | | | 10,926 | | |
Total allowance for general credit | | |
losses and other provisions | | | | 10,926 | | | | (2,545 | ) | | | (120 | ) | | 2,061 | | | 10,322 | |
|
| |
| Allowances deducted from assets | | 8,899 | | | 6,749 | | | 6,749 | | 6,428 | |
|
| |
| Total provisions as per balance sheet | | | 3,959 | | | | 4,177 | | | 4,177 | | - | | - | | - | | 3,894 | |
|
| |
186192
Statement of Shareholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total share- | | | Total share- | |
| | | General | | General | | holders' | | | General | | General | | holders' | |
| | | statutory | | statutory | | equity | | | statutory | | statutory | | equity | |
| | | reserves: | | reserves: | | Reserves | | (before | | | reserves: | | reserves: | | Reserves | | (before | |
| | | Share | | Share | | Retained | | for own | | Other | | distribution | | | Share | | Share | | Retained | | for own | | Other | | distribution | |
| CHF million | | capital | | premium | | earnings | | shares | | reserves | | of profit) | | | capital | | premium | | earnings | | shares | | reserves | | of profit) | |
| |
| As at 31.12.00 and 1.1.01 | | | 4,444 | | | | 17,370 | | | | 677 | | | | 4,007 | | | | 16,274 | | | | 42,772 | | |
| |
| Par value reduction | | | (683 | ) | | 20 | | | (663 | ) | |
| Cancellation of own shares | | | (184 | ) | | | (3,815 | ) | | | (3,999 | ) | |
| Capital increase | | 12 | | 110 | | | 122 | | |
| Increase in reserves | | 165 | | | (165 | ) | | | 0 | | |
| Profit for the period | | 4,655 | | | 4,655 | | |
| Changes in reserves for own shares | | | (754 | ) | | 754 | | | 0 | | |
|
| |
| As at 31.12.01 and 1.1.02 | | | 3,589 | | | | 13,665 | | | | 842 | | | | 3,253 | | | | 21,538 | | | | 42,887 | | | 3,589 | | 13,665 | | 842 | | 3,253 | | 21,538 | | 42,887 | |
|
| |
| Par value reduction | | | (2,509 | ) | | 117 | | | (2,392 | ) | | | (2,509 | ) | | 117 | | | (2,392 | ) |
| Cancellation of own shares | | | (81 | ) | | | (2,209 | ) | | | (2,290 | ) | | | (81 | ) | | | (2,209 | ) | | | (2,290 | ) |
| Capital increase | | 6 | | 94 | | | 100 | | | 6 | | 94 | | 100 | |
| Increase in reserves | | | 0 | | | 0 | |
| Profit for the period | | 5,834 | | | 5,834 | | | 5,834 | | 5,834 | |
| Changes in reserves for own shares | | 3,370 | | | (3,370 | ) | | | 0 | | | 3,370 | | | (3,370 | ) | | 0 | |
|
| |
| As at 31.12.02 | | | 1,005 | | | | 11,550 | | | | 842 | | | | 6,623 | | | | 24,119 | | | | 44,139 | | |
As at 31.12.02 and 1.1.03 | | | 1,005 | | 11,550 | | 842 | | 6,623 | | 24,119 | | 44,139 | |
|
| |
| Par value reduction | | | | | | | |
| Cancellation of own shares | | | | (61 | ) | | | (5,468 | ) | | | (5,529 | ) |
| Capital increase | | | 2 | | 59 | | 61 | |
| Increase in reserves | | | 229 | | | (229 | ) | | 0 | |
| Prior year dividend | | | | (2,298 | ) | | | (2,298 | ) |
| Profit for the period | | | 4,197 | | 4,197 | |
| Changes in reserves for own shares | | | 1,401 | | | (1,401 | ) | | 0 | |
| | | |
As at 31.12.03 | | | 946 | | 6,141 | | 1,071 | | 8,024 | | 24,388 | | 40,570 | |
| | | |
Share Capital
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Par value | | Ranking for dividends | | | Par value | | Ranking for dividends |
| | |
| |
| | |
| As at 31 December 2002 | | No. of shares | | Capital in CHF | | No. of shares | | Capital in CHF | | |
| As at 31 December 2003 | | | No. of shares | | Capital in CHF | | No. of shares | | Capital in CHF | |
|
| |
| Issued and paid up | | 1,256,297,678 | | | 1,005,038,142 | | | 1,182,262,598 | | | 945,810,078 | | | 1,183,046,764 | | 946,437,411 | | 1,126,339,764 | | 901,071,811 | |
|
| |
| Conditional share capital | | 9,590,918 | | | 7,672,734 | | | 0 | | | 0 | | | 6,871,752 | | 5,497,402 | | 0 | | 0 | |
|
| |
187193
| |
| UBS AG (Parent Bank) |
| Notes to the Financial Statements |
UBS AG (Parent Bank)
Notes to the Financial Statements
| | |
| | |
| | |
| | |
| | |
| Off-Balance Sheet and Other Information |
Assets Pledged or Assigned as Security for Own Obligations,
Assets Subject to Reservation of Title
| | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | Change in % | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | Change in % |
| | | Book | | Effective | | Book | | Effective | | Book | | Effective | | | Book | | Effective | | Book | | Effective | | Book | | Effective | |
| CHF million | | value | | liability | | value | | liability | | value | | liability | | | value | | liability | | value | | liability | | value | | liability | |
|
| |
| Money market paper | | | 10,475 | | | 29,893 | | | (65 | ) | | | 6,225 | | 10,475 | | | (41 | ) | |
| Mortgage loans | | | 808 | | | | 506 | | | 1,239 | | 813 | | | (35 | ) | | | (38 | ) | | 428 | | 210 | | 808 | | 506 | | | (47 | ) | | | (58 | ) |
| Securities | | | 2,495 | | | 5,224 | | | (52 | ) | | |
Securities1 | | | 96,065 | | 66,395 | | 2,495 | |
|
| |
Total | | | 13,778 | | | | 506 | | | 36,356 | | 813 | | | (62 | ) | | | (38 | ) | | 102,718 | | 66,605 | | 13,778 | | 506 | | 646 | |
|
| |
1 Amounts for 2003 include securities lending and repo transactions: book value CHF 92,628 million and effective liability CHF 66,395 million.
Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized credit lines with central banks, loans from mortgage institutions and security deposits relating to stock exchange membership.
Fiduciary Transactions
| | | | | | | | | | | | | | | | | | | | | | | |
| | | % change from | | | % change from | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| Deposits | Deposits | |
| with other banks | | 28,865 | | | 38,978 | | | (26 | ) | | 29,549 | | 28,865 | | 2 | |
| with Group banks | | | 351 | | | 532 | | | (34 | ) | | 672 | | 351 | | 91 | |
|
| |
| Loans and other financial transactions | | | 713 | | | 1,042 | | | (32 | ) | | 6 | | 713 | | | (99 | ) |
|
| |
Total | | | 29,929 | | | 40,552 | | | (26 | ) | | 30,227 | | 29,929 | | 1 | |
|
| |
Due to UBS Pension Plans, Loans to Corporate Bodies/Related Parties
| | | | | | | | | | | | | | | | | | | | |
| | | % change from | | | % change from | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.01 | | | 31.12.03 | | 31.12.02 | | 31.12.02 | |
|
| |
| Due to UBS pension plans and UBS debt instruments held by pension plans | | | 814 | | | 476 | | 71 | | |
| Due to UBS pension plans and | | |
| UBS debt instruments held by pension plans | | | 1,096 | | 905 | | 21 | |
| Securities borrowed from pension plans | | | 2,645 | | | 824 | | 221 | | | 2,930 | | 2,645 | | 11 | |
Loans to directors, senior executives and auditors1 | | | 28 | | | 32 | | | (13 | ) | | 25 | | 28 | | | (11 | ) |
|
| |
1Loans to directors, senior executives and auditors are loans to members of the Board of Directors, the Group Executive Board and the Group’s official auditors under Swiss company law. This also includes loans to companies which are controlled by these natural or legal persons. There are no loans to the auditors.
188194
Report of the Statutory Auditors
UBS AG (Parent Bank)
Report of the Statutory Auditors
189195
Report of the Capital Increase Auditors
UBS AG (Parent Bank)
Report of the Capital Increase Auditors
190196
Additional Disclosure Required
under SEC Regulations
191
197
192Additional Disclosure Required
under SEC Regulations
Table of Contents
193
| | |
| | Additional Disclosure Required |
| | under SEC Regulations |
| | Table of Contents |
Additional Disclosure Required under SEC Regulations
Table of Contents
| | | | | | | |
| A | | | | | Introduction199 | | 195 |
| | | | | | | |
| B | | | | | 195199 | |
| | | | | 197 | 201 | |
| | | | | 198 | 202 | |
| | | | | 199 | 203 | |
| | | | | 199 | 203 | |
| | | | | | | |
| C | | | | | 199203 | |
| | | | | 199 | 203 | |
| | | | | | | |
| D | | | | | 200204 | |
| | | | | 200 | 204 | |
| | | | | 200 | 204 | |
| | | | | 202 |
| | | Deposits | | 204 |
| | Short-term Borrowings | | 205 |
| | Loans | | 207 |
| | Loan Maturities | | 208 |
| | Impaired, Non-performing and Restructured Loans | | 209 |
| | Cross-Boarder Outstandings | | 210 |
| | Summary of Movements in Allowances and | 206 | |
| | | Provisions for Credit Losses | | 212 |
| | | Allocation of the Allowances and | 208 | |
| | | Provisions for Credit Losses | | 214 | 209 | |
| | | Loans by industry sector | | 215 | 210 | |
| | | Loss History Statistics | | | 211 | |
| | | | | 212 | |
| | | | | 213 | |
| | | | | 214 | |
| | | | | 216 | |
| | | | | 218 | |
| | | | | 219 | |
| | | | | 220 | |
194198
The following pages contain additional disclosure about UBS Group which is required under SEC regulations.
Unless otherwise stated, UBS’s Financial Statements have been prepared in accordance with International Financial Reporting Stan-
dards (IFRS) and are denominated in Swiss francs, or CHF, the reporting currency of the Group. Certain financial information has also been presented in accordance with United States Generally Accepted Accounting Principles (US GAAP).
B —B – Selected Financial Data |
The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
On 2827 February 20032004 the noon buying rate was 0.73760.7921 USD per 1 CHF.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Average rate1 | | | | |
| Year ended 31 December | | High | | | Low | | | (USD per 1 CHF) | | | At period end | |
|
| 1998 | | | 0.7731 | | | | 0.6485 | | | | 0.6894 | | | | 0.7281 | |
| 1999 | | | 0.7361 | | | | 0.6244 | | | | 0.6605 | | | | 0.6277 | |
| 2000 | | | 0.6441 | | | | 0.5479 | | | | 0.5912 | | | | 0.6172 | |
| 2001 | | | 0.6331 | | | | 0.5495 | | | | 0.5910 | | | | 0.5857 | |
| 2002 | | | 0.7229 | | | | 0.5817 | | | | 0.6453 | | | | 0.7229 | |
|
| | | | | | | | | | | | | | | | | |
| Month | | High | | Low | | | | | | | | |
|
| September 2002 | | | 0.6789 | | | | 0.6578 | | | | | | | | | |
| October 2002 | | | 0.6760 | | | | 0.6605 | | | | | | | | | |
| November 2002 | | | 0.6928 | | | | 0.6714 | | | | | | | | | |
| December 2002 | | | 0.7229 | | | | 0.6736 | | | | | | | | | |
| January 2003 | | | 0.7401 | | | | 0.7135 | | | | | | | | | |
| February 2003 | | | 0.7411 | | | | 0.7275 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Average rate1 | | | | |
| Year ended 31 December | | High | | | Low | | | (USD per 1 CHF) | | | At period end | |
| |
| 1999 | | | 0.7361 | | | | 0.6244 | | | | 0.6605 | | | | 0.6277 | |
| 2000 | | | 0.6441 | | | | 0.5479 | | | | 0.5912 | | | | 0.6172 | |
| 2001 | | | 0.6331 | | | | 0.5495 | | | | 0.5910 | | | | 0.5857 | |
| 2002 | | | 0.7229 | | | | 0.5817 | | | | 0.6453 | | | | 0.7229 | |
| 2003 | | | 0.8189 | | | | 0.7048 | | | | 0.7493 | | | | 0.8069 | |
| |
| Month | | High
| | | Low
| | | | | | | | | |
| | | | | | | | | |
| September 2003 | | | 0.7581 | | | | 0.7048 | | | | | | | | | |
| October 2003 | | | 0.7618 | | | | 0.7468 | | | | | | | | | |
| November 2003 | | | 0.7745 | | | | 0.7261 | | | | | | | | | |
| December 2003 | | | 0.8069 | | | | 0.7709 | | | | | | | | | |
| January 2004 | | | 0.8036 | | | | 0.7958 | | | | | | | | | |
| February 2004 | | | 0.8152 | | | | 0.7891 | | | | | | | | | |
| |
1 The average of the noon buying rates on the last business day of each full month during the relevant period.
195199
Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
B — Selected Financial Data (continued) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
| Income statement data | | |
| Interest income | | | 39,963 | | | 52,277 | | 51,745 | | 35,604 | | 37,442 | | | 40,159 | | 39,963 | | 52,277 | | 51,745 | | 35,604 | |
| Interest expense | | | 29,417 | | | 44,236 | | 43,615 | | 29,695 | | 32,424 | | | 27,860 | | 29,417 | | 44,236 | | 43,615 | | 29,695 | |
| Net interest income | | | 10,546 | | | 8,041 | | 8,130 | | 5,909 | | 5,018 | | | 12,299 | | 10,546 | | 8,041 | | 8,130 | | 5,909 | |
| Credit loss (expense)/recovery | | | (206 | ) | | | (498 | ) | | 130 | | | (956 | ) | | | (951 | ) | |
| Net interest income after credit loss (expense)/recovery | | | 10,340 | | | 7,543 | | 8,260 | | 4,953 | | 4,067 | | |
| Credit loss (expense) / recovery | | | | (116 | ) | | | (206 | ) | | | (498 | ) | | 130 | | | (956 | ) |
| Net interest income after credit loss (expense) / recovery | | | 12,183 | | 10,340 | | 7,543 | | 8,260 | | 4,953 | |
| Net fee and commission income | | | 18,221 | | | 20,211 | | 16,703 | | 12,607 | | 12,626 | | | 17,345 | | 18,221 | | 20,211 | | 16,703 | | 12,607 | |
| Net trading income | | | 5,572 | | | 8,802 | | 9,953 | | 7,719 | | 3,313 | | | 3,883 | | 5,572 | | 8,802 | | 9,953 | | 7,719 | |
| Other income | | | (12 | ) | | 558 | | 1,486 | | 3,146 | | 2,241 | | | 561 | | | (12 | ) | | 558 | | 1,486 | | 3,146 | |
| Operating income | | | 34,121 | | | 37,114 | | 36,402 | | 28,425 | | 22,247 | | | 33,972 | | 34,121 | | 37,114 | | 36,402 | | 28,425 | |
| Operating expenses | | | 29,577 | | | 30,396 | | 26,203 | | 20,532 | | 18,376 | | | 25,624 | | 29,577 | | 30,396 | | 26,203 | | 20,532 | |
| Operating profit before tax | | | 4,544 | | | 6,718 | | 10,199 | | 7,893 | | 3,871 | | | 8,348 | | 4,544 | | 6,718 | | 10,199 | | 7,893 | |
| Tax expense/(benefit) | | | 678 | | | 1,401 | | 2,320 | | 1,686 | | 904 | | |
| Tax expense / (benefit) | | | 1,618 | | 678 | | 1,401 | | 2,320 | | 1,686 | |
| Minority interests | | | (331 | ) | | | (344 | ) | | | (87 | ) | | | (54 | ) | | 5 | | | | (345 | ) | | | (331 | ) | | | (344 | ) | | | (87 | ) | | | (54 | ) |
| Net profit | | | 3,535 | | | 4,973 | | 7,792 | | 6,153 | | 2,972 | | | 6,385 | | 3,535 | | 4,973 | | 7,792 | | 6,153 | |
| Cost/income ratio (%)1 | | | 86.2 | | | 80.8 | | 72.2 | | 69.9 | | 79.2 | | |
| Cost/income ratio before goodwill (%)1, 2 | | | 79.0 | | | 77.3 | | 70.4 | | 68.7 | | 77.7 | | |
Cost / income ratio (%)1 | | | 75.2 | | 86.2 | | 80.8 | | 72.2 | | 69.9 | |
|
| |
| Per share data (CHF) | | |
| Basic earnings per share3 | | | 2.92 | | | 3.93 | | 6.44 | | 5.07 | | 2.44 | | |
| Basic earnings per share before goodwill2, 3 | | | 4.73 | | | 4.97 | | 7.00 | | 5.35 | | 2.72 | | |
| Diluted earnings per share3 | | | 2.87 | | | 3.78 | | 6.35 | | 5.02 | | 2.40 | | |
| Diluted earnings per share before goodwill2, 3 | | | 4.65 | | | 4.81 | | 6.89 | | 5.30 | | 2.68 | | |
| Cash dividends declared per share (CHF)4 | | | 2.00 | | | 1.50 | | 1.83 | | 1.67 | | |
| Cash dividends declared per share (USD)4 | | 0.86 | | 1.10 | | 1.10 | | |
| Dividend payout ratio (%)4 | | | 68.49 | | | 23.28 | | 36.18 | | 68.21 | | |
Basic earnings per share2 | | | 5.72 | | 2.92 | | 3.93 | | 6.44 | | 5.07 | |
Diluted earnings per share2 | | | 5.61 | | 2.87 | | 3.78 | | 6.35 | | 5.02 | |
Cash dividends declared per share (CHF)3 | | | 2.60 | | 2.00 | | 0.00 | | 1.50 | | 1.83 | |
Cash dividends equivalent in USD3 | | | 1.46 | | 0.00 | | 0.86 | | 1.10 | |
Dividend payout ratio (%)3 | | | 45.45 | | 68.49 | | 23.28 | | 36.18 | |
|
| |
| Rates of return (%) | | |
| Return on shareholders’ equity5 | | | 8.9 | | | 11.7 | | 21.5 | | 22.4 | | 10.7 | | |
| Return on shareholders’ equity before goodwill2, 5 | | | 14.4 | | | 14.8 | | 23.4 | | 23.6 | | 12.0 | | |
Return on shareholders’ equity4 | | | 18.2 | | 8.9 | | 11.7 | | 21.5 | | 22.4 | |
| Return on average equity | | | 7.6 | | | 10.4 | | 22.0 | | 18.6 | | 9.0 | | | 17.1 | | 8.3 | | 11.3 | | 22.0 | | 18.6 | |
| Return on average assets | | | 0.24 | | | 0.36 | | 0.70 | | 0.65 | | 0.28 | | | 0.41 | | 0.24 | | 0.36 | | 0.70 | | 0.65 | |
|
| |
1 Operating expenses/operating income before credit loss expense. 2 The amortization of goodwill and other intangible assets is excluded from the calculation. 3For EPS calculation, see Note 8 to the Financial Statements. 43 Dividends are normally declared and paid in the year subsequent to the reporting period. In 2000, as part of the arrangements of the acquisition of PaineWebber, a dividend of CHF 1.50 was paid on 5 October 2000 in respect of the nine months ended 30 September 2000. Prior to the merger between Union Bank of Switzerland and Swiss Bank Corporation, each paid dividends in accordance with its own dividend policies. In 2001 a further amount of CHF 1.60 per share was distributed to shareholders in the form of a par value reduction, in respect of 2000. No dividend was paid out for the year 2001. A par value reduction of CHF 2.00 per share was paid on 10 July 2002. A dividend of CHF 2.00 per share will bewas paid on 23 April 2003, and a dividend of CHF 2.60 per share will be paid on 20 April 2004 subject to approval by shareholders at the Annual General Meeting. The USD amount per share will be determined on 1716 April 2003.2004. 54 Net profit/average Shareholders’ equity excluding dividends.
196200
B — Selected Financial Data (continued) |
B – Selected Financial Data (continued)| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | | | | | | | | | |
| As at | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Balance sheet data | | |
| Total assets | | | 1,181,118 | | | 1,253,297 | | 1,087,552 | | 896,556 | | 861,282 | | | | 1,386,000 | | 1,181,118 | | 1,253,297 | | 1,087,552 | | 896,556 | |
| Shareholders’ equity | | | 38,991 | | | 43,530 | | 44,833 | | 30,608 | | 28,794 | | | | 35,446 | | 38,991 | | 43,530 | | 44,833 | | 30,608 | |
| Average equity to average assets (%) | | | 3.14 | | | 3.49 | | 3.17 | | 3.52 | | 3.06 | | | | 2.38 | | 3.14 | | 3.49 | | 3.17 | | 3.52 | |
|
| |
Market capitalization | | | 79,448 | | | 105,475 | | 112,666 | | 92,642 | | 90,720 | | | | 95,401 | | 79,448 | | 105,475 | | 112,666 | | 92,642 | |
|
| |
Shares | | |
| Registered ordinary shares | | | 1,256,297,678 | | | 1,281,717,499 | | 1,333,139,187 | | 1,292,679,486 | | 1,289,857,836 | | | | 1,183,046,764 | | 1,256,297,678 | | 1,281,717,499 | | 1,333,139,187 | | 1,292,679,486 | |
| Own shares to be delivered | | | 0 | | | 0 | | 28,447,788 | | 0 | | 0 | | | | 0 | | 0 | | 0 | | 28,444,788 | | 0 | |
| Treasury shares | | 97,181,094 | | 41,254,951 | | 55,265,349 | | 110,621,142 | | 73,370,094 | | | | 111,360,692 | | 97,181,094 | | 41,254,951 | | 55,265,349 | | 110,621,142 | |
|
| |
BIS capital ratios | | |
| Tier 1 (%) | | | 11.3 | | | 11.6 | | 11.7 | | 10.6 | | 9.3 | | | | 11.8 | | 11.3 | | 11.6 | | 11.7 | | 10.6 | |
| Total BIS (%) | | | 13.8 | | | 14.8 | | 15.7 | | 14.5 | | 13.2 | | | | 13.3 | | 13.8 | | 14.8 | | 15.7 | | 14.5 | |
| Risk-weighted assets | | | 238,790 | | | 253,735 | | 273,290 | | 273,107 | | 303,719 | | | | 251,901 | | 238,790 | | 253,735 | | 273,290 | | 273,107 | |
|
| |
Invested assets (CHF billion) | | | 2,037 | | | 2,448 | | 2,445 | | 1,744 | | 1,573 | | | | 2,209 | | 2,037 | | 2,448 | | 2,445 | | 1,744 | |
|
| |
Headcount (full-time equivalents)1 | | | 69,061 | | | 69,985 | | 71,076 | | 49,058 | | 48,011 | | |
Headcount (full-time equivalents) | | |
| Switzerland | | | | 26,662 | | 27,972 | | 29,163 | | 30,215 | | 32,843 | |
| Europe (excluding Switzerland) | | | | 9,906 | | 10,009 | | 9,650 | | 9,286 | | 7,892 | |
| Americas | | | | 25,511 | | 27,350 | | 27,463 | | 28,114 | | 5,025 | |
| Asia Pacific | | | | 3,850 | | 3,730 | | 3,709 | | 3,461 | | 3,298 | |
| Total | | | | 65,929 | | 69,061 | | 69,985 | | 71,076 | | 49,058 | |
|
| |
| Long-term ratings2 | | |
Long-term ratings1 | | |
| Fitch, London | | AAA | | AAA | | AAA | | AAA | | AAA | | | AA+ | | AAA | | AAA | | AAA | | AAA |
| Moody’s, New York | | AA2 | | AA2 | | Aa1 | | Aa1 | | Aa1 | | | Aa2 | | AA2 | | AA2 | | Aa1 | | Aa1 |
| Standard & Poor’s, New York | | AA+ | | AA+ | | AA+ | | AA+ | | AA+ | | | AA+ | | AA+ | | AA+ | | AA+ | | AA+ |
|
| |
1 The Group headcount does not include Klinik Hirslanden headcount. Klinik Hirslanden was sold on 5 December 2002. 2 See the UBS Handbook 2002/2003,2003/2004, page 10 to 1174 for information about the nature of these ratings.
Balance Sheet Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | | | | | | | | | |
| As at | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
| Assets | | |
| Total assets | | | 1,181,118 | | | 1,253,297 | | 1,087,552 | | 896,556 | | 861,282 | | | 1,386,000 | | 1,181,118 | | 1,253,297 | | 1,087,552 | | 896,556 | |
| Due from banks | | | 32,468 | | | 27,526 | | 29,147 | | 29,907 | | 68,495 | | | 31,667 | | 32,468 | | 27,526 | | 29,147 | | 29,907 | |
| Cash collateral on securities borrowed | | | 139,052 | | | 162,938 | | 177,857 | | 113,162 | | 91,695 | | | 213,932 | | 139,052 | | 162,938 | | 177,857 | | 113,162 | |
| Reverse repurchase agreements | | | 294,086 | | | 269,256 | | 193,801 | | 132,391 | | 141,285 | | | 320,587 | | 294,086 | | 269,256 | | 193,801 | | 132,391 | |
| Trading portfolio assets | | | 371,436 | | | 397,886 | | 315,588 | | 211,932 | | 159,179 | | | 461,772 | | 371,436 | | 397,886 | | 315,588 | | 211,932 | |
| Positive replacement values | | | 82,092 | | | 73,447 | | 57,875 | | 62,957 | | 90,511 | | | 84,334 | | 82,092 | | 73,447 | | 57,875 | | 62,957 | |
| Loans | | | 211,647 | | | 226,545 | | 244,842 | | 234,858 | | 247,926 | | | 212,504 | | 211,647 | | 226,545 | | 244,842 | | 234,858 | |
|
| |
| Liabilities | | |
| Due to banks | | | 83,178 | | | 106,531 | | 82,240 | | 76,365 | | 85,716 | | | 127,153 | | 83,178 | | 106,531 | | 82,240 | | 76,365 | |
| Cash collateral on securities lent | | | 36,870 | | | 30,317 | | 23,418 | | 12,832 | | 19,171 | | | 53,278 | | 36,870 | | 30,317 | | 23,418 | | 12,832 | |
| Repurchase agreements | | | 366,858 | | | 368,620 | | 295,513 | | 196,914 | | 137,617 | | | 415,863 | | 366,858 | | 368,620 | | 295,513 | | 196,914 | |
| Trading portfolio liabilities | | | 106,453 | | | 105,798 | | 82,632 | | 54,638 | | 47,033 | | | 143,957 | | 106,453 | | 105,798 | | 82,632 | | 54,638 | |
| Negative replacement values | | | 81,282 | | | 71,443 | | 75,923 | | 95,786 | | 125,847 | | | 93,646 | | 81,282 | | 71,443 | | 75,923 | | 95,786 | |
| Due to customers | | | 306,876 | | | 333,781 | | 310,679 | | 279,960 | | 274,850 | | | 347,358 | | 306,876 | | 333,781 | | 310,679 | | 279,960 | |
| Debt issued | | | 129,411 | | | 156,218 | | 129,635 | | 120,987 | | 102,310 | | | 120,237 | | 129,411 | | 156,218 | | 129,635 | | 120,987 | |
| Shareholders’ equity | | | 38,991 | | | 43,530 | | 44,833 | | 30,608 | | 28,794 | | | 35,446 | | 38,991 | | 43,530 | | 44,833 | | 30,608 | |
|
| |
197201
Additional Disclosure Required
under SEC Regulations
B —B – Selected Financial Data (continued) |
US GAAP Income Statement Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
| Operating income | | |
| Interest income | | | 39,679 | | | 51,907 | | 51,565 | | 35,404 | | 29,136 | | | 39,940 | | 39,679 | | 51,907 | | 51,565 | | 35,404 | |
| Interest expense | | | (29,334 | ) | | | (44,096 | ) | | | (43,584 | ) | | | (29,660 | ) | | | (25,773 | ) | | | (27,700 | ) | | | (29,334 | ) | | | (44,096 | ) | | | (43,584 | ) | | | (29,660 | ) |
|
| |
| Net interest income | | | 10,345 | | | 7,811 | | 7,981 | | 5,744 | | 3,363 | | | 12,240 | | 10,345 | | 7,811 | | 7,981 | | 5,744 | |
| Credit loss (expense)/recovery | | | (206 | ) | | | (498 | ) | | 130 | | | (956 | ) | | | (787 | ) | |
| Credit loss (expense) / recovery | | | | (116 | ) | | | (206 | ) | | | (498 | ) | | 130 | | | (956 | ) |
|
| |
| Net interest income after credit loss (expense)/recovery | | | 10,139 | | | 7,313 | | 8,111 | | 4,788 | | 2,576 | | |
| Net interest income after credit loss (expense) / recovery | | | 12,124 | | 10,139 | | 7,313 | | 8,111 | | 4,788 | |
|
| |
| Net fee and commission income | | | 18,221 | | | 20,211 | | 16,703 | | 12,607 | | 8,925 | | | 17,345 | | 18,221 | | 20,211 | | 16,703 | | 12,607 | |
| Net trading income | | | 6,031 | | | 8,959 | | 8,597 | | 7,174 | | 455 | | | 4,065 | | 6,031 | | 8,959 | | 8,597 | | 7,174 | |
| Other income | | | 96 | | | 534 | | 1,514 | | 3,182 | | 725 | | | 380 | | 96 | | 534 | | 1,514 | | 3,182 | |
|
| |
| Total operating income | | | 34,487 | | | 37,017 | | 34,925 | | 27,751 | | 12,681 | | | 33,914 | | 34,487 | | 37,017 | | 34,925 | | 27,751 | |
|
| |
| Operating expenses | | |
| Personnel expenses | | | 18,610 | | | 19,713 | | 17,262 | | 12,483 | | 7,938 | | | 17,615 | | 18,610 | | 19,713 | | 17,262 | | 12,483 | |
| General and administrative expenses | | | 7,072 | | | 7,631 | | 6,813 | | 6,664 | | 6,259 | | | 6,086 | | 7,072 | | 7,631 | | 6,813 | | 6,664 | |
| Depreciation of property and equipment | | | 1,613 | | | 1,815 | | 1,800 | | 1,619 | | 1,439 | | | 1,396 | | 1,613 | | 1,815 | | 1,800 | | 1,619 | |
| Amortization of goodwill | | | 0 | | | 2,484 | | 2,018 | | 1,793 | | 936 | | | 0 | | 0 | | 2,484 | | 2,018 | | 1,793 | |
| Amortization of other intangible assets | | | 1,443 | | | 298 | | 134 | | 42 | | 28 | | | 112 | | 1,443 | | 298 | | 134 | | 42 | |
| Restructuring costs | | | 0 | | | 112 | | 191 | | 750 | | 1,089 | | | 0 | | 0 | | 112 | | 191 | | 750 | |
|
| |
| Total operating expenses | | | 28,738 | | | 32,053 | | 28,218 | | 23,351 | | 17,689 | | | 25,209 | | 28,738 | | 32,053 | | 28,218 | | 23,351 | |
|
| |
| Operating profit/(loss) before tax and minority interests | | | 5,749 | | | 4,964 | | 6,707 | | 4,400 | | | (5,008 | ) | |
Operating profit / (loss) before tax and minority interests | | | 8,705 | | 5,749 | | 4,964 | | 6,707 | | 4,400 | |
|
| |
| Tax expense/(benefit) | | | 511 | | | 1,386 | | 2,183 | | 1,509 | | | (1,339 | ) | |
| Tax expense / (benefit) | | | 1,842 | | 511 | | 1,386 | | 2,183 | | 1,509 | |
|
| |
| Net profit/(loss) before minority interests | | | 5,238 | | | 3,578 | | 4,524 | | 2,891 | | | (3,669 | ) | |
Net profit / (loss) before minority interests | | | 6,863 | | 5,238 | | 3,578 | | 4,524 | | 2,891 | |
|
| |
| Minority interests | | | (331 | ) | | | (344 | ) | | | (87 | ) | | | (54 | ) | | 4 | | | | (350 | ) | | | (331 | ) | | | (344 | ) | | | (87 | ) | | | (54 | ) |
| Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | | | 639 | | | 0 | | 0 | | 0 | | 0 | | |
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax1 | | | 0 | | 639 | | 0 | | 0 | | 0 | |
|
| |
| Net profit/(loss) | | | 5,546 | | | 3,234 | | 4,437 | | 2,837 | | | (3,665 | ) | |
Net profit / (loss) | | | 6,513 | | 5,546 | | 3,234 | | 4,437 | | 2,837 | |
|
| |
Note: Certain prior year amounts have been reclassified1 Please refer to conformNote 40.1(e) to the current year’s presentation.Consolidated Financial Statements under the heading “Financial investments and private equity”, for further information about this item.
198202
B — Selected Financial Data (continued) |
B – Selected Financial Data (continued)US GAAP Balance Sheet Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | | | | | | | | | | | | | | | | | | | | | |
| As at | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Assets | | |
| Total assets | | | 1,296,938 | | | 1,361,920 | | 1,124,554 | | 893,525 | | 899,589 | | | 1,533,957 | | 1,296,938 | | 1,361,920 | | 1,124,554 | | 893,525 | |
| | | |
| Due from banks | | | 32,481 | | | 27,550 | | 29,182 | | 29,954 | | 68,554 | | | 31,685 | | 32,481 | | 27,550 | | 29,182 | | 29,954 | |
| Cash collateral on securities borrowed | | | 139,073 | | | 162,566 | | 177,857 | | 113,162 | | 91,695 | | | 211,058 | | 139,073 | | 162,566 | | 177,857 | | 113,162 | |
| Reverse repurchase agreements | | | 294,086 | | | 269,256 | | 193,801 | | 132,391 | | 141,285 | | | 320,587 | | 294,086 | | 269,256 | | 193,801 | | 132,391 | |
| Trading portfolio assets | | | 441,845 | | | 455,406 | | 318,788 | | 228,230 | | 178,130 | | | 544,492 | | 441,845 | | 455,406 | | 318,788 | | 228,230 | |
Positive replacement values1 | | | 83,757 | | | 73,474 | | 57,775 | | 62,294 | | 90,520 | | | 84,034 | | 83,757 | | 73,474 | | 57,775 | | 62,294 | |
| Loans | | | 211,755 | | | 226,747 | | 245,214 | | 235,401 | | 248,657 | | | 212,554 | | 211,755 | | 226,747 | | 245,214 | | 235,401 | |
| Goodwill | | | 28,127 | | | 29,255 | | 31,016 | | 21,163 | | 21,455 | | | 26,775 | | 28,127 | | 29,255 | | 31,016 | | 21,163 | |
| Other intangible assets | | | 1,222 | | | 4,510 | | 4,710 | | 265 | | 252 | | | 1,174 | | 1,222 | | 4,510 | | 4,710 | | 265 | |
| Other assets | | | 21,314 | | | 36,972 | | 27,955 | | 18,717 | | 29,398 | | | 64,381 | | 21,314 | | 36,972 | | 27,955 | | 18,717 | |
|
| |
Liabilities | | |
| Due to banks | | | 83,178 | | | 106,531 | | 82,240 | | 76,363 | | 85,716 | | | 127,385 | | 83,178 | | 106,531 | | 82,240 | | 76,363 | |
| Cash collateral on securities lent | | | 36,870 | | | 30,317 | | 23,418 | | 12,832 | | 19,127 | | | 51,157 | | 36,870 | | 30,317 | | 23,418 | | 12,832 | |
| Repurchase agreements | | | 366,858 | | | 368,620 | | 295,513 | | 173,840 | | 136,824 | | | 415,863 | | 366,858 | | 368,620 | | 295,513 | | 173,840 | |
| Trading portfolio liabilities | | | 117,721 | | | 119,528 | | 87,832 | | 52,658 | | 47,772 | | | 149,380 | | 117,721 | | 119,528 | | 87,832 | | 52,658 | |
| Obligation to return securities received as collateral | | | 16,308 | | | 10,931 | | 0 | | 0 | | 0 | | | 13,071 | | 16,308 | | 10,931 | | 0 | | 0 | |
Negative replacement values1 | | | 132,354 | | | 116,666 | | 75,423 | | 95,004 | | 125,857 | | | 161,086 | | 132,354 | | 116,666 | | 75,423 | | 95,004 | |
| Due to customers | | | 306,872 | | | 333,766 | | 310,686 | | 279,971 | | 274,861 | | | 347,358 | | 306,872 | | 333,766 | | 310,686 | | 279,971 | |
| Accrued expenses and deferred income | | | 15,330 | | | 17,289 | | 21,038 | | 12,040 | | 11,232 | | | 13,673 | | 15,330 | | 17,289 | | 21,038 | | 12,040 | |
| Debt issued | | | 129,527 | | | 156,462 | | 129,750 | | 120,704 | | 101,973 | | | 123,259 | | 129,527 | | 156,462 | | 129,750 | | 120,704 | |
| Shareholders’ equity | | | 55,576 | | | 59,282 | | 62,960 | | 51,833 | | 54,761 | | | 53,174 | | 55,576 | | 59,282 | | 62,960 | | 51,833 | |
|
| |
1 Positive and negative replacement values represent the fair value of derivative instruments.
Note: 2001 amounts have been adjusted to reflect the treatment of reverse repurchase, repurchase, securities borrowing and securities lending transactions on a consistent basis. See Note 39.4.4 for details.
Ratio of Earnings to Fixed Charges
The following table sets forth UBS AG’sUBS’s ratio of earnings to fixed charges, for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not presented as there were no preferred share dividends in any of the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
IFRS1 | | | 1.14 | | | 1.14 | | 1.23 | | 1.25 | | 1.11 | | | 1.28 | | 1.14 | | 1.14 | | 1.23 | | 1.25 | |
US GAAP1, 2 | | | 1.18 | | | 1.10 | | 1.15 | | 1.14 | | 0.80 | | |
US GAAP1 | | | 1.29 | | 1.18 | | 1.10 | | 1.15 | | 1.14 | |
|
| |
1 The ratio is provided using both IFRS and US GAAP values, since the ratio is materially different under the two accounting standards.2 The deficiency in the coverage of fixed charges by earnings before fixed charges at 31 December 1998 was CHF 5,319 million.
C – Information on the Company
C — Information on the Company |
Property, Plant and Equipment
At 31 December 2002,2003, UBS operated about 1,800 offices and branches1,317 business locations worldwide, of which about 47%50% were in Switzerland, 10% in the rest of Europe, 40%Middle East and Africa, 38% in the Americas and 2% in Asia.Asia Pacific.
28%32% of the offices and branchesbusiness locations in Switzer-land Switzerland
were owned directly by UBS with the
remainder, along with most of UBS’s offices outside Switzerland, being held under commercial leases.
These premises are subject to continuous maintenance and upgrading and are considered suitable and adequate for our current and anticipated operations.
199203
Additional Disclosure Required
under SEC Regulations
| | |
| | Additional DisclosureD – Information Required by Industry Guide 3
under SEC Regulations |
| | |
| | |
| | |
| | D — Information Required by Industry Guide 3 |
Selected Statistical Information
The tables below set forth selected statistical information regarding the Group’s banking operations extracted from the Financial Statements. Unless otherwise indicated, average balances for the year ended 31 December 2003, 31 December
2002 and 31 December 2001 and 31 December 2000 are calculated
from monthly data. Certain prior year balances and figures have been reclassified to conform to current year presentation. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower.
D — Information Required by Industry Guide 3 (continued) |
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2003, 2002 2001 and 2000.2001.
| | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| | | Average | | Average | | Average | | Average | | Average | | Average | | | Average | | Average | | Average | | Average | | Average | | Average | |
| CHF million, except where indicated | CHF million, except where indicated | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | |
|
| |
Assets | Assets | | |
| Due from banks | Due from banks | | |
| | Domestic | | | 12,534 | | | | 388 | | | | 3.1 | | | 11,753 | | 1,055 | | 9.0 | | 13,366 | | 1,273 | | 9.5 | | |
| | Foreign | | | 17,603 | | | | 634 | | | | 3.6 | | | 15,528 | | 1,823 | | 11.7 | | 16,994 | | 2,280 | | 13.4 | | |
| Domestic | | | 11,417 | | 200 | | 1.8 | | 12,534 | | 388 | | 3.1 | | 11,753 | | 1,055 | | 9.0 | |
| Foreign | | | 20,997 | | 1,035 | | 4.9 | | 17,603 | | 634 | | 3.6 | | 15,528 | | 1,823 | | 11.7 | |
| Cash collateral on securities borrowed and reverse repurchase agreements | Cash collateral on securities borrowed and reverse repurchase agreements | | |
| | Domestic | | | 5,471 | | | | 235 | | | | 4.3 | | | 7,868 | | 563 | | 7.2 | | 8,383 | | 558 | | 6.7 | | |
| | Foreign | | | 573,576 | | | | 10,949 | | | | 1.9 | | | 474,295 | | 17,774 | | 3.7 | | 348,395 | | 18,530 | | 5.3 | | |
| Domestic | | | 6,576 | | 200 | | 3.0 | | 5,471 | | 235 | | 4.3 | | 7,868 | | 563 | | 7.2 | |
| Foreign | | | 582,152 | | 10,948 | | 1.9 | | 573,576 | | 10,949 | | 1.9 | | 474,295 | | 17,774 | | 3.7 | |
| Trading portfolio assets | Trading portfolio assets | | |
| | Domestic | | | 7,812 | | | | 269 | | | | 3.4 | | | 12,940 | | 307 | | 2.4 | | 20,800 | | 244 | | 1.2 | | |
| | Foreign — taxable | | | 373,810 | | | | 16,714 | | | | 4.5 | | | 332,126 | | 16,183 | | 4.9 | | 255,399 | | 11,560 | | 4.5 | | |
| | Foreign — non-taxable | | | 1,720 | | | | 31 | | | | 1.8 | | | 1,450 | | 42 | | 2.9 | | 1,206 | | 38 | | 3.2 | | |
| | Foreign — total | | | 375,530 | | | | 16,745 | | | | 4.5 | | | 333,576 | | 16,225 | | 4.9 | | 256,605 | | 11,598 | | 4.5 | | |
| Domestic | | | 7,990 | | 222 | | 2.8 | | 7,812 | | 269 | | 3.4 | | 12,940 | | 307 | | 2.4 | |
| Foreign – taxable | | | 407,867 | | 18,151 | | 4.5 | | 373,810 | | 16,714 | | 4.5 | | 332,126 | | 16,183 | | 4.9 | |
| Foreign – non-taxable | | | 1,668 | | 21 | | 1.3 | | 1,720 | | 31 | | 1.8 | | 1,450 | | 42 | | 2.9 | |
| Foreign – total | | | 409,535 | | 18,172 | | 4.4 | | 375,530 | | 16,745 | | 4.5 | | 333,576 | | 16,225 | | 4.9 | |
| Loans | Loans | | |
| | Domestic | | | 170,641 | | | | 6,987 | | | | 4.1 | | | 177,404 | | 8,017 | | 4.5 | | 181,646 | | 10,985 | | 6.0 | | |
| | Foreign | | | 55,199 | | | | 1,789 | | | | 3.2 | | | 72,176 | | 3,090 | | 4.3 | | 67,528 | | 3,813 | | 5.6 | | |
| Domestic | | | 165,397 | | 6,437 | | 3.9 | | 170,641 | | 6,987 | | 4.1 | | 177,404 | | 8,017 | | 4.5 | |
| Foreign | | | 51,457 | | 1,805 | | 3.5 | | 55,199 | | 1,789 | | 3.2 | | 72,176 | | 3,090 | | 4.3 | |
| Financial investments | Financial investments | | |
| | Domestic | | | 3,794 | | | | 60 | | | | 1.6 | | | 4,598 | | 90 | | 2.0 | | 3,440 | | 105 | | 3.1 | | |
| | Foreign — taxable | | | 8,781 | | | | 105 | | | | 1.2 | | | 39,252 | | 363 | | 0.9 | | 22,529 | | 297 | | 1.3 | | |
| | Foreign — non-taxable | | | 0 | | | | 0 | | | | 0.0 | | | 0 | | 0 | | 0.0 | | 0 | | 0 | | 0.0 | | |
| | Foreign — total | | | 8,781 | | | | 105 | | | | 1.2 | | | 39,252 | | 363 | | 0.9 | | 22,529 | | 297 | | 1.3 | | |
| Domestic | | | 1,988 | | 40 | | 2.0 | | 3,794 | | 60 | | 1.6 | | 4,598 | | 90 | | 2.0 | |
| Foreign – taxable | | | 4,798 | | 35 | | 0.7 | | 8,781 | | 105 | | 1.2 | | 39,252 | | 363 | | 0.9 | |
| Foreign – non-taxable | | | 0 | | 0 | | 0.0 | | 0 | | 0 | | 0.0 | | 0 | | 0 | | 0.0 | |
| Foreign – total | | | 4,798 | | 35 | | 0.7 | | 8,781 | | 105 | | 1.2 | | 39,252 | | 363 | | 0.9 | |
|
| |
Total interest-earning assets | Total interest-earning assets | | | 1,230,941 | | | | 38,161 | | | | 3.1 | | | 1,149,390 | | 49,307 | | 4.3 | | 939,686 | | 49,683 | | 5.3 | | | 1,262,307 | | 39,094 | | 3.1 | | 1,230,941 | | 38,161 | | 3.1 | | 1,149,390 | | 49,307 | | 4.3 | |
| Net interest on swaps | Net interest on swaps | | | 1,802 | | | 2,970 | | 2,062 | | | 1,065 | | 1,802 | | 2,970 | |
|
| |
Interest income and average interest-earning assets | Interest income and average interest-earning assets | | | 1,230,941 | | | | 39,963 | | | | 3.2 | | | 1,149,390 | | 52,277 | | 4.5 | | 939,686 | | 51,745 | | 5.5 | | | 1,262,307 | | 40,159 | | 3.2 | | 1,230,941 | | 39,963 | | 3.2 | | 1,149,390 | | 52,277 | | 4.5 | |
| Non-interest-earning assets | Non-interest-earning assets | | |
| | Positive replacement values | | | 190,063 | | | 153,687 | | 135,762 | | |
| | Fixed assets | | | 12,532 | | | 13,376 | | 9,660 | | |
| | Other | | | 53,293 | | | 46,954 | | 32,925 | | |
| Positive replacement values | | | 250,871 | | 190,063 | | 153,687 | |
| Fixed assets | | | 11,643 | | 12,532 | | 13,376 | |
| Other | | | 40,104 | | 53,293 | | 46,954 | |
|
| |
Total average assets | Total average assets | | | 1,486,829 | | | 1,363,407 | | 1,118,033 | | | 1,564,925 | | 1,486,829 | | 1,363,407 | |
|
| |
200204
D —D – Information Required by Industry Guide 3 (continued) |
Average Balances and Interest Rates (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| | | Average | | Average | | Average | | Average | | Average | | Average | | | Average | | Average | | Average | | Average | | Average | | Average | |
| CHF million, except where indicated | CHF million, except where indicated | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | | balance | | Interest | | rate (%) | |
|
| |
Liabilities and Equity | Liabilities and Equity | | |
| Due to banks | Due to banks | | |
| | Domestic | | | 28,625 | | | | 452 | | | | 1.6 | | | 36,260 | | 1,424 | | 3.9 | | 31,133 | | 2,397 | | 7.7 | | |
| | Foreign | | | 60,621 | | | | 1,362 | | | | 2.2 | | | 61,642 | | 3,506 | | 5.7 | | 57,258 | | 3,758 | | 6.6 | | |
| Domestic | | | 28,719 | | 150 | | 0.5 | | 28,625 | | 452 | | 1.6 | | 36,260 | | 1,424 | | 3.9 | |
| Foreign | | | 72,757 | | 1,751 | | 2.4 | | 60,621 | | 1,362 | | 2.2 | | 61,642 | | 3,506 | | 5.7 | |
| Cash collateral on securities lent and repurchase agreements | Cash collateral on securities lent and repurchase agreements | | |
| | Domestic | | | 18,382 | | | | 355 | | | | 1.9 | | | 13,147 | | 600 | | 4.6 | | 12,700 | | 478 | | 3.8 | | |
| | Foreign | | | 523,375 | | | | 9,726 | | | | 1.9 | | | 415,121 | | 13,917 | | 3.4 | | 284,220 | | 14,437 | | 5.1 | | |
| Domestic | | | 23,287 | | 295 | | 1.3 | | 18,382 | | 355 | | 1.9 | | 13,147 | | 600 | | 4.6 | |
| Foreign | | | 515,665 | | 9,328 | | 1.8 | | 523,375 | | 9,726 | | 1.9 | | 415,121 | | 13,917 | | 3.4 | |
| Trading portfolio liabilities | Trading portfolio liabilities | | |
| | Domestic | | | 3,239 | | | | 146 | | | | 4.5 | | | 2,526 | | 1 | | 0.0 | | 1,078 | | 4 | | 0.4 | | |
| | Foreign | | | 109,013 | | | | 8,220 | | | | 7.5 | | | 94,597 | | 7,814 | | 8.3 | | 66,597 | | 5,305 | | 8.0 | | |
| Domestic | | | 3,252 | | 156 | | 4.8 | | 3,239 | | 146 | | 4.5 | | 2,526 | | 1 | | 0.0 | |
| Foreign | | | 127,104 | | 9,945 | | 7.8 | | 109,013 | | 8,220 | | 7.5 | | 94,597 | | 7,814 | | 8.3 | |
| Due to customers | Due to customers | | |
| | Domestic — demand deposits | | | 42,484 | | | | 435 | | | | 1.0 | | | 41,664 | | 715 | | 1.7 | | 44,403 | | 595 | | 1.3 | | |
| | Domestic — savings deposits | | | 71,465 | | | | 625 | | | | 0.9 | | | 66,089 | | 716 | | 1.1 | | 72,207 | | 781 | | 1.1 | | |
| | Domestic — time deposits | | | 27,646 | | | | 447 | | | | 1.6 | | | 31,261 | | 989 | | 3.2 | | 27,199 | | 826 | | 3.0 | | |
| | Domestic — total | | | 141,595 | | | | 1,507 | | | | 1.1 | | | 139,014 | | 2,420 | | 1.7 | | 143,809 | | 2,202 | | 1.5 | | |
| | Foreign1 | | | 172,650 | | | | 3,062 | | | | 1.8 | | | 187,783 | | 6,738 | | 3.6 | | 143,432 | | 7,303 | | 5.1 | | |
| Domestic – demand deposits | | | 55,496 | | 100 | | 0.2 | | 42,484 | | 435 | | 1.0 | | 41,664 | | 715 | | 1.7 | |
| Domestic – savings deposits | | | 81,963 | | 527 | | 0.6 | | 71,465 | | 625 | | 0.9 | | 66,089 | | 716 | | 1.1 | |
| Domestic – time deposits | | | 21,125 | | 395 | | 1.9 | | 27,646 | | 447 | | 1.6 | | 31,261 | | 989 | | 3.2 | |
| Domestic – total | | | 158,584 | | 1,022 | | 0.6 | | 141,595 | | 1,507 | | 1.1 | | 139,014 | | 2,420 | | 1.7 | |
Foreign1 | | | 161,942 | | 2,170 | | 1.3 | | 172,650 | | 3,062 | | 1.8 | | 187,783 | | 6,738 | | 3.6 | |
| Short-term debt | Short-term debt | | |
| | Domestic | | | 69 | | | | 0 | | | | 0.0 | | | 69 | | 0 | | 0.0 | | 79 | | 0 | | 0.0 | | |
| | Foreign | | | 91,616 | | | | 1,915 | | | | 2.1 | | | 96,184 | | 4,227 | | 4.4 | | 78,075 | | 4,338 | | 5.6 | | |
| Domestic | | | 64 | | 0 | | 0.0 | | 69 | | 0 | | 0.0 | | 69 | | 0 | | 0.0 | |
| Foreign | | | 73,193 | | 1,015 | | 1.4 | | 91,616 | | 1,915 | | 2.1 | | 96,184 | | 4,227 | | 4.4 | |
| Long-term debt | Long-term debt | | |
| | Domestic | | | 10,082 | | | | 433 | | | | 4.3 | | | 12,754 | | 587 | | 4.6 | | 15,490 | | 778 | | 5.0 | | |
| | Foreign | | | 46,930 | | | | 2,239 | | | | 4.8 | | | 43,798 | | 3,002 | | 6.9 | | 38,020 | | 2,615 | | 6.9 | | |
| Domestic | | | 6,413 | | 188 | | 2.9 | | 10,082 | | 433 | | 4.3 | | 12,754 | | 587 | | 4.6 | |
| Foreign | | | 52,216 | | 1,840 | | 3.5 | | 46,930 | | 2,239 | | 4.8 | | 43,798 | | 3,002 | | 6.9 | |
|
| |
Total interest-bearing liabilities | Total interest-bearing liabilities | | | 1,206,197 | | | | 29,417 | | | | 2.4 | | | 1,102,895 | | 44,236 | | 4.0 | | 871,891 | | 43,615 | | 5.0 | | | 1,223,196 | | 27,860 | | 2.3 | | 1,206,197 | | 29,417 | | 2.4 | | 1,102,895 | | 44,236 | | 4.0 | |
| Non-interest-bearing liabilities | Non-interest-bearing liabilities | | |
| | Negative replacement values | | | 192,659 | | | 165,220 | | 157,668 | | |
| | Other | | | 41,297 | | | 47,676 | | 53,049 | | |
| Negative replacement values | | | 257,075 | | 192,659 | | 165,220 | |
| Other | | | 47,410 | | 45,217 | | 51,308 | |
|
| |
| Total liabilities | Total liabilities | | | 1,440,153 | | | 1,315,791 | | 1,082,608 | | | 1,527,681 | | 1,444,073 | | 1,319,423 | |
| Shareholders’ equity | Shareholders’ equity | | | 46,676 | | | 47,616 | | 35,425 | | | 37,244 | | 42,756 | | 43,984 | |
|
| |
| Total average liabilities and shareholders’ equity | Total average liabilities and shareholders’ equity | | | 1,486,829 | | | 1,363,407 | | 1,118,033 | | | 1,564,925 | | 1,486,829 | | 1,363,407 | |
| | | |
Net interest income | Net interest income | | | 10,546 | | | 8,041 | | 8,130 | | | 12,299 | | 10,546 | | 8,041 | |
Net yield on interest-earning assets | Net yield on interest-earning assets | | | 0.9 | | | 0.7 | | 0.9 | | | 1.0 | | 0.9 | | 0.7 | |
|
| |
l1Due to customers in foreign offices consists mainly of time deposits.
The percentage of total average interest-earning assets attributable to foreign activities was
84%85% for 2003 (84% for 2002
(81%and 81% for
2001 and 76% for 2000)2001). The percentage of total average interest-bearing liabilities attributable to foreign activities was
83%82% for 2003 (83% for 2002
(82%and 82% for
2001 and 77% for 2000)2001).
All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest rates in general, but are also affected by changes in the currency mix included in the assets and liabilities. This is especially true for foreign assets and liabilities. Tax-exempt income is not recorded on a tax-equivalent basis. For all three years presented, tax-exempt income is considered to be insignificant and therefore the impact from such income is negligible.
201205
Additional Disclosure
Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)Analysis of Changes in Interest Income and Expense
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 2003 compared to the year ended 31 December 2002, and for the year ended 31 December 2002 compared to the year ended 31 December 2001, and for the year ended 31 December 2001 compared to the year ended 31 December 2000.2001. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally. Refer to page 209213 of Industry Guide 3 for a discussion of the treatment of impaired, non-performing and restructured loans.
| | | | | | | | | | | | | | | | | | |
| | | 2002 compared to 2001 | | 2001 compared to 2000 | | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase/(decrease) | | Increase/(decrease) | | | | | 2003 compared to 2002 | | 2002 compared to 2001 |
| | | due to changes in | | due to changes in | | | | | Increase/(decrease) | | Increase/(decrease) | | | |
| | |
| |
| | | | | due to changes in | | due to changes in | | | |
| | | Average | | Average | | Net | | Average | | Average | | Net | | | Average | | Average | | Net | | Average | | Average | | Net | |
| CHF million | CHF million | | volume | | rate | | change | | volume | | rate | | change | | | volume | | rate | | change | | volume | | rate | | change | |
|
| |
Interest income from interest-earning assets | Interest income from interest-earning assets | | |
| Due from banks | Due from banks | | |
| | Domestic | | | 70 | | | | (737 | ) | | | (667 | ) | | | (153 | ) | | | (65 | ) | | | (218 | ) | |
| | Foreign | | | 243 | | | | (1,432 | ) | | | (1,189 | ) | | | (196 | ) | | | (261 | ) | | | (457 | ) | |
| Domestic | | | | (35 | ) | | | (153 | ) | | | (188 | ) | | 70 | | | (737 | ) | | | (667 | ) |
| Foreign | | | 122 | | 279 | | 401 | | 243 | | | (1,432 | ) | | | (1,189 | ) |
| Cash collateral on securities borrowed and reverse repurchase agreements | Cash collateral on securities borrowed and reverse repurchase agreements | | |
| | Domestic | | | (173 | ) | | | (155 | ) | | | (328 | ) | | | (35 | ) | | 40 | | 5 | | |
| | Foreign | | | 3,673 | | | | (10,498 | ) | | | (6,825 | ) | | 6,673 | | | (7,429 | ) | | | (756 | ) | |
| Domestic | | | 48 | | | (83 | ) | | | (35 | ) | | | (173 | ) | | | (155 | ) | | | (328 | ) |
| Foreign | | | 163 | | | (164 | ) | | | (1 | ) | | 3,673 | | | (10,498 | ) | | | (6,825 | ) |
| Trading portfolio assets | Trading portfolio assets | | |
| | Domestic | | | (123 | ) | | | 85 | | | | (38 | ) | | | (94 | ) | | 157 | | 63 | | |
| | Foreign — taxable | | | 2,043 | | | | (1,512 | ) | | | 531 | | | 3,456 | | 1,167 | | 4,623 | | |
| | Foreign — non-taxable | | | 8 | | | | (19 | ) | | | (11 | ) | | 8 | | | (4 | ) | | 4 | | |
| | Foreign — total | | | 2,051 | | | | (1,531 | ) | | | 520 | | | 3,464 | | 1,163 | | 4,627 | | |
| Domestic | | | 6 | | | (53 | ) | | | (47 | ) | | | (123 | ) | | 85 | | | (38 | ) |
| Foreign – taxable | | | 1,533 | | | (96 | ) | | 1,437 | | 2,043 | | | (1,512 | ) | | 531 | |
| Foreign – non-taxable | | | | (1 | ) | | | (9 | ) | | | (10 | ) | | 8 | | | (19 | ) | | | (11 | ) |
| Foreign – total | | | 1,532 | | | (105 | ) | | 1,427 | | 2,051 | | | (1,531 | ) | | 520 | |
| Loans | Loans | | |
| | Domestic | | | (304 | ) | | | (726 | ) | | | (1,030 | ) | | | (255 | ) | | | (2,713 | ) | | | (2,968 | ) | |
| | Foreign | | | (730 | ) | | | (571 | ) | | | (1,301 | ) | | 260 | | | (983 | ) | | | (723 | ) | |
| Domestic | | | | (215 | ) | | | (335 | ) | | | (550 | ) | | | (304 | ) | | | (726 | ) | | | (1,030 | ) |
| Foreign | | | | (120 | ) | | 136 | | 16 | | | (730 | ) | | | (571 | ) | | | (1,301 | ) |
| Financial investments | Financial investments | | |
| | Domestic | | | (16 | ) | | | (14 | ) | | | (30 | ) | | 36 | | | (51 | ) | | | (15 | ) | |
| | Foreign — taxable | | | (274 | ) | | | 16 | | | | (258 | ) | | 217 | | | (151 | ) | | 66 | | |
| | Foreign — non-taxable | | | 0 | | | | 0 | | | | 0 | | | 0 | | 0 | | 0 | | |
| | Foreign — total | | | (274 | ) | | | 16 | | | | (258 | ) | | 217 | | | (151 | ) | | 66 | | |
| Domestic | | | | (29 | ) | | 9 | | | (20 | ) | | | (16 | ) | | | (14 | ) | | | (30 | ) |
| Foreign – taxable | | | | (48 | ) | | | (22 | ) | | | (70 | ) | | | (274 | ) | | 16 | | | (258 | ) |
| Foreign – non-taxable | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Foreign – total | | | | (48 | ) | | | (22 | ) | | | (70 | ) | | | (274 | ) | | 16 | | | (258 | ) |
|
| |
| Interest income | Interest income | | |
| | Domestic | | | (546 | ) | | | (1,547 | ) | | | (2,093 | ) | | | (501 | ) | | | (2,632 | ) | | | (3,133 | ) | |
| | Foreign | | | 4,963 | | | | (14,016 | ) | | | (9,053 | ) | | 10,418 | | | (7,661 | ) | | 2,757 | | |
| Domestic | | | | (225 | ) | | | (615 | ) | | | (840 | ) | | | (546 | ) | | | (1,547 | ) | | | (2,093 | ) |
| Foreign | | | 1,649 | | 124 | | 1,773 | | 4,963 | | | (14,016 | ) | | | (9,053 | ) |
|
| |
| Total interest income from interest-earning assets | Total interest income from interest-earning assets | | | 4,417 | | | | (15,563 | ) | | | (11,146 | ) | | 9,917 | | | (10,293 | ) | | | (376 | ) | | 1,424 | | | (491 | ) | | 933 | | 4,417 | | | (15,563 | ) | | | (11,146 | ) |
| Net interest on swaps | Net interest on swaps | | | (1,168 | ) | | 908 | | | | (737 | ) | | | (1,168 | ) |
|
| |
Total interest income | Total interest income | | | (12,314 | ) | | 532 | | | 196 | | | (12,314 | ) |
|
| |
202206
D —D – Information Required by Industry Guide 3 (continued) |
Analysis of Changes in Interest Income and Expense (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2002 compared to 2001 | | 2001 compared to 2000 | | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase/(decrease) | | Increase/(decrease) | | | | | 2003 compared to 2002 | | 2002 compared to 2001 |
| | | due to changes in | | due to changes in | | | | | Increase/(decrease) | | Increase/(decrease) | | | |
| | |
| |
| | | | | due to changes in | | due to changes in | | | |
| | | Average | | Average | | Net | | Average | | Average | | Net | | | Average | | Average | | Net | | Average | | Average | | Net | |
| CHF million | CHF million | | volume | | rate | | change | | volume | | rate | | change | | | volume | | rate | | change | | volume | | rate | | change | |
|
| |
Interest expense on interest-bearing liabilities | Interest expense on interest-bearing liabilities | | |
| Due to banks | Due to banks | | |
| | Domestic | | | (298 | ) | | | (674 | ) | | | (972 | ) | | 395 | | | (1,368 | ) | | | (973 | ) | |
| | Foreign | | | (58 | ) | | | (2,086 | ) | | | (2,144 | ) | | 289 | | | (541 | ) | | | (252 | ) | |
| Domestic | | | 2 | | | (304 | ) | | | (302 | ) | | | (298 | ) | | | (674 | ) | | | (972 | ) |
| Foreign | | | 267 | | 122 | | 389 | | | (58 | ) | | | (2,086 | ) | | | (2,144 | ) |
| Cash collateral on securities lent and repurchase agreements | Cash collateral on securities lent and repurchase agreements | | | | | | |
| | Domestic | | | 241 | | | | (486 | ) | | | (245 | ) | | 17 | | 105 | | 122 | | |
| | Foreign | | | 3,681 | | | | (7,872 | ) | | | (4,191 | ) | | 6,676 | | | (7,196 | ) | | | (520 | ) | |
| Domestic | | | 93 | | | (153 | ) | | | (60 | ) | | 241 | | | (486 | ) | | | (245 | ) |
| Foreign | | | | (146 | ) | | | (252 | ) | | | (398 | ) | | 3,681 | | | (7,872 | ) | | | (4,191 | ) |
| Trading portfolio liabilities | Trading portfolio liabilities | | |
| | Domestic | | | 0 | | | | 145 | | | | 145 | | | 6 | | | (9 | ) | | | (3 | ) | |
| | Foreign | | | 1,197 | | | | (791 | ) | | | 406 | | | 2,240 | | 269 | | 2,509 | | |
| Domestic | | | 1 | | 9 | | 10 | | 0 | | 145 | | 145 | |
| Foreign | | | 1,357 | | 368 | | 1,725 | | 1,197 | | | (791 | ) | | 406 | |
| Due to customers | Due to customers | | |
| | Domestic — demand deposits | | | 14 | | | | (294 | ) | | | (280 | ) | | | (36 | ) | | 156 | | 120 | | |
| | Domestic — savings deposits | | | 59 | | | | (150 | ) | | | (91 | ) | | | (67 | ) | | 2 | | | (65 | ) | |
| | Domestic — time deposits | | | (116 | ) | | | (426 | ) | | | (542 | ) | | 31 | | 132 | | 163 | | |
| | Domestic — total | | | (43 | ) | | | (870 | ) | | | (913 | ) | | | (72 | ) | | 290 | | 218 | | |
| | Foreign | | | (545 | ) | | | (3,131 | ) | | | (3,676 | ) | | 2,262 | | | (2,827 | ) | | | (565 | ) | |
| Domestic – demand deposits | | | 130 | | | (465 | ) | | | (335 | ) | | 14 | | | (294 | ) | | | (280 | ) |
| Domestic – savings deposits | | | 94 | | | (192 | ) | | | (98 | ) | | 59 | | | (150 | ) | | | (91 | ) |
| Domestic – time deposits | | | | (104 | ) | | 52 | | | (52 | ) | | | (116 | ) | | | (426 | ) | | | (542 | ) |
| Domestic – total | | | 120 | | | (605 | ) | | | (485 | ) | | | (43 | ) | | | (870 | ) | | | (913 | ) |
| Foreign | | | | (193 | ) | | | (699 | ) | | | (892 | ) | | | (545 | ) | | | (3,131 | ) | | | (3,676 | ) |
| Short-term debt | Short-term debt | | |
| | Domestic | | | 0 | | | | 0 | | | | 0 | | | 0 | | 0 | | 0 | | |
| | Foreign | | | (201 | ) | | | (2,111 | ) | | | (2,312 | ) | | 1,014 | | | (1,125 | ) | | | (111 | ) | |
| Domestic | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Foreign | | | | (387 | ) | | | (513 | ) | | | (900 | ) | | | (201 | ) | | | (2,111 | ) | | | (2,312 | ) |
| Long-term debt | Long-term debt | | |
| | Domestic | | | (123 | ) | | | (31 | ) | | | (154 | ) | | | (137 | ) | | | (54 | ) | | | (191 | ) | |
| | Foreign | | | 216 | | | | (979 | ) | | | (763 | ) | | 419 | | | (32 | ) | | 387 | | |
| Domestic | | | | (158 | ) | | | (87 | ) | | | (245 | ) | | | (123 | ) | | | (31 | ) | | | (154 | ) |
| Foreign | | | 254 | | | (653 | ) | | | (399 | ) | | 216 | | | (979 | ) | | | (763 | ) |
|
| |
| Interest expense | Interest expense | | |
| | Domestic | | | (223 | ) | | | (1,916 | ) | | | (2,139 | ) | | 209 | | | (1,036 | ) | | | (827 | ) | |
| | Foreign | | | 4,290 | | | | (16,970 | ) | | | (12,680 | ) | | 12,900 | | | (11,452 | ) | | 1,448 | | |
| Domestic | | | 58 | | | (1,140 | ) | | | (1,082 | ) | | | (223 | ) | | | (1,916 | ) | | | (2,139 | ) |
| Foreign | | | 1,152 | | | (1,627 | ) | | | (475 | ) | | 4,290 | | | (16,970 | ) | | | (12,680 | ) |
|
| |
Total interest expense | Total interest expense | | | 4,067 | | | | (18,886 | ) | | | (14,819 | ) | | 13,109 | | | (12,488 | ) | | 621 | | | 1,210 | | | (2,767 | ) | | | (1,557 | ) | | 4,067 | | (18,886 | ) | | | (14,819 | ) |
|
| |
203207
Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)Deposits
The following table analyzes average deposits and the average rates on each deposit category listed below for the years ended 31 December 2003, 2002 2001 and 2000.2001. The geographic allocation is based on the location of the office or branch where the deposit is made. Deposits by foreign depositors in domestic offices were CHF 43,91492,858 million, CHF 54,09543,914 million and CHF 45,81554,095 million at 31 December 2003, 31 December 2002 and 31 December 2001, and 31 December 2000, respectively.
| | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| | | Average | | Average | | Average | | Average | | Average | | Average | | | Average | | Average | | Average | | Average | | Average | | Average | |
| CHF million, except where indicated | | deposit | | rate (%) | | deposit | | rate (%) | | deposit | | rate (%) | | | deposit | | rate (%) | | deposit | | rate (%) | | deposit | | rate (%) | |
|
| |
Banks | | |
Domestic offices | | |
| Demand deposits | | | 3,524 | | | | 0.7 | | | 3,741 | | 1.2 | | 4,649 | | 1.9 | | | 3,836 | | 0.0 | | 3,524 | | 0.7 | | 3,741 | | 1.2 | |
| Time deposits | | | 9,010 | | | | 1.7 | | | 8,012 | | 4.2 | | 8,717 | | 8.7 | | | 7,581 | | 0.6 | | 9,010 | | 1.7 | | 8,012 | | 4.2 | |
|
| |
| Total domestic offices | | | 12,534 | | | | 1.4 | | | 11,753 | | 3.3 | | 13,366 | | 6.3 | | | 11,417 | | 0.4 | | 12,534 | | 1.4 | | 11,753 | | 3.3 | |
|
| |
Foreign offices | | |
Interest-bearing deposits1 | | | 17,603 | | | | 2.2 | | | 15,528 | | 5.7 | | 16,994 | | 6.6 | | | 20,997 | | 2.4 | | 17,603 | | 2.2 | | 15,528 | | 5.7 | |
|
| |
Total due to banks | | | 30,137 | | | | 1.9 | | | 27,281 | | 4.6 | | 30,360 | | 6.5 | | | 32,414 | | 1.7 | | 30,137 | | 1.9 | | 27,281 | | 4.6 | |
|
| |
Customer accounts | | |
Domestic offices | | |
| Demand deposits | | | 42,484 | | | | 1.0 | | | 41,664 | | 1.7 | | 44,403 | | 1.3 | | | 55,496 | | 0.2 | | 42,484 | | 1.0 | | 41,664 | | 1.7 | |
| Savings deposits | | | 71,465 | | | | 0.9 | | | 66,089 | | 1.1 | | 72,207 | | 1.1 | | | 81,963 | | 0.6 | | 71,465 | | 0.9 | | 66,089 | | 1.1 | |
| Time deposits | | | 27,646 | | | | 1.6 | | | 31,261 | | 3.2 | | 27,199 | | 3.0 | | | 21,125 | | 1.9 | | 27,646 | | 1.6 | | 31,261 | | 3.2 | |
|
| |
| Total domestic offices | | | 141,595 | | | | 1.1 | | | 139,014 | | 1.7 | | 143,809 | | 1.5 | | | 158,584 | | 0.6 | | 141,595 | | 1.1 | | 139,014 | | 1.7 | |
|
| |
Foreign offices | | |
Interest bearing deposits1 | | | 172,650 | | | | 1.8 | | | 187,783 | | 3.6 | | 143,432 | | 5.1 | | |
Interest-bearing deposits1 | | | 161,942 | | 1.3 | | 172,650 | | 1.8 | | 187,783 | | 3.6 | |
|
| |
Total due to customers | | | 314,245 | | | | 1.5 | | | 326,797 | | 2.8 | | 287,241 | | 3.3 | | | 320,526 | | 1.0 | | 314,245 | | 1.5 | | 326,797 | | 2.8 | |
|
| |
1Mainly time deposits.
At 31 December 2002,2003, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:
| | | | | | | | | | | | | | | | | |
| CHF million | | Domestic | | Foreign | | | Domestic | | Foreign | |
|
| |
| Within 3 months | | | 27,456 | | | | 110,053 | | | 22,382 | | 122,522 | |
| 3 to 12 months | | | 8,202 | | | | 26,821 | | |
| 3 to 6 months | | | 1,492 | | 3,354 | |
| 6 to 12 months | | | 1,335 | | 2,384 | |
| 1 to 5 years | | | 768 | | | | 2,766 | | | 483 | | 2,172 | |
| Over 5 years | | | 44 | | | | 859 | | | 94 | | 1,241 | |
|
| |
Total time deposits | | | 36,470 | | | | 140,499 | | | 25,786 | | 131,673 | |
|
| |
204208
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)Short-term Borrowings
The following table presents our period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2003, 2002 2001 and 2000.2001.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Money market paper issued | | Due to banks | | Repurchase agreements1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| | | Money market paper issued | | Due to banks | | Repurchase agreements1 |
| CHF million, except where indicated | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.03 | | 31.12.02 | | 31.12.01 | |
|
| |
| Period-end balance | | | 72,800 | | | 99,006 | | 74,780 | | | 48,780 | | | 77,312 | | 51,245 | | | 464,020 | | | 462,316 | | 330,857 | | | 58,115 | | 72,800 | | 99,006 | | 89,303 | | 48,780 | | 77,312 | | 500,592 | | 464,020 | | 462,316 | |
| Average balance | | | 91,685 | | | 96,253 | | 78,154 | | | 59,109 | | | 70,621 | | 58,031 | | | 509,572 | | | 400,648 | | 278,601 | | | 73,257 | | 91,685 | | 96,253 | | 69,062 | | 59,109 | | 70,621 | | 498,679 | | 509,572 | | 400,648 | |
| Maximum month-end balance | | | 108,463 | | | 117,022 | | 89,821 | | | 77,312 | | | 85,808 | | 73,355 | | | 593,786 | | | 502,578 | | 342,427 | | | 92,605 | | 108,463 | | 117,022 | | 96,694 | | 77,312 | | 85,808 | | 593,738 | | 593,786 | | 502,578 | |
| Average interest rate during the period (%) | | | 2.1 | | | 4.4 | | 5.6 | | | 3.1 | | | 7.0 | | 7.0 | | | 1.8 | | | 3.2 | | 4.8 | | | 1.4 | | 2.1 | | 4.4 | | 2.8 | | 3.1 | | 7.0 | | 1.8 | | 1.8 | | 3.2 | |
| Average interest rate at period-end (%) | | | 1.5 | | | 2.6 | | 6.0 | | | 2.0 | | | 2.2 | | 4.1 | | | 1.7 | | | 2.9 | | 4.8 | | | 1.3 | | 1.5 | | 2.6 | | 1.5 | | 2.0 | | 2.2 | | 1.3 | | 1.7 | | 2.9 | |
|
| |
1For the purpose of this disclosure, balances are presented on a gross basis.
205209
| | |
| | Additional Disclosure Required
under SEC Regulations |
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
D — Information Required by Industry Guide 3 (continued) |
Contractual Maturities of the Investments in Debt Instruments
Due to the adoption of IAS 39, Financial investments, available for sale, are reported at fair value from 1 January 2001. 31 December 2000 amounts have not been restated.
| | | | | | | | | | | | | | | | | | |
| | | Within 1 year | | 1 - 5 years | | 5 - 10 years | | Over 10 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| |
| | | Within 1 year | | 1–5 years | | 5–10 years | | Over 10 years |
| CHF million, except percentages | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | |
|
| |
31 December 20021 | | |
31 December 20031 | | |
| Swiss national government and agencies | | 0 | | 0.00 | | 7 | | 4.88 | | 8 | | 3.86 | | 1 | | 4.00 | | | 3 | | 6.61 | | 4 | | 2.92 | | 6 | | 3.80 | | 1 | | 4.00 | |
| Swiss local governments | | 8 | | 4.02 | | 30 | | 3.94 | | 4 | | 3.59 | | 0 | | 0.00 | | | 5 | | 3.90 | | 20 | | 2.01 | | 0 | | 0.00 | | 0 | | 0.00 | |
| US Treasury and agencies | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | | |
| Foreign governments and official institutions | | 35 | | 4.63 | | 45 | | 3.13 | | 1 | | 6.12 | | 0 | | 0.00 | | | 45 | | 1.89 | | 9 | | 1.49 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Corporate debt securities | | 675 | | 2.23 | | 249 | | 2.64 | | 19 | | 3.41 | | 21 | | 8.02 | | | 81 | | 1.09 | | 68 | | 3.53 | | 7 | | 7.38 | | 0 | | 0.00 | |
| Mortgage-backed securities | | 4 | | 2.25 | | 15 | | 3.97 | | 4 | | 4.03 | | 0 | | 0.00 | | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Other debt securities | | 1 | | 4.77 | | 48 | | 2.65 | | 0 | | 0.00 | | 0 | | 0.00 | | | 4 | | 0.00 | | 8 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | |
|
| |
Total fair value | | | 723 | | | | 394 | | | | 36 | | | | 22 | | | | 138 | | 109 | | | 13 | | | 1 | |
|
| |
1Money market papers have contractual maturities of less than one year.
| | | | | | | | | | | | | | | | | | | | | | |
| | | Within 1 year | | 1 - 5 years | | 5 - 10 years | | Over 10 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| |
| |
| | | Within 1 year | | 1–5 years | | 5–10 years | | Over 10 years |
| CHF million, except percentages | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | | Amount | | Yield (%) | |
|
| |
31 December 20011 | | |
31 December 20021 | | |
| Swiss national government and agencies | | 9 | | 5.26 | | 10 | | 4.50 | | 16 | | 3.43 | | 1 | | 4.00 | | | 0 | | 0.00 | | 7 | | 4.88 | | 8 | | 3.86 | | 1 | | 4.00 | |
| Swiss local governments | | 3 | | 4.36 | | 38 | | 3.90 | | 4 | | 3.59 | | 0 | | 0.00 | | | 8 | | 4.02 | | 30 | | 3.94 | | 4 | | 3.59 | | 0 | | 0.00 | |
| US Treasury and agencies | | 0 | | 0.00 | | 24 | | 4.38 | | 8 | | 5.15 | | 0 | | 0.00 | | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | | 0 | | 0.00 | |
| Foreign governments and official institutions | | 5,014 | | 0.97 | | 5,048 | | 1.01 | | 27 | | 2.88 | | 0 | | 0.00 | | | 35 | | 4.63 | | 45 | | 3.13 | | 1 | | 6.12 | | 0 | | 0.00 | |
| Corporate debt securities | | 63 | | 4.53 | | 1,102 | | 4.59 | | 30 | | 3.22 | | 23 | | 15.372 | | | 675 | | 2.23 | | 249 | | 2.64 | | 19 | | 3.41 | | 21 | | 8.02 | |
| Mortgage-backed securities | | 0 | | 0.00 | | 5 | | 5.41 | | 0 | | 0.00 | | 0 | | 0.00 | | | 4 | | 2.25 | | 15 | | 3.97 | | 4 | | 4.03 | | 0 | | 0.00 | |
| Other debt securities | | 2 | | 4.77 | | 87 | | 3.91 | | 28 | | 3.56 | | 0 | | 0.00 | | | 1 | | 4.77 | | 48 | | 2.65 | | 0 | | 0.00 | | 0 | | 0.00 | |
|
| |
Total fair value | | | 5,091 | | | | 6,314 | | | | 113 | | | | 24 | | | | 723 | | 394 | | 36 | | 22 | |
|
| |
1 Money market papers have contractual maturities of less than one year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Within 1 year | | 1–5 years | | 5–10 years | | Over 10 years |
| CHF million, except percentages | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | |
| |
31 December 20011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Swiss national government and agencies | | | 9 | | | | 5.26 | | | | 10 | | | | 4.50 | | | | 16 | | | | 3.43 | | | | 1 | | | | 4.00 | |
| Swiss local governments | | | 3 | | | | 4.36 | | | | 38 | | | | 3.90 | | | | 4 | | | | 3.59 | | | | 0 | | | | 0.00 | |
| US Treasury and agencies | | | 0 | | | | 0.00 | | | | 24 | | | | 4.38 | | | | 8 | | | | 5.15 | | | | 0 | | | | 0.00 | |
| Foreign governments and official institutions | | | 5,014 | | | | 0.97 | | | | 5,048 | | | | 1.01 | | | | 27 | | | | 2.88 | | | | 0 | | | | 0.00 | |
| Corporate debt securities | | | 63 | | | | 4.53 | | | | 1,102 | | | | 4.59 | | | | 30 | | | | 3.22 | | | | 23 | | | | 15.37 | 2 |
| Mortgage-backed securities | | | 0 | | | | 0.00 | | | | 5 | | | | 5.41 | | | | 0 | | | | 0.00 | | | | 0 | | | | 0.00 | |
| Other debt securities | | | 2 | | | | 4.77 | | | | 87 | | | | 3.91 | | | | 28 | | | | 3.56 | | | | 0 | | | | 0.00 | |
| |
Total fair value | | | 5,091 | | | | | | | | 6,314 | | | | | | | | 113 | | | | | | | | 24 | | | | | |
| |
1Money market papers have contractual maturities of less than one year.
2The yield presented is the current contractual yield based on current market rates at 31 December 2001, but may not represent the yield through maturity since this is a floating rate debt instrument.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Within 1 year | | | 1 - 5 years | | | 5 - 10 years | | | Over 10 years | |
| | |
| | |
| | |
| | |
| |
| CHF million, except percentages | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | | | Amount | | | Yield (%) | |
|
31 December 2000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Swiss national government and agencies | | | 2 | | | | 6.90 | | | | 16 | | | | 5.13 | | | | 16 | | | | 6.45 | | | | 0 | | | | 0.00 | |
| Swiss local governments | | | 1 | | | | 6.11 | | | | 27 | | | | 5.19 | | | | 18 | | | | 4.43 | | | | 0 | | | | 0.00 | |
| US Treasury and agencies | | | 0 | | | | 0.00 | | | | 0 | | | | 0.00 | | | | 0 | | | | 0.00 | | | | 0 | | | | 0.00 | |
| Foreign governments and official institutions | | | 2,451 | | | | 1.62 | | | | 1,236 | | | | 1.80 | | | | 1,165 | | | | 0.85 | | | | 0 | | | | 0.00 | |
| Corporate debt securities | | | 16 | | | | 5.20 | | | | 917 | | | | 6.02 | | | | 206 | | | | 2.21 | | | | 0 | | | | 0.00 | |
| Mortgage-backed securities | | | 20 | | | | 6.02 | | | | 5 | | | | 6.54 | | | | 22 | | | | 14.46 | | | | 0 | | | | 0.00 | |
| Other debt securities | | | 21 | | | | 6.57 | | | | 56 | | | | 4.33 | | | | 11 | | | | 3.68 | | | | 0 | | | | 0.00 | |
|
| Total amortized cost | | | 2,511 | | | | | | | | 2,257 | | | | | | | | 1,438 | | | | | | | | 0 | | | | | |
|
Total market value | | | 2,514 | | | | | | | | 2,272 | | | | | | | | 1,434 | | | | | | | | 0 | | | | | |
|
206210
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross)
Loans are widely dispersed over industry sectors both within and outside of Switzerland. With the exceptions of private households (foreign and domestic) and banks and financial institutions outside Switzerland and real estate and rentals in Switzerland, there is no material concentration of loans. For further discussion of the loan portfolio, see the UBS Handbook 2002/2003.2003 / 2004. The following table illustrates the diversification of the loan portfolio among industry sectors at 31 December 2003, 2002, 2001, 2000 1999 and 1998.1999. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Domestic | | |
| Banks | | | 1,029 | | | 1,533 | | 2,896 | | 5,802 | | 4,543 | | | 619 | | 1,029 | | 1,533 | | 2,896 | | 5,802 | |
| Construction | | | 2,838 | | | 3,499 | | 4,870 | | 6,577 | | 7,897 | | | 2,175 | | 2,838 | | 3,499 | | 4,870 | | 6,577 | |
| Financial institutions | | | 4,301 | | | 5,673 | | 5,725 | | 9,387 | | 10,240 | | | 4,009 | | 4,301 | | 5,673 | | 5,725 | | 9,387 | |
| Hotels and restaurants | | | 2,655 | | | 2,950 | | 3,526 | | 4,259 | | 4,129 | | | 2,440 | | 2,655 | | 2,950 | | 3,526 | | 4,259 | |
Manufacturing1 | | | 7,237 | | | 8,686 | | 9,577 | | 11,377 | | 13,505 | | | 6,478 | | 7,237 | | 8,686 | | 9,577 | | 11,377 | |
| Private households | | | 95,295 | | | 93,746 | | 91,667 | | 93,846 | | 97,664 | | | 102,181 | | 95,295 | | 93,746 | | 91,667 | | 93,846 | |
| Public authorities | | | 5,529 | | | 5,222 | | 5,658 | | 5,277 | | 5,858 | | | 5,251 | | 5,529 | | 5,222 | | 5,658 | | 5,277 | |
| Real estate and rentals | | | 13,573 | | | 14,992 | | 16,673 | | 19,835 | | 21,231 | | | 12,449 | | 13,573 | | 14,992 | | 16,673 | | 19,835 | |
| Retail and wholesale | | | 7,172 | | | 8,674 | | 9,635 | | 10,904 | | 8,912 | | | 6,062 | | 7,172 | | 8,674 | | 9,635 | | 10,904 | |
Services2 | | | 10,237 | | | 12,161 | | 11,767 | | 14,862 | | 11,582 | | | 9,493 | | 10,237 | | 12,161 | | 11,767 | | 14,862 | |
Other3 | | | 1,738 | | | 1,860 | | 2,651 | | 1,818 | | 1,662 | | | 1,217 | | 1,738 | | 1,860 | | 2,651 | | 1,818 | |
|
| |
| Total domestic | | | 151,604 | | | 158,996 | | 164,645 | | 183,944 | | 187,223 | | | 152,374 | | 151,604 | | 158,996 | | 164,645 | | 183,944 | |
|
| |
Foreign4 | | |
| Banks | | | 31,882 | | | 26,728 | | 27,168 | | 24,983 | | 65,000 | | | 31,405 | | 31,882 | | 26,728 | | 27,168 | | 24,983 | |
| Chemicals | | | 519 | | | 1,080 | | 1,423 | | | 245 | | 519 | | 1,080 | | 1,423 | |
| Construction | | | 153 | | | 266 | | 773 | | | 84 | | 153 | | 266 | | 773 | |
| Electricity, gas and water supply | | | 1,105 | | | 977 | | 1,584 | | | 249 | | 1,105 | | 977 | | 1,584 | |
| Financial institutions | | | 18,378 | | | 14,458 | | 20,348 | | | 23,493 | | 18,378 | | 14,458 | | 20,348 | |
Manufacturing5 | | | 2,300 | | | 4,258 | | 4,596 | | | 2,421 | | 2,300 | | 4,258 | | 4,596 | |
| Mining | | | 868 | | | 1,313 | | 2,070 | | | 1,114 | | 868 | | 1,313 | | 2,070 | |
| Private households | | | 33,063 | | | 25,619 | | 29,470 | | | 21,194 | | 33,063 | | 25,619 | | 29,470 | |
| Public authorities | | | 2,628 | | | 6,454 | | 11,754 | | | 1,224 | | 2,628 | | 6,454 | | 11,754 | |
| Real estate and rentals | | | 616 | | | 10,227 | | 5,077 | | | 473 | | 616 | | 10,227 | | 5,077 | |
| Retail and wholesale | | | 1,367 | | | 1,732 | | 1,862 | | | 1,880 | | 1,367 | | 1,732 | | 1,862 | |
| Services | | | 1,654 | | | 4,786 | | 1,585 | | | 7,983 | | 1,654 | | 4,786 | | 1,585 | |
| Transport, storage and communication | | | 676 | | | 2,117 | | 993 | | | 3,658 | | 676 | | 2,117 | | 993 | |
Other6 | | | 2,557 | | | 2,973 | | 11,168 | | 69,087 | | 78,741 | | | 410 | | 2,557 | | 2,973 | | 11,168 | | 69,087 | |
|
| |
| Total foreign | | | 97,766 | | | 102,988 | | 119,871 | | 94,070 | | 143,741 | | | 95,833 | | 97,766 | | 102,988 | | 119,871 | | 94,070 | |
|
| |
Total gross | | | 249,370 | | | 261,984 | | 284,516 | | 278,014 | | 330,964 | | | 248,207 | | 249,370 | | 261,984 | | 284,516 | | 278,014 | |
|
| |
1Includes chemicals, food and beverages. 2Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For the years prior to the year 2000,1999, no detailed industry classifications are available. 5Includes food and beverages. 6Includes hotels and restaurants.
207211
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross) (continued)
D — Information Required by Industry Guide 3 (continued) |
Loans (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage at 31 December 2003, 2002, 2001, 2000 1999 and 1998.1999. Mortgages are included in the industry categories mentioned above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Mortgages | | |
| Domestic | | | 116,359 | | | 116,628 | | 116,348 | | 126,677 | | 138,306 | | | 122,069 | | 116,359 | | 116,628 | | 116,348 | | 126,677 | |
| Foreign | | | 11,510 | | | 9,583 | | 4,206 | | 1,310 | | 2,479 | | | 7,073 | | 11,510 | | 9,583 | | 4,206 | | 1,310 | |
|
| |
Total gross mortgages | | | 127,869 | | | 126,211 | | 120,554 | | 127,987 | | 140,785 | | | 129,142 | | 127,869 | | 126,211 | | 120,554 | | 127,987 | |
|
| |
Mortgages | | |
| Residential | | | 108,779 | | | 101,969 | | 96,181 | | 91,408 | | 106,093 | | | 110,239 | | 108,779 | | 101,969 | | 96,181 | | 91,408 | |
| Commercial | | | 19,090 | | | 24,242 | | 24,373 | | 36,579 | | 34,692 | | | 18,903 | | 19,090 | | 24,242 | | 24,373 | | 36,579 | |
|
| |
Total gross mortgages | | | 127,869 | | | 126,211 | | 120,554 | | 127,987 | | 140,785 | | | 129,142 | | 127,869 | | 126,211 | | 120,554 | | 127,987 | |
|
| |
Due from Banks and Loan Maturities (gross)
The following table discloses due from banks and loans by maturity at 31 December 2002.2003. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 29 to the UBS Group Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | Within 1 year | | 1 to 5 years | | Over 5 years | | Total | | | Within 1 year | | 1 to 5 years | | Over 5 years | | Total | |
|
| |
Domestic | | |
| Banks | | 969 | | 60 | | 0 | | | 1,029 | | | 619 | | 0 | | 0 | | 619 | |
| Mortgages | | 57,875 | | 55,676 | | 2,808 | | | 116,359 | | | 56,604 | | 58,666 | | 6,799 | | 122,069 | |
| Other loans | | 24,905 | | 7,534 | | 1,777 | | | 34,216 | | | 21,695 | | 6,528 | | 1,463 | | 29,686 | |
|
| |
Total domestic | | 83,749 | | 63,270 | | 4,585 | | | 151,604 | | | 78,918 | | 65,194 | | 8,262 | | 152,374 | |
|
| |
Foreign | | |
| Banks | | 31,285 | | 373 | | 224 | | | 31,882 | | | 29,587 | | 1,382 | | 436 | | 31,405 | |
| Mortgages | | 10,711 | | 688 | | 111 | | | 11,510 | | | 6,287 | | 732 | | 54 | | 7,073 | |
| Other loans | | 52,447 | | 1,492 | | 435 | | | 54,374 | | | 54,220 | | 2,419 | | 716 | | 57,355 | |
|
| |
Total foreign | | 94,443 | | 2,553 | | 770 | | | 97,766 | | | 90,094 | | 4,533 | | 1,206 | | 95,833 | |
|
| |
Total gross loans | | 178,192 | | 65,823 | | 5,355 | | | 249,370 | | |
Total gross | | | 169,012 | | 69,727 | | 9,468 | | 248,207 | |
|
| |
208At 31 December 2003, the total amount of due from banks and loans due after one year granted at fixed and floating rates are as follows:
| | | | | | | | | | | | | |
| CHF million | | 1 to 5 years | | | Over 5 years | | | Total | |
| |
| Fixed rate loans | | | 67,134 | | | | 8,856 | | | | 75,990 | |
| Adjustable or floating rate loans | | | 2,593 | | | | 612 | | | | 3,205 | |
| |
Total | | | 69,727 | | | | 9,468 | | | | 79,195 | |
| |
212
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)
Impaired, Non-performing and Restructured Loans
A loan (included in due from banks and loans) is classified as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods —– interest payments, scheduled principal repayments, or other payments due (for example on derivative transactions)guarantees), and including liquidation of collateral where available. Impaired obligations are thus obligationsWithin this category, we further classify loans as non-performing where losses are foreseeable. An allowance for credit losspayment of interest, principal or fees is then made with respect to the loan in question. Impaired loans include non-performing loans, for which the contractual payments of principal, interest or commission are overdue by more than 90 days. When loans are classifieddays or – as non-performing, the recognition of interestrequired by Swiss regulatory guidelines as at 31 December 2003 – when insolvency proceedings have commenced or commission income ceases according to the original terms of the loan agreement. Allowances are provided for non-performing
loans to reflect their net estimated recoverable amount.
The gross interest income that would have been recorded on non-performing loans was CHF 201171 million for domestic loans and CHF 23 million for foreign loans for the year ended 31 December 2003, CHF 148 million for domes-
tic loans and CHF 53 million for foreign loans for the year ended 31 December 2002, CHF 336 million for all non-performing loans for the year ended 31 December 2001 and CHF 182 million for all non-performing loans for the year ended 31 December 2000. The amount of interest income that was included in net income for those loans was CHF 174163 million for domestic loans and CHF 8 million for foreign loans for the year ended 31 December 2003, CHF 152 million for domestic loans and CHF 22 million for foreign loans for the year ended 31 December 2002 and CHF 201 million for all non-performing loans for the year ended 31 December 2001. There was no interest income recorded in net income for non-performing loans in 2000. The table below provides an analysis of the Group’s non-performing loans, for further information see the UBS Handbook 2002/2003.2003 / 2004.
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.99 | | | 31.12.98 | |
|
| Non-performing loans: | | | | | | | | | | | | | | | | | | | | |
| Domestic | | | 4,609 | | | | 6,531 | | | | 7,588 | | | | 11,435 | | | | 14,023 | |
| Foreign | | | 1,420 | | | | 2,108 | | | | 2,864 | | | | 1,638 | | | | 2,091 | |
|
Total non-performing loans | | | 6,029 | | | | 8,639 | | | | 10,452 | | | | 13,073 | | | | 16,114 | |
|
Foreign restructured loans1 | | | | | | | | | | | 179 | | | | 287 | | | | 449 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.99 | |
| |
| Non-performing due from banks and loans: | | | | | | | | | | | | | | | | | | | | |
| Domestic | | | 4,012 | | | | 4,609 | | | | 6,531 | | | | 7,588 | | | | 11,435 | |
| Foreign | | | 947 | | | | 1,420 | | | | 2,108 | | | | 2,864 | | | | 1,638 | |
| |
Total non-performing due from banks and loans | | | 4,959 | | | | 6,029 | | | | 8,639 | | | | 10,452 | | | | 13,073 | |
| |
Foreign restructured due from banks and loans1 | | | | | | | | | | | | | | | 179 | | | | 287 | |
| |
1 Include only performing foreign restructured loans. UBS does not, as a matter of policy, typically restructure loans to accrue interest at rates different from the original contractual terms or reduce the principal amount of loans. Instead, specific loan allowances are established as necessary. Unrecognized interest related to foreign restructured loans was not material to the results of operations during these periods.
In addition to the non-performing due from banks and loans shown above, the Group had CHF 2,647 million, CHF 4,336 million, CHF 5,990 million, CHF 8,042 million and CHF 9,383 million in “other impaired loans” for the years ended 31 December 2003, 2002, 2001, 2000 and 1999, respectively. TheseFor the years ended 31 December 2002, 2001, 2000 and 1999, respectively, these are loans that are current,
90 days in arrears, with respect to payment of principal or interest; and for the year ended 31 December 2003, these are loans not considered “non-performing” in accordance with Swiss regulatory guidelines, however, the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As at 31 December 20022003 specific allowances of CHF 1,407991 million had been established against these loans.
209213
Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D – Information Required by Industry Guide 3 (continued)Cross-Border Outstandings
Cross-border outstandings consist of general banking products such as loans (including unutilized commitments) and deposits with third parties, credit equivalents of over the counter (OTC) derivatives and repurchase agreements, and the market value of the inventory of securities. Outstandings are monitored and reported on an ongoing basis by the credit risk management and control organization with a dedicated country risk information system. With the exception of the 32 most developed economies, these exposures are rigorously limited.
Claims that are secured by third-party guarantees are recorded against the guarantor’s country of domicile. Outstandings that are 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 Federal Banking Commission.
The following tables list those countries for which cross-border outstandings exceeded 0.75% of total assets at 31 December
2003, 2002
2001 and
2000.2001. At 31 December
2002,2003, there were no outstandings that exceeded 0.75% of total assets in any country currently facing liquidity problems that the Group expects would materially affect the country’s ability to service its obligations.
For more information on cross-border exposure, see the UBS Handbook 2002/2003.2003 / 2004.
210214
D — Information Required by Industry Guide 3 (continued) |
D — Information Required by Industry Guide 3 (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.03 |
| | | Banking products | | Traded | | | Tradable | | | | | | | % of total | |
| CHF million | | Banks | | | Non-banks | | | products1 | | | assets2 | | | Total | | | assets | |
| |
| United States | | | 916 | | | | 288 | | | | 17,470 | | | | 108,050 | | | | 126,724 | | | | 9.1 | |
| Italy | | | 1,041 | | | | 967 | | | | 8,714 | | | | 14,547 | | | | 25,269 | | | | 1.8 | |
| Germany | | | 1,928 | | | | 3,814 | | | | 13,307 | | | | 5,605 | | | | 24,654 | | | | 1.8 | |
| United Kingdom | | | 4,223 | | | | 525 | | | | 4,374 | | | | 11,112 | | | | 20,234 | | | | 1.5 | |
| France | | | 441 | | | | 1,505 | | | | 4,450 | | | | 8,320 | | | | 14,716 | | | | 1.1 | |
| Japan | | | 7 | | | | 300 | | | | 1,622 | | | | 11,548 | | | | 13,477 | | | | 1.0 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.02 |
| | | Banking products | | Traded | | | Tradable | | | | | | | % of total | |
| CHF million | | Banks | | | Non-banks | | | products1 | | | assets2 | | | Total | | | assets | |
| |
| United States | | | 1,083 | | | | 698 | | | | 27,617 | | | | 95,046 | | | | 124,444 | | | | 10.5 | |
| Germany | | | 2,590 | | | | 4,732 | | | | 13,101 | | | | 9,104 | | | | 29,527 | | | | 2.5 | |
| Italy | | | 1,139 | | | | 296 | | | | 7,229 | | | | 14,852 | | | | 23,516 | | | | 2.0 | |
| United Kingdom | | | 4,161 | | | | 606 | | | | 5,437 | | | | 12,106 | | | | 22,310 | | | | 1.9 | |
| France | | | 2,077 | | | | 1,805 | | | | 5,710 | | | | 11,403 | | | | 20,995 | | | | 1.8 | |
| Australia | | | 133 | | | | 535 | | | | 4,514 | | | | 6,651 | | | | 11,833 | | | | 1.0 | |
| Canada | | | 130 | | | | 872 | | | | 4,964 | | | | 5,115 | | | | 11,081 | | | | 0.9 | |
| Japan | | | 312 | | | | 88 | | | | 1,766 | | | | 7,816 | | | | 9,982 | | | | 0.8 | |
| Cayman Islands | | | 7 | | | | 1,175 | | | | 5,054 | | | | 3,387 | | | | 9,623 | | | | 0.8 | |
| Netherlands | | | 289 | | | | 1,548 | | | | 4,110 | | | | 3,313 | | | | 9,260 | | | | 0.8 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.01 |
| | | Banking products | | Traded | | | Tradable | | | | | | | % of total | |
| CHF million | | Banks | | | Non-banks | | | products1 | | | assets2 | | | Total | | | assets | |
| |
| United States | | | 2,360 | | | | 1,284 | | | | 31,129 | | | | 114,615 | | | | 149,388 | | | | 11.9 | |
| United Kingdom | | | 2,483 | | | | 543 | | | | 9,128 | | | | 27,754 | | | | 39,908 | | | | 3.2 | |
| Germany | | | 3,605 | | | | 6,395 | | | | 11,962 | | | | 11,755 | | | | 33,717 | | | | 2.7 | |
| Japan | | | 640 | | | | 770 | | | | 4,442 | | | | 22,995 | | | | 28,847 | | | | 2.3 | |
| Italy | | | 1,086 | | | | 498 | | | | 11,628 | | | | 11,180 | | | | 24,392 | | | | 1.9 | |
| France | | | 159 | | | | 2,043 | | | | 4,114 | | | | 8,052 | | | | 14,368 | | | | 1.1 | |
| Canada | | | 114 | | | | 950 | | | | 5,220 | | | | 8,038 | | | | 14,322 | | | | 1.1 | |
| Netherlands | | | 1,834 | | | | 2,414 | | | | 6,126 | | | | 3,110 | | | | 13,484 | | | | 1.1 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.00 | |
| | |
| |
| | | Banking products | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | Traded | | | Tradable | | | | | | | % of total | |
| CHF million | | Banks | | | Non-banks | | | products1 | | | assets2 | | | Total | | | assets | |
|
| United States | | | 1,826 | | | | 958 | | | | 21,796 | | | | 64,077 | | | | 88,657 | | | | 8.2 | |
| Japan | | | 123 | | | | 895 | | | | 6,378 | | | | 58,779 | | | | 66,175 | | | | 6.1 | |
| United Kingdom | | | 1,795 | | | | 1,224 | | | | 9,037 | | | | 22,440 | | | | 34,496 | | | | 3.2 | |
| Germany | | | 2,686 | | | | 3,720 | | | | 13,198 | | | | 5,085 | | | | 24,689 | | | | 2.3 | |
| Italy | | | 1,293 | | | | 931 | | | | 3,629 | | | | 9,700 | | | | 15,553 | | | | 1.4 | |
| France | | | 1,085 | | | | 1,900 | | | | 3,956 | | | | 5,987 | | | | 12,928 | | | | 1.2 | |
| Netherlands | | | 910 | | | | 1,480 | | | | 6,092 | | | | 3,803 | | | | 12,285 | | | | 1.1 | |
| Australia | | | 27 | | | | 370 | | | | 3,113 | | | | 7,508 | | | | 11,018 | | | | 1.0 | |
|
1Traded products consist of derivative instruments and repurchase agreements. In 2002, 2001 and 2000 unsecured OTC derivatives exposure is reported based on the Potential Credit Exposure measurement methodology and is therefore not directly comparable to the exposures in the prior years, which were measured based on Gross Replacement Values plus Add-on. 2Tradable assets consist of equity and fixed income financial instruments held for trading purposes, which are marked to market on a daily basis and private equity investments at the lower of book or market value.
211215
Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D — Information Required by Industry Guide 3 (continued)Summary of Movements in Allowances and Provisions for Credit Losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
As a result of Swiss bankruptcy laws, banks write-offwrite off loans against allowances only upon final settlement of bankruptcy proceedings, the sale of the underlying assets and/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 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Balance at beginning of year | | | 8,218 | | | 10,581 | | 13,398 | | 14,978 | | 16,213 | | | | 5,621 | | | 8,218 | | 10,581 | | 13,398 | | 14,978 | |
Write-offs | | |
Write offs | | |
Domestic | | |
| Banks | | | 0 | | | 0 | | 0 | | | (4 | ) | | | (2 | ) | | 0 | | 0 | | 0 | | 0 | | | (4 | ) |
| Construction | | | (148 | ) | | | (248 | ) | | | (261 | ) | | | (296 | ) | | | (228 | ) | | | (73 | ) | | | (148 | ) | | | (248 | ) | | | (261 | ) | | | (296 | ) |
| Financial institutions | | | (103 | ) | | | (51 | ) | | | (178 | ) | | | (92 | ) | | | (66 | ) | | | (37 | ) | | | (103 | ) | | | (51 | ) | | | (178 | ) | | | (92 | ) |
| Hotels and restaurants | | | (48 | ) | | | (52 | ) | | | (193 | ) | | | (137 | ) | | | (98 | ) | | | (57 | ) | | | (48 | ) | | | (52 | ) | | | (193 | ) | | | (137 | ) |
Manufacturing1 | | | (275 | ) | | | (109 | ) | | | (264 | ) | | | (242 | ) | | | (214 | ) | | | (121 | ) | | | (275 | ) | | | (109 | ) | | | (264 | ) | | | (242 | ) |
| Private households | | | (536 | ) | | | (1,297 | ) | | | (640 | ) | | | (598 | ) | | | (534 | ) | | | (262 | ) | | | (536 | ) | | | (1,297 | ) | | | (640 | ) | | | (598 | ) |
| Public authorities | | | 0 | | | 0 | | 0 | | 0 | | | (2 | ) | | | (18 | ) | | 0 | | 0 | | 0 | | 0 | |
| Real estate and rentals | | | (357 | ) | | | (317 | ) | | | (729 | ) | | | (823 | ) | | | (610 | ) | | | (206 | ) | | | (357 | ) | | | (317 | ) | | | (729 | ) | | | (823 | ) |
| Retail and wholesale | | | (101 | ) | | | (115 | ) | | | (160 | ) | | | (210 | ) | | | (178 | ) | | | (67 | ) | | | (101 | ) | | | (115 | ) | | | (160 | ) | | | (210 | ) |
Services2 | | | (155 | ) | | | (93 | ) | | | (227 | ) | | | (315 | ) | | | (116 | ) | | | (111 | ) | | | (155 | ) | | | (93 | ) | | | (227 | ) | | | (315 | ) |
Other3 | | | (49 | ) | | | (46 | ) | | | (30 | ) | | | (41 | ) | | | (15 | ) | | | (43 | ) | | | (49 | ) | | | (46 | ) | | | (30 | ) | | | (41 | ) |
|
| |
Total domestic write-offs | | | (1,772 | ) | | | (2,328 | ) | | | (2,682 | ) | | | (2,758 | ) | | | (2,063 | ) | |
Total domestic write offs | | | | (995 | ) | | | (1,772 | ) | | | (2,328 | ) | | | (2,682 | ) | | | (2,758 | ) |
|
| |
Foreign4 | | |
| Banks | | | (49 | ) | | | (24 | ) | | | (15 | ) | | | | (17 | ) | | | (49 | ) | | | (24 | ) | | | (15 | ) | |
| Chemicals | | | 0 | | | | (2 | ) | | 0 | | | 0 | | 0 | | | (2 | ) | | 0 | |
| Construction | | | 0 | | | | (10 | ) | | | (13 | ) | | | 0 | | 0 | | | (10 | ) | | | (13 | ) | |
| Electricity, gas and water supply | | | (36 | ) | | | (63 | ) | | | (3 | ) | | | 0 | | | (36 | ) | | | (63 | ) | | | (3 | ) | |
| Financial institutions | | | (228 | ) | | | (74 | ) | | | (33 | ) | | | | (112 | ) | | | (228 | ) | | | (74 | ) | | | (33 | ) | |
Manufacturing5 | | | (70 | ) | | | (119 | ) | | | (11 | ) | | | | (77 | ) | | | (70 | ) | | | (119 | ) | | | (11 | ) | |
| Mining | | | (1 | ) | | | (304 | ) | | 0 | | | | (15 | ) | | | (1 | ) | | | (304 | ) | | 0 | |
| Private households | | | (65 | ) | | | (5 | ) | | 0 | | | | (11 | ) | | | (65 | ) | | | (5 | ) | | 0 | |
| Public authorities | | | (1 | ) | | 0 | | | (4 | ) | | | 0 | | | (1 | ) | | 0 | | | (4 | ) | |
| Real estate and rentals | | | (2 | ) | | | (1 | ) | | 0 | | | | (1 | ) | | | (2 | ) | | | (1 | ) | | 0 | |
| Retail and wholesale | | | (10 | ) | | 0 | | | (160 | ) | | | | (76 | ) | | | (10 | ) | | 0 | | | (160 | ) | |
| Services | | | (39 | ) | | | (30 | ) | | | (8 | ) | | | | (25 | ) | | | (39 | ) | | | (30 | ) | | | (8 | ) | |
| Transport, storage and communication | | | (74 | ) | | 0 | | | (11 | ) | | | | (24 | ) | | | (74 | ) | | 0 | | | (11 | ) | |
Other6 | | | (189 | ) | | | (48 | ) | | | (55 | ) | | | | (83 | ) | | | (189 | ) | | | (48 | ) | | | (55 | ) | |
|
| |
Total foreign write-offs | | | (764 | ) | | | (680 | ) | | | (313 | ) | | | (517 | ) | | | (261 | ) | |
Total foreign write offs | | | | (441 | ) | | | (764 | ) | | | (680 | ) | | | (313 | ) | | | (517 | ) |
|
| |
Total write-offs | | | (2,536 | ) | | | (3,008 | ) | | | (2,995 | ) | | | (3,275 | ) | | | (2,324 | ) | |
Total write offs | | | | (1,436 | ) | | | (2,536 | ) | | | (3,008 | ) | | | (2,995 | ) | | | (3,275 | ) |
|
| |
Recoveries | | |
| Domestic | | | 43 | | | 58 | | 124 | | 54 | | 59 | | | 49 | | 43 | | 58 | | 124 | | 54 | |
| Foreign | | | 27 | | | 23 | | 39 | | 11 | | 0 | | | 38 | | 27 | | 23 | | 39 | | 11 | |
|
| |
Total recoveries | | | 70 | | | 81 | | 163 | | 65 | | 59 | | | 87 | | 70 | | 81 | | 163 | | 65 | |
|
| |
Net write-offs | | | (2,466 | ) | | | (2,927 | ) | | | (2,832 | ) | | | (3,210 | ) | | | (2,265 | ) | |
Net write offs | | | | (1,349 | ) | | | (2,466 | ) | | | (2,927 | ) | | | (2,832 | ) | | | (3,210 | ) |
|
| |
| Credit loss expense/(recovery) | | | 206 | | | 498 | | | (130 | ) | | 956 | | 951 | | |
| Credit loss expense / (recovery) | | | | 116 | | | 206 | | 498 | | | (130 | ) | | 956 | |
Other adjustments7 | | | (337 | ) | | 66 | | 145 | | 674 | | 79 | | | | (62 | ) | | | (337 | ) | | 66 | | 145 | | 674 | |
|
| |
Balance at end of year | | | 5,621 | | | 8,218 | | 10,581 | | 13,398 | | 14,978 | | | | 4,326 | | | 5,621 | | 8,218 | | 10,581 | | 13,398 | |
|
| |
1Includes chemicals, food and beverages. 2Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For years prior to 2000,1999, no detailed industry classifications are available. 5Includes food and beverages. 6Includes hotels and restaurants. 7See the following table for details.
212216
D — Information Required by Industry Guide 3 (continued) |
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
| Doubtful interest | | | 0 | | | 0 | | 182 | | 409 | | 423 | | | 0 | | 0 | | 0 | | 182 | | 409 | |
| Net foreign exchange | | | (269 | ) | | 44 | | 23 | | 351 | | | (98 | ) | | | (57 | ) | | | (269 | ) | | 44 | | 23 | | 351 | |
| Subsidiaries sold and other | | | (68 | ) | | 22 | | | (60 | ) | | | (86 | ) | | | (246 | ) | | | (5 | ) | | | (68 | ) | | 22 | | | (60 | ) | | | (86 | ) |
|
| |
Total adjustments | | | (337 | ) | | 66 | | 145 | | 674 | | 79 | | | | (62 | ) | | | (337 | ) | | 66 | | 145 | | 674 | |
|
| |
213217
Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D — Information Required by Industry Guide 3 (continued)Allocation of the Allowances and Provisions for Credit Losses (continued)
The following table provides an analysis of the allocation of the allowances and provisions for credit losslosses by industry sectors and geographic location at 31 December 2003, 2002, 2001, 2000 1999 and 1998.1999. For a description of procedures with respect to allowances and provisions for credit losses, see the UBS Handbook 2002/2003.2003 / 2004.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Domestic | | |
| Banks | | | 10 | | | 34 | | 0 | | 41 | | 49 | | | 10 | | 10 | | 34 | | 0 | | 41 | |
| Construction | | | 265 | | | 467 | | 843 | | 1,247 | | 1,671 | | | | 158 | | | 265 | | 467 | | 843 | | 1,247 | |
| Financial institutions | | | 89 | | | 262 | | 328 | | 342 | | 668 | | | | 137 | | | 89 | | 262 | | 328 | | 342 | |
| Hotels and restaurants | | | 286 | | | 346 | | 454 | | 690 | | 657 | | | | 214 | | | 286 | | 346 | | 454 | | 690 | |
Manufacturing1 | | | 458 | | | 722 | | 863 | | 1,223 | | 1,331 | | | | 327 | | | 458 | | 722 | | 863 | | �� | | 1,223 | |
| Private households | | | 750 | | | 1,082 | | 1,570 | | 2,350 | | 2,741 | | | | 511 | | | 750 | | 1,082 | | 1,570 | | 2,350 | |
| Public authorities | | | 39 | | | 37 | | 0 | | 40 | | 107 | | | 9 | | 39 | | 37 | | 0 | | 40 | |
| Real estate and rentals | | | 577 | | | 1,067 | | 1,635 | | 2,696 | | 3,333 | | | | 383 | | | 577 | | 1,067 | | 1,635 | | 2,696 | |
| Retail and wholesale | | | 315 | | | 395 | | 629 | | 779 | | 825 | | | | 201 | | | 315 | | 395 | | 629 | | 779 | |
Services2 | | | 470 | | | 448 | | 419 | | 934 | | 766 | | | | 549 | | | 470 | | 448 | | 419 | | 934 | |
Other3 | | | 315 | | | 165 | | 413 | | 141 | | 71 | | | | 241 | | | 315 | | 165 | | 413 | | 141 | |
|
| |
Total domestic | | | 3,574 | | | 5,025 | | 7,154 | | 10,483 | | 12,219 | | | | 2,740 | | | 3,574 | | 5,025 | | 7,154 | | 10,483 | |
|
| |
Foreign4 | | |
Banks5 | | | 24 | | | 39 | | 32 | | | | 256 | | | 24 | | 39 | | 32 | |
| Chemicals | | | 5 | | | 5 | | 0 | | | 5 | | 5 | | 5 | | 0 | |
| Construction | | | 6 | | | 0 | | 11 | | | 0 | | 6 | | 0 | | 11 | |
| Electricity, gas and water supply | | | 96 | | | 88 | | 107 | | | 0 | | 96 | | 88 | | 107 | |
| Financial institutions | | | 153 | | | 420 | | 262 | | | | 168 | | | 153 | | 420 | | 262 | |
Manufacturing6 | | | 314 | | | 653 | | 547 | | | | 359 | | | 314 | | 653 | | 547 | |
| Mining | | | 148 | | | 169 | | 586 | | | 19 | | 148 | | 169 | | 586 | |
| Private households | | | 58 | | | 103 | | 72 | | | 48 | | 58 | | 103 | | 72 | |
| Public authorities | | | 0 | | | 0 | | 0 | | | 69 | | 0 | | 0 | | 0 | |
| Real estate and rentals | | | 6 | | | 9 | | 82 | | | 7 | | 6 | | 9 | | 82 | |
| Retail and wholesale | | | 13 | | | 0 | | 41 | | | 51 | | 13 | | 0 | | 41 | |
| Services | | | 262 | | | 414 | | 126 | | | 32 | | 262 | | 414 | | 126 | |
| Transport, storage and communication | | | 144 | | | 45 | | 2 | | | | 195 | | | 144 | | 45 | | 2 | |
Other7 | | | 82 | | | 242 | | 267 | | | 91 | | 82 | | 242 | | 267 | |
|
| |
Total foreign, net of country provisions | | | 1,311 | | | 2,187 | | 2,135 | | 1,539 | | 1,309 | | | | 1,300 | | | 1,311 | | 2,187 | | 2,135 | | 1,539 | |
|
| |
| Country provisions | | | 736 | | | 1,006 | | 1,292 | | 1,376 | | 1,450 | | | | 286 | | | 736 | | 1,006 | | 1,292 | | 1,376 | |
|
| |
Total foreign8 | | | 2,047 | | | 3,193 | | 3,427 | | 2,915 | | 2,759 | | | | 1,586 | | | 2,047 | | 3,193 | | 3,427 | | 2,915 | |
|
| |
Total allowances and provisions for credit losses | | | 5,621 | | | 8,218 | | 10,581 | | 13,398 | | 14,978 | | | | 4,326 | | | 5,621 | | 8,218 | | 10,581 | | 13,398 | |
|
| |
1Includes chemicals, food and beverages. 2Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For years prior to 2000,1999, no detailed industry classifications are available. 5Counterparty allowances and provisions only. Country provisions with banking counterparties amounting to CHF 40991 million are disclosed under country provisions. 6Includes food and beverages. 7Includes hotels and restaurants. 8The 2003, 2002, 2001, 2000 1999 and 19981999 amounts include CHF 290 million, CHF 366 million, CHF 305 million, CHF 54 million CHF 149 million and CHF 435149 million respectively of provisions and for unused commitments and contingent liabilities.
214218
D — Information Required by Industry Guide 3 (continued) |
D — Information Required by Industry Guide 3 (continued)
Due from Bank and Loans by industry sectorIndustry 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 % | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
Domestic | | |
| Banks | | | 0.4 | | | 0.6 | | 1.0 | | 2.1 | | 1.4 | | | | 0.2 | | | 0.4 | | 0.6 | | 1.0 | | 2.1 | |
| Construction | | | 1.1 | | | 1.3 | | 1.7 | | 2.4 | | 2.4 | | | | 0.9 | | | 1.1 | | 1.3 | | 1.7 | | 2.4 | |
| Financial institutions | | | 1.7 | | | 2.2 | | 2.0 | | 3.4 | | 3.1 | | | | 1.6 | | | 1.7 | | 2.2 | | 2.0 | | 3.4 | |
| Hotels and restaurants | | | 1.1 | | | 1.1 | | 1.2 | | 1.5 | | 1.2 | | | | 1.0 | | | 1.1 | | 1.1 | | 1.2 | | 1.5 | |
Manufacturing1 | | | 2.9 | | | 3.3 | | 3.4 | | 4.1 | | 4.1 | | | | 2.6 | | | 2.9 | | 3.3 | | 3.4 | | 4.1 | |
| Private households | | | 38.2 | | | 35.8 | | 32.2 | | 33.8 | | 29.5 | | | | 41.2 | | | 38.2 | | 35.8 | | 32.2 | | 33.8 | |
| Public authorities | | | 2.2 | | | 2.0 | | 2.0 | | 1.9 | | 1.8 | | | | 2.1 | | | 2.2 | | 2.0 | | 2.0 | | 1.9 | |
| Real estate and rentals | | | 5.5 | | | 5.7 | | 5.9 | | 7.1 | | 6.4 | | | | 5.0 | | | 5.5 | | 5.7 | | 5.9 | | 7.1 | |
| Retail and wholesale | | | 2.9 | | | 3.3 | | 3.4 | | 3.9 | | 2.7 | | | | 2.4 | | | 2.9 | | 3.3 | | 3.4 | | 3.9 | |
Services2 | | | 4.1 | | | 4.6 | | 4.1 | | 5.3 | | 3.5 | | | | 3.8 | | | 4.1 | | 4.6 | | 4.1 | | 5.3 | |
Other3 | | | 0.7 | | | 0.8 | | 1.0 | | 0.7 | | 0.5 | | | | 0.6 | | | 0.7 | | 0.8 | | 1.0 | | 0.7 | |
|
| |
Total domestic | | | 60.8 | | | 60.7 | | 57.9 | | 66.2 | | 56.6 | | | | 61.4 | | | 60.8 | | 60.7 | | 57.9 | | 66.2 | |
|
| |
Foreign4 | | |
| Banks | | | 12.8 | | | 10.2 | | 9.5 | | 9.0 | | 19.6 | | | | 12.7 | | | 12.8 | | 10.2 | | 9.5 | | 9.0 | |
| Chemicals | | | 0.2 | | | 0.4 | | 0.5 | | | | 0.1 | | | 0.2 | | 0.4 | | 0.5 | |
| Construction | | | 0.1 | | | 0.1 | | 0.3 | | | | 0.0 | | | 0.1 | | 0.1 | | 0.3 | |
| Electricity, gas and water supply | | | 0.4 | | | 0.4 | | 0.6 | | | | 0.1 | | | 0.4 | | 0.4 | | 0.6 | |
| Financial institutions | | | 7.4 | | | 5.5 | | 7.2 | | | | 9.5 | | | 7.4 | | 5.5 | | 7.2 | |
Manufacturing5 | | | 0.9 | | | 1.6 | | 1.6 | | | | 1.0 | | | 0.9 | | 1.6 | | 1.6 | |
| Mining | | | 0.3 | | | 0.5 | | 0.7 | | | | 0.4 | | | 0.3 | | 0.5 | | 0.7 | |
| Private households | | | 13.3 | | | 9.8 | | 10.4 | | | | 8.5 | | | 13.3 | | 9.8 | | 10.4 | |
| Public authorities | | | 1.1 | | | 2.5 | | 4.1 | | | | 0.5 | | | 1.1 | | 2.5 | | 4.1 | |
| Real estate and rentals | | | 0.2 | | | 3.9 | | 1.8 | | | | 0.2 | | | 0.2 | | 3.9 | | 1.8 | |
| Retail and wholesale | | | 0.5 | | | 0.7 | | 0.7 | | | | 0.8 | | | 0.5 | | 0.7 | | 0.7 | |
| Services | | | 0.7 | | | 1.8 | | 0.6 | | | | 3.2 | | | 0.7 | | 1.8 | | 0.6 | |
| Transport, storage and communication | | | 0.3 | | | 0.8 | | 0.3 | | | | 1.5 | | | 0.3 | | 0.8 | | 0.3 | |
Other6 | | | 1.0 | | | 1.1 | | 3.8 | | 24.8 | | 23.8 | | | | 0.1 | | | 1.0 | | 1.1 | | 3.8 | | 24.8 | |
|
| |
Total foreign | | | 39.2 | | | 39.3 | | 42.1 | | 33.8 | | 43.4 | | | | 38.6 | | | 39.2 | | 39.3 | | 42.1 | | 33.8 | |
|
| |
Total gross loans | | | 100.0 | | | 100.0 | | 100.0 | | 100.0 | | 100.0 | | |
Total gross | | | | 100.0 | | | 100.0 | | 100.0 | | 100.0 | | 100.0 | |
|
| |
1Includes chemicals, food and beverages. 2Includes transportation, communication, health and social work, education and other social and personal service activities. 3Includes mining and electricity, gas and water supply. 4For the years prior to 2000,1999, no detailed industry classifications are available. 5Includes food and beverages. 6Includes hotels and restaurants.
215219
Additional Disclosure Required
under SEC Regulations
D — Information Required by Industry Guide 3 (continued) |
D — Information Required by Industry Guide 3 (continued)Loss History Statistics
The following is a summary of the Group’s loan loss history.history (relating to due from banks and loans).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | CHF million, except where indicated | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | | 31.12.98 | | | 31.12.03 | | 31.12.02 | | 31.12.01 | | 31.12.00 | | 31.12.99 | |
|
| |
| Gross loans | Gross loans | | | 249,370 | | | 261,984 | | 284,516 | | 278,014 | | 330,964 | | | | 248,207 | | | 249,370 | | 261,984 | | 284,516 | | 278,014 | |
| Impaired loans | Impaired loans | | | 10,365 | | | 14,629 | | 18,494 | | 22,456 | | 26,447 | | | | 7,606 | | | 10,365 | | 14,629 | | 18,494 | | 22,456 | |
| Non-performing loans | Non-performing loans | | | 6,029 | | | 8,639 | | 10,452 | | 13,073 | | 16,114 | | | | 4,959 | | | 6,029 | | 8,639 | | 10,452 | | 13,073 | |
| Allowances and provisions for credit losses | Allowances and provisions for credit losses | | | 5,621 | | | 8,218 | | 10,581 | | 13,398 | | 14,978 | | | | 4,326 | | | 5,621 | | 8,218 | | 10,581 | | 13,398 | |
| Net write-offs | | | 2,466 | | | 2,927 | | 2,832 | | 3,210 | | 2,265 | | |
| Credit loss expense/(recovery) | | | 206 | | | 498 | | | (130 | ) | | 956 | | 951 | | |
| Net write offs | | | | 1,349 | | | 2,466 | | 2,927 | | 2,832 | | 3,210 | |
| Credit loss expense / (recovery) | | | | 116 | | | 206 | | 498 | | | (130 | ) | | 956 | |
|
| |
Ratios | Ratios | | |
| Impaired loans as a percentage of gross loans | Impaired loans as a percentage of gross loans | | | 4.2 | | | 5.6 | | 6.5 | | 8.1 | | 8.0 | | | | 3.1 | | | 4.2 | | 5.6 | | 6.5 | | 8.1 | |
| Non-performing loans as a percentage of gross loans | Non-performing loans as a percentage of gross loans | | | 2.4 | | | 3.3 | | 3.7 | | 4.7 | | 4.9 | | | | 2.0 | | | 2.4 | | 3.3 | | 3.7 | | 4.7 | |
| Allowances and provisions for credit losses as a percentage of: | | |
| | Gross loans | | | 2.3 | | | 3.1 | | 3.7 | | 4.8 | | 4.5 | | |
| | Impaired loans | | | 54.2 | | | 56.2 | | 57.2 | | 59.7 | | 56.6 | | |
| | Non-performing loans | | | 93.2 | | | 95.1 | | 101.2 | | 102.5 | | 93.0 | | |
| Allowance and provisions for credit losses as a percentage of: | | |
| Gross loans | | | | 1.7 | | | 2.3 | | 3.1 | | 3.7 | | 4.8 | |
| Impaired loans | | | | 56.9 | | | 54.2 | | 56.2 | | 57.2 | | 59.7 | |
| Non-performing loans | | | | 87.2 | | | 93.2 | | 95.1 | | 101.2 | | 102.5 | |
Allocated allowances as a percentage of impaired loans1 | Allocated allowances as a percentage of impaired loans1 | | | 47.2 | | | 49.9 | | 52.4 | | 55.5 | | 51.4 | | | | 50.0 | | | 47.2 | | 49.9 | | 52.4 | | 55.5 | |
Allocated allowances as a percentage of non-performing loans2 | Allocated allowances as a percentage of non-performing loans2 | | | 57.8 | | | 62.2 | | 60.6 | 3 | | 66.3 | | 62.1 | | | | 56.8 | | | 57.8 | | 62.2 | | 60.6 | | 66.3 | |
| Net write-offs as a percentage of: | | |
| Net write offs as a percentage of: | | |
| Gross loans | | | | 0.5 | | | 1.0 | | 1.1 | | 1.0 | | 1.2 | |
| Average loans outstanding during the period | | | | 0.6 | | | 1.1 | | 1.2 | | 1.1 | | 1.2 | |
| Allowance and provisions for credit losses | | | | 31.2 | | | 43.9 | | 35.6 | | 26.8 | | 24.0 | |
| Allowance and provisions for credit losses as a multiple of net write offs | | | | 3.21 | | | 2.28 | | 2.81 | | 3.74 | | 4.17 | |
| | Gross loans | | | 1.0 | | | 1.1 | | 1.0 | | 1.2 | | 0.7 | | |
| | Average loans outstanding during the period | | | 1.1 | | | 1.2 | | 1.1 | | 1.2 | | 0.8 | | |
| | Allowances and provisions for credit losses | | | 43.9 | | | 35.6 | | 26.8 | | 24.0 | | 15.1 | | |
| Allowances and provisions for credit losses as multiple of net write-offs | | | 2.28 | | | 2.81 | | 3.74 | | 4.17 | | 6.61 | | |
| |
1Allowances relating to impaired loans only. 2Allowances relating to non-performing loans only.331 December 2000 figure has been restated to account for an overallocation of allowances to non-performing loans.
216220
Cautionary statement regarding forward-looking statements
This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives, such as the implementation of the European wealth management strategy, expansion of our corporate finance presence in the US and worldwide, and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or credit-worthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our business group structure in 2001, 2002 and 2003 and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2003. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint
Publisher/Copyright: UBS AG, Switzerland
Languages: English, German. SAP-No. 80531E-0401
Contents | | |
| | UBS AG |
| | P.O. Box, CH-8098 Zurich |
| | P.O. Box, CH-4002 Basel |
| | |
| | www.ubs.com |
Profile
Handbook 2003/2004 U.S. Version
| | | | | |
| | | 1 | |
| | | 2 | |
| | | 3 | |
| | | 4 | |
| | | 6 | |
| | | | |
| | | 27 | |
| | | 8 | |
| | | 16 | |
| | | | |
| | | 317 | |
Our | | | 18 | |
| | | 27 | |
| | | 31 | |
| | | 38 | |
| | | 42 | |
| | | | |
| | | 445 | |
Sources of Information about UBS | | | 46 | |
| | | 50 | |
| | | 67 | |
| | | | |
| | | 575 | |
| | | 76 | |
| | | 77 | |
| | | 79 | |
| | | 81 | |
| | | 87 | |
| | | 91 | |
| | | 96 | |
| | | 98 | |
| | | 99 | |
| | | 102 | |
| | | 104 | |
| | | 107 | |
| | | 110 | |
| | | | |
| | | 113 | |
| | | | | |
| | | 9 | |
Strategy, Structure and History | | | 10 | |
| | | | |
The Business Groups | | | 21 | |
UBS Wealth Management & Business Banking | | | 22 | |
UBS Global Asset Management | | | 34 | |
UBS Warburg | | | 38 | |
UBS PaineWebber | | | 45 | |
Corporate Center | | | 50 | |
| | | | |
Capital and Risk Management | | | 53 | |
Risk Management and Control | | | 54 | |
Risk Analysis | | | 59 | |
Group Treasury | | | 78 | |
| | | | |
Corporate Governance | | | 89 | |
Introduction and Principles | | | 90 | |
Group Structure and Shareholders | | | 91 | |
Capital Structure | | | 93 | |
Board of Directors | | | 95 | |
Group Executive Board | | | 101 | |
Compensation, Shareholdings and Loans | | | 104 | |
Shareholders’ Participation Rights | | | 109 | |
Change of Control and Defensive Measures | | | 111 | |
Auditors | | | 112 | |
Information Policy: | | | | |
UBS Financial Disclosure Principles | | | 114 | |
Regulation and Supervision | | | 117 | |
Compliance with NYSE Listing Standards on
Corporate Governance | | | 121118 | |
Group Managing Board | | | 124 | |
| | | | |
Corporate Responsibility | | | 127 | |
| | | | |
UBS Share Information | | | 133 | |
The Global Registered Share | | | 134 | |
UBS Share 2002 | | | 136120 | |
Introduction
This is the thirdfourth annual edition of the UBS Groupour Handbook.
The Handbook describes the UBS Group: itsIn it, we describe ourselves – our strategy, organization, and businesses. It outlinesWe outline the principles by which the Group manageswe manage risk, and reportsreport on last year’s developments in 2002 for theour credit risk, market risk, and treasury management areas.
The Handbook extensivelyalso discusses the Group’sour corporate governance arrangements and itsour relationships with regulators and shareholders, along withwhile providing detailed facts aboutinformation on the UBS share.
TheYou should read the Handbook should be read in conjunction with the other information published by UBS, as described on page 5 and 6.4.
We sincerely hope that you will find the information in our reporting documentsannual reports useful and informative. We believe that UBS is amongone of the leaders in corporate disclosure, butand we would be very interested to hear your views on how we might improve the content, information and presentation of our information portfolio.the reporting products we publish.
Mark Branson
Chief Communication Officer
UBS AG
1
UBS Financial Highlights
| 1 | | Operating expenses / operating income less credit loss expense or recovery. |
|
| 2 | | For EPS calculation, see Note 8 to the Financial Statements of the Financial Report 2003. |
|
| 3 | | Net profit / average shareholders’ equity less dividends. |
|
| 4 | | Includes hybrid Tier 1 capital, please refer to Note 29 in the Notes to the Financial Statements of the Financial Report 2003. |
|
| 5 | | See the Capital strength section on page 74. |
|
| | Throughout this report, 2001 and 2002 segment results have been restated to reflect the transfer of the Private Banks & GAM to Corporate Center. |
| | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Income statement key figures | | | | | | | | | | | | | | | | |
| Operating income | | | 33,972 | | | | 34,121 | | | | 37,114 | | | | 0 | |
| Operating expenses | | | 25,624 | | | | 29,577 | | | | 30,396 | | | | (13 | ) |
| Operating profit before tax | | | 8,348 | | | | 4,544 | | | | 6,718 | | | | 84 | |
| Net profit | | | 6,385 | | | | 3,535 | | | | 4,973 | | | | 81 | |
Cost / income ratio (%)1 | | | 75.2 | | | | 86.2 | | | | 80.8 | | | | | |
| |
Per share data (CHF) | | | | | | | | | | | | | | | | |
Basic earnings per share2 | | | 5.72 | | | | 2.92 | | | | 3.93 | | | | 96 | |
Diluted earnings per share2 | | | 5.61 | | | | 2.87 | | | | 3.78 | | | | 95 | |
| |
Return on shareholders’ equity (%)3 | | | 18.2 | | | | 8.9 | | | | 11.7 | | | | | |
| |
| | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | % change from | |
| As at | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | |
| |
Balance sheet key figures | | | | | | | | | | | | | | | | |
| Total assets | | | 1,386,000 | | | | 1,181,118 | | | | 1,253,297 | | | | 17 | |
| Shareholders’ equity | | | 35,446 | | | | 38,991 | | | | 43,530 | | | | (9 | ) |
| |
Market capitalization | | | 95,401 | | | | 79,448 | | | | 105,475 | | | | 20 | |
| |
BIS capital ratios | | | | | | | | | | | | | | | | |
Tier 1 (%)4 | | | 11.8 | | | | 11.3 | | | | 11.6 | | | | | |
| Total BIS (%) | | | 13.3 | | | | 13.8 | | | | 14.8 | | | | | |
| Risk-weighted assets | | | 251,901 | | | | 238,790 | | | | 253,735 | | | | 5 | |
| |
Invested assets (CHF billion) | | | 2,209 | | | | 2,037 | | | | 2,448 | | | | 8 | |
| |
Headcount (full-time equivalents) | | | | | | | | | | | | | | | | |
| Switzerland | | | 26,662 | | | | 27,972 | | | | 29,163 | | | | (5 | ) |
| Europe (excluding Switzerland) | | | 9,906 | | | | 10,009 | | | | 9,650 | | | | (1 | ) |
| Americas | | | 25,511 | | | | 27,350 | | | | 27,463 | | | | (7 | ) |
| Asia Pacific | | | 3,850 | | | | 3,730 | | | | 3,709 | | | | 3 | |
| Total | | | 65,929 | | | | 69,061 | | | | 69,985 | | | | (5 | ) |
| |
Long-term ratings5 | | | | | | | | | | | | | | | | |
| Fitch, London | | AA+ | | | AAA | | | AAA | | | | | |
| Moody’s, New York | | Aa2 | | | Aa2 | | | Aa2 | | | | | |
| Standard & Poor’s, New York | | AA+ | | | AA+ | | | AA+ | | | | | |
| |
12
UBS Group Financial Highlights
| | 1 Operating expenses/operating income before credit loss expense. |
|
| | 2 Excludes the amortization of goodwill and other intangible assets. |
|
| | 3 For EPS calculation, see Note 8 to the Financial Statements. |
|
| | 4 Net profit/average shareholders’ equity excluding dividends. |
|
| | 5 Includes hybrid Tier 1 capital, please refer to Note 29e in the Notes to the Financial Statements. |
|
| | 6 Klinik Hirslanden was sold on 5 December 2002. The Group headcount does not include the Klinik Hirslanden headcount of 2,450 and 1,839 for 31 December 2001 and 31 December 2000, respectively |
|
| | 7 See the Capital strength section on pages 10 to 11. |
|
| | 8 Details of significant financial events can be found in the Group Financial Review section of the Financial Report 2002. |
|
| | The segment results have been restated to reflect the new Business Group structure and associated management accounting changes implemented during 2002. |
|
| | All results presented include PaineWebber from the date of acquisition, 3 November 2000. |
| | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
| Income statement key figures | | | | | | | | | | | | | | | | |
| Operating income | | | 34,121 | | | | 37,114 | | | | 36,402 | | | | (8 | ) |
| Operating expenses | | | 29,577 | | | | 30,396 | | | | 26,203 | | | | (3 | ) |
| Operating profit before tax | | | 4,544 | | | | 6,718 | | | | 10,199 | | | | (32 | ) |
| Net profit | | | 3,535 | | | | 4,973 | | | | 7,792 | | | | (29 | ) |
| Cost/income ratio (%)1 | | | 86.2 | | | | 80.8 | | | | 72.2 | | | | | |
| Cost/income ratio before goodwill(%)1, 2 | | | 79.0 | | | | 77.3 | | | | 70.4 | | | | | |
|
| Per share data (CHF) | | | | | | | | | | | | | | | | |
| Basic earnings per share3 | | | 2.92 | | | | 3.93 | | | | 6.44 | | | | (26 | ) |
| Basic earnings per share before goodwill2, 3 | | | 4.73 | | | | 4.97 | | | | 7.00 | | | | (5 | ) |
| Diluted earnings per share3 | | | 2.87 | | | | 3.78 | | | | 6.35 | | | | (24 | ) |
| Diluted earnings per share before goodwill2, 3 | | | 4.65 | | | | 4.81 | | | | 6.89 | | | | (3 | ) |
|
| Return on shareholders’ equity (%) | | | | | | | | | | | | | | | | |
| Return on shareholders’ equity4 | | | 8.9 | | | | 11.7 | | | | 21.5 | | | | | |
| Return on shareholders’ equity before goodwill2, 4 | | | 14.4 | | | | 14.8 | | | | 23.4 | | | | | |
|
| |
| CHF million, except where indicated | | | | | | | | | | | | | | % change from | |
| As at | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
| Balance sheet key figures | | | | | | | | | | | | | | | | |
| Total assets | | | 1,181,118 | | | | 1,253,297 | | | | 1,087,552 | | | | (6 | ) |
| Shareholders’ equity | | | 38,991 | | | | 43,530 | | | | 44,833 | | | | (10 | ) |
|
| Market capitalization | | | 79,448 | | | | 105,475 | | | | 112,666 | | | | (25 | ) |
|
BIS capital ratios
Tier 1 (%)5 | | | 11.3 | | | | 11.6 | | | | 11.7 | | | | | |
| Total BIS (%) | | | 13.8 | | | | 14.8 | | | | 15.7 | | | | | |
| Risk-weighted assets | | | 238,790 | | | | 253,735 | | | | 273,290 | | | | (6 | ) |
|
| Invested assets (CHF billion) | | | 2,037 | | | | 2,448 | | | | 2,445 | | | | (17 | ) |
|
| Headcount (full-time equivalents) | | | 69,061 | | | | 69,985 | 6 | | | 71,076 | 6 | | | (1 | ) |
|
| Long-term ratings7 | | | | | | | | | | | | | | | | |
| Fitch, London | | | AAA | | | | AAA | | | | AAA | | | | | |
| Moody’s, New York | | | Aa2 | | | | Aa2 | | | | Aa1 | | | | | |
| Standard & Poor’s, New York | | | AA+ | | | | AA+ | | | | AA+ | | | | | |
|
Earnings adjusted for significant financial events and pre-goodwill2, 8
| | | | | | | | | | | | | | | | | |
| CHF million, except where indicated | | | | | | | | | | | | | | % change from | |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | | | 31.12.01 | |
|
| Operating income | | | 33,894 | | | | 37,114 | | | | 36,402 | | | | (9 | ) |
| Operating expenses | | | 27,117 | | | | 29,073 | | | | 25,096 | | | | (7 | ) |
| Operating profit before tax | | | 6,777 | | | | 8,041 | | | | 11,306 | | | | (16 | ) |
| Net profit | | | 5,529 | | | | 6,296 | | | | 8,799 | | | | (12 | ) |
|
| Cost/income ratio (%)1 | | | 79.5 | | | | 77.3 | | | | 69.2 | | | | | |
| Basic earnings per share (CHF)3 | | | 4.57 | | | | 4.97 | | | | 7.28 | | | | (8 | ) |
| Diluted earnings per share (CHF)3 | | | 4.50 | | | | 4.81 | | | | 7.17 | | | | (6 | ) |
|
| Return on shareholders’ equity (%)4 | | | 13.9 | | | | 14.8 | | | | 24.3 | | | | | |
|
2
The UBS Group
at a Glance
UBS is one of the world’s leading financial firms, serving a discerning global client base. We combineAs an organization, it combines financial strength with a global culture that embraces change. We are the world’s leading provider of wealth management services and one of the largest asset managers globally. In the investment banking and securities businesses, we are among the select bracket of major global houses. In Switzerland, we are the clear market leader serving corporate and retail clients. As an integrated firm, we createUBS creates added value for our clients by drawing on the combined resources and expertise of all ourits businesses.
Our first priority
UBS is always our clients’ successpresent in all major financial centers worldwide, with offices in 50 countries. UBS employs 65,929 people, 40% of whom are located in Switzerland, 39% in the Americas, 15% in Europe and we put advice at6% in Asia Pacific.
UBS is one of the
heart of our relationships with them. We aim to takebest-capitalized financial institutions in the
time to understand the unique needs and goals of each of our clients. Our priority is to provide premium quality services to our clients, giving them the best possible choice by supplementing best-in-class solutions we develop ourselvesworld, with a
quality-screened selectionBIS Tier 1 ratio of
products from others.With head offices in Zurich11.8%, invested assets of CHF 2.2 trillion, shareholders’ equity of CHF 35.4 billion and Basel, and more than 69,000 employees, we operate in over 50 countries and from all major international financial centers. Our global physical presence is complemented by our strategymarket capitalization of offering clients products and services via a variety of different channels — from the traditional retail bank branch to sophisticated, interactive online tools, helping us to deliver our services more quickly, widely and cost-effectively than ever before.
CHF 95.4 billion on 31 December 2003.
Businesses
3
Our Business Groups
All our Business Groups are in the top echelons of their sectors globally and are committed to vigorously growing their franchises.
UBS Wealth Management & Business Bankingmanagement
UBS Wealth Management & Business Banking is the world’s leading wealth management businessbusiness. In the US, it is one of the biggest private client businesses with a client base of nearly 2 million investors. Its American network of 7,766 financial advisors manages CHF 634 billion in invested assets and the leading corporateprovides sophisticated services through consultative relationships with affluent and retail bank in Switzerland. Almost 3,300high net worth clients. UBS also has more than 140 years of private banking client advisors, working from officesexperience around the world, with an extensive global network of 168 offices and CHF 701 billion in invested assets. Some 3,300 client advisors provide a comprehensive range of in-house and third party products and services customized for wealthy individuals. The Business Banking unit, holding roughly a quarter of the Swiss lending market, offers comprehensiveindividuals, ranging from asset management to estate planning and from corporate finance to art banking.
Investment banking and securities services for 3.5 million individuals and 180,000 corporate clients in Switzerland as well as 5,000 financial institutions worldwide.
UBS Global Asset Management
UBS Global Asset Management is a leading institutional asset manager and mutual fund provider, with invested assets of CHF 557 billion. It offers a broad range of asset management services and products for institutional clients and financial intermediaries across the world.
UBS Warburg
UBS Warburg is a global investment banking and securities firm.firm with a strong institutional and corporate client franchise. Consistently placingplaced in the top tiertiers of major industry rankings, it is a leading player in the global primary and secondary markets for equity, equity-linked and fixed incomeequity derivative products. In investment banking, it provides first-class advice and execution capabilities to its corporate client base worldwide. SharplyIn fixed income, it is a first-rate global player. In foreign exchange, it places first in many key industry rankings. All its businesses are sharply client-focused, it providesproviding innovative products, top-quality research and comprehensive access to the world’s capital markets for itsmarkets.
Asset management
UBS is a leading asset manager with invested assets of CHF 574 billion. It provides investment management solutions to private clients, financial intermediaries and institutional investors across the world.
Swiss corporate and institutionalindividual clients and for the rest of UBS.
UBS PaineWebber
UBS PaineWebber is the fourth largest private client business in the US, withholds roughly a client base of over 2 million private investors — focused on the most affluent in the country. Its network of almost 9,000 financial advisors manage CHF 584 billion in invested assets and provide sophisticated wealth management services to their clients.
Corporate Center
The rolequarter of the Swiss lending market, offering comprehensive banking and securities services for 3.5 million individual and 150,000 clients in Switzerland.
Corporate Center
The Corporate Center is to ensure thatpartners with the Business Groups, operateensuring that the firm operates as a coherent and effectiveintegrated whole in alignment with UBS’s overall corporate goals. The scopea common vision and set of Corporate Center’s activities covers financial and capital management, risk management and control, branding, communication, legal advice and human resources management.values.
43
Sources of Information about UBS
This Handbook contains a detailed description of UBS, its strategy, its organization and its businesses. You can find out more about UBS from the sources shown below.businesses, as well as our financial management including credit, market and operational risk, our treasury processes, and details of our corporate governance.
Publications
This Handbook is available in English and German.
(SAP-R/3 80532-0301) (SAP no. 80532-0401).
Annual Review 20022003
Our Annual Review contains a short description of UBS and our Business Groups, as well as a summary review of our performance in the year 2002.2003. It is available in English, German, French, Italian, Spanish, and Spanish.
(SAP-R/3 80530-0301)Japanese. (SAP no. 80530-0401).
Financial Report 20022003
OurThe Financial Report 2003 contains our audited Financial Statements for the year 20022003 and related detailed analysis. It is available in English and German.
(SAP-R/3 80531-0301) (SAP no. 80531-0401).
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
How to order reports
Each of these reports is available on the internet at: www.ubs.com/investors, in the “Financials”Financials section. Alternatively, printed copies can be ordered, quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, CA50-XMB, P.O. Box, CH-8098 Zurich, Switzerland.
E-informationInformation tools for investors |
Website
Our Investors and Analysts website at www.ubs.com/investors offers a wide range of information about UBS, including our financial reporting, media releases, UBSinformation (including SEC filings), corporate information, share price graphs and data, corporatean event calendar, and dividend infor-
mationinformation and copies of recent presentations given by members of senior management to investors at external conferences.
Our internet-based information is available in English and German, with some sections in French and Italian.Italian as well.
Messenger service
On the Investors and Analysts website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the themetopics of the alerts received.
Results presentations
Senior management present UBS’s results every quarter. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent results webcasts can also be found in the “Financials”Financials section of our Investors and Analysts website.
UBS and the environment
ThisThe Handbook 2003/2004 contains a summary of UBS environmental policies as part of the Corporate Responsibility section. More detailed information is available atat: www.ubs.com/environment.
4
Form 20-F and other submissions to the US Securities and Exchange Commission | | |
| | Introduction
|
| | |
Form 20-F and other submissions to the
US Securities and Exchange Commission
We file periodic reports and submit other information about UBS withto the US Securities and Exchange Commission (SEC). Principal among these filings is the Form 20-F, our Annual Report filed pursuant to the US Securities Exchange Act of 1934.
Our Form 20-F filing is structured as a “wrap-around”“wraparound” document. Most sections of the filing are satisfied by referring to parts of this
5
Profile
the Handbook 2003/2004 or to parts of thethis Financial Report 2002.2003. However, there is a small amount of additional information in the Form 20-F, which is not presented elsewhere, and is particularly targeted at readers in the US. You are encouraged to refer to this additional disclosure.
You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) or at +1 202 942+1-202-942 8088 (outside
the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006.10005. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the followingnext page.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our
two registered offices and principal places of business are:
Bahnhofstrasse 45, CH-8098 Zurich,
Switzerland, telephonePhone +41-1-234 11 11;
and
Aeschenvorstadt 1, CH-4051 Basel,
Switzerland, telephonePhone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange and traded(traded through the latter’s majority-owned virt-xits trading platform. UBS shares are also listedplatform virt-x), on the New York Stock Exchange and on the Tokyo Stock Exchange.
65
Contacts
| | | | | | | |
|
Switchboards | | Zurich | | +41 1 234 111141-1-234 11 11 | | |
| For all general queries. | | London | | +44 20 756844-20-7568 0000 | | |
| | | New York | | +1 212 8211-212-821 3000 | | |
| | | Hong Kong | | +852 2971852-2971 8888 | | |
| | | | | | | |
|
UBS Investor Relations
| | Zurich | | | | |
| Our Investor Relations team supports | | Hotline:Hotline | | +41-1-234 41 1 234 410000 | | UBS AG |
| institutional, professional | | Christian Gruetter | | +41 1 234 436041-1-234 43 60 | | Investor Relations G41B |
| and retail investors from offices in | | Mark HengelCate Lybrook | | +41 1 234 843941-1-234 22 81 | | P.O. Box |
| Zurich and New York. | | Catherine LybrookOliver Lee | | +41 1 234 228141-1-234 27 33 | | CH-8098 Zurich, Switzerland |
| | | Oliver LeeFax | | +41 1 234 273341-1-234 34 15 | | |
| www.ubs.com/investors | | Fax | | +41 1 234 3415 | | |
| | | | | | | |
| | | New York | | | | |
| | | Hotline:Hotline | | +1 212 7131-212-713 3641 | | UBS Americas Inc. |
| | | Richard FederChristopher McNamee | | +1 212 713 61421-212-713 3091 | | Investor Relations |
| | | Christopher McNameeFax | | +1 212 713 30911-212-713 1381 | | 135 W. 50th Street, 9th10th Floor |
| | | Fax | | +1 212 713 1381 | | New York, NY 10020, USA |
| | | | | | |
|
| | | | | | sh-investorrelations@ubs.com
|
| | | | | | |
|
UBS Group Media Relations
| | Zurich | | +41 1 23441-1-234 8500 | | sh-gpr@ubs.com |
Our Group Media Relations team supports | | London | | +44 20 756744-20-7567 4714 | | sh-mr-london@ubsw.comubs-media-relations@ubs.com |
supports global media and journalists from | | New York | | +1 212 7131-212-713 8391 | | sh-mediarelations-ny@ubsw.commediarelations-ny@ubs.com |
from offices in Zurich, London, New York | | Hong Kong | | +852 2971852-2971 8200 | | sh-mediarelations-ap@ubs.com |
New York and Hong Kong. | | | | | | |
| | | | | | | |
| www.ubs.com/media | | | | | | |
| | | | | | |
|
UBS Shareholder Services
| | Hotline | | +41 1 235 620241-1-235 62 02 | | UBS AG |
| UBS Shareholder Services, a unit of | | Fax | | +41 1 235 315441-1-235 31 54 | | Shareholder Services — GUMV |
| the Company Secretary, is responsible | | | | | | P.O. Box |
| for the registration of the Global | | | | | | CH-8098 Zurich, Switzerland |
Registered Shares. It is split into two | | | | | | |
parts — a Swiss register, which is main- | | | | | | sh-shareholder-service@ubs.comsh-shareholder-services@ubs.com |
tained by UBS acting as Swiss transfer | | | | | | |
agent, and a US register, which is | | | | | | |
maintained by Mellon Investor Service | | | | | | |
as US transfer agent (see below). | | | | | | | |
|
US Transfer Agent | | calls from the US | | +1 866 5411-866-541 9689 | | c/o Mellon Investor Services |
For all Global Registered ShareShare- | | calls outside the US | | +1 201 3291-201-329 8451 | | Overpeck Centre |
| related queries in the USA. | | Fax | | +1-201-296 4801 | | 85 Challenger Road |
| | | | | | | Ridgefield Park, NJ 07660, USA |
| | | | | | |
| www.melloninvestor.com | | | | | |
shrrelations@melloninvestor.com |
| | | | | | | |
| | | UBS listed its Global Registered Shares on the New York Stock Exchange on 16 May 2000. Prior to that date UBS operated an ADR program. See the Frequently Asked Questions (FAQs) section at www.ubs.com/investors for further details about the UBS share. |
|
76
7
UBS
Strategy, Structure and Culture
9
| |
| The UBS Group |
| Strategy, Structure and History |
| | |
| | |
| | |
| | |
| | |
Strategy, Structure and HistoryCulture
OurWe at UBS have an ambitious vision of UBS is– to be recognized as one of the world’s pre-eminentbest global financial firms.services company. We are the world’s largest private bank,wealth and asset manager, while in investment banking and securities trading we are among a select bracket of majorleading global houses. In Switzerland, we are the clear market leader in corporate and retail banking. As anBased on our integrated group,approach, we deliver the whole firm to our clients, giving them added value by drawing on the combined resources and expertise of all our businesses. Every client is a client of UBS, not of an individual business unit. Our first priority is always our clients’ success.
Our vision
We are determined to be recognized as the best global financial services company. We will earn this recognition from clients, shareholders and professionals through our ability to anticipate, learn and shape our future, while always delivering the very best quality in all that we do. We share a common ambition to succeed. Throughout our development as a leading global financial services group, we have evolved a distinct culture of ambition, performance and learning that has enabled us to continually innovate and broaden our expertise. ThroughBy harnessing all of our resources, we developdeliver smart solutions with and for our clients and partners, and enable them to make savvy financial decisions. Our ambitious, performance-driven working atmosphere is what attracts and retains the best talent for our company,in the market, and by growing our client and talent franchises, we add sustainable value for our shareholders.
Our strategic future
Our strategy remains one of growth. In the current economic environment, and after a decade of transformational mergers and acquisitions, we believe that the best way to expand our business is to grow it organically using the internal resources we already have at our disposal. We have the right people, an ideal platform, a sound capital base and the confidence that we can achieve our chosen objectives.
In the wealth management market, we believe there is a strong secular growth trend in private wealth and a tendency towards a further worldwide concentration of that wealth. We also believe that the investment banking market pos-
Capital strength | | |
| | Our strategy |
| | |
| | In the financial services industry, we are a truly global firm, working with corporate, institutional and private clients around the world. Our strategy focuses on investment banking and securities trading, asset management and wealth management, all on a global scale, as well as retail and business banking in Switzerland. These areas have been our consistent strategic priorities for many years and here we strive to achieve a leading position. This long-term perspective and commitment has helped us to become the successful firm we are today, with a broadly diversified business mix. |
| | One of the keys to our success is our “one firm” approach. We believe our clients should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie behind the solutions. Our clients should |
Our financial stability stems from the fact that we are one of the best capitalized banks in the world. We believe that this financial strength is a key part of our value proposition for both our clients and our investors.
In June 2002, Moody’s reaffirmed UBS’s Aa2 long-term credit rating and commented that “the ratings of UBS AG reflect the group’s leadership position in a number of its core businesses as well as solid financial fundamentals — in particular, resilient revenue generation, improving cost efficiency, low risk appetite and strong core economic capitalization”. At the same time, Moody’s noted that “the sustained
performance of UBS reflects the Group’s strong franchise in each of its core businesses” resulting in broadly-diversified revenue sources.
In July 2002, Standard & Poor’s reaffirmed its AA+ long-term debt rating for UBS, but revised the outlook to negative, “reflecting the fall in global equity markets, particularly since May”. S&P commented that the AA+ rating reflects “UBS’s strong market positions and franchises across a wide range of private banking and international securities activities, which support solid profitability, strong capitalization, and excellent liquidity”.
10
sesses long-term growth opportunities and we will therefore continue to strongly expand in the key US market. An extensive presence in the US is critical to maintaining a strong global position as it accounts for half of the global investment banking fee pool.
However, a strategy of organic growth does not mean we will become inactive. We will continue to keep options open regarding acquisitions that round out or further balance our business portfolio.
Our product strategy is to deliver a comprehensive line of top-quality products and advice to individual, institutional and corporate clients. Choice is central to our client offering, with our in-house range of products enhanced by a quality-screened selection of third party products.
We are committed to attaining scale and scope in all our key businesses as this will enable us to deliver a full spectrum of services efficiently. In order to maintain operational efficiency, we ensure that our processes are streamlined and avoid duplication of activities. Our client philosophy is advice-led, with the quality and expertise of our relationship managers helping us to build long-term and mutually beneficial relationships with our clients.
We are committed to remaining at the forefront of technology, although we do not believe it
should be pursued solely for its own sake. It is a tool that is an integral component of all our businesses. We use technology to extend our reach to clients and markets we could not previously have accessed, enhancing client service and experience.
We have a strong and well-managed capital structure and are dedicated to remaining one of the best capitalized financial services firms in the world. We will continue to manage our balance sheet prudently and are committed to the optimization of UBS’s capital structure for the benefit of its shareholders.
Business and management structure |
Integrated business model
One of the keys to our success is our integrated business model. We believe our clients should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie behind the necessary solutions. Our clients should not feel the boundaries inherent and even necessary, in a large, global organization. Our integrated model means that teams from across Business Groupsbusinesses and organizational units work together to pool different skills for the benefit of an individual client.
A clear example of how our integrated model works is illustrated by the services we provided
In August 2002, Fitch reaffirmed its AAA long-term rating of UBS, while keeping the outlook negative, “because of the potential threat a sustained bear market over the next year would pose to earnings”. At the same time Fitch commented that “UBS is exceptionally well-capitalized with a strong performance, particularly in comparison with its European peers but also on a global scale”.
UBS’s ratings remain among the best of any major globally active financial institution. Well-capitalized, with strong and balanced cash-flow generation, and a cautious risk profile, UBS is one of the soundest financial institutions worldwide.
| | |
UBS’s long-term credit ratings are shown in the table below. Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any explanation of the significance of a rating may be obtained only from the rating | | agency. There is no assurance that any credit rating will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the rating agency, if in the rating agency’s judgment, circumstances so warrant. |
Long-term credit ratings
| | | | | | | | | | | | | |
| | | As at | |
| | |
| |
| | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| Fitch, London | | AAA | | AAA | | AAA |
| Moody’s, New York | | Aa2 | | Aa2 | | Aa1 |
| Standard & Poor’s, New York | | AA+ | | AA+ | | AA+ |
|
11
| | |
| | The UBS Group |
| | Strategy, Structure and History |
| | |
| | |
| | |
| | |
| | |
| |  |
last year to a renowned private equity firm which came to us wanting to raise new money. UBS Warburg’s Financial Sponsors Group managed the day-to-day relationship with the client, while the Private Equity Funds Group, also part of UBS Warburg, raised institutional funds in Europe and Asia. At the same time, we successfully offered the investment opportunity to both UBS PaineWebber and UBS Private Banking’s high-net worth clients.
It is our four Business Groups, each in the top echelon of their field, whoOur businesses put our integrated business model“one firm” philosophy into action. Our wealth management businesses provide client-centered advice and tailored products to their clients. They, in turn, are supplied with a world classworld-class product and research offering from the UBS Warburginvestment banking, securities and UBS Global Asset Management Business Groups.asset management businesses. At the same time, UBS Warburg and UBS Global Asset Managementthese businesses provide advice and tailored products to their own corporate and institutional clients while being kept abreast of changing client needs by the wealth management businesses. That in turn helps them develop innovative new products and services. Overall, the exchange benefits both sides — UBS’ssides. Our individual clients get access tobenefit from sophisticated products and services; and UBS’sservices while our wholesale Business Groups havebusinesses enjoy access to first-class distribution opportunities. Acting as “one firm” also enables us to extend key client relationships across several businesses.
Financial success, risk and capital
management
Our approach to capital management has been a trademark of UBS. Our focus when managing capital is to employ all the tools at hand, assuring attractive value creation for shareholders while protecting our strong capitalization and credit ratings. Our strong earnings generation capacity means that in normal circumstances we continue to generate capital well in excess of our requirements.
Because taking risk is an integral part of our business, our overriding goal is to achieve an appro-
8
priate balance between risk and return, limiting the scope for adverse variations in our earnings from exposure to major individual ‘stress’ events. In recent times, market opportunities as well as our business and client franchise have both grown very considerably, as a result of which we see enhanced potential for revenue growth. Consequently, our market and credit risk levels are likely to experience a gradual increase in coming quarters. We have, however, no intention of substantially changing our risk culture and processes, and we are determined to retain our overriding commitment to high-quality earnings through diversification and liquidity of risk. As one example, we continue to believe that the end,quality of our advice will remain the principal driving factor in building our global investment banking franchise. That means that we will neither attempt to acquire new business through balance sheet strength alone nor systematically increase our appetite for pure proprietary trading.
Operational efficiency and innovation
In all our key businesses, we are committed to attaining scale and scope, as this will enable us to deliver a full spectrum of services efficiently. Our integrated business model, in line with our overall “one firm” approach, ensures that, where UBS has a best-in-class offering, we capture the whole of the value chain. The partnership between our businesses ensures that the exchange of services, knowledge and capabilities across the Groupfirm gives us the ability to
build a coherent infrastructure that does not duplicate activities unnecessarily.
Our integrated business modelThis also helps us capture synergies between different components of our businesses, eliminating redundant infrastructure, services, management and control. An example of that is our centralized treasury process which ensures that cash flows within UBS are pooled and netted before being funded through one access point to the money markets. At the same time, embedding risk management deeply into all our businessesbusi-
nesses is one of our most important success factors. Risk identification, management and control are critical components of all our business processes and plans, and our integrated approach to risk control ensures that risks are consistently assessed and evaluated across the Group.UBS.
The value created by the integrated business model derives from the breadth and depth of UBS’s expertise whichmost recent example underlining our “one firm” approach is an immediate result of our diverse roots. Each of the entities that joined UBS in recent years brought strengths that have had a significant impact on our business. Unlike a holding company or a conglomerate, our approach to building a powerful Group by integrating these components has helped us to successfully develop a common set of values and aspirations. The latest step in our efforts to define the future as one firm is demonstrated by our decision to introduceintegrate our information technology infrastructure (ITI) functions across our organization. We will create a new ITI unit with an entrepreneurial mandate to service the Business Groups in a client-focused and cost-efficient way. This new unit will be housed within the Corporate Center and will cover almost all existing IT infrastructure functions across UBS as a single brand for– the management of data networks, telephone and other communications systems, IT security, distributed computing and servers, mainframes and data centers, market data services, user services and desktop computing.
In all our businesses. This will enable usbusinesses, technology is used to concentrateextend our capabilities on buildingreach to clients and markets we could not previously have accessed, enhancing client service and experience. We are committed to remaining at the forefront of technology, although we do not believe it should be pursued solely for its own sake. It is a cleartool that is an integral component of all our businesses.
Organic growth
Our future remains one of growth. After a decade of transformational mergers and distinct corporate identity, increasingacquisitions, we have, over the efficiency and effectivenesspast two years, built a successful track record of organic growth. We continue to believe that the best way to expand our business is by using the internal resources that we already have at our disposal. Still, we are always open to bolt-on acquisitions that expand the presence of our marketing efforts.core businesses and we remain attuned to any opportunities which might help us reach our objectives quickly and efficiently. Examples of such acquisitions in 2003 were the purchase of
129
UBS
Strategy, Structure and Culture
the French business of Lloyds TSB and the German wealth management business of Merrill Lynch. In 2004, we acquired Laing & Cruickshank and Scott Goodman Harris. Both helped us reinforce our platform in key countries targeted by our European wealth management business. Another example was our acquisition of ABN AMRO’s prime brokerage business. That transaction immediately boosted the Investment Bank’s services to hedge fund clients.
A key component of our organic growth strategy – critical in attracting and retaining clients in this increasingly competitive market – is our brand. In June 2003, we adopted the single UBS brand for all our major businesses around the world. This successful implementation, supported by wide-ranging internal communications and a global advertising campaign, publicly illustrated the “one firm” philosophy that is integral to UBS. The Business Groupsidentity conveyed by the UBS brand is that of a powerful company, operating on a global scale, that seeks, above all, to achieve success for its clients, by listening to their needs and proactively offering the right financial solutions.
UBS’s Business Groups With our strategy and our capabilities, we believe we are managed togetherexcellently positioned to optimize shareholder value — making the whole worth more than the sumtake advantage of the parts. Each Business Group is led by a memberlong-term trends determining the future of the Group Executive Board who is individually responsible for the performance of the Business Group.
UBS Wealth Management &
Business Banking
UBS Wealth Management & Business Banking delivers comprehensive financial services industry. Thanks to wealthy private individuals worldwidethe global presence of all of our businesses, we are very well placed to capture the growth potential in Asia Pacific, Europe and the US.
Business strategies
In thewealth management business, our services are targeted at high net worth and affluent clients around the world, whether investing internationally or in their home country. Choice is the leading bank for individual and corporate clients in Switzerland. It comprises the business units of UBS Private Banking and Business Banking Switzerland.
UBS Private Banking is the world’s largest private bank,central to our client offering, with more than 140 years of private banking experience, 164 offices worldwide and CHF 688 billion invested by clients. It provides a comprehensiveour in-house range of products and services individually tailoredenhanced by a quality-screened selection of third-party products.
We believe there is a strong secular growth trend in private wealth across all our key markets. In Asia Pacific, our reputation for wealth management is unmatched, helping us to wealthy clients from Switzerland and abroad. Working around the world, our 3,291 highly trained client advisors combine strong personal client relationships with access to the resourcescapture a substantial share of the whole UBS Group. Clients benefit from a complete range ofgrowth in wealth. Another key region for growth is Europe. Our expansion strategy into domestic European wealth management services — from asset management to estate planning, and from corporate finance advice to art banking.
Business Banking is the leading bankwas launched in Switzerland with more than 3.5 million individual client accounts, and relationships with 180,000 enterprises across the country and 5,000 financial institutions from around the world.
Business Banking has 311 branches and 1,225 ATMs in Switzerland — the broadest distribution network of any Swiss bank. It is the leading lender to private clients in Switzerland, and the biggest player in both the credit card and private mortgage markets.
Clients2001. Today, we have invested assets of over CHF 200 billion with Business Banking and its loan book total of CHF 139 billion on 31 December 2002 corresponded to the leading position in the Swiss mortgage and retail lending market.
UBS Global Asset Management
UBS Global Asset Management isestablished a leading asset manager, distinguished by the diversity and global scope of its investment capabilities.
With its integrated global investmentstrong platform it seeks to deliver superior investment performance to institutional investors and financial intermediaries. More than 440 investment professionals, located in all the major financial centers around the world, provide clients with access to a breadth and scope of investment capabilities that distinguishes it from its competitors.
The organization consists of three platforms. The first, the price/value investment philosophy is at the heart of our core investment management business. The second, the alternative and quantitative investments platform, encompasses several specialist businesses with distinctive brands, including O’Connor. The third, our real estate businesses — principally located in the USfive target markets – France, Germany, Italy, Spain and the UK with significant– which we continue to develop by investing in qualified advisory staff and selective
strategic acquisitions. In the US, we benefit from the strong presence of the former PaineWebber, which we acquired in Switzerland2000. This business, now operating under the UBS brand, has been successful in reinventing itself from a traditional US brokerage firm to a holistic wealth management business, providing comprehensive investment and Japan — have been combined into a separate and global real estate capability.financing advice to its clients.
UBS Global Asset Management had total invested assets of CHF 557 billion on 31 December 2002, of which CHF 279 billion were from institutional investors and CHF 278 billion from private clients viaIn the wholesale intermediary market.
UBS Warburg
UBS Warburg is a leading investment banking and securities firm that provides a full spectrum of productsbusinesseswe aim to institutionalbe the global leader and the most profitable service provider to corporate clients, governmentsinstitutional investors and financial intermediaries aroundintermediaries. In the world. UBS Warburg consistspast year, we have demonstrated that our diversified mix of businesses allows us to capture changing market opportunities. For the Corporatefuture, we see significant potential for growth. Our equity-related businesses, for instance, are very strong and Institutional Clientsgaining momentum, with increases being seen in underwriting and UBS Capital business units.
The Corporatetrading volumes and Institutional Clients business unit provides securities products and advisory services to a broad customer base worldwide. It is one of the top-ranked firms in the world for institutional clients, where its strength lieshedge fund business. We are also excellently positioned to expand our market position in global equity researchfinance, enhancing profitability in a scale-driven business through the use of technology.
Over the past two years, we have significantly expanded and distribution,diversified our Fixed Income, Rates and Currencies business. In particular, we still see real opportunities in debt trading and believe we can further strengthen our market position in the derivatives business as well as in structuringthe emerging markets and distributing fixed income cashEuropean segments.
In investment banking for corporate clients, our presence in Europe has traditionally been strong. Over the last three years, we have also made substantial investments to expand in the key US market. In fact, we are the fastest growing bank in the US, with an increase of 1 percentage point in our market share in the past year to 5.4%. An extensive presence in the US is critical to building a strong global position, due to its dominating share of the global investment banking fee pool. Furthermore, we see substantial potential for growth in Asia Pacific. Our competitive position there is already strong in the major markets and derivative products. The business is organized into three main areas, distinguished by the typeevolution of productsthe Chinese market for financial services holds significant growth opportunities in the long term.
As one of the world’s leading asset managers, we are competitively positioned in theinstitutional and services offered as well aswholesale asset management businesses. Our record of strong investment performance and our solid reputation will help us to benefit from the inherent naturegrowth expected in institutional and wholesale markets because of their business risks. The business areas are:the increased need for private
– | | Fixed Income, Rates and Currencies |
1310
| | |
| The UBS Group |
| Strategy, Structure and History |
| | |
| | UBS
|
| | |
| | |
| | |
Insavings to supplement public pension systems. We expect competitive pressures for traditional products to increase, with slower growth underscoring the investmentimportance of gains in market share. The increasing importance of elevating compliance and risk control to anticipate and exceed regulatory standards represents an opportunity for large global asset managers, such as UBS.
For theSwiss retail and business banking business UBS Warburg provides first-class advice and execution capabilities, our strategy concentrates on retaining our position as the country’s leading bank, taking
advantage of business opportunities that arise in order to grow our share in selected market segments – such as residential mortgages where we have been able to increase volumes thanks to a
global corporate client base. In the equitiesdedicated marketing campaign specifically tailored to capture new business
it isin a
leader in both primarylow interest rate environment. While we remain committed to excellent, high-quality banking and
secondary marketsexpanding advisory services for
equity, equity-linked (e.g. convertible bonds) and equity derivative products. In the fixed income and foreign exchange business, it is a top-tier global house, providing innovative products and original thinking toour Swiss individual, corporate and institutional clients,
in all major markets. UBS Capital is UBS Warburg’s private equity business unit, managing a portfoliowe do not think that consists of investments in unlisted companies spread throughout Europe, the US and Asia. These investments are typically held for a period of approximately three to six years and made with a view to preparing them for saleretail banking lends itself to a trade or financial buyer, or, where appropriate, staging an initial public offering (IPO).global strategy.
Industry trends
UBS PaineWebber
UBS PaineWebberLong-term perspectives
Economic growth is onea key indicator of the top wealth managerspotential for financial services in the different regional markets. The world economy is expected to grow at around 3.5% a year over the coming decade. The principal driving forces for this are continued productivity gains due to the diffusion of new technologies, and trade liberalization. These developments will, however, further increase global competition. Additionally, these favorable effects may be somewhat dampened by slowing employment growth due to demographic shifts towards older populations in certain countries.
We expect the largest increases in GDP over the next 10 years to occur in North America, followed by Asia Pacific (excluding Japan) and Western Europe. Even though North America is set to grow at a slower rate than Asia Pacific, the absolute GDP increase will be higher. This demonstrates the importance in our industry of having a significant presence in the US. However, Asia Pacific is also a market with huge potential.
The financial services sector has been a growth industry for decades now, growing faster than GDP.
Financial innovations, closely linked to the evolution of securities markets, will continue to represent the engine for further development in the financial sector. In addition, we see several factors determining the development of our industry over the coming five to ten years:
| – | | financial liberalization and deregulation |
Each of these factors has a distinct impact on our businesses, as described below.
Financial liberalization and
deregulation
Over the past few decades, the trend towards deregulation and liberalization in financial services has contributed significantly to the industry’s expansion. It builds consultative relationships with affluent clientshas triggered considerable improvements in the quality and provides themvariety of new financial services. This reform process is now well advanced in many countries, and in some markets, for example the US, we do not expect any further notable deregulation. Further liberalization is, however, likely in emerging markets countries where domestic markets are still highly protected. At the same time, the World Trade Organization’s (WTO) multilateral trade negotiations under the Doha Round could improve market access and cross-border supply in financial services. The success of the Doha Round, however, is still uncertain (the Doha Round is named after the November 2001 WTO declaration at its Fourth Ministerial Conference, which took place in Doha, Qatar).
In general, further liberalization of financial markets is expected to benefit investment banking and securities firms which are posi-
tioned to take advantage of any further opening of individual domestic capital markets. Asset managers with a complete setglobal platform could benefit from the facilitation of sophisticatedcross-border business in the mutual fund business, and possibly from a trend towards harmonized pension fund regulation, for example across Europe.
Wealth accumulation
In many economies, a notable shift is taking place away from labor-intensive production to more capital-intensive activity. Based on this development, we see a clear secular trend towards wealth accumulation that is likely to continue over the next decade, with wealth expected to grow faster than GDP in most developed countries. In addition, the ratio of wealth to GDP in many other economies (for example, in emerging markets) is currently low and may increase, due, among other factors, to generally higher saving rates. This development will hugely benefit wealth management services.businesses across the world. It will also help the asset management industry as private wealth is a key driver for institutional asset growth. Investment banks and securities businesses will also benefit thanks to rising capitalization levels in global financial markets and higher trading volumes.
Retirement provisioning
In coming decades, most developed countries will be confronted with significant
11
UBS
Strategy, Structure and Culture
Industry trends (continued)
demographic shifts. Thus, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform increasingly inevitable. Although each country will follow its own regulatory agenda, we believe that a gradual shift from public unfunded to private funded pension schemes is likely to take place.
With approximately 2 million client relationships, it is oneInstitutional asset management will be the sector most impacted by this trend. In wealth management, we believe that these developments may influence the demand for retirement and estate planning, but they are not expected to accelerate asset growth.
Securitization
The transformation of financial services over the last ten to twenty years has been driven primarily by the increasing de-emphasis of traditional lending activities combined with the increasing importance of securities trading and financial markets. That means that corporations are frequently in a position to directly finance their funding needs by accessing the capital markets. This has driven the long-term expansion of
corporate bond markets, replacing traditional bank lending services. At the same time, an increase in bank assets such as loans, mortgages and receivables has fueled growth in the securitization of these assets, increasing the volume of asset-backed securities.
We expect these trends to continue, for several reasons. The ability of financial market participants to assess counterparty risk will further improve, facilitating financing by way of the largest private client businessessecurities market at the expense of traditional bank lending. As the number of listed companies increases, they will have to fulfill the transparency standards required by listing, and meet requirements for issuing debt securities. And, while Basel II capital requirements might somewhat reduce the incentive to securitize, they may at the same time promote a more widespread use of more sophisticated internal risk rating systems – which is an incentive for banks to manage their assets more actively.
Equitization
The developments over the past ten years indicate that global equity markets will continue to grow. Institutional and indi-
vidual market participants will tend to invest a greater share of their assets into equity products and the corporate sector will increasingly rely on equity financing. Because of the relatively low level of share market capitalization in the US, offering a full setemerging markets of servicesAsia Pacific, their growth potential is highest. In Western Europe, however, we also see significant growth potential because of continued financial market integration. Besides investment banking and securities businesses, equitization is expected to provide growth opportunities to wealth and asset managers, as assets are increasingly shifted into higher-margin asset classes.
Corporate restructuring
Despite the most affluent Americans. Its strength liesdrastic market setbacks experienced in the emphasis it putscorporate finance sector over the last few years, we see some long-term secular trends pointing towards an ongoing demand for advice on buildingcorporate restructuring. Liberalization of trade and maintaining consultative relationships between high nettechnological progress will increase global competition for corporations, pressuring them to restructure and consolidate their activities and structures. The same factors are likely to support cross-border consolidation in some industries – in particular within the EU. Additionally, as economies mature and their structure moves gradually from traditional sectors to more sophisticated ones, the restructuring of companies may follow.
12
worth clients and their financial advisors, who offer their clients a wide array of investment products and services.
The network of almost 9,000 highly trained financial advisors, working from 369 offices across the US, handled CHF 584 billion in assets invested by clients as of 31 December 2002. Providing tailored investment advice based on each client’s individual specific needs, advisors focus on households with investable assets in excess of USD 500,000 — the largest and fastest growing pool of assets in the US.
Corporate Center
The role of the Corporate Center is to ensure that the Business Groups operate as a coherent and effective whole, in alignment with UBS’s overall corporate goals. Corporate Center’s activities cover financial and capital management, risk management and control as well as branding, communication, legal advice and human resources management.
Board structure
The management and oversight structure of UBS is based on two separate boards —– the Board of Directors and the Group Executive Board.
The Board of Directors is the most senior body, with ultimate responsibility for the strategy and the management of the company, and foras well as the supervision of executive management. The Board of Directors also defines UBS’s risk appetiteframework, principles and overall risk limit structure.taking capacity. A clear majori-
14
ty of the membersmajority of the Board of Directors areis non-executive and fully independent.
The Group Executive Board, on the other hand, assumes overall responsibility for the daily management of UBS, for the implementation of strategy and for business results. Together with the ChairmanChairman’s Office of the Board of Directors (the Chairman and the Vice-Chairmen,Vice-Chairmen), it is responsible for developing UBS’s strategies.
The functions of Chairman of the Board of Directors and President of the Group Executive Board are conferred on two different people. No member of one board may be a member of the other. Our dual board structure establishes a system of checks and balances, ensuring the Board of Directors and executive management are institutionally independent of each other. In particular, the functions of Chairman of the Board of Directors and Chief Executive Officer are conferred on two different people. Moreover, no member of one board may be a member of the other. More information on our Corporate Governance structures and principles can be found in the relevant chapter of this Handbook.
Organizational structureUBS is structured in four Business Groups and a Corporate Center, but managed as an integrated firm, making the whole worth more than the sum of the parts. Business Groups are led by a member of the Group Executive Board, each of
whom is individually responsible for the performance of his Business Group.
Senior executive appointments
communicated in 2003
The continuous strengthening of our leadership and clear succession planning are one of our key priorities. In that context, we were pleased to announce in 2003 a number of executive appointments that became effective in 2004.
On 1 January 2004, Joseph J. Grano Jr. handed his post as Chief Executive Officer of the Wealth Management USA business over to Mark B. Sutton, previously President. Joe Grano will remain with the firm as Chairman of the Business Group until the middle of 2004. This hand-over follows the successful integration of PaineWebber into UBS.
Clive Standish, currently Chairman and Chief Executive Officer Asia Pacific, will become UBS’s Chief Financial Officer (CFO) from 1 April 2004, a move which significantly strengthens our corporate leadership. As CFO, Clive Standish takes on a broad role that encompasses our highly regarded finance, risk, treasury and strategy functions. He continues to hold regional responsibility for Asia Pacific.
Stephan Haeringer, Deputy Chief Executive Officer, is being proposed for election to the Board of Directors as an executive Vice Chairman at the Annual General Meeting (AGM) on 15 April 2004. At the AGM, the Board of Directors is also proposing Helmut Panke and Peter Spuhler as additional candidates for election.
In 2003, we also pre-announced the candidature to the Board in 2005 of Marco Suter, Chief Credit Officer, to succeed Alberto Togni, who will reach retirement age, as Executive Vice Chairman with a special focus on credit risk.
As 2003 progresses,13
UBS
Strategy, Structure and Culture
Our culture and values
Our corporate culture has benefited from our diverse roots. Each of the entities that has joined us over the last decade has provided us with strengths that have significantly influenced the
course of our business. Unlike a holding company or a conglomerate, our approach to building one powerful firm by integrating these components has helped us to successfully develop a common set of values and aspirations.
Our values for action
Striving for Excellence
Client focus:Our clients’ success is our success. Through our consultative approach in advising clients, we understand their objectives, and unambiguously commit our resources to helping them meet their goals.
Entrepreneurial Leadership: Our leaders lead, and engender enthusiasm and commitment. It is through entrepreneurial leadership that we capture opportunities, and succeed in the marketplace. It is through leadership and accountability across our company that we establish direction, encourage creative collaboration and provide an inspiring environment for our people.
Ambition, Energy and Fun:Our business is exciting and full of opportunities for growth. Only with high ambitions and relentless commitment to work hard – while still having fun – can we realize these opportunities.
Innovation and Learning:Our expertise is built on experience, innovation and learning. Our distinctive creativity is recognized. We constantly strive to find better solutions for our clients’ challenges and to leverage insights throughout the financial services industrycompany.
Responsible Relationships
Partnership: Relationships among our staff members as a whole continueswell as with our clients are driven by the power of partnership. The power of partnership engenders involvement, respect, contribution and mutual support. We encourage the free exchange of ideas and demand teamwork.
Meritocracy: Our success calls for entrepreneurial spirit and initiative from each individual. We actively strive to be a challenging one. Uncertainty over economic developmentsthe best at attracting, developing and rising geopolitical concerns are affecting investor sentimentretaining talented people. We invest in our people’s development, and therefore transactioncoach them to levels of performance and are holding back a significant recovery in corporate activity. Despite that, wecontribution beyond what they might believe UBS Warburg’s extremely strong institutional client franchise and growing corporate client franchise will help it further grow its business in the future, with restructuring activity by corporations expected to provide new business opportunities. The global reach of our wealth management businesses and the quality of our financial advisors worldwide make us confident that we will be able to meet the varied aspirations of our clients in different markets. In the short-term, market levels will have a direct impact on asset-based fees while transaction revenues remain heavily linked to investor confidence. We still firmlypossible.
believe, however, in the long-term potential
Corporate Responsibility: We are a member of the global wealth management marketcommunity and behave as a responsible corporate citizen. Our corporate governance ensures the implementation of our corporate responsibility agenda. We as a corporation, and our employees individually, strive to contribute positively and actively to the communities within which we continuedo business.
High Ethical Standards
Integrity: Our firm and its employees conduct themselves in a manner that is above reproach. Our integrity is key to
invest in building uppreserving our
domestic presence in key European markets.Long-termmost valuable asset – our reputation.
Privacy: We respect our clients’ right to privacy, and use information with appropriate discretion.
Diversity:Our strengths are leveraged by embracing a global diversity of cultures, perspectives,
Despite the market setbacks experienced over the last few years, we remain excellently positioned to benefit from the worldwide growth in wealth skills, and the concentration of that wealth among the affluent, the two key long-term secular market trends influencing wealth management businesses worldwide.
Although the prolonged market declines seen last year and in 2001 have reduced the total global bankable and liquid assets of the core affluent market segment (those holding more than EUR 500,000 in such assets) by approximately 18% to EUR 23.5 trillion, the correction also served to accentuate the demand for skilled financial advice. Our experience over the past two years indicates that sophisticated and tailored solutions for high net worth individuals are even more in demand in difficult economic and financial environments.
Despite the current market conditions, the long-term trend towards wealth growth is confirmed by our internal research, which predicts that total bankable and liquid assets held by the core affluent segment will expand on average by 6% a year between 2002 and 2012 — driven, among other factors, by a heightened need to save for retirement as western societies age further. Regionally, Asia (excluding Japan) is seen growing this aggregate pool of assets 9% a year until 2012, while in Europe growth is forecast at 8%. Over the same timeframe, total assets of the core affluent segment are seen increasing 5% a year in the US and 4.5% in Japan.
The second trend, towards a further concentration of wealth, is also confirmed by our inter-experiences.
1514
| | |
| The UBS Group |
| Strategy, Structure and History |
| | |
| | UBS
|
| | |
| | |
| | |
Diversity – open minds – open markets
nal research,At UBS, we believe that open minds can open markets. And that is why diversity is an important element in our business culture. Capitalizing on the inherent creativity and innovation of a diverse workforce helps us to grow our customer base. Diverse viewpoints, which indicatesspur challenging intellectual debates, are key to our firm’s success around the globe.
For us, diversity means recognizing and appreciating multiple backgrounds, cultures and perspectives. We strive to build a culture that
acknowledges individual differences and builds on the
world’s core affluent, an estimated 11 million households globally, will raise their current 50% shareunique contribution of
total global financial wealth. The US iseach and every one
example, where core affluent individuals are expected to hold 70% of all wealth by 2012, up from 64% in 2002. The first trend, for further wealth growth, underpins the strategic rationale of our European wealth management initiative. Europepeople – regardless of nationality, gender, physical attributes, or ethnicity.
Our diversity initiatives center on creating a culture where employees with multiple perspectives and flexible work styles thrive.
Global strategy, regional focus and
local respect
Diversity at UBS has both an internal and an external focus. We support an open, flexible culture within the bank. For this purpose, senior leadership at UBS is expectedcommitted to experiencea diversity strategy that, although global, has a regional focus and is based on respecting local cultures.
Our global strategy has the second highest rate of wealth growth worldwide over the next ten years, and thatfollowing priorities:
| – | | integrating diversity into the employee life cycle – which includes recruiting, orientation, training and development, as well as performance management and succession planning |
| – | | tracking progress consistently to create both organizational and individual accountability |
| – | | communicating our commitment to diversity to key stakeholders. |
While a global diversity strategy is a key reason why weessential, implementation must be driven regionally. We have builtset up a strong domestic presenceseparate Regional Diversity Boards in Asia Pacific, Germany, France, Italy,
Switzerland, the UK and Spainthe US. In 2004, each Regional Diversity Board will identify relevant diversity issues and develop strategies to meet the region’s specific needs. For example, in the last two years and continueAsia Pacific region, the Diversity Board, among other activities, has the task of identifying 50 local employees poised to expandsucceed expatriates in those markets. Together,key positions, while in the five countries account for EUR 3.8 trillion or 80% of total Western European wealth, and 16%UK, one of the world total. The core affluentkey objectives is to address work/life balance. In the US, an important priority is to coordinate resources for regional key sponsorships to cultivate minority and female talent, while in whatSwitzerland the focus is on women’s advancement and age issues.
From vision to reality – progress in 2003
In 2003, we callmoved a step forward in implementing our diversity vision, from improving awareness to enhancing the EU-5 accountedstructures and systems helping us to manage diversity in an integrated way.
We also believe in a business case for 35%diversity. In 2003, we analyzed our key client and contact lists for various businesses. In the US, for example, women in leading fixed income buy-side companies control over a trillion dollars worth of all private wealth in 2002, withassets. We also discovered that figure seen rising to 42% by 2012.
Turning to the investment banking and securities markets, we see continued strong client demand for corporate advice combined with a broad arraymany of securities services. Despite the general slowdown experienced in investment banking and securities activity last year and the generally pessimistic investor sentiment, we see market opportunities in the merger and acquisition, restructuringour key institutional and corporate advisory businesses. Overall levels of activity, however, will not return to the levels seen in 1999-2000 in the near future. The current environment still presents opportunities to firms with a global presenceclients are focused on diversity themselves. Many have won awards and in-depth experience in cross-border transactions. The expansion we are undertaking will take some time, although we are currently seeing the first signs of successaccolades for their internal diversity efforts. A closer look at asset management, brokerage and private clients shows us that minority-held accounts in the US whereand women-held accounts in Switzerland are increasingly a substantial portion of our business.
Operationally, we achieved clear market share gains last year as our recent hires acquire new businesshave integrated diversity into recruiting, employee training, and deal mandates.succession planning. Additionally, we have piloted a Leadership Links program to foster dialogue between senior management and women and minorities in the firm. We have also developed an interactive toolkit designed to help managers address issues related to diversity that are part of their day-to-day work.
In the institutional client business, whereInvestment Bank, we have rolled out a strong position in equities, fixed income and foreign exchange, we expect the environment to remain competitive with an ongoing commoditization of wholesale products and shrinking margins. We expect overall volumes to grow further, so keeping the overall pool of commission income roughly stable. Institutions
with scale and scope, global reach and advanced technology will benefitdiversity awareness program in the long-term despiteUS, UK, Asia Pacific and Continental Europe. In the current market environment.UK, we launched a reverse mentoring program that gives junior women and minorities exposure to senior management.
Last year, we also took an important step to improve the measurement of and accountability for diversity. We set out to create individual accountability by making it a mandatory part of our annual internal appraisal process for most managerial roles.
Effective communication is essential to the success of our diversity initiative because raising awareness is the first step in culture change. In asset management,2003, for example, we believe thatlaunched an intranet site for employees. We also sponsored a number of internal events around the long-term outlook isglobe to bring employees together, and support their networking with one other and also with clients. Our Stamford women’s network in December, for example, co-hosted an event for “100 Women in Hedge Funds”, an association for women hedge fund managers, while our women’s network in Singapore held a strong one. Despite continued equity market volatility, business will be driven by demographic pressures,successful event in November for local women clients. Other employee groups established in 2003 include the UBS Pride network, which should bring further pension reform by governments worldwide.supports employees facing gay and lesbian related issues in the US and the Minority Leadership Council, comprised of senior-level African-American and Hispanic employees in the New York area. On the external front, UBS sponsored several diversity-related organizations and participated in conferences and events around the globe. In June, senior women from UBS spoke about their work/life balance at the “Women in European Leadership: A Business Imperative” conference in Geneva, Switzerland.
We will continue to take advantage ofbuild on the trend towards open architecture, which will provide opportunitiesmomentum we have generated in giving us access to new distribution channels while also providing2003, focusing on integration within all our clients with a wide array of alternative forms of investments such as hedge funds, which allow them to diversify their allocation of assets and investment styles.
In Switzerland,human resources activities. Additionally, we will seekpartner with the businesses to maintain our leading position while continuing to increase the overall efficiency of our activities, although we do not believe the retailintegrate diversity into their strategic planning, and corporate market will grow significantly in coming years.
Adoption of a single UBS brand |
In November 2002 we announced a further evolution of our brand strategy and portfolio. On 9 June 2003, we will adopt the single UBS brand to represent all our businesses and will no longer market our services using the UBS Warburg or UBS PaineWebber brands. The move to a simpler branding accurately reflects our integrated business model and the “one firm” approach we deliver to clients.
Before the decision was taken to adopt a single brand, we undertook a thorough review of our brand strategy, focusing on brand values as much as brand structure. The review included market research in 14 countries involving thousands of existing and potential clients, including high net worth individuals, corporate and institutional clients, assetdaily management clients, and Swiss individual clients. UBS client advisors and relationship managers were also part of the research. The results showed that all UBS’s different client groups had similar expectations regarding the provision of their financial services and their relationship with UBS. Across the board, they expect their financial firm to relentlessly pursue their financial success and provide access to the resources of a global powerhouse, while giving proactive advice and a choice of solutions.processes.
1615
| | | | |
|
Branding structure, to be implemented during 2003 | | | |
|
Overall Brand | | | |  |
|
Business | | Old names | | New logo with
client segment descriptor |
|
Wealth management
(Swiss and International Clients) | | UBS Private Banking | |  |
|
Wealth management
in the US | | UBS PaineWebber | | |
|
Investment banking
and securities | | UBS Warburg | |  |
|
Institutional asset management
and funds | | UBS Global Asset Management | |  |
|
Retail and corporate banking
in Switzerland | | UBS | | |
|
17
| |
| The UBS Group
|
| Strategy, Structure and History |
| | |
| | |
| | |
| | |
| | |
The makingMaking of UBS
All of the firms whichthat have come to make up today’s UBS look back on a long and illustrious history. The two Swiss predecessor banks came into being in the 19th century, as did PaineWebber, while SG Warburg was founded in 1934. But it is in the past decade that UBS’s current identity began to take concrete shape.
In the early 1990s, the two Swiss banks that are part of the current UBS, Swiss Bank Corporation (SBC) and Union Bank of Switzerland, (UBS), were commercial banks operating mainly out of Switzerland. The two banks shared a similar vision: to become a world leader in wealth management and a global bulge bracketbulge-bracket investment bank with a strong position in global asset management, while remaining an important main commercial and retail bank in Switzerland.
Union Bank of Switzerland, the largest and best-capitalized Swiss bank, opted to pursue a strategy of organic growth, or expansion by internal means. In contrast, SBC, then the third largestthird-largest Swiss bank, decided to take another route by starting a joint venture with O’Connor, a leading US derivatives firm that was fully acquired by SBC in 1992. O’Connor was noted for its young, dynamic and innovative culture, its meritocracy and team-orientation. It brought SBC state-of-the-art risk management and derivatives technology.
In 1994, SBC acquired Brinson Partners —– one
of the leading US-based institutional asset management firms. Both the O’Connor and Brinson
deals represented fundamental steps in the development of the firm’s products and processes.
The next major step followed in 1995, when SBC merged with SG Warburg, the British merchant bank. The deal helped to fill SBC’s strategic gaps in corporate finance, brokerage and research and, most importantly, brought with it an institutional client franchise, which is still at the core of today’s equities business.
The 1998 merger of Swiss Bank Corporation and Union Bank of Switzerland brought together these two leading Swiss financial institutions, creating the world leader in private banking and improving the new firm’s chances of becoming a bulge-bracket investment bank, not to mention providing it with greater capital strength.
But there was still a major item left on the firm’s broader strategic agenda. It needed to garner a significant presence in the key US market in order to be fully credible as a truly global player in investment banking and wealth management. That was achieved with thewhen PaineWebber mergerbecame a part of UBS in 2000, whose2000. Following its successful integration has been a notable success. Because of that transactioninto our business, and a decade of transformational change, UBS is now set forwe adopted a strategy based primarily on organic growth —– thanks to itsour complete, and global set of businesses.
Our efforts to define the future as “one firm” were demonstrated in 2003 by our decision to introduce UBS as a single brand for all our businesses.
1816
17
Although the synergies and strategic benefits resulting from the 1998 merger between the former Union Bank of Switzerland and Swiss Bank Corporation are widely acknowledged, less is known of a comprehensive program in Switzerland that has softened the blow for many employees displaced by the integration. Called MIDSAM (a combined German acronym that roughly equates with “job reduction measures”), the program has effectively helped over 3,000 UBS employees affected by merger-related restructuring in the four years it was in place. Employees who lost their jobs as a result of the merger or the subsequent reorganization were given considerable support. Their periods of notice were doubled, while financial contributions were made to training programs and outplacement consulting. They were also closely assisted by dedicated teams ofThe Business Groups
Wealth Management & Business Banking
experts, specifically trained for the task, whose sole job was to find creative ways for employees to find a new and fulfilling occupation — or help them settle into early retirement. For UBS itself, with total program costs of around CHF 900 million, MIDSAM was by no means a low-cost option.
Although the MIDSAM program itself ended in December last year, there is a continued need for a policy and program in Switzerland that helps deal with the effects of possible restructurings and reorganizations. To that effect, a new program, called COACH, was introduced on 1 January 2003. Essentially, it is a full-time advisory team whose task is to place employees who lose their jobs as a result of restructuring - - either externally or internally, or help them with early retirement, with many of its conditions similar to the MIDSAM program.
19
20
21
| |
| The Business Groups
UBS Wealth Management & Business Banking |
UBS Wealth Management & Business Banking
Georges Gagnebin
Chairman, UBS Wealth Management
& Business Banking
Marcel Rohner
CEO, UBS Wealth Management
& Business Banking
UBS Wealth Management & Business Banking provides private bankingwealth management services for wealthy clients around the world and is the leading bank for individual and corporate clients in Switzerland.
Business Group reporting adjusted for significant financial events/ Business Unit Reporting1| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Business Banking | | | UBS Wealth Management | |
| | | Private Banking | | | Switzerland | | | & Business Banking | |
| CHF million, except where indicated | |
| | |
| | |
| |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | |
|
| Income | | | 7,279 | | | | 7,696 | | | | 5,494 | | | | 5,792 | | | | 12,773 | | | | 13,488 | |
| Credit loss expense | | | (28 | ) | | | (37 | ) | | | (286 | ) | | | (567 | ) | | | (314 | ) | | | (604 | ) |
|
| Total operating income | | | 7,251 | | | | 7,659 | | | | 5,208 | | | | 5,225 | | | | 12,459 | | | | 12,884 | |
|
| Personnel expenses | | | 2,083 | | | | 1,947 | | | | 2,727 | | | | 2,878 | | | | 4,810 | | | | 4,825 | |
| General and administrative expenses | | | 2,158 | | | | 2,038 | | | | 159 | | | | 396 | | | | 2,317 | | | | 2,434 | |
| Depreciation | | | 125 | | | | 151 | | | | 355 | | | | 465 | | | | 480 | | | | 616 | |
| Amortization of goodwill and other intangible assets | | | 111 | | | | 109 | | | | 0 | | | | 0 | | | | 111 | | | | 109 | |
|
| Total operating expenses | | | 4,477 | | | | 4,245 | | | | 3,241 | | | | 3,739 | | | | 7,718 | | | | 7,984 | |
|
| Business Group performance before tax | | | 2,774 | | | | 3,414 | | | | 1,967 | | | | 1,486 | | | | 4,741 | | | | 4,900 | |
|
| Cost/income ratio before goodwill (%) | | | 60 | | | | 54 | | | | 59 | | | | 65 | | | | 60 | | | | 58 | |
| Net new money (CHF billion) | | | 16.6 | | | | 24.6 | | | | 3.7 | | | | 9.2 | | | | | | | | | |
| Invested assets (CHF billion) | | | 688 | | | | 791 | | | | 205 | | | | 215 | | | | | | | | | |
| Headcount (full-time equivalents) | | | 10,488 | | | | 10,249 | | | | 18,442 | | | | 19,220 | | | | 28,930 | | | | 29,469 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Business Banking | | Wealth Management & |
| CHF million, except where indicated | | Wealth Management | | Switzerland | | Business Banking |
| For the year ended or as at | | 31.12.03 | | | 31.12.02 | | | 31.12.03 | | | 31.12.02 | | | 31.12.03 | | | 31.12.02 | |
| |
| Total operating income | | | 6,793 | | | | 6,664 | | | | 5,128 | | | | 5,208 | | | | 11,921 | | | | 11,872 | |
| Total operating expenses | | | 4,184 | | | | 4,151 | | | | 2,975 | | | | 3,241 | | | | 7,159 | | | | 7,392 | |
| |
Business Group / Business unit performance before tax | | | 2,609 | | | | 2,513 | | | | 2,153 | | | | 1,967 | | | | 4,762 | | | | 4,480 | |
| |
| Net new money (CHF billion) | | | 29.7 | | | | 17.7 | | | | (5.0 | ) | | | 3.7 | | | | | | | | | |
| Invested assets (CHF billion) | | | 701 | | | | 642 | | | | 212 | | | | 205 | | | | | | | | | |
| Headcount (full-time equivalents) | | | 9,176 | | | | 9,399 | | | | 17,620 | | | | 18,442 | | | | 26,796 | | | | 27,841 | |
| |
1 Details of significant financial events can be found in the Financial Report 2002.
Business
Our extensive global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. Our strategy putsfocus is to provide all our clients atwith the center of all business activity, with our efforts sharply focused on providing them with theadvice, financial products and tools that meet their personalindividual needs.
Organizational structure
On 1 JulyIn 2002, ourwe created the new name and management came into effect, replacing the former UBS Switzerland designation.Wealth Management & Business Banking organization. High-end affluent clients that were previously the responsibility of the former Private and Corporate Clients (PCC) unit became Private BankingWealth Management clients, although their advisor relationships
remained the same. Product development was consolidated into a single Products and Services area, andwith a new Market Strategy and Development area was created which providesto provide comprehensive marketing services for the whole Business
Group. We report results for the following two business units:
| – | | Private Banking, which comprises the full private banking business,Wealth Management, serving wealthy and now includes the high-end affluent clients segment |
| – | | Business Banking Switzerland, consisting mainlyserving retail and corporate clients in Switzerland, and housing the majority of the individual and corporate client businesses of the former PCC business unit.support functions. |
All logistics and service costs are allocated to these two business units.
Competitors
UBS Private Banking’s major competitors comprise allIn 2003, our five independent private banks active globally suchwere integrated into a new holding company which is now reported as the private banking operationspart of Credit Suisse Group, Deutsche Bank and Citigroup. We also compete with private banks that operate within their respective domestic markets.
Business Banking Switzerland’s major competitors are banks active in the retail and corporate banking markets in Switzerland. This includes Credit Suisse Group, cantonal banks throughout the country, and other regional Swiss banks.Corporate Center.
2218
Private Banking |
The Business Groups
|
Wealth Management
With more than 140 years of private banking experience, an extensive global network and CHF 688701 billion in invested assets on 31 December 2002, UBS Private Banking is2003, we are the world’s largest private bank.
Business
UBS Private BankingWealth Management provides a comprehensive range of products and services individually tailored for wealthy clients around the world via its global branch network and an extensive channel ofthrough financial intermediaries.
With CHF 688701 billion in invested assets on 31 December 2002,2003, more than 140 years of private bankingwealth management experience and an extensive branch network comprising 111112 offices in Switzerland and 5356 offices around the world, UBS Private Banking iswe are the world’s largest private bank.
Our 3,291 highly trained3,300 client advisors back upcombine strong personal relationships with access to the resources of the wholethat are available from across UBS, Group, providinghelping them provide a full range of wealth management services – from asset management to estate planning and from corporate finance advice to art banking. Furthermore, ourOur open product platform gives clients access to a wide array of pre-screened, top-quality products from third partythird-party providers that complement UBS’s own line.lines.
At the beginning of 2001, we launched the European wealth management initiative, a major
growth initiative to expand our domestic private bankingwealth management presence in the five key European markets of France, Germany, Italy, Spain and the UK. Since 2001, we have steadily opened offices and hired experienced client advisors in key locations within our fivethese target markets.
19
The Business Groups
Wealth Management & Business Banking
Organizational structure
Our clients have specific needs and we carefully tailor our global product offering is carefully tailoredin order to meet country-specific taxtheir financial aspirations. Where it is necessary, we complement our range of internal and legal regulations as well as the varied aspirations of clientsexternal products by entering into partnerships with local specialist providers, for example, in different markets. With this geographical focus in mind, ourlife insurance. Our client advisors are organized into the two business areas of:
| – | | Private Banking —Wealth Management – Swiss Clients, covering clients domiciled in Switzerland, divided into eight geographicalgeographic regions in Switzerland |
| – | | Private Banking —Wealth Management – International Clients, serving clients domiciled outside of Switzerland, including the clients of the European wealth management initiative. It is organized into the seven regions of of: |
| – | | Italy |
| – | | Western Europe |
| – | | Benelux (Belgium, Netherlands, Luxembourg), Germany and Benelux, UK/NortheasternCentral Europe |
| – | | UK, North and SoutheasternEastern Europe the |
| – | | Eastern Mediterranean, Middle East and Africa |
| – | | Asia and the Americas.Pacific |
| – | | Americas International. |
We have aA number of global teams that havewith specialized areas of specialized expertise and which concentrate on the requirements of particular client groups. In September 2002, we were the first European financial group to open aAn example is our Islamic finance subsidiary in Bahrain. CalledBahrain, Noriba, bank, itwhich we opened in September 2002. It offers sharia-compliant products to institutions and high net worth individuals residing in the Arabian GulfMiddle East and around the world.
We also provide financial intermediaries, both inside and outside Switzerland, with our solutions, products and services, helping them to add substantial value to their client relationships.
23
The Business Groups
UBS Competitors
Wealth Management & Business Banking
| |
|
|
| Growth platform for independent wealth
management subsidiaries |
During the first half of 2003, UBS will create a new holding company to incorporate GAM, its specialist asset management firm, as well as its five independent private banks — Cantrade (Zurich), Banco di Lugano (Lugano), Ferrier Lullin (Geneva), Bank Ehinger (Basel) and Armand von Ernst (Bern). With this common platform,Management’s major competitors comprise all of our independentglobally active wealth management subsidiaries will be equipped and encouraged to grow faster, and deliver their full value creation potential. The new structure will ease the path to integration where it makes sense, targeting economies of scale not achievable by each organization on its own. It may allow a future role in the consolidation of the private banking industry.
The new company will be chaired by Hans De Gier, currently UBS Executive Vice-Chairman, who will as a result leave UBS’s Chairman’s
Office. He will be joined on the board as Deputy Chairman by Georges Gagnebin, Chairman of UBS Wealth Management & Business Banking and Peter Kurer, UBS Group General Counsel. Hans De Gier will lead the strategic reorganization and integration efforts, supported by the six current Chief Executives of the subsidiaries, and will join the boards of all six firms.
The companies involved employ approximately 1,750 staff globally, and their clients have invested assets of approximately CHF 70 billion. The new company will not be integrated with UBS’s wealth management operations, and will be part of the Corporate Center. This structure will be reflected in our financial reporting with effect from first quarter 2003. We will release restated figures for 2000, 2001 and 2002 reflecting these changes prior to the publication of first quarter results.
24
In order to achieve our business objectives and maintain our positionmanagers, such as the wealth management provideroperations of choice, itCredit Suisse, HSBC, and Citigroup. We also compete with private banks that operate within their respective domestic markets, such as Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Clients
Client focus is imperative that we constantly workthe main driver of all our activities. We are committed to fulfillproactively and consistently delivering tailored and unbiased financial solutions of the highest quality to our clients. We strive to create long-term personal relationships.
A clearly structured advisory process helps client advisors add value at each step and provides our clients
objectives, demandswith a consistent and
needs around the world.Four-step advisory process
A key part of fulfilling our clients’ needs is our structured advisory process.comprehensive experience. The consistent delivery of a truly consultative advisory process combined with a comprehensive product-positioningproduct positioning framework is essential to putting Private Banking’s value proposition into action. Highly skilledessen-
20
| | |
|
| | |
| | tial to putting Wealth Management’s value proposition into action. Our process can be broken down into four clear, mutually enhancing steps. In the first, our advisors take the time to understand what it is their clients want and need, and look at all the different factors that might affect their goals and willingness to take risk. As a second step, the advisor formulates investment proposals crafted for |
| | |
| | |
that client’s specific requirements by selecting from the best products and services available. In the third step, the advisor agrees with the client advisors take time to understand client needs, taking into account all the different factors that might affect a client’s investment goals and risk appetite. The client advisor then acts as a consultant, helping to build a personalized financial strategy that meets those requirements - one that provides best-in-class solutions supported by state-of-the-art technology. Thus, our commitment to open architecture forms a key partwhich of the value proposition for our clients in this process.solutions should be implemented. The selection offourth step rounds out the most appro-
priate solution is based on an agreement between the client and the client advisor, a solid basis for a long-lasting relationship.
The whole process is rounded out bywith comprehensive monitoring and reporting of investment performance to the client by the advisor, as well as the regular communication between the client advisor and the clienttwo in which goals and strategies are constantly evaluated, and adjusted or revised as required.
Our extensive training programs ensure that client advisors become fully versed in all aspects of this structured, four-step advisory process, thereby giving them the tools to strengthen their client relationships.
process.Financial intermediaries
We are a market leader in providingprovide products and services to financial intermediaries. They include small to medium-sized banks,intermediaries, from independent asset managers and financial consultants to small and medium-sized banks in Switzerland, where we lead the market, and also in France, Germany and Germany as well as in other locations around the world. Using intermediaries to offer our products and servicescountries. This allows us to further leverage the scale and scope of our private banking expertise, while giving them integrated, comprehensive solutions suited to their clients’ needs.wealth management expertise.
| European wealth management |
The European wealth management initiative was launched in early 2001, and is aimed at wealthy clients in the five target countries of France, Germany, Italy, Spain and the UK. Together theythese countries comprise around 80% of the total European market for wealthy clients. The initiative combines our extensive private banking experience withdraws on the best of UBS PaineWebber’sthe marketing and product skills using both as powerful catalysts to build a significant domestic European presence.
25
developed over the years by PaineWebber in the US.
| |
| The Business Groups
UBS Wealth Management & Business Banking |
| | | |
 | |
People
Acquiring high quality client advisors with specialized knowledge of their domestic markets is a cornerstone of the European wealth management initiative. Since the initiative’s start in early 2001, we have tripled the number of advisors in our five key European countries. In 2002, we employed an additional 181, raising the total to 551 client advisors on 31 December 2002. New hires benefit from a training initiative that helps every private banker learn about the current state-of-the-art in wealth management, complemented by product-specific training on the new generation of open architecture solutions. We regularly review the performance of our client advisors against pre-set, mutually agreed targets. | |
Strategy
In 2002, the European wealth management2003, our initiative proved itselfmade further strong progress on many fronts. Its growth potential was underlined by the continued hiring of new client advisors, who helped bring in net new money of CHF 7.610.8 billion. This inflowresult represents an annual net new money inflow rate of 39% of the underlying asset base. In the same period, invested assets were 64% higher at CHF 46 billion on 31 December 2003. Although the initiative is focused on organic growth, we also exploit strategic acquisition opportunities in core markets. As an example, last year we acquired the wealth management operations of Lloyds TSB in France (CHF 1.6 billion in assets), and Merrill Lynch in Germany (CHF 1.8 billion in assets). Early this year in the UK, we agreed to take over Laing & Cruickshank Investment Management Limited from Crédit Lyonnais (assets of CHF
21
The Business Groups
Wealth Management & Business Banking
| Product positioning framework |
| UBS Investment Products UBS Investment Solutions UBS Financial Planning UBS Wealth Management Solutions |
| Provide transaction-oriented Add systematic advisory services Go beyond pure investment Provide the whole range products & services and such as asset allocation, decisions and provide of financial services related advice. investment selection and portfolio comprehensive financial in an exclusive and very management. Client chooses services according to individualized format between discretionary and non- the life cycle of the client. discretionary as well as between UBS and 3rd party investment content.of offering |
| Level IV Level III Level III |
| Level II Level II Level II Level I Level I Level I Level I |
11.5 billion) and Scott Goodman Harris.
We opened new branches in Florence, Valencia and Vienna in 2003. The pace of expansion, however, is expected to slow from now on as our European business reaches critical mass. A total of 672 client advisors currently operate out of 31 offices, up from 177 advisors and 15 offices at the beginning of 2001. They are supported by an extensive array of secure e-banking services, further helping them seamlessly communicate with their clients.
With market forecasts showing European core affluent and high net worth assets increasing by 7.7% a year until 2006, outstripping the projected global average annual growth rate of 48%. In the same timeframe, invested assets increased by 75% to CHF 28 billion on 31 December 2002. The impact of Italy’s tax amnesty at the beginning of 2002 highlighted the initiative’s defensive characteristics as almost half of the assets repatriated by6.7%, we believe our Italian clients were directed to our domestic Italian business.
Our current strategy for this initiative focuses on the three building blocks of “People”, “Products” and “Platform”. Only by deploying the best people, with the best products and superior technology to support them, will we build the client base we seek in our target countries.
Products
We offer our clients a full range of Private Banking’s products based on our open architecture philosophy. We carefully tailor our investment solutions to the regulatory and tax environment of each specific country and, of course, to individual client needs.
Platform
We are continuing to expand our European branch network, extending our reach to new clients and improving our service to our existing clients. Potential locations in our five target countries are systematically screened according to a number of criteria including market potential, the market share required to break even, and the potential availability of professional client advisors. We have three different types of offices: main country offices, branch offices and satellite offices. The main country offices are located in a country’s most important financial center and enjoy extensive infrastructure. Branch offices and satellite offices operate with a leaner set up. We currently have 25 offices, up from the 19 offices operating at the start of 2002. The new branch offices opened during 2002 are located in Bielefeld, Bordeaux, Lille, Nantes, Naples, and Strasbourg. In addition, although not directly part of the European wealth management initiative, a satellite office was opened in Brussels.
In order to ensure our flexibility and capability to swiftly introduce innovative new products, we are building a new IT infrastructure to sup-
26
port the European wealth management initiative. It was successfully launched in France in 2002, and will be rolled out next in Germany and Italy, followed by the remaining target markets.
Market forecasts indicate that the client segment targeted by the initiative will grow significantly in coming years. We believe that our expertise, strategy and technology putplaces us in an excellent position to significantly enhanceexpand, helping us further cement our position in Europe, and help to establish ourselves as the global wealth manager of choice in our five target countries.choice.
In order to maintain ourOur credibility and reputation withhinges on our ability to ensure that clients we have to offer them neutral advice that is not biased towards any particular set of products or services. Doing this successfully entails opening our product architecture to includereceive the best products and services available, regardless of whether we produce them internally or access them from third-party suppliers. At the same time,external sources. However, as we have no intention of becoming a one-stop financial supermarket, and we therefore carefully choose and screen third party offers, onlythird-party offerings, selecting those that meet the high quality standards our clients demand. Combining this careful product selection with our structured advisory process ensures that the solutions we propose to clients are the ones that best fit their needs and goals. Open architecture is key to offering high-quality solutions building on the trust inherent in any relationship between client and client advisor.
To have the greatest possible impact, our open architecture framework focuses on products or services that differ substantially in both scope and content between the different providers.
Product positioning framework
Depending on their financial situation and individual preferences, clients have varying requirements regarding the level of service they expect from their advisor.
expect.Investment products
On a first level,UBS Investment Products, the first level of our product and services framework, comprises advisory services primarily focused uponon effective
management of a standard suite of transaction-oriented products.UBS Investment Solutions, the second level, adds systematic advisory services suchproducts as asset allocation, investment selectionwell as credit and portfolio management. Clients choose investments based on a consultative advisory service or delegate all decision makinglife insurance products to their client advisor. The third level, UBS Financial Planning, goes beyond pure investment decisions and offers comprehensive advice reflecting the client’s needs and tax implications. At the top end of the range,UBS Wealth Management Solutionsprovides the whole range of financial services in an exclusive and very individualized format for ultra high net worth individuals, taking their entire asset base into account, including, for example, real estate and art objects.
Investment products
cover our clients’ basic needs. Our clients benefit from exemplary service and execution standards across a full range of products that stretches from equities to foreign exchange and from structured products to precious metals. In addition, our clients can access a wide range of alternative investments, from in-houseour own hedge funds to third partythird-party private equity funds and fund of funds products. Increasingly, we are finding that clients taking advantage
Our credit products include a range of products – mainly mortgages and margin loans – for the financing needs of our discretionary portfolio management services are including alternative investments into their overall asset allocation strategy.
27
| |
| The Business Groups
UBS Wealth Management & Business Banking |
| | |
| |
| |
| |
| |
|  |
Our UBS Life business which wasin Switzerland, established in first quarter 2001, focuses on the sale of unit-linked products. Theyproducts that are sold alongside more traditional life insurance policies that we provide from third partythird-party sources. In 2002, 4,193UBS International Life, launched in 2003, extends our product offering to Europe and provides clients bought life insurance from UBS Life, ranking it among the top providers in the Swiss market for unit-linked insurance.
with highly flexible long-term investment, retirement or inheritance planning solutions.Investment solutions
We offerUBS Investment Solutions, the second level, adds systematic advisory services such as asset allocation, investment selection and portfolio management. Our clients can choose between discretionary portfolio management and advisory management of assets, just as they can choose between UBS and third partythird-party investment management.
Clients that chooseopt for discretionary portfolio management delegate the management of their assets to a team of professional UBS portfolio managers according to an investment strategy agreed with their client advisor and whichthat reflects their risk appetite. Discretionary portfolio management allows our clients to directly benefit from the investment policy of a leading financial institution with international resources. It gives them access to a large reservoir of knowledge and experience, and they are secure in the knowledge that portfolios and risks are continuously being monitored.
Many clients increasingly wish to be involved in
22
| UBS Investment Products UBS Investment Solutions UBS Financial Planning UBS Wealth Management Solutions |
| Direct Investments Portfolio Management Financial Planning Ultra-HNWI Solutions Money Market UBS Managed Fund Portfolio Tax Planning Corporate Advisory Services Structured Products / Derivatives UBS Active Advisory Retirement Planning Real Estate Services Investment Funds UBS Fund Advisory Succession Planning Wine Banking Alternative Investments Trust and Foundation Art Banking Provision / Life Insurance Gold and Numismatics |
| Credits Corporate Executive Financial ServicesBasic Products and Services Acccounts / Payments / Cards Custody Account / Services Reporting UBS Key Clube-banking Special ServicesBanking abroad VIP Center UBS Optimus Foundation EscrowResearch Groups Business The |
the management of their own assets, with
support from UBS’s investment professionals. For them, Private BankingWealth Management provides analysis and supervision of portfolios and their risk profiles, together with tailor-made proposals to support investment decisions. We offer different levels of structured advisory services, eachmost based on an all-inclusive fee.
Financial planning
WeOn the third level, we provide professional financial planning services that help our clients achieve their personal and financial objectives, while assisting them when they have to makeface key financial decisions at different stages of their lives. The financial planning advice we provide to our clients and their families covers all eventualities, from education funding and gifts to children through to business start-ups and inheritance planning. Specific advisory services we provide include strategic wealth management and lifestyle planning, retirement planning, inheritance and succession planning, real estate advice, asset protection, tax planning, insurance advice and the establishment of trusts, foundations and other corporate structures.
Wealth management solutions
At the top end of the range, UBS Wealth management solutions compriseManagement Solutions provides the whole rangespectrum of financial services offered by Private Banking toin an exclusive and very
individualized format for individuals, taking their entire asset base into account. These services include real estate advisory, art banking and corporate finance services for company and vineyard owners as well as reporting and custody services.
Our initiative for ultra high net worth individuals – launched at the beginning of 2003 – aims to create a consistent and pro-active approach for this client segment by leveraging all the efforts and resources of UBS worldwide. We have established a dedicated competence center in an exclusive and very individualized format.
28
Zurich, which mobilizes UBS’s global resources to deliver sophisticated wealth management services that otherwise only a combination of specialist providers could offer. The family office team helps wealthy families preserve and optimize their investments across generations, taking into account all economic, political, legal, and personal aspects.
Private Banking Wealth Management also provides independent corporate finance advice and services to business owners through a team of professional investment bankers at UBS Private Banking who can draw on the extensive resources of UBS Warburg.UBS’s Investment Bank.
Distribution
Real estate is the world’s largest asset class — about 50% of the world’sOur extensive wealth is heldmanagement branch network comprises 112 offices in real estate assets. UBS Private Banking offers comprehensive advisory services for real estate matters around the globe. It assistsSwitzerland and 56 offices worldwide. Working from these offices, 3,300 client advisors combine strong personal relationships with their clients evaluating their
real estate portfolios, offering support in complicated cross-border real estate transactions.
In addition, we offer a unique professional approachwith access to art investment. Experienced art client service advisors collaborate with our clients to design an art collection, structure tailored art-related solutions or advise on buying and selling rare coins. We draw uponall of the resources of over 150 international service providers in the art-related business.
We also provide executives and corporations with a leading edge platform that manages stock and options plans, based on a similar UBS PaineWebber service.UBS.
2923
| |
| The Business Groups
UBS Wealth Management & Business Banking |
| | |
| | |
| | |
| | |
| | |
The Business Groups
Wealth Management & Business Banking
Business Banking Switzerland Business Banking Switzerland, |
Business Banking Switzerland, UBS Wealth Management & Business Banking’s retail and commercial banking unit, is the market leader in Switzerland and provides a complete set of banking and securities services for individual and corporate clients.
UBS isWe are the leading bank in Switzerland. At the end of 2002, the2003, our Business Banking Switzerland unit had around 3.5 million individual client accounts, and relationships with around 180,000 enterprises acrosssome 150,000 corporate clients, including institutional investors, public entities and foundations based in Switzerland, as well as 5,0003,000 financial institutions worldwide. Clients have invested assets of CHF 205212 billion with us. With a total loan book of CHF 139 billion on 31 December 2002,2003, we have a leading position inlead the Swiss lending and retail mortgage market.
WeOur aim is to provide our clients with optimal levels of convenience and service by continuously expanding our comprehensive range of distribution channels. Together with our successful e-banking offering and customer service centers, our 1,225 ATMs and 311303 branches across Switzerland provide a network that is more extensive than that of any of our domestic competitors. At the end of 2002, Business Banking Switzerland employed 18,442 people throughout Switzerland. This represents a reduction of more than 6,000 employees since the merger in 1998 between the Union Bank of Switzerland and Swiss Bank Corporation. To a great extent, this was due to merger synergies, including a reduction in the number of retail branches by almost 250.
One of Business Banking Switzerland’sour key objectives is to increase profitability by continuously realizing cost savings, and by improving revenues through a furtherrigorous implementation of our risk-adjusted pricing model. We strive to create additional value by providing integrated financial solutions for our clients’ individual requirements.
The Business Banking Switzerland unit comprises the Business Banking retaildomestic branch network as well as the main activities of the three logistics business
areas offor corporate and individual clients, which is organized into eight regions. It also includes Operations, Resources, and Information Technology.Technology business areas.
| Competitors Business Banking Switzerland’s major competitors are banks active in the retail and corporate banking markets in Switzerland. This group includes Credit Suisse, the country’s cantonal banks, Raiffeisen Bank, and other regional or local Swiss banks. Clients and products |
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
PrivateIndividual clients
We serve around 3.5 million individual client accounts in Switzerland, offering them a wide range of productproducts and services. Supported by a powerful electroniccomplete set of distribution channel,channels (automated teller machines, phone services, e-banking), our branches which are organized into eight regions, area key driving forcesforce in serving our clients effectively.effectively and efficiently.
Our range of products and services for private clients providesincludes a comprehensive selection of current
| Business Banking Switzerland Invested assets by asset class Total: CHF 215 billion CHF 205 billionCHF 212 billion100%11% 12% 90%14%80%28% 28% 28% 70% 60% 50%21% 22% 20% 40% 30%22% 21% 20% 20% 10%18% 17% 18% 0% 31.12.01 31.12.0231.12.03As at UBS investment funds Accounts / Money markets Bonds Others Equities |
24
| Business Banking SwitzerlandInvested assets by client type Total: CHF 215 billion CHF 205 billionCHF 212 billion100% 90% 80%41% 41% 41%70% 60% 50% 40% 30%59% 59% 59%20% 10% 0% 31.12.01 31.12.0231.12.03As at Individual clients Corporate clients and pension funds |
cash accounts, savings products, wealth management services, residential mortgages, pensions and life insurance.
Business Banking Switzerland has We have a leading position in many Swiss markets. In the loan andmortgages segment for individual clients, we have a share of 26%, in the savings marketsmarket for individuals it has a market share ofis 25%, while in the credit card business its market shareit is 31%32%.
Corporate clients
Business Banking Switzerland services 180,000150,000 corporate clients, including institutional investors, public entities and foundations based in Switzerland.
Of the 180,000,150,000, around 160 are capital marketmajor companies, with operations that span a broad range of markets and geographical regions. These clients require our advanced financing and risk management skills and comprehensive access to the capital markets for funding needs.
30
Around 7,5007,600 of our clients are large companies that utilize our expertise in handling complex financial transactions. We provide them with a wide range of financial advice, to them, from the selection and design of investment products to assisting within complex mergers and acquisitions or providing structured financing, advice services, often working in close cooperation with specialists from elsewhere in the UBS Group.other parts of UBS.
The remaining some 170,000 corporate clients (some 140,000) are small and medium-sized enterprises requiring local market expertise and access to our full range of products and services.
In 1998, we introduced a new lending business process that uses a risk-adjusted pricing model. It was designed to shift the focus away from lending volumes while putting more emphasis on transactions that create economic value by establishing an appropriate risk/return
relationship. As a result of this process, the risk profile of our loan portfolio has gradually improved in the four years since its introduction, while the credit quality of counterparties has also improved. At the same time, risk-adjusted pricing benefits our clients by promoting transparent and open discussions between client and advisor. The advisor clearly communicates the basis for credit decisions, and possible areas of improvement can be identified, which, if successfully implemented, can then be reflected in lower loan pricing.
We also provide substantial business process support to our (clients,clients, ranging from transactional payments and securities services to facilitating cross-border transactions with trade finance products.
Our global custody services offer institutional investors the opportunity to consolidate multiple agent bank relationships into a single, cost-efficient global custodial relationship. This simplifies their processing and administration arrangements and allows them to take advantage of our value-added services, such as flexible consolidated performance reporting, and powerful portfolio management tools. Over 2003, assets under global custody for institutional clients grew from CHF 112 billion to CHF 133 billion.
Financial institutions
We also offer payments, securities, and custodial services to more than 5,0003,000 financial institutions worldwide and play a leading role, together with UBS Warburgthe Investment Bank, in the firm’s “Bank for Banks” initiative thatstrategy. This focuses on offering state-of-the-art services to other banks. This allowsbanks, allowing us to optimize the utilization of our existing infrastructure and increase efficiency, while otherinfrastructure. Other banks whothat lack our scale can outsource activitiestheir payment, security and benefitcustodial services, benefiting from UBS’s wide-ranging expertise.
Business areas focusing on client needs can only fully exploit their potential if they are provided with a reliable and efficient infrastructure.
The logistics business areas (Operations, Resources and IT) provide products and services to UBS Wealth Management & Business Banking and to other UBS businesses. For example, inter-bankinterbank foreign exchange and options transactions from key UBS WarburgInvestment Bank locations, such as London, Stamford, Singapore, Hong Kong and Tokyo, are centrally processed in Switzerland.
New IT platform
Recognizing the need to comprehensively overhaul our basic IT architecture, we launched a large-scale project in 1999 called the Strategic Solution Program (SSP) in Switzerland. It will provide us with a wholly new IT platform and replace a number of current platforms. The modular nature of the SSP platform lays a technical foundation that will help us further increase the overall flexibility of our products while providing our clients with more transparent information and data. SSP reached an important milestone in autumn 2003, when all client accounts were successfully transferred to the new platform.
3125
| |
| The Business Groups
UBS Wealth Management & Business Banking |
| | |
| | |
| | |
| | |
The Business GroupsWealth Management & Business Banking
In As further bank applications in Switzerland are transferred to the SSP platform, it will allow for real-time processing around the clock as well as shortening the length of time it takes to bring new product solutions to market. As it will also progressively replace our old IT system, SSP will help us lower operational and maintenance costs over the next few years.
Distribution
Our private clients’ needs have changed in recent years the needs of our private clients have changed. Although our physical branch network used to be the principal distribution platform, today clientsyears. Today, they want the flexibility of being able to access their accounts using the full range of modern communication technology. They want to contact their banktechnology when it is convenient for them, and without restrictions imposed by regular business hours.
Because of that, UBS Wealth Management &To meet these needs, Business Banking pursues an integrated, multi-channel strategy. We use technology to complement, rather than replace the traditional physical branch network. Standard transactions can be conveniently executed using one of the alternative electronic channels, enabling client advisors to focus on providing personalized advice to individuals,and developing financial solutions to match each client’s individual requirements. Technology is therefore critical to supporting our goal of building strong client relationships, with advice at the center.
solutions. For basic products and services, technology is used to ensure round the clockaround-the-clock availability. Our five customer service centers provide basic information and advicesupport 24 hours a day. In 39day over the phone. Additionally, in 51 of our branches in Switzerland, we have implemented a “two-zone concept”two-zone concept where standard transactions are executed via ATMs, while client advisors sit in an open plan desk area next to the ATMs, and focus on giving clients value-added advice.
e-commerce
Our internet and other e-banking platforms are part of this integrated multi-channel strategy. As well as being a transaction tool, e-banking is an important method for distributing information about UBS’s products and services. UBS’s website provides a wide spectrum of information on specific UBS products. If questions arise, call centers are available to support the client or to arrange in-depth advice from specialists.
Security of the e-banking platform has become an important competitive factor for UBS Wealth Management & Business Banking. Because of that, over the course of last year, we introduced a new UBS Smartcard access system to replace our paper password lists. UBS Smartcard is based on a code that is saved on each individual UBS e-banking card and does not require any installation. The card’s content is protected and cannot
be copied or decoded. Its codes are only valid for a very short timespan — unlike the paper list.
Our customers make extensive use of our e-banking channels. On 31 December 2002, almost 330,000 clients had active e-banking contracts. During 2002, 74%2003, 76% of payment orders were initiated via e-banking, and 12% of securities transactions were initiated via e-banking.electronic channels, up 2% from 2002.
On 31 December 2002,2003, Business Banking Switzerland’s loan portfolio was CHF 139 billion. Mortgages represented CHF 107109 billion, of which more than 80% were residential mortgages.
Continued discipline in implementing our risk-adjusted pricing model has resulted in a strengthened focus of origination efforts on higher quality exposures with an attractive risk/return relationship. Thanks to the introduction of this model, the risk profile of our portfolio continues to improve.
32
further improved during 2003. For details onof the credit portfolio, please refer to the “Risk Analysis”Risk Analysis section on pages 59 to 77.page 50.
Recovery portfolio
Because there will always be a certain percentage of clients unable to meet their financial obligations, we have dedicated teams of recovery specialists to help them either by pursuingpursue a possible economic recoveryrecovery. This can be done through restructuring or, alternatively, by achieving the best possible value through liquidation of available collateral in order to limit financial loss on the loan.
The Our recovery portfolio amounted to CHF 8.66.4 billion at 31 December 2002,2003, of which CHF 7.85.8 billion was impaired and carried provisions of CHF 3.42.8 billion. TheSince 1998, the recovery portfolioportfolio’s size has been cut by 67% over the last four years from CHF 26 billion at 31 December 199875% thanks to our successful recovery efforts. Over the same five-year period, non-performing loans (those with payments outstanding for ninety days or longer) decreased from CHF 14.0 billion to CHF 5.04.4 billion, leading to a non-performing loans to gross loans ratio of 3.6%3.2%.
| Business Banking SwitzerlandDevelopment of UBS’s recovery portfolio, 1999–2003CHF billion 405 (10)3026 3 (9) 21202 (5) 15 1 (4) 12 1 (4)109 6 31.12.98 31.12.99 31.12.00 31.12.01 31.12.01 31.12.02 31.12.03 0Balance Settlement of recovery loans outstanding New recovery loans addedBusiness Banking SwitzerlandLoan portfolio by loan category Total: CHF 146 billion CHF 139 billionCHF 139 billion100%5% 8% 6%90%20% 18%80%22%70% 60% 50% 40%77% 70% 74% 30% 20% 10% 0% 31.12.01 31.12.0231.12.03As at Mortgages Commercial credits Recovery portfolio |
|
|
| Strategic Solution Project (SSP) |
26
The extensive consolidation in the financial industry over the last decade and the rise of new, interactive technologies such as the internet have substantially changed the demands and performance requirements for the IT infrastructures of major global financial service providers. Flexible platforms and online capabilities are now de rigueur, as are IT applications that give clients comprehensive real-time, online services and allow the bank and client advisors to get an integrated view of client data and transactions.
Recognizing the need to comprehensively overhaul our basic IT architecture, in 1999 we launched a large-scale project called the “Strategic Solution Program” for Switzerland. It will provide us with a wholly new IT platform and replace a number of current platforms, which have reached, despite continual updates and renewals, certain limits. The SSP is a basic platform that will hold all basic data and information necessary for UBS’s business in Switzerland, and from which business-critical applications can be built on top.
The main objectives of the new banking software platform are to increase business flexibility, improve online, interactive capabilities, lower
Business GroupsGlobal Asset Managementoperational risks, achieve shorter times to market for products and services, introduce front-line applications for all business processes, cut operational costs and create clearly-defined interfaces based on industry standards.
In 2003, the core system will be programmed and installed, after which all bank applications in Switzerland will be built on top of it. Users themselves will not notice a great difference on their computer screens as a conscious decision was taken at the outset to change as little to the graphic interface as possible during the first stage of the project.
As SSP progresses, certain applications will be bought from external providers; some will be taken from the old UBS platform and updated, while UBS’s internal business and IT specialists will develop others.
We also know that SSP works effectively. Some components of our information technology infrastructure started to be processed on the SSP platform last year. Moreover, to test stability and performance, we ran the basic system successfully in parallel with our old system when performing year-end processing.
33
| |
| The Business Groups |
| UBS Global Asset Management |
| | |
| | |
| | |
| | |
UBS Global Asset Management
John A. Fraser
Chairman and CEO
UBS Global Asset Management
UBSThe Global Asset Management business is aone of the world’s leading asset manager,managers, providing investment management solutions to institutional clients as well as to private clients, through financial intermediaries.intermediaries and institutional investors.
| | | | | | | | | |
|
| Business Group reporting | | | |
| | | | |
| | | UBS Global Asset Management | |
| | |
| |
| CHF million, except where indicated | | | | | | | |
| For the year ended | | 31.12.02 | | | 31.12.01 | |
|
| Institutional fees | | | 899 | | | | 1,174 | |
| Wholesale Intermediary fees | | | 1,054 | | | | 1,044 | |
|
| Total operating income | | | 1,953 | | | | 2,218 | |
|
| Personnel expenses | | | 946 | | | | 1,038 | |
| General and administrative expenses | | | 513 | | | | 569 | |
| Depreciation | | | 37 | | | | 46 | |
| Amortization of goodwill and other intangible assets | | | 270 | | | | 286 | |
|
| Total operating expenses | | | 1,766 | | | | 1,939 | |
|
| Business Group performance before tax | | | 187 | | | | 279 | |
|
| Cost/income ratio before goodwill (%) | | | 77 | | | | 75 | |
| Net new money — Institutional (CHF billion) | | | (0.6 | ) | | | 6.2 | |
| Invested assets — Institutional (CHF billion) | | | 279 | | | | 328 | |
| Net new money — Wholesale Intermediary (CHF billion) | | | (1.8 | ) | | | 28.7 | |
| Invested assets — Wholesale Intermediary (CHF billion) | | | 278 | | | | 344 | |
| Headcount (full-time equivalents) | | | 3,346 | | | | 3,281 | |
|
| | | | | | | | | |
| CHF million, except where indicated | | Global Asset Management |
| For the year ended or as at | | 31.12.03 | | | 31.12.02 | |
| |
| Total operating income | | | 1,737 | | | | 1,655 | |
| Total operating expenses | | | 1,405 | | | | 1,436 | |
| |
Business Group performance before tax | | | 332 | | | | 219 | |
| |
| Net new money – Institutional (CHF billion) | | | 12.7 | | | | (1.4 | ) |
of which: money market funds – Institutional (CHF billion) | | | (5.0 | ) | | | (1.8 | ) |
| |
| Invested assets – Institutional (CHF billion) | | | 313 | | | | 274 | |
of which: money market funds – Institutional (CHF billion) | | | 14 | | | | 19 | |
| |
| Net new money – Wholesale Intermediary (CHF billion) | | | (5.0 | ) | | | (6.3 | ) |
of which: money market funds – Wholesale Intermediary (CHF billion) | | | (23.0 | ) | | | (6.9 | ) |
| |
| Invested assets – Wholesale Intermediary (CHF billion) | | | 261 | | | | 259 | |
of which: money market funds – Wholesale Intermediary (CHF billion) | | | 87 | | | | 106 | |
| |
| Headcount (full-time equivalents) | | | 2,689 | | | | 2,733 | |
| |
UBS Global Asset Management provides investment management services for institutional investors, and for financial intermediaries worldwide. Our purpose is to deliver superior results for clients through our integrated investment platform.
We are distinguished by our integrated global investment platformprocesses and the breadth, depth and scope of our investment capabilities thatwhich enable us to offer clients investment portfoliossolutions in nearly every major asset class.
Invested assets totaled CHF 557574 billion on 31 December 2002,2003, making us one of the largest global institutional asset managers, the second largest mutual fund manager in Europe, and by far the largest mutual fund manager in Switzerland.
OurIn February 2003, we refined our business and investment model and the organization now consists of three platforms. Ourareas. Thecore investment management businessis based on our price/intrinsic value investment philosophy, is atand founded on our commitment to securities research and fundamental analysis. Disciplined processes systematically apply our investment philosophy and ensure the quality of our execution.
heart of our core Thealternative and quantitative investments business encompasses several specialist areas, including the O’Connor hedge funds business. Unlike many alternative investment management business. We can demonstrate strengthproviders, we have both single and depth ofmulti-manager investment resources around the world and have the critical mass to attract and retain the best people. State-of-the-art risk management tools
| Global Asset ManagementInvested assets by client type Total: CHF 649 billion CHF 533 billionCHF 574 billion100% 90% 80%50% 49% 45% 70% 60% 50% 40% 30%50% 51% 55%20% 10% 0% 31.12.01 31.12.0231.12.03As at Institutional Wholesale Intermediary |
3427
The Business Groups
Global Asset Management
Ourreal estate business provides specialized property investment expertise. The business purchases, sells and processes are centralactively manages investments in property, including office, industrial, retail and residential real estate. It then structures the investments into private funds, publicly listed investment funds or individually managed client accounts. The business is active in the Americas, UK, Continental Europe and Asia Pacific.
Risk management is an integral and active part of our investment management process and is employed to
assess and consider the implications of any investment decision we make on our
disciplined investment approach. Developed in-house,client portfolios. Substantial resources have been devoted to the development of our
Global Equity Risk System allows portfolio managersproprietary global risk management system. One of its key qualities is its capability to
call upon comprehensive risk analysis within seconds. In this way, portfolio managers can be sureensure that portfolios
have predefined risk budgets and are managed
in line with clients’ individual risk/return objectives. Our second alternativeconsistently according to client objectives and quantitative investments platform encompasses several specialist businesses with distinctive brands, including O’Connor (hedge fundsexpectations for risk and other alternative investments), AIS (the Hong Kong-based fundreturn. A team of hedge funds business), DSI (global equity index managers)some 60 risk management, asset allocation and ACM (the Zurich-based institutional hedge fundcurrency specialists manage risk at the country, currency, industry sector and private equity manager).
The third, the real estate business — principally located in the US and the UK, with significant presence in Switzerland and Japan — have been combined into a separate and global real estate capability.
UBS Global Asset Management has devoted substantial resources to creating and maintaining its systems. We run a number of proprietary systems including models and tools for equity and fixed income research, valuation, risk monitoring and portfolio management. We have also invested in sophisticated, web-based communication tools to disseminate investment information internally. Through these communication links between our investment professionals worldwide, we create conditions for generating superior investment research and for sharing knowledge and ideas for the benefit of our clients.security level.
UBS Global Asset Management’sOur main offices are in London, Chicago, New York, Tokyo and Zurich. With over 3,000We have around 2,600 employees, of which some 520 are investment professionals, located in more than 20 countries, UBS Global Asset Management is truly global.21 countries.
UBS Global Asset ManagementThe separate asset management Business Group was formed as a result ofafter the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998. In July 2000, this culminated in the integration of the investment teams of the respective asset management businesses —were integrated – UBS Asset Management, BrinsonBrin-
son Partners (whose Chicago origins date back to the early 1970s) and Phillips & Drew (established in London in 1895). In April 2002, with the integration completed, the Business Group was re-branded as UBS Global Asset Management.
GAM (specialist multi-manager, founded in 1983We report revenues and acquired by UBS in 1999), which was part of our Business Group, will be transferredkey performance indicators according to the Corporate Center astwo main segments of first quarter 2003. For further details please refer toInstitutional and Wholesale Intermediary clients.
Competitors
In the “Private Banking” section on page 24).
UBSinstitutional arena, Global Asset Management competes against other global asset managers such as Merrill Lynch Investment Managers,including Capital, Guardian, PIMCO, Deutsche Asset Management and Alliance Bernstein. In the wholesale area, our main global competitors include Fidelity, AMVESCAP (INVESCO) and AMVESCAP.JP Morgan Fleming.
UBS Global Asset Management offersOur clients receive the most appropriate investment solutions for their needs through our combination of investment expertise with local delivery of our capabilities and services as well as an ongoing dialogue with clients. Apart from the advisory and reporting aspects of our client communications, we also keep them updated on current investment perspectives and business issues through a comprehensive range of investment capabilities designed forpublications and events.
Distribution
Institutional
We have a diverse institutional
investors andclient base located throughout the
wholesale intermediary marketplace around the globe.
35
28
| | |
|
| | |
| | – corporate and public pension plans |
| | – endowments, municipalities, charities and private foundations |
| | – insurance companies |
| | – governments and central banks; and |
| | – supranationals |
| | In consultant-driven markets, such as the US and UK, we rely on developing and maintaining strong relationships with the major consultants that advise corporates and institutions. |
| | |
| | Wholesale Intermediary |
| | The Global Asset Management business offers over 400 investment funds, exchange traded funds and other investment vehicles, across all asset types in diverse country, regional and industry sectors. |
| | Distribution of our investment funds is principally through financial intermediaries. Our most significant distribution channels are Wealth |
| | |
| | |
TheManagement & Business Groups
UBS Global AssetBanking and Wealth Management USA. We are continuing to evolve towards a distribution architecture in which an increasing proportion of funds will be sold through third-party channels.
Products and services
We combine investment expertise and sophisticated risk and currency management with a clear commitment to providing client-centric solutions. Our capabilities and services include active investment in equity and fixed income passiveasset classes, indexed and exchange-traded funds, as well as alternative investment strategies using fund-of-fundsadvisory services, hedge funds with both single and multi-manager funds,investment streams, and real estate and timber.estate.
These investmentInvestment management services are offered in the form of segregated, pooled and advisory mandates as well as through investment funds. We aim to deliver superior long-term investment performance to clients through the management and allocation of their investments across and within all major asset classes.
To meet investors’ needs for increasingly complex solutions, we have developed targeted return solutions which include advice and services that encompass risk management, asset allocation, currency overlay and asset/liability matching. Opportunities exist to offer these advisory services to large institutions, sovereign clients, banks and insurance firms who are looking to outsource asset management capabilities. We are also repositioning UBS Fund Services as a global, stand-alone fund administration business. The business already has substantial third-party mandates, and we believe that client service means more than providing investment expertise and wide-ranging investment capabilities. UBS Global Asset Management also recommends relevant investment solutions based on its understanding of the needs of clients. Ongoing dialogue is critical. Beyond the consultative and reporting aspects of our client relationships, we communicate with clients utilizing a comprehensive range of publications and events to keep them up-to-date with research, investment views and business issues.
Institutional
We have a diverse institutional client base located throughout the world. Our clients include:
– | | corporate and public pension plans |
– | | endowments and private foundations |
– | | sovereign governments and their central banks; and |
In consultant-driven markets, such as the US and UK, we rely on developing and maintaining strong relationships with the major consultants that advise institutions. We also dedicate resources to generating new business directly with large clients.
Wholesale Intermediary
UBS Global Asset Management offers over 400 investment funds, exchange traded funds and other investment vehicles, across all asset types in diverse country, regional and industry sectors.
Distribution of our investment funds is principally through financial intermediaries. Our most significant distribution channels are UBS Wealth Management & Business Banking and UBS PaineWebber. We are continuing to evolve towards a distribution architecture in which an increasing proportionadministration of funds will be sold through third party channels.increasingly outsourced by many providers of fund products.
There was a substantial recovery in most equity markets during 2003 as investors anticipated a strengthening global economic upturn. Some stock prices were pushed to levels that were unjustified by their long-term profit outlook – making a challenging environment for individual security selection based on fundamentals. Against this background, and after several years of strong outperformance, some of our core global equity portfolios lagged their benchmarks. Global bond markets, in the meantime, only recorded moderate returns because of concerns regarding stronger economic growth and a possible increase in central bank interest rates. Our active bond management strategies performed well in 2003 as they
3629
The Business GroupsGlobal Asset Management Industry trendsbenefited from interest rate and competitive positioningindividual security selection, with our asset allocation and currency strategies also making a strong contribution.
Despite In the recentalternative and quantitative business, strategies performed well across the board in 2003. All key equity-oriented strategies recorded positive returns and core strategies based on macro-economic themes performed strongly over the full year. Across the multi-manager groups, strategies with exposure to the equity markets performed exceptionally well, while more market volatilityneutral strategies also recorded solid returns.
With investors seeking less volatile returns and preservation of capital, demand for property investments increased. Historically, these have proven to be a strong source of income and total return. Based on the longer-term outlook forlatest available return information, the real estate business achieved strong returns in the US, Switzerland, UK and Japan.
Strategic initiatives / strategic opportunities
Global equity markets staged a convincing recovery in 2003, helping to support the asset management industry’s recovery. In the medium to longer term, the industry remains strong, primarily driven by demographic pressures and accompanying pension reform. However, asset management, like mostoutlook continues to be bright, because of the financial services industry, is undergoing a period of reassessment and review. There is widespread recognition that costs will need to be reduced and that fee levels cannot be sustained.
Open architecture distribution appears to be increasingly commonplaceshift in the US while it is making inroads into the European and Asia Pacific regions. This continues to present both opportunities and challenges for asset managers; opportunities to gain access to new and formerly closed distribution channels and challengesdemographics in maintaining penetration rates within proprietary ones.
Recent volatility within the equity markets has encouraged many investors to seek alternative forms of investment that diversify their investment styles. This has led to the increased popularity of hedge funds and private equity investments driven by higher potential returns and lower correlationdeveloped societies towards older populations, coupled with stock market indices. Furthermore, in the short-term, an increased allocationneed for private savings to fixed incomesupplement the various public pension systems. With a record of strong three- and money market instruments has been witnessed. Only asset managers possessing global, multi-specialist offerings are able to service such changing needs infive-year investment performance for most core capabilities and a flexible manner.
We believesolid reputation, we are strongly positionedcompetitively placed to take advantage of this changing market as we havebenefit from the reach and necessary scale to succeedexpected growth in an
increasingly global industry, and we have a multi-specialist offering of diverse investment capabilities matched by very few companies.
The more clearly focused structure we have implemented, now more clearly delineates between our price/value investment capabilities, alternative and quantitative investments platform and our global real estate capabilities. Distribution of all these capabilities to both institutional and wholesale clients willmarkets.
On a product level, Europe is expected to continue to rely heavily upon our strong regional business structure.see a broad shift towards open architecture platforms and further development of multi-manager investment solutions – although progress to date has been slower than expected. In this way, we will endeavorterms of asset mix, real estate and hedge funds are expected to provide clientscontinue to benefit from investors’ need for greater portfolio diversification. Passive investments are also expected to increase in importance, implying a relatively subdued outlook for traditional active equity and fixed income capabilities. As a result, competitive pressures for traditional products are expected to increase, with slower growth underscoring the best solutionsimportance of gains in market share. This is compounded by continuing pressure on industry fees as consultants and institutional investors remain sensitive to their needs.
Investment performancepricing levels, as well as expected continued regulatory pressure on wholesale and retail fund pricing.
In all capabilities, there have been strong investment performance trends The importance to the industry of restoring public trust following recent US regulatory scandals cannot be overstated. Asset managers must elevate compliance and risk control to anticipate and exceed regulatory standards. Increased competitive pressures, and the resultant higher costs, together with rising regulatory complexity, are likely to result in recent years. Inconsolidation and segmentation within the coreindustry. Many mid-tier players may decide to outsource non-core investment management platform, this was particularly evident in 2002 — portfolios were well positioned early in the yearactivities to focus on more core activities. This presents opportunities for the disappointment faced by investors in capital markets flowing from both poor economiclarge managers, such as UBS, with a broad array of traditional and earnings growth. Balanced portfolios benefited from equity underweightings in the first half of the yearinnovative capabilities and overweightings thereafter. Across the various asset classes, individual security selection proved asservices and a well-known, strong as in recent years, especially in the global equity mandate. Performance in active currency mandates was also strong. In the other capabilities, performance was affected by the challenging market conditions. Several of the capabilities performed well while others faced particular difficulties in the middle part of the year. Performance towards the end of the year was stronger across the board.brand.
3730
The Business Groups
UBS WarburgInvestment Bank
UBS Warburg
Investment Bank
John P. Costas
Chairman and CEO
UBS WarburgInvestment Bank
UBS Warburg is one of the world’s leading firms in the investment banking and securities firms,business, providing a full spectrum of services to institutional and corporate clients, governments and financial intermediaries around the world.intermediaries.
Business Group reportingGroup/Business Unit Reporting
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Corporate and | | | | | | | |
| | | Institutional Clients | | | UBS Capital | | | UBS Warburg | |
| CHF million, except where indicated | |
| | |
| | |
| |
| For the year ended | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | | | 31.12.02 | | | 31.12.01 | |
|
| Income | | | 14,100 | | | | 15,587 | | | | (1,602 | ) | | | (872 | ) | | | 12,498 | | | | 14,715 | |
| Credit loss expense | | | (128 | ) | | | (112 | ) | | | | | | | | | | | (128 | ) | | | (112 | ) |
|
Total operating income | | | 13,972 | | | | 15,475 | | | | (1,602 | ) | | | (872 | ) | | | 12,370 | | | | 14,603 | |
|
| Personnel expenses | | | 7,784 | | | | 8,258 | | | | 94 | | | | 96 | | | | 7,878 | | | | 8,354 | |
| General and administrative expenses | | | 2,314 | | | | 2,586 | | | | 64 | | | | 64 | | | | 2,378 | | | | 2,650 | |
| Depreciation | | | 381 | | | | 454 | | | | 1 | | | | 2 | | | | 382 | | | | 456 | |
| Amortization of goodwill and other intangible assets | | | 364 | | | | 402 | | | | 0 | | | | 0 | | | | 364 | | | | 402 | |
|
Total operating expenses | | | 10,843 | | | | 11,700 | | | | 159 | | | | 162 | | | | 11,002 | | | | 11,862 | |
|
Business Group performance before tax | | | 3,129 | | | | 3,775 | | | | (1,761 | ) | | | (1,034 | ) | | | 1,368 | | | | 2,741 | |
|
| Cost/income ratio before goodwill (%) | | | 74 | | | | 72 | | | | | | | | | | | | 85 | | | | 78 | |
| Net new money (CHF billion) | | | | | | | | | | | | | | | | | | | 0.5 | | | | 0.1 | |
| Invested assets (CHF billion) | | | | | | | | | | | | | | | | | | | 3 | | | | 1 | |
| Headcount (full-time equivalents) | | | 15,964 | | | | 15,562 | | | | 73 | | | | 128 | | | | 16,037 | | | | 15,690 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Investment Banking | | | | | | |
| CHF million, except where indicated | | & Securities | | Private Equity | | Investment Bank |
| For the year ended or as at | | | 31.12.03 | | | | 31.12.02 | | | | 31.12.03 | | | | 31.12.02 | | | | 31.12.03 | | | | 31.12.02 | |
| |
| Total operating income | | | 14,058 | | | | 13,972 | | | | (77 | ) | | | (1,602 | ) | | | 13,981 | | | | 12,370 | |
| Total operating expenses | | | 9,980 | | | | 10,843 | | | | 112 | | | | 159 | | | | 10,092 | | | | 11,002 | |
| |
Business Group / Business unit
performance before tax | | | 4,078 | | | | 3,129 | | | | (189 | ) | | | (1,761 | ) | | | 3,889 | | | | 1,368 | |
| |
| Headcount (full-time equivalents) | | | 15,500 | | | | 15,964 | | | | 50 | | | | 73 | | | | 15,550 | | | | 16,037 | |
| |
UBS WarburgUBS’s Investment Bank operates globally as a client-driven investment banking and securities firm. Our salespeople, research analysts and investment bankers provide products and services to the world’s key institutional investors, intermediaries, banks, insurance companies, corporations, sovereign governments, supranational organizations and supranational organizations.private investors.
For both itsour own corporate and institutional clients and the individual clients of other parts of UBS, the UBS Group, UBS WarburgInvestment Bank provides product innovation, research and advice, and comprehensive access to the world’s capital markets.
Organizational structure
Since 1 January 2002, UBS Warburgthe Investment Bank has been organized into two business units:
| – | | the Corporate and Institutional ClientsInvestment Banking & Securities business unit, which is one of the world’s leading global investment |
| | banking and securities firms, providingwhich provides products and advice to institutional and corporate clients |
| – | | UBS Capital,Private Equity, which is responsible for managing ourmanages private equity investments in a diverse global range of private companiescompanies. |
Our formerFrom first quarter 2004 onwards, we will no longer report Private Equity as a stand-alone business unit. Results from the private clientsequity business centered around UBS PaineWebber, becamewill be reported as a separate and independent Business Group effective 1 January 2002. Results shownrevenue line in the Business Group reporting table have therefore been restated to reflect this.
Competitors
As a global investment banking and securities firm, we compete against other globalmajor international players likesuch as Citigroup, Credit Suisse First Boston, Goldman Sachs, Deutsche Bank, JP MorganChase, Merrill Lynch Goldman Sachs,and Morgan Stanley and Credit Suisse Group.Stanley.
3831
Corporate and Institutional Clients |
|
The Business Groups
Investment Bank
Investment Banking & Securities
Our global reach, supported by a complete array of products and services, gives our clients unique access to financial markets around the world backed up by a complete array of services and products.world.
The Corporate and Institutional Clients (CIC)Investment Banking & Securities (IB&S) business unit provides wholesale financial products and advisory services to a diverse client base worldwide.spread throughout the globe. It has a significant corporate client financing and advisory business, withwhose particular strengths lie in advisingproviding advice on cross-border mergers and acquisitions and theraising capital raising requirements offor our global corporate and governmental client base. Although historicallyHistorically, we have been among the leaders in European corporate finance, and in recent years we arehave also nowbeen one of the fastest growingfew investment bankbanks experiencing strong growth in the US, according to data provided by Freeman & Co’s “All Industries” data.All Industries survey.
We are also an important partner for institutional clients, with strengths in equities research and distribution as well as in originating, structuring and distributing fixed income cash and derivatives products. We haveOur risk management skills run across all product areas, covering cash and derivative products. Weproducts, and we leverage these skillsthem to provide a broad array of risk management products for our institutional and corporate clients.
We also manage cash and collateral trading and interest rate risks on behalf of the UBS, Group while executing the vast majority of securities, derivativesderiva-
tives and foreign exchange transactions for UBS’s retailthe firm’s individual clients.
To our core clients, we offer lending products to support their financing needs although risk/return considerations are paramount drivers in determining balance sheet usage. We also occasionally provide them with bridge financing to help them complete their financing needs.
Due to the nature of our business, our revenues vary seasonally from quarter to quarter. Historically, the first half of the year tends to be stronger than the second half.
CIC,The IB&S unit, headquartered in London and New York, employs almost 16,000over 15,000 people in 31 countries around the world.
We organize our businessOrganizational structure
Our businesses are run on a global basis and organized into the three distinct areas:areas of:
| – | | Fixed Income, Rates and Currencies |
They are distinguished by the type of products and services offered and the nature of the business risks they raise. All businesses are run on a global basis.
Legal structure
UBS WarburgThe Investment Bank operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS WarburgSecurities LLC, a registered broker-dealer.
Investment Banking & Securities: income by client type
| | | | | | | | | | | | | |
| | | For the year ended |
| % of total | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| Investment banking clients | | | 21 | | | | 23 | | | | 23 | |
| Securities revenue from corporate clients | | | 4 | | | | 6 | | | | 6 | |
| Institutional clients and markets | | | 75 | | | | 71 | | | | 71 | |
| |
Total | | | 100 | | | | 100 | | | | 100 | |
| |
32
Products and services |
The Business Groups
|
Products and services
Equities
UBS Warburg’s equity businessThe Investment Bank is a leading player in the global primary and secondary markets for equity, equity-linked and equity derivative products. We sell, trade, finance and clear cash equity and equity-linked products. We also structure, originate and distribute new equity and equity-linked issues. Additionally, we provide research on companies, industry sectors, geographic markets and macro-economic trends.
39
The Business Groups
UBS Warburg
Corporate and Institutional Clients: income by client type
| | | | | | | | | | | | | | |
| | | | For the year ended | |
| | | |
| |
| | % of total | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
| |
|
| | Investment banking clients | | | 23 | | | | 23 | | | | 23 | |
| | Securities revenue from corporate clients | | | 6 | | | | 6 | | | | 5 | |
| | Institutional clients and markets | | | 71 | | | | 71 | | | | 72 | |
| |
|
| | Total | | | 100 | | | | 100 | | | | 100 | |
| |
|
We are membersa member of over 87 differentmore than 80 stock exchanges in 31 countries and have a local presence in 40 offices around the world, withworld. This multi-local approach allows our client teams to deliver the advantages of our scale and global reach to individual clients regardless of their home market. In 2003, we were named the “World’s Best Equity House” byEuromoney, a team of 900 salespeople giving our clients access to the global equity markets. In the US, our equities business is among the top investment banks in terms of trading volume, and for market share of client commissions (according to an industry survey). We remain an important provider of non-US primary and secondary equities into the US market.
In Europe, we continue to defend our leading position while in the Asia-Pacific region, we have built a substantial equities franchise. Also, we have maintained longstanding and first-ranked positions in Australia in the research, primary and secondary categories, according to leading market surveys. In Japan, we are onerecognition of the main foreign players in the domestic market. During 2002, UBS Warburg received the following awards, among others, from industry publications and surveys:
– | | “Equity House of the Year” fromThe Banker(second year running) |
– | | “No. 1 Global Product Sales” fromInstitutional Investor |
– | | “Equity Derivatives House of the Year” fromInternational Financing Review |
The technology platform has been incorporated into the day-to-day management of each business area, allowing us to adapt, expand and improve our business processes and client services.
Our Equity Capital Markets team lead manages many of the world’s largest and most complex pricing transactions, demonstrating the cross-border natureexcellence of our relationships and the strength of our distribution network, with a significant global position in distributing block trades, rights offerings, IPOs, and hybrid and convertible issues to both institutional and private clients.
The global Equity Finance business focuses on hedge funds, with substantial market positions in equity swaps, stock borrowing and lending, and integrated international prime brokerage services.client service.
Our equity research team supplies independent assessments of the prospects of approximately 3,4002,900 companies across diverse sectors worldwide, representing about 90%(corresponding to 80% of world market capitalization,capitalization) across diverse industry sectors, as well as economic, strategy and derivative research. We took the top position for the best overall global equity research in this year’sInstitutional Investor survey. Our equity research principles are very strict in maintaining effective confidential information barriers between investment banking and research and in following appropriate and clear procedures for any crossing of those barriers in connection with investment banking transactions. In
2003, we introduced a new simplified rating system for equity analysis that combines a recommendation with a new predictability indicator that highlights the degree of certainty an analyst has in their price target. We believe the new research process is both easier to understand and more comprehensive. By carefully coordinating the efforts of our regional and product distribution teams, we have built a global cash equities franchise that is second to none. With the scale and balance of our platform across all time zones, we offer liquidity, and efficient completion in executing orders in every major world market.
We are also a recognized market leader in derivatives, winning the “Best Equity Derivatives” awards fromInternational Financing Review,RiskandEuromoneyin the past year. Risk management products remain among the segments of our business with the fastest pace of growth, and we will continue to focus on providing innovative and customized investment solutions to institutional and corporate clients, as well as clients in our asset management and wealth management businesses.
Our Equity Capital Markets team manages many of the world’s largest and most complex transactions, demonstrating the cross-border nature of our relationships and the strength of our distribution network. We have built a leading global position as a distributor of block trades, rights offerings, initial public offerings, and hybrid and convertible issues to both institutional and private clients in every regional market.
We have made significant investments in our technology platform, and are recognized as a market leader in providing a number of electronic services to our clients such as equity research and trading. This was confirmed by a number ofEuromoney2003 Technology Awards, among them “Best Equities Trading Connectivity”, “Best Online Equities Research” and “Best Equity New Issues Platform”. Our front-to-back focus on technology allows us to adapt and continuously improve our business processes and client services.
Our Hedge Fund Services business provides integrated global services, including stock borrowing and lending, and prime brokerage to the rapidly expanding universe of hedge fund clients. In 2003, UBS acquired the US prime brokerage
33
The Business Groups
Investment Bank
operations of ABN AMRO, significantly enhancing our market position there. The business was focused on small and mid-segment hedge funds and formed an excellent strategic fit with our existing platform by adding over 300 new clients, helping UBS position itself among the top five prime brokers in the US.
Investment Banking
In the investment banking business, UBS Warburg provideswe provide advice and execution capabilities to a global corporate client base. This advice encompassesOur services encompass advising on mergers and acquisitions, strategic reviews and corporate restructuring solutions. In conjunction with other business areas of UBS Warburg,the Investment Bank, and other Business Groups, of UBS,we also arrange the investment banking business also arranges execution of new debt and equity issues on a global basis.
In 2002, against a challenging economic background,2003, we assisted our corporate clients in a range of successful M&Amerger and acquisition transactions and capital market issues. Some of the more notable dealsmandates included:
- joint financial advisor to WellPoint Health Networks, the US healthcare company, on its USD 16.4 billion sale to Anthem
- sole financial advisor to Vodafone on its USD 2.2 billion sale of 2002 included:
– | | Carnival’s USD 7.5 billion acquisition of P&O Princess |
– | | Univision Communications USD 3.5 billion all-stock acquisition of Hispanic Broadcasting Corporation — a landmark strategic deal to combine the leading US Spanish language television and radio companies |
40
fixed-line subsidiary Japan Telecom to Ripplewood – | | Network Rail’s GBP 9 billion acquisition of Railtrack Plc, which was supported by GBP 21 billion of standby loans |
– | | the USD 24 billion restructuring of NTL — one of the largest corporate restructuring transactions in history for the leading UK broadband cable operator |
– | | Bank of China (Hong Kong) restructuring and USD 2.7 billion IPO, the first from a state-owned financial institution in the People’s Republic of China. |
- joint global coordinator for Allianz, the German insurance company, on its EUR 3.5 billion rights issue We have more than 2,100 investment banking professionals worldwide.- sole bookrunner for Australian financial services company AMP on its demerger and related USD 2 billion equity issue
- joint bookrunner for Russian natural gas producer Gazprom on its 7-year EUR 1 billion issue
- joint bookrunner for US telecommunications company Sprint on its USD 5 billion multi-tranche issue due 2006, 2013 and 2033.
One of our strategic goals is the expansion of our global corporate client franchise. We continueTo maintain a strong global position, an extensive pres-
ence in the US is critical and we have made substantial investments to invest in completingexpand our business there over the buildup of our US franchise, which we started to do in late 2000, by hiring highly qualified bankers. Despite these investments, we do not expect immediate results. Gaining new investment banking business involves long lead times, but we are pleased with the progress made in 2002.last three years. The combination of our expandedlarger investment banking and equities footprintpresence in the US, givesas well as increased awareness of the UBS brand, has given us greater access to key corporate executives, which has allowedallowing us to become involvedparticipate in some of the largest and most complex deals in 2002. We achievedtransactions last year. As a result, we had one of the highest growth rates in US market share growth of any investment bank in 2002.
We have a longer term goal of achieving market share, on a global basis, in excess of 5%. We believe that theThe results achieved this year, globally, with a market share of 5% compared to 4.4% a year earlier, against a background of very challenging conditions for corporates,relatively modest recovery in corporate activity levels, clearly show the strength and momentum of our leading investment banking franchise.
We believe the market fee pool will increase in 2004, although we do not expect a return to the extraordinarily high levels of activity experienced in 1999 and 2000. Increased activity is anticipated in mergers and acquisitions and primary equity issuance, but this is likely to be partly offset by a flat to slightly smaller fee pool in debt capital markets.
Fixed Income, Rates and Currencies
UBS Warburg is also Our Fixed Income, Rates and Currencies (FIRC) business provides a substantial fixed income and foreign exchange house, providingbroad spectrum of products and original thinkinginnovative solutions to corporate and institutional clients in all major markets. With over 2,1002,200 professionals employed around the world, we offer our clients a genuinely seamless global service. OurThe FIRC unit is a diverse portfolio of business includes:lines, which include:
| – | | governmentFixed income, incorporating debt capital markets, credit trading and corporate bondscredit derivatives |
| – | | foreignForeign exchange and cash & collateral trading |
| – | | Rates, incorporating interest ratesrate derivatives, residential mortgages, government bonds and energy trading |
| – | | vanillaPrincipal finance and structured credit derivativescommercial real estate |
Key performance indicators: league table rankings
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 31.12.03 | | 31.12.02 | | 31.12.01 |
| | | | | | | Market | | | | | | | Market | | | | | | | Market | |
| | | Rank | | | share % | | | Rank | | | share % | | | Rank | | | share % | |
| |
| Global mergers and acquisitions (completed) | | | 8 | | | | 11.2 | | | | 9 | | | | 10.4 | | | | 8 | | | | 9.8 | |
| International equity new issues | | | 4 | | | | 8.5 | | | | 6 | | | | 8.6 | | | | 2 | | | | 13.0 | |
| |
–1 Source: Thomson Financial Securities. 2 Source: Dealogic EquitywarePlus. |
34
| |
mortgage and asset-backed securitiesThe Business Groups
|
– | | cash and collateral trading |
These major business lines are underpinned by our global distribution and our highly regarded research capabilities, as acknowledged by our number one ranking for Fixed Income Strategy inThomson Financial’sExtel survey and number one ranking inInstitutional Investorfor mortgage-backed securities (MBS) research.
Our approach to specific products and markets varies. Where potential for sufficient risk-adjusted returns exist,exists, we seek market share leadership in high-volume, liquid markets, using our client flow, capital and economies of scale to generate returns. As an example, of that, we have, according toEuromoney, the leading 23.8%11.5% market share in the online foreign exchange trading market.market, and we execute roughly a quarter of all online FX trades. Furthermore, our residential mortgage business retained its top global position in theThomson FinancialGlobal MBS league tables for the third year running.
However,In those markets where there are certain fixed income markets where scale can only be gained at the expense of returns. In these cases,not sufficient risk-adjusted returns, we may decide not to seek market share, but instead focus on earningspecific products where there are potentially higher margins in specialized products.margins.
In 2002,2003, we maintained our presence in the international and US debt capital markets through our ability to execute across a range of currencies and products and our placing capabilitiesto distribute those products in the global institutional and retail markets. We have continued not pursuedto pursue volume and have not chased mandates through large-scale lending, nor have we issued in large volume where mandates are awarded on price.
Furthermore, whileWhile there are no definitive surveys or overall measures of market share in the highly fragmented fixed income, rates and foreign exchange markets,currencies space, we continue to win awards for the depth of our client coverage and technical expertise.
Accolades in 2003 include “World’s Best FX House” in theEuromoney2003 Awards wefor Excellence (for which UBS also won last year include the 2002“World’s Best Bank” and “World’s Best Equity House” awards, among others). We also took the top place for a FX House of the Year frombank inThe Banker,FX Week, and second rankwere third inThomson Financial’sInstitutional Investor’sExtel Survey forannual US Fixed Income Strategy, Fixed Income Derivatives,Sales and European Government Bonds.Trading poll. In the 2003International Financing Review2003 awards, we were named “Emerging Markets Bond House”, “Asian Bond House”, “Financial Bond House (subordinated debt)” and “Swiss Franc Bond House”.
LoanStrategic opportunities
Markets are showing signs of a pick-up in activity, especially in the US and Asia, giving us reason for cautious optimism. With our diversified business portfolio,
UBS took a strategic decision in 1998 we have demonstrated the ability to reduceshift focus according to market opportunities – taking advantage of and capitalizing on revenue opportunities where they arise and withdrawing resources at the size of its international loan portfolio, limiting exposuresright moment, when conditions change. We continue to those which directly support
build our competitive strength, focusing on growth opportunities and winning market share.
4135
The Business Groups
UBS WarburgInvestment Bank
Private Equity
core client relationships. UBS continues to avoid engaging in substantial balance-sheet-led earnings growth, with the result that the size of its international loan portfolio has fallen considerably from the level recorded in 1998. Despite this, we continue to support our core clients in their financing needs. Risk/return considerations are the paramount drivers in determining balance sheet usage. We occasionally provide bridge financing to our core clients for the purposes of completing significant deals. Thanks to this more risk-averse approach, we were not significantly exposed to the heavily publicized corporate failures of 2001 and 2002.
Corporate and Institutional Clients’ loan portfolio was CHF 62 billion at 31 December 2002. The “Risk analysis” section on pages 59 to 77 contains an in-depth review of UBS’s credit portfolio andPrivate Equity business including a discussion of impaired and non-performing loans.
Our e-commerce capabilities are based around our client online portal. This site gives our clients direct access to prices, research, trade ideas and analytical tools through applications such as ResearchWeb - - our equity research site, DealKey, an internet facility for managing equity and equity-linked new issues, and CreditDelta, our credit portfolio management product.
We believe that markets will continue to be difficult until at least the second half of 2003,
which will have a short-term negative impact, particularly on our equities and investment banking businesses. Nonetheless, we are confident that as recent new investment banking hires build their productivity, and as the momentum we have built in the European and US markets pays dividends, we will continue to gain market share in 2003.
In investment banking, we have focused on specific sectors where there is a substantial current fee pool, as well as sectors where we believe there are significant opportunities in the future. Our hiring efforts have beenfocuses mainly centered on the development of industry-leading franchises in several key areas, including Consumer Products, Energy and Power, Healthcare, Wireless, Media and Industrials. We also intend to build on our existing franchise in the Financial Institutions sector.
Building our franchise in this way will not result in overnight success. Despite this, we have already achieved clear results with our market share in the Americas rising from 2.0% in first quarter 2001 to 3.5% at the end of 2001 and 4.4% by the end of 2002 (according to “Freeman & Co.”).
We aim to build a secondary market franchise in the US that is similar in depth and breadth to our leading European and Asia Pacific businesses. As a result of the boost to our franchise from the integration of UBS PaineWebber, we now rank strongly in equity research and have more than doubled our US secondary equity market share, although we remain some way behind the market share we enjoy in Europe.
42
UBS Capital is the Group’s private equity business. It now focuses on managing its existing portfolio to maximize value.
UBS Capital investedThe Private Equity business seeks to maximize the value of its investments through active portfolio management and to capitalize on orderly exit opportunities. The portfolio comprises majority and minority stakes in unlisted companies withsubstantially privately owned companies. These investments were made, either directly or as a viewlimited partner in third-party funds, in a number of different regions and sectors. In our direct investments we support management teams to preparing them for salegrow earnings, rationalize costs and enhance the value of the company before selling to a trade or financial buyers, and, where appropriate, stagingbuyer, or through an Initial Public Offering (IPO). A review in late 2001 and early 2002, carefully considered the strategic future of UBS Capital in light of the generally negative market environment, the overall changes occurring in the private equity industry and our assessment of the long-term opportunities inherent in the business. After the review, and in light of UBS’s focusIPO.
Organizational structure
The Private Equity business is managed on advisory services, we decided that UBS Capital should focus on managing down its existing portfolio, capitalizing on exit opportunities where they arise and minimizing the level of new direct investments.
UBS Capital is structured along regional lines and isa global basis, fully integrated within the UBS Warburg Business Group.management and control structures of the Investment Bank. Its portfolio in Asia and Europe mostlymainly comprises direct balance sheet investments. UBS CapitalPrivate Equity in the US is focused on both direct balance sheet investments and the UBS Capital Americas
fund. Around 30%20% of UBS Capital’sour portfolio is invested in third partythird-party funds, which are overseen by a dedicated portfolio management team.
UBS CapitalPrivate Equity had a total investment portfolio of CHF 3.12.3 billion on 31 December 2002,2003, measured by the historichistorical cost of investments less divestments, returns of capital and permanent impairments. The fair value of the portfolio at the same date was CHF 3.82.9 billion.
On 31 December 2002,2003, approximately 52%32% of the investment portfolio was three years old or less. Generally, investments are sold between the third and the sixth year after the initial investment.
In line with the bank’s aim of reducing
exposure to the private equity UBS Capital gradually reducedasset class, undrawn commitments were reduced to CHF 2.11.5 billion on 31 December 20022003 from CHF 3.02.1 billion a year earlier, while obtainingearlier.
The reduction in undrawn commitments over the best possible returnscourse of 2003, as well as the successful divestments in 2003, is proof that our reduction efforts succeeded this year.
Business outlook
The Private Equity business will continue to focus on managing existing assets in order to maximize value for UBS shareholders and for existinginvestors in UBS Capital funds.
UBS Capital’s Consistent with the de-emphasis of this asset class, we continue to capitalize on orderly exit opportunities for investments when they arise and to reduce exposure to private equity funds. As the portfolio primarily comprises late stage investments that are spread throughout Europe,shrinks, our performance will continue to be linked to the US and Asia and are typically held for three to six years. UBS Capital’s exit strategies include direct sales to strategic buyers, initial public offerings, leveraged recapitalizations and sales to other financial sponsors.
Conditionseconomic conditions prevailing in the international capital markets and in the global economy more generally, are expected to remain harsh for some time. UBS Capital’s strategy is to manage existing assets in order to reduce balance sheet risk. The investment teams managing UBS Capital’s assets will endeavor to obtain the best possible returns for UBS and for investors in its private equity funds.of our underlying investments.
4336
The Business Groups
UBS Warburg
UBS CapitalPrivate Equity investment portfolio
Aging (based on date of initial investment)
| | | | | | | | | | | | | |
| | | As at |
| | |
|
| CHF million1 | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| pre-1994 | | | 54 | | | | 85 | | | | 65 | |
| 1994 | | | 97 | | | | 190 | | | | 253 | |
| 1995 | | | 112 | | | | 214 | | | | 272 | |
| 1996 | | | 63 | | | | 202 | | | | 166 | |
| 1997 | | | 134 | | | | 207 | | | | 520 | |
| 1998 | | | 373 | | | | 722 | | | | 842 | |
| 1999 | | | 636 | | | | 1,123 | | | | 1,490 | |
| 2000 | | | 1,119 | | | | 1,781 | | | | 1,941 | |
| 2001 | | | 438 | | | | 487 | | | | | |
| 2002 | | | 58 | | | | | | | | | |
|
Total | | | 3,084 | | | | 5,011 | | | | 5,549 | |
|
| | | | | | | | | | | | | |
| | | | |
| | | | As at |
| CHF million1 | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| pre-1994 | | | 46 | | | | 54 | | | | 85 | |
| 1994 | | | 4 | | | | 97 | | | | 190 | |
| 1995 | | | 40 | | | | 112 | | | | 214 | |
| 1996 | | | 44 | | | | 63 | | | | 202 | |
| 1997 | | | 95 | | | | 134 | | | | 207 | |
| 1998 | | | 91 | | | | 373 | | | | 722 | |
| 1999 | | | 258 | | | | 636 | | | | 1,123 | |
| 2000 | | | 986 | | | | 1,119 | | | | 1,781 | |
| 2001 | | | 284 | | | | 438 | | | | 487 | |
| 2002 | | | 79 | | | | 58 | | | | | |
| 2003 | | | 386 | | | | | | | | | |
| |
Total | | | 2,313 | | | | 3,084 | | | | 5,011 | |
| |
1All amounts are Investment,investments, defined as cost less disposals and impairments.
UBS CapitalPrivate Equity investment portfolio
Geographic region (by headquarters of investee)
| | | | | | | | | | | | | |
| | | As at |
| | |
|
| CHF million1 | | 31.12.02 | | | 31.12.01 | | | 31.12.00 | |
|
| North America | | | 1,302 | | | | 2,134 | | | | 2,356 | |
| Europe | | | 1,238 | | | | 2,018 | | | | 2,333 | |
| Latin America | | | 189 | | | | 339 | | | | 382 | |
| Asia Pacific | | | 355 | | | | 520 | | | | 478 | |
|
| Total | | | 3,084 | | | | 5,011 | | | | 5,549 | |
|
| | | | | | | | | | | | | |
| | | | |
| | | | As at |
| CHF million1 | | 31.12.03 | | | 31.12.02 | | | 31.12.01 | |
| |
| North America | | | 1,157 | | | | 1,302 | | | | 2,134 | |
| Europe | | | 794 | | | | 1,238 | | | | 2,018 | |
| Latin America | | | 108 | | | | 189 | | | | 339 | |
| Asia Pacific | | | 254 | | | | 355 | | | | 520 | |
| |
Total | | | 2,313 | | | | 3,084 | | | | 5,011 | |
| |
1All amounts are Investment,investments, defined as cost less disposals and impairments.
UBS CapitalPrivate Equity investment portfolio
Industry sector (based on industry classification codes)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As at |
| | |
|
| CHF million1 | | 31.12.02 | | | % of Portfolio | | | 31.12.01 | | | % of Portfolio | | | 31.12.00 | | | % of Portfolio | |
|
| Consumer related | | | 517 | | | | 17 | | | | 773 | | | | 15 | | | | 1,023 | | | | 18 | |
| Transportation | | | 85 | | | | 3 | | | | 522 | | | | 10 | | | | 640 | | | | 12 | |
| Communications | | | 240 | | | | 8 | | | | 414 | | | | 8 | | | | 380 | | | | 7 | |
| Computer related | | | 342 | | | | 11 | | | | 833 | | | | 17 | | | | 819 | | | | 15 | |
| Energy | | | 83 | | | | 3 | | | | 152 | | | | 3 | | | | 190 | | | | 3 | |
| Other electronics related | | | 174 | | | | 6 | | | | 247 | | | | 5 | | | | 247 | | | | 4 | |
| Other manufacturing | | | 286 | | | | 9 | | | | 94 | | | | 2 | | | | 106 | | | | 2 | |
| Chemicals and materials | | | 8 | | | | 0 | | | | 54 | | | | 1 | | | | 106 | | | | 2 | |
| Industrial products and services | | | 746 | | | | 24 | | | | 1,360 | | | | 27 | | | | 1,361 | | | | 25 | |
| Others | | | 603 | | | | 19 | | | | 562 | | | | 12 | | | | 677 | | | | 12 | |
|
| Total | | | 3,084 | | | | 100 | | | | 5,011 | | | | 100 | | | | 5,549 | | | | 100 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
| CHF million, | | | As at |
| except where indicated1 | | 31.12.03 | | | % of Portfolio | | | 31.12.02 | | | % of Portfolio | | | 31.12.01 | | | % of Portfolio | |
| |
| Consumer-related | | | 383 | | | | 17 | | | | 517 | | | | 17 | | | | 773 | | | | 15 | |
| Transportation | | | 17 | | | | 1 | | | | 85 | | | | 3 | | | | 522 | | | | 10 | |
| Communications | | | 170 | | | | 7 | | | | 240 | | | | 8 | | | | 414 | | | | 8 | |
| Computer-related | | | 132 | | | | 6 | | | | 342 | | | | 11 | | | | 833 | | | | 17 | |
| Energy | | | 0 | | | | 0 | | | | 83 | | | | 3 | | | | 152 | | | | 3 | |
| Other electronics-related | | | 145 | | | | 6 | | | | 174 | | | | 6 | | | | 247 | | | | 5 | |
| Other manufacturing | | | 59 | | | | 3 | | | | 286 | | | | 9 | | | | 94 | | | | 2 | |
| Chemicals and materials | | | 2 | | | | 0 | | | | 8 | | | | 0 | | | | 54 | | | | 1 | |
| Industrial products and services | | | 422 | | | | 18 | | | | 746 | | | | 24 | | | | 1,360 | | | | 27 | |
| Others | | | 983 | | | | 42 | | | | 603 | | | | 19 | | | | 562 | | | | 12 | |
| |
Total | | | 2,313 | | | | 100 | | | | 3,084 | | | | 100 | | | | 5,011 | | | | 100 | |
| |
1All amounts are Investment,investments, defined as cost less disposals and permanent impairments.
4437
The Business Groups
UBS PaineWebberWealth Management USA
UBS PaineWebberWealth Management USA
Joseph J. Grano, Jr.
Chairman, and CEO, UBS PaineWebberWealth Management USA
Mark B. Sutton
President and Chief Operating Officer
UBS PaineWebberCEO, Wealth Management USA
UBS PaineWebber,As one of the top wealth managers in the US, provideswe provide a complete set of sophisticated wealth management services through consultative relationships withto our affluent and high net worth clients.
Business Group reporting adjusted for significant financial eventsReporting| | | | | | | | | |
| CHF million, except where indicated | | | Wealth Management USA |
| For the year ended or as at | | 31.12.03 | | | 31.12.02 | |
| |
| Total operating income | | | 5,182 | | | | 5,548 | |
| Total operating expenses | | | 5,187 | | | | 7,348 | 1 |
| |
Business Group performance before tax | | | (5 | ) | | | (1,800 | ) |
| |
KPI’s and additional information | | | | | | | | |
| Net new money (CHF billion) | | | 21.1 | | | | 18.5 | |
| Interest and dividend income (CHF billion) | | | 15.8 | | | | 17.9 | |
| Invested assets (CHF billion) | | | 634 | | | | 584 | |
| Headcount (full-time equivalents) | | | 18,016 | | | | 19,563 | |
| |
1| | | | | | | | | |
| | | UBS PaineWebber |
| | |
|
| CHF million, except where indicated | | | | | | |
| For the year ended | | 31.12.02 | | | 31.12.01 | |
|
| Income | | | 5,561 | | | | 6,391 | |
| Credit loss expense | | | (13 | ) | | | (18 | ) |
|
Total operating income | | | 5,548 | | | | 6,373 | |
|
| Personnel expenses | | | 4,245 | | | | 5,019 | |
| General and administrative expenses | | | 1,263 | | | | 1,441 | |
| Depreciation | | | 149 | | | | 124 | |
| Amortization of goodwill and other intangible assets | | | 457 | | | | 502 | |
|
Total operating expenses | | | 6,114 | | | | 7,086 | |
|
Business Group performance before tax | | | (566 | ) | | | (713 | ) |
|
Business Group performance before tax and acquisition costs2 | | | 632 | | | | 693 | |
| |
| Cost/income ratio before goodwill (%) | | | 102 | | | | 103 | |
Cost/income ratio before acquisition costs (%)2 | | | 89 | | | | 90 | |
| Net new money (CHF billion) | | | 18.5 | | | | 33.2 | |
| Interest and dividend income (CHF billion) | | | 17.9 | | | | 21.5 | |
| Invested assets (CHF billion) | | | 584 | | | | 769 | |
| Headcount (full-time equivalents) | | | 19,563 | | | | 20,413 | |
|
1DetailsIncludes: writedown of significant financial events can be found in the Financial Report 2002.2Acquisition costs include goodwill and intangible asset amortization and related funding, netPaineWebber brand name of risk-free return on the corresponding equity allocated, and retention payments.
CHF 1,234 million.
Business
45
The Business Groups
UBS PaineWebber
UBS PaineWebber, withWith CHF 584634 billion in invested assets and nearly 2 million private client relationships, focusesour focus is on providing wealth management services to the core affluent (clients with more than USD 500,000 in investable assets) and to high net worth individuals (upwards of(clients with more than USD 5 million in investable assets). We have a network of almost 9,0007,800 financial advisors in 365366 branch office locations. Our strength lies in the emphasis we put on buildinglocations that build and maintainingmaintain consultative relationships with ourtheir clients.
Organizational structure
When PaineWebber merged with UBS in November 2000 with UBS,and its US private clients business became a separate business unit of UBS Warburg.within UBS’s Investment Bank. At the same time, PaineWebber’s Capital Markets Group was integrated intowithin the Corporate and Institutional ClientsInvestment Banking & Securities business unit of UBS Warburg; thewhile its asset management unit (formerly(then called Mitchell Hutchins) moved into UBSthe Global Asset Management and mostBusiness Group. Most non-US private client businesses became part of the non-USour Wealth
Management business unit. The US private client business became part of UBS Private Banking.
Onan independent Business Group on 1 January
2002, UBS PaineWebber became a separate Business Group within UBS. Our business comprises the US Private Client Group, which offers a full range of wealth management2002. In April 2003, we sold our wholly owned subsidiary Correspondent Services Corporation (CSC) to Fidelity Investments. CSC provided investment products and services (including clearance, execution, settlement, administrative and management information services) to affluent investorsthe clients of 148 US broker dealer firms.
Furthermore, we received both Federal and State of Utah approval to launch our banking service, UBS Bank USA, in September 2003. Headquartered in Salt Lake City and regulated by the United States.Federal Deposit Insurance Corporation (FDIC), the bank operates as a fully integrated unit of our Business Group and employed 18 people on 31 December 2003. In addition, there were 21 regional lending managers in major US metropolitan markets. UBS Bank USA offers FDIC-insured deposits and collateralized lending products.
On a senior management level, Joseph J. Grano Jr. handed over his post as Chief Executive
38
Wealth Management USA
Geographical presence in key markets
Officer to Mark B. Sutton effective 1 January 2004. Sutton was previously President and Chief Operating Officer of Wealth Management USA. Grano will remain Chairman of our Business Group until the middle of 2004.
Legal Structurestructure
UBS PaineWebber operatesIn the US, we operate through direct and indirect subsidiaries of UBS. SecuritiesUBS and securities activities
in the US are conducted through fourthree registered broker-dealers.
UBS PaineWebber competesWe compete against other wealth management firms in the US, including Citigroup’s Smith Barney business, Morgan Stanley and Merrill Lynch.
Our business strategy is based on gathering new assets, which we achieve by focusing on meetingWe aim to meet the investment needs of core affluent and high net worth clients in the US. During 2002,Now, with the launch of UBS Bank USA, we are
in a position to provide them with a complete wealth management platform – embracing both the assets and liabilities of our clients. Our asset-gathering strategy emphasizes the importance of generating recurring fees from advice and products, as fee-based relationships provide us with a source of regular, low volatility revenues.
In 2003, we attracted CHF 18.521.1 billion in net new money, excluding interest and dividends, and, according todividends. As
39
The Business Groups
Wealth Management USA
a visible example of the success of our strategy, a leading industry survey indicated our share of the US private clients market grew to 13.8%15.2% in 2003 from 12.8%14.4% in 2001.
46
2002. Our asset-gathering strategy also emphasizes the importance of generating recurring fees from advice and products. Fee-based relationships provide UBS PaineWebber with a source of regular, low volatility revenues.
Another component of our asset-gathering strategy is the work of the Corporate Employee Financial Services group, which provides stock option financing and other services to many of the largest US corporations. This corporate relationship, in turn, helps create relationships with core affluent and high net worth corporate executives.
At theThe heart of the relationship between the
clientour clients and thetheir financial advisoradvisors is our consultative process, induring which each financial advisor profiles and creates an investment plan for his or her client based on the client’s individual needs, requirements and goals. Centered around an asset allocation strategy and consideringIt takes the client’s risk tolerance into account, and follows the appropriate asset allocation strategy. The plan is designed to help the client accumulate, preserve and transfer wealth. AfterOnce the plan is put in place, there areadvisors hold regular portfolio reviews that help ensure it remains on track to meet the client’s long-term goals.goals are met.
We continually commit considerable resources to further develop and expand the capabilities
47
The Business Groups
UBS PaineWebber
expertise of our financial advisors. All new financial advisors undergo a training program that is designed to provide them with the necessary financial planning, analysis,
client relationship management, and legal and compliance expertise. This is a continuousknowledge. Moreover, this process and does not end when the financialan advisor entersstarts working at a branch office. In our– it is continuous. We believe experience shows that our training programs are a key factor in both developinghelping to develop long-term, mutually beneficial relationships with our clients as well as in retaining our financial advisors.clients.
Our dedication to and emphasis on training is one of the reasons why our financial advisors are among the most productive in the industry. A leading industry survey made in fourth quarter 20022003 put our revenue per financial advisor at 16.5%15% above the industry average at the end of 2002.on 31 December. By comparison, in second quarter 2000 (when we announced the merger withbecame part of UBS), our productivity stood 4% above the average.
We offer clients wealth management services that meet individual investment needs. We haveneeds with an open architecture product platform that gives our clientsthem investment products from both UBS and third partythird-party providers —– where and when appropriate. This ensures that financial advisors and clients have a comprehensive source of investment solutions at their disposal. Our array of wealth management services includeincludes financial planning and wealth management consulting,consulting. It also comprises transaction-based services such as securities brokerage, as well as asset-based and advisory services such as discretionary(discretionary and non-discretionary portfolio management,management). Furthermore, we also provide money market accounts and fiduciary products, FDIC-insured deposits and lending products, including collaterizedcollateralized loans and mortgagesmortgages.
Also, from the mid-1990s, our Corporate Employee Financial Services Group has provided stock option financing services to many of the largest US corporations and their executives.
Investment products
We offer core affluent and high net worth clients a number of products designed to help enhance the equity portion of their investment portfolios. For example, in 2002, in order2003, we continued to meet client needs for innovative typesdevelop our equity-linked note products as well as issuing a variety of products, we launched two equity-linked investments: the Enhanced Appreciation Security, linked to 20 blue chip stocks,principal protected notes, enhanced appreciation securities, and a Principal Protected Note, linked to the S&P 500 Index.hedge fund underlying structured products.
Our clients can choose from an arrayalso have a wide selection of fixed income securities to choose from, including government,gov-
40
ernment, mortgage-backed, corporate and municipal bonds, as well as preferred stock. As one of the leading US underwriters of municipal bonds, an investment class that is particularly attractive to many core affluent and high net worth investors, we offergive clients access to new issue offerings andas well as the secondary market. Our Municipal Securities Group is a complete origination, structuring and distribution team. It assists municipalities and agencies in addressing their funding needs by accessing the debt markets, and distributing securities through the UBS PaineWebberour network. For 2002,In 2003, the Group was ranked second in senior negotiated volume.
We offer a broad range of fee-based money management programs that utilize the expertise of professional money managers, both within UBS and through third parties.
Indicative of the scope of investment products foravailable to our clients, we have selling arrangements with over 140150 mutual fund companies, many of which are leaders in the industry.
In response toBecause of high investor interest in such products as hedge funds and fundfunds of funds, we offer thehave also built up a capability to create, structure and manage a broad array of alternative investments for qualified high net worth individuals and institutions.
Lending products
In 2002, we broadened the scope of our financial relationship with clients by entering the lending business in the US and introducing a number of securities-based borrowing solutions for a variety of investor and business needs. Early in the year,As part of our initiative, we progressively rolled out the Premier Fixed and Variable Credit Lines. TheseLines, which are
revolving lines of credit that offer competitive interest rates and are secured by the client’s investment portfolio.
The launch of UBS Bank USA on 15 September 2003 significantly increased our lending advisory capabilities. We now provide FDIC-insured deposit accounts and enhanced collateralized lending options. By the end of the year, the bank had over USD 11 billion in assets, of which USD 4.5 billion were client borrowings under Premier Fixed and Premier Variable Credit Lines. Deposits of USD 8.2 billion provide most of the funding for the bank’s assets.
In addition to collaterized lending, the creation of UBS PaineWebber Mortgage LLC in first quarter 2002, in partnership with Wells Fargo Home Mortgages, enables our financial advisors
48
to can offer a full array of mortgage products that helpshelp meet our clients’ home financing needs.
For corporations and corporate executives
Providing appropriate financial solutions also extends During 2003, we received local licensing which enables us to the relationships that we enjoy with our corporate clients.
UBS PaineWebber’s Corporate Employee Financial Services business has been providing stock option financing services to large corporations and their executives since the mid-1990s.offer mortgages in all 50 states.
Technology for clients and financial advisors |
Industry trendsFor financial advisors, 2002 sawToday, we are the introductionfifth-largest full-service brokerage firm in the US in terms of a number of tools to leverage the asset-gathering technology available on ConsultWorks, the firm’s web-based workstation. Chief among these was the UBS PaineWebberAdvisor,smwhich can help lead financial advisors step-by-step through our consultative process with both clients and prospects.advisors. In 2003, we will introduce Consultworks2 that will give our financial advisors the ability to con-
duct comprehensive profiling and asset allocation, and offer investment recommendations.
In 2003,2004, we plan to remain focused on further increasing our market share of US household financial assets and capitalizing on theour enhanced capabilities and balance sheet strength thatas well as the merger with UBS has brought.
strengths of UBS’s global platform. A key to achieving further growth will be a continued commitment to recruiting and retaining top financial advisors and providing them with the resources they need to sustain increased productivity. We ended 2002 with 8,857 financial advisors, and are focused on growing that number.
The union with UBS has enabled us to expand our product offerings in such areas as global asset management, lending products, alternative investments and risk management. We are committed to pursuing financial success in 20032004 and beyond by providing US clients with access to the resources of a global powerhouse.
41
The Business Groups
Corporate Center
Corporate Center
Corporate Center creates sustainable value for shareholders and stakeholders by partnering with the Business Groups to ensure that the firm operates as an effective and integrated whole with a common vision and set of values.
Business Group Reporting
| | | | | | | | | |
| CHF million, except where indicated | | Corporate Center |
| For the year ended or as at | | 31.12.03 | | | 31.12.02 | |
| |
| Total operating income | | | 1,151 | | | | 2,676 | |
| Total operating expenses | | | 1,781 | | | | 2,399 | |
| |
Business Group performance before tax | | | (630 | ) | | | 277 | |
| |
Private Banks & GAM | | | | | | | | |
| Performance before tax | | | 208 | | | | 384 | |
| |
| Invested assets (CHF billion) | | | 84 | | | | 70 | |
| Net new money (CHF billion) | | | 7.2 | | | | 4.2 | |
| |
| Headcount (full-time equivalents) | | | 1,672 | | | | 1,702 | |
| |
Additional information | | | | | | | | |
| Total headcount (full-time equivalents) | | | 2,878 | | | | 2,887 | |
| |
4942
| | |
| The Business Groups
Corporate Center |
|
|
| |
| | Corporate Center | The Business Groups
|
| | |
74%">
Corporate Center’s aim is to ensure that all our businesses act as coherently and effectively as possible.
Business Group reporting adjusted for significant financial events1
| | | | | | | | | |
| | | Corporate Center | |
| CHF million, except where indicated | |
| |
| For the year ended | | 31.12.02 | | | 31.12.01 | |
|
|
|
|
|
| Income | | | 1,315 | | | | 800 | |
| Credit loss recovery | | | 249 | | | | 236 | |
|
|
|
|
|
Total operating income | | | 1,564 | | | | 1,036 | |
|
|
|
|
|
| Personnel expenses | | | 645 | | | | 592 | |
| General and administrative expenses | | | 601 | | | | 537 | |
| Depreciation | | | 473 | | | | 372 | |
| Amortization of goodwill and other intangible assets | | | 24 | | | | 24 | |
|
|
|
|
|
Total operating expenses | | | 1,743 | | | | 1,525 | |
|
|
|
|
|
Business Group performance before tax | | | (179 | ) | | | (489 | ) |
|
|
|
|
|
| Headcount (full-time equivalents) | | | 1,185 | | | | 1,132 | |
|
|
|
|
|
1 Details of significant financial events can be found in the Financial Report 2002.
Aims and objectives
Our commitment to a strong, integrated business model means that our portfolio of complementary businesses are managed together to optimize shareholder value, making the whole worth more than the sum of its parts.
Our Business Groups are accountable for their results and enjoy considerable autonomy in pursuing their business objectives — hence the need for a strongThe Corporate Center. Its missionCenter’s responsibility is to maximize sustainable shareholder value by coordinating the activities ofenforce high ethical and corporate governance standards in order to enhance and preserve UBS’s most important asset – its reputation.
It defines and implements a coherent risk management and control framework that safeguards, in cooperation with the Business Groups, toour long-term financial stability and health with an appropriate balance of risk and reward.
We also manage the UBS corporate legal structure, its regulatory capital, balance sheet, group funding, liquidity, non-trading currency and interest rate risks, and certain financial investments.
We advise the Business Groups and corporate leadership on the strategic allocation of the firm’s human, technological and financial resources.
We ensure that they operate as a coherent and effective whole withthe integrity of the firm’s financial reporting by the application of a common set of valuesaccounting and principles.risk principles across the organization and transparent and timely communication of UBS’s results and activities.
In performingIt is also our task to establish a positive and powerful image of UBS and raise the profile of the firm, its role,brand and what it stands for, both within and outside the organization.
Organizational structure
The key functions within Corporate Center avoids ownership ofare:
Group Controller
The Group Controller function produces regulatory, financial and management accounts and reports. As such, it is responsible for devising and implementing integrated and consistent financial control and accounting processes wherever possible, but insteadthroughout UBS. It also establishes standardsaccounting policies, liaises with the external auditors, provides strategic analysis and principles, thereby minimizing its own staffing levels.advice and coordinates UBS’s business planning process. In addition, it assumes direct responsibility for tax affairs and it coordinates and controls UBS’s real estate activities worldwide.
Chief Risk Officer/Chief Credit Officer
The Chief Risk Officer and Chief Credit Officer functions pool together a number of vital GroupUBS risk functions. They are responsible for safeguarding our long-term financial stability by aidingfunctions, with the Group in maintaining an appropriate balance between risk and rewards.
The Group Chief Credit Officer is responsible for formulating credit risk policies, for determining methodologies to measure credit risk, and for setting and monitoring credit, settlement and country risk limits.
The Group Chief Risk Officer is responsible for the policies, methodologies and limits for all other risk categories, and for aggregating and assessing theUBS’s total risk exposure of the Group.
A more detailed discussion of our risk man-
exposure.
50
agement and control principles can be found in the “Risk Management and Control” section of this Handbook.
Group Treasurer
The Group Treasury area optimizes our financial management, providing cost efficient equity and wholesale debt funding and co-ordinatingcoordinating regulatory capital and balance sheet requirements.
The Group Treasury area is also responsible for the efficient management of the UBS share.shares and administers our holdings of them. It is charged with preserving our excellent funding capacity, issuing cost-efficient funding in the form of notes and bonds in the name of UBS and ensuring that we fully comply with all payment obligations at all times. It also manages
Group Human Resources
Group Human Resources creates and maintains a function that stimulates and supports UBS’s holdings of its own shares.
Further details on our Treasury activities cangoal to be found in the “Group Treasury” section of this Handbook.
Group Controller
The Group Controller function produces accurate and objective regulatory, financial and management accounts and reports. It provides significant decision support information to the Board of Directors and executive management and is a key liaison to both our internal and external auditors. It is responsible for devising and implementing integrated and consistent financial control and accounting processes throughout UBS. Another important responsibility is the coordination of the Group’s planning and budgeting process as wellrecognized as the control of Group tax issues, ensuring compliance with all local tax requirements. The Group Controller function also
ensures a central treatment of UBS’s real estate activities and controls their impact on Group results as well as on its capital and tax position.
Group Human Resources
Group Human Resources’ mission is to make UBS abest global employer of choice,financial services company, able to attract, develop, motivate and retain top talent by establishing standards, principles and procedures for performance evaluation, compensation and benefits, graduate and professional recruitment, traininglearning and development.
Chief Communication Officer
The Chief Communication Officer area of the Corporate Center has an integrated structure that comprises the firm’s central branding, communications and public policy functions. Overall, theThe area is responsible for the effective communication of UBS’s strategy, values and results to employees, clients, investors, media, rating agencies and the public, and for building the UBS brand worldwide.
Group Legal Services
Group Legal Services provides business-related legal services in matters that affect the firm as a whole, while monitoring and reporting on legal risk, litigation and the legal implications of major transactions at the corporate level.
Group Legal Services has both an advisory and a risk control function. It provides close-to-business legal advice to business, oversees litigation, ensures enforceability of UBS’s legal undertakings and opines on legal issues with the aim of minimizing legal and liability risk.
51
The Business Groups
Corporate Center
52 In 2003, UBS announced a number of senior executive appointments and succession plans outlined in detail in the Strategy and Structure section on page 13. Pertaining to Corporate Center, Clive Standish will become UBS’s Chief Financial Officer (CFO) from 1 April 2004. As
CFO, Standish will lead our finance, risk, treasury, and strategy functions. In 2004, Scott Abbey will take up the new Chief Technology Officer (CTO) function, which was created to integrate information technology infrastructure (ITI) functions across the firm.
Private Banks & GAM
In February 2003, UBS announced the creation of a holding company for its five fully owned private banking subsidiaries (Armand von Ernst, Banco di Lugano, Bank Ehinger, Cantrade and Ferrier Lullin) and GAM, our specialist asset manager. The move was made to assist them in growing faster, support them in integrating their activities, and help them to deliver their full value creation potential. They can
also target economies of scale not achievable by each organization on its own. Private Banks & GAM may also be able to expand their presence further by playing a future role in the consolidation of the Swiss wealth management industry.
Following the creation of the holding company in early 2003, three of the five subsidiaries (Armand von Ernst, Bank Ehinger and Cantrade) were then merged
to form Ehinger & Armand von Ernst –headquartered in Zurich, with branches in Basel and Bern. It is one of the most important providers of private banking services to the Swiss-German region. In late 2003, Ferrier Lullin acquired Banque Notz Stucki S.A., which specializes in wealth management for private individuals. The acquisition adds approximately CHF 2 billion in invested assets.
44
45
| |
| Capital and Financial Management
Risk Management and Control
Risk Management and Control |
| |
| Risk Management and Control |
RiskTaking risk is an integral part of all our activities. Excellencebusiness. Therefore our overriding goal is not to minimize risk, but to achieve an appropriate balance between risk and return, limiting the scope for adverse variations in risk management and control is a key success factor and requires everyone’s commitment within our organization.earnings through exposure to major individual ‘stress’ events.
Risk management and control principles |
Risk management and control principlesUBS’sGood risk management and control lie at the heart of banking and are an integral part of providing consistent, high-quality returns for shareholders. A bank that fails to adequately manage and control its risks will suffer financial losses. Potentially more devastating is the resultant damage to its reputation, which can undermine its share price, its client base and its ability to retain top talent, and may force regulators to impose constraints upon its business. We recognize that taking risk is core to our business, and aim to achieve an appropriate balance between risk and return. In our day to day business and in the strategic management of our balance sheet and capital, we therefore seek to limit the scope for adverse variations in our earnings and exposure to stress events arising from any of the material risks we face. We base our approach to risk management and control is set out in the firm’s Risk Management and Control Principles, which lay the foundations on which we build our risk culture and risk process.five principles.
Business Management Accountability.The management of each business throughout UBS is responsible accountablefor the risks it assumes and for the continuous and active management of all risk exposures, so that risk and return are prudently balanced.
Independent Controls.controlAn independent control process is implemented when required by the nature of the inherent risks and the incentive structure of the business processes. The control functions are responsible for providing an independent and objective check on risk-taking activities to safeguard the integrity of the entire risk management and control process.
Risk Disclosure. Comprehensive, transparent and objectiverisk reporting and disclosureto senior management, the Board of Directors, shareholders, regulators, rating agencies and to shareholdersother stakeholders is the cornerstone of the risk control process.
ToEarnings Protection.protect our earnings Operating, we set limits, are set to quantify risk appetite and allocated among business lines to controlwhere appropriate. These limits not only govern normal periodic adverse results in an attempt to limit such losses relative to the potential profit of each business. The Group’s risk capacity is expressed throughour businesses but also help protect us from stress loss limits with the aim of protecting UBS fromevents which might cause unacceptable damage to our annual earnings capacity,capaci-
ty, our dividend paying ability and, ultimately, our reputation and ongoing business viability.
WeReputation Protection.protect our reputation Failure to manageby managing and control any ofcontrolling the risks incurred in the course of our business, could resultand for this reason we focus on the avoidance of concentrations of exposure of all kinds, and on potential stress losses, particularly in damagemarket and credit risk. We avoid extreme positions in transactions that are sensitive for tax, legal, regulatory or accounting reasons, and we adopt a cautious approach to UBS’s reputation. For this reason:other risks that cannot be sensibly evaluated or priced. We aspire to the highest standards in protecting the confidentiality and integrity of our client information, and we aim to maintain the highest ethical standards in all our businesses.
– | | we continue to develop potential stress loss measures for credit and market risk |
– | | we avoid taking extreme positions in tax, reg- |
| | ulatory and accounting sensitive transactions |
– | | we aspire to the highest standards in protecting the confidentiality and integrity of our client information |
– | | we aim to maintain the highest ethical standards in all our businesses. |
Every employee, but in particular those involved in risk decisions, must make UBS’s reputation an overriding concern. Responsibility for the risk of damage to our reputation cannot be delegated or syndicated.
An integrated approach to risk
management and control
Risk management and control are an integral part of our commitment to providing consistent, high-quality returns for our shareholders. We believe that delivery of superior shareholder returns depends on achieving the appropriate balance between risk and return, both in day-today business and in the strategic management of the balance sheet and capital. We recognize that risk is integral to UBS’s business, but our approach to risk management and control seeks to limit the scope for adverse variations in earnings and, in particular, to protect UBS from the risk of severe loss as a result of unlikely, but plausible, stress events arising from any of the material risks we face.
UBS has an integrated Corporate Center responsible for finance, strategic planning, risk control, and balance sheet and capital management. Excellence in risk management is, however, most fundamentally based upon a business management team that makes risk identification, management and control critical components of its processes and plans.
Key responsibilities
TheBoard of Directorsis responsible for the firm’s fundamental approach to risk, (the Risk
54
Managementrisk principles and Control Principles), and for the determination of our risk capacity andcapacity.
The Chairman’s Office oversees the risk
appetite. TheChairman’s Officeis responsible for the annual reviewprofile of the Group’s principal risk limits.firm on behalf of the Board of Directors and has ultimate authority for credit and other risk-related matters.
TheGroup Executive Board (GEB)is responsible for implementing the Risk Management and Control Principles, for approvingapproach, including approval of core risk policies, for allocatingallocation of risk limits to the Business Groups, and for managingmanagement of the risk profile of the GroupUBS as a whole.
The GEB is the Risk Council of the Group.
TheGEB Risk Sub-Committee (established in 2002) prepares the decisions of the GEB in the risk area and monitors the implementation of such decisions via the risk reporting process.
TheGroup Chief Credit Officer (CCO)is, Group Chief Risk Officer (CRO) and Group General Counsel are responsible for formulating credit risk policies, for determining methodologies to measure credit risks, and for setting and monitoring credit, settlementlimits where appropriate.
46
UBS Risk Management and country risk limits.Control Framework
TheGroup Chief Risk Officer (CRO)is responsible for the policies, methodologies and limits for other inherent risk categories (see “The risks we take” section on page 56), and for aggregating and assessing the total risk exposure of the Group.
TheBusiness Group CEOsare responsible for all risk exposures within their Business Groups and must take corrective action where
necessary, given the aggregate risk profile of the portfolio or the risks of specific positions.
TheBusiness Group Risk Control Functions in each Business Group, headed by Chief Risk and/ Chief Credit Officers (CROs and/ CCOs), are empowered to enforce the Risk Management and Control Principles and are responsible for the implementation of independent control processes within their Business Groups.
TheGroup At the Corporate Center and in the business groups, we take a holistic and integrated approach to risk through close cooperation and communication between the Risk Committee reviewsControl, Legal, Compliance, Finance, Planning, Treasury and evaluates the keyLogistics functions. Excellence in risk issues being presented to the senior committeesmanagement is, however, fundamentally based upon a management team that makes risk identification, management and control critical components of the Group, the state of the current portfolio, emerging riskits processes and revenue trends, and concentrations and vulnerabilities. It is chaired by the Group CRO.
Business Group Risk Committeesmonitor the risks taken by the Business Groups. They are chaired by the Business Group CEOs and include heads of business areas and delegates of the Group CRO and CCO.plans.
The risk control process
There are five critical elements in our independent risk control process:
| – | | weidentify risk identification,, particularly in new businesses and in complex or unusual transactions, but also in response to external events and in the continuous monitoring of the portfolioportfolios |
| – | | werisk measurementofmeasure quantifiable risks, using approved methodologies and models which have been independently validated and approved |
55
| |
| Capital and Risk Management Risk
Management and Control |
| – | | we establishrisk policiesconsistent with evolving business requirements and international best practice |
| – | | we have comprehensiverisk reportingto stakeholders, and to management at all levels, against the approved risk control framework and, where applicable, limits |
| – | | we imposerisk controlto enforce, through compliance with the Risk Managementour risk management and Control Principles,control principles, and with policies, limits and regulatory requirements. |
There are coordinatedCoordinated processes coveringinvolving all inherent risk categories whichrelevant control and logistics functions are applied before commencement of any new business or significant change in business, and before the execution of any transaction which is complex or unusual in its structure or motivation, including transactions which are sensitive to or motivated by tax, legal, regulatory or accounting considerations. These processes, which involve the Business, Risk Control, Legal, Compliance, Financial Control and Logistics functions, ensure that all these critical elements are addressed, including the assurance that transactions can be booked in a way that will permit appropriate ongoing risk monitoring, reporting and control.
47
The risk control process also extends beyond the independent risk control functions to Financial Control and the Logistics Areas,notably Operations, which are critical to establishing an effective control environment.
Group Internal Audit provides an independent view to the Board of Directors, via the Chairman’s Office, of the effectiveness of the Management
Risk Management and Control Principles and their enforcement, and of the effectiveness of the independent control units.
The risks we take
Business risksare the risks associated with a chosen business strategy, including business cycles, industry cycles, and technological change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the firm’s planning and budgeting process.
Inherent risksare the risks inherent in our business activities which are subject to independent risk control. A distinction is made between primary and consequential risks.
Primary risksare the exposures deliberately entered into for business reasons and which are actively traded and managed:
– | | |
|
| | The risks we take |
| | Business risks are the risks associated with a chosen business strategy, including business cycles, industry cycles, and technological change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the firm’s planning and budgeting process. |
| | The ‘primary’ and ‘operational’ risks inherent in our business activities are subject to independent risk control. Primary risks are exposures deliberately entered into for business reasons which are actively traded and managed. Operational risk is the risk of loss arising from inadequate or failed internal processes, people or systems, or from external causes, deliberate, accidental or natural. These risks are not actively taken, but arise as a consequence of business undertaken and as a consequence of internal control gaps, which cannot be entirely eliminated. |
| | Primary risks are credit risk, market risk and funding and liquidity risk: |
| | –credit riskis the risk of loss resulting from client counterparty or issuercounterparty default and arises on credit exposure in all forms, including settlement risk |
– | | –market riskis exposure to observable market variables such as interest rates, exchange rates and equity markets, and to price movements on securities and other obligations which we trade |
– | | –liquidityfunding and fundingliquidity riskis the risk that the Group iswe are unable to fund assetsmeet our payment obligations when due, or meet obligations at a reasonable price or, in extreme situations, at any price. These risksthat we are discussedunable, on an ongoing basis, to borrow funds in the “Group Treasury” sectionmarket on pages 78an unsecured, or even secured basis at an acceptable price to 87.fund actual or proposed commitments. |
Consequential risks(also known as operational risks) are exposures that are not actively taken, but which are incurred as a consequence of business undertaken:
– | | Operational risk can arise in a number of ways: |
| | –transaction processing riskarises from errors, failures or shortcomings at any point in the transaction process, from deal execution and capture to final settlement |
– | | –compliance riskis the risk of financial loss due to regulatory fines or penalties, restriction or suspension of business, or costs of |
mandatory corrective action. Such risks may be incurred by not adhering to applicable laws, rules and regulations, local or international best practice (including ethical standards), or UBS’s own internal standards
