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SECURITIES AND EXCHANGE COMMISSION
(Mark One) | ||
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2006 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to . | ||
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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15(d) of the Securities Exchange Act of 1934.
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Name of each exchange on | ||
Title of each class | which registered | |
Ordinary Shares (par value of CHF 0.10 each) | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 7.25% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
$300,000,000 Floating Rate Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$300,000,000 Floating Rate Noncumulative Company Preferred Securities | New York Stock Exchange* | |
$1,000,000,000 6.243% Noncumulative Trust Preferred Securities | New York Stock Exchange | |
$1,000,000,000 6.243% Noncumulative Company Preferred Securities | New York Stock Exchange* | |
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities | New York Stock Exchange* | |
$31,517,000 PPNs due November 2007 | American Stock Exchange | |
$52,000,000 PPNs due November 2007 | American Stock Exchange | |
$14,500,000 PPNs due December 2007 | American Stock Exchange | |
$20,000,000 PPNs due February 2008 | American Stock Exchange | |
$16,000,000 PPNs due February 2008 | American Stock Exchange | |
$9,000,000 PPNs due April 2009 | American Stock Exchange | |
$6,900,000 PPNs due May 2009 | American Stock Exchange | |
$5,100,000 PPNs due September 2009 | American Stock Exchange | |
$24,223,000 PPNs due Oct 2009 | American Stock Exchange | |
$30,000,000 PPNs due April 2010 | American Stock Exchange | |
$31,000,000 PPNs due May 2010 | American Stock Exchange | |
$23,000,000 PPNs due June 2010 | American Stock Exchange | |
$10,000,000 PPNs due July 2010 | American Stock Exchange | |
$7,750,000 PPNs due August 2010 | American Stock Exchange | |
$12,660,000 PPNs due September 2010 | American Stock Exchange | |
$8,000,000 PPNs due November 2010 | American Stock Exchange | |
$17,842,000 PPNs due October 2011 | American Stock Exchange |
* | Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities. |
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$1,500,000,000 8.622% Noncumulative Company Preferred Securities
$500,000,000 7.247% Noncumulative Trust Preferred Securities
$500,000,000 7.247% Noncumulative Company Preferred Securities
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities
$14,000,000 Equity Linked Notes due February 1, 2007
$4,976,000 Equity Linked Notes due June 20, 2007
Guarantees with respect to certain securities of UBS Americas Inc.
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EX-1.1: ARTICLES OF ASSOCIATION | ||||||||
EX-1.2: ORGANIZATION REGULATIONS | ||||||||
EX-7: STATEMENT RE RATIO OF EARNINGS TO FIXED CHARGES | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG LTD. | ||||||||
EX-1.1: ARTICLES OF ASSOCIATION OF UBS AG | ||||||||
EX-1.2: ORGANIZATION REGULATIONS | ||||||||
EX-7: STATEMENT REGARDING RATIO OF EARNINGS TO FIXED CHARGES | ||||||||
EX-12: CERTIFICATIONS | ||||||||
EX-13: CERTIFICATIONS | ||||||||
EX-15: CONSENT OF ERNST & YOUNG LTD |
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• | The development of revenues overall and within specific business areas; | ||
• | The development of operating expenses; | ||
• | The anticipated level of capital expenditures and associated depreciation expense; | ||
• | The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or counterparty; | ||
• | Expected credit losses based upon UBS’s credit review; and | ||
• | Other statements relating to UBS’s future business development and economic performance. |
• | General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our assets; | ||
• | Changes in UBS’s expenses associated with acquisitions and dispositions; | ||
• | General competitive factors, locally, nationally, regionally and globally; | ||
• | Industry consolidation and competition; | ||
• | Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset quality; | ||
• | Developments in technology; | ||
• | Credit ratings and the financial position of obligors and counterparties; | ||
• | UBS’s ability to control risk in its businesses; | ||
• | Changes in tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products or subject it to increased taxation; | ||
• | Changes in accounting standards applicable to UBS, as more fully described below; | ||
• | Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they undertake, and hence the levels of transaction-based fees UBS earns; |
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• | Changes in the market value of securities held by UBS’s clients, affecting the level of asset-based fees UBS can earn on the services it provides; and | ||
• | Changes in currency exchange rates, including the exchange rate for the Swiss franc into US dollars. |
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1-3 | Please see page 5 of the attached Handbook 2006/2007 and page 5 of the attached Financial Report 2006. | |
4 | Please see pages 17 and 18 of the attached Handbook 2006/2007. | |
5, 6 | None. | |
7 | None. |
1, 2, 3, 5, 7 | Please see the sectionOur businesseson pages 28 to 56 of the attached Handbook 2006/2007 and the sectionSeasonal Characteristicson page 10 of the attached Financial Report 2006. For a breakdown of revenues by category of activity and geographic market for each of the last three financial years, please refer to Notes 2a and 2b to the Financial Statements, on pages 105 to 112 of the attached Financial Report 2006. | |
4, 6 | Not applicable. |
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8 | Please see the sectionRegulation and Supervisionon pages 145 to 147 of the attached Handbook 2006/2007. |
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1, 2, 3 | Please see pages 113 to 123 of the attached Handbook 2006/2007. | |
4 and 5 | None. |
1 | Please see theCompensation, shareholdings and loanssection on pages 124 to 137 of the attached Handbook 2006/2007 and also Notes 32 and 33 to the Financial Statements on pages 165 to 171 of the attached Financial Report 2006. | |
2 | Please see Note 31 to the Financial Statements on pages 159 to 164 of the attached Financial Report 2006. |
1 | Please see pages 113 to 123 of the attached Handbook 2006/2007. | |
2 | Please see Note 33 to the Financial Statements on pages 169 to 171 of the attached Financial Report 2006. | |
3 | Please see theCompensation, shareholdings and loanssection on pages 124 to 137 and theAuditorssection on pages 141 to 142 of the attached Handbook 2006/2007. |
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1, 2, 3, 5, 6, 7 | Not required because this Form 20-F is filed as an annual report. | |
4 | Please see page 105 of the attached Handbook 2006/2007. |
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• | amendments to the Articles | ||
• | elections of directors and statutory auditors | ||
• | approval of the annual report and the annual group accounts | ||
• | setting the annual dividend | ||
• | decisions to discharge directors and management from liability for matters disclosed to the shareholders’ meeting | ||
• | the ordering of an independent investigation into the specific matters proposed to the shareholders’ meeting |
• | change the limits on Board size in the Articles |
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• | remove one-fourth or more of the members of the Board of Directors | ||
• | delete or modify the above supermajority voting requirements |
• | a change in our stated purpose in the Articles | ||
• | the creation of shares with privileged voting rights | ||
• | a restriction of transferability | ||
• | an increase in authorized capital | ||
• | an increase of capital out of equity against contribution in kind, for the purpose of acquisition and granting of special rights | ||
• | changes to pre-emptive rights | ||
• | a change of domicile of the company |
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• | a citizen or resident of the United States, | ||
• | a domestic corporation or other entity taxable as a corporation, | ||
• | an estate, the income of which is subject to United States federal income tax without regard to its source, or | ||
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. |
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Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG. | |
1.2. | Organization Regulations of UBS AG. | |
2(b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. | |
We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | ||
7. | Statement regarding ratio of earnings to fixed charges. | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 35 on pages 172 to 175 of the attached Financial Report 2006. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)). | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
15. | Consent of Ernst & Young Ltd. |
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UBS AG | ||||
/s/ Peter A. Wuffli | ||||
Name: | Peter A. Wuffli | |||
Title: | Chief Executive Officer | |||
Date: March 21, 2007 | /s/ Clive Standish | |||
Name: | Clive Standish | |||
Title: | Group Chief Financial Officer | |||
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Exhibit | ||
Number | Description | |
1.1. | Articles of Association of UBS AG.* | |
1.2. | Organization Regulations of UBS AG.* | |
2. (b) | Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries. | |
We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt. | ||
7. | Statement regarding ratio of earnings to fixed charges.* | |
8. | Significant Subsidiaries of UBS AG. | |
Please see Note 35 on pages 172 to 175 of the attached Financial Report 2006. | ||
12. | The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a)).* | |
13. | The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).* | |
15. | Consent of Ernst & Young Ltd.* |
* | Filed as exhibit herewith. |
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Introduction
Our Financial Report comprises the audited financial statements of UBS for 2006, 2005 and 2004, prepared according to International Financial Reporting Standards (IFRS) and reconciled to the United States Generally Accepted Accounting Principles (US GAAP). It includes the audited financial statements of UBS AG (the “Parent Bank”) for 2006 and 2005, prepared according to Swiss banking law. Our Financial Report also discusses the financial and business performance of UBS and its Business Groups, and provides additional disclosure required by Swiss and US regulations.
The Financial Report should be read together with the other publications set out on page 4.
We hope that you will find this Financial Report useful and informative. We believe that UBS is one of the leaders in corporate disclosure, and would be keen to hear your views on how we might improve the content, information or presentation of all our publications.
Tom Hill
Chief Communication Officer
UBS
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Introduction
UBS financial highlights
UBS income statement | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Net profit attributable to UBS shareholders | 12,257 | 14,029 | 8,016 | (13 | ) | |||||||||||
Diluted earnings per share (CHF)1 | 5.95 | 6.68 | 3.70 | (11 | ) | |||||||||||
Basic earnings per share (CHF)1 | 6.20 | 6.97 | 3.89 | (11 | ) | |||||||||||
Return on equity attributable to UBS shareholders (%)2,3 | 28.2 | 39.7 | 25.8 | |||||||||||||
Performance indicators from continuing operations | ||||||||||||||||
Diluted earnings per share (CHF)1 | 5.58 | 4.66 | 3.49 | 20 | ||||||||||||
Return on equity attributable to UBS shareholders (%)3,4 | 26.5 | 27.7 | 24.3 | |||||||||||||
Financial Businesses5 | ||||||||||||||||
Operating income | 47,171 | 39,896 | 35,971 | 18 | ||||||||||||
Operating expenses | 32,782 | 27,704 | 26,149 | 18 | ||||||||||||
Net profit attributable to UBS shareholders | 11,253 | 13,517 | 7,656 | (17 | ) | |||||||||||
Net profit attributable to UBS shareholders from continuing operations | 11,249 | 9,442 | 7,357 | 19 | ||||||||||||
Cost / income ratio (%)6 | 69.7 | 70.1 | 73.2 | |||||||||||||
Net new money (CHF billion)7 | 151.7 | 148.5 | 89.9 | |||||||||||||
Personnel (full-time equivalents) | 78,140 | 69,569 | 67,407 | 12 | ||||||||||||
UBS balance sheet & capital management | ||||||||||||||||
Total assets | 2,396,511 | 2,058,348 | 1,737,171 | 16 | ||||||||||||
Equity attributable to UBS shareholders3 | 49,686 | 44,015 | 33,632 | 13 | ||||||||||||
Market capitalization | 154,222 | 131,949 | 103,649 | |||||||||||||
BIS capital ratios | ||||||||||||||||
Tier 1 (%)8 | 11.9 | 12.8 | 11.8 | |||||||||||||
Total BIS (%) | 14.7 | 14.1 | 13.6 | |||||||||||||
Risk-weighted assets | 341,892 | 310,409 | 264,832 | 10 | ||||||||||||
Invested assets (CHF billion) | 2,989 | 2,652 | 2,217 | 13 | ||||||||||||
Long-term ratings | ||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
All share and earnings per share figures throughout this report, unless otherwise indicated, reflect the 2-for-1 share split made on 10 July 2006.
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Who we are
We are one of the world’s leading financial firms, serving a discerning international client base. Our business, global in scale, is focused on growth. As an integrated firm, we create added value for clients by drawing on the combined resources and expertise of all our businesses.
What we do
Inwealth management, our services are designed for high net worth and affluent individuals around the world, whether investing internationally or in their home country. We provide them with tailored, unbiased advice and investment services – ranging from asset management to estate planning and from corporate finance to art banking.
Our vision
We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment banking and securities businesses. We continually earn recognition and trust from clients, shareholders, and staff through our ability to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what we do. Our purpose is to help our clients make financial decisions with confidence. We use our resources to develop effective solutions and services for our clients. We foster a distinctive, meritocratic culture of ambition, performance and learning as this attracts, retains and develops the best talent for our company. By growing both our client and our talent franchises, we add sustainable value for our shareholders.
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Introduction
More about us
This Financial Report contains UBS’s audited financial statements for the year 2006 and related detailed analysis. This Financial Report is available in English and German. (SAP no. 80531). You can find out more about UBS from the sources shown below.
Publications
Annual Review 2006
Handbook 2006 / 2007
Quarterly reports
Compensation Report 2006
The making of UBS
How to order reports
Information tools for investors
Website
Messaging service
Results presentations
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We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our Annual Report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS. UBS AG is incorporated and domiciled in Switzerland and operates under
Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 2020.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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Introduction
Contacts
Switchboards | ||||||
For all general queries. | Zurich | +41-44-234 1111 | ||||
London | +44-20-7568 0000 | |||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | ||||||
Our Investor Relations team supports institutional, professional and retail investors from our offices in Zurich and New York. www.ubs.com/investors | Hotline | +41-44-234 4100 | UBS AG | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +44-44-234 3415 | P.O. Box | ||||
CH-8098 Zurich, Switzerland | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. www.ubs.com/media | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
New York | +1-212-882 5857 | mediarelations-ny@ubs.com | ||||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||
Shareholder Services | ||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all Global Registered share-related queries in the US, www.melloninvestor.com | Calls from the US | +866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-680 6578 | 480 Washington Boulevard | ||||
Fax | +1-201-680 4675 | Jersey City, NJ 07310, USA | ||||
sh-relations@melloninvestor.com | ||||||
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Presentation of Financial Information
UBS reporting structure
UBS reporting structure
Changes to reporting structure and presentation in
2006 and other adjustments
Dillon Read Capital Management (DRCM)
Prime Brokerage
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units affected for all prior periods. The figures and results presented in this report are based on restated numbers. While the restatement affected certain interest income and interest expense components, it did not have an impact on UBS’s income statement, its internal measures of credit exposure, or its regulatory capital.
Obligations to employees
Changes to accounting
At the start of 2006, we implemented accounting changes based on the revisedIAS 39 Financial Instruments: Recognition and Measurement; Amendment to the Fair Value Option. All financial instruments designated at fair value through profit or loss on 31 December 2005 continued to qualify for the use of the fair value option under the revised fair value option and we did not apply the fair value option to any previously recognized financial asset or financial liability for which the fair value option was not adopted under former guidance. Because of this, the adoption of the revised standard did not have any effect on our financial statements on the transition date, 1 January 2006.
option, we reduce temporary profits and losses caused by the previous and different accounting treatments of the loans and loan commitments and the hedging credit derivatives (refer to Notes 1, 9 and 19 in the Financial Statements section). In second half 2006, we additionally applied the fair value option to certain hybrid instruments resulting from structured repurchase and reverse repurchase agreements and to a hedge fund investment which is part of a portfolio managed on a fair value basis.
Changes in presentation in our credit risk disclosure
We have stopped reporting non-performing loans as a key performance indicator for the Investment Bank and Business Banking Switzerland in our 2006 Financial Report. We will also stop disclosing them in quarterly reports from first quarter 2007. The disclosure and discussion of the impaired lending portfolio, which is a key component of our internal credit risk management and control processes, will continue. As in previous years, non-performing loans, as defined under Swiss Federal Banking Commission (SFBC) regulation, will be reported in the notes to the annual financial statements.
Other new disclosures
We have made some minor enhancements to our disclosure in 2006 as part of our continuing effort to improve the transparency of our financial reporting and provide the best possible understanding of our business.
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Presentation of Financial Information
Measurement and analysis of performance
Measurement and analysis of performance
UBS’s performance is reported in accordance with International Financial Reporting Standards (IFRS). Our results discussion and analysis comments on the underlying operational performance of our business, focusing on continuing operations. As discontinued activities are no longer relevant to our management of the company, we do not consider them to be indicative of our future potential performance. They are therefore not included in our business planning decisions. This helps to better assess our performance against peers and to estimate future growth potential.
– | In fourth quarter 2005, we sold our Private Banks & GAM unit to Julius Baer at a gain of CHF 3,705 million after tax (pre-tax CHF 4,095 million). The unit comprised the Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin private banks as well as specialist asset manager GAM. After the sale, we retained a stake of 20.7% in the new Julius Baer. | |
– | On 23 March 2006, UBS sold its 55.6% stake in Motor- Columbus to a consortium representing Atel’s Swiss minority shareholders, EOS Holding and Atel, as well as to French utility Electricité de France (EDF) for a sale price of approximately CHF 1,295 million, leading to an after-tax gain on sale of CHF 387 million. |
Seasonal characteristics
Our main businesses do not generally show significant seasonal patterns, except for the Investment Bank, where revenues are impacted by the seasonal characteristics of general financial market activity and deal flows in investment banking.
nature of market movements and the resulting business and trading opportunities, the market risk and balance sheet items in our Investment Bank are compared on a present quarter to previous quarter basis. For all other Business Groups and Units, recent quarterly results are compared with the previous quarter’s, as they are only slightly impacted by seasonal components such as asset withdrawals in fourth quarter and lower client activity levels related to the end-of-year holiday season.
Performance measures
UBS performance indicators
For the last seven years, we have consistently assessed our performance against a set of four measures that were designed to ensure the delivery of continuously improving returns to our shareholders. In that time, UBS has evolved, and its business and client base have grown. By late 2005 we had arrived at a point where we were steadily exceeding the original targets.
– | seek to increase the value of UBS by achieving a sustainable, after-tax return on equity of a minimum of 20% (we previously targeted a range of 15-20%). | |
– | aim to achieve a clear growth trend in net new money for all our financial businesses, including Global Asset Management and Business Banking Switzerland (this measure was previously only applied to our wealth management units). | |
– | use diluted earnings per share (EPS) instead of basic EPS as a reference for our EPS growth target that remains, as before, annual double-digit percentage growth. | |
– | continue our unchanged objective to manage our Business Group / Business Unit cost / income ratios at levels that compare well with our competitors. Our cost / income ratio target is limited to our financial businesses. |
Business Group Key Performance Indicators
At the Business Group or Business Unit level, our performance is measured by carefully chosen Key Performance Indicators (KPIs). They indicate the Business Group’s or Business Unit’s success in creating value for shareholders but do not disclose explicit targets. The KPIs show the key drivers of each unit’s core business activities and include financial metrics, such as cost / income ratios and invested assets, along with non-financial metrics, such as the number of client advisors.
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Key performance indicators | ||||
Business | Key performance indicators | Definition | ||
Business groups (excluding Corporate Center) and business units within Financial Businesses | Cost / income ratio (%) | Total operating expenses / total operating income before adjusted expected credit loss. | ||
Wealth & Asset Management businesses and Business Banking Switzerland | Invested assets (CHF billion) | Client assets managed by or deposited with UBS for investment purposes only (for further details please see below). | ||
Net new money (CHF billion) | Inflow of invested assets from new clients | |||
+ inflows from existing clients | ||||
- outflows from existing clients | ||||
- outflows due to client defection | ||||
Wealth & Asset Management businesses | Gross margin on invested assets (bps) | Operating income before adjusted expected credit loss / average invested assets. | ||
Wealth Management International & Switzerland | Client advisors | Expressed in full-time equivalents. | ||
Wealth Management US | Recurring income (CHF million) | Interest, asset-based revenues for portfolio management and fund distribution, account-based and advisory fees (as opposed to transactional revenues). | ||
Revenues per advisor (CHF thousand) | Income (including net goodwill funding) / average number of financial advisors. Net goodwill funding is defined as goodwill and intangible asset-related funding, net of risk-free return on the corresponding capital allocated. | |||
Business Banking Switzerland | Impaired lending portfolio, as a % of total lending portfolio, gross | Impaired lending portfolio, gross / total lending portfolio, gross. | ||
Return on allocated regulatory capital (%) | Business Unit performance before tax / average allocated regulatory capital. | |||
Investment Bank | Compensation ratio (%) | Personnel expenses / operating income before adjusted expected credit loss. | ||
Impaired lending portfolio, as a % of total lending portfolio, gross | Impaired lending portfolio, gross / total lending portfolio, gross. | |||
Return on allocated regulatory capital (%) | Business Group performance before tax / average allocated regulatory capital. | |||
Average VaR (10-day, 99% confidence, 5 years of historical data) | Value at Risk (VaR) expresses the potential loss on a trading portfolio over a 10-day time horizon, and measured to a 99% level of confidence, based on 5 years of historical data. | |||
Corporate Center | IT infrastructure (ITI) cost per Financial Businesses full-time employee | ITI costs / average number of Financial Businesses employees. | ||
Client / invested assets reporting
Since 2001, we have reported two distinct metrics for client funds:
– | Client assetsare all client assets managed by or deposited with UBS including custody-only assets and assets held for purely transactional purposes. | |
– | Invested assetsis a more restrictive term and includes all client assets managed by or deposited with UBS for investment purposes. |
assets and does not offer advice on how these assets should be invested. Since 1 January 2004, corporate client assets (other than pension funds) deposited with the Business Banking Switzerland unit have been excluded from invested assets, as we have a minimal advisory role for such clients and as asset flows are driven more by liquidity requirements than investment reasons. The same holds true for the corporate cash management business of the Wealth Management US unit, which we excluded from invested assets towards the end of 2005. Non-bankable assets (for example art collections) and deposits from third-party banks for funding or trading purposes are excluded from both measures.
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Presentation of Financial Information
Measurement and analysis of performance
not counted as net new money inflow. Market and currency movements as well as fees and commissions are excluded from net new money, as are the effects resulting from any acquisition or divestment of a UBS subsidiary or business. Reclassifications between invested assets and client assets as a result of a change in the service level delivered are treated as net new money flow.
provide an independent service to their respective client, add value and generate revenues. Most double counting arises where mutual funds are managed by the Global Asset Management business and sold by Global Wealth Management & Business Banking. Both businesses involved count these funds as invested assets. This approach is in line with industry practice and our open architecture strategy and allows us to accurately reflect the performance of each individual business. Overall, CHF 371 billion of invested assets were double counted in 2006 (CHF 332 billion in 2005).
IFRS 7Financial Instruments: Disclosures
Effective 2007, we will adopt the disclosure requirements for financial instruments under IFRS 7. The new standard has no impact on recognition, measurement and presentation of financial instruments. Rather, it requires entities to provide disclosures in their financial statements that enable users to evaluate: a) the significance of financial instruments for the entity’s financial position and performance; and b) the nature and extent of the credit, market and liquidity risks arising from financial instruments during the
period and at the reporting date, and how the entity manages those risks. The principles of IFRS 7 complement the principles for recognizing, measuring and presenting financial assets and financial liabilities in IAS 32Financial Instruments: Presentationand IAS 39Financial Instruments: Recognition and Measurement.
which is generally the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Where such differences arise, UBS will be required by IFRS 7 to disclose, by class of financial instrument: (a) its accounting policy for recognizing that difference in profit or loss to reflect a change in factors (including time) that market participants would consider in setting a price, and (b) the aggregate difference yet to be recognized in profit or loss at the beginning and end of the period and a reconciliation of changes in the balance of this difference.
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UBS
Results
Results
2006
In 2006, attributable profit was CHF 12,257 million, down 13% from CHF 14,029 million a year earlier, which included a net gain of CHF 3,705 million from the sale of Private Banks & GAM.
Dividend
The Board of Directors will propose to the shareholders at the Annual General Meeting (AGM) that we raise the payout to CHF 2.20 a share in order to match our strong 2006 result. Subject to approval, this is a 16% increase from the
total payout last year, which included a par value repayment of CHF 0.30 a share for the gain realized from the sale of Private Banks & GAM. It is also 38% higher than last year’s regular dividend of CHF 1.60 a share (after the 2-for-1 share split). Our dividend for the 2004 financial year (paid in 2005) was CHF 1.50 a share (after the 2-for-1 share split).
2005
In 2005, attributable profit was CHF 14,029 million, including a net gain of CHF 3,705 million from the sale of Private Banks & GAM.
Certain risk factors, including those described below, can impact our ability to carry out our business strategies and can directly affect our earnings. As a consequence, our revenues and operating profit have varied – and are likely to continue to vary – from period to period and revenues and operating profit for any particular period may not be indicative of sustainable results.
Performance in our industry depends on the economic climate – negative developments can adversely affect our business activities
affect our revenues, and we would be unable to immediately adjust all our costs to the resulting deterioration in market or business conditions. A market downturn can be precipitated by geopolitical events, changes in monetary or fiscal policy, development of trade imbalances, natural disasters, pandemics and civil unrest, and war or terrorism. Because financial markets are global and highly interconnected, even local and regional events can have widespread impact well beyond their sources. A crisis could develop, regionally or globally, as a result of disruption in emerging markets, which are particularly susceptible to macro-economic and geopolitical developments, or as a result of the failure of a major market participant. As our presence and
business in emerging markets increases, we may become more exposed to these risks. Adverse and extreme developments of this kind could affect our businesses in a number of ways:
– | a general reduction in business activity and market volumes affects fees, commissions and margins from market-making and customer-driven transactions and activities. A market downturn may reduce the volume and valuations of assets we manage on behalf of clients, reducing our asset- and performance-based fees | |
– | reduced market liquidity may limit trading and arbitrage opportunities or impede our ability to manage risks, impacting both trading income and performance-based fees |
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– | the assets we hold for our own account as investments or trading positions may fall in value | |
– | impairments and defaults on credit exposures and on trading and investment positions may increase. Losses may be exacerbated by falling collateral values | |
– | if individual countries impose restrictions on cross-border payments or other exchange or capital controls we may suffer losses from enforced default by counterparties, we may be unable to access our own assets, or we may be impeded in – or prevented from – managing our risks. |
We might be unable to identify or capture competitive opportunities The financial services industry is characterized by intense competition, continuous innovation, detailed – and sometimes fragmented – regulation and ongoing consolidation. We face competition at the level of local markets and individual business lines, and from global financial institutions comparable to UBS in their size and breadth. Barriers to entry in individual markets are being eroded by new technology. We expect these trends to continue and competition to increase in the future.
Our risk management and control processes may not always protect us from loss
derivatives markets and credit is an integral part of many of our retail and investment bank activities. Interest rates, equity prices, foreign exchange levels and other market fluctuations can adversely affect our earnings. Some losses from risk-taking activities are inevitable but to be successful over time we must balance the risks we take with the returns we generate. We must therefore diligently identify, assess, manage and control our risks, not only in normal market conditions but also as they might develop under more extreme – “stressed” – conditions, when concentrations of exposure can lead to severe losses. Our risk management and control culture, tools and processes for market and credit risk, including country risk, are described in the Risk Management chapter of our Handbook 2006 / 2007.
– | we do not fully identify the risks in our portfolio, in particular risk concentrations and correlated risks | |
– | our assessment of the risks we have identified, or our response to negative trends proves to be inadequate or incorrect | |
– | markets move in ways that are unexpected in terms of their speed, direction, severity or correlation and our ability to manage risks in the resultant environment is restricted | |
– | third parties to whom we have credit exposure or whose securities we hold for our own account or as collateral are severely affected by unexpected events and we suffer defaults and impairments beyond the level implied by our risk assessment | |
– | collateral or other security provided by our counterparties proves inadequate to cover their obligations at the time of their default. |
be harmed by the same factors. If clients suffer losses or our performance does not match that of our competitors, we may suffer reduced fee income and a decline in assets under management or withdrawal of mandates.
Liquidity and funding management are critical to our ongoing performance
Operational risks may affect our business
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UBS
Results
under “Operational Risk”, are designed to ensure that the risks associated with our activities, including those arising from process error, failed execution, fraud, systems failure, and failure of security and physical protection, are appropriately controlled. If these internal controls fail or prove ineffective in identifying and remedying such risks, we could suffer operational failures that might result in losses.
Legal claims may arise in the conduct of our business
Switzerland and other jurisdictions where we are active, including the United States. Such legal proceedings may expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil penalties.
Our global presence exposes us to other risks
the viability of our strategies and business model.
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UBS Performance Indicators
UBS Performance Indicators | ||||||||||||
For the year ended | ||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
RoE (%)1,2 | ||||||||||||
as reported | 28.2 | 39.7 | 25.8 | |||||||||
from continuing operations | 26.5 | 27.7 | 24.3 | |||||||||
Diluted EPS (CHF)3 | ||||||||||||
as reported | 5.95 | 6.68 | 3.70 | |||||||||
from continuing operations | 5.58 | 4.66 | 3.49 | |||||||||
Cost / income ratio of the financial businesses (%)4,5 | 69.7 | 70.1 | 73.2 | |||||||||
Net new money, financial businesses (CHF billion)6 | 151.7 | 148.5 | 89.9 | |||||||||
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2006
For the last seven years, we have consistently focused on four performance indicators designed to ensure we deliver continually improving returns to our shareholders. We modified some of them in 2006 to reflect the evolution of our business (see page 10). All are calculated based on results from continuing operations. The first two, return on equity and diluted earnings per share, are based on the results of the entire firm. The cost / income ratio and net new money indicators are limited to our financial businesses. On this basis, performance indicators 2006 show:
– | return on equity in full-year 2006 at 26.5%, down from 27.7% in 2005, but well above our target of 20% minimum over the cycle. Higher attributable profit was offset by an increase in average equity following strong retained earnings. |
– | diluted earnings per share in 2006 at CHF 5.58, up 20% from CHF 4.66 a year ago, reflecting increased earnings and a slight reduction in the average number of shares outstanding (-2%) following share repurchases. | |
– | a cost / income ratio for our financial businesses of 69.7% in 2006, down 0.4 percentage points from 70.1% a year ago. This reflects the increase in net trading income and net fee and commission income, partly offset by higher personnel and general and administrative expenses. We have added over 8,500 employees during the last year in areas where we see long-term strategic opportunities. | |
– | net new money at a record CHF 151.7 billion, up from CHF 148.0 billion a year earlier (excluding Private Banks & GAM), corresponding to an annual growth rate of 5.7% of the asset base at the end of 2005. Inflows remained strong worldwide. Wealth Management International & Switzerland |
Net new money1 | ||||||||||||
For the year ended | ||||||||||||
CHF billion | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Wealth Management International & Switzerland | 97.6 | 68.2 | 42.3 | |||||||||
Wealth Management US | 15.7 | 26.9 | 18.1 | |||||||||
Business Banking Switzerland | 1.2 | 3.4 | 2.6 | |||||||||
Global Wealth Management & Business Banking | 114.5 | 98.5 | 63.0 | |||||||||
Institutional | 29.8 | 21.3 | 23.7 | |||||||||
Wholesale Intermediary | 7.4 | 28.2 | (4.5 | ) | ||||||||
Global Asset Management | 37.2 | 49.5 | 19.2 | |||||||||
UBS excluding Private Banks & GAM | 151.7 | 148.0 | 82.2 | |||||||||
Corporate Center | ||||||||||||
Private Banks & GAM2 | 0.5 | 7.7 | ||||||||||
UBS | 151.7 | 148.5 | 89.9 | |||||||||
Invested assets | |||||||||||||||||
As of | % change from | ||||||||||||||||
CHF billion | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||
Wealth Management International & Switzerland | 1,138 | 982 | 778 | 16 | |||||||||||||
Wealth Management US | 824 | 752 | 606 | 10 | |||||||||||||
Business Banking Switzerland | 161 | 153 | 140 | 5 | |||||||||||||
Global Wealth Management & Business Banking | 2,123 | 1,887 | 1,524 | 13 | |||||||||||||
Institutional | 519 | 441 | 344 | 18 | |||||||||||||
Wholesale Intermediary | 347 | 324 | 257 | 7 | |||||||||||||
Global Asset Management | 866 | 765 | 601 | 13 | |||||||||||||
UBS excluding Private Banks & GAM | 2,989 | 2,652 | 2,125 | 13 | |||||||||||||
Corporate Center | |||||||||||||||||
Private Banks & GAM1 | 0 | 0 | 92 | ||||||||||||||
UBS | 2,989 | 2,652 | 2,217 | 13 | |||||||||||||
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UBS Performance Indicators
recorded inflows of CHF 97.6 billion, driven by consistently high inflows during the year, particularly in Asia Pacific and Europe, both a result of our growth strategy. Our US business contributed CHF 15.7 billion in net new money, CHF 11.2 billion below 2005 levels. Global Asset Management inflows fell to CHF 37.2 billion, down from the strong CHF 49.5 billion result a year earlier. The Swiss retail business recorded net new money inflows of CHF 1.2 billion.
2005
From our continuing operations, performance indicators show:
– | return on equity in full-year 2005 at 27.7%, up from 24.3% in 2004. The increase was driven by higher attributable profit, but was partially offset by an increase in average equity levels, reflecting the growth in retained earnings. |
– | diluted earnings per share in 2005 at CHF 4.66, up 34% from CHF 3.49 a year earlier, reflecting increased earnings and a slight reduction in the average number of shares outstanding(-3%) following share repurchases. | |
– | a cost / income ratio for our financial businesses of 70.1% in 2005, down 3.1 percentage points from 73.2% a year earlier. This reflects the increase in net fee and commission income and net income from trading activities and the absence of goodwill amortization, partly offset by higher costs related to personnel – all related to the expansion of business volumes. | |
– | for the whole of 2005, net new money of CHF 148.0 billion, up 80% from CHF 82.2 billion a year earlier. This amounts to an annual growth rate of 7.0% of the asset base at the end of 2004. All the figures above exclude Private Banks & GAM. |
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Financial Businesses
Results
Results
Income statement1 | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 87,401 | 59,286 | 39,228 | 47 | ||||||||||||
Interest expense | (80,880 | ) | (49,758 | ) | (27,484 | ) | 63 | |||||||||
Net interest income | 6,521 | 9,528 | 11,744 | (32 | ) | |||||||||||
Credit loss (expense) / recovery | 156 | 375 | 241 | (58 | ) | |||||||||||
Net interest income after credit loss expense | 6,677 | 9,903 | 11,985 | (33 | ) | |||||||||||
Net fee and commission income | 25,881 | 21,436 | 18,506 | 21 | ||||||||||||
Net trading income | 13,318 | 7,996 | 4,902 | 67 | ||||||||||||
Other income | 1,295 | 561 | 578 | 131 | ||||||||||||
Total operating income | 47,171 | 39,896 | 35,971 | 18 | ||||||||||||
Cash components | 21,282 | 18,275 | 16,310 | 16 | ||||||||||||
Share-based components2 | 2,187 | 1,628 | 1,396 | 34 | ||||||||||||
Total personnel expenses | 23,469 | 19,903 | 17,706 | 18 | ||||||||||||
General and administrative expenses | 7,929 | 6,448 | 6,387 | 23 | ||||||||||||
Services (to) / from other business units | (9 | ) | (14 | ) | (20 | ) | 36 | |||||||||
Depreciation of property and equipment | 1,245 | 1,240 | 1,262 | 0 | ||||||||||||
Amortization of goodwill | 0 | 0 | 646 | |||||||||||||
Amortization of intangible assets | 148 | 127 | 168 | 17 | ||||||||||||
Total operating expenses | 32,782 | 27,704 | 26,149 | 18 | ||||||||||||
Operating profit from continuing operations before tax | 14,389 | 12,192 | 9,822 | 18 | ||||||||||||
Tax expense | 2,751 | 2,296 | 2,104 | 20 | ||||||||||||
Net profit from continuing operations | 11,638 | 9,896 | 7,718 | 18 | ||||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 4 | 4,564 | 396 | 3 | (100 | ) | ||||||||||
Tax expense | 0 | 489 | 97 | (100 | ) | |||||||||||
Net profit from discontinued operations | 4 | 4,075 | 299 | (100 | ) | |||||||||||
Net profit | 11,642 | 13,971 | 8,017 | (17 | ) | |||||||||||
Net profit attributable to minority interests | 389 | 454 | 361 | (14 | ) | |||||||||||
from continuing operations | 389 | 454 | 361 | (14 | ) | |||||||||||
from discontinued operations | 0 | 0 | 0 | |||||||||||||
Net profit attributable to UBS shareholders | 11,253 | 13,517 | 7,656 | (17 | ) | |||||||||||
from continuing operations | 11,249 | 9,442 | 7,357 | 19 | ||||||||||||
from discontinued operations | 4 | 4,075 | 299 | (100 | ) | |||||||||||
Additional information | ||||||||||||||||
Personnel (full-time equivalents) | 78,140 | 69,569 | 67,407 | 12 | ||||||||||||
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2006
Results
On a continuing basis, 2006 was another record year for UBS, with all businesses reporting a stronger performance in 2006 compared with a year earlier. Attributable net profit in 2006 was CHF 11,253 million. Discontinued operations contributed CHF 4 million, compared with CHF 4,075 million in 2005, when we sold Private Banks & GAM. Net profit from continuing operations was CHF 11,249 million, up 19% from CHF 9,442 million in 2005. It was at the highest level ever, fueled by a 19% increase in income, which rose to CHF 47,015 million. Asset-based revenues showed particular strength, reflecting rising market levels as well as strong inflows into our wealth and asset management businesses. Brokerage fees were up, reflecting brisk client activity. Corporate finance and underwriting fees rose, not just because of buoyant capital market conditions, but also as a result of our efforts to grow our market share in key sectors, such as large cap deals, emerging markets, technology and as a partner of financial sponsors. Overall, net fee and commission income now contributes 55% to total operating income in 2006. Income from trading activities reached a record high as well, mainly driven by higher gains from equity derivatives, prime brokerage and equity proprietary trading. Fixed income activities saw stronger results driven by positive market conditions and improved performances in derivatives, mortgage-backed securities and commodities. Revenues from interest margin products increased to the highest level ever, reflecting the success and growth of lending activities to wealthy private clients worldwide. They also reflected an increase in spreads for US dollar, euro and Swiss franc deposits and higher Swiss mortgage volumes. The wealth management business in the US saw the level of deposits rise and benefited from higher spreads. In 2006, we continued to record credit loss recoveries, although they were lower than a year earlier.
Operating income
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Financial Businesses
Results
with CHF 1,458 million recorded a year earlier. Foreign exchange trading revenues rose due to higher volumes.
Net credit loss recovery at Global Wealth Management & Business Banking amounted to CHF 109 million in 2006 compared with a net credit loss recovery of CHF 223 million in 2005. The benign credit environment in Switzerland, where the corporate bankruptcy rate continued to fall in 2006, coupled with the measures taken in recent years to improve the quality of our credit portfolio has again resulted in a low level of new defaults. The management of our impaired portfolio, which continues to shrink, has also contributed to this result.
>> For further details on our risk management approach, how we measure credit risk and the development of our credit risk exposures, please see the “Risk Management” chapter of our Handbook 2006 / 2007. | ||
In 2006,net fee and commission incomewas CHF 25,881 million, up 21% from CHF 21,436 million a year earlier. The increase was driven by a strong contribution from recurring asset-based fees, higher investment fund fees and net brokerage fees, rising underwriting fees as well as corporate finance fees. Underwriting fees, at their highest level ever, were CHF 3,538 million in 2006, up 24% from CHF 2,857 million in 2005. Equity underwriting fees, at CHF 1,834 million, increased by CHF 493 million or 37% in all regions, especially in Asia. This was partially due to our role in the initial public offering of the Bank of China during second quarter 2006, where we acted as joint coordinator and bookrunner. Fixed income underwriting fees, at CHF 1,704 million, were up 12% or CHF 188 million, which reflects the strong market conditions and our enhanced competitive position in the leveraged finance business. At CHF 1,852 million, corpo-
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Net interest income | 6,521 | 9,528 | 11,744 | (32 | ) | |||||||||||
Net trading income | 13,318 | 7,996 | 4,902 | 67 | ||||||||||||
Total net interest and trading income | 19,839 | 17,524 | 16,646 | 13 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
Equities | 4,759 | 3,928 | 3,098 | 21 | ||||||||||||
Fixed income | 6,204 | 5,741 | 6,264 | 8 | ||||||||||||
Foreign exchange | 1,745 | 1,458 | 1,467 | 20 | ||||||||||||
Other | 411 | 292 | 203 | 41 | ||||||||||||
Net income from trading activities | 13,119 | 11,419 | 11,032 | 15 | ||||||||||||
Net income from interest margin products | 5,829 | 5,355 | 5,070 | 9 | ||||||||||||
Net income from treasury and other activities | 891 | 750 | 544 | 19 | ||||||||||||
Total net interest and trading income | 19,839 | 17,524 | 16,646 | 13 | ||||||||||||
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Credit loss (expense)/recovery | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Global Wealth Management & Business Banking | 109 | 223 | 94 | (51 | ) | |||||||||||
Investment Bank | 47 | 152 | 147 | (69 | ) | |||||||||||
UBS | 156 | 375 | 241 | (58 | ) | |||||||||||
rate finance fees in 2006 were up 27% from CHF 1,460 million a year earlier. Advisory gross revenues increased during 2006, as clients took advantage of strategic opportunities in the brisk merger and acquisition environment and our growing franchise in this area. Net brokerage fees were CHF 6,149 million in 2006, up 21% or CHF 1,062 million from CHF 5,087 million in 2005, reflecting the improved markets and the resulting higher confidence of institutional and individual clients – especially in the first half and at the end of 2006. Additionally, higher income from exchange-traded derivatives was driven by the acquisition of ABN AMRO’s global futures and options business. Investment fund fees, at their highest level ever, were CHF 5,858 million in 2006, up 23% from CHF 4,750 million in 2005, mainly reflecting higher asset-based fees for our wealth and asset management businesses, driven by strong client money inflows and favorable market conditions. Fiduciary fees were slightly higher in 2006, increasing from CHF 212 million in 2005 to CHF 252 million, reflecting an increase in the underlying asset base. At CHF 1,266 million, custodian fees in 2006 were up 8% from CHF 1,176 million in 2005. This increase was due to an enlarged asset base. Portfolio and other management and advisory fees increased by 25% to CHF 6,622 million in 2006 from CHF 5,310
million in 2005. The increase is again the result of rising invested asset levels driven by market valuations and strong net new money inflows and to a lesser extent due to higher performance fees. Insurance-related and other fees, at CHF 449 million in 2006, increased by 21% from a year earlier, due to higher commissions from insurance related products. Credit-related fees and commissions decreased by 12% to CHF 269 million in 2006 from CHF 306 million in 2005, reflecting declining business volumes and lower income from loans.
Operating expenses
Net fee and commission income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Equity underwriting fees | 1,834 | 1,341 | 1,417 | 37 | ||||||||||||
Debt underwriting fees | 1,704 | 1,516 | 1,114 | 12 | ||||||||||||
Total underwriting fees | 3,538 | 2,857 | 2,531 | 24 | ||||||||||||
Corporate finance fees | 1,852 | 1,460 | 1,078 | 27 | ||||||||||||
Brokerage fees | 8,053 | 6,718 | 5,794 | 20 | ||||||||||||
Investment fund fees | 5,858 | 4,750 | 3,948 | 23 | ||||||||||||
Fiduciary fees | 252 | 212 | 197 | 19 | ||||||||||||
Custodian fees | 1,266 | 1,176 | 1,143 | 8 | ||||||||||||
Portfolio and other management and advisory fees | 6,622 | 5,310 | 4,488 | 25 | ||||||||||||
Insurance-related and other fees | 449 | 372 | 343 | 21 | ||||||||||||
Total securities trading and investment activity fees | 27,890 | 22,855 | 19,522 | 22 | ||||||||||||
Credit-related fees and commissions | 269 | 306 | 264 | (12 | ) | |||||||||||
Commission income from other services | 1,064 | 1,027 | 977 | 4 | ||||||||||||
Total fee and commission income | 29,223 | 24,188 | 20,763 | 21 | ||||||||||||
Brokerage fees paid | 1,904 | 1,631 | 1,387 | 17 | ||||||||||||
Other | 1,438 | 1,121 | 870 | 28 | ||||||||||||
Total fee and commission expense | 3,342 | 2,752 | 2,257 | 21 | ||||||||||||
Net fee and commission income | 25,881 | 21,436 | 18,506 | 21 | ||||||||||||
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Results
Personnel expensesincreased CHF 3,566 million or 18% to CHF 23,469 million in 2006 from CHF 19,903 million in 2005. The rise was driven by higher performance-related compensation reflecting the better performance in all our businesses. Personnel expenses are managed on a full-year basis with final fixing of annual performance-related payments in fourth quarter. Salary expenses rose due to the 12% increase in personnel over the year, exemplifying the continuous expansion of our business as well as annual pay rises. Share-based components were up 34% or CHF 559 million to CHF 2,187 million from CHF 1,628 million, mainly reflecting more share awards granted in 2006 and the higher fair value of options, driven by the rise in the share price. Contractors’ expenses, at CHF 822 million, were CHF 1 million below 2005’s. Insurance and social security contributions rose by 9% to CHF 1,374 million in 2006 compared with CHF 1,256 million in 2005, reflecting higher salary and bonus payments. Contributions to retirement benefit plans rose 13% or CHF 90 million to CHF 802 million in 2006 as a result of both higher salaries paid and the increased staff levels. At CHF 1,564 million in 2006, other personnel expenses increased CHF 174 million from 2005, mainly driven by increased headcount.
Tax
Tax expense for 2006 was CHF 2,751 million, resulting in an effective tax rate of 19.1%, compared with the full-year 2005 tax rate of 18.8%. The tax rate for 2006 as a whole, and particularly in fourth quarter, was positively influenced by the release of deferred tax valuation allowances, mainly reflecting improved forecast earnings in certain group companies and branches. We believe that a tax rate of about 22% is a reasonable initial estimate for 2007.
Business Group tax rates
Fair value disclosure of shares and options
The fair value of shares granted in 2006 rose to CHF 1,858 million, up CHF 477 million or 35% from CHF 1,381 million a year earlier. The increase compared with 2005 is primarily driven by higher performance-based compensation and a rise in the proportion of bonuses being delivered in restricted shares.
Indicative tax rates for financial businesses | ||||||||||||
For the year ended | ||||||||||||
in % | 31.12.06 | 31.12.05 | 31.12.041 | |||||||||
Global Wealth Management & Business Banking | 20 | 19 | 18 | |||||||||
Wealth Management International & Switzerland | 19 | 18 | 18 | |||||||||
Wealth Management US | 42 | 40 | 37 | |||||||||
Business Banking Switzerland | 20 | 17 | 19 | |||||||||
Global Asset Management | 24 | 24 | 21 | |||||||||
Investment Bank | 31 | 29 | 30 | |||||||||
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The fair value of options granted as of 31 December 2006 was CHF 564 million, up CHF 202 million or 56% from CHF 362 million in 2005. The increase reflects a higher fair value per option, primarily due to a higher UBS share price.
Outlook
Our group combines global scale and focus on growth in a unique way. Our businesses occupy strong market positions in those segments of the financial industry that are expected to grow significantly faster than the economy as a whole over the long term.
2005
Results
Attributable profit in 2005 was CHF 13,517 million, of which discontinued operations contributed CHF 4,075 million, reflecting the impact of the sale of Private Banks & GAM. Net profit from continuing operations was CHF 9,442 million, up 28% from CHF 7,357 million in 2004. Higher revenues in practically all businesses drove the increase, clearly outpacing growth in costs. Asset-based revenues showed particular strength, reflecting rising market levels as well as strong inflows into the wealth and asset management businesses. We also saw a strong increase in brokerage, corporate finance and underwriting fees. Income from trading activities was fueled by improved market opportunities, particularly in second half 2005. Revenues from interest margin products increased, reflecting the success and growth of lending activities to wealthy private clients worldwide. We also reported record credit loss recoveries. Personnel expenses were up 12% from a year earlier; performance-related payments rose with revenues and there was a general increase in staff numbers. For 2005, 50% of personnel expenses took the form of bonus or other variable compensation, up from 49% a year earlier. General and administrative expenses were up just 1% in 2005 from a year earlier. Because of the strength of revenue growth and due to the cessation of goodwill amortization in 2005, our cost / income ratio was 70.1% in 2005.
Operating income
Business Group performance from continuing operations before tax | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Wealth Management International & Switzerland | 5,203 | 4,161 | 3,396 | 25 | ||||||||||||
Wealth Management US | 582 | 312 | 29 | 87 | ||||||||||||
Business Banking Switzerland | 2,356 | 2,189 | 2,013 | 8 | ||||||||||||
Global Wealth Management & Business Banking | 8,141 | 6,662 | 5,438 | 22 | ||||||||||||
Global Asset Management | 1,392 | 1,057 | 552 | 32 | ||||||||||||
Investment Bank | 5,943 | 5,181 | 4,610 | 15 | ||||||||||||
Corporate Center | (1,087 | ) | (708 | ) | (778 | ) | (54 | ) | ||||||||
Financial Businesses | 14,389 | 12,192 | 9,822 | 18 | ||||||||||||
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Financial Businesses
Results
Net income from trading activitiesincreased by 4% or CHF 387 million from CHF 11,032 million in 2004 to CHF 11,419 million in 2005. At CHF 3,928 million, equities trading income in 2005 was up 27% or CHF 830 million from CHF 3,098 million in 2004. These gains were partially offset by lower revenues in our equity cash business. Fixed income trading revenues, at CHF 5,741 million in 2005, were down 8% or CHF 523 million from CHF 6,264 million in 2004. The drop was driven by declines in credit fixed income and fixed income, partially offset by increased revenues in our rates, principal finance and commercial real estate business. Credit fixed income saw large revenue decreases in structured credit. Revenues in our rates business were up, driven mainly by structured LIBOR derivatives, European interest rates and US energy trading. We recorded revenues of CHF 103 million relating to Credit Default Swaps (CDSs) hedging existing credit exposure in the loan book, against losses of CHF 62 million a year earlier. At CHF 1,458 million, revenues from our foreign exchange business were stable in 2005 compared with CHF 1,467 million recorded a year earlier. While derivatives trading was negatively impacted by historically low volatility levels, foreign exchange trading revenues rose due to higher volumes.
with the measures taken in the years before to improve the quality of our credit portfolio, resulted in a continued low level of new defaults. The success we had in managing our impaired portfolio also resulted in a higher than anticipated level of recoveries.
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Other incomedecreased by 3% to CHF 561 million in 2005 from CHF 578 million in 2004, mainly due to lower net gains from both disposals of associates and subsidiaries and from investments in property. This was partially offset by higher net gains from disposal of investments in financial assets available-for-sale.
Operating expenses
er employee levels and further increases in business activity. Marketing costs increased due to continued investment in our brand. This was partially offset by lower provisions (2004 included the civil penalty levied by the Federal Reserve Board relating to our banknote trading business) and reduced expenses for IT outsourcing and professional fees, as well as lower rent and maintenance of machines and equipment.
Tax
Tax expense for 2005 was CHF 2,296 million, resulting in an effective tax rate of 18.8%, down from the full-year 2004 tax rate of 21.4%. The tax rate for full-year 2005 was positively influenced by the absence of goodwill amortization and the successful conclusion of tax audits in the third and fourth quarters.
Fair value disclosure of shares and options
The fair value of shares granted in 2005 rose to CHF 1,381 million, 25% higher than CHF 1,109 million a year earlier. The increase compared with 2004 was primarily driven by an increased proportion of bonuses being delivered in restricted shares.
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Financial Businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking
Pre-tax profit for our international and Swiss wealth management businesses was CHF 5,203 million, up 25% from the result achieved in 2005. In the US, pre-tax profit rose to CHF 582 million from CHF 312 million a year earlier. Business Banking Switzerland’s pre-tax profit was CHF 2,356 million, up 8% from 2005.
Business Group reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Income | 21,775 | 19,131 | 17,506 | 14 | ||||||||||||
Adjusted expected credit loss1 | 156 | 107 | (38 | ) | 46 | |||||||||||
Total operating income | 21,931 | 19,238 | 17,468 | 14 | ||||||||||||
Cash components | 9,043 | 8,252 | 7,630 | 10 | ||||||||||||
Share-based components2 | 306 | 237 | 235 | 29 | ||||||||||||
Total personnel expenses | 9,349 | 8,489 | 7,865 | 10 | ||||||||||||
General and administrative expenses | 3,028 | 2,845 | 2,473 | 6 | ||||||||||||
Services (to) / from other business units | 1,118 | 960 | 1,137 | 16 | ||||||||||||
Depreciation of property and equipment | 232 | 226 | 202 | 3 | ||||||||||||
Amortization of goodwill | 0 | 0 | 238 | |||||||||||||
Amortization of intangible assets | 63 | 56 | 115 | 13 | ||||||||||||
Total operating expenses | 13,790 | 12,576 | 12,030 | 10 | ||||||||||||
Business Group performance before tax | 8,141 | 6,662 | 5,438 | 22 | ||||||||||||
KPIs | ||||||||||||||||
Cost / income ratio (%)3 | 63.3 | 65.7 | 68.7 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)4 | 39.3 | 34.7 | 31.3 | |||||||||||||
BIS risk-weighted assets | 155,158 | 147,348 | 134,004 | 5 | ||||||||||||
Goodwill and excess intangible assets5 | 5,978 | 5,407 | 3,648 | 11 | ||||||||||||
Allocated regulatory capital6 | 21,494 | 20,142 | 17,048 | 7 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 2,123 | 1,887 | 1,524 | 13 | ||||||||||||
Net new money (CHF billion) | 114.5 | 98.5 | 63.0 | |||||||||||||
Client assets (CHF billion) | 3,337 | 2,895 | 2,306 | 15 | ||||||||||||
Personnel (full-time equivalents) | 48,034 | 44,612 | 42,570 | 8 | ||||||||||||
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Wealth Management International & Switzerland
Business Unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Income | 10,827 | 9,024 | 7,701 | 20 | ||||||||||||
Adjusted expected credit loss1 | (29 | ) | (13 | ) | (8 | ) | 123 | |||||||||
Total operating income | 10,798 | 9,011 | 7,693 | 20 | ||||||||||||
Cash components | 2,999 | 2,491 | 2,047 | 20 | ||||||||||||
Share-based components2 | 138 | 88 | 72 | 57 | ||||||||||||
Total personnel expenses | 3,137 | 2,579 | 2,119 | 22 | ||||||||||||
General and administrative expenses | 885 | 804 | 642 | 10 | ||||||||||||
Services (to) / from other business units | 1,479 | 1,371 | 1,395 | 8 | ||||||||||||
Depreciation of property and equipment | 84 | 89 | 66 | (6 | ) | |||||||||||
Amortization of goodwill | 0 | 0 | 67 | |||||||||||||
Amortization of intangible assets | 10 | 7 | 8 | 43 | ||||||||||||
Total operating expenses | 5,595 | 4,850 | 4,297 | 15 | ||||||||||||
Business Unit performance before tax | 5,203 | 4,161 | 3,396 | 25 | ||||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 1,138 | 982 | 778 | 16 | ||||||||||||
Net new money (CHF billion)3 | 97.6 | 68.2 | 42.3 | |||||||||||||
Gross margin on invested assets (bps)4 | 103 | 102 | 103 | 1 | ||||||||||||
Cost / income ratio (%)5 | 51.7 | 53.7 | 55.8 | |||||||||||||
Cost / income ratio excluding the European wealth management business (%)5 | 47.5 | 47.7 | 47.9 | |||||||||||||
Client advisors (full-time equivalents) | 4,742 | 4,154 | 3,744 | 14 | ||||||||||||
International clients | ||||||||||||||||
Income | 7,907 | 6,476 | 5,429 | 22 | ||||||||||||
Invested assets (CHF billion) | 862 | 729 | 562 | 18 | ||||||||||||
Net new money (CHF billion)3 | 90.8 | 64.2 | 40.4 | |||||||||||||
Gross margin on invested assets (bps)4 | 101 | 100 | 102 | 1 | ||||||||||||
European wealth management (part of international clients) | ||||||||||||||||
Income | 1,010 | 722 | 437 | 40 | ||||||||||||
Invested assets (CHF billion) | 144 | 114 | 82 | 26 | ||||||||||||
Net new money (CHF billion)3 | 18.2 | 21.8 | 13.7 | |||||||||||||
Client advisors (full-time equivalents) | 870 | 803 | 838 | 8 | ||||||||||||
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Global Wealth Management & Business Banking
Business Unit reporting (continued) | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Swiss clients | ||||||||||||||||
Income | 2,920 | 2,548 | 2,272 | 15 | ||||||||||||
Invested assets (CHF billion) | 276 | 253 | 216 | 9 | ||||||||||||
Net new money (CHF billion)1 | 6.8 | 4.0 | 1.9 | |||||||||||||
Gross margin on invested assets (bps)2 | 110 | 109 | 106 | 1 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 81.2 | 78.9 | 82.5 | |||||||||||||
BIS risk-weighted assets | 51,485 | 43,369 | 31,903 | 19 | ||||||||||||
Goodwill and excess intangible assets4 | 1,740 | 1,566 | 1,176 | 11 | ||||||||||||
Allocated regulatory capital5 | 6,889 | 5,903 | 4,366 | �� | 17 | |||||||||||
Additional information | ||||||||||||||||
Recurring income6 | 8,143 | 6,635 | 5,679 | 23 | ||||||||||||
Client assets (CHF billion) | 1,436 | 1,235 | 972 | 16 | ||||||||||||
Personnel (full-time equivalents) | 13,564 | 11,555 | 10,093 | 17 | ||||||||||||
Components of operating income
Wealth Management International & Switzerland derives its operating income principally from:
– | fees for financial planning and wealth management services; | |
– | fees for investment management services; | |
– | transaction-related fees; and | |
– | interest income from client loans. |
These revenues are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book. As a result, operating income is affected by factors such as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds, and investor activity levels.
2006
Key performance indicators
In 2006, net new money was a record CHF 97.6 billion, compared with CHF 68.2 billion in 2005, representing an annual growth rate of 10% of the underlying invested asset base at end-2005. This outstanding result reflected increases
in all geographical regions throughout the year, particularly in Asia Pacific and Europe, both a result of our growth strategy.
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rising financial markets, with CHF 4.8 billion coming from new assets gained from acquisitions we integrated in 2006. This increase was partially offset by negative currency effects. The 7% fall of the US dollar against the Swiss franc contributed to this decrease – approximately 36% of invested assets were denominated in US dollars at the end of 2006.
Excluding the European wealth management business, the 2006 cost / income ratio fell to 47.5% from 47.7% a year earlier.
European wealth management
Our European wealth management business continued to make good progress. With a good performance in the UK and Germany, particularly in the first half of the year, the inflow of net new money in 2006 was CHF 18.2 billion, down 17% from the 2005 intake of CHF 21.8 billion. The result reflects an annual net new money growth rate of 16% of the underlying asset base at year-end 2005, with positive contributions from all five target markets.
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Global Wealth Management & Business Banking
In 2006, the number of client advisors increased by 67. The increase in client advisors was mainly in Italy and France. We remain committed to growing our presence in our European target markets and will continue to invest in qualified advisory staff.
Results
In 2006, pre-tax profit, at a record CHF 5,203 million, was up 25% compared with 2005. This increase reflects higher asset-based fees as well as rising interest income, a reflection of higher volumes in our Lombard lending business. Operating expenses, up 15% in 2006 from 2005, also rose as our business expanded. Personnel expenses rose 22% due to the hiring of an additional 2,009 employees.
Operating expenses
awards and the increased fair value of options. General and administrative expenses, at CHF 885 million, were up 10% in 2006 from CHF 804 million a year earlier due to investments in our physical and IT infrastructure, as well as travel and entertainment and marketing costs – all a consequence of our continuous business expansion. Expenses for services from other business units, at CHF 1,479 million in 2006, were up 8% from CHF 1,371 million the previous year, mainly due to higher information technology charges. Depreciation was CHF 84 million in 2006, down 6% from CHF 89 million a year earlier because of lower charges for information technology equipment. Amortization of intangible assets was CHF 10 million, practically unchanged from CHF 7 million in 2005.
2005
Key performance indicators
In 2005, net new money inflows totaled CHF 68.2 billion, up 61% from CHF 42.3 billion in 2004. This increase was driven by gains in all geographical areas, especially from Asian clients, and a particularly strong inflow into our European wealth management business.
European wealth management
In 2005, our European wealth management business made significant progress. With a particularly good performance in the UK and Germany, the inflow of net new money in 2005
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was CHF 21.8 billion, up 59% from the previous year’s intake of CHF 13.7 billion. The result reflects an annual net new money inflow rate of 27% of the underlying asset base at year-end 2004.
Results
Wealth Management International and Switzerland’s 2005 pre-tax profit, at CHF 4,161 million, increased 23% from 2004, mainly due to higher asset-based fees, and strengthening client activity. Rising interest income, a reflection of the expansion of our margin lending activities, also bolstered revenues. At the same time, our expenses, up 13% in 2005 from 2004, reflect our ongoing growth strategy.
Operating income
increased 17% on rising asset-based fees, benefiting from gains in asset levels. This was accentuated by higher interest income due to the expansion of our margin lending activities. Non-recurring income rose due to higher brokerage fees and commissions for sales of investment funds, reflecting an increase in client activity levels. These positive effects were supported by the appreciation of the US dollar against the Swiss franc.
Operating expenses
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Financial Businesses
Global Wealth Management & Business Banking
Wealth Management US
Business Unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Income | 5,863 | 5,158 | 4,741 | 14 | ||||||||||||
Adjusted expected credit loss1 | 0 | (2 | ) | (5 | ) | (100 | ) | |||||||||
Total operating income | 5,863 | 5,156 | 4,736 | 14 | ||||||||||||
Cash components | 3,683 | 3,353 | 3,206 | 10 | ||||||||||||
Share-based components2 | 117 | 107 | 114 | 9 | ||||||||||||
Total personnel expenses | 3,800 | 3,460 | 3,320 | 10 | ||||||||||||
General and administrative expenses | 1,073 | 1,047 | 767 | 2 | ||||||||||||
Services (to) / from other business units | 281 | 223 | 275 | 26 | ||||||||||||
Depreciation of property and equipment | 74 | 65 | 67 | 14 | ||||||||||||
Amortization of goodwill | 0 | 0 | 171 | |||||||||||||
Amortization of intangible assets | 53 | 49 | 107 | 8 | ||||||||||||
Total operating expenses | 5,281 | 4,844 | 4,707 | 9 | ||||||||||||
Business Unit performance before tax | 582 | 312 | 29 | 87 | ||||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 824 | 752 | 606 | 10 | ||||||||||||
Net new money (CHF billion)3 | 15.7 | 26.9 | 18.1 | |||||||||||||
Interest and dividend income (CHF billion)4 | 22.2 | 18.3 | 15.3 | 21 | ||||||||||||
Gross margin on invested assets (bps)5 | 76 | 75 | 77 | 1 | ||||||||||||
Cost / income ratio (%)6 | 90.1 | 93.9 | 99.3 | |||||||||||||
Recurring income7 | 3,488 | 2,834 | 2,343 | 23 | ||||||||||||
Revenues per advisor (CHF thousand)8 | 776 | 690 | 633 | 12 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)9 | 10.2 | 5.8 | 0.6 | |||||||||||||
BIS risk-weighted assets | 18,308 | 18,928 | 17,664 | (3 | ) | |||||||||||
Goodwill and excess intangible assets10 | 4,238 | 3,841 | 2,472 | 10 | ||||||||||||
Allocated regulatory capital11 | 6,069 | 5,734 | 4,238 | 6 | ||||||||||||
Additional information | ||||||||||||||||
Client assets (CHF billion) | 909 | 826 | 679 | 10 | ||||||||||||
Personnel (full-time equivalents) | 18,557 | 17,034 | 16,969 | 9 | ||||||||||||
Financial advisors (full-time equivalents) | 7,880 | 7,520 | 7,519 | 5 | ||||||||||||
Components of operating income
Wealth Management US principally derives its operating income from:
– | fees for financial planning and wealth management services; | |
– | fees for investment management services; | |
– | transaction-related fees; and | |
– | interest income from client loans. |
These revenues are based on the market value of invested assets, the level of transaction-related activity and the size of the loan book. As a result, operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance, inflows and outflows of client funds, and investor activity levels.
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2006
Key performance indicators
The inflow of net new money in 2006 was CHF 15.7 billion, down 42% from CHF 26.9 billion in 2005. Although the result was lower, the inflow of net new money compared favorably with peers in terms of growth rate relative to the asset base.
reflects higher operating income due to strong growth in recurring income, partially offset by a rise in expenses mainly reflecting higher personnel expenses in support of growth initiatives and the integration of the Piper Jaffray private client branch network.
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Financial Businesses Global Wealth Management & Business Banking |
higher levels of managed account fees on a record level of invested assets, higher investment advisory fees and higher net interest income. Recurring income represented 59% of income in 2006 compared with 55% in 2005.
Results
In 2006, we reported a pre-tax profit of CHF 582 million compared to CHF 312 million in 2005. Because this business is almost entirely conducted in US dollars, comparisons of results with prior periods are affected by the movements of the US dollar against the Swiss franc. In US dollar terms, performance in 2006 was up 86% from 2005. Performance in 2006 benefited from record levels of recurring income, and lower litigation provisions.
Operating income
In 2006, total operating income was CHF 5,863 million, up 14% compared to CHF 5,156 million in 2005. Excluding currency effects, operating income also increased by 14% from 2005. The increase in operating income is primarily due to strong growth in recurring income based on higher levels of assets.
Operating expenses
Total operating expenses rose 9% to CHF 5,281 million in 2006 from CHF 4,844 million in 2005. Excluding currency effects, operating expenses were also 9% higher. This reflects higher personnel costs and general and administrative expenses, both also related to strategic growth initiatives in support of our business and the Piper Jaffray private client branch network inclusion and the New Jersey office provision that was made after the decision to sublet unused office space instead of occupying it ourselves. This was offset by a lower impact of litigation provisions compared to 2005.
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2005
Key performance indicators
In 2005, inflows of net new money were CHF 26.9 billion, up 49% from CHF 18.1 billion in 2004. Including interest and dividends, net new money in 2005 was CHF 45.2 billion, up from CHF 33.4 billion a year earlier.
Results
In 2005, we reported a pre-tax profit of CHF 312 million compared to CHF 29 million in 2004. This increase reflects mainly higher recurring income which was slightly offset by increased expenses.
Operating income
In 2005, total operating income was CHF 5,156 million, up 9% compared to CHF 4,736 million in 2004. Excluding currency effects, operating income increased by 8% from 2004. The increase in operating income is primarily due to higher recurring income based on higher levels of assets and rising net interest income in UBS Bank USA, which was slightly offset by lower transactional revenues.
Operating expenses
Total operating expenses rose 3% to CHF 4,844 million in 2005 from CHF 4,707 million in 2004. Excluding currency effects, operating expenses were 2% higher primarily due to the impact of increased litigation provisions in second half 2005.
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Financial Businesses
Global Wealth Management & Business Banking
Business Banking Switzerland
Business Unit reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Interest income | 3,339 | 3,317 | 3,390 | 1 | ||||||||||||
Non-interest income | 1,746 | 1,632 | 1,674 | 7 | ||||||||||||
Income | 5,085 | 4,949 | 5,064 | 3 | ||||||||||||
Adjusted expected credit loss1 | 185 | 122 | (25 | ) | 52 | |||||||||||
Total operating income | 5,270 | 5,071 | 5,039 | 4 | ||||||||||||
Cash components | 2,361 | 2,408 | 2,377 | (2 | ) | |||||||||||
Share-based components2 | 51 | 42 | 49 | 21 | ||||||||||||
Total personnel expenses | 2,412 | 2,450 | 2,426 | (2 | ) | |||||||||||
General and administrative expenses | 1,070 | 994 | 1,064 | 8 | ||||||||||||
Services (to) / from other business units | (642 | ) | (634 | ) | (533 | ) | (1 | ) | ||||||||
Depreciation of property and equipment | 74 | 72 | 69 | 3 | ||||||||||||
Amortization of goodwill | 0 | 0 | 0 | |||||||||||||
Amortization of intangible assets | 0 | 0 | 0 | |||||||||||||
Total operating expenses | 2,914 | 2,882 | 3,026 | 1 | ||||||||||||
Business Unit performance before tax | 2,356 | 2,189 | 2,013 | 8 | ||||||||||||
KPIs | ||||||||||||||||
Invested assets (CHF billion) | 161 | 153 | 140 | 5 | ||||||||||||
Net new money (CHF billion)3 | 1.2 | 3.4 | 2.6 | |||||||||||||
Cost / income ratio (%)4 | 57.3 | 58.2 | 59.8 | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 1.7 | 2.3 | 3.0 | |||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)5 | 27.5 | 25.6 | 23.2 | |||||||||||||
BIS risk-weighted assets | 85,365 | 85,051 | 84,437 | 0 | ||||||||||||
Goodwill and excess intangible assets6 | 0 | 0 | 0 | |||||||||||||
Allocated regulatory capital7 | 8,537 | 8,505 | 8,444 | 0 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss) | 512 | 485 | 411 | 6 | ||||||||||||
Client assets (CHF billion) | 992 | 834 | 655 | 19 | ||||||||||||
Personnel (full-time equivalents) | 15,913 | 16,023 | 15,508 | (1 | ) | |||||||||||
Components of operating income
Business Banking Switzerland derives its operating income principally from:
– | net interest income from its lending portfolio and customer deposits; | |
– | fees for investment management services; and | |
– | transaction fees. |
As a result, operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance, changes in market conditions and the credit environment.
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2006
Key performance indicators
Net new money was CHF 1.2 billion in 2006, CHF 2.2 billion lower than the inflow of CHF 3.4 billion in 2005. This was due to a decrease in inflows from existing clients, combined with transfers of client assets from discretionary to custody mandates.
client mortgages, which more than offset the ongoing reduction of our recovery portfolio, which fell to CHF 2.6 billion from CHF 3.3 billion a year earlier. This positive development was also reflected in the key credit quality ratio of the impaired lending portfolio, gross, to the total lending portfolio, gross, which was 1.7% compared to 2.3% in 2005.
Results
Pre-tax profit in 2006, at a record level of CHF 2,356 million, was CHF 167 million or 8% above the result achieved in 2005. This was mainly due to income growth. In 2006 non-interest income rose due to higher asset-based and brokerage fees. The result also shows the continued tight management of our cost base, and an adjusted expected credit loss recovery of CHF 185 million. While personnel costs were at their lowest levels, general and administrative expenses increased, reflecting the outsourcing of Edelweiss facility management.
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Financial Businesses
Global Wealth Management & Business Banking
Operating income
Total operating income in 2006 was CHF 5,270 million, up slightly from 2005’s level of CHF 5,071 million. Interest income increased by 1% to CHF 3,339 million in 2006 from CHF 3,317 million in 2005. The slight increase reflects the expansion of our loan portfolio as well as higher investment interest rates on our variable rate accounts, offset by lower revenues from our reduced recovery portfolio. Non-interest income increased by CHF 114 million to CHF 1,746 million in 2006 from CHF 1,632 million in 2005, reflecting a higher asset base as well as valuation gains from equity participations and divestment proceeds. Adjusted expected credit loss recoveries, at CHF 185 million in 2006, increased from recoveries of CHF 122 million in 2005. This positive result reflects the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating expenses
Operating expenses in 2006 were CHF 2,914 million, up 1% from CHF 2,882 million in 2005. Personnel expenses, at CHF 2,412 million, were down 2% from CHF 2,450 million in 2006, due to lower salary costs reflecting the outsourcing of Edelweiss, partly offset by higher share-based expenses, mainly reflecting higher share awards and the higher fair value of options in 2006. General and administrative expenses, at CHF 1,070 million in 2006, rose and were 8% higher than the CHF 994 million recorded in 2005, mainly due to the outsourcing of Edelweiss facility management at the end of 2005. Net charges to other business units continued to rise to CHF 642 million in 2006 from CHF 634 million in 2005 because of lower charges-in for IT services. Depreciation in 2006 slightly increased to CHF 74 million from CHF 72 million in 2005 due to higher expenses for information technology equipment.
2005
Key performance indicators
Net new money was CHF 3.4 billion in 2005, CHF 0.8 billion higher than the inflow of CHF 2.6 billion in 2004.
Results
Pre-tax profit in 2005 was CHF 2,189 million, CHF 176 million or 9% higher than the result achieved in 2004. It was achieved despite a CHF 115 million fall in income, driven mainly by lower interest income. The result shows the continued tight management of our cost base, with an adjusted expected credit loss recovery of CHF 122 million reflecting the structural improvement in our loan portfolio in recent years. While general and administrative costs were at their lowest levels, personnel expenses increased slightly, reflecting an increase in staff levels.
Operating income
Total operating income in 2005 was CHF 5,071 million, up slightly from 2004’s level of CHF 5,039 million. Interest income declined by 2% to CHF 3,317 million in 2005 from CHF 3,390 million in 2004. The decline reflects lower revenues from our reduced recovery portfolio, as well as lower interest margins in our mortgage business. This was partially offset by higher private client mortgage volumes. Non-interest income dropped by CHF 42 million to CHF 1,632 million in 2005 from CHF 1,674 million in 2004, reflecting the gain from the sale of a participation in the Noga Hilton hotel in 2004, partially offset by higher asset-based fees and higher client activity levels. Adjusted expected credit loss recoveries, at CHF 122 million in 2005, increased from an adjusted expected credit loss expense of CHF 25 million in 2004. This positive result reflects the deferred benefit of the structural improvement in our loan portfolio in recent years.
Operating expenses
Operating expenses in 2005 were CHF 2,882 million, down 5% from CHF 3,026 million in 2004. Personnel expenses, at CHF 2,450 million, were up 1% from CHF 2,426 million in 2004, as higher salary costs reflected the 3% increase in personnel, partly offset by lower share-based expenses as less share awards have been granted. General and administrative expenses, at CHF 994 million in 2005, continued to
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drop and were 7% lower than the CHF 1,064 million recorded in 2004, reflecting our continuing tight cost controls. Net charges to other business units rose to CHF 634 million in 2005 from CHF 533 million in 2004 because of
lower charges-in for IT services and insurance. Depreciation in 2005 slightly increased to CHF 72 million from CHF 69 million in 2004 due to higher expenses for information technology equipment.
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Financial Businesses
Global Asset Management
Global Asset Management
Pre-tax profit was CHF 1,392 million in 2006, an increase of 32% from the 2005 profit of CHF 1,057 million. Compared with 2005, the increase reflects higher management fees in all businesses and alternative and quantitative investment performance fees. The result was partly offset by higher operating expenses, reflecting increased staffing, performance-related compensation and investments in strategic initiatives and IT projects.
Business Group reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Institutional fees | 1,803 | 1,330 | 1,085 | 36 | ||||||||||||
Wholesale Intermediary fees | 1,417 | 1,157 | 937 | 22 | ||||||||||||
Total operating income | 3,220 | 2,487 | 2,022 | 29 | ||||||||||||
Cash components | 1,305 | 899 | 822 | 45 | ||||||||||||
Share-based components1 | 198 | 89 | 71 | 122 | ||||||||||||
Total personnel expenses | 1,503 | 988 | 893 | 52 | ||||||||||||
General and administrative expenses | 399 | 304 | 299 | 31 | ||||||||||||
Services (to) / from other business units | (105 | ) | 116 | 126 | ||||||||||||
Depreciation of property and equipment | 27 | 21 | 23 | 29 | ||||||||||||
Amortization of goodwill | 0 | 0 | 129 | |||||||||||||
Amortization of intangible assets | 4 | 1 | 0 | 300 | ||||||||||||
Total operating expenses | 1,828 | 1,430 | 1,470 | 28 | ||||||||||||
Business Group performance before tax | 1,392 | 1,057 | 552 | 32 | ||||||||||||
KPI | ||||||||||||||||
Cost / income ratio (%)2 | 56.8 | 57.5 | 72.7 | |||||||||||||
Institutional | ||||||||||||||||
Invested assets (CHF billion) | 519 | 441 | 344 | 18 | ||||||||||||
of which: money market funds | 28 | 16 | 17 | 75 | ||||||||||||
Net new money (CHF billion)3 | 29.8 | 21.3 | 23.7 | |||||||||||||
of which: money market funds | 11.0 | (3.0 | ) | (1.2 | ) | |||||||||||
Gross margin on invested assets (bps)4 | 38 | 34 | 32 | 12 | ||||||||||||
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Business Group reporting (continued) | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Wholesale Intermediary | ||||||||||||||||
Invested assets (CHF billion) | 347 | 324 | 257 | 7 | ||||||||||||
of which: money market funds | 59 | 62 | 64 | (5 | ) | |||||||||||
Net new money (CHF billion)1 | 7.4 | 28.2 | (4.5 | ) | ||||||||||||
of which: money market funds | (2.5 | ) | (9.7 | ) | (20.6 | ) | ||||||||||
Gross margin on invested assets (bps)2 | 43 | 40 | 36 | 8 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)3 | 84.8 | 69.9 | 36.4 | |||||||||||||
BIS risk-weighted assets | 2,723 | 1,570 | 1,702 | 73 | ||||||||||||
Goodwill and excess intangible assets4 | 1,677 | 1,438 | 1,189 | 17 | ||||||||||||
Allocated regulatory capital5 | 1,949 | 1,595 | 1,359 | 22 | ||||||||||||
Additional information | ||||||||||||||||
Invested assets (CHF billion) | 866 | 765 | 601 | 13 | ||||||||||||
Net new money (CHF billion) | 37.2 | 49.5 | 19.2 | |||||||||||||
Personnel (full-time equivalents) | 3,436 | 2,861 | 2,665 | 20 | ||||||||||||
Components of operating income
Global Asset Management generates its revenue from the asset management and fund administration services it provides to financial intermediaries and institutional investors. Fees charged to institutional clients and wholesale intermediary clients are based on the market
value of invested assets and on successful investment performance. As a result, revenues are affected by changes in market and currency valuation levels, as well as flows of client funds, and relative investment performance.
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Financial Businesses
Global Asset Management
2006
Key performance indicators
For 2006, the cost / income ratio was 56.8%, a decrease of 0.7 percentage points from 2005. This was a result of improving operating income, representing higher management fees across all businesses, combined with significantly higher performance fees in alternative and quantitative investments. This was partly offset by increased operating expenses from increased staff levels and higher variable personnel expenses, in line with business growth.
Institutional
Institutional invested assets were CHF 519 billion on 31 December 2006 – up 18% from CHF 441 billion on 31 December 2005, reflecting positive market performance (mainly in equities), strong net new money inflow and the inclusion of Pactual.
Wholesale intermediary
Invested assets were CHF 347 billion on 31 December 2006, up by CHF 23 billion from 31 December 2005, reflecting positive market performance, net new money inflows and the inclusion of Pactual.
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In 2006, net new money was CHF 7.4 billion, down from CHF 28.2 billion a year earlier. In 2005, net new money inflows resulted from the large number of product launches across all major asset classes. In 2006 we experienced outflows in fixed income and equities while continuing to experience inflows into multi-asset funds.
The 2006 gross margin on invested assets was 43 basis points, up by 3 basis points from a year earlier, largely driven by increased management fees.
Results
We had a very strong full-year result in 2006. Pre-tax profit was CHF 1,392 million, up from CHF 1,057 million a year earlier. The increase reflects higher management fees in all businesses and alternative and quantitative investment performance fees. The result was partly offset by higher operating expenses, reflecting increased staffing, performance-related compensation and investments in strategic initiatives and IT projects.
Operating income
In 2006, operating income was CHF 3,220 million, up 29% from CHF 2,487 million a year earlier. Institutional revenues increased by 36% to CHF 1,803 million in 2006 from CHF 1,330 million in 2005, reflecting higher management fees in most investment areas, the result of net new money inflows and higher financial market valuations, combined with significantly higher performance fees in alternative and quantitative investments. Wholesale intermediary revenues rose by 22% to CHF 1,417 million in 2006 from CHF 1,157 million in 2005, reflecting higher management fees in most areas due to net new money inflows and higher market valuations.
Operating expenses
In 2006, operating expenses increased to CHF 1,828 million from CHF 1,430 million in 2005, due to higher staff levels and performance-related compensation. Personnel expenses were CHF 1,503 million in 2006, 52% above 2005, mainly due to the inclusion of DRCM. General and administrative expenses increased by 31% to CHF 399 million in 2006 from CHF 304 million in 2005 mainly due to investments in strategic initiatives. Other business units were charged CHF 105 million compared to the net charges from other business units of CHF 116 million a year earlier, mainly reflecting higher net charges-out to the Investment Bank for investment management services provided by DRCM. Over the same period, depreciation increased by CHF 6 million to CHF 27 million. Amortization of intangible assets slightly increased to CHF 4 million in 2006.
2005
Key performance indicators
For 2005, the cost / income ratio was 57.5%, a decrease of 15.2 percentage points from 2004. This was a result of improving operating income across all businesses, mainly induced by higher asset-based fees. This was also helped by declining operating expenses, mainly the result of the discontinuation of goodwill amortization in 2005.
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Institutional
Institutional invested assets were CHF 441 billion on 31 December 2005 – up 28% from CHF 344 billion on 31 December 2004, reflecting positive market performance, strong net new money and favorable currency translation effects.
Wholesale intermediary
Invested assets were CHF 324 billion on 31 December 2005, up by CHF 67 billion from 31 December 2004. For full-year 2005, the net new money inflow was CHF 28.2 billion compared with a CHF 4.5 billion outflow in 2004.
Results
Pre-tax profit was CHF 1,057 million, an increase of 91% from 2004. The increase was driven by higher operating income, which rose 23%, reflecting strong net new money inflows and a positive market environment that resulted in higher asset valuations. In addition, performance fees, particularly in alternative and quantitative investments, increased. Operating expenses decreased, mainly as a result of the discontinuation of goodwill amortization in 2005, which
was partially offset by higher personnel expenses, which rose with the growth of the business.
Operating income
In 2005, operating income was CHF 2,487 million, up 23% from CHF 2,022 million a year earlier. The increase reflects strong net new money inflows and a positive market environment resulting in higher asset valuations and consequently higher asset-based income across all businesses. In addition, performance fees, particularly in alternative and quantitative investments, increased significantly. Institutional revenues increased by 23% to CHF 1,330 million in 2005 from CHF 1,085 million in 2004, reflecting higher management fees in all areas, and higher performance fees, mainly in alternative and quantitative investments. Wholesale intermediary revenues rose by 23% to CHF 1,157 million in 2005 from CHF 937 million in 2004, reflecting higher management fees in all areas due to net new money inflows and higher market valuations.
Operating expenses
In 2005, operating expenses decreased to CHF 1,430 million from CHF 1,470 million in 2004, primarily due to the discontinuation of goodwill amortization and partially offset by higher personnel costs, which rose with the growth of the business. Personnel expenses were CHF 988 million in 2005, 11% above 2004. General and administrative expenses increased by 2% to CHF 304 million in 2005 from CHF 299 million in 2004. Net charges from other business units decreased by CHF 10 million to CHF 116 million in 2005 from CHF 126 million in 2004, partly due to higher charges-out to the wealth management businesses reflecting the higher demand for specialized investment research. Over the same period, depreciation remained virtually unchanged at CHF 21 million, down by only CHF 2 million. There was no amortization of goodwill in 2005 due to a change in accounting. In 2004, amortization of goodwill totaled CHF 129 million. Amortization of intangible assets increased slightly to CHF 1 million due to the acquisition of Siemens’ real estate business.
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Financial Businesses
Investment Bank
Investment Bank
In 2006, the Investment Bank’s pre-tax profit was CHF 5,943 million, up 15% from a year earlier. Revenues increased in all three business areas, particularly in equities and investment banking. This was matched by higher costs, for both personnel and general and administrative expenses, as we continued to expand our range of products and services.
Business Group reporting | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Equities | 9,397 | �� | 6,980 | 5,906 | 35 | |||||||||||
Fixed income, rates and currencies | 9,056 | 7,962 | 8,269 | 14 | ||||||||||||
Investment banking | 3,273 | 2,506 | 1,915 | 31 | ||||||||||||
Income | 21,726 | 17,448 | 16,090 | 25 | ||||||||||||
Adjusted expected credit loss1 | 61 | 36 | (7 | ) | 69 | |||||||||||
Total operating income | 21,787 | 17,484 | 16,083 | 25 | ||||||||||||
Cash components | 9,801 | 8,065 | 7,130 | 22 | ||||||||||||
Share-based components2 | 1,552 | 1,194 | 1,022 | 30 | ||||||||||||
Total personnel expenses | 11,353 | 9,259 | 8,152 | 23 | ||||||||||||
General and administrative expenses | 3,260 | 2,215 | 2,538 | 47 | ||||||||||||
Services (to) / from other business units | 956 | 640 | 226 | 49 | ||||||||||||
Depreciation of property and equipment | 203 | 136 | 243 | 49 | ||||||||||||
Amortization of goodwill | 0 | 0 | 278 | |||||||||||||
Amortization of intangible assets | 72 | 53 | 36 | 36 | ||||||||||||
Total operating expenses | 15,844 | 12,303 | 11,473 | 29 | ||||||||||||
Business Group performance before tax | 5,943 | 5,181 | 4,610 | 15 | ||||||||||||
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Financial Businesses
Investment Bank
Business Group reporting (continued) | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
KPIs | ||||||||||||||||
Compensation ratio (%)1 | 52.3 | 53.1 | 50.7 | |||||||||||||
Cost / income ratio (%)2 | 72.9 | 70.5 | 71.3 | |||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross3 | 0.1 | 0.2 | 0.5 | |||||||||||||
Average VaR (10-day 99% confidence, 5 years of historical data) | 420.5 | 346.4 | 358.0 | 21 | ||||||||||||
Capital return and BIS data | ||||||||||||||||
Return on allocated regulatory capital (%)4 | 29.4 | 28.6 | 30.5 | |||||||||||||
BIS risk-weighted assets | 174,599 | 151,313 | 116,512 | 15 | ||||||||||||
Goodwill and excess intangible assets5 | 5,465 | 4,309 | 3,579 | 27 | ||||||||||||
Allocated regulatory capital6 | 22,925 | 19,440 | 15,230 | 18 | ||||||||||||
Additional information | ||||||||||||||||
Deferral (included in adjusted expected credit loss) | 232 | 155 | 85 | 50 | ||||||||||||
Client assets (CHF billion) | 174 | 164 | 147 | 6 | ||||||||||||
Personnel (full-time equivalents) | 21,899 | 18,174 | 16,970 | 20 | ||||||||||||
Components of operating income
The Investment Bank generates operating income from:
– | commissions on agency transactions and spreads or markups on principal transactions; | |
– | fees from debt and equity capital markets transactions, leveraged finance, and the structuring of derivatives and complex transactions; | |
– | mergers and acquisitions and other advisory fees; | |
– | interest income on principal transactions and from the loan portfolio; and |
– | gains and losses on market making, proprietary, and arbitrage positions. |
2006
Key performance indicators
The cost / income ratio rose to 72.9% in 2006 from 70.5% a year earlier. The increase in performance-related personnel expenses and higher general and administrative expenses
was only partly offset by revenue growth in all of our three businesses.
The full-year compensation ratio, at 52.3%, fell 0.8 percentage points between 2005 and 2006. Higher revenues more than offset higher performance-related compensation and increased staff levels.
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Results
This was our most profitable year ever. Pre-tax profit in 2006 was CHF 5,943 million, up 15% from 2005. This result was driven by strong revenues in equities (up 35%), due to the improved market conditions starting in second half 2005 and continuing throughout 2006. It was also helped by our investment banking business (up 31%), which saw strong performances across all regions. The increase in fixed income, rates and currencies (up 14%) reflects progress in our plan to expand our global syndicated finance, mortgage-backed securities, structured credit and commodities businesses as well as strong revenues in foreign exchange and cash and collateral trading. DRCM’s business activities managed on behalf of the Investment Bank achieved revenues at a level consistent with 2005. We also invested in our IT infrastructure and incurred more professional fees.
Operating income
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Financial Businesses
Investment Bank
Operating expenses
2005
Key performance indicators
The cost / income ratio fell to 70.5% in 2005 from 71.3% a year earlier. Revenue growth, driven by strong performances in investment banking and equities, was partly offset by higher personnel expenses.
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Results
Pre-tax profit was CHF 5,181 million, up 12% from 2004. The result was driven by strong revenues in investment banking (up 31%) and in equities (up 18%), reflecting our successful expansion in significant growth areas such as M&A, in particular in Asia Pacific, equity derivatives and prime brokerage. Results in the fixed income, rates and currencies business were slightly lower than last year. Lower revenues in structured credit – mainly driven by lower volumes and following the turmoil in the automotive sector in second quarter 2005 – were offset by an increase in the rates business. At the same time, costs increased as our business continued to expand, partially offset by the cessation of goodwill amortization.
Operating income
Operating expenses
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Financial Businesses
Corporate Center
Corporate Center
In 2006 Corporate Center recorded a pre-tax loss of CHF 1,083 million, compared with the pre-tax gain of CHF 3,856 million in 2005. The swing between 2005 and 2006 was due to the sale of Private Banks & GAM at the end of 2005. The continuing operations of Corporate Center reported a pre-tax loss of CHF 1,087 million, compared with a loss of CHF 708 million in 2005.
Business Group reporting | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Income | 294 | 455 | 112 | (35 | ) | |||||||||||
Credit loss (expense) / recovery1 | (61 | ) | 232 | 286 | ||||||||||||
Total operating income | 233 | 687 | 398 | (66 | ) | |||||||||||
Cash components | 1,133 | 1,059 | 728 | 7 | ||||||||||||
Share-based components2 | 131 | 108 | 68 | 21 | ||||||||||||
Total personnel expenses | 1,264 | 1,167 | 796 | 8 | ||||||||||||
General and administrative expenses | 1,242 | 1,084 | 1,077 | 15 | ||||||||||||
Services (to) / from other business units | (1,978 | ) | (1,730 | ) | (1,509 | ) | (14 | ) | ||||||||
Depreciation of property and equipment | 783 | 857 | 794 | (9 | ) | |||||||||||
Amortization of goodwill | 0 | 0 | 1 | |||||||||||||
Amortization of intangible assets | 9 | 17 | 17 | (47 | ) | |||||||||||
Total operating expenses3 | 1,320 | 1,395 | 1,176 | (5 | ) | |||||||||||
Business Group performance from continuing operations before tax | (1,087 | ) | (708 | ) | (778 | ) | (54 | ) | ||||||||
Business Group performance from discontinued operations before tax | 4 | 4,564 | 396 | (100 | ) | |||||||||||
Business Group performance before tax | (1,083 | ) | 3,856 | (382 | ) | |||||||||||
Additional information | ||||||||||||||||
BIS risk-weighted assets | 8,969 | 8,143 | 9,841 | 10 | ||||||||||||
Personnel (full-time equivalents) | 4,771 | 3,922 | 5,202 | 22 | ||||||||||||
Personnel excluding ITI (full-time equivalents) | 1,716 | 1,370 | 2,848 | 25 | ||||||||||||
Personnel for ITI (full-time equivalents) | 3,055 | 2,552 | 2,354 | 20 | ||||||||||||
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2006
Results
Corporate Center recorded a pre-tax loss from continuing operations of CHF 1,087 million in full-year 2006, compared with a loss of CHF 708 million a year earlier. The increase was mainly driven by a CHF 454 million decline in operating income. The main reason for the decrease was the credit loss expense for 2006, which contrasts with the recovery we recorded in 2005. Additionally, 2006 was negatively impacted by losses from cash flow hedges that were not fully effective.
Operating income
Operating expenses
IT infrastructure
In 2006, the information technology infrastructure cost per average number of financial business employees was CHF 28,072, up CHF 1,341 from CHF 26,731 in 2005, reflecting the impact of supporting businesses in their growth plans. This was partially offset by cost savings from managing our information technology infrastructure centrally.
2005
Results
Corporate Center’s result from continuing operations was a loss of CHF 708 million in full-year 2005, compared to a loss of CHF 778 million a year earlier. The improvement was driven by a CHF 343 million increase in income.
Private Banks & GAM (discontinued operations)
Operating income
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Financial Businesses
Corporate Center
Operating expenses
penses for our brand initiative and corporate real estate. Other businesses were charged CHF 1,730 million compared to CHF 1,509 million, reflecting the further integration of UBS’s IT infrastructure into ITI. Amortization of intangible assets was CHF 17 million in 2005, at the same level as in 2004.
IT infrastructure
In 2005 the information technology infrastructure cost per average number of financial business employees was CHF 26,731, down CHF 1,600 from CHF 28,331 in 2004, showing the positive effects of managing our information technology infrastructure centrally.
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Industrial Holdings
Industrial Holdings
Income statement | ||||||||||||||||
As of or for the year ended | % change from | |||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Continuing operations | ||||||||||||||||
Revenues from Industrial Holdings | 693 | 675 | 640 | 3 | ||||||||||||
Other income | 301 | 561 | 275 | (46 | ) | |||||||||||
Total operating income | 994 | 1,236 | 915 | (20 | ) | |||||||||||
Personnel expenses | 202 | 245 | 185 | (18 | ) | |||||||||||
General and administrative expenses | 187 | 184 | 176 | 2 | ||||||||||||
Services (to) / from other business units | 9 | 14 | 20 | (36 | ) | |||||||||||
Depreciation of property and equipment | 18 | 21 | 22 | (14 | ) | |||||||||||
Amortization of goodwill | 0 | 0 | 27 | |||||||||||||
Amortization of intangible assets | 5 | 4 | 2 | 25 | ||||||||||||
Goods and materials purchased | 295 | 283 | 263 | 4 | ||||||||||||
Total operating expenses | 716 | 751 | 695 | (5 | ) | |||||||||||
Operating profit from continuing operations before tax | 278 | 485 | 220 | (43 | ) | |||||||||||
Tax expense | 35 | 175 | 51 | (80 | ) | |||||||||||
Net profit from continuing operations | 243 | 310 | 169 | (22 | ) | |||||||||||
Discontinued operations | ||||||||||||||||
Profit from discontinued operations before tax | 852 | 496 | 385 | 72 | ||||||||||||
Tax expense / (benefit) | (13 | ) | 87 | 101 | ||||||||||||
Net profit from discontinued operations | 865 | 409 | 284 | 111 | ||||||||||||
Net profit | 1,108 | 719 | 453 | 54 | ||||||||||||
Net profit / (loss) attributable to minority interests | 104 | 207 | 93 | (50 | ) | |||||||||||
from continuing operations | 1 | (24 | ) | (21 | ) | |||||||||||
from discontinued operations | 103 | 231 | 114 | (55 | ) | |||||||||||
Net profit attributable to UBS shareholders | 1,004 | 512 | 360 | 96 | ||||||||||||
from continuing operations | 242 | 334 | 190 | (28 | ) | |||||||||||
from discontinued operations | 762 | 178 | 170 | 328 | ||||||||||||
Additional information | ||||||||||||||||
Private Equity1 | ||||||||||||||||
Investments, at cost2 | 344 | 744 | 1,219 | (54 | ) | |||||||||||
Unrecognized gains | 517 | 264 | 467 | 96 | ||||||||||||
Portfolio fair value | 861 | 1,008 | 1,686 | (15 | ) | |||||||||||
Cost / income ratio (%)3 | 72.0 | 60.8 | 76.0 | |||||||||||||
BIS risk-weighted assets | 443 | 2,035 | 2,773 | (78 | ) | |||||||||||
Personnel (full-time equivalents) | 4,241 | 21,636 | 29,453 | (80 | ) | |||||||||||
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Major participations
Our private equity investments were moved to our Industrial Holdings segment in first quarter 2005, matching our strategy of de-emphasizing and reducing exposure to this asset class while capitalizing on orderly exit opportunities as they arise.
2006
In 2006, the Industrial Holdings segment reported a net profit of CHF 1,108 million, of which CHF 1,004 million was attributable to UBS shareholders.
recorded total divestment gains of CHF 391 million. The level of financial investments available-for-sale fell to CHF 344 million on 31 December 2006 from CHF 744 million a year earlier due to a number of exits which were partially offset by the funding of existing commitments. The fair value of this part of the portfolio decreased to CHF 861 million in 2006 from CHF 1,008 million in 2005 reflecting revaluations and successful divestments. Unfunded commitments on 31 December 2006 were CHF 227 million, down from CHF 367 million at the end of December 2005.
2005
In 2005, the Industrial Holdings segment reported a net profit attributable to UBS shareholders of CHF 512 million. In 2005, it completed the sale of four fully consolidated investments. The operating profit or loss and gains on disposal are presented as discontinued operations for Industrial Holdings.
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Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
Balance sheet and off-balance sheet
UBS’s total assets stood at CHF 2,396.5 billion on 31 December 2006, up from CHF 2,058.3 billion on 31 December 2005. The increase was driven by the growth in the trading portfolio (up CHF 225 billion), collateral trading (up CHF 65 billion) and the loan portfolios (up CHF 33 billion), while positive and negative replacement values each were down CHF 5 billion. Currency movements against the Swiss franc (mainly the 7% depreciation of the US dollar) partially offset the rise. Total liabilities rose due to higher borrowing (up CHF 241 billion), collateral trading liabilities (up CHF 70 billion) and trading liabilities (up CHF 16 billion).
Lending and borrowing
Lending
Borrowing
16.9 billion, mainly in Europe and the US. The amount of long-term debt issued (including financial liabilities designated at fair value) grew by CHF 40.9 billion to CHF 216.3 billion.
Repo and securities borrowing / lending
Trading portfolio
Replacement values
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Other assets / liabilities
Equity
Contractual obligations
The table below summarizes our contractual obligations as of 31 December 2006. All contracts, with the exception of purchase obligations (those where we are committed to purchasing determined volumes of goods and services), are either recognized as liabilities on our balance sheet or, in the case of operating leases, disclosed in note 27 to the Financial Statements.
Off-balance sheet arrangements
In the normal course of business, UBS enters into arrangements that, under IFRS, are not recognized on the balance sheet and do not affect the income statement. These types of arrangements are kept off-balance sheet as long as they do not become onerous, UBS does not incur an obligation from them or become entitled to a specific asset. As soon as such an obligation is incurred, it is recognized on the balance sheet, with the resulting loss recorded in the income statement. It should be noted, however, that the amount recognized on the balance sheet does not, in many instances, represent the full loss potential inherent in such arrangements.
Guarantees
Contractual obligations | ||||||||||||||||
Payment due by period | ||||||||||||||||
CHF million | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||
Long-term debt | 37,086 | 52,263 | 32,435 | 84,421 | ||||||||||||
Capital lease obligations | 154 | 324 | 115 | 0 | ||||||||||||
Operating leases | 1,003 | 1,919 | 1,561 | 4,280 | ||||||||||||
Purchase obligations | 712 | 528 | 279 | 103 | ||||||||||||
Other long-term liabilities | 419 | 2,079 | 39 | 1,775 | ||||||||||||
Total | 39,374 | 57,113 | 34,429 | 90,579 | ||||||||||||
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Balance Sheet and Cash Flows
Balance sheet and off-balance sheet
Retained interests
risks and rewards are transferred to a third party. For further discussion of our securitization activities, see Note 42.2 to the Financial Statements.
Derivative instruments recorded in equity
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Balance Sheet and Cash Flows
Cash Flows
Cash flows
2006
At end-2006, the level of cash and cash equivalents rose to CHF 136.1 billion, up CHF 45.1 billion from CHF 91.0 billion at end-2005.
Operating activities
Investing activities
Financing activities
tive activity (CHF 3.6 billion), and dividend payments (CHF 3.2 billion). In 2005, we also had a net cash inflow of CHF 64.5 billion from our financing activities. The difference between the two years was mainly due to a net decrease in issuance of long-term debt and money market paper by CHF 14.4 billion in 2006.
2005
At end-2005, the level of cash and cash equivalents rose to CHF 91.0 billion, up CHF 3.9 billion from CHF 87.1 billion at end-2004.
Operating activities
Investing activities
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Balance Sheet and Cash Flows
Cash Flows
Financing activities
That inflow was partly offset by outflows attributable to net movements in treasury shares and own equity derivative activity (CHF 2.4 billion), and dividend payments (CHF 3.1 billion). In contrast, in 2004, we also had a net cash inflow of CHF 39.8 billion from our financing activities. The difference between the two years was mainly due to the fact that long-term debt issuance increased by CHF 25.1 billion in 2005.
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Accounting Standards and Policies
Accounting principles
Accounting principles
The UBS Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS). As a US listed company, we also provide a description in Note 42 to the Financial Statements of the significant differences which would arise were our accounts to be presented under the United States Generally Accepted Accounting Principles (US GAAP), and a detailed reconciliation of equity attributable to shareholders under IFRS and net profit to US GAAP.
Standards for management accounting
Our management reporting systems and policies determine the revenues and expenses directly attributable to each business unit. The presentation of the business segments reflects UBS’s organizational structure and management responsibilities. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.
Transactions between Business Units are conducted at internally agreed transfer prices or at arm’s length. Corporate Center expenses are allocated to the operating Business Units to the extent appropriate.
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Credit loss result recorded at Business Group / Unit level | ||||||||||||||||||||
CHF million | Global Wealth Management & Business Banking | Investment Bank | UBS total | |||||||||||||||||
Wealth Management | ||||||||||||||||||||
International & | Wealth | Business Banking | ||||||||||||||||||
For the year ended 31.12.06 | Switzerland | Management US | Switzerland | |||||||||||||||||
Expected credit loss | (78 | ) | (8 | ) | (327 | ) | (171 | ) | (584 | ) | ||||||||||
Deferral | 49 | 8 | 512 | 232 | 801 | |||||||||||||||
Adjusted expected credit loss | (29 | ) | 0 | 185 | 61 | 217 | ||||||||||||||
Credit loss (expense) / recovery | 1 | (1 | ) | 109 | 47 | 156 | ||||||||||||||
Balancing item recorded as credit loss (expense) / recovery in Corporate Center | (61 | ) | ||||||||||||||||||
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Accounting Standards and Policies
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare our Financial Statements in accordance with IFRS, and provide a reconciliation to generally accepted accounting principles in the United States (US GAAP). The application of certain of these accounting principles requires considerable judgment based upon estimates and assumptions that involve significant uncertainty at the time they are made. Changes in assumptions may have a significant impact on the Financial Statements in the periods where assumptions are changed. Accounting treatments where significant assumptions and estimates are used are discussed in this section, as a guide to understanding how their application affects our reported results. A broader and more detailed description of the accounting policies we employ is shown in Note 1 to the Financial Statements.
Fair value of financial instruments
Financial assets and financial liabilities in our trading portfolio, financial assets and liabilities designated at fair value and derivative instruments are recorded at fair value on the balance sheet, with changes in fair value recorded in net trading income in the income statement. Key judgments affecting this accounting policy relate to how we determine fair value for such assets and liabilities.
Valuation models are used primarily to value derivatives transacted in the over-the-counter market, including credit derivatives, and unlisted securities with embedded derivatives. All valuation models are validated before they are used as a basis for financial reporting, and periodically reviewed thereafter, by qualified personnel independent of the area that created the model. Wherever possible, we compare valuations derived from models with quoted prices of similar financial instruments, and with actual values when realized, in order to further validate and calibrate our models.
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Recognition of deferred Day 1 profit and loss
A closely related issue to determining fair value of financial instruments is the recognition of deferred Day 1 profit and loss. We have entered into transactions, some of which will mature in the long term, where we determine fair value using valuation models for which not all inputs are market observable prices or rates. We initially recognize such a financial instrument at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Such a difference between the transaction price and the model value is commonly referred to as “Day 1 P / L”. We do not immediately recognize that initial difference, usually a gain, in profit and loss because the applicable accounting literature prohibits immediate recognition of Day 1 profit. The accounting literature does not, however, address its subsequent recognition prior to the time when fair value can be determined using market observable inputs or by reference to prices for similar instruments in active markets. It also does not address subsequent measurement of these instruments and recognition of subsequent fair value changes indicated by the model.
Special Purpose Entities and securitizations
UBS sponsors the formation of Special Purpose Entities (SPEs) primarily to allow clients to hold investments in separate legal entities, to allow clients to jointly invest in alternative assets, for asset securitization transactions, and for buying or selling credit protection. In accordance with IFRS we do not consolidate SPEs that we do not control. In order to determine whether we control an SPE or not, we have to make judgments about risks and rewards and assess our ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when
considered together make it difficult to reach a clear conclusion. When assessing whether we have to consolidate an SPE we evaluate a range of factors, including whether (a) the activities of the SPE are being conducted on our behalf according to our specific business needs so that we obtain the benefits from the SPE’s operations, or (b) we have decision-making powers to obtain the majority of the benefits of the activities of the SPE, or UBS has delegated these decision-making powers by setting up an autopilot mechanism, or (c) we have the rights to obtain the majority of the benefits of the activities of an SPE and therefore may be exposed to risks arising from the activities of the SPE, or (d) we retain the majority of the residual or ownership risks related to the SPE or its assets in order to obtain the benefits from its activities. We consolidate an SPE if our assessment of the relevant factors indicates that we control the SPE.
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Accounting Standards and Policies
Critical accounting policies
We do not consolidate SPEs for securitization if UBS has no control over the assets and no longer retains any significant exposure (for gain or loss) to the income or investment returns on the assets sold to the SPE or the proceeds of their liquidation. This type of SPE is a bankruptcy remote entity – if UBS were to go bankrupt the holders of the securities would clearly be owners of the asset, while if the SPE were to go bankrupt the securities holders would have no recourse to UBS.
Allowances and provisions for credit losses
Financial assets accounted for at amortized cost are assessed for objective evidence of impairment and required allowances are estimated in accordance with IAS 39. Impairment exists if the book value of a claim or a portfolio of claims exceeds the present value of the cash flows actually expected in future periods. These cash flows include scheduled interest payments, principal repayments, or other payments due (for example from guarantees), including liquidation of collateral where available.
make assumptions both to define the way we model inherent losses and to determine the required input parameters, based on historical experience and current economic conditions.
Equity compensation
IFRS 2, Share-based Payments, addresses the accounting for share-based employee compensation and was adopted by UBS on 1 January 2005 on a fully retrospective basis. The effect of applying IFRS 2 is disclosed in Note 1b) to the Financial Statements, and further information on UBS equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 32.
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Management’s report on internal control over financial reporting
Management’s report on internal control
over financial reporting
The Board of Directors and management of UBS AG (UBS) are responsible for establishing and maintaining adequate internal control over financial reporting. UBS’s internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards (IFRS) including a reconciliation of net profit and equity attributable to UBS shareholders to US Generally Accepted Accounting Principles (US GAAP).
– | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; | |
– | Provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of UBS management; and | |
– | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
degree of compliance with the policies or procedures may deteriorate.
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Financial Statements
Report of Independent Registered Public Accounting
Firm – Internal Control over Financial Reporting
Report of Independent Registered Public Accounting |
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Financial Statements
Income Statement |
Income Statement | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
CHF million, except per share data | Note | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||||
Continuing operations | ||||||||||||||||||||
Interest income | 3 | 87,401 | 59,286 | 39,228 | 47 | |||||||||||||||
Interest expense | 3 | (80,880 | ) | (49,758 | ) | (27,484 | ) | 63 | ||||||||||||
Net interest income | 3 | 6,521 | 9,528 | 11,744 | (32 | ) | ||||||||||||||
Credit loss (expense) / recovery | 156 | 375 | 241 | (58 | ) | |||||||||||||||
Net interest income after credit loss expense | 6,677 | 9,903 | 11,985 | (33 | ) | |||||||||||||||
Net fee and commission income | 4 | 25,881 | 21,436 | 18,506 | 21 | |||||||||||||||
Net trading income | 3 | 13,318 | 7,996 | 4,902 | 67 | |||||||||||||||
Other income | 5 | 1,596 | 1,122 | 853 | 42 | |||||||||||||||
Revenues from industrial holdings | 693 | 675 | 640 | 3 | ||||||||||||||||
Total operating income | 48,165 | 41,132 | 36,886 | 17 | ||||||||||||||||
Personnel expenses | 6 | 23,671 | 20,148 | 17,891 | 17 | |||||||||||||||
General and administrative expenses | 7 | 8,116 | 6,632 | 6,563 | 22 | |||||||||||||||
Depreciation of property and equipment | 15 | 1,263 | 1,261 | 1,284 | 0 | |||||||||||||||
Amortization of goodwill | 16 | 0 | 0 | 673 | ||||||||||||||||
Amortization of other intangible assets | 16 | 153 | 131 | 170 | 17 | |||||||||||||||
Goods and materials purchased | 295 | 283 | 263 | 4 | ||||||||||||||||
Total operating expenses | 33,498 | 28,455 | 26,844 | 18 | ||||||||||||||||
Operating profit from continuing operations before tax | 14,667 | 12,677 | 10,042 | 16 | ||||||||||||||||
Tax expense | 22 | 2,786 | 2,471 | 2,155 | 13 | |||||||||||||||
Net profit from continuing operations | 11,881 | 10,206 | 7,887 | 16 | ||||||||||||||||
Discontinued operations | ||||||||||||||||||||
Operating profit from discontinued operations before tax | 38 | 856 | 5,060 | 781 | (83 | ) | ||||||||||||||
Tax expense / (benefit) | 22 | (13 | ) | 576 | 198 | |||||||||||||||
Net profit from discontinued operations | 869 | 4,484 | 583 | (81 | ) | |||||||||||||||
Net profit | 12,750 | 14,690 | 8,470 | (13 | ) | |||||||||||||||
Net profit attributable to minority interests | 493 | 661 | 454 | (25 | ) | |||||||||||||||
from continuing operations | 390 | 430 | 340 | (9 | ) | |||||||||||||||
from discontinued operations | 103 | 231 | 114 | (55 | ) | |||||||||||||||
Net profit attributable to UBS shareholders | 12,257 | 14,029 | 8,016 | (13 | ) | |||||||||||||||
from continuing operations | 11,491 | 9,776 | 7,547 | 18 | ||||||||||||||||
from discontinued operations | 766 | 4,253 | 469 | (82 | ) | |||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic earnings per share (CHF) | 8 | 6.20 | 6.97 | 3.89 | (11 | ) | ||||||||||||||
from continuing operations | 5.81 | 4.85 | 3.66 | 20 | ||||||||||||||||
from discontinued operations | 0.39 | 2.12 | �� | 0.23 | (82 | ) | ||||||||||||||
Diluted earnings per share (CHF) | 8 | 5.95 | 6.68 | 3.70 | (11 | ) | ||||||||||||||
from continuing operations | 5.58 | 4.66 | 3.49 | 20 | ||||||||||||||||
from discontinued operations | 0.37 | 2.02 | 0.21 | (82 | ) | |||||||||||||||
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Balance Sheet |
Balance Sheet | |||||||||||||||||
% change from | |||||||||||||||||
CHF million | Note | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||||||
Assets | |||||||||||||||||
Cash and balances with central banks | 3,495 | 5,359 | (35 | ) | |||||||||||||
Due from banks | 10 | 50,426 | 33,644 | 50 | |||||||||||||
Cash collateral on securities borrowed | 11 | 351,590 | 288,435 | 22 | |||||||||||||
Reverse repurchase agreements | 11 | 405,834 | 404,432 | 0 | |||||||||||||
Trading portfolio assets | 12 | 627,036 | 499,297 | 26 | |||||||||||||
Trading portfolio assets pledged as collateral | 12 | 251,478 | 154,759 | 62 | |||||||||||||
Positive replacement values | 23 | 328,445 | 333,782 | (2 | ) | ||||||||||||
Financial assets designated at fair value | 9 | 5,930 | 1,153 | 414 | |||||||||||||
Loans | 10 | 312,521 | 279,910 | 12 | |||||||||||||
Financial investments available-for-sale | 13 | 8,937 | 6,551 | 36 | |||||||||||||
Accrued income and prepaid expenses | 10,361 | 8,918 | 16 | ||||||||||||||
Investments in associates | 14 | 1,523 | 2,956 | (48 | ) | ||||||||||||
Property and equipment | 15 | 6,913 | 9,423 | (27 | ) | ||||||||||||
Goodwill and other intangible assets | 16 | 14,773 | 13,486 | 10 | |||||||||||||
Other assets | 17,22 | 17,249 | 16,243 | 6 | |||||||||||||
Total assets | 2,396,511 | 2,058,348 | 16 | ||||||||||||||
Liabilities | |||||||||||||||||
Due to banks | 18 | 203,689 | 124,328 | 64 | |||||||||||||
Cash collateral on securities lent | 11 | 63,088 | 59,938 | 5 | |||||||||||||
Repurchase agreements | 11 | 545,480 | 478,508 | 14 | |||||||||||||
Trading portfolio liabilities | 12 | 204,773 | 188,631 | 9 | |||||||||||||
Negative replacement values | 23 | 332,533 | 337,663 | (2 | ) | ||||||||||||
Financial liabilities designated at fair value | 19 | 145,687 | 117,401 | 24 | |||||||||||||
Due to customers | 18 | 570,565 | 466,907 | 22 | |||||||||||||
Accrued expenses and deferred income | 21,527 | 18,791 | 15 | ||||||||||||||
Debt issued | 19 | 190,143 | 160,710 | 18 | |||||||||||||
Other liabilities | 20,21,22 | 63,251 | 53,837 | 17 | |||||||||||||
Total liabilities | 2,340,736 | 2,006,714 | 17 | ||||||||||||||
Equity | |||||||||||||||||
Share capital | 211 | 871 | (76 | ) | |||||||||||||
Share premium | 9,870 | 9,992 | (1 | ) | |||||||||||||
Net income recognized directly in equity, net of tax | 815 | (182 | ) | ||||||||||||||
Revaluation reserve from step acquisitions, net of tax | 38 | 101 | (62 | ) | |||||||||||||
Retained earnings | 49,151 | 44,105 | 11 | ||||||||||||||
Equity classified as obligation to purchase own shares | (185 | ) | (133 | ) | (39 | ) | |||||||||||
Treasury shares | (10,214 | ) | (10,739 | ) | 5 | ||||||||||||
Equity attributable to UBS shareholders | 49,686 | 44,015 | 13 | ||||||||||||||
Equity attributable to minority interests | 6,089 | 7,619 | (20 | ) | |||||||||||||
Total equity | 55,775 | 51,634 | 8 | ||||||||||||||
Total liabilities and equity | 2,396,511 | 2,058,348 | 16 | ||||||||||||||
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Statement of Changes in Equity |
Statement of Changes in Equity | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Share capital | ||||||||||||
Balance at the beginning of the year | 871 | 901 | 946 | |||||||||
Issue of share capital | 1 | 2 | 2 | |||||||||
Capital repayment by par value reduction | (631 | ) | ||||||||||
Cancellation of second trading line treasury shares | (30 | ) | (32 | ) | (47 | ) | ||||||
Balance at the end of the year | 211 | 871 | 901 | |||||||||
Share premium | ||||||||||||
Balance at the beginning of the year | 9,992 | 9,231 | 7,595 | |||||||||
Premium on shares issued and warrants exercised | 46 | 36 | 70 | |||||||||
Net premium / (discount) on treasury share and own equity derivative activity | (271 | ) | (309 | ) | (20 | ) | ||||||
Employee share and share options plans | (508 | ) | 768 | 1,244 | ||||||||
Tax benefits from exercise of employee share options | 611 | 266 | 342 | |||||||||
Balance at the end of the year | 9,870 | 9,992 | 9,231 | |||||||||
Net income recognized directly in equity, net of tax | ||||||||||||
Foreign currency translation | ||||||||||||
Balance at the beginning of the year | (432 | ) | (2,520 | ) | (1,694 | ) | ||||||
Movements during the year | (1,186 | ) | 2,088 | (826 | ) | |||||||
Subtotal – balance at the end of the year1 | (1,618 | ) | (432 | ) | (2,520 | ) | ||||||
Net unrealized gains / (losses) on financial investments available-for-sale, net of tax | ||||||||||||
Balance at the beginning of the year | 931 | 761 | 399 | |||||||||
Net unrealized gains / (losses) on financial investments available-for-sale | 2,574 | 463 | 501 | |||||||||
Impairment charges reclassified to the income statement | 19 | 96 | 192 | |||||||||
Realized gains reclassified to the income statement | (649 | ) | (396 | ) | (353 | ) | ||||||
Realized losses reclassified to the income statement | 1 | 7 | 22 | |||||||||
Subtotal – balance at the end of the year | 2,876 | 931 | 761 | |||||||||
Changes in fair value of derivative instruments designated as cash flow hedges, net of tax | ||||||||||||
Balance at the beginning of the year | (681 | ) | (322 | ) | (144 | ) | ||||||
Net unrealized gains / (losses) on the revaluation of cash flow hedges | 1 | (474 | ) | (223 | ) | |||||||
Net unrealized (gains) / losses reclassified to the income statement | 237 | 115 | 45 | |||||||||
Subtotal – balance at the end of the year | (443 | ) | (681 | ) | (322 | ) | ||||||
Balance at the end of the year | 815 | (182 | ) | (2,081 | ) | |||||||
Revaluation reserve from step acquisitions, net of tax | ||||||||||||
Balance at the beginning of the year | 101 | 90 | ||||||||||
Movements during the year | (63 | ) | 11 | 90 | ||||||||
Balance at the end of the year | 38 | 101 | 90 | |||||||||
Retained earnings | ||||||||||||
Balance at the beginning of the year | 44,105 | 36,692 | 35,951 | |||||||||
Net profit attributable to UBS shareholders for the year | 12,257 | 14,029 | 8,016 | |||||||||
Dividends paid2 | (3,214 | ) | (3,105 | ) | (2,806 | ) | ||||||
Cancellation of second trading line treasury shares | (3,997 | ) | (3,511 | ) | (4,469 | ) | ||||||
Balance at the end of the year | 49,151 | 44,105 | 36,692 | |||||||||
Equity classified as obligation to purchase own shares | ||||||||||||
Balance at the beginning of the year | (133 | ) | (96 | ) | (49 | ) | ||||||
Movements during the year | (52 | ) | (37 | ) | (47 | ) | ||||||
Balance at the end of the year | (185 | ) | (133 | ) | (96 | ) | ||||||
Treasury shares | ||||||||||||
Balance at the beginning of the year | (10,739 | ) | (11,105 | ) | (9,654 | ) | ||||||
Acquisitions | (8,314 | ) | (8,375 | ) | (9,368 | ) | ||||||
Disposals | 4,812 | 5,198 | 3,401 | |||||||||
Cancellation of second trading line treasury shares | 4,027 | 3,543 | 4,516 | |||||||||
Balance at the end of the year | (10,214 | ) | (10,739 | ) | (11,105 | ) | ||||||
Equity attributable to UBS shareholders | 49,686 | 44,015 | 33,632 | |||||||||
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Statement of Changes in Equity (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Equity attributable to minority interests | ||||||||||||
Balance at the beginning of the year | 7,619 | 5,426 | 3,879 | |||||||||
Issuance of preferred securities | 1,219 | 1,539 | ||||||||||
Other increases | 131 | 44 | 1,922 | |||||||||
Decreases and dividend payments | (3,191 | ) | (595 | ) | (523 | ) | ||||||
Foreign currency translation | (182 | ) | 544 | (306 | ) | |||||||
Minority interest in net profit | 493 | 661 | 454 | |||||||||
Balance at the end of the year | 6,089 | 7,619 | 5,426 | |||||||||
Total equity | 55,775 | 51,634 | 39,058 | |||||||||
Shares issued | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Balance at the beginning of the year | 2,177,265,044 | 2,253,716,354 | 2,366,093,528 | (3 | ) | |||||||||||
Issue of share capital | 2,208,242 | 3,418,878 | 6,586,826 | (35 | ) | |||||||||||
Cancellation of second trading line treasury shares | (74,200,000 | ) | (79,870,188 | ) | (118,964,000 | ) | 7 | |||||||||
Balance at the end of the year | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | (3 | ) | |||||||||||
Treasury shares | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
Number of shares | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Balance at the beginning of the year | 208,519,748 | 249,326,620 | 273,482,454 | (16 | ) | |||||||||||
Acquisitions | 117,160,339 | 156,436,070 | 192,278,008 | (25 | ) | |||||||||||
Disposals | (87,004,388 | ) | (117,372,754 | ) | (97,469,842 | ) | 26 | |||||||||
Cancellation of second trading line treasury shares | (74,200,000 | ) | (79,870,188 | ) | (118,964,000 | ) | 7 | |||||||||
Balance at the end of the year | 164,475,699 | 208,519,748 | 249,326,620 | (21 | ) | |||||||||||
In July 2006, UBS made a distribution of CHF 0.60 per share to shareholders which reduced the par value of UBS shares from CHF 0.80 to CHF 0.20 per share. At the same time, UBS split its share 2-for-1, resulting in a new par value of CHF 0.10 per share.
share capital by the number of shares purchased for cancellation.
Statement of Recognized Income and Expense | ||||||||||||||||||||||||||||||||||||
For the year ended | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||||||||||||||||||||
Attributable to | Attributable to | Attributable to | ||||||||||||||||||||||||||||||||||
UBS | UBS | UBS | ||||||||||||||||||||||||||||||||||
share- | minority | share- | minority | share- | minority | |||||||||||||||||||||||||||||||
CHF million | holders | interests | Total | holders | interests | Total | holders | interests | Total | |||||||||||||||||||||||||||
Net unrealized gains / (losses) on financial investments available-for-sale, before tax | 2,610 | 9 | 2,619 | 152 | (58 | ) | 94 | 444 | 79 | 523 | ||||||||||||||||||||||||||
Change in fair value of derivative instruments designated as cash flow hedges, before tax | 332 | 0 | 332 | (479 | ) | 0 | (479 | ) | (238 | ) | 0 | (238 | ) | |||||||||||||||||||||||
Foreign currency translation | (1,186 | ) | (21 | ) | (1,207 | ) | 2,088 | 62 | 2,150 | (826 | ) | (184 | ) | (1,010 | ) | |||||||||||||||||||||
Tax on items transferred to / (from) equity | (759 | ) | 0 | (759 | ) | 138 | 0 | 138 | (50 | ) | 0 | (50 | ) | |||||||||||||||||||||||
Net income recognized directly in equity | 997 | (12 | ) | 985 | 1,899 | 4 | 1,903 | (670 | ) | (105 | ) | (775 | ) | |||||||||||||||||||||||
Net income recognized in the income statement | 12,257 | 493 | 12,750 | 14,029 | 661 | 14,690 | 8,016 | 454 | 8,470 | |||||||||||||||||||||||||||
Total recognized income and expense | 13,254 | 481 | 13,735 | 15,928 | 665 | 16,593 | 7,346 | 349 | 7,695 | |||||||||||||||||||||||||||
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Statement of Cash Flows | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Cash flow from / (used in) operating activities | ||||||||||||
Net profit | 12,750 | 14,690 | 8,470 | |||||||||
Adjustments to reconcile net profit to cash flow from / (used in) operating activities | ||||||||||||
Non-cash items included in net profit and other adjustments: | ||||||||||||
Depreciation of property and equipment | 1,325 | 1,556 | 1,576 | |||||||||
Amortization of goodwill and other intangible assets | 196 | 340 | 1,066 | |||||||||
Credit loss expense / (recovery) | (156 | ) | (374 | ) | (241 | ) | ||||||
Equity in income of associates | (117 | ) | (152 | ) | (67 | ) | ||||||
Deferred tax expense / (benefit) | (517 | ) | (382 | ) | 171 | |||||||
Net loss / (gain) from investing activities | (2,092 | ) | (5,062 | ) | (1,008 | ) | ||||||
Net loss / (gain) from financing activities | 3,870 | 4,025 | 1,203 | |||||||||
Net (increase) / decrease in operating assets: | ||||||||||||
Net due from / to banks | 80,269 | (1,690 | ) | (7,471 | ) | |||||||
Reverse repurchase agreements and cash collateral on securities borrowed | (61,382 | ) | (125,097 | ) | (40,752 | ) | ||||||
Trading portfolio, net replacement values and financial assets designated at fair value | (177,087 | ) | (74,799 | ) | (19,733 | ) | ||||||
Loans / due to customers | 64,029 | 47,265 | 13,108 | |||||||||
Accrued income, prepaid expenses and other assets | (4,536 | ) | (1,227 | ) | (10,809 | ) | ||||||
Net increase / (decrease) in operating liabilities: | ||||||||||||
Repurchase agreements, cash collateral on securities lent | 66,370 | 64,558 | 9,753 | |||||||||
Accrued expenses and other liabilities | 14,975 | 15,536 | 22,019 | |||||||||
Income taxes paid | (2,607 | ) | (2,394 | ) | (1,345 | ) | ||||||
Net cash flow from / (used in) operating activities | (4,710 | ) | (63,207 | ) | (24,060 | ) | ||||||
Cash flow from / (used in) investing activities | ||||||||||||
Investments in subsidiaries and associates | 2,856 | (1,540 | ) | (2,511 | ) | |||||||
Disposal of subsidiaries and associates | 1,154 | 3,240 | 1,277 | |||||||||
Purchase of property and equipment | (1,793 | ) | (1,892 | ) | (1,149 | ) | ||||||
Disposal of property and equipment | 499 | 270 | 704 | |||||||||
Net (investment in) / divestment of financial investments available-for-sale | 1,723 | (2,487 | ) | 703 | ||||||||
Net cash flow from / (used in) investing activities | 4,439 | (2,409 | ) | (976 | ) | |||||||
Cash flow from / (used in) financing activities | ||||||||||||
Net money market paper issued / (repaid) | 16,921 | 23,221 | 21,379 | |||||||||
Net movements in treasury shares and own equity derivative activity | (3,624 | ) | (2,416 | ) | (4,999 | ) | ||||||
Capital issuance | 1 | 2 | 2 | |||||||||
Capital repayment by par value reduction | (631 | ) | 0 | 0 | ||||||||
Dividends paid | (3,214 | ) | (3,105 | ) | (2,806 | ) | ||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 97,675 | 76,307 | 51,211 | |||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (59,951 | ) | (30,457 | ) | (24,717 | ) | ||||||
Increase in minority interests1 | 1,331 | 1,572 | 85 | |||||||||
Dividend payments to / purchase from minority interests | (1,072 | ) | (575 | ) | (332 | ) | ||||||
Net cash flow from / (used in) financing activities | 47,436 | 64,549 | 39,823 | |||||||||
Effects of exchange rate differences | (2,117 | ) | 5,018 | (1,052 | ) | |||||||
Net increase / (decrease) in cash and cash equivalents | 45,048 | 3,951 | 13,735 | |||||||||
Cash and cash equivalents, beginning of the year | 91,042 | 87,091 | 73,356 | |||||||||
Cash and cash equivalents, at the end of the year | 136,090 | 91,042 | 87,091 | |||||||||
Cash and cash equivalents comprise: | ||||||||||||
Cash and balances with central banks | 3,495 | 5,359 | 6,036 | |||||||||
Money market paper2 | 87,144 | 57,826 | 45,523 | |||||||||
Due from banks with original maturity of less than three months | 45,451 | 27,857 | 35,532 | |||||||||
Total | 136,090 | 91,042 | 87,091 | |||||||||
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Statement of Cash Flows (continued) | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Additional information | ||||||||||||
Cash received as interest | 79,805 | 53,117 | 36,063 | |||||||||
Cash paid as interest | 76,109 | 44,392 | 24,192 | |||||||||
Cash received as dividends on equities (incl. Associates, see Note 14) | 4,839 | 3,869 | 2,934 | |||||||||
Significant non-cash investing and financing activities | ||||||||||||
Motor-Columbus, Baden, from valuation at equity to full consolidation | ||||||||||||
Financial investments available-for-sale | 644 | |||||||||||
Investments in associates | 261 | |||||||||||
Property and equipment | 2,083 | |||||||||||
Goodwill and other intangible assets | 1,194 | |||||||||||
Debt issued | 727 | |||||||||||
Minority interests | 1,742 | |||||||||||
Investment funds transferred to other liabilities according to IAS 32 | ||||||||||||
Minority interests | 336 | |||||||||||
Private Banks and GAM, deconsolidation | ||||||||||||
Financial investments available-for-sale | 60 | |||||||||||
Property and equipment | 180 | |||||||||||
Goodwill and other intangible assets | 362 | |||||||||||
Debt issued | 5 | |||||||||||
Private equity investments, deconsolidation | ||||||||||||
Property and equipment | 264 | 248 | ||||||||||
Goodwill and other intangible assets | 3 | |||||||||||
Minority interests | 62 | 27 | ||||||||||
Acquisitions of businesses | ||||||||||||
Financial investments available-for-sale | 35 | |||||||||||
Property and equipment | 112 | |||||||||||
Goodwill and other intangible assets | 377 | |||||||||||
Minority interests | 6 | |||||||||||
Motor-Columbus, deconsolidation | ||||||||||||
Financial investments available-for-sale | 178 | |||||||||||
Property and equipment | 2,229 | |||||||||||
Goodwill and other intangible assets | 951 | |||||||||||
Debt issued | 718 | |||||||||||
Minority interests | 2,057 | |||||||||||
Acquisition of ABN AMRO’s Global Futures and Options Business | ||||||||||||
Property and equipment | 13 | |||||||||||
Goodwill and other intangible assets | 428 | |||||||||||
Acquisition of Banco Pactual | ||||||||||||
Financial investments available-for-sale | 36 | |||||||||||
Property and equipment | 9 | |||||||||||
Goodwill and other intangible assets | 2,218 | |||||||||||
Debt issued | 1,496 | |||||||||||
Acquisition of Piper Jaffray | ||||||||||||
Goodwill and other intangible assets | 605 | |||||||||||
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Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Significant Accounting Policies
1) Basis of accounting
UBS AG and subsidiaries (“UBS” or the “Group”) provide a broad range of financial services including advisory services, underwriting, financing, market making, asset management and brokerage on a global level, and retail banking in Switzerland. The Group was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzerland merged. The merger was accounted for using the uniting of interests method of accounting.
2) Use of estimates in the preparation of Financial Statements
In preparing the Financial Statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgment are inherent in the formation of estimates. Actual results in the future could differ from such estimates, and the differences may be material to the Financial Statements.
3) Subsidiaries and associates
The Financial Statements comprise those of the parent company (UBS AG) and its subsidiaries including certain special purpose entities, presented as a single economic entity. The effects of intra-group transactions are eliminated in preparing the Financial Statements. Subsidiaries including special purpose entities that are directly or indirectly controlled by the Group are consolidated. 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 (i.e. loss of control).
4) Recognition and derecognition of financial instruments
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5) Determination of fair value
For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations. For all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist and valuation models. UBS uses widely recognized valuation models for determining fair values of common and more simple financial instruments like options or interest rate and currency swaps. For these financial instruments, inputs into models are market-observable.
6) Trading portfolio
Trading portfolio assets consist of money market paper, other debt instruments, including traded loans, equity instruments, precious metals and other commodities owned by the Group (“long” positions). Trading portfolio liabilities consist of obligations to deliver financial instruments such as money market paper, other debt instruments and equity instruments which the Group has sold to third parties but does not own (“short” positions).
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Financial Statements
Notes to the Financial Statements
7) Financial assets and Financial liabilities designated at fair value through profit or loss (“Fair Value Option”)
8) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative financial assets that are not classified as held for trading, designated at fair value through profit or loss, or loans and receivables. They are recognized on a settlement date basis. Financial investments available-for-sale are instruments that, in management’s opinion, may be sold in response to or in anticipation of needs for liquidity or changes in interest rates, foreign exchange rates or equity prices. Financial investments available-for-sale consist mainly of equity instruments,
including certain private equity investments. In addition, certain debt instruments are classified as financial investments available-for-sale.
9) Loans
Loans include loans originated by the Group where money is provided directly to the borrower, participation in a loan from another lender and purchased loans that are not quoted in an active market and for which no intention of immediate or short-term resale exists. Originated and purchased loans that are intended to be sold in the short term are generally recorded as Trading portfolio assets.
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10) Allowance and provision for credit losses
An allowance or provision for credit losses is established if there is objective evidence that the Group will be unable to collect all amounts due on a claim according to the original contractual terms or the equivalent value. A ‘claim’ means a loan carried at amortized cost, or a commitment such as a letter of credit, a guarantee, a commitment to extend credit or other credit products.
11) Securitizations
UBS securitizes various consumer and commercial financial assets, which generally results in the sale of these assets to special purpose entities, which in turn issue securities to investors. 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. Gains or losses on securitization are recorded in Net trading income.
12) Securities borrowing and lending
Securities borrowing and securities lending transactions are generally entered into on a collateralized basis. In such transactions, UBS typically lends or borrows securities in exchange for securities or cash collateral. Additionally, UBS borrows securities from its clients’ custody accounts in exchange for a fee. The majority of securities lending and borrowing agree-
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Financial Statements
Notes to the Financial Statements
ments involve shares, and the remainder typically involve bonds and notes. The transactions are conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. UBS monitors the market value of the securities received or delivered on a daily basis and requests or provides additional collateral or returns or recalls surplus collateral in accordance with the underlying agreements.
13) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (Reverse repurchase agreements) and securities sold under agreements to repurchase (Repurchase agreements) are generally treated as collateralized financing transactions. Nearly all repurchase and reverse repurchase agreements involve debt instruments, such as bonds, notes or money market paper. The transactions are conducted under standard agreements employed by financial market participants and are undertaken with counterparties subject to UBS’s normal credit risk control processes. UBS monitors the market value of the securities received or delivered on a daily basis and requests or provides additional collateral or returns or recalls surplus collateral in accordance with the underlying agreements.
14) Derivative instruments and hedge accounting
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highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, and b) actual results of the hedge are within a range of 80% to 125%. In the case of hedging a forecast transaction, the transaction must have a high probability of occurring and must present an exposure to variations in cash flows that could ultimately affect the reported Net profit or loss. The Group discontinues hedge accounting when it determines that 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, is sold or repaid; or when a forecast transaction is no longer deemed highly probable.
derivative previously reported in Equity remains there until the committed or forecast transaction occurs or is no longer expected to occur, at which point it is transferred to the income statement.
15) Cash and cash equivalents
Cash and cash equivalents consist of Cash and balances with central banks, balances included in Due from banks with original maturity of less than three months, and Money market paper included in Trading portfolio assets and Financial investments available-for-sale.
16) Physical commodities
Physical commodities (precious metals, base metals, energy and other commodities) held by UBS as a result of its broker-trader activities are accounted for at fair value less costs to sell and presented within the Trading portfolio. Changes in fair value less costs to sell are reflected in Net trading income.
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Financial Statements
Notes to the Financial Statements
17) Property and equipment
Properties, excluding land | Not exceeding 50 years | |
Leasehold improvements | Residual lease term, but not exceeding 10 years | |
Other machines and equipment | Not exceeding 10 years | |
IT, software and communication | Not exceeding 5 years | |
Property formerly own-used or leased to third parties under an operating lease and equipment the Group has de-
cided to sell are classified as assets held for sale and recorded in Other assets. Upon classification as held for sale, they are no longer depreciated and are carried at the lower of book value or fair value less costs to sell. Foreclosed properties are included in Properties held for sale and recorded in Other assets. They are carried at the lower of cost and net realizable value.
18) Goodwill and other intangible assets
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19) Income taxes
20) Debt issued
al prices and which are not hedged by derivative instruments. Those hybrids are still subject to bifurcation of the embedded derivative.
21) Retirement benefits
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Financial Statements
Notes to the Financial Statements
The Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related service cost and, where applicable, past service cost.
a) | 10% of present value of the defined benefit obligation at that date (before deducting plan assets); and | |
b) | 10% of the fair value of any plan assets at that date. | |
The unrecognized actuarial gains and losses exceeding the greater of these two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.
22) Equity participation plans
awards into alternative investments. These plans are treated as cash-settled. UBS no longer provides this roll-over option to its employees.
23) Equity, treasury shares and contracts on UBS shares
24) Discontinued operations and non-current assets held for sale
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their present condition subject to terms that are usual and customary for sales of such assets (or disposal groups) and their sale is considered highly probable. These assets are measured at the lower of their carrying amount and fair value less costs to sell.
25) Leasing
26) Fee income
nized when the service has been completed. Performance-linked fees or fee components are recognized when the recognition criteria are fulfilled.
27) Foreign currency translation
28) Earnings per share (EPS)
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Financial Statements
Notes to the Financial Statements
29) Segment reporting
30) Revenues from Industrial Holdings and Goods and materials purchased
b) Changes in accounting policies, comparability and other adjustments
Effective in 2006
year 2006. In addition, effective 1 January 2006, the disclosure requirements for financial instruments designated at fair value through profit or loss have been amended due to the revision of IAS 32Financial Instruments: Presentation.
Prime Brokerage
Cash collateral on securities borrowed
Staff Accounting Bulletin (SAB) 108
Amendments to existing standards and new interpretations
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Prime Brokerage Reclassification | ||||||||||||||||
Balance sheet | ||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||
Assets | ||||||||||||||||
Cash collateral on securities borrowed | (11,896 | ) | (9,636 | ) | (7,413 | ) | 0 | |||||||||
Loans | 9,941 | 9,636 | 7,413 | 0 | ||||||||||||
Total | (1,955 | ) | 0 | 0 | 0 | |||||||||||
Liabilities | ||||||||||||||||
Cash collateral on securities lent | (17,329 | ) | (10,244 | ) | (5,006 | ) | 0 | |||||||||
Due to customers | 15,374 | 10,244 | 5,006 | 0 | ||||||||||||
Total | (1,955 | ) | 0 | 0 | 0 | |||||||||||
Off-Balance Sheet | ||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||
Fair value of securities sold or repledged in connection with financing activities, disclosed in Note 24 | 20,769 | 14,338 | 0 | 0 | ||||||||||||
In addition, the following reclassifications have been made within interest income and expense:
Income statement | ||||||||||||||||
CHF million | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances | 290 | 313 | 30 | 120 | ||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | (279 | ) | (307 | ) | (25 | ) | (115 | ) | ||||||||
Interest and dividend income from trading portfolio | (11 | ) | (6 | ) | (5 | ) | (5 | ) | ||||||||
Total | 0 | 0 | 0 | 0 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 146 | 108 | (1 | ) | 92 | |||||||||||
Interest on securities lent and repurchase agreements | (146 | ) | (108 | ) | 1 | (92 | ) | |||||||||
Total | 0 | 0 | 0 | 0 | ||||||||||||
IAS 19Employee Benefitshas been amended to allow a choice of whether to recognize actuarial gains and losses in a defined post-retirement benefit plan immediately in equity or to apply the corridor approach. UBS decided to continue to apply the corridor approach as described in part a 21). Other amendments made to IAS 19 have no impact on UBS.
IAS 39Financial Instruments: Measurement and Recognitionand IFRS 4Insurance Contractshave been amended in relation to financial guarantee contracts to clarify when a financial guarantee is within the scope of IAS 39 and when it is considered an insurance contract within the scope of IFRS 4. This amendment did not have a material impact on UBS’s Financial Statements.
IAS 21The Effects of Changes in Foreign Exchange Rateshas been amended to require that exchange differences arising in consolidation on loan financings that form part of a net investment in a foreign operation and are denominated in a currency other than the functional currencies of both the
reporting entity and the foreign operation, are reclassified to equity in the consolidated financial statements of the reporting entity. This amendment has no significant impact on UBS’s Financial Statements.
IFRIC 4 Leases: Determining Whether an Arrangement Contains a Lease
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Financial Statements
Notes to the Financial Statements
Effective in 2005 and earlier
cussed on the next page. Gains on sale of CHF 90 million were reported in 2004 in connection with private equity investments sold. On a restated basis, the Net profit from discontinued operations related to these entities was CHF145 million in 2004.
IFRS 2 Share-based Payment
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tity that controls an employee benefit trust (or similar entity) set up for the purpose of a share-based payment arrangement is required to consolidate that trust. Consolidating these trusts had the following effects: on 1 January 2003, no adjustment to opening retained earnings was made as assets and liabilities of the trusts were equal. Consolidation led to recognition of total assets in the amount of CHF 1.1 billion and CHF 1.3 billion and liabilities of CHF 1.1 billion and CHF 1.3 billion at 31 December 2004 and 2003 respectively. The amount of treasury shares increased by CHF 2,029 million and CHF 1,474 million at 31 December 2004 and 2003 respectively. The weighted average number of treasury shares held by these trusts was 45,991,908 in 2004, thus decreasing the denominator used to calculate basic earnings per share. The reduction in weighted average shares outstanding increased basic earnings per share, but had no impact on diluted earnings per share as the additional treasury shares will be fully added back for calculating diluted earnings per share.
Goodwill and Intangible Assets
Insurance Contracts
Non-current Assets Held for Sale and Discontinued Operations
Presentation of minority interests and earnings per share
Financial Instruments
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Financial Statements
Notes to the Financial Statements
Revised IAS 32 amended the accounting for certain derivative contracts linked to an entity’s own shares. Physically settled written put options and forward purchase contracts with UBS shares as their underlying are recorded as liabilities – see part a 23). UBS currently has physically settled written put options linked to own shares. The present value of the contractual amount of these options is recorded as a liability, while the premium received is credited to Equity. Liabilities of CHF 96 million at 31 December 2004 and CHF 49 million at 31 December 2003 were debited to Equity attributable to UBS shareholders due to written put options. The impact on the income statement of all periods presented is insignificant. All other existing derivative contracts linked to own shares are accounted for as derivative instruments and are carried at fair value on the balance sheet under Positive replacement values or Negative replacement values.
Credit losses incurred on OTC derivatives
accounting, losses in trading income are not subject to such a deferral. In the segment report, therefore, losses on OTC derivatives are now reported as they are incurred.
Segment reporting
c) International Financial Reporting Standards and Interpretations to be adopted in 2007 and later
IFRS 7 Financial Instruments: Disclosures
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UBS has entered into transactions for which fair value is determined using valuation models for which not all inputs are market-observable prices or rates. Such financial instruments are initially recognized in UBS’s Financial Statements at the transaction price, which is generally the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Where such differences arise, UBS will be required by IFRS 7 to disclose, by class of financial instrument: (a) its accounting policy for recognizing that difference in profit or loss to reflect a change in factors (including time) that market participants would consider in setting a price, and (b) the aggregate difference yet to be recognized in profit or loss at the beginning and end of the period and a reconciliation of changes in the balance of this difference.
IFRS 8 Operating Segments
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economieswill be applied on 1 January 2007. This Interpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity (this could be a subsidiary) identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with IAS 29. It is not expected that this guidance will have an impact on UBS’s Financial Statements.
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10, Interim Financial Reporting and Impairment
IFRIC 11, IFRS 2: Group and Treasury Share Transactions
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Financial Statements
Notes to the Financial Statements
employees are granted rights to equity instruments of the entity (e.g. share options), either by the entity itself or by its shareholders, and the shareholders of the entity provide the equity instruments needed. The Interpretation requires that share-based payment transactions in which an entity receives services as consideration for its own equity instruments be accounted for as an equity-settled transaction. This applies
regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement. UBS will adopt the interpretation on 1 January 2007. It is not expected to have a significant impact on UBS’s Financial Statements.
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Note 2a Segment Reporting by Business Group
UBS’s financial businesses are organized on a worldwide basis into three Business Groups and the Corporate Center. Global Wealth Management & Business Banking consists of three segments, Wealth Management International & Switzerland, Wealth Management US and Business Banking Switzerland. The Business Groups Investment Bank and Global Asset Management constitute one segment each. The Corporate Center is now comprised of only one segment, after the sale of Private Banks & GAM on 2 December 2005. Prior to this, Corporate Center consisted of two segments, Corporate Functions and Private Banks & GAM. In addition, the Industrial Holdings segment holds all industrial operations controlled by the Group. In total, UBS now reports seven business segments.
Global Wealth Management & Business Banking
Global Asset Management
Investment Bank
Corporate Center
Industrial Holdings
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Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2006
CHF million |
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at internally agreed transfer prices or at arm’s length.
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, credit loss is measured using an expected loss concept. This table shows Business Group performance consistent with the way the businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between credit loss expense and expected credit loss, amortized over a three year period. The difference between these adjusted expected credit loss figures and the credit loss expense recorded at Group level for reporting purposes is reported in Corporate Center as Adjusted expected credit loss.
Income1 | ||||
Adjusted expected credit loss | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
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Industrial | ||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||
International & | Management | Business Banking | ||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | ||||||||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 994 | 48,009 | |||||||||||||||||||||||||
1 | (1 | ) | 109 | 0 | 47 | 0 | 0 | 156 | ||||||||||||||||||||||||
10,828 | 5,862 | 5,194 | 3,220 | 21,773 | 294 | 994 | 48,165 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 202 | 23,671 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 187 | 8,116 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 4 | 783 | 18 | 1,263 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
295 | 295 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 716 | 33,498 | |||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,026 | ) | 278 | 14,667 | ||||||||||||||||||||||||
4 | 852 | 856 | ||||||||||||||||||||||||||||||
5,233 | 581 | 2,280 | 1,392 | 5,929 | (1,022 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,786 | ||||||||||||||||||||||||||||||||
(13 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
286,241 | 63,249 | 211,123 | 48,616 | 2,108,828 | (323,434 | ) | 1,888 | 2,396,511 | ||||||||||||||||||||||||
281,327 | 57,681 | 205,747 | 46,589 | 2,089,140 | (343,152 | ) | 3,404 | 2,340,736 | ||||||||||||||||||||||||
257 | 273 | 14 | 498 | 593 | 1,385 | 97 | 3,117 | |||||||||||||||||||||||||
10,827 | 5,863 | 5,085 | 3,220 | 21,726 | 294 | 994 | 48,009 | |||||||||||||||||||||||||
(29 | ) | 0 | 185 | 0 | 61 | (61 | ) | 0 | 156 | |||||||||||||||||||||||
10,798 | 5,863 | 5,270 | 3,220 | 21,787 | 233 | 994 | 48,165 | |||||||||||||||||||||||||
3,137 | 3,800 | 2,412 | 1,503 | 11,353 | 1,264 | 202 | 23,671 | |||||||||||||||||||||||||
885 | 1,073 | 1,070 | 399 | 3,260 | 1,242 | 187 | 8,116 | |||||||||||||||||||||||||
1,479 | 281 | (642 | ) | (105 | ) | 956 | (1,978 | ) | 9 | 0 | ||||||||||||||||||||||
84 | 74 | 74 | 27 | 203 | 4 | 783 | 18 | 1,263 | ||||||||||||||||||||||||
10 | 53 | 0 | 4 | 72 | 9 | 5 | 153 | |||||||||||||||||||||||||
295 | 295 | |||||||||||||||||||||||||||||||
5,595 | 5,281 | 2,914 | 1,828 | 15,844 | 1,320 | 716 | 33,498 | |||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,087 | ) | 278 | 14,667 | ||||||||||||||||||||||||
4 | 852 | 856 | ||||||||||||||||||||||||||||||
5,203 | 582 | 2,356 | 1,392 | 5,943 | (1,083 | ) | 1,130 | 15,523 | ||||||||||||||||||||||||
2,786 | ||||||||||||||||||||||||||||||||
(13 | ) | |||||||||||||||||||||||||||||||
12,750 | ||||||||||||||||||||||||||||||||
107
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2005
CHF million |
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at internally agreed transfer prices or at arm’s length.
Income1 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information3 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, credit loss is measured using an expected loss concept. This table shows Business Group performance consistent with the way the businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between credit loss expense and expected credit loss, amortized over a three year period. The difference between these adjusted expected credit loss figures and the credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions as Adjusted expected credit loss.
Income1 | ||||
Adjusted expected credit loss | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of intangible assets2 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
108
Table of Contents
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings | UBS | ||||||||||||||||||||||||||||||||||
Global Wealth Management & | Global Asset | Investment | Corporate | |||||||||||||||||||||||||||||||||
Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||||||
International & | Management | Business Banking | Private Banks | Corporate | ||||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | & GAM | Functions | ||||||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 1,236 | 40,757 | |||||||||||||||||||||||||||||
(8 | ) | 0 | 231 | 0 | 152 | 0 | 0 | 375 | ||||||||||||||||||||||||||||
9,016 | 5,158 | 5,180 | 2,487 | 17,600 | 455 | 1,236 | 41,132 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 245 | 20,148 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 184 | 6,632 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 21 | 1,261 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 4 | 131 | |||||||||||||||||||||||||||||
283 | 283 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 751 | 28,455 | |||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | (940 | ) | 485 | 12,677 | ||||||||||||||||||||||||||||
4,556 | 8 | 496 | 5,060 | |||||||||||||||||||||||||||||||||
4,166 | 314 | 2,298 | 1,057 | 5,297 | 4,556 | (932 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,471 | ||||||||||||||||||||||||||||||||||||
576 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
223,790 | 64,896 | 176,837 | 40,782 | 1,766,563 | (226,069 | ) | 11,549 | 2,058,348 | ||||||||||||||||||||||||||||
219,140 | 59,567 | 170,668 | 39,191 | 1,748,934 | (242,600 | ) | 11,814 | 2,006,714 | ||||||||||||||||||||||||||||
81 | 84 | 58 | 16 | 138 | 25 | 1,264 | 299 | 1,965 | ||||||||||||||||||||||||||||
9,024 | 5,158 | 4,949 | 2,487 | 17,448 | 455 | 1,236 | 40,757 | |||||||||||||||||||||||||||||
(13 | ) | (2 | ) | 122 | 0 | 36 | 232 | 0 | 375 | |||||||||||||||||||||||||||
9,011 | 5,156 | 5,071 | 2,487 | 17,484 | 687 | 1,236 | 41,132 | |||||||||||||||||||||||||||||
2,579 | 3,460 | 2,450 | 988 | 9,259 | 1,167 | 245 | 20,148 | |||||||||||||||||||||||||||||
804 | 1,047 | 994 | 304 | 2,215 | 1,084 | 184 | 6,632 | |||||||||||||||||||||||||||||
1,371 | 223 | (634 | ) | 116 | 640 | (1,730 | ) | 14 | 0 | |||||||||||||||||||||||||||
89 | 65 | 72 | 21 | 136 | 857 | 21 | 1,261 | |||||||||||||||||||||||||||||
7 | 49 | 0 | 1 | 53 | 17 | 4 | 131 | |||||||||||||||||||||||||||||
283 | 283 | |||||||||||||||||||||||||||||||||||
4,850 | 4,844 | 2,882 | 1,430 | 12,303 | 1,395 | 751 | 28,455 | |||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | (708 | ) | 485 | 12,677 | ||||||||||||||||||||||||||||
4,508 | 56 | 496 | 5,060 | |||||||||||||||||||||||||||||||||
4,161 | 312 | 2,189 | 1,057 | 5,181 | 4,508 | (652 | ) | 981 | 17,737 | |||||||||||||||||||||||||||
2,471 | ||||||||||||||||||||||||||||||||||||
576 | ||||||||||||||||||||||||||||||||||||
14,690 | ||||||||||||||||||||||||||||||||||||
109
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2a Reporting by Business Group (continued)
For the year ended 31 December 2004
CHF million |
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at internally agreed transfer prices or at arm’s length.
Income2 | ||||
Credit loss (expense) / recovery | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of goodwill3 | ||||
Amortization of intangible assets3 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit | ||||
Additional information4 | ||||
Total assets | ||||
Total liabilities | ||||
Capital expenditure |
Management reporting based on expected credit loss
For internal management reporting purposes, credit loss is measured using an expected loss concept. This table shows Business Group performance consistent with the way the businesses are managed and the way Business Group performance is measured. Expected credit loss reflects the average annual costs that are expected to arise from positions in the current portfolio that become impaired. The adjusted expected credit loss reported for each Business Group is the expected credit loss on its portfolio plus the difference between credit loss expense and expected credit loss, amortized over a three year period. The difference between these adjusted expected credit loss figures and the credit loss expense recorded at Group level for reporting purposes is reported in Corporate Functions as Adjusted expected credit loss.
Income2 | ||||
Adjusted expected credit loss | ||||
Total operating income | ||||
Personnel expenses | ||||
General and administrative expenses | ||||
Services (to) / from other business units | ||||
Depreciation of property and equipment | ||||
Amortization of goodwill3 | ||||
Amortization of intangible assets3 | ||||
Goods and materials purchased | ||||
Total operating expenses | ||||
Business Group performance from | ||||
continuing operations before tax | ||||
Business Group performance from | ||||
discontinued operations before tax | ||||
Business Group performance before tax | ||||
Tax expense on continuing operations | ||||
Tax expense on discontinued operations | ||||
Net profit |
110
Table of Contents
Industrial | ||||||||||||||||||||||||||||||||||||
Financial Businesses | Holdings1 | UBS | ||||||||||||||||||||||||||||||||||
Global Asset | Investment | Corporate | ||||||||||||||||||||||||||||||||||
Global Wealth Management & Business Banking | Management | Bank | Center | |||||||||||||||||||||||||||||||||
Wealth Management | Wealth | |||||||||||||||||||||||||||||||||||
International & | Management | Business Banking | Private Banks | Corporate | ||||||||||||||||||||||||||||||||
Switzerland | US | Switzerland | & GAM | Functions | ||||||||||||||||||||||||||||||||
7,701 | 4,741 | 5,064 | 2,022 | 16,090 | 112 | 915 | 36,645 | |||||||||||||||||||||||||||||
(1 | ) | 3 | 92 | 0 | 147 | 0 | 0 | 241 | ||||||||||||||||||||||||||||
7,700 | 4,744 | 5,156 | 2,022 | 16,237 | 112 | 915 | 36,886 | |||||||||||||||||||||||||||||
2,119 | 3,320 | 2,426 | 893 | 8,152 | 796 | 185 | 17,891 | |||||||||||||||||||||||||||||
642 | 767 | 1,064 | 299 | 2,538 | 1,077 | 176 | 6,563 | |||||||||||||||||||||||||||||
1,395 | 275 | (533 | ) | 126 | 226 | (1,509 | ) | 20 | 0 | |||||||||||||||||||||||||||
66 | 67 | 69 | 23 | 243 | 794 | 22 | 1,284 | |||||||||||||||||||||||||||||
67 | 171 | 0 | 129 | 278 | 1 | 27 | 673 | |||||||||||||||||||||||||||||
8 | 107 | 0 | 0 | 36 | 17 | 2 | 170 | |||||||||||||||||||||||||||||
263 | 263 | |||||||||||||||||||||||||||||||||||
4,297 | 4,707 | 3,026 | 1,470 | 11,473 | 1,176 | 695 | 26,844 | |||||||||||||||||||||||||||||
3,403 | 37 | 2,130 | 552 | 4,764 | (1,064 | ) | 220 | 10,042 | ||||||||||||||||||||||||||||
386 | 10 | 385 | 781 | |||||||||||||||||||||||||||||||||
3,403 | 37 | 2,130 | 552 | 4,764 | 386 | (1,054 | ) | 605 | 10,823 | |||||||||||||||||||||||||||
2,155 | ||||||||||||||||||||||||||||||||||||
198 | ||||||||||||||||||||||||||||||||||||
8,470 | ||||||||||||||||||||||||||||||||||||
164,716 | 48,058 | 210,223 | 29,698 | 1,477,402 | 8,043 | (210,363 | ) | 9,394 | 1,737,171 | |||||||||||||||||||||||||||
161,042 | 43,879 | 204,569 | 28,311 | 1,463,596 | 7,480 | (220,730 | ) | 9,966 | 1,698,113 | |||||||||||||||||||||||||||
304 | 48 | 212 | 8 | 415 | 19 | 599 | 1,484 | 3,089 | ||||||||||||||||||||||||||||
7,701 | 4,741 | 5,064 | 2,022 | 16,090 | 112 | 915 | 36,645 | |||||||||||||||||||||||||||||
(8 | ) | (5 | ) | (25 | ) | 0 | (7 | ) | 286 | 0 | 241 | |||||||||||||||||||||||||
7,693 | 4,736 | 5,039 | 2,022 | 16,083 | 398 | 915 | 36,886 | |||||||||||||||||||||||||||||
2,119 | 3,320 | 2,426 | 893 | 8,152 | 796 | 185 | 17,891 | |||||||||||||||||||||||||||||
642 | 767 | 1,064 | 299 | 2,538 | 1,077 | 176 | 6,563 | |||||||||||||||||||||||||||||
1,395 | 275 | (533 | ) | 126 | 226 | (1,509 | ) | 20 | 0 | |||||||||||||||||||||||||||
66 | 67 | 69 | 23 | 243 | 794 | 22 | 1,284 | |||||||||||||||||||||||||||||
67 | 171 | 0 | 129 | 278 | 1 | 27 | 673 | |||||||||||||||||||||||||||||
8 | 107 | 0 | 0 | 36 | 17 | 2 | 170 | |||||||||||||||||||||||||||||
263 | 263 | |||||||||||||||||||||||||||||||||||
4,297 | 4,707 | 3,026 | 1,470 | 11,473 | 1,176 | 695 | 26,844 | |||||||||||||||||||||||||||||
3,396 | 29 | 2,013 | 552 | 4,610 | (778 | ) | 220 | 10,042 | ||||||||||||||||||||||||||||
438 | (42 | ) | 385 | 781 | ||||||||||||||||||||||||||||||||
3,396 | 29 | 2,013 | 552 | 4,610 | 438 | (820 | ) | 605 | 10,823 | |||||||||||||||||||||||||||
2,155 | ||||||||||||||||||||||||||||||||||||
198 | ||||||||||||||||||||||||||||||||||||
8,470 | ||||||||||||||||||||||||||||||||||||
111
Table of Contents
Financial Statements
Notes to the Financial Statements
Note 2b Segment Reporting by Geographic Location
The geographic analysis of total assets is based on customer domicile, whereas operating income and capital expenditure are based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets, the Group’s business is managed on an integrated basis worldwide, with a view to profitability by
product line. The geographical analysis of operating income, total assets and capital expenditure is provided in order to comply with IFRS and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 2a, is a more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2006 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 12,987 | 27 | 211,565 | 9 | 650 | 21 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 12,771 | 27 | 734,986 | 31 | 385 | 12 | ||||||||||||||||||
Americas | 18,367 | 38 | 1,243,933 | 51 | 1,754 | 56 | ||||||||||||||||||
Asia Pacific | 4,040 | 8 | 206,027 | 9 | 328 | 11 | ||||||||||||||||||
Total | 48,165 | 100 | 2,396,511 | 100 | 3,117 | 100 | ||||||||||||||||||
For the year ended 31 December 2005 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,793 | 34 | 203,907 | 10 | 973 | 49 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 9,236 | 22 | 687,963 | 33 | 467 | 24 | ||||||||||||||||||
Americas | 15,293 | 37 | 1,004,230 | 49 | 386 | 20 | ||||||||||||||||||
Asia Pacific | 2,810 | 7 | 162,248 | 8 | 139 | 7 | ||||||||||||||||||
Total | 41,132 | 100 | 2,058,348 | 100 | 1,965 | 100 | ||||||||||||||||||
For the year ended 31 December 2004 | ||||||||||||||||||||||||
Total operating income | Total assets | Capital expenditure | ||||||||||||||||||||||
CHF million | Share % | CHF million | Share % | CHF million | Share % | |||||||||||||||||||
Switzerland | 13,438 | 37 | 193,464 | 11 | 1,993 | 65 | ||||||||||||||||||
Rest of Europe / Middle East / Africa | 7,535 | 20 | 561,390 | 32 | 556 | 18 | ||||||||||||||||||
Americas | 13,787 | 37 | 830,350 | 48 | 376 | 12 | ||||||||||||||||||
Asia Pacific | 2,126 | 6 | 151,967 | 9 | 164 | 5 | ||||||||||||||||||
Total | 36,886 | 100 | 1,737,171 | 100 | 3,089 | 100 | ||||||||||||||||||
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Income Statement
Note 3 Net Interest and Trading Income
Accounting standards require separate disclosure of net interest income and net trading income (see the tables below and on the next page). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different business activities. In many cases, a particular business activity can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading
income according to the business activity generating it. The second table below (labeled Breakdown by business activity) provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable with the breakdown provided in the third table below and the table on the next page.
Net interest and trading income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Net interest income | 6,521 | 9,528 | 11,744 | (32 | ) | |||||||||||
Net trading income | 13,318 | 7,996 | 4,902 | 67 | ||||||||||||
Total net interest and trading income | 19,839 | 17,524 | 16,646 | 13 | ||||||||||||
Breakdown by business activity | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Equities | 4,759 | 3,928 | 3,098 | 21 | ||||||||||||
Fixed income | 6,204 | 5,741 | 6,264 | 8 | ||||||||||||
Foreign exchange | 1,745 | 1,458 | 1,467 | 20 | ||||||||||||
Other | 411 | 292 | 203 | 41 | ||||||||||||
Net income from trading activities | 13,119 | 11,419 | 11,032 | 15 | ||||||||||||
Net income from interest margin products | 5,829 | 5,355 | 5,070 | 9 | ||||||||||||
Net income from treasury and other activities | 891 | 750 | 544 | 19 | ||||||||||||
Total net interest and trading income | 19,839 | 17,524 | 16,646 | 13 | ||||||||||||
Net interest income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Interest income | ||||||||||||||||
Interest earned on loans and advances2 | 15,266 | 11,678 | 9,220 | 31 | ||||||||||||
Interest earned on securities borrowed and reverse repurchase agreements | 39,771 | 23,362 | 10,699 | 70 | ||||||||||||
Interest and dividend income from trading portfolio | 32,211 | 24,134 | 19,271 | 33 | ||||||||||||
Interest income on financial assets designated at fair value | 25 | 26 | 0 | (4 | ) | |||||||||||
Interest and dividend income from financial investments available-for-sale | 128 | 86 | 38 | 49 | ||||||||||||
Total | 87,401 | 59,286 | 39,228 | 47 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on amounts due to banks and customers | 20,024 | 11,226 | 5,583 | 78 | ||||||||||||
Interest on securities lent and repurchase agreements | 34,021 | 20,480 | 9,906 | 66 | ||||||||||||
Interest and dividend expense from trading portfolio | 14,533 | 10,736 | 7,993 | 35 | ||||||||||||
Interest on financial liabilities designated at fair value | 4,757 | 2,390 | 1,168 | 99 | ||||||||||||
Interest on debt issued | 7,545 | 4,926 | 2,834 | 53 | ||||||||||||
Total | 80,880 | 49,758 | 27,484 | 63 | ||||||||||||
Net interest income | 6,521 | 9,528 | 11,744 | (32 | ) | |||||||||||
Interest includes forward points on foreign exchange swaps used to manage short-term interest rate risk on foreign currency loans and deposits.
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Financial Statements
Notes to the Financial Statements
Note 3 Net Interest and Trading Income (continued) | ||||||||||||||||
Net trading income1 | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Equities | 7,064 | 3,900 | 2,254 | 81 | ||||||||||||
Fixed income2 | 2,945 | 1,256 | 131 | 134 | ||||||||||||
Foreign exchange and other | 3,309 | 2,840 | 2,517 | 17 | ||||||||||||
Net trading income | 13,318 | 7,996 | 4,902 | 67 | ||||||||||||
Thereof: | ||||||||||||||||
Net gains / (losses) from financial assets designated at fair value | (397 | ) | 70 | 0 | ||||||||||||
Net gains / (losses) from financial liabilities designated at fair value | (3,869 | ) | (4,024 | ) | (1,203 | ) | ||||||||||
Financial liabilities designated at fair value include the impact of UBS’s own credit where market information indicates that it is reflected in the price at which UBS transacts with third parties. Products with UBS’s own credit as a valuation input include certain structured debt instruments where either at
inception or over their life, UBS receives cash flows that provide funding and thereby expose the counterparty to UBS credit risk. In all periods presented, for counterparties entering into products which are financial liabilities from UBS’s perspective, the perception of UBS’s credit risk has remained stable.
Note 4 Net Fee and Commission Income |
Note 4 Net Fee and Commission Income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Equity underwriting fees | 1,834 | 1,341 | 1,417 | 37 | ||||||||||||
Debt underwriting fees | 1,704 | 1,516 | 1,114 | 12 | ||||||||||||
Total underwriting fees | 3,538 | 2,857 | 2,531 | 24 | ||||||||||||
Corporate finance fees | 1,852 | 1,460 | 1,078 | 27 | ||||||||||||
Brokerage fees | 8,053 | 6,718 | 5,794 | 20 | ||||||||||||
Investment fund fees | 5,858 | 4,750 | 3,948 | 23 | ||||||||||||
Fiduciary fees | 252 | 212 | 197 | 19 | ||||||||||||
Custodian fees | 1,266 | 1,176 | 1,143 | 8 | ||||||||||||
Portfolio and other management and advisory fees | 6,622 | 5,310 | 4,488 | 25 | ||||||||||||
Insurance-related and other fees | 449 | 372 | 343 | 21 | ||||||||||||
Total securities trading and investment activity fees | 27,890 | 22,855 | 19,522 | 22 | ||||||||||||
Credit-related fees and commissions | 269 | 306 | 264 | (12 | ) | |||||||||||
Commission income from other services | 1,064 | 1,027 | 977 | 4 | ||||||||||||
Total fee and commission income | 29,223 | 24,188 | 20,763 | 21 | ||||||||||||
Brokerage fees paid | 1,904 | 1,631 | 1,387 | 17 | ||||||||||||
Other | 1,438 | 1,121 | 870 | 28 | ||||||||||||
Total fee and commission expense | 3,342 | 2,752 | 2,257 | 21 | ||||||||||||
Net fee and commission income | 25,881 | 21,436 | 18,506 | 21 | ||||||||||||
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Note 5 Other Income |
Note 5 Other Income | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Associates and subsidiaries | ||||||||||||||||
Net gains / (losses) from disposals of consolidated subsidiaries | (11 | ) | 1 | 83 | ||||||||||||
Net gains from disposals of investments in associates | 21 | 26 | 1 | (19 | ) | |||||||||||
Total | 10 | 27 | 84 | (63 | ) | |||||||||||
Financial investments available-for-sale | ||||||||||||||||
Net gains from disposals | 921 | 231 | 132 | 299 | ||||||||||||
Impairment charges | (12 | ) | (26 | ) | (34 | ) | 54 | |||||||||
Total | 909 | 205 | 98 | 343 | ||||||||||||
Net income from investments in property1 | 61 | 42 | 65 | 45 | ||||||||||||
Equity in income of associates | 106 | 57 | 43 | 86 | ||||||||||||
Net gains / (losses) from investment properties2 | 5 | 12 | 11 | (58 | ) | |||||||||||
Other | 204 | 218 | 277 | (6 | ) | |||||||||||
Total other income from Financial Businesses | 1,295 | 561 | 578 | 131 | ||||||||||||
Other income from Industrial Holdings | 301 | 561 | 275 | (46 | ) | |||||||||||
Total other income | 1,596 | 1,122 | 853 | 42 | ||||||||||||
Note 6 Personnel Expenses |
Note 6 Personnel Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Salaries and bonuses | 19,076 | 15,930 | 14,254 | 20 | ||||||||||||
Contractors | 822 | 823 | 567 | 0 | ||||||||||||
Insurance and social security contributions | 1,376 | 1,257 | 1,025 | 9 | ||||||||||||
Contribution to retirement plans | 802 | 713 | 652 | 12 | ||||||||||||
Other personnel expenses | 1,595 | 1,425 | 1,393 | 12 | ||||||||||||
Total personnel expenses | 23,671 | 20,148 | 17,891 | 17 | ||||||||||||
Note 7 General and Administrative Expenses |
Note 7 General and Administrative Expenses | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Occupancy | 1,435 | 1,278 | 1,256 | 12 | ||||||||||||
Rent and maintenance of IT and other equipment | 653 | 602 | 653 | 8 | ||||||||||||
Telecommunications and postage | 907 | 840 | 812 | 8 | ||||||||||||
Administration | 861 | 758 | 634 | 14 | ||||||||||||
Marketing and public relations | 653 | 576 | 488 | 13 | ||||||||||||
Travel and entertainment | 937 | 737 | 614 | 27 | ||||||||||||
Professional fees | 924 | 625 | 683 | 48 | ||||||||||||
Outsourcing of IT and other services | 1,095 | 871 | 919 | 26 | ||||||||||||
Other | 651 | 345 | 504 | 89 | ||||||||||||
Total general and administrative expenses | 8,116 | 6,632 | 6,563 | 22 | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 8 Earnings per Share (EPS) and Shares Outstanding |
Note 8 Earnings per Share (EPS) and Shares Outstanding | ||||||||||||||||
For the year ended | % change from | |||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||
Basic earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 12,257 | 14,029 | 8,016 | (13 | ) | |||||||||||
from continuing operations | 11,491 | 9,776 | 7,547 | 18 | ||||||||||||
from discontinued operations | 766 | 4,253 | 469 | (82 | ) | |||||||||||
Diluted earnings (CHF million) | ||||||||||||||||
Net profit attributable to UBS shareholders | 12,257 | 14,029 | 8,016 | (13 | ) | |||||||||||
Less: (Profit) / loss on equity derivative contracts | (8 | ) | (22 | ) | (5 | ) | 64 | |||||||||
Net profit attributable to UBS shareholders for diluted EPS | 12,249 | 14,007 | 8,011 | (13 | ) | |||||||||||
from continuing operations | 11,483 | 9,777 | 7,550 | 17 | ||||||||||||
from discontinued operations | 766 | 4,230 | 461 | (82 | ) | |||||||||||
Weighted average shares outstanding | ||||||||||||||||
Weighted average shares outstanding1 | 1,976,405,800 | 2,013,987,754 | 2,059,836,926 | (2 | ) | |||||||||||
Potentially dilutive ordinary shares resulting from unvested exchangeable shares, options and warrants outstanding2 | 82,429,012 | 83,203,786 | 104,085,794 | (1 | ) | |||||||||||
Weighted average shares outstanding for diluted EPS | 2,058,834,812 | 2,097,191,540 | 2,163,922,720 | (2 | ) | |||||||||||
Earnings per share (CHF) | ||||||||||||||||
Basic | 6.20 | 6.97 | 3.89 | (11 | ) | |||||||||||
from continuing operations | 5.81 | 4.85 | 3.66 | 20 | ||||||||||||
from discontinued operations | 0.39 | 2.12 | 0.23 | (82 | ) | |||||||||||
Diluted | 5.95 | 6.68 | 3.70 | (11 | ) | |||||||||||
from continuing operations | 5.58 | 4.66 | 3.49 | 20 | ||||||||||||
from discontinued operations | 0.37 | 2.02 | 0.21 | (82 | ) | |||||||||||
Shares outstanding | ||||||||||||||||
As of | % change from | |||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||
Total ordinary shares issued | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | (3 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2004 program | 79,870,188 | |||||||||||||||
2005 program | 67,770,000 | |||||||||||||||
2006 program | 22,600,000 | |||||||||||||||
Other treasury shares | 141,875,699 | 140,749,748 | 169,456,432 | 1 | ||||||||||||
Total treasury shares | 164,475,699 | 208,519,748 | 249,326,620 | (21 | ) | |||||||||||
Shares outstanding | 1,940,797,587 | 1,968,745,296 | 2,004,389,734 | (1 | ) | |||||||||||
All shares and earnings per share figures reflect the 2-for-1 share split made on 10 July 2006.
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Balance Sheet: Assets
Note 9 Financial Assets Designated at Fair Value |
Note 9 Financial Assets Designated at Fair Value | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Loans | 2,104 | 737 | ||||||
Structured loans | 148 | 229 | ||||||
Reverse repurchase agreements | ||||||||
Banks | 2,942 | 0 | ||||||
Customers | 307 | 0 | ||||||
Other financial assets | 429 | 187 | ||||||
Total financial assets designated at fair value | 5,930 | 1,153 | ||||||
The maximum exposure to credit loss of all items in the above table except for Other financial assets is equal to the fair value (CHF 5,501 million at 31 December 2006). Other financial assets are generally comprised of equity investments and are not directly exposed to credit risk. The maxi-
mum exposure to credit loss at 31 December 2006 is mitigated by collateral of CHF 3,712 million.
CHF million | 31.12.06 | |||||||
Notional amount of loans and structured loans | 2,348 | |||||||
Credit derivatives related to loans and structured loans – notional amounts1 | 663 | |||||||
Credit derivatives related to loans and structured loans – fair value1 | 2 | |||||||
Additional information | ||||||||
For the year ended | ||||||||
CHF million | 31.12.06 | 2 | ||||||
Change in fair value of loans and structured loans designated at fair value, attributable to changes in credit risk3 | (8 | ) | ||||||
Change in fair value of credit derivatives and similar instruments which mitigate the maximum exposure to credit loss of loans and structured loans designated at fair value3 | 2 | |||||||
117
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Financial Statements
Notes to the Financial Statements
Note 10a Due from Banks and Loans (Held at Amortized Cost) |
Note 10a Due from Banks and Loans (Held at Amortized Cost) | ||||||||
By type of exposure | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Banks1 | 50,456 | 33,689 | ||||||
Allowance for credit losses | (30 | ) | (45 | ) | ||||
Net due from banks | 50,426 | 33,644 | ||||||
Loans1 | �� | |||||||
Residential mortgages | 124,548 | 127,990 | ||||||
Commercial mortgages | 19,989 | 18,509 | ||||||
Other loans | 169,210 | 135,022 | ||||||
Subtotal | 313,747 | 281,521 | ||||||
Allowance for credit losses | (1,226 | ) | (1,611 | ) | ||||
Net loans | 312,521 | 279,910 | ||||||
Net due from banks and loans (held at amortized cost) | 362,947 | 313,554 | ||||||
Additional information about due from banks, loans (held at amortized cost) and loans designated at fair value | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Net due from banks and loans (held at amortized cost) | 362,947 | 313,554 | ||||||
Loans designated at fair value2 | 2,252 | 966 | ||||||
Total | 365,199 | 314,520 | ||||||
By geographical region (based on the location of the borrower) | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Switzerland | 163,090 | 158,465 | ||||||
Rest of Europe / Middle East / Africa | 67,584 | 50,898 | ||||||
Americas | 117,447 | 94,192 | ||||||
Asia Pacific | 18,334 | 12,621 | ||||||
Subtotal | 366,455 | 316,176 | ||||||
Allowance for credit losses | (1,256 | ) | (1,656 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 365,199 | 314,520 | ||||||
By type of collateral | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Secured by real estate | 146,518 | 148,412 | ||||||
Collateralized by securities | 99,879 | 55,334 | ||||||
Guarantees and other collateral | 27,000 | 24,567 | ||||||
Unsecured | 93,058 | 87,863 | ||||||
Subtotal | 366,455 | 316,176 | ||||||
Allowance for credit losses | (1,256 | ) | (1,656 | ) | ||||
Net due from banks, loans (held at amortized cost) and loans designated at fair value | 365,199 | 314,520 | ||||||
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Note 10b Allowances and Provisions for Credit Losses |
Note 10b Allowances and Provisions for Credit Losses | ||||||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.06 | Total 31.12.05 | ||||||||||||
Balance at the beginning of the year | 1,690 | 86 | 1,776 | 2,802 | ||||||||||||
Write-offs | (363 | ) | 0 | (363 | ) | (651 | ) | |||||||||
Recoveries | 62 | 0 | 62 | 63 | ||||||||||||
Increase / (decrease) in credit loss allowances and provisions | (108 | ) | (48 | ) | (156 | ) | (374 | ) | ||||||||
Acquisitions | 3 | 0 | 3 | (61 | ) | |||||||||||
Foreign currency translation and other adjustments | 10 | 0 | 10 | (3 | ) | |||||||||||
Balance at the end of the year1 | 1,294 | 38 | 1,332 | 1,776 | ||||||||||||
Collective loan | ||||||||||||||||
Specific allowances | loss allowances | |||||||||||||||
CHF million | and provisions | and provisions | Total 31.12.06 | Total 31.12.05 | ||||||||||||
As a reduction of Due from banks | 30 | 0 | 30 | 45 | ||||||||||||
As a reduction of Loans | 1,188 | 38 | 1,226 | 1,611 | ||||||||||||
As a reduction of other balance sheet positions | 0 | 0 | 0 | 11 | ||||||||||||
Subtotal | 1,218 | 38 | 1,256 | 1,667 | ||||||||||||
Included in Other liabilities related to provisions for contingent claims | 76 | 0 | 76 | 109 | ||||||||||||
Total allowances and provisions for credit losses | 1,294 | 38 | 1,332 | 1,776 | ||||||||||||
Note 10c Impaired Due from Banks and Loans |
Note 10c Impaired Due from Banks and Loans | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Total gross impaired due from banks and loans1 | 2,628 | 3,434 | ||||||
Allowance for impaired due from banks | 30 | 32 | ||||||
Allowance for impaired loans | 1,188 | 1,561 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 1,218 | 1,593 | ||||||
Average total gross impaired due from banks and loans2 | 3,003 | 4,089 | ||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Total gross impaired due from banks and loans | 2,628 | 3,434 | ||||||
Estimated liquidation proceeds of collateral | (1,059 | ) | (1,366 | ) | ||||
Net impaired due from banks and loans | 1,569 | 2,068 | ||||||
Total allowances for credit losses related to impaired due from banks and loans | 1,218 | 1,593 | ||||||
119
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Financial Statements
Notes to the Financial Statements
Note 10d Non-Performing Due from Banks and Loans
A loan (included in Due from banks or Loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that it will be made good by later payments or the
liquidation of collateral; or 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.06 | 31.12.05 | ||||||
Total gross non-performing due from banks and loans | 1,918 | 2,363 | ||||||
Total allowances for credit losses related to non-performing due from banks and loans | 1,112 | 1,393 | ||||||
Average total gross non-performing due from banks and loans1 | 2,135 | 3,082 | ||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Non-performing due from banks and loans at the beginning of the year | 2,363 | 3,555 | ||||||
Net additions / (reductions) | (157 | ) | (515 | ) | ||||
Write-offs and disposals | (288 | ) | (677 | ) | ||||
Non-performing due from banks and loans at the end of the year | 1,918 | 2,363 | ||||||
By type of exposure | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Banks | 29 | 27 | ||||||
Loans | ||||||||
Secured by real estate | 561 | 621 | ||||||
Other | 1,328 | 1,715 | ||||||
Total loans | 1,889 | 2,336 | ||||||
Total non-performing due from banks and loans | 1,918 | 2,363 | ||||||
By geographical region (based on the location of borrower) | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Switzerland | 1,744 | 2,106 | ||||||
Rest of Europe / Middle East / Africa | 106 | 155 | ||||||
Americas | 62 | 94 | ||||||
Asia Pacific | 6 | 8 | ||||||
Total non-performing due from banks and loans | 1,918 | 2,363 | ||||||
Note 11 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements
The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group controls cred-
it risk associated with these activities by monitoring counter-party credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.
Balance sheet assets | ||||||||||||||||
Cash collateral on | Reverse repurchase | Cash collateral on | Reverse repurchase | |||||||||||||
securities borrowed | agreements | securities borrowed | agreements | |||||||||||||
CHF million | 31.12.06 | 31.12.06 | 31.12.05 | 31.12.05 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 53,538 | 209,606 | 52,814 | 259,608 | ||||||||||||
Customers | 298,052 | 196,228 | 235,621 | 144,824 | ||||||||||||
Total | 351,590 | 405,834 | 288,435 | 404,432 | ||||||||||||
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Note 11 Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements (continued)
Balance sheet liabilities | ||||||||||||||||
Cash collateral on | Repurchase | Cash collateral on | Repurchase | |||||||||||||
securities lent | agreements | securities lent | agreements | |||||||||||||
CHF million | 31.12.06 | 31.12.06 | 31.12.05 | 31.12.05 | ||||||||||||
By counterparty | ||||||||||||||||
Banks | 44,118 | 274,910 | 46,766 | 278,287 | ||||||||||||
Customers | 18,970 | 270,570 | 13,172 | 200,221 | ||||||||||||
Total | 63,088 | 545,480 | 59,938 | 478,508 | ||||||||||||
Note 12 Trading Portfolio
The Group trades in debt instruments (including money market paper and tradable loans), equity instruments, precious metals, other commodities and derivatives to meet the fi-
nancial needs of its customers and to generate revenue. Note 23 provides a description of the various classes of derivative instruments.
CHF million | 31.12.06 | 31.12.05 | ||||||
Trading portfolio assets | ||||||||
Money market paper | 86,790 | 57,685 | ||||||
thereof pledged as collateral with central banks1 | 20,053 | 11,717 | ||||||
thereof pledged as collateral (excluding central banks)1 | 45,356 | 16,307 | ||||||
thereof pledged as collateral and can be repledged or resold by counterparty2 | 38,173 | 11,563 | ||||||
Debt instruments | ||||||||
Swiss government and government agencies | 340 | 589 | ||||||
US Treasury and government agencies | 114,714 | 77,569 | ||||||
Other government agencies | 71,170 | 64,823 | ||||||
Corporate listed | 214,129 | 169,841 | ||||||
Other – unlisted | 111,001 | 74,253 | ||||||
Total | 511,354 | 387,075 | ||||||
thereof pledged as collateral1 | 190,153 | 170,917 | ||||||
thereof can be repledged or resold by counterparty2 | 158,549 | 110,857 | ||||||
Equity instruments | ||||||||
Listed | 183,731 | 139,101 | ||||||
Unlisted | 27,938 | 20,958 | ||||||
Total | 211,669 | 160,059 | ||||||
thereof pledged as collateral1 | 56,760 | 33,559 | ||||||
thereof can be repledged or resold by counterparty2 | 54,756 | 32,339 | ||||||
Traded loans | 47,630 | 36,212 | ||||||
Precious metals and other commodities3 | 21,071 | 13,025 | ||||||
Total trading portfolio assets | 878,514 | 654,056 | ||||||
Trading portfolio liabilities | ||||||||
Debt instruments | ||||||||
Swiss government and government agencies | 129 | 407 | ||||||
US Treasury and government agencies | 81,385 | 74,758 | ||||||
Other government agencies | 58,538 | 52,833 | ||||||
Corporate listed | 21,788 | 19,885 | ||||||
Other – unlisted | 2,101 | 1,224 | ||||||
Total | 163,941 | 149,107 | ||||||
Equity instruments | 40,832 | 39,524 | ||||||
Total trading portfolio liabilities | 204,773 | 188,631 | ||||||
121
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Financial Statements
Notes to the Financial Statements
Note 13 Financial Investments Available-for-Sale | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Money market paper | 354 | 141 | ||||||
Other debt instruments | ||||||||
Listed | 260 | 587 | ||||||
Unlisted | 261 | 91 | ||||||
Total | 521 | 678 | ||||||
Equity instruments | ||||||||
Listed | 5,880 | 2,548 | ||||||
Unlisted | 819 | 1,738 | ||||||
Total | 6,699 | 4,286 | ||||||
Private equity investments | 1,363 | 1,446 | ||||||
Total financial investments available-for-sale | 8,937 | 6,551 | ||||||
thereof eligible for discount at central banks | 41 | 40 | ||||||
The following tables show the unrealized gains and losses recognized directly in Equity in 2006 and 2005:
Unrealized gains / (losses) recognized directly in Equity | ||||||||||||||||||||||||
Net, | Net, | |||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | before tax | Tax effect | after tax | ||||||||||||||||||
31 December 2006 | ||||||||||||||||||||||||
Money market paper | 354 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 3 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 97 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 28 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Mortgage-backed securities | 160 | 0 | (3 | ) | (3 | ) | 0 | (3 | ) | |||||||||||||||
Other debt instruments | 233 | 5 | 0 | 5 | 0 | 5 | ||||||||||||||||||
Equity instruments | 6,699 | 3,102 | (2 | ) | 3,100 | (636 | ) | 2,464 | ||||||||||||||||
Private equity investments | 1,363 | 634 | (13 | ) | 621 | (182 | ) | 439 | ||||||||||||||||
Total | 8,937 | 3,741 | (18 | ) | 3,723 | (818 | ) | 2,905 | ||||||||||||||||
Unrealized gains / (losses) recognized directly in Equity | ||||||||||||||||||||||||
Net, | Net, | |||||||||||||||||||||||
CHF million | Fair value | Gross gains | Gross losses | before tax | Tax effect | after tax | ||||||||||||||||||
31 December 2005 | ||||||||||||||||||||||||
Money market paper | 141 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 3 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 64 | 0 | (1 | ) | (1 | ) | 0 | (1 | ) | |||||||||||||||
Debt securities issued by foreign governments and official institutions | 47 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 421 | 7 | (11 | ) | (4 | ) | 0 | (4 | ) | |||||||||||||||
Mortgage-backed securities | 143 | 0 | (3 | ) | (3 | ) | 0 | (3 | ) | |||||||||||||||
Other debt instruments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity instruments | 4,286 | 738 | (16 | ) | 722 | (133 | ) | 589 | ||||||||||||||||
Private equity investments | 1,446 | 405 | (15 | ) | 390 | (31 | ) | 359 | ||||||||||||||||
Total | 6,551 | 1,150 | (46 | ) | 1,104 | (164 | ) | 940 | ||||||||||||||||
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Note 13 Financial Investments Available-for-Sale (continued) | ||
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 2006 | ||||||||||||||||||||||||
Money market paper | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Mortgage-backed securities | 28 | 132 | 160 | 0 | (3 | ) | (3 | ) | ||||||||||||||||
Other debt instruments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity instruments | 2 | 25 | 27 | 0 | (2 | ) | (2 | ) | ||||||||||||||||
Private equity investments | 74 | 123 | 197 | (3 | ) | (10 | ) | (13 | ) | |||||||||||||||
Total | 104 | 280 | 384 | (3 | ) | (15 | ) | (18 | ) | |||||||||||||||
Fair value | Unrealized losses | |||||||||||||||||||||||
Investments | Investments | Investments | Investments | |||||||||||||||||||||
with unrealized | with unrealized | with unrealized | with unrealized | |||||||||||||||||||||
loss less than | loss more than | loss less than | loss more than | |||||||||||||||||||||
CHF million | 12 months | 12 months | Total | 12 months | 12 months | Total | ||||||||||||||||||
31 December 2005 | ||||||||||||||||||||||||
Money market paper | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss national government and agencies | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by Swiss local governments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Debt securities issued by US Treasury and agencies | 55 | 0 | 55 | (1 | ) | 0 | (1 | ) | ||||||||||||||||
Debt securities issued by foreign governments and official institutions | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate debt securities | 272 | 0 | 272 | (11 | ) | 0 | (11 | ) | ||||||||||||||||
Mortgage-backed securities | 0 | 143 | 143 | 0 | (3 | ) | (3 | ) | ||||||||||||||||
Other debt instruments | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Equity instruments | 2,032 | 16 | 2,048 | (13 | ) | (3 | ) | (16 | ) | |||||||||||||||
Private equity investments | 117 | 34 | 151 | (10 | ) | (5 | ) | (15 | ) | |||||||||||||||
Total | 2,476 | 193 | 2,669 | (35 | ) | (11 | ) | (46 | ) | |||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 13 Financial Investments Available-for-Sale (continued) | ||||||||||||||||||||||||||||||||
Contractual maturities of the investments in debt instruments1 | ||||||||||||||||||||||||||||||||
Within 1 year | 1-5 years | 5-10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2006 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 2 | 2.22 | 0 | 0.00 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.48 | 2 | 1.89 | 57 | 4.47 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 26 | 7.00 | 0 | 0.00 | 2 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 10 | 4.48 | 150 | 5.10 | ||||||||||||||||||||||||
Other debt instruments | 0 | 0.00 | 233 | 9.28 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 66 | 235 | 69 | 151 | ||||||||||||||||||||||||||||
Proceeds from sales of Financial investments available-for-sale, excluding private equity, were as follows:
CHF million | 31.12.06 | 31.12.05 | ||||||
Proceeds | 1,380 | 298 | ||||||
Gross realized gains | 832 | 60 | ||||||
Gross realized losses | 5 | 1 | ||||||
Note 14 Investments in Associates | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Carrying amount at the beginning of the year | 2,956 | 2,675 | ||||||
Additions | 542 | 938 | ||||||
Disposals | (2,043 | ) | (935 | ) | ||||
Transfers | 13 | (13 | ) | |||||
Income1 | 156 | 156 | ||||||
Impairments2 | (27 | ) | (4 | ) | ||||
Dividend paid | (33 | ) | (59 | ) | ||||
Foreign currency translation | (41 | ) | 198 | |||||
Carrying amount at the end of the year | 1,523 | 2,956 | ||||||
At 31 December 2006, significant associated companies of the Group had the following balance sheet and income statement totals on an aggregated basis, not adjusted for the Group’s proportionate interest: assets CHF 27 billion;
liabilities CHF 23 billion; revenues CHF 1.9 billion; and net profit CHF 318 million. See Note 35 for a list of significant associates.
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Note 15 Property and Equipment | ||||||||||||||||||||||||||||||||
At historical cost less accumulated depreciation | ||||||||||||||||||||||||||||||||
Other | Plant and | |||||||||||||||||||||||||||||||
Leasehold | IT, software | machines | manu- | |||||||||||||||||||||||||||||
Own-used | improve- | and com- | and | facturing | Projects in | |||||||||||||||||||||||||||
CHF million | properties | ments | munication | equipment | equipment | progress | 31.12.06 | 31.12.05 | ||||||||||||||||||||||||
Historical cost | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 9,446 | 3,050 | 4,261 | 1,596 | 2,904 | 413 | 21,670 | 21,428 | ||||||||||||||||||||||||
Additions | 140 | 206 | 662 | 240 | 36 | 509 | 1,793 | 1,865 | ||||||||||||||||||||||||
Additions from acquired companies | 0 | 5 | 19 | 4 | 1 | 0 | 29 | 116 | ||||||||||||||||||||||||
Disposals / write-offs1 | (407 | ) | (110 | ) | (539 | ) | (817 | ) | (2,960 | ) | (82 | ) | (4,915 | ) | (2,363 | ) | ||||||||||||||||
Reclassifications | 102 | 119 | 116 | (97 | ) | 18 | (284 | ) | (26 | ) | 50 | |||||||||||||||||||||
Foreign currency translation | 5 | (60 | ) | (42 | ) | (33 | ) | 54 | 2 | (74 | ) | 574 | ||||||||||||||||||||
Balance at the end of the year | 9,286 | 3,210 | 4,477 | 893 | 53 | 558 | 18,477 | 21,670 | ||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
Balance at the beginning of the year | 4,781 | 1,999 | 3,474 | 1,349 | 672 | 0 | 12,275 | 11,998 | ||||||||||||||||||||||||
Depreciation2 | 244 | 237 | 676 | 4 | 103 | 65 | 0 | 1,325 | 1,556 | |||||||||||||||||||||||
Disposals / write-offs1 | (108 | ) | (86 | ) | (225 | ) | (807 | ) | (716 | ) | 0 | (1,942 | ) | (1,702 | ) | |||||||||||||||||
Reclassifications | 11 | (18 | ) | 0 | (3 | ) | 0 | 0 | (10 | ) | 32 | |||||||||||||||||||||
Foreign currency translation | 2 | (36 | ) | (38 | ) | (19 | ) | 21 | 0 | (70 | ) | 391 | ||||||||||||||||||||
Balance at the end of the year | 4,930 | 2,096 | 3,887 | 623 | 42 | 0 | 11,578 | 12,275 | ||||||||||||||||||||||||
Net book value at the end of the year3 | 4,356 | 1,114 | 590 | 270 | 11 | 558 | 6,899 | 9,395 | ||||||||||||||||||||||||
At fair value | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Balance at the beginning of the year | 28 | 80 | ||||||
Additions | 0 | 26 | ||||||
Sales | (14 | ) | (25 | ) | ||||
Revaluations | 0 | 0 | ||||||
Reclassifications | 0 | (55 | ) | |||||
Foreign currency translation | 0 | 2 | ||||||
Balance at the end of the year | 14 | 28 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 16 Goodwill and Other Intangible Assets | ||
At year-end 2006, five out of seven segments carry goodwill, of which Industrial Holdings has less than 1% of the total balance. Business Banking Switzerland and Corporate Center carry no goodwill. For the purpose of testing goodwill for impairment, UBS determines the recoverable amount of its segments on the basis of value in use.
amount of the segments is the sum of earnings available to shareholders from the first year and the terminal value. The model is most sensitive to changes in the forecast earnings available to shareholders in year one, the estimated return on equity, the underlying equity, the cost of equity and to changes in the long-term growth rate. The applied long-term growth rate is based on long-term risk free interest rates. Earnings available to shareholders are estimated based on forecast results, business initiatives and planned capital investments and returns to shareholders. Validation parameters used within the Group’s impairment test model are linked to external market information, where applicable. Discount rates applied range from 8% for Wealth Management International & Switzerland and for Business Banking Switzerland to 10.5% for Investment Bank.
Goodwill | Other intangible assets | |||||||||||||||||||||||
Customer | ||||||||||||||||||||||||
relationships, | ||||||||||||||||||||||||
contractual | ||||||||||||||||||||||||
CHF million | Total | Infrastructure | rights and other | Total | 31.12.06 | 31.12.05 | ||||||||||||||||||
Historical cost | ||||||||||||||||||||||||
Balance at the beginning of the year | 11,313 | 1,016 | 2,056 | 3,072 | 14,385 | 13,096 | ||||||||||||||||||
Additions and reallocations | 2,015 | 0 | 1,321 | 1,321 | 3,336 | 92 | ||||||||||||||||||
Disposals | (142 | ) | 0 | (1,231 | ) | (1,231 | ) | (1,373 | ) | (395 | ) | |||||||||||||
Write-offs1 | 0 | 0 | (28 | ) | (28 | ) | (28 | ) | (112 | ) | ||||||||||||||
Foreign currency translation | (722 | ) | (74 | ) | (31 | ) | (105 | ) | (827 | ) | 1,704 | |||||||||||||
Balance at the end of the year | 12,464 | 942 | 2,087 | 3,029 | 15,493 | 14,385 | ||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||
Balance at the beginning of the year | 263 | 636 | 899 | 899 | 895 | |||||||||||||||||||
Amortization2 | 48 | 148 | 196 | 196 | 340 | |||||||||||||||||||
Reallocations | 0 | 0 | 0 | 0 | (307 | ) | ||||||||||||||||||
Disposals | 0 | (301 | ) | (301 | ) | (301 | ) | (30 | ) | |||||||||||||||
Write-offs1 | 0 | (28 | ) | (28 | ) | (28 | ) | (112 | ) | |||||||||||||||
Foreign currency translation | (20 | ) | (26 | ) | (46 | ) | (46 | ) | 113 | |||||||||||||||
Balance at the end of the year | 291 | 429 | 720 | 720 | 899 | |||||||||||||||||||
Net book value at the end of the year | 12,464 | 651 | 1,658 | 2,309 | 14,773 | 13,486 | ||||||||||||||||||
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Note 16 Goodwill and Other Intangible Assets (continued)
The following table presents the disclosure of goodwill and other intangible assets by business segment for the year ended 31 December 2006.
Balance at | Balance at | |||||||||||||||||||||||
the beginning | Additions and | Foreign currency | the end | |||||||||||||||||||||
CHF million | of the year | reallocations | Disposals | Amortization | translation | of the year | ||||||||||||||||||
Goodwill | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 1,566 | 116 | 0 | (37 | ) | 1,645 | ||||||||||||||||||
Wealth Management US | 3,841 | 444 | 0 | (279 | ) | 4,006 | ||||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Global Asset Management | 1,438 | 190 | 0 | (97 | ) | 1,531 | ||||||||||||||||||
Investment Bank | 4,309 | 1,260 | 0 | (307 | ) | 5,262 | ||||||||||||||||||
Corporate Center | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Industrial Holdings | 159 | 5 | (142 | ) | (2 | ) | 20 | |||||||||||||||||
UBS | 11,313 | 2,015 | (142 | ) | (722 | ) | 12,464 | |||||||||||||||||
Other intangible assets | ||||||||||||||||||||||||
Wealth Management International & Switzerland | 141 | 184 | 0 | (10 | ) | 10 | 325 | |||||||||||||||||
Wealth Management US | 753 | 148 | 0 | (53 | ) | (55 | ) | 793 | ||||||||||||||||
Business Banking Switzerland | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Global Asset Management | 8 | 488 | 0 | (4 | ) | 6 | 498 | |||||||||||||||||
Investment Bank | 296 | 483 | 0 | (72 | ) | (19 | ) | 688 | ||||||||||||||||
Corporate Center | 9 | 0 | 0 | (9 | ) | 0 | 0 | |||||||||||||||||
Industrial Holdings | 966 | 18 | (930 | ) | (48 | ) | (1 | ) | 5 | |||||||||||||||
UBS | 2,173 | 1,321 | (930 | ) | (196 | ) | (59 | ) | 2,309 | |||||||||||||||
The estimated, aggregated amortization expenses for other intangible assets are as follows:
CHF million | Other intangible assets | |||
Estimated, aggregated amortization expenses for: | ||||
2007 | 334 | |||
2008 | 238 | |||
2009 | 238 | |||
2010 | 219 | |||
2011 | 187 | |||
2012 and thereafter | 1,093 | |||
Total | 2,309 | |||
Note 17 Other Assets | ||||||||||||
CHF million | Note | 31.12.06 | 31.12.05 | |||||||||
Deferred tax assets | 22 | 3,686 | 2,811 | |||||||||
Settlement and clearing accounts | 3,159 | 3,528 | ||||||||||
VAT and other tax receivables | 318 | 312 | ||||||||||
Prepaid pension costs | 814 | 832 | ||||||||||
Properties held for sale | 1,254 | 578 | ||||||||||
Accounts receivable trade | 114 | 364 | ||||||||||
Inventory – Industrial Holdings | 68 | 2,007 | ||||||||||
Other receivables | 7,836 | 5,811 | ||||||||||
Total other assets | 17,249 | 16,243 | ||||||||||
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Notes to the Financial Statements
Balance Sheet: Liabilities
Note 18 Due to Banks and Customers | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Due to banks | 203,689 | 124,328 | ||||||
Due to customers in savings and investment accounts | 114,264 | 113,889 | ||||||
Other amounts due to customers | 456,301 | 353,018 | ||||||
Total due to customers | 570,565 | 466,907 | ||||||
Total due to banks and customers | 774,254 | 591,235 | ||||||
Note 19 Financial Liabilities Designated at Fair Value and Debt Issued
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Note 19 Financial Liabilities Designated at Fair Value and Debt Issued (continued)
Financial liabilities designated at fair value | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Bonds and compound debt instruments issued | 135,646 | 109,724 | ||||||
Compound debt instruments – OTC | 9,967 | 7,677 | ||||||
Loan commitments1 | 74 | 0 | ||||||
Total | 145,687 | 117,401 | ||||||
Debt issued (held at amortized cost) | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Short-term debt: Money market paper issued | 119,584 | 102,662 | ||||||
Long-term debt: | ||||||||
Bonds | ||||||||
Senior | 53,509 | 46,545 | ||||||
Subordinated | 14,774 | 10,001 | ||||||
Shares in bond issues of the Swiss regional or cantonal banks’ central bond institutions | 38 | 38 | ||||||
Medium-term notes | 2,238 | 1,464 | ||||||
Subtotal long-term debt | 70,559 | 58,048 | ||||||
Total | 190,143 | 160,710 | ||||||
The following table shows the split between fixed-rate and floating-rate debt issues based on the contractual terms. However, it should be noted that the Group uses interest
rate swaps to hedge many of the fixed-rate debt issues, which changes their re-pricing characteristics into those of floating-rate debt.
Contractual maturity dates1 | ||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 2007 | 2008 | 2009 | 2010 | 2011 | 2012–2016 | Thereafter | 31.12.06 | 31.12.05 | |||||||||||||||||||||||||||
UBS AG (Parent Bank) | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 64,379 | 8,307 | 9,279 | 6,173 | 6,277 | 7,391 | 1,894 | 103,700 | 128,504 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–27 | 0–20 | 0–13.5 | 0–13.25 | 0–10.25 | 0–12 | 0–10 | |||||||||||||||||||||||||||||
Floating rate | 38,947 | 17,589 | 6,717 | 4,835 | 2,444 | 6,139 | 14,513 | 91,184 | 25,300 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 1,402 | 0 | 511 | 0 | 0 | 4,946 | 2,555 | 9,414 | 7,658 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–8 | 5.875 | 0–7.375 | 4.125–8.75 | ||||||||||||||||||||||||||||||||
Floating rate | 0 | 0 | 0 | 0 | 0 | 5,360 | 0 | 5,360 | 2,326 | |||||||||||||||||||||||||||
Subtotal | 104,728 | 25,896 | 16,507 | 11,008 | 8,721 | 23,836 | 18,962 | 209,658 | 163,788 | |||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||||||
Senior debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 48,728 | 1,265 | 1,696 | 1,946 | 494 | 2,037 | 29,662 | 85,828 | 93,332 | |||||||||||||||||||||||||||
Interest rates (range in %) | 0–15 | 0–8.5 | 0–18.5 | 0–8 | 0–20 | 0–35 | 0–35 | |||||||||||||||||||||||||||||
Floating rate | 2,666 | 3,655 | 3,785 | 5,822 | 4,449 | 4,745 | 5,181 | 30,303 | 13,297 | |||||||||||||||||||||||||||
Subordinated debt | ||||||||||||||||||||||||||||||||||||
Fixed rate | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17 | |||||||||||||||||||||||||||
Interest rates (range in %) | ||||||||||||||||||||||||||||||||||||
Subtotal | 51,394 | 4,920 | 5,481 | 7,768 | 4,943 | 6,782 | 34,843 | 116,131 | 106,646 | |||||||||||||||||||||||||||
Total | 156,122 | 30,816 | 21,988 | 18,776 | 13,664 | 30,618 | 53,805 | 325,789 | 270,434 | |||||||||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 20 Other Liabilities | ||||||||||||
CHF million | Note | 31.12.06 | 31.12.05 | |||||||||
Provisions | 21 | 1,672 | 2,072 | |||||||||
Provisions for contingent claims | 10b | 76 | 109 | |||||||||
Current tax liabilities | 4,258 | 3,592 | ||||||||||
Deferred tax liabilities | 22 | 2,674 | 2,596 | |||||||||
VAT and other tax payables | 931 | 712 | ||||||||||
Settlement and clearing accounts | 3,715 | 2,707 | ||||||||||
Amounts due under unit-linked investment contracts | 33,645 | 30,224 | ||||||||||
Accounts payable | 91 | 1,425 | ||||||||||
Other payables | 16,189 | 10,400 | ||||||||||
Total other liabilities | 63,251 | 53,837 | ||||||||||
Note 21 Provisions | ||||||||||||||||||||
Total | Total | |||||||||||||||||||
CHF million | Operational | Litigation | Other1 | 31.12.06 | 31.12.052 | |||||||||||||||
Balance at the beginning of the year | 334 | 592 | 1,146 | 2,072 | 2,020 | |||||||||||||||
Additions from acquired companies | 0 | 25 | 1 | 26 | 1 | |||||||||||||||
New provisions charged to income | (7 | ) | 404 | 233 | 630 | 520 | ||||||||||||||
Capitalized reinstatement costs | 0 | 0 | 22 | 22 | 3 | |||||||||||||||
Recoveries | 3 | 2 | 0 | 5 | 25 | |||||||||||||||
Provisions applied | (63 | ) | (290 | ) | (113 | ) | (466 | ) | (588 | ) | ||||||||||
Disposal of subsidiaries | 0 | 0 | (607 | )2 | (607 | ) | (11 | ) | ||||||||||||
Reclassifications | (72 | ) | 0 | 108 | 36 | 0 | ||||||||||||||
Foreign currency translation | (10 | ) | (34 | ) | (2 | ) | (46 | ) | 102 | |||||||||||
Balance at the end of the year | 185 | 699 | 788 | 1,672 | 2,072 | |||||||||||||||
Legal Proceedings
(a) | InsightOne: In December 2006, the New York State Attorney General (NYAG) filed a civil complaint regarding InsightOne, the Firm’s fee-based brokerage program for private clients in the United States. The InsightOne program is a fee-based brokerage program, in which clients pay an asset-based fee for trading activity rather than commissions on a per trade basis and was designed to align more closely the interests of financial advisors and clients. UBS denies that the program was part of a scheme to disadvantage clients and intends to defend itself vigorously in this matter. |
(b) | Tax Shelter: In connection with a criminal investigation of tax shelters, the United States Attorney’s Office for the Southern District of New York (U.S. Attorney’s Office) is examining UBS’s conduct in relation to certain tax-oriented transactions in which UBS and others engaged during the years 1996–2000. Some of these transactions were a subject of the Deferred Prosecution Agreement which the accounting firm KPMG LLP entered into with the U.S. Attorney’s Office in August 2005, and are at issue in United States v. Stein, S1 05 Cr. |
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Note 21 Provisions (continued)
888 (LAK). UBS is cooperating with the government’s investigation. | ||
(c) | Municipal Bonds: In November 2006, UBS and others received subpoenas from the U.S. Department of Justice, Antitrust Division, and the U.S. Securities and Exchange Commission. These subpoenas concern UBS’s conduct relating to derivative transactions entered into with municipal bond issuers, and to the investment of proceeds of municipal bond issuances. UBS is cooperating with these investigations. | |
(d) | HealthSouth: UBS is defending itself in two purported securities class actions brought in the U.S. District Court of the Northern District of Alabama by holders of stock and bonds in HealthSouth Corp. UBS also is a defendant in HealthSouth derivative litigation in Alabama state court and has responded to an SEC investigation relating to UBS’s role as a banker for HealthSouth. | |
(e) | Bankruptcy Estate of Enron: In November 2003, Enron brought adversarial proceedings against UBS and others in the U.S. Bankruptcy Court for the Southern District of |
New York seeking avoidance and recovery of payments that Enron made prior to filing for bankruptcy in connection with equity forward and swap transactions The Bankruptcy Court dismissed UBS’s motion for summary judgment in August 2005. Discovery is ongoing. | ||
(f) | Parmalat: UBS is involved in a number of proceedings in Italy related to the bankruptcy of Parmalat. These proceedings include, inter alia, clawback proceedings against UBS Limited in connection with a structured finance transaction. Further, UBS is a defendant in two civil damages claims brought by Parmalat, of which one relates to the same structured finance transaction against UBS Limited, while the other against UBS AG relates to certain derivative transactions. In addition, UBS Limited and two UBS employees are the subject of criminal proceedings in Milan. Finally, UBS is a defendant in civil actions brought by individual investors in those criminal proceedings. All proceedings still are in an early stage. UBS denies the allegations made against itself and against its employees in these matters, and is defending itself vigorously. |
Note 22 Income Taxes | ||||||||||||
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Tax expense from continuing operations | ||||||||||||
Domestic | ||||||||||||
Current | 1,758 | 1,403 | 1,184 | |||||||||
Deferred | (87 | ) | 87 | 5 | ||||||||
Foreign | ||||||||||||
Current | 1,545 | 1,428 | 815 | |||||||||
Deferred | (430 | ) | (447 | ) | 151 | |||||||
Total income tax expense from continuing operations | 2,786 | 2,471 | 2,155 | |||||||||
Tax expense from discontinued operations | ||||||||||||
Domestic | (12 | ) | 554 | 156 | ||||||||
Foreign | (1 | ) | 22 | 42 | ||||||||
Total income tax expense from discontinued operations | (13 | ) | 576 | 198 | ||||||||
Total income tax expense | 2,773 | 3,047 | 2,353 | |||||||||
The Group made net tax payments, including domestic and foreign taxes, of CHF 2,607 million, CHF 2,394 million and CHF 1,345 million for the full years 2006, 2005 and 2004 respectively.
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Financial Statements
Notes to the Financial Statements
Note 22 Income Taxes (continued)
The components of operating profit before tax, and the differences between income tax expense reflected in the Financial Statements and the amounts calculated at the Swiss statutory rate, are as follows:
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Operating profit from continuing operations before tax | 14,667 | 12,677 | 10,042 | |||||||||
Domestic | 5,564 | 5,854 | 5,675 | |||||||||
Foreign | 9,103 | 6,823 | 4,367 | |||||||||
Income taxes at Swiss statutory rate of 22% for 2006 and 2005 and 24% for 2004 | 3,227 | 2,789 | 2,410 | |||||||||
Increase / (decrease) resulting from: | ||||||||||||
Applicable tax rates differing from Swiss statutory rate | 829 | 388 | 128 | |||||||||
Tax losses not recognized | 21 | 71 | 103 | |||||||||
Previously unrecorded tax losses now recognized | (680 | ) | (97 | ) | (249 | ) | ||||||
Lower taxed income | (941 | ) | (555 | ) | (657 | ) | ||||||
Non-deductible goodwill and other intangible asset amortization | 21 | 22 | 262 | |||||||||
Other non-deductible expenses | 183 | 212 | 215 | |||||||||
Adjustments related to prior years | 316 | (283 | ) | (98 | ) | |||||||
Change in deferred tax valuation allowance | (548 | ) | (156 | ) | 239 | |||||||
Other items | 358 | 80 | (198 | ) | ||||||||
Income tax expense from continuing operations | 2,786 | 2,471 | 2,155 | |||||||||
Significant components of the Group’s gross deferred income tax assets and liabilities are as follows:
CHF million | 31.12.06 | 31.12.05 | ||||||
Deferred tax assets | ||||||||
Compensation and benefits | 2,611 | 1,904 | ||||||
Net operating loss carry-forwards | 1,508 | 2,235 | ||||||
Trading assets | 768 | 586 | ||||||
Other | 598 | 804 | ||||||
Total | 5,485 | 5,529 | ||||||
Valuation allowance | (1,799 | ) | (2,718 | ) | ||||
Net deferred tax assets | 3,686 | 2,811 | ||||||
Deferred tax liabilities | ||||||||
Compensation and benefits | 122 | 55 | ||||||
Property and equipment | 201 | 515 | ||||||
Financial investments and associates | 1,221 | 633 | ||||||
Trading assets | 684 | 448 | ||||||
Intangible assets | 55 | 264 | ||||||
Other | 391 | 681 | ||||||
Total deferred tax liabilities | 2,674 | 2,596 | ||||||
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the deferred tax expense in those years. This is mainly due to the effects of exchange rate changes on tax assets and liabilities denominated in currencies other than CHF and the booking of some of the tax benefits related to deferred compensation through Equity. For the above purposes, the valuation allowance represents amounts that are not expected to provide future benefits, either because they are offset against tax contingencies or due to insufficiency of future taxable income.
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Note 22 Income Taxes (continued)
The carry-forwards expire as follows: | 31.12.06 | |||
Within 1 year | 3 | |||
From 2 to 4 years | 181 | |||
After 4 years | 3,956 | |||
Total | 4,140 | |||
Note 23 Derivative Instruments and Hedge Accounting
Types of derivative instruments
– | Interest rate swap contracts generally entail the contractual exchange of fixed-rate and floating-rate interest payments in a single currency, based on a notional amount and a reference interest rate, e. g. LIBOR. |
– | Cross currency swaps involve the exchange of interest payments based on two different currency principal balances and reference interest rates and generally also |
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Note 23 Derivative Instruments and Hedge Accounting (continued)
entail exchange of principal amounts at the start and / or end of the contract. |
– | Credit default swaps (CDSs) are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection in exchange for an undertaking by the seller to make a payment to the buyer following a credit event (as defined in the contract) with respect to a third-party credit entity (as defined in the contract). Settlement following a credit event may be a net cash amount or cash in return for physical delivery of one or more obligations of the credit entity and is made regardless of whether the protection buyer has actually suffered a loss. After a credit event and settlement, the contract is terminated. |
– | Total rate of return swaps give the total return receiver exposure to all of the cash flows and economic benefits and risks of an underlying asset, without having to own the asset, in exchange for a series of payments, often based on a reference interest rate, e.g. LIBOR. The total return payer has an equal and opposite position. |
– | Options are contractual agreements under which, typically, the seller (writer) grants the purchaser the right, but not the obligation, either to buy (call option) or to sell (put option) by or at a set date, a specified quantity of a financial instrument or commodity at a predetermined price. The purchaser pays a premium to the seller for this right. Options involving more complex payment structures are also transacted. Options may be traded OTC or on a regulated exchange and may be traded in the form of a security (warrant). |
Derivatives transacted for trading purposes
Derivatives transacted for hedging purposes
Fair value hedges
Fair value hedge of portfolio of interest rate risk
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Note 23 Derivative Instruments and Hedge Accounting (continued)
Cash flow hedges of forecast transactions
CHF billion | < 1 year | 1–3 years | 3–5 years | 5–10 years | over 10 years | |||||||||||||||
Cash inflows (assets) | 228 | 420 | 294 | 267 | 7 | |||||||||||||||
Cash outflows (liabilities) | 88 | 156 | 109 | 151 | 41 | |||||||||||||||
Net cash flows | 140 | 264 | 185 | 116 | (34 | ) | ||||||||||||||
Gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions are initially recorded in Equity as Net income recognized directly in equity and are transferred to current period earnings when the forecast cash flows affect net profit or loss. The gains and losses on ineffective portions of such derivatives are recognized immediately in the income statement. A CHF 36 million loss, CHF 35 million gain and a CHF 13 million gain were recognized in 2006, 2005 and 2004, respectively, due to hedge ineffectiveness.
Risks of derivative instruments
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Note 23 Derivative Instruments and Hedge Accounting (continued) | ||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2006 | Term to maturity | Total | ||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3-12 months | 1-5 years | over 5 years | Total | Total | notional | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,001 | 764 | 172 | 177 | 38 | 34 | 1,211 | 975 | 1,848.0 | |||||||||||||||||||||||||||||||||||
Swaps | 5,629 | 4,784 | 9,891 | 10,134 | 46,690 | 47,128 | 87,079 | 81,719 | 149,289 | 143,765 | 22,643.4 | |||||||||||||||||||||||||||||||||
Options | 273 | 308 | 127 | 440 | 2,252 | 3,563 | 13,529 | 15,148 | 16,181 | 19,459 | 1,432.5 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,904.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 406 | 438 | 474 | 485 | 96 | 96 | 976 | 1,019 | 34.7 | |||||||||||||||||||||||||||||||||||
Total | 7,309 | 6,294 | 10,664 | 11,236 | 49,076 | 50,821 | 100,608 | 96,867 | 167,657 | 165,218 | 28,863.0 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 35 | 54 | 363 | 673 | 12,874 | 14,035 | 7,425 | 7,953 | 20,697 | 22,715 | 2,536.6 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 54 | 63 | 100 | 74 | 583 | 1,606 | 4,284 | 3,512 | 5,021 | 5,255 | 103.0 | |||||||||||||||||||||||||||||||||
Total | 89 | 117 | 463 | 747 | 13,457 | 15,641 | 11,709 | 11,465 | 25,718 | 27,970 | 2,639.6 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 4,565 | 4,322 | 1,765 | 1,968 | 827 | 531 | 17 | 103 | 7,174 | 6,924 | 784.0 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 24,724 | 22,977 | 10,363 | 10,599 | 14,641 | 12,366 | 12,821 | 11,831 | 62,549 | 57,773 | 4,064.6 | |||||||||||||||||||||||||||||||||
Options | 2,877 | 2,624 | 2,987 | 3,042 | 828 | 1,041 | 51 | 49 | 6,743 | 6,756 | 1,276.2 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 20.8 | |||||||||||||||||||||||||||||||||||||||||||
Options | 12 | 16 | 2 | 2 | 14 | 18 | 0.1 | |||||||||||||||||||||||||||||||||||||
Total | 32,178 | 29,939 | 15,117 | 15,611 | 16,296 | 13,938 | 12,889 | 11,983 | 76,480 | 71,471 | 6,145.7 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 348 | 339 | 573 | 355 | 757 | 371 | 37 | 48 | 1,715 | 1,113 | 25.6 | |||||||||||||||||||||||||||||||||
Options | 293 | 580 | 676 | 784 | 1,554 | 1,281 | 118 | 68 | 2,641 | 2,713 | 70.6 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.0 | |||||||||||||||||||||||||||||||||||||||||||
Options | 333 | 400 | 427 | 381 | 1,050 | 1,087 | 1,810 | 1,868 | 23.9 | |||||||||||||||||||||||||||||||||||
Total | 974 | 1,319 | 1,676 | 1,520 | 3,361 | 2,739 | 155 | 116 | 6,166 | 5,694 | 121.1 | |||||||||||||||||||||||||||||||||
Equity / index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 1,179 | 1,464 | 386 | 1,217 | 506 | 8 | 14 | 103 | 2,085 | 2,792 | 107.8 | |||||||||||||||||||||||||||||||||
Options | 1,073 | 3,485 | 3,702 | 5,655 | 6,121 | 8,821 | 1,605 | 2,795 | 12,501 | 20,756 | 258.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 72.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 4,277 | 4,602 | 8,238 | 8,396 | 9,978 | 10,458 | 453 | 433 | 22,946 | 23,889 | 270.7 | |||||||||||||||||||||||||||||||||
Total | 6,529 | 9,551 | 12,326 | 15,268 | 16,605 | 19,287 | 2,072 | 3,331 | 37,532 | 47,437 | 708.9 | |||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 3,254 | 3,223 | 2,894 | 3,155 | 1,724 | 1,579 | 766 | 840 | 8,638 | 8,797 | 86.3 | |||||||||||||||||||||||||||||||||
Options | 221 | 236 | 447 | 368 | 595 | 654 | 1 | 27 | 1,264 | 1,285 | 13.0 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 236.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,626 | 1,637 | 2,164 | 1,967 | 1,200 | 1,057 | 4,990 | 4,661 | 67.1 | |||||||||||||||||||||||||||||||||||
Total | 5,101 | 5,096 | 5,505 | 5,490 | 3,519 | 3,290 | 767 | 867 | 14,892 | 14,743 | 403.1 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 52,180 | 52,316 | 45,751 | 49,872 | 102,314 | 105,716 | 128,200 | 124,629 | 328,445 | 4 | 332,533 | 5 | ||||||||||||||||||||||||||||||||
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Note 23 Derivative Instruments and Hedge Accounting (continued) | ||||||||||||||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||||||||
As of 31 December 2005 | Term to maturity | notional | ||||||||||||||||||||||||||||||||||||||||||
within 3 months | 3–12 months | 1–5 years | over 5 years | Total | Total | amount | ||||||||||||||||||||||||||||||||||||||
CHF million | PRV1 | NRV2 | PRV | NRV | PRV | NRV | PRV | NRV | PRV | NRV | CHF bn | |||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 652 | 607 | 154 | 96 | 97 | 32 | 86 | 179 | 989 | 914 | 1,345.7 | |||||||||||||||||||||||||||||||||
Swaps | 5,953 | 4,701 | 12,630 | 13,156 | 77,445 | 75,523 | 105,029 | 101,256 | 201,057 | 194,636 | 15,680.4 | |||||||||||||||||||||||||||||||||
Options | 832 | 690 | 1,750 | 2,163 | 9,600 | 10,701 | 6,738 | 9,247 | 18,920 | 22,801 | 1,273.1 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 2,418.3 | |||||||||||||||||||||||||||||||||||||||||||
Options | 59 | 55 | 118 | 123 | 6 | 6 | 183 | 184 | 26.6 | |||||||||||||||||||||||||||||||||||
Total | 7,496 | 6,053 | 14,652 | 15,538 | 87,148 | 86,262 | 111,853 | 110,682 | 221,149 | 218,535 | 20,744.1 | |||||||||||||||||||||||||||||||||
Credit derivative contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 13 | 21 | 290 | 195 | 7,911 | 10,691 | 4,247 | 2,472 | 12,461 | 13,379 | 1,481.0 | |||||||||||||||||||||||||||||||||
Total rate of return swaps | 50 | 74 | 30 | 143 | 757 | 778 | 713 | 820 | 1,550 | 1,815 | 44.4 | |||||||||||||||||||||||||||||||||
Total | 63 | 95 | 320 | 338 | 8,668 | 11,469 | 4,960 | 3,292 | 14,011 | 15,194 | 1,525.4 | |||||||||||||||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,905 | 2,470 | 962 | 806 | 643 | 499 | 54 | 96 | 4,564 | 3,871 | 502.9 | |||||||||||||||||||||||||||||||||
Interest and currency swaps | 20,162 | 22,092 | 10,239 | 9,256 | 12,102 | 12,252 | 5,875 | 6,242 | 48,378 | 49,842 | 3,592.6 | |||||||||||||||||||||||||||||||||
Options | 1,910 | 1,800 | 1,855 | 1,600 | 386 | 637 | 5 | 2 | 4,156 | 4,039 | 659.6 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 4.7 | |||||||||||||||||||||||||||||||||||||||||||
Options | 6 | 6 | 1 | 1 | 7 | 7 | 0.1 | |||||||||||||||||||||||||||||||||||||
Total | 24,983 | 26,368 | 13,057 | 11,663 | 13,131 | 13,388 | 5,934 | 6,340 | 57,105 | 57,759 | 4,759.9 | |||||||||||||||||||||||||||||||||
Precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 444 | 365 | 407 | 366 | 558 | 284 | 85 | 91 | 1,494 | 1,106 | 17.4 | |||||||||||||||||||||||||||||||||
Options | 276 | 431 | 607 | 521 | 1,128 | 1,050 | 99 | 55 | 2,110 | 2,057 | 56.9 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 1.6 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,179 | 1,143 | 1,498 | 1,512 | 1,288 | 1,312 | 3,965 | 3,967 | 4.4 | |||||||||||||||||||||||||||||||||||
Total | 1,899 | 1,939 | 2,512 | 2,399 | 2,974 | 2,646 | 184 | 146 | 7,569 | 7,130 | 80.3 | |||||||||||||||||||||||||||||||||
Equity / index contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 859 | 627 | 747 | 769 | 1,410 | 499 | 2 | 13 | 3,018 | 1,908 | 101.8 | |||||||||||||||||||||||||||||||||
Options | 270 | 1,058 | 3,017 | 4,621 | 7,154 | 8,635 | 2,237 | 4,487 | 12,678 | 18,801 | 204.7 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 59.5 | |||||||||||||||||||||||||||||||||||||||||||
Options | 1,997 | 1,827 | 2,396 | 2,473 | 3,787 | 4,277 | 178 | 206 | 8,358 | 8,783 | 345.3 | |||||||||||||||||||||||||||||||||
Total | 3,126 | 3,512 | 6,160 | 7,863 | 12,351 | 13,411 | 2,417 | 4,706 | 24,054 | 29,492 | 711.3 | |||||||||||||||||||||||||||||||||
Commodities contracts, excluding precious metals contracts | ||||||||||||||||||||||||||||||||||||||||||||
Over-the-counter (OTC) contracts | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts | 2,146 | 2,099 | 4,208 | 3,908 | 2,301 | 2,488 | 3 | 0 | 8,658 | 8,495 | 70.7 | |||||||||||||||||||||||||||||||||
Options | 164 | 185 | 354 | 300 | 599 | 457 | 1 | 4 | 1,118 | 946 | 6.8 | |||||||||||||||||||||||||||||||||
Exchange-traded contracts3 | ||||||||||||||||||||||||||||||||||||||||||||
Futures | 105.4 | |||||||||||||||||||||||||||||||||||||||||||
Options | 28 | 42 | 64 | 47 | 26 | 23 | 118 | 112 | 12.2 | |||||||||||||||||||||||||||||||||||
Total | 2,338 | 2,326 | 4,626 | 4,255 | 2,926 | 2,968 | 4 | 4 | 9,894 | 9,553 | 195.1 | |||||||||||||||||||||||||||||||||
Total derivative instruments | 39,905 | 40,293 | 41,327 | 42,056 | 127,198 | 130,144 | 125,352 | 125,170 | 333,782 | 4 | 337,663 | 5 | ||||||||||||||||||||||||||||||||
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Off-Balance Sheet Information
Note 24 Pledgeable Off-Balance Sheet Securities
The Group obtains securities which are not recorded on the balance sheet with the right to sell or repledge them as shown in the table below.
CHF million | 31.12.06 | 31.12.05 | ||||||
Fair value of securities received which can be sold or repledged | 1,436,827 | 1,255,176 | ||||||
as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions | 1,342,733 | 1,183,238 | ||||||
in unsecured borrowings | 94,094 | 71,938 | ||||||
thereof sold or repledged | 1,069,795 | 1,023,192 | ||||||
in connection with financing activities | 969,608 | 939,571 | ||||||
to satisfy commitments under short sale transactions | 87,288 | 70,174 | ||||||
in connection with derivative and other transactions | 12,899 | 13,447 | ||||||
Note 25 Fiduciary Transactions
Fiduciary placement represents funds customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank, nor do creditors of the Group have a claim on the assets placed.
CHF million | 31.12.06 | 31.12.05 | ||||||
Placements with third parties | 43,366 | 40,603 | ||||||
Total fiduciary transactions | 43,366 | 40,603 | ||||||
The Group also acts in its own name as trustee or in fiduciary capacities for the account of third parties. The assets managed in such capacities are not reported on the balance sheet unless they are invested with UBS. UBS earns commission and fee income from such transactions and assets.
These activities potentially expose UBS to liability risks in cases of gross negligence with regard to non-compliance with its fiduciary and contractual duties. UBS has policies and processes in place to control these risks.
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Notes to the Financial Statements
Note 26 Commitments and Contingent Liabilities
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Note 26 Commitments and Contingent Liabilities (continued)
CHF million | 31.12.06 | 31.12.05 | ||||||
Contingent liabilities | ||||||||
Guaranteed amounts | ||||||||
Credit guarantees and similar instruments1 | 12,142 | 11,526 | ||||||
Sub-participations | (813 | ) | (719 | ) | ||||
Total | 11,329 | 10,807 | ||||||
Performance guarantees and similar instruments2 | 3,199 | 2,805 | ||||||
Sub-participations | (333 | ) | (335 | ) | ||||
Total | 2,866 | 2,470 | ||||||
Documentary credits | 2,567 | 2,235 | ||||||
Sub-participations | (238 | ) | (207 | ) | ||||
Total | 2,329 | 2,028 | ||||||
Gross contingent liabilities | 17,908 | 16,566 | ||||||
Sub-participations | (1,384 | ) | (1,261 | ) | ||||
Net contingent liabilities | 16,524 | 15,305 | ||||||
Irrevocable commitments | ||||||||
Committed amounts | ||||||||
Undrawn irrevocable credit facilities | 97,287 | 72,905 | ||||||
Sub-participations | (2 | ) | (2 | ) | ||||
Total | 97,285 | 72,903 | ||||||
Liabilities for calls on shares and other equities | 20 | 20 | ||||||
Gross irrevocable commitments | 97,307 | 72,925 | ||||||
Sub-participations | (2 | ) | (2 | ) | ||||
Net irrevocable commitments | 97,305 | 72,923 | ||||||
Contingent liabilities and irrevocable commitments | ||||||||
Gross contingent liabilities and irrevocable commitments | 115,215 | 89,491 | ||||||
Sub-participations | (1,386 | ) | (1,263 | ) | ||||
Net contingent liabilities and irrevocable commitments | 113,829 | 3 | 88,228 | |||||
CHF million | Mortgage collateral | Other collateral | Unsecured | Total | ||||||||||||
Overview of collateral | ||||||||||||||||
Gross contingent liabilities | 318 | 10,257 | 7,333 | 17,908 | ||||||||||||
Gross irrevocable commitments | 6,817 | 43,412 | 47,058 | 97,287 | ||||||||||||
Liabilities for calls on shares and other equities | 0 | 0 | 20 | 20 | ||||||||||||
Total 31.12.06 | 7,135 | 53,669 | 54,411 | 115,215 | ||||||||||||
Total 31.12.05 | 3,688 | 43,280 | 42,523 | 89,491 | ||||||||||||
Other commitments
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Notes to the Financial Statements
Note 27 Operating Lease Commitments
At 31 December 2006, UBS was obligated under a number of non-cancellable operating leases for premises and equipment used primarily for banking purposes. The significant premises leases usually include renewal options and escalation clauses in line with general office rental market conditions as well as rent adjustments based on price indices. However, the lease agreements do not contain contingent
rent payment clauses and purchase options. The leases also do not impose any restrictions on UBS’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
CHF million | 31.12.06 | |||||||||||
Operating leases due | ||||||||||||
2007 | 1,003 | |||||||||||
2008 | 995 | |||||||||||
2009 | 924 | |||||||||||
2010 | 839 | |||||||||||
2011 | 722 | |||||||||||
2012 and thereafter | 4,280 | |||||||||||
Subtotal commitments for minimum payments under operating leases | 8,763 | |||||||||||
Less: Sublease rentals under non-cancellable leases | 849 | |||||||||||
Net commitments for minimum payments under operating leases | 7,914 | |||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Gross operating lease expense | 1,178 | 1,232 | 1,309 | |||||||||
from continuing operations | 1,165 | 1,092 | 1,197 | |||||||||
from discontinued operations | 13 | 140 | 112 | |||||||||
Sublease rental income from continuing operations | 56 | 51 | 43 | |||||||||
Net operating lease expense | 1,122 | 1,181 | 1,266 | |||||||||
from continuing operations | 1,109 | 1,041 | 1,154 | |||||||||
from discontinued operations | 13 | 140 | 112 | |||||||||
Operating lease contracts include non-cancellable long-term leases of office buildings in most UBS locations. At 31 De-cember 2006, the minimum lease commitments for sixteen office locations each exceeded CHF 100 million. Non-cancel-
lable minimum lease commitments for four office locations in New Jersey, London, Zurich and New York each exceeded CHF 500 million.
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Additional Information
Note 28 Pledged Assets
Financial assets are pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions and for security deposits relating to stock exchange and clearinghouse memberships.
Carrying amount | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Financial assets pledged1 | ||||||||
Mortgage loans | 81 | 64 | ||||||
Other financial assets | 0 | 474 | ||||||
Total financial assets pledged | 81 | 538 | ||||||
Other assets pledged | ||||||||
Property and equipment | 0 | 520 | ||||||
Note 29 Financial Instruments Risk Position
This Note presents information about UBS’s management and control of risks from financial instruments.
– | market risk – part b) – is exposure to market variables including general market risk factors such as interest rates, exchange rates, equity market indices and commodity prices, and factors specific to individual names affecting the values of securities and other obligations in tradable form, and derivatives referenced to these names | ||
– | credit risk – part c) – is the risk of loss as a result of failure by a client or counterparty to meet its contractual obligations |
– | liquidity risk – part d) – is the risk that UBS is unable to meet its payment obligations when due. |
a) Risk Management & Control Objectives
Taking risk is core to a financial services business. UBS’s risk management and control objective is not, therefore, to eliminate all risks but to achieve an appropriate balance between risk and return. In day-to-day business and in the strategic management of the balance sheet and capital position, UBS seeks, through its risk management and control framework, to limit the scope for adverse variations in earnings and exposure to “stress” events.
– | business management is accountable for all risks assumed and is responsible for their continuous and active management | ||
– | an independent control process is implemented to provide an objective check on risk-taking activities when required by the nature of the risks, in particular to balance short term profit incentives and the long term interests of UBS. All exposures are independently monitored and reviewed and, depending on the nature of the risks, may also require pre-approval |
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Notes to the Financial Statements
Note 29 Financial Instruments Risk Position(continued)
a) Risk Management & Control Objectives (continued)
– | comprehensive, transparent and objective risk disclosure to senior management, the Board of Directors, shareholders, regulators, rating agencies and other stakeholders is the cornerstone of the risk control process | ||
– | risks are controlled at the level of individual exposures, at a portfolio level, and in aggregate across all businesses and risk types to protect the Group’s earnings | ||
– | managing and controlling risks, and in particular avoiding undue concentrations of exposure, limiting potential losses from stress events, and restricting significant positions in less quantifiable risk areas, are essential elements |
of the risk management and control framework and the protection of UBS’s reputation. |
b) Market Risk
(i) Overview
risk. They ensure that all market risks are identified and captured in risk systems. They establish the necessary controls, including limits, and monitor positions and exposures. An important element of the CRO’s role is the assessment of market risk in new businesses and products, and in structured transactions.
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Note 29 Financial Instruments Risk Position (continued)
b) Market Risk (continued)
VaR expresses potential loss, but only to a certain level of confidence (99%), and there is therefore a specified statistical probability (1%) that actual loss could be greater than the VaR estimate. UBS’s VaR model measures risk over a 10-day time horizon and it assumes that market moves occurring over this horizon will follow a similar pattern to those that have occurred over 10-day periods in the past. For general market risk, the assessment of past movements is based on data for the past five years, and these are applied directly to current positions, a method known as historical simulation. For idiosyncratic risk, including event risk, the methods and time horizons are adjusted to most appropriately capture the risks.
volatility and market liquidity. They include measures of exposure to individual market risk variables, such as the exchange rates and interest rates of particular currencies (“market risk factors”), and on positions in the securities and other tradable obligations of individual names or groups, or derivatives referenced to such names (“issuer risk” – see section b)(v)).
(ii) Interest rate risk
Interest rate sensitivity position1 | ||||||||||||||||||||||||||
Interest rate sensitivity by time band at 31.12.06 | ||||||||||||||||||||||||||
within 1 | 1 to 3 | 3 to 12 | ||||||||||||||||||||||||
CHF thousand, gain / (loss) per basis point increase | month | months | months | 1 to 5 years | over 5 years | Total | ||||||||||||||||||||
CHF | Trading | 183 | (256 | ) | (377 | ) | 202 | (116 | ) | (364 | ) | |||||||||||||||
Non-trading | (47 | ) | (16 | ) | (206 | ) | (3,677 | ) | (3,524 | ) | (7,470 | ) | ||||||||||||||
USD | Trading | 13 | (202 | ) | (716 | ) | (602 | ) | (1,663 | ) | (3,170 | ) | ||||||||||||||
Non-trading | 68 | 30 | (208 | ) | (2,896 | ) | (5,452 | ) | (8,458 | ) | ||||||||||||||||
EUR | Trading | (261 | ) | 648 | (409 | ) | (6,707 | ) | 5,756 | (973 | ) | |||||||||||||||
Non-trading | (16 | ) | (5 | ) | (31 | ) | (359 | ) | (333 | ) | (744 | ) | ||||||||||||||
GBP | Trading | 123 | (93 | ) | (272 | ) | (194 | ) | 141 | (295 | ) | |||||||||||||||
Non-trading | 0 | (7 | ) | (142 | ) | (266 | ) | 256 | (159 | ) | ||||||||||||||||
JPY | Trading | 46 | 386 | (117 | ) | (118 | ) | 4 | 201 | |||||||||||||||||
Non-trading | 1 | 1 | 2 | (7 | ) | 0 | (3 | ) | ||||||||||||||||||
Other | Trading | 47 | 469 | (209 | ) | (708 | ) | (10 | ) | (411 | ) | |||||||||||||||
Non-trading | (3 | ) | 1 | 1 | (1 | ) | (4 | ) | (6 | ) | ||||||||||||||||
Interest rate sensitivity by time band at 31.12.05 | ||||||||||||||||||||||||||
within 1 | 1 to 3 | 3 to 12 | ||||||||||||||||||||||||
CHF thousand, gain / (loss) per basis point increase | month | months | months | 1 to 5 years | over 5 years | Total | ||||||||||||||||||||
CHF | Trading | 167 | (526 | ) | 120 | 213 | (322 | ) | (349 | ) | ||||||||||||||||
Non-trading | (258 | ) | (57 | ) | (883 | ) | (6,514 | ) | (287 | ) | (7,998 | ) | ||||||||||||||
USD | Trading | (306 | ) | (103 | ) | 122 | (3,238 | ) | 3,329 | (196 | ) | |||||||||||||||
Non-trading | 70 | (159 | ) | (546 | ) | (7,847 | ) | 35 | (8,447 | ) | ||||||||||||||||
EUR | Trading | 536 | (344 | ) | (302 | ) | (2,792 | ) | 2,725 | (178 | ) | |||||||||||||||
Non-trading | (2 | ) | (33 | ) | (18 | ) | (271 | ) | 1,174 | 850 | ||||||||||||||||
GBP | Trading | 169 | (653 | ) | 131 | (310 | ) | (9 | ) | (672 | ) | |||||||||||||||
Non-trading | (1 | ) | (8 | ) | (78 | ) | (437 | ) | 536 | 12 | ||||||||||||||||
JPY | Trading | 194 | 367 | (435 | ) | 406 | (704 | ) | (172 | ) | ||||||||||||||||
Non-trading | (0 | ) | (0 | ) | (3 | ) | (4 | ) | 0 | (7 | ) | |||||||||||||||
Other | Trading | 2 | (48 | ) | 69 | (125 | ) | (371 | ) | (473 | ) | |||||||||||||||
Non-trading | (3 | ) | (1 | ) | (0 | ) | (1 | ) | (3 | ) | (8 | ) | ||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
b) Market Risk (continued)
The table sets out the extent to which UBS was exposed to interest rate risk at 31 December 2006 and 2005. 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, both on- and off-balance sheet. The impact of such an increase in interest rates depends on UBS’s net asset or net liability position in each category, currency and time band in the table. A negative amount in the table reflects a potential reduction in fair value, while a positive amount reflects a potential increase in fair value.
Trading
Non-trading
The largest non-trading interest rate exposures arise in the Global Wealth Management & Business Banking Business Group. Many of their retail banking products have no contractual maturity date or directly market-linked rate. Their interest rate risk is transferred on a pooled basis through “replicating” portfolios. A replicating portfolio is a series of loans or deposits at market rates and fixed terms between the originating business unit and Treasury, structured to approximate – on average – the interest rate cash flow and re-pricing behaviour of the pooled client transactions. The portfolios are rebalanced monthly. Their structure and parameters are based on long-term market observations and client behavior, and are reviewed periodically. Product margin remains with, and is subject to additional analysis and control by the originating business units.
(iii) Currency risk
Trading
146
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Note 29 Financial Instruments Risk Position (continued)
b) Market Risk (continued)
Non-trading
(iv) Equity risk
(v) Issuer risk
(vi) Investment positions
147
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
c) Credit Risk
148
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Note 29 Financial Instruments Risk Position (continued)
c) Credit Risk (continued)
Impaired claims
Breakdown of credit exposure1
Amounts for each product type are shown gross before allowances and provisions.
CHF million | 31.12.06 | 31.12.05 | ||||||
Banking products | ||||||||
Due from banks and loans2 | 364,110 | 314,482 | ||||||
Contingent liabilities (gross – before participations)3 | 17,908 | 16,566 | ||||||
Undrawn irrevocable credit facilities (gross – before participations)3 | 97,287 | 72,905 | ||||||
Traded products4 | ||||||||
Derivatives positive replacement values (before collateral but after netting)5 | 110,732 | 86,950 | ||||||
Securities borrowing and lending, repos and reverse repos6, 7 | 47,870 | 40,765 | ||||||
Allowances and provisions8 | (1,332 | ) | (1,776 | ) | ||||
Total credit exposure net of allowances and provisions | 636,575 | 529,892 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
c) Credit Risk (continued)
d) Liquidity Risk
150
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Note 29 Financial Instruments Risk Position (continued)
d) Liquidity Risk (continued)
Maturity analysis of assets and liabilities | ||||||||||||||||||||||||||||
Due | Due | |||||||||||||||||||||||||||
Due | between | between | ||||||||||||||||||||||||||
On | Subject | within | 3 and | 1 and | Due after | |||||||||||||||||||||||
CHF billion | demand | to notice1 | 3 months | 12 months | 5 years | 5 years | Total | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and balances with central banks | 3.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 3.5 | |||||||||||||||||||||
Due from banks | 27.2 | 0.0 | 19.5 | 1.2 | 2.3 | 0.2 | 50.4 | |||||||||||||||||||||
Cash collateral on securities borrowed | 0.0 | 239.6 | 102.7 | 9.3 | 0.0 | 0.0 | 351.6 | |||||||||||||||||||||
Reverse repurchase agreements | 0.0 | 67.1 | 278.5 | 49.2 | 10.9 | 0.1 | 405.8 | |||||||||||||||||||||
Trading portfolio assets2 | 627.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 627.0 | |||||||||||||||||||||
Trading portfolio assets pledged as collateral2 | 251.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 251.5 | |||||||||||||||||||||
Positive replacement values2 | 328.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 328.4 | |||||||||||||||||||||
Financial assets designated at fair value | 5.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 5.9 | |||||||||||||||||||||
Loans | 42.9 | 44.7 | 89.0 | 32.2 | 79.5 | 24.2 | 312.5 | |||||||||||||||||||||
Financial investments available-for-sale | 8.1 | 0.0 | 0.3 | 0.1 | 0.2 | 0.2 | 8.9 | |||||||||||||||||||||
Accrued income and prepaid expenses | 10.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 10.4 | |||||||||||||||||||||
Investments in associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.5 | 1.5 | |||||||||||||||||||||
Property and equipment | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 6.9 | 6.9 | |||||||||||||||||||||
Goodwill and other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 14.8 | 14.8 | |||||||||||||||||||||
Other assets | 17.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 17.4 | |||||||||||||||||||||
Total 31.12.06 | 1,322.3 | 351.4 | 490.0 | 92.0 | 92.9 | 47.9 | 2,396.5 | |||||||||||||||||||||
Total 31.12.05 | 1084.2 | 289.8 | 452.6 | 98.2 | 87.9 | 45.6 | 2,058.3 | |||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Due to banks | 41.4 | 4.4 | 151.9 | 5.2 | 0.3 | 0.5 | 203.7 | |||||||||||||||||||||
Cash collateral on securities lent | 0.0 | 55.5 | 7.6 | 0.0 | 0.0 | 0.0 | 63.1 | |||||||||||||||||||||
Repurchase agreements | 0.0 | 30.9 | 425.1 | 81.8 | 7.7 | 0.0 | 545.5 | |||||||||||||||||||||
Trading portfolio liabilities2 | 204.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 204.8 | |||||||||||||||||||||
Negative replacement values2 | 332.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 332.5 | |||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 0.0 | 7.8 | 28.0 | 79.2 | 30.7 | 145.7 | |||||||||||||||||||||
Due to customers | 157.0 | 130.2 | 268.5 | 13.7 | 1.0 | 0.2 | 570.6 | |||||||||||||||||||||
Accrued expenses and deferred income | 21.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 21.5 | |||||||||||||||||||||
Debt issued | 0.0 | 0.0 | 101.1 | 21.9 | 9.3 | 57.9 | 190.1 | |||||||||||||||||||||
Other liabilities | 29.6 | 33.6 | 0.0 | 0.0 | 0.0 | 0.0 | 63.2 | |||||||||||||||||||||
Total 31.12.06 | 786.8 | 254.6 | 962.0 | 150.6 | 97.5 | 89.3 | 2,340.7 | |||||||||||||||||||||
Total 31.12.05 | 732.7 | 244.7 | 791.5 | 90.1 | 74.8 | 72.9 | 2,006.7 | |||||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 29 Financial Instruments Risk Position (continued)
e) Capital Adequacy
BIS eligible capital
BIS risk-weighted assets (RWAs)
152
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Note 29 Financial Instruments Risk Position (continued)
e) Capital Adequacy (continued)
Risk-weighted assets (BIS) | ||||||||||||||||
Risk-weighted | Risk-weighted | |||||||||||||||
Exposure | amount | Exposure | amount | |||||||||||||
CHF million | 31.12.06 | 31.12.06 | 31.12.05 | 31.12.05 | ||||||||||||
Balance sheet exposures | ||||||||||||||||
Due from banks and other collateralized lendings1 | 452,821 | 10,438 | 665,932 | 6,991 | ||||||||||||
Net positions in securities2 | 10,262 | 8,447 | 8,079 | 6,849 | ||||||||||||
Positive replacement values3 | 110,732 | 24,161 | 86,950 | 20,546 | ||||||||||||
Loans, net of allowances for credit losses and other collateralized lendings1 | 887,694 | 206,359 | 540,051 | 196,091 | ||||||||||||
Accrued income and prepaid expenses | 9,302 | 4,920 | 9,081 | 4,815 | ||||||||||||
Property and equipment | 8,436 | 8,436 | 7,957 | 7,957 | ||||||||||||
Other assets | 15,976 | 10,827 | 13,292 | 9,115 | ||||||||||||
Off-balance sheet exposures | ||||||||||||||||
Contingent liabilities | 17,908 | 7,842 | 16,595 | 7,474 | ||||||||||||
Irrevocable commitments | 98,439 | 23,592 | 73,220 | 18,487 | ||||||||||||
Forward and swap contracts4 | 31,522,982 | 16,599 | 22,365,432 | 10,738 | ||||||||||||
Purchased options4 | 1,913,971 | 411 | 1,629,260 | 311 | ||||||||||||
Market risk positions5 | 19,860 | 21,035 | ||||||||||||||
Total risk-weighted assets | 341,892 | 310,409 | ||||||||||||||
BIS capital ratios | ||||||||||||||||
Capital | Ratio | Capital | Ratio | |||||||||||||
CHF million | % | CHF million | % | |||||||||||||
31.12.06 | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||||||
Tier 1 | 40,528 | 11.9 | 39,834 | 12.8 | ||||||||||||
of which hybrid Tier 1 | 5,633 | 1.6 | 4,975 | 1.6 | ||||||||||||
Tier 2 | 9,836 | 2.9 | 3,974 | 1.3 | ||||||||||||
Total BIS | 50,364 | 14.7 | 43,808 | 14.1 | ||||||||||||
The Tier 1 capital includes preferred securities of CHF 5,633 million (USD 3,300 million and EUR 1,000 million) at 31 December 2006 and CHF 4,975 million (USD 2,600 million and EUR 1,000 million) at 31 December 2005.
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Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments and Continued Recognition of Transferred Financial Assets
a) Fair Value of Financial Instruments
The following table presents the fair value of financial instruments, including those not reflected in the financial statements at fair value. It is accompanied by a discussion of the methods used to determine fair value for financial instruments.
Carrying | Unrealized | Carrying | Unrealized | |||||||||||||||||||||
value | Fair value | gain / (loss) | value | Fair value | gain / (loss) | |||||||||||||||||||
CHF billion | 31.12.06 | 31.12.06 | 31.12.06 | 31.12.05 | 31.12.05 | 31.12.05 | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash and balances with central banks | 3.5 | 3.5 | 0.0 | 5.4 | 5.4 | 0.0 | ||||||||||||||||||
Due from banks | 50.4 | 50.4 | 0.0 | 33.6 | 33.6 | 0.0 | ||||||||||||||||||
Cash collateral on securities borrowed | 351.6 | 351.6 | 0.0 | 288.4 | 288.3 | (0.1 | ) | |||||||||||||||||
Reverse repurchase agreements | 405.8 | 405.7 | (0.1 | ) | 404.4 | 404.5 | 0.1 | |||||||||||||||||
Trading portfolio assets | 627.0 | 627.0 | 0.0 | 499.3 | 499.3 | 0.0 | ||||||||||||||||||
Trading portfolio assets pledged as collateral | 251.5 | 251.5 | 0.0 | 154.8 | 154.8 | 0.0 | ||||||||||||||||||
Positive replacement values | 328.4 | 328.4 | 0.0 | 333.8 | 333.8 | 0.0 | ||||||||||||||||||
Financial assets designated at fair value | 5.9 | 5.9 | 0.0 | 1.2 | 1.2 | 0.0 | ||||||||||||||||||
Loans | 312.5 | 311.3 | (1.2 | ) | 279.9 | 280.5 | 0.6 | |||||||||||||||||
Financial investments available-for-sale | 8.9 | 8.9 | 0.0 | 6.6 | 6.6 | 0.0 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Due to banks | 203.7 | 203.7 | 0.0 | 124.3 | 124.3 | 0.0 | ||||||||||||||||||
Cash collateral on securities lent | 63.1 | 63.1 | 0.0 | 59.9 | 59.9 | 0.0 | ||||||||||||||||||
Repurchase agreements | 545.5 | 545.5 | 0.0 | 478.5 | 478.5 | 0.0 | ||||||||||||||||||
Trading portfolio liabilities | 204.8 | 204.8 | 0.0 | 188.6 | 188.6 | 0.0 | ||||||||||||||||||
Negative replacement values | 332.5 | 332.5 | 0.0 | 337.7 | 337.7 | 0.0 | ||||||||||||||||||
Financial liabilities designated at fair value | 145.7 | 145.7 | 0.0 | 117.4 | 117.4 | 0.0 | ||||||||||||||||||
Due to customers | 570.6 | 570.6 | 0.0 | 466.9 | 466.9 | 0.0 | ||||||||||||||||||
Debt issued | 190.1 | 191.1 | (1.0 | ) | 160.7 | 162.0 | (1.3 | ) | ||||||||||||||||
Subtotal | (2.3 | ) | (0.7 | ) | ||||||||||||||||||||
Unrealized gains and losses recorded in equity before tax on: | ||||||||||||||||||||||||
Financial investments available-for-sale | 3.7 | 1.1 | ||||||||||||||||||||||
Derivative instruments designated as cash flow hedges | (0.6 | ) | (0.9 | ) | ||||||||||||||||||||
Net unrealized gains and losses recognized directly in equity | 0.8 | (0.5 | ) | |||||||||||||||||||||
(a) | trading portfolio assets and liabilities, trading portfolio assets pledged as collateral, financial assets and liabilities designated at fair value through profit or loss, derivatives, and other transactions undertaken for trading |
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Note 30 Fair Value of Financial Instruments and Continued Recognition of Transferred Financial Assets (cont.)
a) Fair Value of Financial Instruments (continued)
purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or other recognized valuation techniques. Fair value is equal to the carrying amount for these items; | ||
(b) | financial investments available-for-sale are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognized valuation techniques. Fair value is equal to the carrying amount for these items, and unrealized gains and losses, excluding impairment write-downs, are recorded in Equity until an asset is sold, collected or otherwise disposed of; | |
(c) | the fair value of demand deposits and savings accounts with no specific maturity is assumed to be the amount payable on demand at the balance sheet date; | |
(d) | the fair value of variable rate financial instruments is assumed to be approximated by their carrying amounts and, in the case of loans, does not, therefore, reflect changes in their credit quality, as the impact of impairment is recognized separately by deducting the amount of the allowance for credit losses from both carrying and fair values; | |
(e) | the fair value of fixed-rate loans and mortgages carried at amortized cost is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values, as the impact of impairment is recognized separately by deducting the amount of the allowance for credit losses from both carrying and fair values. |
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Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments and Continued Recognition of Transferred Financial Assets (cont.)
b) Determination of Fair Values from Quoted Market Prices or Valuation Techniques
31.12.06 | 31.12.05 | |||||||||||||||||||||||||||||||
Valuation | Valuation | Valuation | Valuation | |||||||||||||||||||||||||||||
technique | technique | technique | technique | |||||||||||||||||||||||||||||
Quoted | market- | non-market | Quoted | market- | non-market | |||||||||||||||||||||||||||
market | observable | observable | market | observable | observable | |||||||||||||||||||||||||||
CHF billion | price | inputs | inputs | Total | price | inputs | inputs | Total | ||||||||||||||||||||||||
Trading portfolio assets | 215.1 | 411.8 | 0.1 | 627.0 | 273.2 | 225.2 | 0.9 | 499.3 | ||||||||||||||||||||||||
Trading portfolio assets pledged as collateral | 243.5 | 8.0 | 0.0 | 251.5 | 147.6 | 7.2 | 0.0 | 154.8 | ||||||||||||||||||||||||
Positive replacement values | 31.3 | 285.6 | 11.5 | 328.4 | 13.6 | 313.4 | 6.8 | 333.8 | ||||||||||||||||||||||||
Financial assets designated at fair value | 0.0 | 5.1 | 0.8 | 5.9 | 0.2 | 1.0 | 0.0 | 1.2 | ||||||||||||||||||||||||
Financial investments available-for-sale | 2.5 | 4.6 | 1.8 | 8.9 | 3.0 | 1.1 | 2.5 | 6.6 | ||||||||||||||||||||||||
Total assets | 492.4 | 715.1 | 14.2 | 1,221.7 | 437.6 | 547.9 | 10.2 | 995.7 | ||||||||||||||||||||||||
Trading portfolio liabilities | 169.9 | 34.9 | 0.0 | 204.8 | 171.2 | 17.4 | 0.0 | 188.6 | ||||||||||||||||||||||||
Negative replacement values | 32.7 | 290.6 | 9.2 | 332.5 | 15.9 | 311.1 | 10.7 | 337.7 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 0.0 | 80.0 | 65.7 | 145.7 | 0.0 | 92.5 | 24.9 | 117.4 | ||||||||||||||||||||||||
Total liabilities | 202.6 | 405.5 | 74.9 | 683.0 | 187.1 | 421.0 | 35.6 | 643.7 | ||||||||||||||||||||||||
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Note 30 Fair Value of Financial Instruments and Continued Recognition of Transferred Financial Assets (cont.)
c) Sensitivity of Fair Values to Changing Significant Assumptions to Reasonably Possible Alternatives
d) Changes in Fair Value Recognized in Profit or Loss during the Period which were Estimated using
Valuation Techniques
157
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Financial Statements
Notes to the Financial Statements
Note 30 Fair Value of Financial Instruments and Continued Recognition of Transferred Financial Assets (cont.)
e) Transferred Financial Assets which do not Qualify for Derecognition
The following table presents details of financial assets which have been sold or otherwise transferred, but which do not qualify for derecognition. Criteria for derecognition are discussed in Note 1 a4).
Continued asset recognition in full – | ||||||||
Total assets | ||||||||
CHF billion | 31.12.06 | 31.12.05 | ||||||
Nature of transaction | ||||||||
Securities lending agreements | 98.9 | 50.5 | ||||||
Repurchase agreements | 146.5 | 100.0 | ||||||
Other financial asset transfers | 69.8 | 85.0 | ||||||
Total | 315.2 | 235.5 | ||||||
158
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Note 31 Pension and Other Post-Retirement Benefit Plans
Swiss pension plans
Foreign pension plans
159
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Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||
Defined benefit obligation at the beginning of the year | (20,972 | ) | (20,225 | ) | (18,216 | ) | (5,020 | ) | (4,142 | ) | (3,663 | ) | ||||||||||||
Service cost | (347 | ) | (353 | ) | (345 | ) | (76 | ) | (82 | ) | (83 | ) | ||||||||||||
Interest cost | (611 | ) | (660 | ) | (672 | ) | (242 | ) | (236 | ) | (212 | ) | ||||||||||||
Plan participant contributions | (221 | ) | (219 | ) | (203 | ) | ||||||||||||||||||
Amendments | (125 | ) | ||||||||||||||||||||||
Actuarial gain / (loss) | (265 | ) | (713 | ) | (1,392 | ) | (120 | ) | (416 | ) | (296 | ) | ||||||||||||
Foreign currency translation | (84 | ) | (280 | ) | 146 | |||||||||||||||||||
Benefits paid | 723 | 866 | 910 | 149 | 144 | 125 | ||||||||||||||||||
Special termination benefits | (17 | ) | (37 | ) | (35 | ) | (2 | ) | ||||||||||||||||
Acquisitions | (272 | ) | (6 | ) | (159 | ) | ||||||||||||||||||
Settlements | 329 | 369 | 186 | |||||||||||||||||||||
Defined benefit obligation at the end of the year | (21,506 | ) | (20,972 | ) | (20,225 | ) | (5,207 | ) | (5,020 | ) | (4,142 | ) | ||||||||||||
Fair value of plan assets at the beginning of the year | 20,229 | 18,575 | 17,619 | 4,288 | 3,580 | 3,402 | ||||||||||||||||||
Expected return on plan assets | 998 | 925 | 878 | 283 | 263 | 248 | ||||||||||||||||||
Actuarial gain / (loss) | 447 | 1,284 | 102 | 40 | 247 | 122 | ||||||||||||||||||
Foreign currency translation | 74 | 253 | (132 | ) | ||||||||||||||||||||
Employer contributions | 492 | 468 | 411 | 66 | 89 | 65 | ||||||||||||||||||
Plan participant contributions | 221 | 219 | 203 | |||||||||||||||||||||
Benefits paid | (723 | ) | (866 | ) | (910 | ) | (149 | ) | (144 | ) | (125 | ) | ||||||||||||
Acquisitions | 272 | |||||||||||||||||||||||
Settlements | (328 | ) | (376 | ) | ||||||||||||||||||||
Fair value of plan assets at the end of the year | 21,336 | 20,229 | 18,575 | 4,602 | 4,288 | 3,580 | ||||||||||||||||||
Funded status | (170 | ) | (743 | ) | (1,650 | ) | (605 | ) | (732 | ) | (562 | ) | ||||||||||||
Unrecognized net actuarial (gains) / losses | 2,123 | 2,334 | 3,006 | 1,237 | 1,222 | 1,046 | ||||||||||||||||||
Unrecognized past service cost | 1 | 1 | 1 | |||||||||||||||||||||
Unrecognized asset | (1,953 | ) | (1,591 | ) | (1,356 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 633 | 491 | 485 | ||||||||||||||||||
Movement in the net (liability) or asset | ||||||||||||||||||||||||
(Accrued) / prepaid pension cost at the beginning of the year | 491 | 485 | 710 | |||||||||||||||||||||
Net periodic pension cost | (492 | ) | (468 | ) | (411 | ) | (103 | ) | (125 | ) | (105 | ) | ||||||||||||
Employer contributions | 492 | 468 | 411 | 66 | 89 | 65 | ||||||||||||||||||
Acquisitions | (6 | ) | (159 | ) | ||||||||||||||||||||
Settlement | 170 | |||||||||||||||||||||||
Foreign currency translation | 9 | 48 | (26 | ) | ||||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 633 | 491 | 485 | ||||||||||||||||||
Amounts recognized in the balance sheet | ||||||||||||||||||||||||
Prepaid pension cost | 815 | 832 | 805 | |||||||||||||||||||||
Accrued pension liability | (182 | ) | (341 | ) | (320 | ) | ||||||||||||||||||
(Accrued) / prepaid pension cost | 0 | 0 | 0 | 633 | 491 | 485 | ||||||||||||||||||
160
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Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
CHF million | Swiss | Foreign | ||||||||||||||||||||||
For the year ended | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||
Components of net periodic pension cost | ||||||||||||||||||||||||
Service cost | 347 | 353 | 345 | 76 | 82 | 83 | ||||||||||||||||||
Interest cost | 611 | 660 | 672 | 242 | 236 | 212 | ||||||||||||||||||
Expected return on plan assets | (998 | ) | (925 | ) | (878 | ) | (283 | ) | (263 | ) | (248 | ) | ||||||||||||
Amortization of unrecognized past service cost | 125 | (3 | ) | |||||||||||||||||||||
Amortization of unrecognized net (gains) / losses | 25 | 101 | 68 | 68 | 58 | |||||||||||||||||||
Special termination benefits | 17 | 37 | 35 | 2 | ||||||||||||||||||||
Settlements | 10 | |||||||||||||||||||||||
Increase / (decrease) of unrecognized asset | 365 | 235 | 237 | |||||||||||||||||||||
Net periodic pension cost | 492 | 468 | 411 | 103 | 125 | 105 | ||||||||||||||||||
Funded and unfunded plans | Swiss | |||||||||||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||
Defined benefit obligation from funded plans | (21,506 | ) | (20,972 | ) | (20,225 | ) | (18,216 | ) | (19,204 | ) | ||||||||||||||
Plan assets | 21,336 | 20,229 | 18,575 | 17,619 | 16,566 | |||||||||||||||||||
Surplus / (deficit) | (170 | ) | (743 | ) | (1,650 | ) | (597 | ) | (2,638 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | (265 | ) | (77 | ) | ||||||||||||||||||||
Experience gains / (losses) on plan assets | 447 | 1,284 | ||||||||||||||||||||||
Foreign | ||||||||||||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||||||
Defined benefit obligation from funded plans | (5,002 | ) | (4,635 | ) | (3,815 | ) | (3,509 | ) | (3,295 | ) | ||||||||||||||
Defined benefit obligation from unfunded plans | (205 | ) | (385 | ) | (327 | ) | (154 | ) | (141 | ) | ||||||||||||||
Plan assets | 4,602 | 4,288 | 3,580 | 3,402 | 2,382 | |||||||||||||||||||
Surplus / (deficit) | (605 | ) | (732 | ) | (562 | ) | (261 | ) | (1,054 | ) | ||||||||||||||
Experience gains / (losses) on plan liabilities | (11 | ) | 7 | |||||||||||||||||||||
Experience gains / (losses) on plan assets | 40 | 247 | ||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||||||
Principal weighted average actuarial assumptions used (%) | ||||||||||||||||||||||||
Assumptions used to determine defined benefit obligations at the end of the year | ||||||||||||||||||||||||
Discount rate | 3.0 | 3.0 | 3.3 | 5.2 | 5.0 | 5.5 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.6 | 4.4 | 4.4 | ||||||||||||||||||
Rate of pension increase | 0.8 | 0.8 | 1.0 | 2.1 | 1.9 | 1.9 | ||||||||||||||||||
Assumptions used to determine net periodic pension cost for the year ended | ||||||||||||||||||||||||
Discount rate | 3.0 | 3.3 | 3.8 | 5.0 | 5.5 | 5.7 | ||||||||||||||||||
Expected rate of return on plan assets | 5.0 | 5.0 | 5.0 | 6.7 | 7.0 | 7.2 | ||||||||||||||||||
Expected rate of salary increase | 2.5 | 2.5 | 2.5 | 4.4 | 4.4 | 4.6 | ||||||||||||||||||
Rate of pension increase | 0.8 | 1.0 | 1.0 | 1.9 | 1.9 | 1.9 | ||||||||||||||||||
161
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Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
a) Defined benefit plans (continued) | ||||||||||||||||||||||||
Swiss | Foreign | |||||||||||||||||||||||
CHF million, exept where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||
Expected future benefit payments | ||||||||||||||||||||||||
2007 | 976 | 157 | ||||||||||||||||||||||
2008 | 992 | 150 | ||||||||||||||||||||||
2009 | 1,013 | 160 | ||||||||||||||||||||||
2010 | 1,008 | 171 | ||||||||||||||||||||||
2011 | 1,022 | 183 | ||||||||||||||||||||||
2012–2016 | 5,307 | 1197 | ||||||||||||||||||||||
Plan assets (weighted average) | ||||||||||||||||||||||||
Actual plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 41 | 43 | 43 | 53 | 52 | 54 | ||||||||||||||||||
Debt instruments | 45 | 43 | 41 | 38 | 39 | 41 | ||||||||||||||||||
Real estate | 11 | 12 | 12 | 4 | 4 | 2 | ||||||||||||||||||
Other | 3 | 2 | 4 | 5 | 5 | 3 | ||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Long-term target plan asset allocation (%) | ||||||||||||||||||||||||
Equity instruments | 33-51 | 34-46 | 34-49 | 49-53 | 52-55 | 49-55 | ||||||||||||||||||
Debt instruments | 31-50 | 30-53 | 30-53 | 37-44 | 44-45 | 44-47 | ||||||||||||||||||
Real estate | 10-19 | 11-19 | 12-19 | 4-6 | 0-3 | 1-2 | ||||||||||||||||||
Other | 0 | 0 | 0 | 1-5 | 1-2 | 0-6 | ||||||||||||||||||
Actual return on plan assets (%) | 7.2 | 12.0 | 5.5 | 7.8 | 13.6 | 10.8 | ||||||||||||||||||
Additional details to fair value of plan assets | ||||||||||||||||||||||||
UBS financial instruments and UBS bank accounts | 684 | 613 | 1,239 | |||||||||||||||||||||
UBS AG shares1 | 193 | 225 | 238 | |||||||||||||||||||||
Securities lent to UBS included in plan assets | 7,169 | 2,222 | 3,778 | |||||||||||||||||||||
Other assets used by UBS included in plan assets | 69 | 69 | 73 | |||||||||||||||||||||
162
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Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
b) Post-retirement medical and life plans | ||||||||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||||
Post-retirement benefit obligation at the beginning of the year | (216 | ) | (166 | ) | (179 | ) | ||||||||||||||
Service cost | (10 | ) | (8 | ) | (6 | ) | ||||||||||||||
Interest cost | (11 | ) | (11 | ) | (9 | ) | ||||||||||||||
Plan participant contribution | (1 | ) | 0 | 0 | ||||||||||||||||
Actuarial gain / (loss) | 1 | (17 | ) | 8 | ||||||||||||||||
Foreign currency translation | 10 | (22 | ) | 12 | ||||||||||||||||
Amendments | (1 | ) | 0 | 0 | ||||||||||||||||
Benefits paid | 9 | 8 | 8 | |||||||||||||||||
Post-retirement benefit obligation at the end of the year | (219 | ) | (216 | ) | (166 | ) | ||||||||||||||
Fair value of plan assets at the beginning of the year | 0 | 0 | 0 | |||||||||||||||||
Employer contributions | 8 | 8 | 8 | |||||||||||||||||
Plan participant contribution | 1 | 0 | 0 | |||||||||||||||||
Benefits paid | (9 | ) | (8 | ) | (8 | ) | ||||||||||||||
Fair value of plan assets at the end of the year | 0 | 0 | 0 | |||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||
Defined benefit obligation | (219 | ) | (216 | ) | (166 | ) | (179 | ) | (166 | ) | ||||||||||
Plan asset | 0 | 0 | 0 | 0 | 2 | |||||||||||||||
Surplus / (deficit) | (219 | ) | (216 | ) | (166 | ) | (179 | ) | (164 | ) | ||||||||||
Experience gains / (losses) on plan liabilities | 1 | (3 | ) | 0 | 0 | 0 | ||||||||||||||
CHF million | 1% increase | 1% decrease | ||||||
Effect on total service and interest cost | 4 | (3 | ) | |||||
Effect on the post-retirement benefit obligation | 28 | (19 | ) | |||||
163
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Financial Statements
Notes to the Financial Statements
Note 31 Pension and Other Post-Retirement Benefit Plans (continued)
c) Defined contribution plans
d) Related party disclosure
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Received by UBS | ||||||||||||
Fees | 53 | 48 | 42 | |||||||||
Paid by UBS | ||||||||||||
Interest | 2 | 4 | 4 | |||||||||
Dividends and capital repayments | 33 | 7 | 7 | |||||||||
The transaction volumes in UBS shares and other UBS securities are as follows:
For the year ended | ||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
Financial instruments bought by pension funds | ||||||||||||
UBS AG shares (in thousands of shares) | 1,793 | 2,774 | 5,644 | |||||||||
UBS financial instruments (nominal values in CHF million) | 8 | 0 | 47 | |||||||||
Financial instruments sold by pension funds or matured | ||||||||||||
UBS AG shares (in thousands of shares) | 2,752 | 4,526 | 7,426 | |||||||||
UBS financial instruments (nominal values in CHF million) | 14 | 45 | 18 | |||||||||
164
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Note 32 Equity Participation and Other Compensation Plans
a) Plans offered
165
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Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation and Other Compensation Plans (Continued)
b) UBS share awards
Movements in shares granted under various equity participation plans described in Note 32a) are as follows:
Weighted | Weighted | Weighted | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
Number of | grant date | Number of | grant date | Number of | grant date | |||||||||||||||||||
shares | fair value | shares | fair value | shares | fair value | |||||||||||||||||||
31.12.06 | (CHF) | 31.12.05 | (CHF) | 31.12.04 | (CHF) | |||||||||||||||||||
Unvested, at the beginning of the year | 53,725,186 | 46 | 49,273,638 | 40 | 62,767,780 | 38 | ||||||||||||||||||
Shares awarded during the year | 26,652,070 | 69 | 27,252,100 | 51 | 23,426,812 | 48 | ||||||||||||||||||
Vested during the year | (22,712,566 | ) | 43 | (21,991,760 | ) | 39 | (35,992,996 | ) | 40 | |||||||||||||||
Forfeited during the year | (1,523,588 | ) | 56 | (808,792 | ) | 45 | (927,958 | ) | 39 | |||||||||||||||
Unvested, at the end of the year | 56,141,102 | 58 | 53,725,186 | 46 | 49,273,638 | 40 | ||||||||||||||||||
UBS estimates the grant date fair value of shares awarded during the year by using the average UBS share price on the grant date as quoted on the virtX. The market value of shares
vested was CHF 1,587 million, CHF 1,083 million and CHF 1,922 million for the years ended 31 December 2006, 31 December 2005 and 31 December 2004, respectively.
c) UBS option awards
Movements in options granted under various equity participation plans described in Note 32a) are as follows:
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number of | average | Number of | average | Number of | average | |||||||||||||||||||
options | exercise price | options | exercise price | options | exercise price | |||||||||||||||||||
31.12.06 | (CHF)1 | 31.12.05 | (CHF)1 | 31.12.04 | (CHF)1 | |||||||||||||||||||
Outstanding, at the beginning of the year | 181,765,090 | 42 | 201,814,708 | 35 | 218,080,052 | 32 | ||||||||||||||||||
Granted during the year | 45,517,013 | 71 | 45,202,854 | 55 | 48,226,504 | 46 | ||||||||||||||||||
Exercised during the year | (47,179,386 | ) | 36 | (61,303,418 | ) | 34 | (58,793,918 | ) | 29 | |||||||||||||||
Forfeited during the year | (3,303,002 | ) | 55 | (3,810,106 | ) | 45 | (5,385,648 | ) | 33 | |||||||||||||||
Expired unexercised | (20,628 | ) | 40 | (138,948 | ) | 34 | (312,282 | ) | 38 | |||||||||||||||
Outstanding, at the end of the year | 176,779,087 | 50 | 181,765,090 | 42 | 201,814,708 | 35 | ||||||||||||||||||
Exercisable, at the end of the year | 80,312,503 | 36 | 74,788,838 | 35 | 75,882,560 | 33 | ||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
Intrinsic value of options exercised during the year (CHF million) | 1,660 | 1,224 | 960 | |||||||||
Weighted average grant date fair value of options granted (CHF) | 12 | 8 | 13 | |||||||||
166
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Note 32 Equity Participation and Other Compensation Plans (continued)
c) UBS option awards (continued)
The following table summarizes additional information about options outstanding and options exercisable at 31 December 2006:
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
average | Aggregate | average | average | Aggregate | average | |||||||||||||||||||||||||||
Number of | exercise | intrinsic | remaining | Number of | exercise | intrinsic | remaining | |||||||||||||||||||||||||
options | price | value (CHF / | contractual | options | price | value (CHF / | contractual | |||||||||||||||||||||||||
Range of exercise price per share | outstanding | (CHF / USD) | USD million) | term (years) | exercisable | (CHF / USD) | USD million) | term (years) | ||||||||||||||||||||||||
CHF | ||||||||||||||||||||||||||||||||
26.69–40.00 | 22,771,326 | 34.56 | 899 | 5.7 | 22,446,861 | 34.56 | 886 | 5.7 | ||||||||||||||||||||||||
40.01–50.00 | 18,173,910 | 46.86 | 494 | 6.5 | 11,928,252 | 46.74 | 326 | 6.1 | ||||||||||||||||||||||||
50.01–60.00 | 25,666,234 | 51.96 | 567 | 8.1 | 3,412,867 | 50.72 | 80 | 8.2 | ||||||||||||||||||||||||
60.01–70.00 | 3,100,770 | 65.95 | 25 | 9.4 | 5,812 | 63.23 | 0 | 8.9 | ||||||||||||||||||||||||
70.01–77.33 | 41,726,240 | 71.56 | 127 | 9.2 | 0 | |||||||||||||||||||||||||||
26.69–77.33 | 111,438,480 | 55.30 | 2,112 | 7.8 | 37,793,792 | 39.87 | 1,292 | 6.1 | ||||||||||||||||||||||||
USD | ||||||||||||||||||||||||||||||||
2.25–20.00 | 1,196,068 | 13.75 | 56 | 0.6 | 1,196,068 | 13.75 | 56 | 0.6 | ||||||||||||||||||||||||
20.01–30.00 | 28,759,581 | 23.32 | 1,064 | 4.6 | 28,759,581 | 23.32 | 1,064 | 4.6 | ||||||||||||||||||||||||
30.01–40.00 | 14,070,241 | 36.38 | 337 | 7.3 | 9,199,687 | 35.89 | 225 | 7.2 | ||||||||||||||||||||||||
40.01–53.50 | 21,314,717 | 43.76 | 353 | 8.1 | 3,363,375 | 42.72 | 59 | 8.1 | ||||||||||||||||||||||||
2.25–53.50 | 65,340,607 | 32.63 | 1,810 | 6.2 | 42,518,711 | 27.31 | 1,404 | 5.3 | ||||||||||||||||||||||||
d) Valuation
31.12.06 | ||||||||||||
CHF awards1 | range low | range high | ||||||||||
Expected volatility (%) | 25.38 | 22.51 | 27.18 | |||||||||
Risk-free interest rate (%) | 2.15 | 1.96 | 2.68 | |||||||||
Expected dividend (CHF) | 2.26 | 1.76 | 2.83 | |||||||||
Strike price (CHF) | 71.19 | 65.13 | 77.33 | |||||||||
Share price (CHF) | 70.16 | 65.13 | 76.25 | |||||||||
167
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Financial Statements
Notes to the Financial Statements
Note 32 Equity Participation and Other Compensation Plans (Continued)
d) Valuation (continued)
31.12.05 | ||||||||||||||||||||||||
CHF awards | range low | range high | USD awards | range low | range high | |||||||||||||||||||
Expected volatility (%) | 23.20 | 12.39 | 27.03 | 23.36 | 15.21 | 27.21 | ||||||||||||||||||
Risk-free interest rate (%) | 2.00 | 0.62 | 2.34 | 4.11 | 1.91 | 4.63 | ||||||||||||||||||
Expected dividend (CHF / USD) | 2.30 | 1.50 | 3.89 | 1.89 | 1.22 | 4.12 | ||||||||||||||||||
Strike price (CHF / USD) | 52.08 | 48.23 | 63.23 | 44.11 | 39.25 | 48.26 | ||||||||||||||||||
Share price (CHF / USD) | 51.33 | 48.23 | 63.23 | 43.40 | 39.25 | 48.26 | ||||||||||||||||||
The fair value of options granted during 2004 was determined using a proprietary option pricing model, similar to an American-style binomial model, using the following assumptions:
31.12.04 | ||||||||
CHF awards | USD awards | |||||||
Expected volatility (%) | 33.66 | 33.45 | ||||||
Risk-free interest rate (%) | 2.03 | 3.70 | ||||||
Expected dividend rate (%) | 3.86 | 3.88 | ||||||
Strike price (CHF/USD) | 47.80 | 37.56 | ||||||
Share price (CHF/USD) | 47.09 | 37.03 | ||||||
Expected life (years) | 5.6 | 5.6 | ||||||
The expected life was estimated on the basis of observed employee option exercise patterns. Volatility was derived from the observed long-term historic share price volatility aligned to the expected life of the option. Dividends were assumed to grow at a 10% yearly rate over the expected life of the option.
e) Compensation expense
168
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Note 33 Related Parties
The Group defines related parties as associated companies, post-employment benefit plans for the benefit of UBS employees, key management personnel, close family members of key management personnel and enterprises which are, directly or indirectly, controlled by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close
family members. Key management personnel is defined as members of the Board of Directors (BoD) and Group Executive Board (GEB). This definition is based on the requirements of IAS 24Related Party Disclosuresand the “Directive on Information Relating to Corporate Governance” issued by the SWX Swiss Exchange.
a) Remuneration of key management personnel
The executive members of the BoD have top management employment contracts and receive pension benefits upon retirement. Total remuneration of the executive members of the BoD and GEB is as follows:
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Base salaries and other cash payments | 16 | 15 | 15 | |||||||||
Incentive awards – cash | 107 | 90 | 70 | |||||||||
Employer’s contributions to retirement benefit plans | 1 | 1 | 1 | |||||||||
Benefits in kind, fringe benefits (at market value) | 2 | 3 | 2 | |||||||||
Equity compensation benefits1 | 121 | 114 | 103 | |||||||||
Total | 247 | 223 | 191 | |||||||||
The non-executive members of the BoD do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the BoD. Payments to these individuals for their services as external board members amounted to CHF 5.9 million in 2006, CHF 6.1 million in 2005 and CHF 5.7 million in 2004.
b) Equity holdings | ||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
Number of stock options from equity participation plans held by executive members of the BoD and the GEB | 10,886,798 | 10,862,250 | 12,009,994 | |||||||||
Number of shares held by members of the BoD, GEB and parties closely linked to them | 7,974,724 | 8,713,984 | 7,013,220 | |||||||||
Of the share totals above, at 31 December 2006 and 31 December 2005, respectively, 7,146 shares and 6,538 shares were held by close family members of key management personnel and 2,200,000 shares and 2,486,060 shares were held by enterprises which are directly or indirectly controlled by, jointly controlled by or significantly influenced by or in
which significant voting power resides with key management personnel or their close family members. Further information about UBS’s equity participation plans can be found in Note 32. No member of the BoD or GEB is the beneficial owner of more than 1% of the Group’s shares at 31 December 2006.
169
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Financial Statements
Notes to the Financial Statements
Note 33 Related Parties (continued)
c) Loans, advances and mortgages to key management personnel
Executive members of the BoD and GEB members have been granted loans, fixed advances and mortgages on the same terms and conditions that are available to other employees, based on terms and conditions granted to third parties adjusted for reduced credit risk. Non-executive BoD members are granted loans and mortgages at general market conditions.
Movements in the loan, advances and mortgage balances are as follows:
CHF million | 31.12.06 | 31.12.06 | ||||||
Balance at the beginning of the year | 21 | 16 | ||||||
Additions | 1 | 7 | ||||||
Reductions | (3 | ) | (2 | ) | ||||
Balance at the end of the year | 19 | 21 | ||||||
No unsecured loans were granted to key management personnel as of 31 December 2006 and 31 December 2005.
d) Associated companies
CHF million | 31.12.06 | 31.12.05 | ||||||
Balance at the beginning of the year | 321 | 83 | ||||||
Additions | 116 | 267 | ||||||
Reductions | (48 | ) | (26 | ) | ||||
Credit loss (expense) / recovery | 1 | (3 | ) | |||||
Foreign currency translation | (15 | ) | 0 | |||||
Balance at the end of the year | 375 | 321 | ||||||
All loans to associated companies are transacted at arm’s length. Of the balances above, the amount of unsecured loans amounted to CHF 177 million and CHF 82 million at 31 December 2006 and 31 December 2005, respectively.
Other transactions with associated companies transacted at arm’s length are as follows:
For the year ended or as of | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Payments to associates for goods and services received | 58 | 397 | 248 | |||||||||
Fees received for services provided to associates | 79 | 258 | 180 | |||||||||
Commitments and contingent liabilities to associates | 32 | 39 | ||||||||||
Note 35 provides a list of significant associates.
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Note 33 Related Parties (continued)
e) Other related party transactions
During 2006 and 2005, UBS entered into transactions at arm’s length with enterprises which are directly or indirectly controlled by, jointly controlled by or significantly influenced by or in which significant voting power resides with key management personnel or their close family members. In 2006 and 2005 these companies included BMW Group (Germany), Kedge Capital Funds Ltd. (Jersey), Löwenfeld AG (Switzerland), Royal Dutch Shell plc (UK), Seromer Biotech SA (Switzerland, previously Bertarelli Biotech SA), Serono Group (Switzerland), Stadler Rail Group (Switzerland), Team Alinghi (Switzerland), and Unisys Corporation (USA). Related parties in 2006 also included Aebi + Co. AG (Switzerland), Bertarelli Family (Switzerland), DKSH Holding AG (Switzerland), Kedge Capital Selected Funds Ltd. (Jersey), Lista AG (Switzerland), Martown Trading Ltd. (Isle of Man) and Team Alinghi (Spain).
Movements in loans to other related parties are as follows:
CHF million | 31.12.06 | 31.12.05 | ||||||
Balance at the beginning of the year | 919 | 294 | ||||||
Additions | 34 | 628 | ||||||
Reductions | 81 | 3 | ||||||
Loan at the end of the year1 | 872 | 919 | ||||||
Other transactions with these related parties include:
For the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Goods sold and services provided to UBS | 8 | 15 | 34 | |||||||||
Fees received for services provided by UBS | 8 | 1 | 10 | |||||||||
As part of its sponsorship of Team Alinghi, defender for the “America’s Cup 2007”, UBS paid CHF 8.7 million (EUR 5.4 million) in sponsoring fees for 2006. Team Alinghi’s controlling shareholder is UBS board member Ernesto Bertarelli.
f) Additional information
UBS also engages in trading and risk management activities (e.g. swaps, options, forwards) with various related parties mentioned in previous sections. These transactions may give rise to credit risk either for UBS or for a related party towards UBS. As part of its normal course of business, UBS is also a market maker in equity and debt instruments and at times may hold positions in instruments of related parties.
Note 34 Post-Balance Sheet Events
There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 2006 Financial Statements.
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Financial Statements
Notes to the Financial Statements
Note 35 Significant Subsidiaries and Associates
The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely Investment Bank, Global Wealth Management & Business Banking and Global Asset Management) nor Corporate Center are replicated in their own individual legal entities, but rather they generally operate out of UBS AG (Parent Bank) through its Swiss and foreign branches.
the Business Groups. It provides for the most cost-efficient and flexible structure and facilitates efficient allocation and use of capital, comprehensive risk management and control and straightforward funding processes.
Significant subsidiaries | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | capital | interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
Banco UBS Pactual S.A. | Rio de Janeiro, Brazil | IB | BRL | 296.7 | 100.0 | |||||||||
Banco UBS S.A. | Rio de Janeiro, Brazil | IB | BRL | 52.9 | 100.0 | |||||||||
Crédit Industriel Société Anonyme in Liquidation | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
Dillon Read Capital Management (Singapore) Pte. Ltd. | Singapore, Singapore | Global AM | USD | 8.6 | 100.0 | |||||||||
Dillon Read Capital Management (UK) Ltd | London, Great Britain | Global AM | GBP | 18.0 | 100.0 | |||||||||
Dillon Read Capital Management LLC | Delaware, USA | Global AM | USD | 12.5 | 100.0 | |||||||||
Dillon Read Solutions Pte. Ltd. | Singapore, Singapore | Global AM | USD | 1.1 | 100.0 | |||||||||
Noriba Bank BSC | Manama, Bahrain | Global WM&BB | USD | 10.0 | 100.0 | |||||||||
OOO UBS Bank | Moscow, Russia | IB | RUB | 1,250.0 | 100.0 | |||||||||
PT UBS Securities Indonesia | Jakarta, Indonesia | IB | IDR | 100,000.0 | 98.4 | |||||||||
Thesaurus Continentale Effekten | Zurich, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS (Bahamas) Ltd. | Nassau, Bahamas | Global WM&BB | USD | 4.0 | 100.0 | |||||||||
UBS (France) S.A. | Paris, France | Global WM&BB | EUR | 25.7 | 100.0 | |||||||||
UBS (Grand Cayman) Limited | George Town, Cayman Islands | IB | USD | 25.0 | 100.0 | |||||||||
UBS (Italia) S.p.A. | Milan, Italy | Global WM&BB | EUR | 60.0 | 100.0 | |||||||||
UBS (Luxembourg) S.A. | Luxembourg, Luxembourg | Global WM&BB | CHF | 150.0 | 100.0 | |||||||||
UBS (Monaco) S.A. | Monte Carlo, Monaco | Global WM&BB | EUR | 9.2 | 100.0 | |||||||||
UBS Advisory and Capital Markets Australia Ltd | Sydney, Australia | IB | AUD | 580.8 | 2 | 100.0 | ||||||||
UBS Alternative and Quantitative Investments LLC | Delaware, USA | Global AM | USD | 0.1 | 100.0 | |||||||||
UBS Americas Inc | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS Asesores SA | Panama, Panama | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Bank (Canada) | Toronto, Canada | Global WM&BB | CAD | 8.5 | 100.0 | |||||||||
UBS Bank USA | Utah, USA | Global WM&BB | USD | 1,700.0 | 100.0 | |||||||||
UBS Belgium SA/NV | Brussels, Belgium | Global WM&BB | EUR | 23.0 | 100.0 | |||||||||
UBS Capital (Jersey) Ltd | St. Helier, Jersey | IB | GBP | 181.0 | 100.0 | |||||||||
UBS Capital AG | Zurich, Switzerland | IB | CHF | 5.0 | 100.0 | |||||||||
UBS Capital B.V. | Amsterdam, the Netherlands | IB | EUR | 78.8 | 2 | 100.0 | ||||||||
UBS Card Center AG | Glattbrugg, Switzerland | Global WM&BB | CHF | 0.1 | 100.0 | |||||||||
UBS Clearing and Execution Services Limited | London, Great Britain | IB | USD | 50.0 | 100.0 | |||||||||
UBS Commodities Canada Ltd. | Toronto, Canada | IB | USD | 11.3 | 100.0 | |||||||||
UBS Corporate Finance Italia SpA | Milan, Italy | IB | EUR | 1.9 | 100.0 | |||||||||
UBS Derivatives Hong Kong Limited | Hong Kong, China | IB | HKD | 60.0 | 100.0 | |||||||||
UBS Deutschland AG | Frankfurt am Main, Germany | Global WM&BB | EUR | 176.0 | 100.0 | |||||||||
UBS Employee Benefits Trust Limited | St. Helier, Jersey | CC | GBP | 0.0 | 100.0 | |||||||||
UBS Energy LLC | Delaware, USA | IB | USD | 0.0 | 100.0 | |||||||||
UBS España, S.A. | Madrid, Spain | Global WM&BB | EUR | 72.2 | 100.0 | |||||||||
UBS Factoring AG | Zurich, Switzerland | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
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Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | capital | interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Fiduciaria S.p.A. | Milan, Italy | Global WM&BB | EUR | 0.2 | 100.0 | |||||||||
UBS Fiduciary Trust Company | New Jersey, USA | Global WM&BB | USD | 4.4 | 2 | 100.0 | ||||||||
UBS Finance (Cayman Islands) Ltd. | George Town, Cayman Islands | CC | USD | 0.5 | 100.0 | |||||||||
UBS Finance (Curação) N.V. | Willemstad, Netherlands Antilles | CC | USD | 0.1 | 100.0 | |||||||||
UBS Finance (Delaware) LLC | Delaware, USA | IB | USD | 37.3 | 2 | 100.0 | ||||||||
UBS Financial Services Inc. | Delaware, USA | Global WM&BB | USD | 2,005.8 | 2 | 100.0 | ||||||||
UBS Financial Services Incorporated of Puerto Rico | Hato Rey, Puerto Rico | Global WM&BB | USD | 31.0 | 2 | 100.0 | ||||||||
UBS Fund Advisor, L.L.C. | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS Fund Holding (Luxembourg) S.A. | Luxembourg, Luxembourg | Global AM | CHF | 42.0 | 100.0 | |||||||||
UBS Fund Holding (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 18.0 | 100.0 | |||||||||
UBS Fund Management (Switzerland) AG | Basel, Switzerland | Global AM | CHF | 1.0 | 100.0 | |||||||||
UBS Fund Services (Cayman) Ltd | George Town, Cayman Islands | Global AM | USD | 5.6 | 100.0 | |||||||||
UBS Fund Services (Ireland) Limited | Dublin, Ireland | Global AM | EUR | 1.3 | 100.0 | |||||||||
UBS Fund Services (Luxembourg) SA | Luxembourg, Luxembourg | Global AM | CHF | 2.5 | 100.0 | |||||||||
UBS Futures Singapore Ltd. | Singapore, Singapore | IB | USD | 39.8 | 2 | 100.0 | ||||||||
UBS Global Asset Management (Americas) Inc | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Global Asset Management (Australia) Ltd | Sydney, Australia | Global AM | AUD | 8.0 | 100.0 | |||||||||
UBS Global Asset Management (Canada) Co | Toronto, Canada | Global AM | CAD | 117.0 | 100.0 | |||||||||
UBS Global Asset Management (Deutschland) GmbH | Frankfurt am Main, Germany | Global AM | EUR | 7.7 | 100.0 | |||||||||
UBS Global Asset Management (France) S.A. | Paris, France | Global WM&BB | EUR | 2.1 | 100.0 | |||||||||
UBS Global Asset Management (Hong Kong) Limited | Hong Kong, China | Global AM | HKD | 25.0 | 100.0 | |||||||||
UBS Global Asset Management (Italia) SIM SpA | Milan, Italy | Global AM | EUR | 2.0 | 100.0 | |||||||||
UBS Global Asset Management (Japan) Ltd | Tokyo, Japan | Global AM | JPY | 2,200.0 | 100.0 | |||||||||
UBS Global Asset Management (Singapore) Ltd | Singapore, Singapore | Global AM | SGD | 4.0 | 100.0 | |||||||||
UBS Global Asset Management (Taiwan) Ltd | Taipei, Taiwan | Global AM | TWD | 340.0 | 100.0 | |||||||||
UBS Global Asset Management (US) Inc | Delaware, USA | Global AM | USD | 35.2 | 2 | 100.0 | ||||||||
UBS Global Asset Management Holding Ltd | London, Great Britain | Global AM | GBP | 48.0 | 100.0 | |||||||||
UBS Global Life AG | Vaduz, Liechtenstein | Global WM&BB | CHF | 5.0 | 100.0 | |||||||||
UBS Global Trust Corporation | St. John, Canada | Global WM&BB | CAD | 0.1 | 100.0 | |||||||||
UBS International Holdings B.V. | Amsterdam, the Netherlands | CC | EUR | 6.8 | 100.0 | |||||||||
UBS International Inc. | New York, USA | Global WM&BB | USD | 44.3 | 2 | 100.0 | ||||||||
UBS International Life Limited | Dublin, Ireland | Global WM&BB | EUR | 1.0 | 100.0 | |||||||||
UBS Investment Management Canada Inc. | Toronto, Canada | Global WM&BB | CAD | 0.0 | 100.0 | |||||||||
UBS Italia SIM SpA | Milan, Italy | IB | EUR | 15.1 | 100.0 | |||||||||
UBS Leasing AG | Zurich, Switzerland | Global WM&BB | CHF | 10.0 | 100.0 | |||||||||
UBS Life AG | Zurich, Switzerland | Global WM&BB | CHF | 25.0 | 100.0 | |||||||||
UBS Life Insurance Company USA | California, USA | Global WM&BB | USD | 39.3 | 2 | 100.0 | ||||||||
UBS Limited | London, Great Britain | IB | GBP | 29.4 | 100.0 | |||||||||
UBS Loan Finance LLC | Delaware, USA | IB | USD | 16.7 | 100.0 | |||||||||
UBS Menkul Degerler AS | Istanbul, Turkey | IB | TRY | 0.4 | 100.0 | |||||||||
UBS Mortgage Holdings LLC | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS New Zealand Limited | Auckland, New Zealand | IB | NZD | 7.5 | 100.0 | |||||||||
UBS O’Connor LLC | Delaware, USA | Global AM | USD | 1.0 | 100.0 | |||||||||
UBS Pactual Asset Management S.A. DTVM | Rio de Janeiro, Brazil | Global AM | BRL | 53.9 | 100.0 | |||||||||
UBS Portfolio LLC | Delaware, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Preferred Funding Company LLC I | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC II | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
UBS Preferred Funding Company LLC IV | Delaware, USA | CC | USD | 0.0 | 100.0 | |||||||||
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Financial Statements
Notes to the Financial Statements
Note 35 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued) | ||||||||||||||
Share | Equity | |||||||||||||
Jurisdiction | capital | interest | ||||||||||||
Company | of incorporation | Business Group1 | in millions | accumulated in % | ||||||||||
UBS Principal Finance LLC | Delaware, USA | IB | USD | 0.1 | 100.0 | |||||||||
UBS Real Estate Investments Inc | Delaware, USA | Global AM | USD | 0.0 | 100.0 | |||||||||
UBS Real Estate Kapitalanlagegesellschaft mbH | Munich, Germany | Global AM | EUR | 7.5 | 51.0 | |||||||||
UBS Real Estate Securities Inc | Delaware, USA | IB | USD | 0.4 | 2 | 100.0 | ||||||||
UBS Realty Investors LLC | Massachusetts, USA | Global AM | USD | 9.3 | 100.0 | |||||||||
UBS Sauerborn Private Equity Komplementär GmbH | Bad Homburg, Germany | Global WM&BB | EUR | 0.0 | 100.0 | |||||||||
UBS Securities (Thailand) Ltd | Bangkok, Thailand | IB | THB | 400.0 | 100.0 | |||||||||
UBS Securities Asia Limited | Hong Kong, China | IB | HKD | 20.0 | 100.0 | |||||||||
UBS Securities Australia Ltd | Sydney, Australia | IB | AUD | 209.8 | 2 | 100.0 | ||||||||
UBS Securities Canada Inc | Toronto, Canada | IB | CAD | 10.0 | 100.0 | |||||||||
UBS Securities España Sociedad de Valores SA | Madrid, Spain | IB | EUR | 15.0 | 100.0 | |||||||||
UBS Securities France S.A. | Paris, France | IB | EUR | 22.9 | 100.0 | |||||||||
UBS Securities Hong Kong Limited | Hong Kong, China | IB | HKD | 230.0 | 100.0 | |||||||||
UBS Securities India Private Limited | Mumbai, India | IB | INR | 237.8 | 75.0 | |||||||||
UBS Securities International Limited | London, Great Britain | IB | GBP | 18.0 | 100.0 | |||||||||
UBS Securities Japan Ltd | George Town, Cayman Islands | IB | JPY | 60,000.0 | 100.0 | |||||||||
UBS Securities Limited | London, Great Britain | IB | GBP | 140.0 | 100.0 | |||||||||
UBS Securities LLC | Delaware, USA | IB | USD | 2,455.6 | 2 | 100.0 | ||||||||
UBS Securities Malaysia Sdn. Bhd. | Kuala Lumpur, Malaysia | IB | MYR | 75.0 | 100.0 | |||||||||
UBS Securities Philippines Inc | Makati City, Philippines | IB | PHP | 190.0 | 100.0 | |||||||||
UBS Securities Pte. Ltd. | Singapore, Singapore | IB | SGD | 311.5 | 100.0 | |||||||||
UBS Securities Pte. Ltd. Seoul Branch | Seoul, South Korea | IB | KRW | 150,000.0 | 100.0 | |||||||||
UBS Services USA LLC | Delaware, USA | Global WM&BB | USD | 0.0 | 100.0 | |||||||||
UBS South Africa (Proprietary) Limited | Sandton, South Africa | IB | ZAR | 87.1 | 2 | 100.0 | ||||||||
UBS Swiss Financial Advisers AG | Zurich, Switzerland | Global WM&BB | CHF | 1.5 | 100.0 | |||||||||
UBS Trust Company National Association | New York, USA | Global WM&BB | USD | 5.0 | 2 | 100.0 | ||||||||
UBS Trustees (Bahamas) Ltd | Nassau, Bahamas | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Cayman) Ltd | George Town, Cayman Islands | Global WM&BB | USD | 2.0 | 100.0 | |||||||||
UBS Trustees (Jersey) Ltd. | St. Helier, Jersey | Global WM&BB | GBP | 0.0 | 100.0 | |||||||||
UBS Trustees (Singapore) Ltd | Singapore, Singapore | Global WM&BB | SGD | 3.3 | 100.0 | |||||||||
UBS UK Holding Limited | London, Great Britain | IB | GBP | 5.0 | 100.0 | |||||||||
UBS UK Properties Limited | London, Great Britain | IB | GBP | 100.0 | 100.0 | |||||||||
UBS Wealth Management (UK) Ltd | London, Great Britain | Global WM&BB | GBP | 2.5 | 100.0 | |||||||||
UBS Wealth Management Australia Ltd | Melbourne, Australia | Global WM&BB | AUD | 53.9 | 100.0 | |||||||||
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Note 35 Significant Subsidiaries and Associates (continued)
Consolidated companies: changes in 2006 | ||||
Significant new companies | ||||
Banco UBS Pactual S.A. – Rio de Janeiro, Brazil | ||||
Dillon Read Capital Management (Singapore) Pte. Ltd. – Singapore, Singapore | ||||
Dillon Read Capital Management (UK) Ltd – London, Great Britain | ||||
Dillon Read Capital Management LLC – Delaware, USA | ||||
Dillon Read Solutions Pte. Ltd. – Singapore, Singapore | ||||
OOO UBS Bank – Moscow, Russia | ||||
UBS Clearing and Execution Services Limited – London, Great Britain | ||||
UBS Futures Singapore Ltd. – Singapore, Singapore | ||||
UBS Menkul Degerler AS – Instanbul, Turkey | ||||
UBS Pactual Asset Management S.A. DTVM – Rio de Janeiro, Brazil | ||||
UBS Sauerborn Private Equity Komplementär GmbH – Bad Homburg, Germany | ||||
Deconsolidated companies | ||||
Significant deconsolidated companies | Reason for deconsolidation | |||
Aare-Tessin AG für Elektrizität – Olten, Switzerland | Sold | |||
Atel Energia S.r.l. – Milan, Italy | Sold | |||
Atel Installationstechnik AG – Olten, Switzerland | Sold | |||
Entrade GmbH – Schaffhausen, Switzerland | Sold | |||
Etra SIM SpA – Milan, Italy | Merged | |||
GAH Beteiligungs AG – Heidelberg, Germany | Sold | |||
Motor-Columbus AG – Baden, Switzerland | Sold | |||
Società Elettrica Sopracenerina SA – Locarno, Switzerland | Sold | |||
UBS (Trust and Banking) Limited – Tokyo, Japan | Liquidated | |||
UBS Capital II LLC – Delaware, USA | Liquidated | |||
UBS Preferred Funding Company LLC III – Delaware, USA | Liquidated | |||
Significant associates | |||||||||||
Equity interest | Share capital | ||||||||||
Company | Industry | in % | in millions | ||||||||
SIS Swiss Financial Services Group AG – Zurich, Switzerland | Financial | 32.9 | CHF | 26 | |||||||
Telekurs Holding AG – Zurich, Switzerland | Financial | 33.3 | CHF | 45 | |||||||
UBS Alpha Select – George Town, Cayman Islands | Private Investment Company | 37.4 | USD | 896 | 1 | ||||||
UBS Alpha Hedge Fund – George Town, Cayman Islands | Private Investment Company | 21.8 | USD | 427 | 1 | ||||||
UBS Currency Portfolio Ltd – George Town, Cayman Islands | Private Investment Company | 29.9 | USD | 517 | 1 | ||||||
ATR Acquisition LLC – Texas, USA | Manufacturing | 24.2 | USD | 314 | |||||||
Waterside Plaza Holdings LLC – Delaware, USA | Real Estate | 50.0 | USD | 119 | |||||||
A&Q Select Funds – Euro Limited – George Town, Cayman Islands | Private Investment Company | 22.0 | USD | 316 | 1 | ||||||
Williamsburg Edge LLC – Delaware, USA | Real Estate | 50.0 | USD | 78 | |||||||
Dillon Read Financial Products Trading Ltd – George Town, Cayman Islands | Private Investment Company | 7.1 | 2 | USD | 542 | ||||||
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Financial Statements
Notes to the Financial Statements
Note 36 Invested Assets and Net New Money
Invested assets include all client assets managed by or deposited with UBS for investment purposes. Invested assets include, for example, managed fund assets, managed institutional assets, discretionary and advisory wealth management portfolios, fiduciary deposits, time deposits, savings accounts and wealth management securities or brokerage accounts. All assets held for purely transactional purposes and custody-only assets, including corporate client assets held for cash management and transactional purposes, are excluded from invested assets as the Group only administers the assets and does not offer advice on how the assets should be invested. Also excluded are non-bankable assets (e.g. art collections) and deposits from third-party banks for funding or trading purposes.
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.
As of or for the year ended | ||||||||
CHF billion | 31.12.06 | 31.12.05 | ||||||
Fund assets managed by UBS | 439 | 390 | ||||||
Discretionary assets | 849 | 716 | ||||||
Other invested assets | 1,701 | 1,546 | ||||||
Total invested assets (double counts included) | 2,989 | 2,652 | ||||||
thereof double count | 371 | 332 | ||||||
thereof acquisitions (divestments) | 81.1 | (93.9 | ) | |||||
Net new money (double counts included) | 151.7 | 148.5 | ||||||
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Note 37 Business Combinations
Business combinations completed in 2006
During 2006, UBS completed several acquisitions that were accounted for as business combinations. The acquisition of Banco Pactual S.A. was individually significant to the Financial Statements and is therefore presented separately in this note. The other acquisitions are presented in aggregate per business group.
Banco Pactual S.A.
On 1 December 2006, UBS completed the acquisition of Brazilian bank Banco Pactual S.A. The bank was merged with UBS’s Brazilian business, and both are now operating under the name UBS Pactual. The cost of the business combination is estimated at USD 2,194 million (CHF 2,677 million) but is still subject to final determination. Of the total consideration, USD 971 million (CHF 1,164 million) was paid on 1 December 2006 in cash. The residual payment of up to USD 1.6 billion (CHF 1.9 billion) is subject to certain performance
conditions and is due on 30 June 2011. The purchase price allocation is preliminary and will be finalized in 2007. The preliminary allocation shows the booking of net assets of USD 376 million (CHF 459 million), intangible assets of USD 830 million (CHF 1,013 million) and goodwill of USD 988 million (CHF 1,205 million). Identified intangible assets include client relationships, non-compete agreements, favorable contracts, investment banking pipeline, proprietary software, trademarks and trade names, with an economic useful life from 1 to 20 years. UBS Pactual offers a broad range of services in investment banking, asset management and wealth management. It has offices in São Paolo, Rio de Janeiro, Belo Horizonte and Recife.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 1,013 | 1,013 | |||||||||
Property and equipment | 9 | 0 | 9 | |||||||||
Deferred tax assets | 16 | 0 | 16 | |||||||||
Goodwill | 0 | 1,205 | 1,205 | |||||||||
All other assets | 11,877 | 0 | 11,877 | |||||||||
Total assets | 11,902 | 2,218 | 14,120 | |||||||||
Liabilities | ||||||||||||
Provisions | 52 | 0 | 52 | |||||||||
Deferred tax liabilities | 28 | 0 | 28 | |||||||||
All other liabilities | 11,363 | 0 | 11,363 | |||||||||
Total liabilities | 11,443 | 0 | 11,443 | |||||||||
Net assets | 459 | 2,218 | 2,677 | |||||||||
Total liabilities and equity | 11,902 | 2,218 | 14,120 | |||||||||
On the acquisition date, intangible assets and goodwill were allocated to the Business Groups as follows:
Global Wealth | ||||||||||||||||
Management & | Investment | Global Asset | ||||||||||||||
CHF million | Business Banking | Bank | Management | Total | ||||||||||||
Assets | ||||||||||||||||
Intangible assets | 176 | 349 | 488 | 1,013 | ||||||||||||
Goodwill | 50 | 962 | 193 | 1,205 | ||||||||||||
Since the acquisition date, UBS Pactual contributed revenues of CHF 102 million to UBS’s results, and an after-tax profit of CHF 28 million after acquisition costs (retention payments and amortization of intangible assets) but excluding finance costs.
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Financial Statements
Notes to the Financial Statements
Note 37 Business Combinations (continued)
Investment Bank
ABN AMRO’s Global Futures and Options Business
On 30 September 2006, UBS acquired the global futures and options business of ABN AMRO for USD 704 million (CHF 880 million) in cash. The ABN AMRO futures and options business provides clearing and execution services on a global basis. The acquired business has been integrated into the Prime Services business within the Equities business of the
Investment Bank. The purchase price was allocated to net assets of USD 362 million (CHF 452 million) and intangible assets of USD 108 million (CHF 134 million). The difference of USD 234 million (CHF 294 million) from the purchase price was recognized as goodwill. The acquired business contributed CHF 7 million to UBS’s net profit since the date of acquisition.
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 134 | 134 | |||||||||
Property and equipment | 13 | 0 | 13 | |||||||||
Financial investments available-for-sale | 26 | 54 | 80 | |||||||||
Goodwill | 0 | 294 | 294 | |||||||||
All other assets | 11,942 | 0 | 11,942 | |||||||||
Total assets | 11,981 | 482 | 12,463 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 9 | 9 | |||||||||
All other liabilities | 11,574 | 0 | 11,574 | |||||||||
Total liabilities | 11,574 | 9 | 11,583 | |||||||||
Net assets | 407 | 473 | 880 | |||||||||
Total liabilities and equity | 11,981 | 482 | 12,463 | |||||||||
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Note 37 Business Combinations (continued)
Piper Jaffray Companies’ Private Client Services Branch Network
Dolfi
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 0 | 158 | 158 | |||||||||
Property and equipment | 16 | (4 | ) | 12 | ||||||||
Financial investments available-for-sale | 1 | 0 | 1 | |||||||||
Goodwill | 0 | 479 | 479 | |||||||||
All other assets | 291 | 0 | 291 | |||||||||
Total assets | 308 | 633 | 941 | |||||||||
Liabilities | ||||||||||||
Provisions | 0 | 8 | 8 | |||||||||
Deferred tax liabilities | 0 | 3 | 3 | |||||||||
All other liabilities | 2 | 4 | 6 | |||||||||
Total liabilities | 2 | 15 | 17 | |||||||||
Net assets | 306 | 618 | 924 | |||||||||
Total liabilities and equity | 308 | 633 | 941 | |||||||||
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Financial Statements
Notes to the Financial Statements
Note 37 Business Combinations (continued)
Acquisitions of minority interests of subsidiaries in 2006
UBS Bunting Limited
Business combinations announced but not yet completed
Beijing Securities Ltd.
Business combinations completed in 2005
Financial Businesses
Julius Baer North America
Etra
Dresdner Bank Lateinamerika
Global Asset Management – Siemens Real Estate Funds
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Note 37 Business Combinations (continued)
Investment Bank – Prediction
secures the know-how available at Prediction and the opportunity to leverage it across UBS. The purchase price of approximately CHF 84 million was primarily allocated to intangible assets valued at approximately CHF 26 million and goodwill of approximately CHF 51 million. Details of assets and liabilities recognized from the acquisitions made by the Financial Businesses in 2005 are as follows:
Step-up to | ||||||||||||
CHF million | Book value | fair value | Fair value | |||||||||
Assets | ||||||||||||
Intangible assets | 2 | 43 | 45 | |||||||||
Property and equipment | 2 | 0 | 2 | |||||||||
Financial investments | 35 | 0 | 35 | |||||||||
Goodwill | 0 | 327 | 327 | |||||||||
All other assets | 1,092 | 0 | 1,092 | |||||||||
Total assets | 1,131 | 370 | 1,501 | |||||||||
Liabilities | ||||||||||||
Provisions | 18 | 0 | 18 | |||||||||
Deferred tax liabilities | 0 | 6 | 6 | |||||||||
All other liabilities | 1,022 | 2 | 1,024 | |||||||||
Total liabilities | 1,040 | 8 | 1,048 | |||||||||
Net assets | 91 | 362 | 453 | |||||||||
Total liabilities and equity | 1,131 | 370 | 1,501 | |||||||||
Industrial Holdings
price was predominantly allocated to the power station and fair value of net assets acquired was equal to the purchase price. No goodwill was recognized in this acquisition. Motor-Columbus was sold on 23 March 2006. See Note 38 Discontinued Operations for details.
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Notes to the Financial Statements
Note 37 Business Combinations (continued)
Step-up to fair | ||||||||||||
CHF million | Book value | value | Fair value | |||||||||
Assets | ||||||||||||
Property and equipment | 97 | 14 | 111 | |||||||||
Deferred tax assets | 0 | 2 | 2 | |||||||||
Goodwill | 0 | 4 | 4 | |||||||||
All other assets | 15 | 0 | 15 | |||||||||
Total assets | 112 | 20 | 132 | |||||||||
Liabilities | ||||||||||||
Provisions | 1 | 0 | 1 | |||||||||
Deferred tax liabilities | 6 | 5 | 11 | |||||||||
All other liabilities | 6 | (4 | ) | 2 | ||||||||
Total liabilities | 13 | 1 | 14 | |||||||||
Net assets | 99 | 19 | 118 | |||||||||
Total liabilities and equity | 112 | 20 | 132 | |||||||||
Pro-forma information (unaudited)
had been made as of 1 January 2004. Adjustments have been made to reflect additional amortization and depreciation of assets and liabilities, which have been assigned fair values different from their carryover basis in purchase accounting.
For the year ended | ||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Total operating income | 49,408 | 42,021 | 37,341 | |||||||||
Net profit | 12,556 | 14,070 | 8,006 | |||||||||
Basic earnings per share (CHF) | 6.35 | 6.99 | 7.77 | |||||||||
Business combinations completed in 2007
McDonald Investments’ Branch Network
will be integrated into Wealth Management US. The unit provides comprehensive wealth management services to affluent and high net worth individuals, including estate planning, retirement planning and asset management.
Business combinations announced in 2007
Standard Chartered’s mutual funds management business in India
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Note 38 Discontinued Operations
2006
Motor-Columbus
Industrial Holdings
2005
Private Banks & GAM
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Financial Statements
Notes to the Financial Statements
Note 38 Discontinued Operations (continued)
For the year ended 31.12.06 | ||||||||
Other | ||||||||
CHF million | Motor-Columbus | Industrial Holdings1 | ||||||
Operating income | 2,494 | 312 | ||||||
Operating expenses | 2,412 | 331 | ||||||
Operating profit / (loss) from discontinued operations before tax | 82 | (19 | ) | |||||
Pre-tax gain / (loss) on sale | 364 | 429 | ||||||
Profit from discontinued operations before tax | 446 | 410 | ||||||
Tax expense / (benefit) on operating profit from discontinued operations before tax | 11 | (1 | ) | |||||
Tax expense / (benefit) on gain on sale | (23 | ) | 0 | |||||
Tax expense / (benefit) from discontinued operations | (12 | ) | (1 | ) | ||||
Net profit / (loss) from discontinued operations | 458 | 411 | ||||||
Net cash flows from | ||||||||
operating activities | 1 | (7 | ) | |||||
investing activities | (52 | ) | 76 | |||||
financing activities | (22 | ) | (88 | ) | ||||
For the year ended 31.12.05 | |||||||||||||
Other | |||||||||||||
CHF million | Private Banks & GAM | Motor-Columbus | Industrial Holdings | ||||||||||
Operating income | 1,102 | 8,711 | 2,111 | ||||||||||
Operating expenses | 633 | 8,323 | 2,116 | ||||||||||
Operating profit / (loss) from discontinued operations before tax | 469 | 388 | (5 | ) | |||||||||
Pre-tax gain / (loss) on sale | 4,095 | 0 | 113 | ||||||||||
Profit from discontinued operations before tax | 4,564 | 388 | 108 | ||||||||||
Tax expense on operating profit from discontinued operations before tax | 99 | 65 | 22 | ||||||||||
Tax expense on gain on sale | 390 | 0 | 0 | ||||||||||
Tax expense / (benefit) from discontinued operations | 489 | 65 | 22 | ||||||||||
Net profit / (loss) from discontinued operations | 4,075 | 323 | 86 | ||||||||||
Net cash flows from | |||||||||||||
operating activities | (143 | ) | 252 | 68 | |||||||||
investing activities | (22 | ) | (326 | ) | (43 | ) | |||||||
financing activities | 0 | 163 | 28 | ||||||||||
For the year ended 31.12.04 | |||||||||||||
Other | |||||||||||||
CHF million | Private Banks & GAM | Motor-Columbus | Industrial Holdings | ||||||||||
Operating income | 1,086 | 3,668 | 3,748 | ||||||||||
Operating expenses | 690 | 3,460 | 3,639 | ||||||||||
Operating profit / (loss) from discontinued operations before tax | 396 | 208 | 109 | ||||||||||
Pre-tax gain / (loss) on sale | 0 | 0 | 68 | ||||||||||
Profit from discontinued operations before tax | 396 | 208 | 177 | ||||||||||
Tax expense on operating profit from discontinued operations before tax | 97 | 49 | 52 | ||||||||||
Tax expense on gain on sale | 0 | 0 | 0 | ||||||||||
Tax expense / (benefit) from discontinued operations | 97 | 49 | 52 | ||||||||||
Net profit / (loss) from discontinued operations | 299 | 159 | 125 | ||||||||||
Net cash flows from | |||||||||||||
operating activities | (725 | ) | 75 | (288 | ) | ||||||||
investing activities | 30 | (71 | ) | 124 | |||||||||
financing activities | 3 | 112 | 34 | ||||||||||
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Note 39 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign entities into Swiss francs:
Spot rate | Average rate | |||||||||||||||||||
As of | Year ended | |||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||
1 USD | 1.22 | 1.31 | 1.25 | 1.25 | 1.24 | |||||||||||||||
1 EUR | 1.61 | 1.56 | 1.58 | 1.55 | 1.54 | |||||||||||||||
1 GBP | 2.39 | 2.26 | 2.31 | 2.27 | 2.27 | |||||||||||||||
100 JPY | 1.02 | 1.11 | 1.08 | 1.13 | 1.15 | |||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 40 Swiss Banking Law Requirements
The consolidated Financial Statements of UBS are prepared in accordance with International Financial Reporting Standards. Included in this note are the significant differences in regard to recognition and measurement between IFRS and the provisions of the Banking Ordinance and the Guidelines of the Swiss Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the Banking Ordinance.
1. Consolidation
2. Financial investments available-for-sale
3. Cash flow hedges
4. Investment property
5. Fair value option
6. Goodwill and intangible assets
7. Discontinued operations
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Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally
Accepted Accounting Principles (US GAAP)
a. Purchase accounting (merger of Union Bank of
Switzerland and Swiss Bank Corporation)
Under IFRS, the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation was accounted for under the uniting of interests method. The balance sheets and income statements of the banks were combined, and no adjustments were made to the carrying values of the assets and liabilities. Under US GAAP, the business combination creating UBS AG is accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. Under the purchase method, the cost of acquisition is measured at fair value and the acquirer’s interests in identifiable tangible assets and liabilities of the acquiree are restated to fair values at the date of acquisition. Any excess consideration paid over the fair value of net tangible assets acquired is allocated, first to identifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.
Goodwill and intangible assets
Other purchase accounting adjustments
b. Goodwill
With the adoption of IFRS 3Business Combinationson 31 March 2004, UBS ceased amortizing goodwill on 1 January 2005 for all goodwill existing before 31 March 2004. Goodwill is now subject to an annual impairment test as it is under US GAAP and is no longer amortized under both sets of standards. Goodwill from business combinations entered into on or after 31 March 2004 was already accounted for under the provisions of IFRS 3, and no goodwill amortization was recorded for these transactions under IFRS or US GAAP. An IFRS to US GAAP difference remains on the balance sheet due to the fact that US GAAP goodwill amortization ceased on 31 December 2001 and IFRS goodwill amortization ceased on 31 December 2004. This difference was reduced during 2005 due to the sale of GAM on 2 December 2005.
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Financial Statements
Notes to the Financial Statements
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States
Generally Accepted Accounting Principles (US GAAP) (continued)
that reason, Goodwill and Other liabilities recognized under US GAAP are reduced by the present value of the contingent consideration of CHF 746 million to CHF 459 million. Accordingly, the addition of accrued interest on the present value of the contingent consideration recognized under IFRS is reversed under US GAAP, which resulted in a decrease of Interest expense and Other liabilities of CHF 3 million.
c. Purchase accounting under IFRS 3 and FAS 141
With the adoption of IFRS 3 on 31 March 2004, the accounting for business combinations generally converged with US GAAP except for the differences described below.
d. Hedge accounting
Under IAS 39, UBS hedges interest rate risk based on forecast cash inflows and outflows on a Group basis. For this purpose, UBS accumulates information about non-trading financial assets and financial liabilities, which is then used to estimate and aggregate cash flows and to schedule the future periods in which these cash flows are expected to occur. Appropriate derivative instruments are then used to hedge the estimated future cash flows against repricing risk. SFAS 133 does not permit hedge accounting for hedges of
future cash flows determined by this methodology. Accordingly, for US GAAP such hedging instruments continue to be carried at fair value with changes in fair value recognized in Net trading income.
e. Financial investments available-for-sale
For UBS, the following differences exist between IFRS and US GAAP in accounting for financial investments available-for-sale: 1) Under US GAAP, instruments which are not securities or equity securities with no readily determinable fair value (excluding private equity investments discussed in the next part) are not classified as available-for-sale investments. They are classified as Other assets and measured at cost less impairment. Under IFRS, these instruments are measured at fair value with changes in fair value reflected directly in equity. 2) Under IFRS, restricted stock is classified as a financial investment available-for-sale. Under US GAAP, restricted stock (with a restriction period of more than one year) is classified as Other assets and measured at cost less impairment.
f. Private equity investments
On 1 January 2005, UBS adopted revised IAS 27Consolidated and Separate Financial Statementsand revised IAS 28Investments in Associates.The comparative periods for 2004 and 2003 were restated. The adoption of these standards had an impact on the accounting for private equity investments. Previously under IFRS, such investments were classified as Financial investments available-for-sale with changes in fair value recorded directly in Equity. The effect of adopting these standards is that private equity investments in which UBS owns a controlling interest are now consolidated and those where UBS has significant influence are accounted for as associated companies using the equity method of accounting. The remaining private equity investments continue to be accounted for as Financial investments available-for-sale.
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Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States
Generally Accepted Accounting Principles (US GAAP) (continued)
Under US GAAP, private equity investments held within separate investment subsidiaries are accounted for in accordance with theAICPA Audit and Accounting Guide, Audits of Investment Companies. They are accounted for at fair value with changes in fair value recorded in other income. The remaining private equity investments held by UBS are accounted for at cost less “other than temporary” impairment. All private equity investments are presented in the balance sheet line Private equity investments under US GAAP.
g. Pension and other post-retirement benefit plans
Under IFRS, UBS recognizes post-retirement benefit 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.
line basis as those amounts are recognized in the income statement.
h. Equity participation plans
On 1 January 2005, UBS adopted IFRS 2Share-based paymentwhich requires that the fair value of all share-based payments made to employees be recognized as compensation expense from the date of grant over the service period, which is generally equal to the vesting period. UBS applied IFRS 2 on a retrospective application basis and restated its 2003 and 2004 comparative prior periods for all awards that impact income statements commencing 2003. UBS recorded an opening retained earnings adjustment on 1 January 2003 to reflect the cumulative income statement effects of prior periods. See Note 1b) for details. Previously under IFRS, option awards were expensed at their intrinsic value which is generally zero as options are normally granted at or out of the money. Shares were recognized as compensation expense in full in the performance year, which is generally the year prior to grant.
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Financial Statements
Notes to the Financial Statements
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States
Generally Accepted Accounting Principles (US GAAP) (continued)
the revenue produced. For disclosure purposes, UBS recognized the fair value of option awards on the date of grant. Thus, for recognition and disclosure purposes, expense for share and option awards issued prior to but outstanding at the date of adoption of SFAS 123-R has been fully attributed to prior periods.
Certain UBS awards contain provisions that permit the employee to retire, provided they meet certain eligibility conditions and continue to vest in their award. Under US GAAP, compensation expense for such awards must be recognized over the period from grant until the employee reaches retirement eligibility. Under IFRS 2 such awards are generally recognized over the vesting period, with an acceleration of expense at the actual retirement date.
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Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally
Accepted Accounting Principles (US GAAP) (continued)
In addition, CHF 1,450 million has been reclassified from Other liabilities to Shareholders’ equity in the 31 December 2005 US GAAP balance sheet. The reclassification relates to equity-settled awards which were recorded in Other liabilities.
i. Variable interest entities (VIEs), limited partnerships and entities issuing preferred securities
IFRS and US GAAP generally require consolidation of entities on the basis of controlling a majority of voting rights. However, in certain situations, there are no voting rights, or control of a majority of voting rights is not a reliable indicator of the need to consolidate, such as when voting rights are significantly disproportionate to risks and rewards. There are differences in the approach of IFRS and US GAAP to those situations.
extent of the general partners’ ownership interest in the limited partnership. The assessment of whether the rights of the limited partners should overcome the presumption of control by the general partner is a matter of judgment that depends on facts and circumstances. If the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partner without cause or (b) substantive participating rights, the general partner does not control the limited partnership and therefore does not consolidate the entity.
j. Financial assets and liabilities designated at fair value through profit or loss
IFRS provides, under certain circumstances, the option to designate at initial recognition a financial asset or financial liability at fair value through profit or loss (see Notes 1, 9 and 19). This option is not available under US GAAP as UBS did not early adopt SFAS 155Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140(see Note 41.2). SFAS 155 will allow a fair value designation for certain hybrid instruments from 1 January 2007 onwards. Additionally, beginning 1 January 2008, Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Liabilities(Statement 159) will become effective. Statement 159 provides a fair value option that is broader than that provided in Statement 155 and is similar to the fair value option provided by IFRS. In 2006, as in prior periods, UBS reversed all IFRS fair value designations of financial assets and financial liabilities under US GAAP.
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Financial Statements
Notes to the Financial Statements
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally
Accepted Accounting Principles (US GAAP) (continued)
UBS applies the fair value option to a significant portion of its issued debt under IFRS. Many debt issues are in the form of hybrid instruments, consisting of a debt host with an embedded derivative. These hybrid instruments are carried in their entirety at fair value with all changes in fair value recorded in Net trading income. Under US GAAP, the debt host contracts of these hybrid instruments are recognized at amortized cost while the embedded derivatives are recognized at fair value with changes in fair value recognized in Net profit. Although separately measured, the positive and negative replacement values of the embedded derivatives are classified with the debt host contract.
k. Physically settled written puts on UBS shares
Under IFRS, the accounting for physically settled written put options on UBS shares is as follows: the present value of the contractual amount is recorded as a financial liability, while
the premium received is credited to equity. Subsequently, the liability is accreted over the life of the put option to its contractual amount recognizing interest expense in accordance with the effective interest method. Under US GAAP, physically settled written put options on UBS shares are accounted for as derivative instruments. All other outstanding derivative contracts, except written put options with the UBS share as underlying, are treated as derivative instruments under both sets of accounting standards.
l. Investment properties
In the IFRS Financial Statements, investment properties are accounted for under the fair value method. Under this method, changes in fair value are recognized in the income statement, and depreciation is no longer recognized. Under US GAAP, investment properties continue to be carried at cost less accumulated depreciation.
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Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally
Accepted Accounting Principles (US GAAP) (continued)
In June 2005, the FASB ratified the consensus on EITF Issue No. 04-5,Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights(EITF 04-5), which provides guidance in determining whether a general partner controls a limited partnership. EITF 04-5 stipulates that the general partner in a limited partnership is presumed to control that limited partnership unless the limited partners have either substantive kick-out rights or substantive participating rights. EITF 04-5 is effective after 29 June 2005 for new limited partnership agreements and for pre-existing limited partnership agreements that are modified; otherwise, the guidance was effective as of 1 January 2006 for existing unmodified partnerships. Adoption of EITF 04-05 did not have a material impact on UBS’s Financial Statements.
er Postretirement Plans(Statement 158). Statement 158 requires: (1) recognition of the over- or under-funded status of a defined benefit post-retirement plan as an asset or liability in the balance sheet; (2) recognition within shareholders equity (net of tax) of gains or losses and prior service costs or credits arising during the period that are not recognized as components of the period’s net periodic benefit cost; and (3) measurement of the defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet. The recognition requirements of Statement 158 (requirements (1) and (2), above) are effective as of the end of the fiscal year ending after 15 December 2006. See Note 42.5 for the incremental effect of the first time application of these requirements. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year end is effective for fiscal years ending after 15 December 2008. Adoption of this requirement will not have an impact on UBS’s Financial Statements as plan assets and benefit obligations are currently measured as of the balance sheet date.
Recently issued US accounting standards not yet adopted
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Financial Statements
Notes to the Financial Statements
Note 41 Reconciliation of International Financial Reporting Standards (IFRS) to United States Generally
Accepted Accounting Principles (US GAAP) (continued)
In March 2006, the FASB issued Statement of Financial Accounting Standard No. 156,Accounting for Servicing of Financial Assets, (Statement 156). Statement 156 addresses the accounting for recognized servicing assets and servicing liabilities related to certain transfers of the servicer’s financial assets and for acquisitions or assumptions of obligations to service financial assets that do not relate to the financial assets of the servicer and its related parties. Statement 156 requires that all recognized servicing assets and servicing liabilities are initially measured at fair value and subsequently measured at either fair value or by applying an amortization method for each class of recognized servicing assets and servicing liabilities. Statement 156 is effective in fiscal years beginning after 15 September 2006. The adoption of SFAS 156 is not expected to have a material impact on UBS’s Financial Statements.
measurements. Additionally, Statement 157 eliminates the requirement to defer calculated profit or loss on transaction values that include unobservable inputs (“Day 1 profit and loss”) and eliminates the use of block discounts for securities traded in an active market. Statement 157 is effective for financial statements issued for fiscal years beginning after 15 November 2007. The provisions of Statement 157 should be applied prospectively upon initial adoption, except for the provisions that eliminate prior measurement guidance regarding block discounts and Day 1 profit or loss. Those changes should be applied retrospectively as an adjustment to the opening balance of retained earnings in the period of adoption. UBS is still assessing the impact Statement 157 will have on its Financial Statements.
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Note 41.3 Reconciliation of IFRS Equity Attributable to UBS Shareholders to US GAAP Shareholders’ Equity
and IFRS Net Profit Attributable to UBS Shareholders to US GAAP Net Profit
Equity attributable to | ||||||||||||||||||||||||
UBS shareholders | Net profit attributable to | |||||||||||||||||||||||
(IFRS) / Shareholders' equity | UBS shareholders (IFRS) / | |||||||||||||||||||||||
(US GAAP) | Net profit (US GAAP) | |||||||||||||||||||||||
Note 41.1 | as of | for the year ended | ||||||||||||||||||||||
CHF million | Reference | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||
Amounts determined in accordance with IFRS | 49,686 | 44,015 | 12,257 | 14,029 | 8,016 | |||||||||||||||||||
Adjustments in respect of: | ||||||||||||||||||||||||
SBC purchase accounting goodwill and other purchase accounting adjustments | a | 15,091 | 15,116 | (25 | ) | (36 | ) | (44 | ) | |||||||||||||||
Goodwill | b | 2,366 | 2,373 | 3 | 0 | 778 | ||||||||||||||||||
Purchase accounting under IFRS 3 and FAS 141 | c | 85 | (86 | ) | (6 | ) | 35 | 3 | ||||||||||||||||
Hedge accounting | d | (5 | ) | (40 | ) | 372 | (455 | ) | (217 | ) | ||||||||||||||
Financial investments available-for-sale | e | (1,670 | ) | (384 | ) | 171 | 0 | 0 | ||||||||||||||||
Private equity investments | f | 337 | 709 | (278 | ) | (486 | ) | 217 | ||||||||||||||||
Pension and other post-retirement benefit plans | g | (1,452 | ) | 229 | 165 | (18 | ) | (110 | ) | |||||||||||||||
Equity participation plans | h | 815 | 658 | (475 | ) | 358 | 62 | |||||||||||||||||
Variable interest entities (VIEs), limited partnerships and entities issuing preferred securities | i | (1 | ) | (98 | ) | (2 | ) | 0 | 18 | |||||||||||||||
Financial assets and liabilities designated at fair value through profit or loss | j | (994 | ) | (197 | ) | (682 | ) | (436 | ) | 100 | ||||||||||||||
Physically settled written puts on UBS shares | k | 184 | 131 | 6 | 8 | 9 | ||||||||||||||||||
Investment properties | l | (12 | ) | (8 | ) | (4 | ) | 0 | 14 | |||||||||||||||
Other adjustments | 317 | 74 | 130 | (118 | ) | (50 | ) | |||||||||||||||||
Tax adjustments | (224 | ) | (876 | ) | (146 | ) | (529 | ) | 22 | |||||||||||||||
Total adjustments | 14,837 | 17,601 | (771 | ) | (1,677 | ) | 802 | |||||||||||||||||
Amounts determined in accordance with US GAAP | 64,523 | 61,616 | 11,486 | 12,352 | 8,818 | |||||||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 41.4 Earnings per share
Under both IFRS and US GAAP, basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to dilutive
potential common shares that were outstanding during the period.
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||
For the year ended | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||
Net profit (US GAAP) / Net profit attributable to UBS shareholders (IFRS) – available for ordinary shares (CHF million) | 11,486 | 12,257 | 12,352 | 14,029 | 8,818 | 8,016 | ||||||||||||||||||
from continuing operations | 11,082 | 11,491 | 8,376 | 9,776 | 8,398 | 7,547 | ||||||||||||||||||
from discontinued operations | 404 | 766 | 3,976 | 4,253 | 420 | 469 | ||||||||||||||||||
Net profit (US GAAP) / Net profit attributable to UBS shareholders – for diluted EPS (CHF million) | 11,478 | 12,249 | 12,330 | 14,007 | 8,813 | 8,011 | ||||||||||||||||||
from continuing operations | 11,074 | 11,483 | 8,377 | 9,777 | 8,401 | 7,550 | ||||||||||||||||||
from discontinued operations | 404 | 766 | 3,953 | 4,230 | 412 | 461 | ||||||||||||||||||
Weighted average shares outstanding | 1,975,933,228 | 1,976,405,800 | 2,013,859,982 | 2,013,987,754 | 2,059,791,220 | 2,059,836,926 | ||||||||||||||||||
Diluted weighted average shares outstanding | 2,058,834,812 | 2,058,834,812 | 2,097,191,540 | 2,097,191,540 | 2,163,922,720 | 2,163,922,720 | ||||||||||||||||||
Basic earnings per share (CHF) | 5.81 | 6.20 | 6.13 | 6.97 | 4.28 | 3.89 | ||||||||||||||||||
from continuing operations | 5.61 | 5.81 | 4.16 | 4.85 | 4.08 | 3.66 | ||||||||||||||||||
from discontinued operations | 0.20 | 0.39 | 1.97 | 2.12 | 0.20 | 0.23 | ||||||||||||||||||
Diluted earnings per share (CHF) | 5.57 | 5.95 | 5.88 | 6.68 | 4.07 | 3.70 | ||||||||||||||||||
from continuing operations | 5.38 | 5.58 | 3.99 | 4.66 | 3.88 | 3.49 | ||||||||||||||||||
from discontinued operations | 0.19 | 0.37 | 1.89 | 2.02 | 0.19 | 0.21 | ||||||||||||||||||
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Note 41.5 Presentation Differences between IFRS and US GAAP
In addition to the differences in valuation and income recognition, other differences exist between IFRS and US GAAP which generally have an impact solely on balance sheet and/ or Income statement presentation, although in certain cases, these presentation differences may result in an immaterial impact on US GAAP Shareholders’ equity and Net profit. In such cases, these differences are aggregated in the Other differences line in the table in Note 41.3. The following is a summary of these differences.
1. Settlement date vs. trade date accounting
UBS’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, presented as replacement value on balance sheet and any unrealized profits and losses are recognized in Net profit.
2. Securities received as collateral in a securities-for-
securities lending transaction
3. Reverse repurchase, repurchase, securities borrowing and
securities lending transactions
4. Recognition / derecognition of financial assets
The guidance governing recognition and derecognition of a financial asset requires a multi-step decision process to determine whether recognition or derecognition of transferred financial assets is appropriate. UBS derecognizes financial assets for which it transfers the contractual rights to the cash flows and no longer retains any risk or reward coming from them nor maintains control over the financial assets. As a result of these requirements, certain transactions are accounted for as secured financing transactions instead of purchases or sales of trading portfolio assets with an accompanying swap derivative. Under US GAAP, these transactions typically continue to be shown as purchases and sales of trading portfolio assets and were reclassified accordingly. Effects on net profit which arise from derecognition / recognition of financial assets and related recognition of forward transactions are reflected in Net trading income.
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Notes to the Financial Statements
Note 41.6 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December 2006, 31 December 2005 and 31 December 2004, restated to reflect the impact of valuation and income recognition differences and presentation differences between IFRS and US GAAP.
CHF million, for the year ended | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||||||||||||
Reference | US GAAP | IFRS | US GAAP | IFRS | US GAAP | IFRS | ||||||||||||||||||||||
Operating income | ||||||||||||||||||||||||||||
Interest income | a, d, e, f, i, j,3, 4 | 87,380 | 87,401 | 58,791 | 59,286 | 38,991 | 39,228 | |||||||||||||||||||||
Interest expense | a, b, d, f, i, j,k,3, 4 | (80,463 | ) | (80,880 | ) | (49,488 | ) | (49,758 | ) | (27,245 | ) | (27,484 | ) | |||||||||||||||
Net interest income | 6,917 | 6,521 | 9,303 | 9,528 | 11,746 | 11,744 | ||||||||||||||||||||||
Credit loss (expense) / recovery | f | 156 | 156 | 375 | 375 | 334 | 241 | |||||||||||||||||||||
Net interest income after credit loss (expense) / recovery | 7,073 | 6,677 | 9,678 | 9,903 | 12,080 | 11,985 | ||||||||||||||||||||||
Net fee and commission income | 25,881 | 25,881 | 21,436 | 21,436 | 18,435 | 18,506 | ||||||||||||||||||||||
Net trading income | d, e, f, h, i, j,k,3, 4 | 12,548 | 13,318 | 7,012 | 7,996 | 4,795 | 4,902 | |||||||||||||||||||||
Other income | c, e, f, i, j, l | 1,742 | 1,596 | 747 | 1,122 | 1,158 | 853 | |||||||||||||||||||||
Revenues from Industrial Holdings | f | 0 | 693 | 0 | 675 | 0 | 640 | |||||||||||||||||||||
Total operating income | 47,244 | 48,165 | 38,873 | 41,132 | 36,468 | 36,886 | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Personnel expenses | f, g, h | 23,771 | 23,671 | 19,542 | 20,148 | 17,970 | 17,891 | |||||||||||||||||||||
General and administrative expenses | f, i | 7,944 | 8,116 | 6,469 | 6,632 | 6,420 | 6,563 | |||||||||||||||||||||
Depreciation of property and equipment | a, f, i | 1,277 | 1,263 | 1,272 | 1,261 | 1,295 | 1,284 | |||||||||||||||||||||
Amortization of goodwill | b | 0 | 0 | 0 | 0 | 0 | 673 | |||||||||||||||||||||
Amortization of other intangible assets | c, f | 143 | 153 | 119 | 131 | 103 | 170 | |||||||||||||||||||||
Goods and materials purchased | f | 0 | 295 | 0 | 283 | 0 | 263 | |||||||||||||||||||||
Total operating expenses | 33,135 | 33,498 | 27,402 | 28,455 | 25,788 | 26,844 | ||||||||||||||||||||||
Operating profit from continuing operations before tax | 14,109 | 14,667 | 11,471 | 12,677 | 10,680 | 10,042 | ||||||||||||||||||||||
Tax expense / (benefit) | 2,932 | 2,786 | 2,995 | 2,471 | 1,966 | 2,155 | ||||||||||||||||||||||
Minority interests (US GAAP) | f, i | (95 | ) | (138 | ) | (322 | ) | |||||||||||||||||||||
Net profit/(loss) from continuing operations | 11,082 | 11,881 | 8,338 | 10,206 | 8,392 | 7,887 | ||||||||||||||||||||||
Net profit / (loss) from discontinued operations | 404 | 869 | 3,976 | 4,484 | 420 | 583 | ||||||||||||||||||||||
Net profit (IFRS) | 12,750 | 14,690 | 8,470 | |||||||||||||||||||||||||
Net profit attributable to minority interests (IFRS) | c, f, i | (493 | ) | (661 | ) | (454 | ) | |||||||||||||||||||||
Cumulative adjustment due to the adoption of SFAS 123 (revised 2004), “Share Based Payment” on 1 January 2005, net of tax | h | 38 | ||||||||||||||||||||||||||
Cumulative adjustment of accounting for certain equity based compensation plans as cash settled, net of tax | h | 6 | ||||||||||||||||||||||||||
Net profit (US GAAP) / Net profit attributable to UBS shareholders (IFRS) | 11,486 | 12,257 | 12,352 | 14,029 | 8,818 | 8,016 | ||||||||||||||||||||||
Note: References above coincide with the discussions in Note 41.1 and Note 41.5. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption.
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Note 41.7 Condensed Consolidated Balance Sheet
The following is a Condensed Consolidated Balance Sheet of the Group, as of 31 December 2006 and 31 December 2005, restated to reflect the impact of valuation and income recognition principles and presentation differences between IFRS and US GAAP.
31.12.06 | 31.12.05 | |||||||||||||||||||
CHF million | Reference | US GAAP | IFRS | US GAAP | IFRS | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 3,495 | 3,495 | 5,359 | 5,359 | ||||||||||||||||
Due from banks | f, i, j,1,3, 4 | 51,416 | 50,426 | 33,427 | 33,644 | |||||||||||||||
Cash collateral on securities borrowed | 3 | 351,461 | 351,590 | 288,304 | 288,435 | |||||||||||||||
Reverse repurchase agreements | j, 3 | 361,571 | 405,834 | 359,883 | 404,432 | |||||||||||||||
Trading portfolio assets | f, h, i, j,1, 4 | 627,160 | 627,036 | 505,717 | 499,297 | |||||||||||||||
Trading portfolio assets pledged as collateral | 3, 4 | 401,176 | 251,478 | 272,494 | 154,759 | |||||||||||||||
Positive replacement values | i, j,1, 3, 4 | 332,128 | 328,445 | 337,105 | 333,782 | |||||||||||||||
Financial assets designated at fair value | j | 5,930 | 1,153 | |||||||||||||||||
Loans | a, f, i, j,1, 4 | 316,141 | 312,521 | 277,471 | 279,910 | |||||||||||||||
Financial investments available-for-sale | e, f, i, j,1, 4 | 4,535 | 8,937 | 3,407 | 6,551 | |||||||||||||||
Securities received as collateral | 2 | 49,088 | 67,430 | |||||||||||||||||
Accrued income and prepaid expenses | f, j | 10,335 | 10,361 | 8,853 | 8,918 | |||||||||||||||
Investments in associates | c, e, f | 1,823 | 1,523 | 2,554 | 2,956 | |||||||||||||||
Property and equipment | a, c, f, l | 7,207 | 6,913 | 9,282 | 9,423 | |||||||||||||||
Goodwill | a, b, c, f | 28,530 | 12,464 | 28,104 | 11,313 | |||||||||||||||
Other intangible assets | b, c, f | 2,340 | 2,309 | 1,665 | 2,173 | |||||||||||||||
Private equity investments | f | 2,195 | 2,210 | |||||||||||||||||
Other assets | c, d, e, f, g, h, i, j, k, l,1 | 84,027 | 17,249 | 75,992 | 16,243 | |||||||||||||||
Total assets | 2,634,628 | 2,396,511 | 2,279,257 | 2,058,348 | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | f, i, j,1, 4 | 206,985 | 203,689 | 127,252 | 124,328 | |||||||||||||||
Cash collateral on securities lent | 3 | 60,878 | 63,088 | 59,897 | 59,938 | |||||||||||||||
Repurchase agreements | i, j, 3 | 520,351 | 545,480 | 464,957 | 478,508 | |||||||||||||||
Trading portfolio liabilities | i, j,1, 3, 4 | 236,929 | 204,773 | 201,212 | 188,631 | |||||||||||||||
Obligation to return securities received as collateral | 2 | 49,088 | 67,430 | |||||||||||||||||
Negative replacement values | i, j, k,1, 3, 4 | 439,495 | 332,533 | 432,290 | 337,663 | |||||||||||||||
Financial liabilities designated at fair value | i, j,1 | 145,687 | 117,401 | |||||||||||||||||
Due to customers | f, i, j,1, 4 | 597,139 | 570,565 | 481,784 | 466,907 | |||||||||||||||
Accrued expenses and deferred income | f, i, j | 22,131 | 21,527 | 19,106 | 18,791 | |||||||||||||||
Debt issued | a, c, f, i, j, 1 | 306,994 | 190,143 | 240,212 | 160,710 | |||||||||||||||
Other liabilities | b, c, d, f, g, h, i, j, k, l,1 | 129,239 | 63,251 | 121,493 | 53,837 | |||||||||||||||
Total liabilities | 2,569,229 | 2,340,736 | 2,215,633 | 2,006,714 | ||||||||||||||||
Minority interests | c, f, i | 876 | 6,089 | 2,008 | 7,619 | |||||||||||||||
Total shareholders’ equity (US GAAP) / Equity attributable to UBS shareholders (IFRS) | 64,523 | 49,686 | 61,616 | 44,015 | ||||||||||||||||
Total equity (IFRS) | 55,775 | 51,634 | ||||||||||||||||||
Total liabilities, minority interests and shareholders’ equity | 2,634,628 | 2,396,511 | 2,279,257 | 2,058,348 | ||||||||||||||||
Note: References above coincide with the discussions in Note 41.1 and Note 41.5. These references indicate which IFRS to US GAAP differences affect an individual financial statement caption. Certain prior year US GAAP amounts have been reclassified to conform to the current year’s presentation.
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Financial Statements
Notes to the Financial Statements
Note 41.8 Comprehensive Income
Comprehensive income under US GAAP is defined as the change in shareholders’ equity excluding transactions with shareholders. Comprehensive income has two major components: Net profit, as reported in the income statement, and Other comprehensive income (OCI). OCI includes foreign currency translation adjustments and changes in unrealized gains / losses on available-for-sale securities. In addition, up to 31 December 2006, OCI included adjustments to the additional minimum pension liability, which as of 31 December 2006 has been eliminated to reflect that a
minimum pension liability is no longer recognized under US GAAP. However, as a result of the adoption of SFAS 158 as discussed in Note 41.1.g, OCI now includes changes in gains or losses and prior service costs or credits relating to post-retirement benefit plans that have not been recognized as components of net periodic pension costs. The components and Accumulated other comprehensive income amounts on a US GAAP basis for the years ended 31 December 2006, 31 December 2005 and 31 December 2004 are as follows:
Unrealized | ||||||||||||||||||||||||
gains / | Accumulated | |||||||||||||||||||||||
(losses) on | Pension and | other compre- | �� | |||||||||||||||||||||
Foreign | available- | Other Post- | hensive | Comprehen- | ||||||||||||||||||||
currency | for-sale | Retirement | Deferred | income / | sive income / | |||||||||||||||||||
CHF million | translation | investments | Benefit Plans | income taxes | (loss) | (loss) | ||||||||||||||||||
Balance at 1 January 2004 | (1,815 | ) | 175 | (306 | ) | 211 | (1,735 | ) | ||||||||||||||||
Net profit | 8,818 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | (1,062 | ) | 236 | (826 | ) | (826 | ) | |||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 32 | (15 | ) | 17 | 17 | |||||||||||||||||||
Impairment charges reclassified to the income statement | 10 | (2 | ) | 8 | 8 | |||||||||||||||||||
Reclassification of (gains) / losses on available-for-sale investments realized in net profit | (5 | ) | 1 | (4 | ) | (4 | ) | |||||||||||||||||
Additional minimum pension liability | (819 | ) | 21 | (798 | ) | (798 | ) | |||||||||||||||||
Other comprehensive income / (loss) | (1,062 | ) | 37 | (819 | ) | 241 | (1,603 | ) | (1,603 | ) | ||||||||||||||
Comprehensive income | 7,215 | |||||||||||||||||||||||
Balance at 31 December 2004 | (2,877 | ) | 212 | (1,125 | ) | 452 | (3,338 | ) | ||||||||||||||||
Net profit | 12,352 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | 2,380 | (292 | ) | 2,088 | 2,088 | |||||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 130 | (6 | ) | 124 | 124 | |||||||||||||||||||
Impairment charges reclassified to the income statement | 19 | (3 | ) | 16 | 16 | |||||||||||||||||||
Reclassification of (gains) / losses on available-for-sale investments realized in net profit | (19 | ) | 3 | (16 | ) | (16 | ) | |||||||||||||||||
Additional minimum pension liability | (127 | ) | 18 | (109 | ) | (109 | ) | |||||||||||||||||
Other comprehensive income / (loss) | 2,380 | 130 | (127 | ) | (280 | ) | 2,103 | 2,103 | ||||||||||||||||
Comprehensive income | 14,455 | |||||||||||||||||||||||
Balance at 31 December 2005 | (497 | ) | 342 | (1,252 | ) | 172 | (1,235 | ) | ||||||||||||||||
Net profit | 11,486 | |||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Foreign currency translation | (1,269 | ) | 83 | (1,186 | ) | (1,186 | ) | |||||||||||||||||
Net unrealized gains / (losses) on available-for-sale investments | 1,506 | (323 | ) | 1,183 | 1,183 | |||||||||||||||||||
Impairment charges reclassified to the income statement | 5 | (1 | ) | 4 | 4 | |||||||||||||||||||
Reclassification of (gains) / losses on available-for-sale investments realized in net profit | (460 | ) | 97 | (363 | ) | (363 | ) | |||||||||||||||||
Additional minimum pension liability | (38 | ) | 4 | (34 | ) | (34 | ) | |||||||||||||||||
Other comprehensive income / (loss) | (1,269 | ) | 1,051 | (38 | ) | (140 | ) | (396 | ) | (396 | ) | |||||||||||||
Comprehensive income | 11,090 | |||||||||||||||||||||||
Pension and other post-retirement benefit plans – initial adoption of SFAS 1581 | (1,815 | ) | 475 | (1,340 | ) | |||||||||||||||||||
Balance at 31 December 2006 | (1,766 | ) | 1,393 | (3,105 | ) | 507 | (2,971 | ) | ||||||||||||||||
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules
In addition to the differences in valuation, income recognition and presentation, disclosure differences exist between IFRS and US GAAP. The following are additional disclosures
that relate to the basic Financial Statements required under US GAAP. Unless otherwise indicated in the note, all amounts are shown on an IFRS basis.
Note 42.1 Variable Interest Entities
Introduction
Identification of variable interest entities (VIEs) and measurement of variable interests
– | do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties; or | |
– | do not have the characteristics of a controlling financial interest; or | |
– | have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of investors with disproportionately small or no voting interests. |
and provide certain disclosures. The holder of a significant variable interest in a VIE is required to make disclosures only. UBS treats variable interests of more than 20% of a VIE’s expected losses, expected residual returns, or both, as significant.
Measurement of maximum exposure to loss
Maximum exposure to loss is disclosed for VIEs in which UBS has a significant variable interest.
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Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.1 Variable Interest Entities (continued)
basis as for non-VIE counterparties. See Note 29 for a further discussion of UBS’s risk mitigation strategies.
VIEs in which UBS is the primary beneficiary
VIEs in which UBS is the primary beneficiary require consolidation, which may increase both total assets and liabilities of the US GAAP Financial Statements, or in other cases may result in a reclassification of existing assets or liabilities.
purposes, have combined assets of approximately CHF 3.4 billion and are included in the table below.
VIEs in which UBS is the primary beneficiary | ||||||||||
Consolidated assets that are collateral | ||||||||||
CHF million | for the VIEs' obligations | |||||||||
Nature, purpose and activities of VIEs | Total assets | Classification | Amount | |||||||
Securitizations | 1,085 | Loan receivables, government debt | 1,085 | |||||||
securities, corporate debt securities | ||||||||||
Investment fund products | 3,898 | Investment funds | 3,898 | |||||||
Investment funds managed by UBS | 1,027 | Debt, Equity | 984 | |||||||
Passive intermediary to a derivative transaction | 1,260 | Loan receivables, corporate debt securities | 1,260 | |||||||
Trust vehicles for awards to UBS employees | 1,829 | UBS shares and derivatives thereon | 1,829 | |||||||
Private equity investments | 397 | Private equity investments | 272 | |||||||
Other miscellaneous structures | 1,600 | Equity, derivatives, investment funds | 615 | |||||||
Total 31.12.06 | 11,096 | 9,943 | ||||||||
Entities which are de-consolidated for US GAAP purposes
interests, with dividends paid also reported in minority interests; the UBS issued debt held by these entities and the respective interest amounts are eliminated in consolidation. Under US GAAP, these entities are not consolidated and the UBS-issued debt is recognized as a liability in the UBS Group Financial Statements, with interest paid reported in Interest expense.
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.1 Variable Interest Entities (continued)
VIEs in which UBS holds a significant variable interest
UBS has reviewed the population of potential third-party VIEs it is involved with. Those identified in which UBS holds a significant variable interest have combined assets of approximately CHF 4.6 billion, for which UBS has a maximum exposure to loss of approximately CHF 2.4 billion. Disclosures for these are included in the table below.
VIEs in which UBS holds a significant variable interest | ||||||||||
CHF million | Maximum exposure | |||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | to loss | |||||||
Securitizations | 61 | UBS holds beneficial interests | 0 | |||||||
Investment fund products | 5,707 | UBS holds notes or units | 1,975 | |||||||
Investment funds managed by UBS | 23,870 | UBS acts as investment manager | 17,772 | |||||||
SPE used for credit protection -- UBS sells credit risk on | ||||||||||
Credit protection vehicles | 1,200 | portfolios to investors | 894 | |||||||
Other miscellaneous structures | 1,181 | UBS acts as swap counterparty | 301 | |||||||
Total 31.12.06 | 32,019 | 20,942 | ||||||||
Third-party VIEs not otherwise classified
FIN 46-R requires UBS to consider all VIEs for consolidation, including VIEs which UBS has not created, but in which it holds variable interests as a third-party counterparty, either through direct or indirect investment, or through derivative transactions.
UBS has identified that it holds variable interests in 81 third party VIEs that in some cases could result in UBS being considered the primary beneficiary, but the information necessary to make this determination, or perform the accounting required to consolidate the VIE was held by third parties, and was not available to UBS. Additional disclosures for these VIEs are provided in the table below.
VIEs not originated by UBS – information determining VIE status unavailable from third parties | |||||||||||||||
Net income | Maximum | ||||||||||||||
CHF million | from VIE in | exposure | |||||||||||||
Nature, purpose and activities of VIEs | Total assets | Nature of involvement | current period | to loss | |||||||||||
Investment fund products | 5,204 | UBS acts as swap counterparty | 441 | 4,483 | |||||||||||
Total 31.12.06 | 5,204 | 441 | 4,483 | ||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.2 Securitizations
UBS records a securitization of financial assets when the transfer of financial assets to the special purpose entity meets the accounting criteria to be accounted for as a sale. These criteria include: (1) the assets are legally isolated from UBS’s creditors; (2) the entity can pledge or exchange the financial assets, or if the entity is a qualifying special purpose entity, its investors can pledge or exchange their beneficial interests; and (3) UBS does not maintain effective control over the transferred assets through an agreement to repurchase the assets before their maturity or have the ability to unilaterally cause the holder to return the assets.
During the years ended 31 December 2006, 2005 and 2004, UBS securitized 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. All amounts are shown on a US GAAP basis. Prior period amounts have been adjusted to conform to the current year’s presentation.
Proceeds received at the time of securitization were as follows:
Proceeds Received | ||||||||||||
CHF billion | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Residential mortgage securitizations | 38 | 58 | 91 | |||||||||
Commercial mortgage securitizations | 6 | 5 | 3 | |||||||||
Other financial asset securitizations | 18 | 9 | 9 | |||||||||
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 | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Residential mortgage securitizations | 128 | 102 | 197 | |||||||||
Commercial mortgage securitizations | 143 | 125 | 141 | |||||||||
Other financial asset securitizations | (49 | ) | 17 | 21 | ||||||||
At 31 December 2006 and 2005, UBS retained CHF 3.5 billion and CHF 1.7 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 retained interests in investment-grade non-residential and other asset-backed securities
amounted to CHF 1,618 million at 31 December 2006 and CHF 713 million at 31 December 2005. The fair value of investment-grade retained interests is generally determined using observable market prices. Retained interests in non-investment-grade securities were not material at 31 December 2006 and 2005.
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.3 Industrial Holdings’ Income Statement
After the acquisition of an additional 20% stake in Motor-Columbus, a Swiss holding company whose most significant asset is a 59.3% interest in Atel, a Swiss-based European energy provider, UBS held a majority ownership interest in the company, and as a result, consolidated Motor-Columbus in its Financial Statements since 1 July 2004. The investment in Motor-Columbus is presented as a discontinued operation in the income statements for the years ended 31 December 2006, 31 December 2005 and 31 December 2004 due to its
sale on 23 March 2006 (refer to Note 38 Discontinued Operations). In addition, due to the adoption of IAS 27Consolidated and Separate Financial Statements which is further described in Note 1b), UBS retrospectively consolidated certain private equity investments to 1 January 2003. The following table provides information required by Regulation S-X for commercial and industrial companies, including a condensed income statement and certain additional balance sheet information.
Industrial Holdings' Income Statement | ||||||||||||
As of or for the year ended | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Operating income | ||||||||||||
Net sales | 693 | 675 | 640 | |||||||||
Operating expenses | ||||||||||||
Cost of products sold | 469 | 457 | 425 | |||||||||
Marketing expenses | 52 | 61 | 64 | |||||||||
General and administrative expenses | 135 | 124 | 111 | |||||||||
Amortization of goodwill | 0 | 0 | 27 | |||||||||
Amortization of other intangible assets | 5 | 4 | 2 | |||||||||
Other operating expenses | 55 | 105 | 66 | |||||||||
Total operating expenses | 716 | 751 | 695 | |||||||||
Operating profit / (loss) | (23 | ) | (76 | ) | (55 | ) | ||||||
Non-operating profit | ||||||||||||
Interest income | 0 | 5 | 37 | |||||||||
Interest expense | (44 | ) | (54 | ) | (101 | ) | ||||||
Other non-operating income, net | 334 | 585 | 334 | |||||||||
Non-operating profit / (loss) | 290 | 536 | 270 | |||||||||
Net profit / (loss) from continuing operations before tax | 267 | 460 | 215 | |||||||||
Tax expense | 35 | 175 | 51 | |||||||||
Equity in income of associates, net of tax | 11 | 25 | 5 | |||||||||
Net profit / (loss) from continuing operations | 243 | 310 | 169 | |||||||||
Net profit from discontinued operations | 865 | 409 | 284 | |||||||||
Net profit / (loss) | 1,108 | 719 | 453 | |||||||||
Net profit / (loss) attributable to minority interests | 104 | 207 | 93 | |||||||||
Net profit / (loss) attributable to UBS shareholders | 1,004 | 512 | 360 | |||||||||
Accounts receivable trade, gross | 103 | 2,068 | ||||||||||
Allowance for doubtful receivables | (7 | ) | (62 | ) | ||||||||
Accounts receivables trade, net | 96 | 2,006 | ||||||||||
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Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.4 Indemnifications
In the normal course of business, UBS provides representations, warranties and indemnifications to counterparties in connection with numerous transactions. These provisions are generally ancillary to the business purposes of the contracts in which they are embedded. Indemnification clauses are generally standard contractual terms related to the Group’s own performance under a contract and are entered into based on an assessment that the risk of loss is remote. Indemnifications may also protect counterparties in the event that additional taxes are owed due either to a change in applicable tax laws or to adverse interpretations of tax laws. The purpose of these clauses is to ensure that the terms of a contract are met at inception.
such representations or warranties. Generally, the maximum amount of future payments the Group would be required to make under such repurchase and/or indemnification provisions would be equal to the current amount of assets held by such securitization-related SPEs as of 31 December 2006, plus, in certain circumstances, accrued and unpaid interest on such assets and certain expenses. The potential loss due to such repurchase and/or indemnity is mitigated by the due diligence UBS performs to ensure that the assets comply with the requirements set forth in the representations and warranties. UBS receives no compensation for representations and warranties, and it is not possible to determine their fair value because they rarely, if ever, result in a payment. Historically, losses incurred on such repurchases and / or indemnifications have been insignificant. Management expects the risk of material loss to be remote. No liabilities related to such representations, warranties, and indemnifications are included in the balance sheet at 31 December 2006 and 2005.
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Note 42.5 Pension and Other Post-Retirement Benefit Plans
All amounts in Note 42.5 are on a US GAAP basis. The additional minimum liability required amounts to CHF 1,290 million, CHF 1,252 million and CHF 1,125 million as of 31 December 2006, 2005 and 2004, respectively.
Incremental Effect of First Time Application of SFAS 158
The incremental effects on individual line items in the 31 December 2006 Financial Statements due to the adoption of SFAS 158Employers’ Accounting for Defined Benefit Pension and Other Post-Retirement Plans(see Note 41.2 for details) are as follows:
31.12.06 | ||||||||||||
Before | After | |||||||||||
application of | application of | |||||||||||
CHF million | SFAS 158 | Adjustment | SFAS 158 | |||||||||
Other assets | 86,008 | (1,981 | ) | 84,027 | ||||||||
Total assets | 86,008 | (1,981 | ) | 84,027 | ||||||||
Other liabilities | 129,880 | (641 | ) | 129,239 | ||||||||
Total liabilities | 129,880 | (641 | ) | 129,239 | ||||||||
Total shareholder’ equity | 65,863 | (1,340 | ) | 64,523 | ||||||||
Amounts Included in Accumulated Other Comprehensive Income (AOCI)
31.12.06 | ||||||||||||||||
Post-retirement | ||||||||||||||||
medical and | ||||||||||||||||
CHF million | Swiss plans | Foreign plans | life plans | Total | ||||||||||||
Net gains or losses | (564 | ) | (1,386 | ) | (25 | ) | (1,975 | ) | ||||||||
Net prior service costs or credits | (1,153 | ) | 41 | (15 | ) | (1,127 | ) | |||||||||
Transition assets | 0 | 0 | (3 | ) | (3 | ) | ||||||||||
Ending balance in AOCI | (1,717 | ) | (1,345 | ) | (43 | ) | (3,105 | ) | ||||||||
Amounts in AOCI expected to be recognized as components of net periodic benefit cost in 2007 | ||||||||||||||||
Net gains or losses | 0 | 73 | 0 | 73 | ||||||||||||
Net prior service costs or credits | 347 | (7 | ) | 1 | 341 | |||||||||||
Transition assets | 0 | 0 | 0 | 0 | ||||||||||||
Total | 347 | 66 | 1 | 414 | ||||||||||||
No plan assets are expected to be returned to the Group during 2007.
For more details on the pension and other post-retirement benefit plans on an IFRS basis, see Note 31.
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information
Guarantee of PaineWebber securities
Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 60,057 | 42,667 | 39,269 | (54,592 | ) | 87,401 | ||||||||||||||
Interest expense | (56,020 | ) | (41,049 | ) | (38,403 | ) | 54,592 | (80,880 | ) | |||||||||||
Net interest income | 4,037 | 1,618 | 866 | 0 | 6,521 | |||||||||||||||
Credit loss (expense) / recovery | 167 | (6 | ) | (5 | ) | 0 | 156 | |||||||||||||
Net interest income after credit loss expense | 4,204 | 1,612 | 861 | 0 | 6,677 | |||||||||||||||
Net fee and commission income | 11,646 | 8,590 | 5,645 | 0 | 25,881 | |||||||||||||||
Net trading income | 10,306 | 1,634 | 1,378 | 0 | 13,318 | |||||||||||||||
Income from subsidiaries | 3,760 | 0 | 0 | (3,760 | ) | 0 | ||||||||||||||
Other income | (450 | ) | 1,637 | 409 | 0 | 1,596 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 693 | 0 | 693 | |||||||||||||||
Total operating income | 29,466 | 13,473 | 8,986 | (3,760 | ) | 48,165 | ||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 12,208 | 8,040 | 3,423 | 0 | 23,671 | |||||||||||||||
General and administrative expenses | 2,805 | 3,362 | 1,949 | 0 | 8,116 | |||||||||||||||
Depreciation of property and equipment | 979 | 133 | 151 | 0 | 1,263 | |||||||||||||||
Amortization of other intangible assets | 14 | 83 | 56 | 0 | 153 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 295 | 0 | 295 | |||||||||||||||
Total operating expenses | 16,006 | 11,618 | 5,874 | 0 | 33,498 | |||||||||||||||
Operating profit from continuing operations before tax | 13,460 | 1,855 | 3,112 | (3,760 | ) | 14,667 | ||||||||||||||
Tax expense / (benefit) | 1,715 | 585 | 486 | 0 | 2,786 | |||||||||||||||
Net profit / (loss) from continuing operations | 11,745 | 1,270 | 2,626 | (3,760 | ) | 11,881 | ||||||||||||||
Net profit / (loss) from discontinued operations | 512 | 0 | 357 | 0 | 869 | |||||||||||||||
Net profit / (loss) | 12,257 | 1,270 | 2,983 | (3,760 | ) | 12,750 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 527 | (34 | ) | 0 | 493 | ||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 12,257 | 743 | 3,017 | (3,760 | ) | 12,257 | ||||||||||||||
Net profit / (loss) US GAAP2 | 8,748 | 259 | 2,479 | 0 | 11,486 | |||||||||||||||
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information (continued)
Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 0 | 3,495 | |||||||||||||||
Due from banks | 121,404 | 16,884 | 182,850 | (270,712 | ) | 50,426 | ||||||||||||||
Cash collateral on securities borrowed | 99,829 | 303,607 | 156,083 | (207,929 | ) | 351,590 | ||||||||||||||
Reverse repurchase agreements | 270,814 | 167,222 | 300,862 | (333,064 | ) | 405,834 | ||||||||||||||
Trading portfolio assets | 294,590 | 188,710 | 143,736 | 0 | 627,036 | |||||||||||||||
Trading portfolio assets pledged as collateral | 162,722 | 51,834 | 36,922 | 0 | 251,478 | |||||||||||||||
Positive replacement values | 318,936 | 13,168 | 173,243 | (176,902 | ) | 328,445 | ||||||||||||||
Financial assets designated at fair value | 2,902 | 4,147 | 7,146 | (8,265 | ) | 5,930 | ||||||||||||||
Loans | 414,031 | 40,279 | 38,644 | (180,433 | ) | 312,521 | ||||||||||||||
Financial investments available-for-sale | 5,843 | 862 | 2,232 | 0 | 8,937 | |||||||||||||||
Accrued income and prepaid expenses | 6,598 | 4,029 | 4,809 | (5,075 | ) | 10,361 | ||||||||||||||
Investments in associates | 34,887 | 179 | 237 | (33,780 | ) | 1,523 | ||||||||||||||
Property and equipment | 5,432 | 637 | 844 | 0 | 6,913 | |||||||||||||||
Goodwill and other intangible assets | 258 | 11,128 | 3,387 | 0 | 14,773 | |||||||||||||||
Other assets | 10,709 | 5,524 | 5,587 | (4,571 | ) | 17,249 | ||||||||||||||
Total assets | 1,751,615 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,396,511 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 228,992 | 114,782 | 130,627 | (270,712 | ) | 203,689 | ||||||||||||||
Cash collateral on securities lent | 106,019 | 57,937 | 107,061 | (207,929 | ) | 63,088 | ||||||||||||||
Repurchase agreements | 167,166 | 419,427 | 291,951 | (333,064 | ) | 545,480 | ||||||||||||||
Trading portfolio liabilities | 107,747 | 71,165 | 25,861 | 0 | 204,773 | |||||||||||||||
Negative replacement values | 326,216 | 13,629 | 169,590 | (176,902 | ) | 332,533 | ||||||||||||||
Financial liabilities designated at fair value | 121,074 | 49 | 32,829 | (8,265 | ) | 145,687 | ||||||||||||||
Due to customers | 504,502 | 80,936 | 165,560 | (180,433 | ) | 570,565 | ||||||||||||||
Accrued expenses and deferred income | 12,336 | 8,406 | 5,860 | (5,075 | ) | 21,527 | ||||||||||||||
Debt issued | 110,020 | 29,149 | 50,974 | 0 | 190,143 | |||||||||||||||
Other liabilities | 16,488 | 4,284 | 47,050 | (4,571 | ) | 63,251 | ||||||||||||||
Total liabilities | 1,700,560 | 799,764 | 1,027,363 | (1,186,951 | ) | 2,340,736 | ||||||||||||||
Equity attributable to UBS shareholders | 51,055 | 5,539 | 26,872 | (33,780 | ) | 49,686 | ||||||||||||||
Minority interests | 0 | 2,985 | 3,104 | 0 | 6,089 | |||||||||||||||
Total equity | 51,055 | 8,524 | 29,976 | (33,780 | ) | 55,775 | ||||||||||||||
Total liabilities and equity | 1,751,615 | 808,288 | 1,057,339 | (1,220,731 | ) | 2,396,511 | ||||||||||||||
Total shareholders’ equity – US GAAP2 | 29,738 | 7,287 | 27,498 | 0 | 64,523 | |||||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information (continued)
Note 42.6 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2006 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (1,705 | ) | (14,810 | ) | 11,805 | (4,710 | ) | |||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | 2,856 | 0 | 0 | 2,856 | ||||||||||||
Disposal of subsidiaries and associates | 1,154 | 0 | 0 | 1,154 | ||||||||||||
Purchase of property and equipment | (1,292 | ) | (255 | ) | (246 | ) | (1,793 | ) | ||||||||
Disposal of property and equipment | 298 | 47 | 154 | 499 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | 90 | 433 | 1,200 | 1,723 | ||||||||||||
Net cash flow from / (used in) investing activities | 3,106 | 225 | 1,108 | 4,439 | ||||||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 17,526 | 1,039 | (1,644 | ) | 16,921 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (3,624 | ) | 0 | 0 | (3,624 | ) | ||||||||||
Capital issuance | 1 | 0 | 0 | 1 | ||||||||||||
Capital repayment by par value reduction | (631 | ) | 0 | 0 | (631 | ) | ||||||||||
Dividends paid | (3,214 | ) | 0 | 0 | (3,214 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 79,358 | 10,881 | 7,436 | 97,675 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (48,959 | ) | (447 | ) | (10,545 | ) | (59,951 | ) | ||||||||
Increase in minority interests | 0 | 85 | 1,246 | 1,331 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | 2,441 | (3,513 | ) | (1,072 | ) | ||||||||||
Net activity in investments in subsidiaries | (8,246 | ) | 3,055 | 5,191 | 0 | |||||||||||
Net cash flow from / (used in) financing activities | 32,211 | 17,054 | (1,829 | ) | 47,436 | |||||||||||
Effects of exchange rate differences | 388 | (1,871 | ) | (634 | ) | (2,117 | ) | |||||||||
Net increase / (decrease) in cash equivalents | 34,000 | 598 | 10,450 | 45,048 | ||||||||||||
Cash and cash equivalents, beginning of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents, end of the year | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,660 | 78 | 757 | 3,495 | ||||||||||||
Money market paper2 | 73,431 | 11,488 | 2,225 | 87,144 | ||||||||||||
Due from banks with original maturity of less than three months | 26,457 | 2,563 | 16,431 | 45,451 | ||||||||||||
Total | 102,548 | 14,129 | 19,413 | 136,090 | ||||||||||||
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information (continued)
42.6 Supplemental Guarantor Consolidating Income Statement
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 39,779 | 27,782 | 20,729 | (29,004 | ) | 59,286 | ||||||||||||||
Interest expense | (33,892 | ) | (24,803 | ) | (20,067 | ) | 29,004 | (49,758 | ) | |||||||||||
Net interest income | 5,887 | 2,979 | 662 | 0 | 9,528 | |||||||||||||||
Credit loss (expense) / recovery | 370 | (3 | ) | 8 | 0 | 375 | ||||||||||||||
Net interest income after credit loss expense | 6,257 | 2,976 | 670 | 0 | 9,903 | |||||||||||||||
Net fee and commission income | 9,670 | 7,420 | 4,346 | 0 | 21,436 | |||||||||||||||
Net trading income | 7,453 | (123 | ) | 666 | 0 | 7,996 | ||||||||||||||
Income from subsidiaries | (675 | ) | 0 | 0 | 675 | 0 | ||||||||||||||
Other income | 2,635 | 476 | (1,989 | ) | 0 | 1,122 | ||||||||||||||
Revenues from industrial holdings | 0 | 0 | 675 | 0 | 675 | |||||||||||||||
Total operating income | 25,340 | 10,749 | 4,368 | 675 | 41,132 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 9,962 | 6,587 | 3,599 | 0 | 20,148 | |||||||||||||||
General and administrative expenses | 2,330 | 2,667 | 1,635 | 0 | 6,632 | |||||||||||||||
Depreciation of property and equipment | 988 | 140 | 133 | 0 | 1,261 | |||||||||||||||
Amortization of other intangible assets | 24 | 70 | 37 | 0 | 131 | |||||||||||||||
Goods and materials purchased | 0 | 0 | 283 | 0 | 283 | |||||||||||||||
Total operating expenses | 13,304 | 9,464 | 5,687 | 0 | 28,455 | |||||||||||||||
Operating profit from continuing operations before tax | 12,036 | 1,285 | (1,319 | ) | 675 | 12,677 | ||||||||||||||
Tax expense / (benefit) | 1,712 | 1,079 | (320 | ) | 0 | 2,471 | ||||||||||||||
Net profit / (loss) from continuing operations | 10,324 | 206 | (999 | ) | 675 | 10,206 | ||||||||||||||
Net profit / (loss) from discontinued operations | 3,705 | 0 | 779 | 0 | 4,484 | |||||||||||||||
Net profit / (loss) | 14,029 | 206 | (220 | ) | 675 | 14,690 | ||||||||||||||
Net profit / (loss) attributable to minority interests | 0 | 122 | 539 | 0 | 661 | |||||||||||||||
Net profit / (loss) attributable to UBS shareholders | 14,029 | 84 | (759 | ) | 675 | 14,029 | ||||||||||||||
Net profit / (loss) US GAAP2 | 14,490 | (891 | ) | (1,247 | ) | 0 | 12,352 | |||||||||||||
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Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information (continued)
Supplemental Guarantor Consolidating Balance Sheet
CHF million | UBS AG | UBS | Consolidating | |||||||||||||||||
As of 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | entries | UBS Group | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 0 | 5,359 | |||||||||||||||
Due from banks | 127,321 | 14,684 | 156,999 | (265,360 | ) | 33,644 | ||||||||||||||
Cash collateral on securities borrowed | 98,105 | 257,943 | 118,415 | (186,028 | ) | 288,435 | ||||||||||||||
Reverse repurchase agreements | 240,762 | 162,069 | 284,360 | (282,759 | ) | 404,432 | ||||||||||||||
Trading portfolio assets | 299,750 | 174,707 | 24,840 | 0 | 499,297 | |||||||||||||||
Trading portfolio assets pledged as collateral | 79,333 | 36,956 | 38,470 | 0 | 154,759 | |||||||||||||||
Positive replacement values | 330,894 | 6,656 | 158,514 | (162,282 | ) | 333,782 | ||||||||||||||
Financial assets designated at fair value | 2,186 | 737 | (1,770 | ) | 0 | 1,153 | ||||||||||||||
Loans | 299,518 | 41,901 | 33,987 | (95,496 | ) | 279,910 | ||||||||||||||
Financial investments available-for-sale | 3,198 | 910 | 2,443 | 0 | 6,551 | |||||||||||||||
Accrued income and prepaid expenses | 5,720 | 3,135 | 4,877 | (4,814 | ) | 8,918 | ||||||||||||||
Investments in associates | 31,250 | 173 | 1,974 | (30,441 | ) | 2,956 | ||||||||||||||
Property and equipment | 5,462 | 592 | 3,369 | 0 | 9,423 | |||||||||||||||
Goodwill and other intangible assets | 641 | 11,095 | 1,750 | 0 | 13,486 | |||||||||||||||
Other assets | 7,509 | 3,758 | 7,468 | (2,492 | ) | 16,243 | ||||||||||||||
Total assets | 1,534,361 | 715,321 | 838,338 | (1,029,672 | ) | 2,058,348 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 181,592 | 126,834 | 81,262 | (265,360 | ) | 124,328 | ||||||||||||||
Cash collateral on securities lent | 85,369 | 50,395 | 110,202 | (186,028 | ) | 59,938 | ||||||||||||||
Repurchase agreements | 132,073 | 360,932 | 268,262 | (282,759 | ) | 478,508 | ||||||||||||||
Trading portfolio liabilities | 113,171 | 69,460 | 6,000 | 0 | 188,631 | |||||||||||||||
Negative replacement values | 337,172 | 7,274 | 155,499 | (162,282 | ) | 337,663 | ||||||||||||||
Financial liabilities designated at fair value | 93,207 | 0 | 24,194 | 0 | 117,401 | |||||||||||||||
Due to customers | 434,675 | 63,243 | 64,485 | (95,496 | ) | 466,907 | ||||||||||||||
Accrued expenses and deferred income | 10,439 | 7,494 | 5,672 | (4,814 | ) | 18,791 | ||||||||||||||
Debt issued | 87,267 | 19,496 | 53,947 | 0 | 160,710 | |||||||||||||||
Other liabilities | 10,409 | 3,594 | 42,326 | (2,492 | ) | 53,837 | ||||||||||||||
Total liabilities | 1,485,374 | 708,722 | 811,849 | (999,231 | ) | 2,006,714 | ||||||||||||||
Equity attributable to UBS shareholders | 48,987 | 6,485 | 18,984 | (30,441 | ) | 44,015 | ||||||||||||||
Minority interests | 0 | 114 | 7,505 | 0 | 7,619 | |||||||||||||||
Total equity | 48,987 | 6,599 | 26,489 | (30,441 | ) | 51,634 | ||||||||||||||
Total liabilities and equity | 1,534,361 | 715,321 | 838,338 | (1,029,672 | ) | 2,058,348 | ||||||||||||||
Total shareholders’ equity – US GAAP2 | 33,028 | 8,415 | 20,173 | 0 | 61,616 | |||||||||||||||
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Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.6 Supplemental Guarantor Information (continued)
Note 42.6 Supplemental Guarantor Consolidating Cash Flow Statement
CHF million | UBS AG | UBS | ||||||||||||||
For the year ended 31 December 2005 | Parent Bank1 | Americas Inc. | Subsidiaries | UBS Group | ||||||||||||
Net cash flow from / (used in) operating activities | (29,118 | ) | (15,771 | ) | (18,318 | ) | (63,207 | ) | ||||||||
Cash flow from / (used in) investing activities | ||||||||||||||||
Investments in subsidiaries and associates | (1,540 | ) | 0 | 0 | (1,540 | ) | ||||||||||
Disposal of subsidiaries and associates | 3,240 | 0 | 0 | 3,240 | ||||||||||||
Purchase of property and equipment | (1,153 | ) | (155 | ) | (584 | ) | (1,892 | ) | ||||||||
Disposal of property and equipment | 71 | 6 | 193 | 270 | ||||||||||||
Net (investment in) / divestment of financial investments available-for-sale | (4,667 | ) | (40 | ) | 2,220 | (2,487 | ) | |||||||||
Net cash flow from / (used in) investing activities | (4,049 | ) | (189 | ) | 1,829 | (2,409 | ) | |||||||||
Cash flow from / (used in) financing activities | ||||||||||||||||
Net money market paper issued / (repaid) | 22,698 | 615 | (92 | ) | 23,221 | |||||||||||
Net movements in treasury shares and own equity derivative activity | (2,416 | ) | 0 | 0 | (2,416 | ) | ||||||||||
Capital issuance | 2 | 0 | 0 | 2 | ||||||||||||
Dividends paid | (3,105 | ) | 0 | 0 | (3,105 | ) | ||||||||||
Issuance of long-term debt, including financial liabilities designated at fair value | 50,587 | 14,635 | 11,085 | 76,307 | ||||||||||||
Repayment of long-term debt, including financial liabilities designated at fair value | (17,780 | ) | (753 | ) | (11,924 | ) | (30,457 | ) | ||||||||
Increase in minority interests | 0 | 8 | 1,564 | 1,572 | ||||||||||||
Dividend payments to / purchase from minority interests | 0 | (175 | ) | (400 | ) | (575 | ) | |||||||||
Net activity in investments in subsidiaries | (1,591 | ) | (214 | ) | 1,805 | 0 | ||||||||||
Net cash flow from / (used in) financing activities | 48,395 | 14,116 | 2,038 | 64,549 | ||||||||||||
Effects of exchange rate differences | 3,283 | (720 | ) | 2,455 | 5,018 | |||||||||||
Net increase / (decrease) in cash equivalents | 18,511 | (2,564 | ) | (11,996 | ) | 3,951 | ||||||||||
Cash and cash equivalents, beginning of the year | 50,037 | 16,095 | 20,959 | 87,091 | ||||||||||||
Cash and cash equivalents, end of the year | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||
Cash and balances with central banks | 2,712 | 5 | 2,642 | 5,359 | ||||||||||||
Money market paper2 | 47,838 | 8,991 | 997 | 57,826 | ||||||||||||
Due from banks with original maturity of less than three months | 17,998 | 4,535 | 5,324 | 27,857 | ||||||||||||
Total | 68,548 | 13,531 | 8,963 | 91,042 | ||||||||||||
Guarantee of other securities
UBS AG, acting through a wholly owned finance subsidiaries, issued the following trust preferred securities:
USD billion, unless otherwise indicated | Outstanding as of 31.12.06 | |||||||||||
Issuing entity | Type of security | Date issued | Interest (%) | Amount | ||||||||
UBS Preferred Funding Trust I | Trust preferred securities | October 2000 | 8.622 | 1.5 | ||||||||
UBS Preferred Funding Trust II | Trust preferred securities1 | June 2001 | 7.247 | 0.5 | ||||||||
UBS Preferred Funding Trust IV | Floating rate noncumulative trust preferred securities | May 2003 | one-month LIBOR + 0.7% | 0.3 | ||||||||
UBS Preferred Funding Trust V | Trust preferred securities | May 2006 | 6.243 | 1.0 | ||||||||
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Financial Statements
Notes to the Financial Statements
Note 42 Additional Disclosures Required under US GAAP and SEC Rules (continued)
Note 42.7 Pro-Forma Effect of the Fair Value Method of Accounting on US GAAP Net Profit
CHF million, except per share data | 31.12.04 | |||
Net profit under US GAAP, as reported | 8,818 | |||
Add: Equity-based employee compensation expense included in reported net income, net of tax | 1,209 | |||
Deduct: Total equity-based employee compensation expense determined under the fair-value-based method for all awards, net of tax | (1,717 | ) | ||
Net profit, pro-forma | 8,310 | |||
Earnings per share | ||||
Basic, as reported | 4.28 | |||
Basic, pro-forma | 4.03 | |||
Diluted, as reported | 4.07 | |||
Diluted, pro-forma | 3.84 | |||
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Table of Contents
UBS AG (Parent Bank)
Table of Contents
UBS AG (Parent Bank)
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UBS AG (Parent Bank)
Table of Contents
Parent Bank Review
Income Statement
The Parent Bank UBS AG Net profit decreased by CHF 6,939 million from CHF 13,497 million to CHF 6,558 million. Income from investments in associated companies decreased to CHF 1,910 million from CHF 3,943 million in 2005 mainly due to lower dividend distributions received. The decrease in Extraordinary income and increase in Extraordinary expenses are explained on page 222.
Balance Sheet
Total assets increased by CHF 226 billion to CHF 1,586 billion at 31 December 2006. This movement is mainly caused by increased positions in Money market paper of CHF 26 billion, Due from banks of CHF 8 billion and Due from customers of CHF 131 billion (of which CHF 88 billion relates to Dillon Read Capital Management and the remaining amount mainly relates to current and margin accounts). A considerable increase resulted as well in Trading balances in securities and precious metals of CHF 53 billion (thereof debt instruments CHF 12 billion, equities CHF 33 billion and precious metals CHF 8 billion). The investments in associated companies expanded by CHF 5 billion which is mainly due to new investments or additional financing of subsidiaries abroad of Banco Pactual S.A., UBS VIII Wilmington (as “funding unit”), Dillon Read Capital Management and Global Futures and Options Business of ABN AMRO but also includes the reduction of investments in associated companies due to the sale of Motor-Columbus.
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UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Interest and discount income | 45,978 | 27,320 | 68 | |||||||||
Interest and dividend income from trading portfolio | 15,324 | 12,482 | 23 | |||||||||
Interest and dividend income from financial investments | 32 | 36 | (11 | ) | ||||||||
Interest expense | (57,507 | ) | (33,972 | ) | 69 | |||||||
Net interest income | 3,827 | 5,866 | (35 | ) | ||||||||
Credit-related fees and commissions | 199 | 244 | (18 | ) | ||||||||
Fee and commission income from securities and investment business | 12,288 | 9,751 | 26 | |||||||||
Other fee and commission income | 840 | 773 | 9 | |||||||||
Fee and commission expense | (1,820 | ) | (1,349 | ) | 35 | |||||||
Net fee and commission income | 11,507 | 9,419 | 22 | |||||||||
Net trading income | 9,467 | 7,289 | 30 | |||||||||
Net income from disposal of financial investments | 333 | 95 | 251 | |||||||||
Income from investments in associated companies | 1,910 | 3,943 | (52 | ) | ||||||||
Income from real estate holdings | 21 | 38 | (45 | ) | ||||||||
Sundry income from ordinary activities | 2,982 | 2,164 | 38 | |||||||||
Sundry ordinary expenses | (3,059 | ) | (2,352 | ) | 30 | |||||||
Other income from ordinary activities | 2,187 | 3,888 | (44 | ) | ||||||||
Operating income | 26,988 | 26,462 | 2 | |||||||||
Personnel expenses | 12,886 | 10,999 | 17 | |||||||||
General and administrative expenses | 4,736 | 4,113 | 15 | |||||||||
Operating expenses | 17,622 | 15,112 | 17 | |||||||||
Operating profit | 9,366 | 11,350 | (17 | ) | ||||||||
Depreciation and write-offs on investments in associated companies and fixed assets | 1,352 | 1,265 | 7 | |||||||||
Allowances, provisions and losses | 342 | 27 | ||||||||||
Profit before extraordinary items and taxes | 7,672 | 10,058 | (24 | ) | ||||||||
Extraordinary income | 1,095 | 5,274 | (79 | ) | ||||||||
Extraordinary expenses | 239 | 0 | ||||||||||
Tax expense / (benefit) | 1,970 | 1,835 | 7 | |||||||||
Profit for the period | 6,558 | 13,497 | (51 | ) | ||||||||
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Balance Sheet | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Assets | ||||||||||||
Liquid assets | 2,660 | 2,712 | (2 | ) | ||||||||
Money market paper | 73,430 | 47,840 | 53 | |||||||||
Due from banks | 439,098 | 431,071 | 2 | |||||||||
Due from customers | 316,241 | 185,331 | 71 | |||||||||
Mortgage loans | 153,114 | 153,387 | 0 | |||||||||
Trading balances in securities and precious metals | 411,981 | 358,600 | 15 | |||||||||
Financial investments | 2,844 | 4,216 | (33 | ) | ||||||||
Investments in associated companies | 27,076 | 22,016 | 23 | |||||||||
Fixed assets | 4,527 | 4,527 | 0 | |||||||||
Accrued income and prepaid expenses | 6,573 | 5,359 | 23 | |||||||||
Positive replacement values | 138,222 | 136,503 | 1 | |||||||||
Other assets | 9,975 | 7,980 | 25 | |||||||||
Total assets | 1,585,741 | 1,359,542 | 17 | |||||||||
Total subordinated assets | 5,852 | 6,094 | (4 | ) | ||||||||
Total amounts receivable from Group companies | 657,919 | 557,355 | 18 | |||||||||
Liabilities | ||||||||||||
Money market paper issued | 69,861 | 52,335 | 33 | |||||||||
Due to banks | 556,136 | 482,134 | 15 | |||||||||
Due to customers on savings and deposit accounts | 80,883 | �� | 86,997 | (7 | ) | |||||||
Other amounts due to customers | 508,609 | 406,724 | 25 | |||||||||
Medium-term bonds | 2,238 | 1,464 | 53 | |||||||||
Bond issues and loans from central mortgage institutions | 143,779 | 102,386 | 40 | |||||||||
Accruals and deferred income | 16,672 | 13,543 | 23 | |||||||||
Negative replacement values | 149,879 | 160,002 | (6 | ) | ||||||||
Other liabilities | 10,471 | 5,648 | 85 | |||||||||
Allowances and provisions | 2,305 | 2,157 | 7 | |||||||||
Share capital | 211 | 871 | (76 | ) | ||||||||
General statutory reserve | 8,295 | 7,927 | 5 | |||||||||
Reserve for own shares | 9,114 | 10,562 | (14 | ) | ||||||||
Other reserves | 20,730 | 13,295 | 56 | |||||||||
Profit for the period | 6,558 | 13,497 | (51 | ) | ||||||||
Total liabilities | 1,585,741 | 1,359,542 | 17 | |||||||||
Total subordinated liabilities | 21,907 | 16,022 | 37 | |||||||||
Total amounts payable to Group companies | 450,093 | 404,108 | 11 | |||||||||
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UBS AG (Parent Bank)
Financial Statements
Statement of Appropriation of Retained Earnings | ||||
CHF million | ||||
The Board of Directors proposes to the Annual General Meeting the following appropriation: | ||||
Profit for the financial year 2006 as per the Parent Bank’s Income Statement | 6,558 | |||
Appropriation to general statutory reserve | 457 | |||
Appropriation to other reserves | 1,519 | |||
Proposed dividends | 4,582 | |||
Total appropriation | 6,558 | |||
Dividend Distribution
The Board of Directors will recommend to the Annual General Meeting on 18 April 2007 that UBS should pay a dividend of CHF 2.20 per share of CHF 0.10 par value. If the dividend is
approved, the payment of CHF 2.20 per share, after deduction of 35% Swiss withholding tax, would be made on 23 April 2007 for shareholders who hold UBS shares on 18 April 2007.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Accounting Principles
The Parent Bank’s accounting policies are in compliance with Swiss banking law. The accounting policies are principally the same as for the Group Financial Statements outlined in Note 1, Summary of Significant Accounting Policies. Major differences between the Swiss banking law requirements and International Financial Reporting Standards are described in Note 40 to the Group Financial Statements. In addition, the following principles are applied for the Parent Bank:
Treasury shares
Foreign currency translation
Investments in associated companies
Property and equipment
telecommunications 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
Equity participation plans
Comparability
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UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Income Statement Information
Net Trading Income | ||||||||||||
For the year ended | % change from | |||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Equities | 5,761 | 3,068 | 88 | |||||||||
Fixed income1 | 1,629 | 1,540 | 6 | |||||||||
Foreign exchange and other | 2,077 | 2,681 | (23 | ) | ||||||||
Total | 9,467 | 7,289 | 30 | |||||||||
Extraordinary Income and Expenses
Extraordinary income includes a CHF 678 million gain on the sale of Motor-Columbus compared to a gain on the sale of Private Banks & GAM of CHF 3,183 million in 2005. In addition, amounts in 2006 include a write-up of investments in associated companies of CHF 223 million (2005: CHF 1,263 million), releases of provisions of CHF 167 million (2005:
CHF 452 million). Amounts in 2005 include a gain of CHF 370 million resulting from a merger with a subsidiary.
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Additional Balance Sheet Information
Allowances and Provisions | ||||||||||||||||||||||||
Provisions | Recoveries, | |||||||||||||||||||||||
applied in | doubtful interest, | New | ||||||||||||||||||||||
accordance | currency | Provisions | provisions | |||||||||||||||||||||
Balance at | with their | translation | released | charged | Balance at | |||||||||||||||||||
CHF million | 31.12.05 | specified purpose | differences | to income | to income | 31.12.06 | ||||||||||||||||||
Default risks (credit and country risk) | 1,836 | (439 | ) | 67 | (513 | ) | 347 | 1,298 | ||||||||||||||||
Trading portfolio risks | 3,880 | (225 | ) | (811 | ) | 2,844 | ||||||||||||||||||
Litigation risks | 328 | (135 | ) | (124 | ) | (32 | ) | 256 | 293 | |||||||||||||||
Operational risks | 1,662 | (47 | ) | 97 | (348 | ) | 537 | 1,901 | ||||||||||||||||
Deferred taxes | 19 | (17 | ) | 32 | 34 | |||||||||||||||||||
Total allowances and provisions | 7,725 | (621 | ) | (202 | ) | (1,704 | ) | 1,172 | 6,370 | |||||||||||||||
Allowances deducted from assets | 5,568 | 4,065 | ||||||||||||||||||||||
Total provisions as per balance sheet | 2,157 | 2,305 | ||||||||||||||||||||||
Statement of Shareholders' Equity | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
shareholders' | ||||||||||||||||||||||||
General statutory | General statutory | equity (before | ||||||||||||||||||||||
reserves: | reserves: | Reserves for | distribution | |||||||||||||||||||||
CHF million | Share capital | Share premium | Retained earnings | own shares | Other reserves | of profit) | ||||||||||||||||||
As of 31.12.04 and 1.1.05 | 901 | 6,213 | 1,359 | 9,056 | 21,739 | 39,268 | ||||||||||||||||||
Cancellation of own shares | (32 | ) | (3,511 | ) | (3,543 | ) | ||||||||||||||||||
Capital increase | 2 | 33 | 35 | |||||||||||||||||||||
Increase in reserves | 322 | (322 | ) | |||||||||||||||||||||
Prior year dividend | (3,105 | ) | (3,105 | ) | ||||||||||||||||||||
Profit for the period | 13,497 | 13,497 | ||||||||||||||||||||||
Changes in reserves for own shares | 1,506 | (1,506 | ) | |||||||||||||||||||||
As of 31.12.05 and 1.1.06 | 871 | 6,246 | 1,681 | 10,562 | 26,792 | 46,152 | ||||||||||||||||||
Par value reduction | (631 | ) | 35 | (596 | ) | |||||||||||||||||||
Cancellation of own shares | (30 | ) | (3,997 | ) | (4,027 | ) | ||||||||||||||||||
Capital increase | 1 | 34 | 35 | |||||||||||||||||||||
Increase in reserves | 334 | (334 | ) | |||||||||||||||||||||
Prior year dividend | (3,214 | ) | (3,214 | ) | ||||||||||||||||||||
Profit for the period | 6,558 | 6,558 | ||||||||||||||||||||||
Changes in reserves for own shares | (1,448 | ) | 1,448 | |||||||||||||||||||||
As of 31.12.06 | 211 | 6,280 | 2,015 | 9,114 | 27,288 | 44,908 | ||||||||||||||||||
Share Capital | ||||||||||||||||
Par value | Ranking for dividends | |||||||||||||||
No. of shares | Capital in CHF | No. of shares | Capital in CHF | |||||||||||||
As of 31.12.06 | ||||||||||||||||
Issued and paid up | 2,105,273,286 | 210,527,329 | 2,082,673,286 | 208,267,329 | ||||||||||||
Conditional share capital | 151,437,410 | 15,143,741 | ||||||||||||||
As of 31.12.05 | ||||||||||||||||
Issued and paid up | 2,177,265,044 | 870,906,018 | 2,109,495,044 | 843,798,018 | ||||||||||||
Conditional share capital | 3,647,002 | 1,458,801 | ||||||||||||||
On 31 December 2006, a maximum of 1,437,410 shares can be issued against the future exercise of options from former PaineWebber employee option plans. These shares are shown as conditional share capital in the table above. In addition, during 2006, shareholders approved the creation of conditional capital of up to a maximum of 150 million shares to fund UBS’s employee share option programs. As of 31 December 2006, no shares have been issued under this program.
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UBS AG (Parent Bank)
Notes to the Financial Statements
Off-Balance Sheet and Other Information
Assets Pledged or Assigned as Security for Own Obligations, Assets Subject to Reservation of Title | ||||||||||||||||||||||||
31.12.06 | 31.12.05 | Change in % | ||||||||||||||||||||||
CHF million | Book value | Effective liability | Book value | Effective liability | Book value | Effective liability | ||||||||||||||||||
Money market paper | 37,471 | 9,035 | 26,513 | 6,120 | 41 | 48 | ||||||||||||||||||
Mortgage loans | 81 | 38 | 64 | 38 | 27 | |||||||||||||||||||
Securities | 89,869 | 41,306 | 102,330 | 48,580 | (12 | ) | (15 | ) | ||||||||||||||||
Total | 127,421 | 50,379 | 128,907 | 54,738 | (1 | ) | (8 | ) | ||||||||||||||||
Financial assets are pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions, under collateralized credit lines with central banks, against loans from mortgage institutions and for security deposits relating to stock exchange and clearinghouse memberships.
Commitments and Contingent Liabilities | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Contingent liabilities | 189,627 | 184,665 | 3 | |||||||||
Irrevocable commitments | 115,364 | 68,071 | 69 | |||||||||
Liabilities for calls on shares and other equities | 125 | 130 | (4 | ) | ||||||||
Confirmed credits | 2,133 | 2,004 | 6 | |||||||||
Derivative Instruments | ||||||||||||||||||||||||
31.12.06 | 31.12.05 | |||||||||||||||||||||||
Notional | Notional | |||||||||||||||||||||||
amount | amount | |||||||||||||||||||||||
CHF million | PRV1 | NRV2 | CHF bn | PRV | NRV | CHF bn | ||||||||||||||||||
Interest rate contracts | 176,765 | 175,394 | 29,558 | 222,508 | 221,437 | 20,656 | ||||||||||||||||||
Credit derivative contracts | 29,026 | 31,781 | 2,824 | 15,811 | 16,427 | 1,557 | ||||||||||||||||||
Foreign exchange contracts | 76,459 | 70,899 | 6,134 | 57,705 | 58,600 | 4,757 | ||||||||||||||||||
Precious metal contracts | 4,472 | 4,168 | 121 | 3,616 | 3,444 | 82 | ||||||||||||||||||
Equity / Index contracts | 22,437 | 39,016 | 745 | 25,663 | 49,924 | 706 | ||||||||||||||||||
Commodities contracts, excluding precious metals contracts | 11,459 | 11,017 | 359 | 10,677 | 9,647 | 194 | ||||||||||||||||||
Total derivative instruments | 320,618 | 332,275 | 39,741 | 335,980 | 359,479 | 27,952 | ||||||||||||||||||
Replacement value netting | 182,396 | 182,396 | 199,477 | 199,477 | ||||||||||||||||||||
Replacement values after netting | 138,222 | 149,879 | 136,503 | 160,002 | ||||||||||||||||||||
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Fiduciary Transactions | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Deposits: | ||||||||||||
with other banks | 41,075 | 37,171 | 11 | |||||||||
with Group banks | 1,650 | 1,382 | 19 | |||||||||
Total | 42,725 | 38,553 | 11 | |||||||||
Due to UBS Pension Plans, Loans to Corporate Bodies / Related Parties | ||||||||||||
% change from | ||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.05 | |||||||||
Due to UBS pension plans and UBS debt instruments held by pension plans | 790 | 719 | 10 | |||||||||
Securities borrowed from pension plans | 7,169 | 2,222 | 223 | |||||||||
Loans to directors, senior executives and auditors1 | 19 | 21 | (10 | ) | ||||||||
Personnel
Parent Bank personnel was 42,443 on 31 December 2006 and 38,189 on 31 December 2005.
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Additional Disclosure Required under SEC Regulations
Table of Contents
Additional Disclosure Required
under SEC Regulations
Table of Contents
231 | ||||
231 | ||||
233 | ||||
234 | ||||
235 | ||||
235 | ||||
235 | ||||
235 | ||||
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236 | ||||
236 | ||||
238 | ||||
240 | ||||
241 | ||||
242 | ||||
243 | ||||
244 | ||||
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246 | ||||
247 | ||||
249 | ||||
250 | ||||
251 | ||||
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A – Introduction
B – Selected Financial Data
Average rate1 | ||||||||||||||||
Year ended 31 December | High | Low | (USD per 1 CHF) | At period end | ||||||||||||
2002 | 0.7229 | 0.5817 | 0.6453 | 0.7229 | ||||||||||||
2003 | 0.8189 | 0.7048 | 0.7493 | 0.8069 | ||||||||||||
2004 | 0.8843 | 0.7601 | 0.8059 | 0.8712 | ||||||||||||
2005 | 0.8721 | 0.7544 | 0.8039 | 0.7606 | ||||||||||||
2006 | 0.8396 | 0.7575 | 0.8034 | 0.8200 | ||||||||||||
Month | High | Low | ||||||||||||||
September 2006 | 0.8125 | 0.7949 | ||||||||||||||
October 2006 | 0.8049 | 0.7842 | ||||||||||||||
November 2006 | 0.8357 | 0.7958 | ||||||||||||||
December 2006 | 0.8396 | 0.8161 | ||||||||||||||
January 2007 | 0.8247 | 0.7978 | ||||||||||||||
February 2007 | 0.8204 | 0.7980 | ||||||||||||||
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Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
For the year ended | ||||||||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Income statement data | ||||||||||||||||||||
Interest income | 87,401 | 59,286 | 39,228 | 40,045 | 39,896 | |||||||||||||||
Interest expense | (80,880 | ) | (49,758 | ) | (27,484 | ) | (27,784 | ) | (29,417 | ) | ||||||||||
Net interest income | 6,521 | 9,528 | 11,744 | 12,261 | 10,479 | |||||||||||||||
Credit loss (expense) / recovery | 156 | 375 | 241 | (102 | ) | (112 | ) | |||||||||||||
Net interest income after credit loss (expense) / recovery | 6,677 | 9,903 | 11,985 | 12,159 | 10,367 | |||||||||||||||
Net fee and commission income | 25,881 | 21,436 | 18,506 | 16,673 | 17,481 | |||||||||||||||
Net trading income | 13,318 | 7,996 | 4,902 | 3,670 | 5,381 | |||||||||||||||
Other income | 1,596 | 1,122 | 853 | 280 | 13 | |||||||||||||||
Income from Industrial Holdings | 693 | 675 | 640 | 535 | 335 | |||||||||||||||
Total operating income | 48,165 | 41,132 | 36,886 | 33,317 | 33,577 | |||||||||||||||
Total operating expenses | 33,498 | 28,455 | 26,844 | 26,000 | 30,135 | |||||||||||||||
Operating profit from continuing operations before tax | 14,667 | 12,677 | 10,042 | 7,317 | 3,442 | |||||||||||||||
Tax expense | 2,786 | 2,471 | 2,155 | 1,403 | 566 | |||||||||||||||
Net profit from continuing operations | 11,881 | 10,206 | 7,887 | 5,914 | 2,876 | |||||||||||||||
Net profit from discontinued operations | 869 | 4,484 | 583 | 339 | 489 | |||||||||||||||
Net profit | 12,750 | 14,690 | 8,470 | 6,253 | 3,365 | |||||||||||||||
Net profit attributable to minority interests | 493 | 661 | 454 | 349 | 348 | |||||||||||||||
Net profit attributable to UBS shareholders | 12,257 | 14,029 | 8,016 | 5,904 | 3,017 | |||||||||||||||
Cost / income ratio (%)1 | 69.7 | 70.1 | 73.2 | 76.8 | 84.7 | |||||||||||||||
Per share data (CHF) | ||||||||||||||||||||
Basic earnings per share2 | 6.20 | 6.97 | 3.89 | 2.72 | 1.30 | |||||||||||||||
Diluted earnings per share2 | 5.95 | 6.68 | 3.70 | 2.59 | 1.27 | |||||||||||||||
Operating profit before tax per share | 7.42 | 6.29 | 4.88 | 3.37 | 1.48 | |||||||||||||||
Cash dividends declared per share (CHF)3 | 2.20 | 1.60 | 1.50 | 1.30 | 1.00 | |||||||||||||||
Cash dividend equivalent in USD3 | 1.26 | 1.27 | 1.00 | 0.73 | ||||||||||||||||
Dividend payout ratio (%)3 | 35.5 | 23.0 | 38.6 | 47.8 | 76.9 | |||||||||||||||
Rates of return (%) | ||||||||||||||||||||
Return on equity attributable to UBS shareholders4 | 28.2 | 39.7 | 25.8 | 18.0 | 8.3 | |||||||||||||||
Return on average equity | 26.3 | 37.2 | 23.8 | 16.9 | 7.7 | |||||||||||||||
Return on average assets | 0.51 | 0.67 | 0.44 | 0.38 | 0.20 | |||||||||||||||
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B – Selected Financial Data (continued)
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Balance sheet data | ||||||||||||||||||||
Total assets | 2,396,511 | 2,058,348 | 1,737,171 | 1,554,032 | 1,350,905 | |||||||||||||||
Equity attributable to UBS shareholders | 49,686 | 44,015 | 33,632 | 33,350 | 35,701 | |||||||||||||||
Average equity to average assets (%) | 1.93 | 1.79 | 1.84 | 2.23 | 2.65 | |||||||||||||||
Market capitalization | 154,222 | 131,949 | 103,638 | 95,401 | 79,448 | |||||||||||||||
Shares | ||||||||||||||||||||
Registered ordinary shares | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | 2,366,093,528 | 2,512,595,356 | |||||||||||||||
Treasury shares | 164,475,699 | 208,519,748 | 249,326,620 | 273,482,454 | 282,461,382 | |||||||||||||||
BIS capital ratios | ||||||||||||||||||||
Tier 1 (%) | 11.9 | 12.8 | 11.8 | 11.8 | 11.2 | |||||||||||||||
Total BIS (%) | 14.7 | 14.1 | 13.6 | 13.4 | 13.7 | |||||||||||||||
Risk-weighted assets | 341,892 | 310,409 | 264,832 | 252,398 | 238,790 | |||||||||||||||
Invested assets (CHF billion) | 2,989 | 2,652 | 2,217 | 2,098 | 1,959 | |||||||||||||||
Personnel Financial Businesses (full-time equivalents) | ||||||||||||||||||||
Switzerland | 27,018 | 26,028 | 25,990 | 26,662 | 27,972 | |||||||||||||||
Europe (excluding Switzerland) | 12,687 | 11,007 | 10,764 | 9,906 | 10,009 | |||||||||||||||
Americas | 30,819 | 27,136 | 26,232 | 25,511 | 27,350 | |||||||||||||||
Asia Pacific | 7,616 | 5,398 | 4,438 | 3,850 | 3,730 | |||||||||||||||
Total | 78,140 | 69,569 | 67,424 | 65,929 | 69,061 | |||||||||||||||
Long-term ratings1 | ||||||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | AA+ | AAA | |||||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | Aa2 | Aa2 | |||||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | AA+ | AA+ | |||||||||||||||
Balance Sheet Data
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,396,511 | 2,058,348 | 1,737,171 | 1,554,032 | 1,350,905 | |||||||||||||||
Due from banks | 50,426 | 33,644 | 35,419 | 31,959 | 32,777 | |||||||||||||||
Cash collateral on securities borrowed | 351,590 | 288,435 | 210,606 | 206,519 | 139,049 | |||||||||||||||
Reverse repurchase agreements | 405,834 | 404,432 | 357,164 | 320,499 | 294,067 | |||||||||||||||
Trading portfolio assets | 627,036 | 499,297 | 389,487 | 354,558 | 261,080 | |||||||||||||||
Trading portfolio assets pledged as collateral | 251,478 | 154,759 | 159,115 | 120,759 | 110,365 | |||||||||||||||
Positive replacement values | 328,445 | 333,782 | 284,577 | 248,206 | 247,421 | |||||||||||||||
Loans | 312,521 | 279,910 | 241,803 | 220,083 | 211,707 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 203,689 | 124,328 | 120,026 | 129,084 | 83,561 | |||||||||||||||
Cash collateral on securities lent | 63,088 | 59,938 | 51,301 | 48,272 | 36,870 | |||||||||||||||
Repurchase agreements | 545,480 | 478,508 | 422,587 | 415,863 | 366,858 | |||||||||||||||
Trading portfolio liabilities | 204,773 | 188,631 | 171,033 | 143,957 | 106,453 | |||||||||||||||
Negative replacement values | 332,533 | 337,663 | 303,712 | 254,768 | 247,206 | |||||||||||||||
Financial liabilities designated at fair value | 145,687 | 117,401 | 65,756 | 35,286 | 14,516 | |||||||||||||||
Due to customers | 570,565 | 466,907 | 386,320 | 351,583 | 306,876 | |||||||||||||||
Debt issued | 190,143 | 160,710 | 117,856 | 88,874 | 115,798 | |||||||||||||||
Equity attributable to UBS shareholders | 49,686 | 44,015 | 33,632 | 33,350 | 35,701 | |||||||||||||||
233
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Additional Disclosure Required under SEC Regulations
B – Selected Financial Data (continued)
US GAAP Income Statement Data
For the year ended | ||||||||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Operating income | ||||||||||||||||||||
Interest income | 87,380 | 58,791 | 38,991 | 39,802 | 39,612 | |||||||||||||||
Interest (expense) | (80,463 | ) | (49,488 | ) | (27,245 | ) | (27,628 | ) | (29,334 | ) | ||||||||||
Net interest income | 6,917 | 9,303 | 11,746 | 12,174 | 10,278 | |||||||||||||||
Credit loss (expense) / recovery | 156 | 375 | 334 | (74 | ) | (112 | ) | |||||||||||||
Net interest income after credit loss (expense) / recovery | 7,073 | 9,678 | 12,080 | 12,100 | 10,166 | |||||||||||||||
Net fee and commission income | 25,881 | 21,436 | 18,435 | 16,606 | 17,481 | |||||||||||||||
Net trading income | 12,548 | 7,012 | 4,795 | 3,944 | 5,870 | |||||||||||||||
Other income | 1,742 | 747 | 1,158 | 382 | (65 | ) | ||||||||||||||
Total operating income | 47,244 | 38,873 | 36,468 | 33,032 | 33,452 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Personnel expenses | 23,771 | 19,542 | 17,970 | 17,234 | 18,224 | |||||||||||||||
General and administrative expenses | 7,944 | 6,469 | 6,420 | 5,917 | 6,953 | |||||||||||||||
Depreciation of property and equipment | 1,277 | 1,272 | 1,295 | 1,368 | 1,573 | |||||||||||||||
Amortization of other intangible assets | 143 | 119 | 103 | 110 | 1,443 | |||||||||||||||
Total operating expenses | 33,135 | 27,402 | 25,788 | 24,629 | 28,193 | |||||||||||||||
Operating profit from continuing operations before tax | 14,109 | 11,471 | 10,680 | 8,403 | 5,259 | |||||||||||||||
Tax expense | 2,932 | 2,995 | 1,966 | 1,790 | 456 | |||||||||||||||
Minority interests | (95 | ) | (138 | ) | (322 | ) | (350 | ) | (331 | ) | ||||||||||
Net profit from continuing operations | 11,082 | 8,338 | 8,392 | 6,263 | 4,472 | |||||||||||||||
Net profit from discontinued operations | 404 | 3,976 | 420 | 250 | 435 | |||||||||||||||
Change in accounting principle: cumulative effect of adoption of “AICPA Audit and Accounting Guide, Audits of Investment Companies” on certain financial investments, net of tax | 639 | |||||||||||||||||||
Cumulative adjustment of accounting for certain equity-based compensation plans as cash settled, net of tax | 6 | |||||||||||||||||||
Cumulative adjustment due to the adoption of SFAS 123 (revised 2004), “Share-Based Payment” on 1 January 2005, net of tax | 38 | |||||||||||||||||||
Net profit / (loss) | 11,486 | 12,352 | 8,818 | 6,513 | 5,546 | |||||||||||||||
234
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B – Selected Financial Data (continued)
US GAAP Balance Sheet Data
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Assets | ||||||||||||||||||||
Total assets | 2,634,628 | 2,279,257 | 1,903,239 | 1,699,060 | 1,296,991 | |||||||||||||||
Due from banks | 51,416 | 33,427 | 35,286 | 31,758 | 32,481 | |||||||||||||||
Cash collateral on securities borrowed | 351,461 | 288,304 | 208,778 | 203,645 | 139,073 | |||||||||||||||
Reverse repurchase agreements | 361,571 | 359,883 | 357,164 | 320,499 | 294,086 | |||||||||||||||
Trading portfolio assets | 627,160 | 505,717 | 378,281 | 349,023 | 268,263 | |||||||||||||||
Trading portfolio assets pledged as collateral | 401,176 | 272,494 | 230,223 | 195,469 | 173,582 | |||||||||||||||
Positive replacement values1 | 332,128 | 337,105 | 284,468 | 248,924 | 83,757 | |||||||||||||||
Loans | 316,141 | 277,471 | 238,604 | 220,142 | 211,755 | |||||||||||||||
Goodwill | 28,530 | 28,104 | 26,977 | 26,775 | 28,127 | |||||||||||||||
Other intangible assets | 2,340 | 1,665 | 1,722 | 1,174 | 1,222 | |||||||||||||||
Other assets | 84,027 | 75,992 | 101,121 | 64,434 | 21,367 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Due to banks | 206,985 | 127,252 | 119,021 | 127,385 | 83,178 | |||||||||||||||
Cash collateral on securities lent | 60,878 | 59,897 | 47,548 | 46,151 | 36,870 | |||||||||||||||
Repurchase agreements | 520,351 | 464,957 | 423,513 | 415,863 | 366,858 | |||||||||||||||
Trading portfolio liabilities | 236,929 | 201,212 | 190,907 | 149,380 | 117,721 | |||||||||||||||
Obligation to return securities received as collateral | 49,088 | 67,430 | 12,950 | 13,071 | 16,308 | |||||||||||||||
Negative replacement values1 | 439,495 | 432,290 | 360,345 | 326,136 | 132,354 | |||||||||||||||
Due to customers | 597,139 | 481,784 | 397,157 | 352,364 | 306,872 | |||||||||||||||
Accrued expenses and deferred income | 22,131 | 19,106 | 15,229 | 14,072 | 15,729 | |||||||||||||||
Debt issued | 306,994 | 240,212 | 164,744 | 123,259 | 129,527 | |||||||||||||||
Shareholders’ equity | 64,523 | 61,616 | 52,359 | 52,865 | 55,267 | |||||||||||||||
Certain prior year US GAAP amounts have been reclassified to conform to the current year’s presentation.
Ratio of Earnings to Fixed Charges
The following table sets forth UBS’s ratio of earnings to fixed charges on a IFRS basis for the periods indicated. The ratios are calculated based on earnings from continuing operations. Ratios of earnings to combined fixed charges and preferred stock dividend requirements are not presented as there were no preferred share dividends in any of the periods indicated. The ratios are calculated on a US GAAP basis and are not materially different from the IFRS ratios for the periods presented.
For the year ended | ||||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | ||||||||||||||||
IFRS | 1.17 | 1.24 | 1.34 | 1.24 | 1.10 | |||||||||||||||
C – Information on the Company
Property, Plant and Equipment
235
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3
Selected Statistical Information
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2006, 2005 and 2004.
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Due from banks | ||||||||||||||||||||||||||||||||||||
Domestic | 10,800 | 587 | 5.4 | 15,467 | 270 | 1.7 | 12,463 | 154 | 1.2 | |||||||||||||||||||||||||||
Foreign | 29,814 | 1,490 | 5.0 | 25,497 | 1,334 | 5.2 | 23,843 | 397 | 1.7 | |||||||||||||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 27,147 | 1,333 | 4.9 | 33,012 | 1,079 | 3.3 | 17,969 | 457 | 2.5 | |||||||||||||||||||||||||||
Foreign | 926,575 | 38,393 | 4.1 | 776,972 | 22,283 | 2.9 | 701,817 | 10,242 | 1.5 | |||||||||||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||||||||||||||
Domestic | 17,976 | 651 | 3.6 | 15,545 | 457 | 2.9 | 10,122 | 336 | 3.3 | |||||||||||||||||||||||||||
Foreign taxable | 707,432 | 31,433 | 4.4 | 580,763 | 23,619 | 4.1 | 513,922 | 18,908 | 3.7 | |||||||||||||||||||||||||||
Foreign non-taxable | 4,438 | 127 | 2.9 | 3,390 | 58 | 1.7 | 2,309 | 27 | 1.2 | |||||||||||||||||||||||||||
Foreign total | 711,870 | 31,560 | 4.4 | 584,153 | 23,677 | 4.1 | 516,231 | 18,935 | 3.7 | |||||||||||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 42 | 0 | 616 | 0 | 196 | 0 | ||||||||||||||||||||||||||||||
Foreign | 2,325 | 70 | 3.0 | 691 | 26 | 3.8 | 0 | 0 | ||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Domestic | 181,186 | 5,784 | 3.2 | 174,299 | 5,424 | 3.1 | 168,456 | 5,308 | 3.2 | |||||||||||||||||||||||||||
Foreign | 106,491 | 6,284 | 5.9 | 91,290 | 3,531 | 3.9 | 68,393 | 2,126 | 3.1 | |||||||||||||||||||||||||||
Financial investments available-for-sale | ||||||||||||||||||||||||||||||||||||
Domestic | 4,126 | 28 | 0.7 | 1,036 | 3 | 0.3 | 1,132 | 17 | 1.5 | |||||||||||||||||||||||||||
Foreign taxable | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | 3,000 | 21 | 0.7 | |||||||||||||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign total | 3,171 | 100 | 3.2 | 3,546 | 83 | 2.3 | 3,000 | 21 | 0.7 | |||||||||||||||||||||||||||
Total interest-earning assets | 2,021,523 | 86,280 | 4.3 | 1,722,124 | 58,167 | 3.4 | 1,523,622 | 37,993 | 2.5 | |||||||||||||||||||||||||||
Net interest on swaps | 1,121 | 1,119 | 1,235 | |||||||||||||||||||||||||||||||||
Interest income and average interest- earning assets | 2,021,523 | 87,401 | 4.3 | 1,722,124 | 59,286 | 3.4 | 1,523,622 | 39,228 | 2.6 | |||||||||||||||||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||||||||||||||
Positive replacement values | 320,596 | 319,698 | 246,952 | |||||||||||||||||||||||||||||||||
Fixed assets | 7,445 | 9,308 | 8,808 | |||||||||||||||||||||||||||||||||
Other | 66,362 | 55,178 | 53,140 | |||||||||||||||||||||||||||||||||
Total average assets | 2,415,926 | 2,106,308 | 1,832,522 | |||||||||||||||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
CHF million, except where indicated | balance | Interest | rate (%) | balance | Interest | rate (%) | balance | Interest | rate (%) | |||||||||||||||||||||||||||
Liabilities and Equity | ||||||||||||||||||||||||||||||||||||
Due to banks | ||||||||||||||||||||||||||||||||||||
Domestic | 46,544 | 1,583 | 3.4 | 35,713 | 897 | 2.5 | 31,129 | 385 | 1.2 | |||||||||||||||||||||||||||
Foreign | 108,885 | 5,261 | 4.8 | 92,431 | 3,321 | 3.6 | 96,335 | 1,582 | 1.6 | |||||||||||||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||||||||||||||
Domestic | 46,224 | 1,589 | 3.4 | 40,772 | 881 | 2.2 | 33,846 | 489 | 1.4 | |||||||||||||||||||||||||||
Foreign | 751,617 | 32,432 | 4.3 | 647,998 | 19,599 | 3.0 | 606,623 | 9,417 | 1.6 | |||||||||||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||||||||||||||
Domestic | 4,408 | 283 | 6.4 | 3,632 | 145 | 4.0 | 3,717 | 180 | 4.8 | |||||||||||||||||||||||||||
Foreign | 202,263 | 14,250 | 7.0 | 173,394 | 10,591 | 6.1 | 161,286 | 7,813 | 4.8 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||||||||||||||
Domestic | 1,864 | 58 | 3.1 | 638 | 5 | 0.8 | 85 | 1 | 1.2 | |||||||||||||||||||||||||||
Foreign | 127,458 | 4,699 | 3.7 | 86,688 | 2,385 | 2.8 | 49,234 | 1,167 | 2.4 | |||||||||||||||||||||||||||
Due to customers | ||||||||||||||||||||||||||||||||||||
Domestic demand deposits | 70,981 | 534 | 0.8 | 67,987 | 292 | 0.4 | 67,005 | 167 | 0.2 | |||||||||||||||||||||||||||
Domestic savings deposits | 86,631 | 392 | 0.5 | 86,373 | 404 | 0.5 | 84,112 | 414 | 0.5 | |||||||||||||||||||||||||||
Domestic time deposits | 28,876 | 639 | 2.2 | 24,245 | 386 | 1.6 | 19,052 | 250 | 1.3 | |||||||||||||||||||||||||||
Domestic total | 186,488 | 1,565 | 0.8 | 178,605 | 1,082 | 0.6 | 170,169 | 831 | 0.5 | |||||||||||||||||||||||||||
Foreign1 | 315,917 | 11,500 | 3.6 | 249,561 | 5,906 | 2.4 | 200,664 | 2,785 | 1.4 | |||||||||||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 1,973 | 115 | 5.8 | 1,584 | 20 | 1.3 | 246 | 0 | ||||||||||||||||||||||||||||
Foreign | 110,418 | 4,939 | 4.4 | 96,767 | 2,905 | 3.0 | 79,902 | 1,338 | 1.7 | |||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Domestic | 3,957 | 82 | 2.1 | 4,250 | 117 | 2.8 | 10,358 | 168 | 1.6 | |||||||||||||||||||||||||||
Foreign | 57,899 | 2,524 | 4.4 | 43,035 | 1,904 | 4.4 | 28,259 | 1,328 | 4.7 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,965,915 | 80,880 | 4.1 | 1,655,068 | 49,758 | 3.0 | 1,471,853 | 27,484 | 1.9 | |||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Negative replacement values | 320,766 | 335,992 | 260,629 | |||||||||||||||||||||||||||||||||
Other | 76,270 | 70,654 | 60,844 | |||||||||||||||||||||||||||||||||
Total liabilities | 2,362,951 | 2,061,714 | 1,793,326 | |||||||||||||||||||||||||||||||||
Total equity | 52,975 | 44,594 | 39,196 | |||||||||||||||||||||||||||||||||
Total average liabilities and equity | 2,415,926 | 2,106,308 | 1,832,522 | |||||||||||||||||||||||||||||||||
Net interest income | 6,521 | 9,528 | 11,744 | |||||||||||||||||||||||||||||||||
Net yield on interest-earning assets | 0.3 | 0.6 | 0.8 | |||||||||||||||||||||||||||||||||
237
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense
2006 compared with 2005 | 2005 compared with 2004 | |||||||||||||||||||||||
Increase / (decrease) | Increase / (decrease) | |||||||||||||||||||||||
due to changes in | due to changes in | |||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | |||||||||||||||||||
CHF million | volume | rate | change | volume | rate | change | ||||||||||||||||||
Interest income from interest-earning assets | ||||||||||||||||||||||||
Due from banks | ||||||||||||||||||||||||
Domestic | (79 | ) | 396 | 317 | 36 | 80 | 116 | |||||||||||||||||
Foreign | 224 | (68 | ) | 156 | 28 | 909 | 937 | |||||||||||||||||
Cash collateral on securities borrowed and reverse repurchase agreements | ||||||||||||||||||||||||
Domestic | (194 | ) | 448 | 254 | 376 | 246 | 622 | |||||||||||||||||
Foreign | 4,338 | 11,772 | 16,110 | 1,127 | 10,914 | 12,041 | ||||||||||||||||||
Trading portfolio assets | ||||||||||||||||||||||||
Domestic | 70 | 124 | 194 | 179 | (58 | ) | 121 | |||||||||||||||||
Foreign taxable | 5,193 | 2,621 | 7,814 | 2,473 | 2,238 | 4,711 | ||||||||||||||||||
Foreign non-taxable | 18 | 51 | 69 | 13 | 18 | 31 | ||||||||||||||||||
Foreign total | 5,211 | 2,672 | 7,883 | 2,486 | 2,256 | 4,742 | ||||||||||||||||||
Financial assets designated at fair value | ||||||||||||||||||||||||
Domestic | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign | 62 | (18 | ) | 44 | 26 | 0 | 26 | |||||||||||||||||
Loans | ||||||||||||||||||||||||
Domestic | 213 | 147 | 360 | 187 | (71 | ) | 116 | |||||||||||||||||
Foreign | 593 | 2,160 | 2,753 | 710 | 695 | 1,405 | ||||||||||||||||||
Financial investments | ||||||||||||||||||||||||
Domestic | 9 | 16 | 25 | (1 | ) | (13 | ) | (14 | ) | |||||||||||||||
Foreign taxable | (9 | ) | 26 | 17 | 4 | 58 | 62 | |||||||||||||||||
Foreign non-taxable | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Foreign total | (9 | ) | 26 | 17 | 4 | 58 | 62 | |||||||||||||||||
Interest income | ||||||||||||||||||||||||
Domestic | 19 | 1,131 | 1,150 | 777 | 184 | 961 | ||||||||||||||||||
Foreign | 10,419 | 16,544 | 26,963 | 4,381 | 14,832 | 19,213 | ||||||||||||||||||
Total interest income from interest-earning assets | 10,438 | 17,675 | 28,113 | 5,158 | 15,016 | 20,174 | ||||||||||||||||||
Net interest on swaps | 2 | (116 | ) | |||||||||||||||||||||
Total interest income | 28,115 | 20,058 | ||||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)
2006 compared with 2005 | 2005 compared with 2004 | |||||||||||||||||||||||
Increase / (decrease) | Increase / (decrease) | |||||||||||||||||||||||
due to changes in | due to changes in | |||||||||||||||||||||||
Average | Average | Net | Average | Average | Net | |||||||||||||||||||
CHF million | volume | rate | change | volume | rate | change | ||||||||||||||||||
Interest expense on interest-bearing liabilities | ||||||||||||||||||||||||
Due to banks | ||||||||||||||||||||||||
Domestic | 271 | 415 | 686 | 55 | 457 | 512 | ||||||||||||||||||
Foreign | 592 | 1,348 | 1,940 | (62 | ) | 1,801 | 1,739 | |||||||||||||||||
Cash collateral on securities lent and repurchase agreements | ||||||||||||||||||||||||
Domestic | 120 | 588 | 708 | 97 | 295 | 392 | ||||||||||||||||||
Foreign | 3,109 | 9,724 | 12,833 | 662 | 9,520 | 10,182 | ||||||||||||||||||
Trading portfolio liabilities | ||||||||||||||||||||||||
Domestic | 31 | 107 | 138 | (4 | ) | (31 | ) | (35 | ) | |||||||||||||||
Foreign | 1,761 | 1,898 | 3,659 | 581 | 2,197 | 2,778 | ||||||||||||||||||
Financial liabilities designated at fair value | ||||||||||||||||||||||||
Domestic | 10 | 43 | 53 | 7 | (3 | ) | 4 | |||||||||||||||||
Foreign | 1,142 | 1,172 | 2,314 | 899 | 319 | 1,218 | ||||||||||||||||||
Due to customers | ||||||||||||||||||||||||
Domestic demand deposits | 12 | 230 | 242 | 2 | 123 | 125 | ||||||||||||||||||
Domestic savings deposits | 1 | (13 | ) | (12 | ) | 11 | (21 | ) | (10 | ) | ||||||||||||||
Domestic time deposits | 74 | 179 | 253 | 68 | 68 | 136 | ||||||||||||||||||
Domestic total | 87 | 396 | 483 | 81 | 170 | 251 | ||||||||||||||||||
Foreign | 1,593 | 4,001 | 5,594 | 685 | 2,436 | 3,121 | ||||||||||||||||||
Short-term debt | ||||||||||||||||||||||||
Domestic | 5 | 90 | 95 | 20 | 0 | 20 | ||||||||||||||||||
Foreign | 410 | 1,624 | 2,034 | 287 | 1,280 | 1,567 | ||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||
Domestic | (8 | ) | (27 | ) | (35 | ) | (98 | ) | 47 | (51 | ) | |||||||||||||
Foreign | 654 | (34 | ) | 620 | 694 | (118 | ) | 576 | ||||||||||||||||
Interest expense | ||||||||||||||||||||||||
Domestic | 516 | 1,612 | 2,128 | 158 | 935 | 1,093 | ||||||||||||||||||
Foreign | 9,261 | 19,733 | 28,994 | 3,746 | 17,435 | 21,181 | ||||||||||||||||||
Total interest expense | 9,777 | 21,345 | 31,122 | 3,904 | 18,370 | 22,274 | ||||||||||||||||||
239
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Deposits
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
CHF million, except where indicated | deposit | rate (%) | deposit | rate (%) | deposit | rate (%) | ||||||||||||||||||
Banks | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 2,024 | 0.2 | 8,491 | 0.1 | 7,770 | 0.1 | ||||||||||||||||||
Time deposits | 8,776 | 4.5 | 6,976 | 3.3 | 4,693 | 1.7 | ||||||||||||||||||
Total domestic offices | 10,800 | 3.7 | 15,467 | 1.5 | 12,463 | 0.7 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 29,814 | 4.8 | 25,497 | 3.6 | 23,843 | 1.6 | ||||||||||||||||||
Total due to banks | 40,614 | 4.5 | 40,964 | 2.8 | 36,306 | 1.3 | ||||||||||||||||||
Customer accounts | ||||||||||||||||||||||||
Domestic offices | ||||||||||||||||||||||||
Demand deposits | 70,981 | 0.8 | 67,987 | 0.4 | 67,005 | 0.2 | ||||||||||||||||||
Savings deposits | 86,631 | 0.5 | 86,373 | 0.5 | 84,112 | 0.5 | ||||||||||||||||||
Time deposits | 28,876 | 2.2 | 24,245 | 1.6 | 19,052 | 1.3 | ||||||||||||||||||
Total domestic offices | 186,488 | 0.8 | 178,605 | 0.6 | 170,169 | 0.5 | ||||||||||||||||||
Foreign offices | ||||||||||||||||||||||||
Interest-bearing deposits1 | 315,917 | 3.6 | 249,561 | 2.4 | 200,664 | 1.4 | ||||||||||||||||||
Total due to customers | 502,405 | 2.6 | 428,166 | 1.6 | 370,833 | 1.0 | ||||||||||||||||||
At 31 December 2006, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:
CHF million | Domestic | Foreign | ||||||
Within 3 months | 45,236 | 256,610 | ||||||
3 to 6 months | 5,676 | 4,253 | ||||||
6 to 12 months | 2,764 | 2,224 | ||||||
1 to 5 years | 310 | 5,134 | ||||||
Over 5 years | 254 | 90 | ||||||
Total time deposits | 54,240 | 268,311 | ||||||
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D – Information Required by Industry Guide 3 (continued)
Short-term Borrowings
The following table presents the period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2006, 2005 and 2004.
Money market paper issued | Due to banks | Repurchase agreements1 | ||||||||||||||||||||||||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||||||||||||||||||||
Period-end balance | 119,584 | 102,662 | 79,442 | 153,231 | 90,651 | 84,351 | 754,623 | 667,317 | 557,892 | |||||||||||||||||||||||||||
Average balance | 112,391 | 98,351 | 80,148 | 114,815 | 114,701 | 91,158 | 717,542 | 628,362 | 587,988 | |||||||||||||||||||||||||||
Maximum month-end balance | 123,108 | 112,217 | 94,366 | 153,231 | 101,178 | 115,880 | 777,010 | 719,208 | 637,594 | |||||||||||||||||||||||||||
Average interest rate during the period (%) | 4.5 | 3.0 | 1.7 | 4.4 | 3.3 | 1.6 | 4.4 | 3.0 | 1.5 | |||||||||||||||||||||||||||
Average interest rate at period-end (%) | 4.0 | 4.0 | 2.1 | 4.1 | 3.0 | 2.0 | 5.0 | 2.6 | 2.0 | |||||||||||||||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Contractual Maturities of Investments in Debt Instruments1,2
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2006 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 2 | 2.22 | 0 | 0.00 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.48 | 2 | 1.89 | 57 | 4.47 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 26 | 7.00 | 0 | 0.00 | 2 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 10 | 4.48 | 150 | 5.10 | ||||||||||||||||||||||||
Other debt instruments | 0 | 0.00 | 233 | 9.28 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 66 | 235 | 69 | 151 | ||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2005 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 0 | 0.00 | 2 | 4.36 | 0 | 0.00 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
US Treasury and agencies | 0 | 0.00 | 42 | 5.51 | 10 | 5.77 | 12 | 6.03 | ||||||||||||||||||||||||
Foreign governments and official institutions | 38 | 1.91 | 2 | 1.90 | 5 | 5.64 | 2 | 6.17 | ||||||||||||||||||||||||
Corporate debt securities | 13 | 3.20 | 239 | 4.25 | 66 | 5.38 | 103 | 5.66 | ||||||||||||||||||||||||
Mortgage-backed securities | 0 | 0.00 | 0 | 0.00 | 14 | 3.92 | 129 | 4.80 | ||||||||||||||||||||||||
Other debt instruments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 51 | 285 | 95 | 247 | ||||||||||||||||||||||||||||
Within 1 year | 1–5 years | 5–10 years | Over 10 years | |||||||||||||||||||||||||||||
CHF million, except percentages | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | Amount | Yield (%) | ||||||||||||||||||||||||
31 December 2004 | ||||||||||||||||||||||||||||||||
Swiss national government and agencies | 1 | 5.50 | 2 | 4.29 | 6 | 3.80 | 1 | 4.00 | ||||||||||||||||||||||||
Swiss local governments | 10 | 3.97 | 10 | 4.14 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Foreign governments and official institutions | 36 | 2.13 | 4 | 1.25 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Corporate debt securities | 57 | 2.74 | 50 | 2.92 | 0 | 0.00 | 33 | 0.00 | ||||||||||||||||||||||||
Mortgage-backed securities | 3 | 2.50 | 0 | 0.00 | 5 | 3.21 | 64 | 4.36 | ||||||||||||||||||||||||
Other debt instruments | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | 0 | 0.00 | ||||||||||||||||||||||||
Total fair value | 107 | 66 | 11 | 98 | ||||||||||||||||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross)
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 561 | 1,407 | 1,406 | 619 | 1,029 | |||||||||||||||
Construction | 1,535 | 1,816 | 1,943 | 2,175 | 2,838 | |||||||||||||||
Financial institutions | 5,542 | 4,213 | 4,332 | 4,009 | 4,301 | |||||||||||||||
Hotels and restaurants | 1,957 | 2,044 | 2,269 | 2,440 | 2,655 | |||||||||||||||
Manufacturing2 | 4,439 | 5,038 | 5,485 | 6,478 | 7,237 | |||||||||||||||
Private households | 117,852 | 111,549 | 105,160 | 102,180 | 95,295 | |||||||||||||||
Public authorities | 4,972 | 5,494 | 5,460 | 5,251 | 5,529 | |||||||||||||||
Real estate and rentals | 11,356 | 11,792 | 11,466 | 12,449 | 13,573 | |||||||||||||||
Retail and wholesale | 4,569 | 4,808 | 4,908 | 6,062 | 7,172 | |||||||||||||||
Services3 | 9,159 | 9,300 | 9,110 | 9,493 | 10,237 | |||||||||||||||
Other4 | 1,127 | 1,004 | 591 | 1,014 | 1,722 | |||||||||||||||
Total domestic | 163,069 | 158,465 | 152,130 | 152,170 | 151,588 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 49,895 | 32,282 | 34,269 | 31,405 | 31,882 | |||||||||||||||
Chemicals | 1,296 | 2,716 | 366 | 245 | 519 | |||||||||||||||
Construction | 483 | 295 | 122 | 84 | 153 | |||||||||||||||
Electricity, gas and water supply | 892 | 1,637 | 745 | 249 | 1,105 | |||||||||||||||
Financial institutions | 82,064 | 62,306 | 45,095 | 30,906 | 18,378 | |||||||||||||||
Manufacturing5 | 2,964 | 3,899 | 2,758 | 2,421 | 2,300 | |||||||||||||||
Mining | 2,756 | 2,694 | 1,695 | 1,114 | 868 | |||||||||||||||
Private households | 35,029 | 38,280 | 30,237 | 21,195 | 33,063 | |||||||||||||||
Public authorities | 2,038 | 1,501 | 1,228 | 1,224 | 2,628 | |||||||||||||||
Real estate and rentals | 4,238 | 2,707 | 940 | 473 | 616 | |||||||||||||||
Retail and wholesale | 1,750 | 1,257 | 1,102 | 1,880 | 1,367 | |||||||||||||||
Services | 16,231 | 5,596 | 8,002 | 7,983 | 1,654 | |||||||||||||||
Transport, storage and communication | 1,038 | 1,419 | 762 | 3,658 | 676 | |||||||||||||||
Other6 | 460 | 156 | 318 | 432 | 2,314 | |||||||||||||||
Total foreign | 201,134 | 156,745 | 127,639 | 103,269 | 97,523 | |||||||||||||||
Total gross | 364,203 | 315,210 | 279,769 | 255,439 | 249,111 | |||||||||||||||
243
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage at 31 December 2006, 2005, 2004, 2003 and 2002. Mortgages are included in the industry categories mentioned on the previous page.
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Domestic | 134,468 | 130,880 | 124,496 | 122,069 | 116,359 | |||||||||||||||
Foreign | 10,069 | 15,619 | 12,185 | 7,073 | 11,510 | |||||||||||||||
Total gross mortgages | 144,537 | 146,499 | 136,681 | 129,142 | 127,869 | |||||||||||||||
Mortgages | ||||||||||||||||||||
Residential | 124,548 | 127,990 | 117,731 | 109,980 | 108,779 | |||||||||||||||
Commercial | 19,989 | 18,509 | 18,950 | 19,162 | 19,090 | |||||||||||||||
Total gross mortgages | 144,537 | 146,499 | 136,681 | 129,142 | 127,869 | |||||||||||||||
Due from Banks and Loan Maturities (gross)
CHF million | Within 1 year | 1 to 5 years | Over 5 years | Total | ||||||||||||
Domestic | ||||||||||||||||
Banks | 558 | 3 | 0 | 561 | ||||||||||||
Mortgages | 54,752 | 60,051 | 19,665 | 134,468 | ||||||||||||
Other loans | 21,068 | 5,493 | 1,479 | 28,040 | ||||||||||||
Total domestic | 76,378 | 65,547 | 21,144 | 163,069 | ||||||||||||
Foreign | ||||||||||||||||
Banks | 47,391 | 2,323 | 181 | 49,895 | ||||||||||||
Mortgages | 8,451 | 1,219 | 399 | 10,069 | ||||||||||||
Other loans | 125,334 | 13,150 | 2,686 | 141,170 | ||||||||||||
Total foreign | 181,176 | 16,692 | 3,266 | 201,134 | ||||||||||||
Total gross1 | 257,554 | 82,239 | 24,410 | 364,203 | ||||||||||||
At 31 December 2006, 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 | 75,549 | 22,918 | 98,467 | |||||||||
Adjustable or floating-rate loans | 6,690 | 1,492 | 8,182 | |||||||||
Total | 82,239 | 24,410 | 106,649 | |||||||||
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D – Information Required by Industry Guide 3 (continued)
Impaired and Non-performing Loans
A loan (included in Due from banks or Loans) is classified as non-performing: 1) when the payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or the liquidation of collateral; or 2) when insolvency proceedings have commenced; or 3) when obligations have been restructured on concessionary terms.
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Gross interest income that would have been recorded on non-performing loans: | ||||||||||||||||||||
Domestic | 50 | 81 | 107 | 171 | 148 | |||||||||||||||
Foreign | 10 | 8 | 17 | 23 | 53 | |||||||||||||||
Interest income included in net profit for non-performing loans: | ||||||||||||||||||||
Domestic | 56 | 72 | 106 | 163 | 152 | |||||||||||||||
Foreign | 8 | 9 | 8 | 8 | 22 | |||||||||||||||
The table below provides an analysis of the Group’s non-performing loans. For further information, see the Risk Management chapter of the Handbook 2006 / 2007.
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Non-performing loans: | ||||||||||||||||||||
Domestic | 1,744 | 2,106 | 2,772 | 4,012 | 4,609 | |||||||||||||||
Foreign | 174 | 257 | 783 | 746 | 1,170 | |||||||||||||||
Total non-performing loans | 1,918 | 2,363 | 3,555 | 4,758 | 5,779 | |||||||||||||||
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Cross-border Outstandings
31.12.06 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 7,692 | 208,200 | 22,574 | 238,466 | 10.0 | |||||||||||||||
Japan | 2,283 | 8,263 | 30,158 | 40,704 | 1.7 | |||||||||||||||
United Kingdom | 11,149 | 16,098 | 559 | 27,806 | 1.2 | |||||||||||||||
Germany | 15,240 | 8,080 | 1,574 | 24,894 | 1.0 | |||||||||||||||
31.12.05 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 6,700 | 133,561 | 23,297 | 163,558 | 7.9 | |||||||||||||||
Germany | 16,985 | 4,525 | 1,265 | 22,775 | 1.1 | |||||||||||||||
Japan | 2,044 | 7,582 | 10,824 | 20,450 | 1.0 | |||||||||||||||
United Kingdom | 6,384 | 11,423 | 555 | 18,362 | 0.9 | |||||||||||||||
Italy | 3,343 | 2,509 | 11,324 | 17,176 | 0.8 | |||||||||||||||
31.12.04 | ||||||||||||||||||||
CHF million | Banks | Private sector | Public sector | Total | % of total assets | |||||||||||||||
United States | 8,550 | 109,131 | 8,859 | 126,540 | 7.3 | |||||||||||||||
Germany | 18,478 | 2,882 | 7,348 | 28,708 | 1.7 | |||||||||||||||
Italy | 4,362 | 2,207 | 16,803 | 23,372 | 1.3 | |||||||||||||||
United Kingdom | 8,131 | 10,760 | 259 | 19,150 | 1.1 | |||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Balance at beginning of year | 1,776 | 2,802 | 3,775 | 5,015 | 7,992 | |||||||||||||||
Domestic | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Construction | (14 | ) | (16 | ) | (49 | ) | (73 | ) | (148 | ) | ||||||||||
Financial institutions | (11 | ) | (14 | ) | (24 | ) | (37 | ) | (103 | ) | ||||||||||
Hotels and restaurants | (16 | ) | (26 | ) | (101 | ) | (57 | ) | (48 | ) | ||||||||||
Manufacturing1 | (40 | ) | (39 | ) | (77 | ) | (121 | ) | (275 | ) | ||||||||||
Private households | (89 | ) | (131 | ) | (208 | ) | (262 | ) | (536 | ) | ||||||||||
Public authorities | 0 | 0 | 0 | (18 | ) | 0 | ||||||||||||||
Real estate and rentals | (44 | ) | (56 | ) | (109 | ) | (206 | ) | (357 | ) | ||||||||||
Retail and wholesale | (20 | ) | (25 | ) | (68 | ) | (67 | ) | (101 | ) | ||||||||||
Services2 | (47 | ) | (35 | ) | (83 | ) | (111 | ) | (155 | ) | ||||||||||
Other3 | (2 | ) | (4 | ) | (9 | ) | (43 | ) | (49 | ) | ||||||||||
Total domestic write-offs | (283 | ) | (346 | ) | (728 | ) | (995 | ) | (1,772 | ) | ||||||||||
Foreign | ||||||||||||||||||||
Write-offs | ||||||||||||||||||||
Banks | (3 | ) | (164 | ) | (21 | ) | (17 | ) | (49 | ) | ||||||||||
Chemicals | 0 | 0 | (1 | ) | 0 | 0 | ||||||||||||||
Construction | 0 | 0 | (3 | ) | 0 | 0 | ||||||||||||||
Electricity, gas and water supply | 0 | 0 | 0 | 0 | (36 | ) | ||||||||||||||
Financial institutions | 0 | (50 | ) | (34 | ) | (112 | ) | (228 | ) | |||||||||||
Manufacturing4 | (11 | ) | (8 | ) | (23 | ) | (77 | ) | (70 | ) | ||||||||||
Mining | (1 | ) | (23 | ) | (8 | ) | (15 | ) | (1 | ) | ||||||||||
Private households | (7 | ) | (21 | ) | (8 | ) | (11 | ) | (65 | ) | ||||||||||
Public authorities | (58 | ) | (22 | ) | (2 | ) | 0 | (1 | ) | |||||||||||
Real estate and rentals | 0 | (3 | ) | 0 | (1 | ) | (2 | ) | ||||||||||||
Retail and wholesale | 0 | (9 | ) | 0 | (76 | ) | (10 | ) | ||||||||||||
Services | 0 | 0 | (7 | ) | (25 | ) | (39 | ) | ||||||||||||
Transport, storage and communication | 0 | 0 | 0 | (24 | ) | (74 | ) | |||||||||||||
Other5 | 0 | (5 | ) | (21 | ) | (83 | ) | (189 | ) | |||||||||||
Total foreign write-offs | (80 | ) | (305 | ) | (128 | ) | (441 | ) | (764 | ) | ||||||||||
Total write-offs | (363 | ) | (651 | ) | (856 | ) | (1,436 | ) | (2,536 | ) | ||||||||||
247
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Recoveries | ||||||||||||||||||||
Domestic | 51 | 53 | 54 | 49 | 43 | |||||||||||||||
Foreign | 11 | 10 | 5 | 38 | 27 | |||||||||||||||
Total recoveries | 62 | 63 | 59 | 87 | 70 | |||||||||||||||
Net write-offs | (301 | ) | (588 | ) | (797 | ) | (1,349 | ) | (2,466 | ) | ||||||||||
Increase / (decrease) in credit loss allowance and provision | (108 | ) | (298 | ) | (216 | ) | 102 | 115 | ||||||||||||
Collective loan loss provisions | (48 | ) | (76 | ) | (25 | ) | ||||||||||||||
Other adjustments1 | 13 | (64 | ) | 65 | 7 | (626 | ) | |||||||||||||
Balance at end of year | 1,332 | 1,776 | 2,802 | 3,775 | 5,015 | |||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Net foreign exchange | 10 | 50 | 2 | (57 | ) | (269 | ) | |||||||||||||
Subsidiaries sold and other adjustments | 3 | (114 | ) | 63 | 64 | (357 | ) | |||||||||||||
Total adjustments | 13 | (64 | ) | 65 | 7 | (626 | ) | |||||||||||||
248
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D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses
The following table provides an analysis of the allocation of the allowances and provisions for credit loss by industry sector and geographic location at 31 December 2006, 2005, 2004, 2003 and 2002. For a description of procedures with respect to allowances and provisions for credit losses, see the Handbook 2006 / 2007. The following analysis includes Due from banks from Industrial Holdings.
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks | 10 | 10 | 10 | 10 | 10 | |||||||||||||||
Construction | 72 | 91 | 112 | 158 | 265 | |||||||||||||||
Financial institutions | 61 | 75 | 82 | 137 | 89 | |||||||||||||||
Hotels and restaurants | 27 | 49 | 98 | 214 | 286 | |||||||||||||||
Manufacturing1 | 155 | 174 | 224 | 327 | 458 | |||||||||||||||
Private households | 187 | 262 | 333 | 511 | 750 | |||||||||||||||
Public authorities | 3 | 8 | 9 | 9 | 39 | |||||||||||||||
Real estate and rentals | 99 | 168 | 250 | 383 | 577 | |||||||||||||||
Retail and wholesale | 311 | 330 | 363 | 201 | 315 | |||||||||||||||
Services2 | 113 | 196 | 222 | 549 | 470 | |||||||||||||||
Other3 | 107 | 61 | 188 | 150 | 225 | |||||||||||||||
Total domestic | 1,145 | 1,425 | 1,891 | 2,649 | 3,484 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks4 | 20 | 35 | 246 | 256 | 24 | |||||||||||||||
Chemicals | 4 | 5 | 4 | 5 | 5 | |||||||||||||||
Construction | 2 | 2 | 1 | 0 | 6 | |||||||||||||||
Electricity, gas and water supply | 8 | 16 | 15 | 0 | 96 | |||||||||||||||
Financial institutions | 9 | 8 | 140 | 168 | 153 | |||||||||||||||
Manufacturing5 | 37 | 57 | 112 | 359 | 314 | |||||||||||||||
Mining | 0 | 1 | 14 | 19 | 148 | |||||||||||||||
Private households | 26 | 30 | 48 | 48 | 58 | |||||||||||||||
Public authorities | 21 | 72 | 66 | 69 | 0 | |||||||||||||||
Real estate and rentals | 4 | 3 | 5 | 7 | 6 | |||||||||||||||
Retail and wholesale | 4 | 1 | 95 | 51 | 13 | |||||||||||||||
Services | 7 | 27 | 32 | 32 | 262 | |||||||||||||||
Transport, storage and communication | 1 | 0 | 1 | 195 | 144 | |||||||||||||||
Other6 | 6 | 8 | (75 | ) | (345 | ) | (394 | ) | ||||||||||||
Total foreign | 149 | 265 | 704 | 864 | 835 | |||||||||||||||
Collective loan loss provisions7 | 38 | 86 | 207 | 262 | 696 | |||||||||||||||
Total allowances and provisions for credit losses8 | 1,332 | 1,776 | 2,802 | 3,775 | 5,015 | |||||||||||||||
249
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Additional Disclosure Required under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Due from Banks and Loans by Industry Sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans. This table can be read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by industry sectors to evaluate the credit risks in each of the categories. The table below does not include loans designated at fair value.
in % | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Domestic | ||||||||||||||||||||
Banks1 | 0.2 | 0.5 | 0.5 | 0.2 | 0.4 | |||||||||||||||
Construction | 0.4 | 0.6 | 0.7 | 0.8 | 1.1 | |||||||||||||||
Financial institutions | 1.5 | 1.3 | 1.5 | 1.6 | 1.7 | |||||||||||||||
Hotels and restaurants | 0.5 | 0.7 | 0.8 | 1.0 | 1.1 | |||||||||||||||
Manufacturing2 | 1.2 | 1.6 | 2.0 | 2.5 | 2.9 | |||||||||||||||
Private households | 32.4 | 35.4 | 37.6 | 40.0 | 38.3 | |||||||||||||||
Public authorities | 1.4 | 1.7 | 2.0 | 2.1 | 2.2 | |||||||||||||||
Real estate and rentals | 3.1 | 3.7 | 4.1 | 4.9 | 5.4 | |||||||||||||||
Retail and wholesale | 1.3 | 1.5 | 1.7 | 2.4 | 2.9 | |||||||||||||||
Services3 | 2.5 | 3.0 | 3.3 | 3.7 | 4.1 | |||||||||||||||
Other4 | 0.3 | 0.3 | 0.2 | 0.4 | 0.8 | |||||||||||||||
Total domestic | 44.8 | 50.3 | 54.4 | 59.6 | 60.9 | |||||||||||||||
Foreign | ||||||||||||||||||||
Banks1 | 13.7 | 10.2 | 12.3 | 12.3 | 12.8 | |||||||||||||||
Chemicals | 0.4 | 0.9 | 0.1 | 0.1 | 0.2 | |||||||||||||||
Construction | 0.1 | 0.1 | 0.0 | 0.0 | 0.1 | |||||||||||||||
Electricity, gas and water supply | 0.2 | 0.5 | 0.3 | 0.1 | 0.4 | |||||||||||||||
Financial institutions | 22.5 | 19.8 | 16.1 | 12.1 | 7.4 | |||||||||||||||
Manufacturing5 | 0.8 | 1.2 | 1.0 | 1.0 | 0.9 | |||||||||||||||
Mining | 0.8 | 0.9 | 0.6 | 0.4 | 0.3 | |||||||||||||||
Private households | 9.6 | 12.1 | 10.8 | 8.3 | 13.3 | |||||||||||||||
Public authorities | 0.6 | 0.5 | 0.4 | 0.5 | 1.1 | |||||||||||||||
Real estate and rentals | 1.2 | 0.9 | 0.3 | 0.2 | 0.2 | |||||||||||||||
Retail and wholesale | 0.5 | 0.4 | 0.4 | 0.7 | 0.5 | |||||||||||||||
Services | 4.4 | 1.8 | 2.9 | 3.1 | 0.7 | |||||||||||||||
Transport, storage and communication | 0.3 | 0.4 | 0.3 | 1.4 | 0.3 | |||||||||||||||
Other6 | 0.1 | 0.0 | 0.1 | 0.2 | 0.9 | |||||||||||||||
Total foreign | 55.2 | 49.7 | 45.6 | 40.4 | 39.1 | |||||||||||||||
Total gross | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
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D – Information Required by Industry Guide 3 (continued)
Loss History Statistics
The following is a summary of the Group’s loan loss history (relating to Due from banks and Loans). The table below does not include loans designated at fair value.
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.03 | 31.12.02 | |||||||||||||||
Gross loans1 | 364,203 | 315,210 | 279,769 | 255,439 | 249,111 | |||||||||||||||
Impaired loans | 2,628 | 3,434 | 4,699 | 6,999 | 9,654 | |||||||||||||||
Non-performing loans | 1,918 | 2,363 | 3,555 | 4,758 | 5,779 | |||||||||||||||
Allowances and provisions for credit losses2 | 1,332 | 1,776 | 2,802 | 3,775 | 5,015 | |||||||||||||||
Net write-offs | 301 | 588 | 797 | 1,349 | 2,466 | |||||||||||||||
Credit loss (expense) / recovery | 156 | 375 | 241 | (102 | ) | (115 | ) | |||||||||||||
Ratios | ||||||||||||||||||||
Impaired loans as a percentage of gross loans | 0.7 | 1.1 | 1.7 | 2.8 | 3.9 | |||||||||||||||
Non-performing loans as a percentage of gross loans | 0.5 | 0.8 | 1.3 | 1.9 | 2.3 | |||||||||||||||
Allowances and provisions for credit losses as a percentage of: | ||||||||||||||||||||
Gross loans | 0.4 | 0.6 | 1.0 | 1.5 | 2.0 | |||||||||||||||
Impaired loans | 50.7 | 51.7 | 59.6 | 53.9 | 52.7 | |||||||||||||||
Non-performing loans | 69.4 | 75.2 | 78.8 | 79.3 | 86.8 | |||||||||||||||
Allocated allowances as a percentage of impaired loans3 | 46.3 | 46.4 | 51.6 | 46.8 | 44.8 | |||||||||||||||
Allocated allowances as a percentage of non-performing loans4 | 58.0 | 59.0 | 61.4 | 55.1 | 56.0 | |||||||||||||||
Net write-offs as a percentage of: | ||||||||||||||||||||
Gross loans | 0.1 | 0.2 | 0.3 | 0.5 | 1.0 | |||||||||||||||
Average loans outstanding during the period | 0.1 | 0.2 | 0.3 | 0.5 | 1.0 | |||||||||||||||
Allowances and provisions for credit losses | 22.6 | 33.1 | 28.5 | 35.7 | 49.2 | |||||||||||||||
Allowances and provisions for credit losses as a multiple of net write-offs | 4.43 | 3.02 | 3.51 | 2.80 | 2.03 | |||||||||||||||
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Cautionary statement regarding forward-looking statements |This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives 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 and macro-economic trends, (2) legislative developments, governmental and regulatory trends, (3) movements in local and international securities markets, currency exchange rates and interest rates, (4) competitive pressures, (5) technological developments, (6) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2006. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80531E-0701
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UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com
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Introduction
This is the seventh edition of our Handbook.
In it, we describe ourselves – our strategy, organization, and businesses. We outline the principles by which we manage risk, and report on last year’s developments in credit risk, market risk, and treasury management.
As in previous years, we also discuss our corporate governance and our relationships with regulators and shareholders, and provide comprehensive information on UBS shares. We describe demographic trends in our workforce and the way people are trained and managed.
You should read the Handbook in conjunction with the other information published by UBS, set out on page 4.
We hope you will find this Handbook useful and informative. We believe that UBS is one of the leaders in corporate disclosure, and would be keen to hear your views on how we might improve the content, information or presentation of all our publications.
Tom Hill
Chief Communication Officer
UBS
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Introduction
UBS key facts
As of or for the year ended | % change from | |||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||
Financials | ||||||||||||||||
Operating income (CHF million)1 | 47,171 | 39,896 | 35,971 | 18 | ||||||||||||
Net profit attributable to UBS shareholders (CHF million)1 | 11,249 | 9,442 | 7,357 | 19 | ||||||||||||
Invested assets (CHF billion)2 | 2,989 | 2,652 | 2,125 | 13 | ||||||||||||
Tier 1 ratio (%)3 | 11.9 | 12.8 | 11.8 | |||||||||||||
Economic | ||||||||||||||||
Tax expense (CHF million)4 | 2,751 | 2,785 | 2,201 | (1 | ) | |||||||||||
Distribution to shareholders (dividends & buybacks) (CHF million) | 5,889 | 6,702 | 6,600 | (12 | ) | |||||||||||
Salaries & bonuses (CHF million) | 19,076 | 15,930 | 14,254 | 20 | ||||||||||||
Social & environmental | ||||||||||||||||
Personnel (FTE)4 | 78,140 | 69,569 | 67,407 | 12 | ||||||||||||
Women in ranked positions (% of total officer population) | 25.5 | 22.1 | N/A | 18 | ||||||||||||
Corporate charitable donations (incl. disaster relief efforts) (CHF million) | 38 | 45 | 28 | (16 | ) | |||||||||||
Volunteering hours spent by employees | 53,679 | N/A | N/A | |||||||||||||
CO2 emissions (tons) | 293,169 | 372,184 | 360,502 | (21 | ) | |||||||||||
Long-term ratings and benchmarks | ||||||||||||||||
Fitch, London | AA+ | AA+ | AA+ | |||||||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||||||
Dow Jones Sustainability Index5 | ü | ü | ü | |||||||||||||
FTSE4Good5 | ü | ü | ü | |||||||||||||
Climate Leadership index5 | ü | ü | ü | |||||||||||||
Interbrand: rank among 100 most valuable global brands | 42 | 44 | 45 | |||||||||||||
All share and earnings per share figures throughout the report reflect the 2-for-1 share split made on 10 July 2006.
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Introduction |
Who we are
We are one of the world’s leading financial firms, serving a discerning international client base. Our business, global in scale, is focused on growth. As an integrated firm, we create more value for clients by drawing on the combined resources and expertise of all our businesses.
ple, with 39% in the Americas, 35% in Switzerland, 16% in the rest of Europe and 10% in Asia Pacific.
Our vision
We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment banking and securities businesses. We continually earn recognition and trust from clients, shareholders, and staff through our ability to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what we do. Our purpose is to help our clients make financial decisions with confidence. We use our resources to develop effective solutions and services for our clients. We foster a distinctive, meritocratic culture of ambition, performance and learning as this attracts, retains and develops the best talent for our company. By growing both our client and our talent franchises, we add sustainable value for our shareholders.
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Introduction
More about us
This Handbook contains a detailed description of UBS, its strategy, organization, businesses, employees, corporate governance and responsibility. The risk management chapter includes detailed information on credit, market and operational risk and a separate chapter explains Treasury’s interest rate, currency, liquidity and funding management activities. This Handbook is available in English and German (SAP no. 80532). You can find out more about UBS from the sources below.
Publications
Annual Review 2006
Financial Report 2006
The Financial Report 2006 contains our audited financial statements for the year 2006 and related detailed analysis. It is available in English and German. (SAP no. 80531).
Quarterly reports
We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These quarterly reports are available in English.
Compensation Report 2006
The Compensation Report 2006 provides detailed information on the compensation paid to the members of UBS’s Board of Directors (BoD) and the Group Executive Board (GEB). The report is available in English and German. (SAP no. 82307).
The making of UBS
Our brochure, “The making of UBS”, outlines the series of transformational mergers and acquisitions that created today’s UBS. It also includes brief profiles of the firm’s antecedent companies and their historical roots. It is available in English and German. (SAP no. 82252)
How to order reports
These reports are available in PDF format on the internet atwww.ubs.com/investorsin the Reporting section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the right-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, P.O. Box, CH-8098 Zurich, Switzerland.
Information tools for investors
Website
Our Analysts and Investors website atwww.ubs.com/investorsoffers a wide range of information about UBS, financial information (including SEC filings), corporate information, share price graphs and data, an event calendar, dividend information and recent presentations given by senior management to investors at external conferences. Information on the internet is available in English and German, with some sections in French and Italian.
Messaging service
On the Analysts and Investors website, you can register to receive news alerts about UBS via Short Messaging System (SMS) or e-mail. Messages are sent in either English or German and users are able to state their preferences for the topics of the alerts received.
Results presentations
Senior management presents UBS’s results every quarter. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent result web-casts can be found in the financials section of our Analysts and Investors website.
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Introduction |
Form 20-F and other submissions to the US Securities and Exchange Commission
We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is our annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934.
You may read and copy any document that we file with the SEC on the SEC’s website,www.sec.gov,or at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC, 20549. Please call the SEC by dialing 1-800-SEC-0330 (in the US) or +1 202 942 8088 (outside the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. Much of this additional information may also be found on the UBS website atwww.ubs.com/investors,and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team at the address shown on the next page.
The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS. UBS AG is incorporated and domiciled in Switzerland and operates under
Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.
The addresses and telephone numbers of our two registered offices are: Bahnhofstrasse 45, CH-8001 Zurich, Switzerland, phone +41-44-234 11 11;
and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, phone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange (traded through its trading platform virt-x), on the New York Stock Exchange (NYSE) and on the Tokyo Stock Exchange (TSE).
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Contacts
Switchboards | ||||||
For all general queries. | Zurich | +41-44-234 1111 | ||||
London | +44-20-7568 0000 | |||||
New York | +1-212-821 3000 | |||||
Hong Kong | +852-2971 8888 | |||||
Investor Relations | ||||||
Our Investor Relations team supports institutional, professional and retail investors from our offices in Zurich and New York. www.ubs.com/investors | Hotline | +41-44-234 4100 | UBS AG | |||
New York | +1-212-882 5734 | Investor Relations | ||||
Fax (Zurich) | +44-44-234 3415 | P.O. Box | ||||
CH-8098 Zurich, Switzerland | ||||||
sh-investorrelations@ubs.com | ||||||
Media Relations | ||||||
Our Media Relations team supports global media and journalists from offices in Zurich, London, New York and Hong Kong. www.ubs.com/media | Zurich | +41-44-234 8500 | mediarelations@ubs.com | |||
London | +44-20-7567 4714 | ubs-media-relations@ubs.com | ||||
New York | +1-212-882 5857 | mediarelations-ny@ubs.com | ||||
Hong Kong | +852-2971 8200 | sh-mediarelations-ap@ubs.com | ||||
Shareholder Services | ||||||
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. | Hotline | +41-44-235 6202 | UBS AG | |||
Fax | +41-44-235 3154 | Shareholder Services | ||||
P.O. Box | ||||||
CH-8098 Zurich, Switzerland | ||||||
sh-shareholder-services@ubs.com | ||||||
US Transfer Agent | ||||||
For all Global Registered share-related queries in the US, www.melloninvestor.com | Calls from the US | +866-541 9689 | Mellon Investor Services | |||
Calls outside the US | +1-201-680 6578 | 480 Washington Boulevard | ||||
Fax | +1-201-680 4675 | Jersey City, NJ 07310, USA | ||||
sh-relations@melloninvestor.com | ||||||
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UBS
We are determined to be the best global financial services
company. We focus on wealth and asset management, and on the
investment banking and securities businesses. We continually
earn recognition and trust from clients, shareholders, and
staff through our ability to anticipate, learn and shape our
future. We share a common ambition to succeed by delivering
quality in what we do.
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UBS
Strategy and structure
Strategy and structure
UBS is, and has been for many years, a truly global firm, working with corporate, institutional and private clients. Our strategy is to concentrate on three global core businesses – wealth management, asset management and investment banking and securities trading – as well as retail and corporate banking in Switzerland. We operate as one firm, with an integrated business model that ensures we add value to our clients by drawing on the combined resources and expertise of all our businesses.
Our businesses
Inwealth management, our services are designed for high net worth and affluent individuals around the world, whether investing internationally or in their home country. We provide them with tailored, unbiased advice and investment services – ranging from asset management to estate planning and from corporate finance to art banking.
Our competitive profile
A global and focused strategy
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UBS is the leading global wealth manager – the market leader in Europe and Asia Pacific and fourth in the US. In M&A and equity underwriting, we are among the top five firms globally – and the only global bulge bracket investment bank with roots outside the US. Our asset management business is one of the leading active asset managers globally and the second largest mutual fund manager in Europe.
The leading bank in Switzerland
Sustainable, attractive growth opportunities
– | expanding market share in our existing businesses, by attracting new clients in fast growing segments (for example, high net worth private clients or hedge funds) and increasing business volume through improved client segmentation and targeted solutions customized to client needs | |
– | quality and innovation,by continuously raising the quality of our advice, by improving our practices and processes and by developing new products | |
– | geographical expansion, by focusing on regions with rapid economic and wealth growth, such as China, Brazil, Russia and India. |
Long-term client needs define the composition and structure of our businesses. As we have significant scale in our areas of focus, our main priority is to develop and grow UBS’s business organically. Acquisitions should accelerate and complement our growth, and they must have an obvious strategic and cultural fit, while being financially attractive to shareholders.
>> Details on industry trends can be found in the dedicated section of this chapter. | ||
Distinct business model
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Strategy and structure
At the same time, both our investment bank and asset management businesses help accelerate wealth management growth in a way that would not be possible if wealth management stood alone. Teamwork and cooperation across our businesses is essential.
Client focus and brand
Capital management discipline
direct distributions or share buybacks. Cumulatively, over the last six years, we have returned about 60% of all our cash flow to shareholders.
>> More details of this are in the “Capital management and UBS shares” chapter of this Handbook. | ||
Sound risk management
>> More details on risk management can be found in the dedicated chapter of this Handbook. | ||
Accountability for value creation
>> Corporate responsibility at UBS is described in a dedicated chapter of this Handbook. | ||
>> Value creation for our shareholders is measured by financial performance indicators that are discussed in detail in our Financial Report 2006. | ||
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Growth highlights in 2006 and early 2007
Emerging markets
Latin America – Brazil and Mexico
China
The business should see UBS becoming the first foreign firm to invest directly in, and manage, a full-service domestic Chinese securities firm. UBS was one of the first foreign firms to gain a foothold in China with the opening of a Beijing representative office in 1989. This was followed by another in Shanghai in 1993 and in Guangzhou in 2004. Today, the Investment Bank has a USD 800 million Qualified Foreign Institutional Investor (QFII) quota, which allows the firm to trade in domestic shares and bonds on behalf of non-Chinese clients, and remains the largest of all QFII quotas given to a single QFII. The asset management business has a separate QFII quota of USD 200 million. In our Beijing Branch, opened in August 2004, we offer corporate and institutional clients in China tailor-made solutions to manage interest rate and currency risks.
India
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Strategy and structure
brokerage and advisory services have been available through the Mumbai office since 1990.
Russia
Developed markets
USA
Europe
ing, Business Banking has transferred a total of CHF 8.2 billion in assets to the wealth management unit.
Growth initiatives in the Investment Bank
>> For more details on the strategy and the latest developments in our different businesses, please see the business group chapters of this Handbook | ||
Outlook for growth
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Beyond the most immediate challenges, talent management – recruiting the right people, developing and retaining talent within UBS – remains critical to our long-term organic growth ambitions.
>> Our efforts in managing and developing talents are outlined in the “Our employees” chapter of the Handbook. | ||
With a global presence that is balanced across the Americas, Europe and Asia Pacific, the building blocks of our growth strategy are firmly in place. In 2006, we made a concentrated number of acquisitions while investing heavily in organic growth. In 2007, our focus will be on integrating our new areas of activity.
Managing our business
Board structure
framework, principles and overall risk-taking capacity. A clear majority of the Board of Directors is non-executive and fully independent.
>> Detailed information on our corporate governance structures and principles can be read in the Corporate Governance chapter. | ||
Organizational structure
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UBS
Industry trends
Industry trends
Long-term perspectives
The world economy is expected to grow around 3.1% a year in the next ten years. There will be continued productivity gains as a result of global competition and the diffusion of new technologies. Worldwide population and therefore economic activity will also grow, although employment may increase at a slower pace, reflecting demographic shifts towards older populations in some countries.
– | financial liberalization and deregulation | |
– | wealth accumulation | |
– | retirement provisioning | |
– | securitization | |
– | equitization | |
– | alternative investments | |
– | corporate restructuring and internationalization | |
– | commodities |
These terms, and their distinct impact on our businesses, are explained in more detail below.
Financial liberalization and deregulation
Over the past few decades, deregulation and liberalization in financial services have accelerated the industry’s expansion and triggered considerable improvements in the quality and variety of new financial services. This process is now well advanced in many countries, and in some markets, we do not expect any further notable deregulation. On the contrary, in the last few years the regulatory pendulum has shifted towards more regulation in some developed countries, particularly in the US, where the cost of doing business has increased. We expect the regulatory pendulum to shift back towards more efficient regulatory approaches, which achieve regulatory objectives with less market interference.
Further liberalization is likely in emerging economies where domestic markets are still relatively protected, with many of these countries seeing deregulation as a way to increase competitiveness. However, the pace of liberalization will vary across regions. The suspension of the Doha Round of multilateral trade negotiations in June last year, however, was a major setback for continued liberalization – although we believe many of the related issues will be addressed by strengthened regional and bilateral trade agreements.
Wealth accumulation
In many economies, a notable shift is taking place away from labor-intensive production to more capital-intensive activity. Based on this, we see a clear trend towards individual wealth accumulation that is likely to continue over the next decade, particularly in Asia. Wealth is expected to grow faster than GDP in developed countries. Moreover, the ratio of wealth to GDP in emerging markets is currently low and should increase, due, among other factors, to generally higher saving rates. These developments will benefit wealth management businesses across the world. They will also help the asset management industry as private wealth is a key driver for institutional asset growth. Investment banks and securities businesses should also benefit thanks to rising capitalization levels in global financial markets and higher trading volumes.
Retirement provisioning
In coming decades, most countries with established, mature economies will face a major demographic shift related to declining birth rates. This means that the number of retired citizens will rise while there are fewer younger people available to replace them – and fund their retirement. Thus, pension reform is on the agenda of many governments across the world. The strong reliance in Continental Europe and Japan on unfunded schemes will make reform especially urgent. Although each country will follow its own regulatory agenda, in general we see a gradual shift from unfunded public pension schemes to privately funded ones.
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wealth management should also benefit. In asset management, the focus will be not only on serving clients with investment advice and assuming management of pension mandates, but also on addressing other issues that current and potential clients have to deal with, particularly for underfunded defined benefit corporate pension funds. We expect the ongoing shift from corporate defined benefit to defined contribution schemes to continue at the current pace as corporations protect their balance sheets from the negative effects of aging.
Securitization
The transformation of financial services over the last ten to twenty years has included the de-emphasis of traditional lending activities and the increasing importance of securities trading and financial markets. Corporations are now frequently in a position to meet their funding needs by directly 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. In continental Europe, securitization is still catching up with the US. In many emerging markets, the corporate bond market is still under-developed, but it is growing quickly. The ability of financial market participants to assess counterparty risk will further improve, facilitating financing by way of the securities market. Additionally, as the number of listed companies increases, they will have to conform to the transparency standards required by their listing, and thereby meet requirements for issuing debt securities as well.
Equitization
Over the past ten years, global equity market capitalization has grown at an annual rate of around 10%. According to recent estimates, equity accounts for nearly half of the growth in global financial assets as more institutional and individual investors tend to allocate a greater share of their assets into equities. The rising share of equity in global financial assets reflects the transfer of ownership of productive assets from government and private owners to public markets and the increasing reliance of corporations on public equity financing to fund their operation. We believe that the underlying trend towards an increasing role of equity financing and equity investments remains intact, even though the private equity industry is also growing fast. In Western Europe, we see significant growth potential because of continued financial market integration. Growth potential is even higher in the emerging markets in view of the relatively low levels of stock market capitalization compared with GDP. Equitization is expected to provide growth opportunities not only to investment banking and securities businesses, but also to wealth and asset managers, as assets are increasingly shifted into higher margin classes. In addition, with the continued commoditization of trading services, we believe that smaller providers will start outsourcing these services to larger competitors.
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UBS
Industry trends
Alternative investments
The last two decades have seen robust growth in alternative investments – meaning investments other than cash, bonds, or public equities. North America led the way, with real estate and private equity becoming significant components of portfolios from the early 1980s, while hedge funds, once considered a fringe investment, continue to move into the mainstream across the globe. An increasing number of investors use alternative investments to boost expected returns and increase portfolio diversification. New alternative asset classes continue to emerge. This increases the demand for a variety of sophisticated products from the providers of these asset classes. These services range from IPOs and leveraged finance for private equity firms to prime brokerage and administrative services for hedge funds.
Corporate restructuring and internationalization
In the last few years, many businesses have benefited from strong global economic growth, low levels of nominal interest rates and abundant global liquidity. As a result, the global default rate has touched a historical minimum and profits have grown significantly. With rising interest rates and global liquidity levels easing, the credit cycle is likely to reverse gradually and move the default rate back towards its long-
term average. This is likely to trigger continued corporate restructuring which will – in turn – become business opportunities for our investment banking business.
Commodities
Production capacities for energy and raw materials currently lag behind rising global demand, particularly from emerging economies. This has shifted the focus to the efficient allocation of commodities, similar to efficient resource allocation in capital markets. Energy and raw material markets are becoming increasingly similar to financial markets. Financial firms are buying and selling futures or making private financial contracts (derivatives) with other participants. With clients asking for more sophisticated products and services in the commodities area, financial firms are in an ideal position to profit from these developments, as they apply their experience of capital markets.
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UBS
The making of UBS
The making of UBS
All the firms that have come to make up today’s UBS look back on a long and illustrious history. Both the two Swiss predecessor banks and PaineWebber came into being in the second half of the 19th century, while SG Warburg’s roots go back to 1934. But it is in the 1990s that UBS’s current identity began to form.
tion in global asset management, while remaining an important commercial and retail bank in Switzerland.
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UBS
The making of UBS
leading US-based institutional asset management firms. Both the O’Connor and Brinson deals represented fundamental steps in the development of the firm.
the UK (Laing & Cruickshank, Scott Goodman Harris) and France (Lloyds Bank SA). In the US, we strengthened our wealth management business through the acquisition of the private client branch network of Piper Jaffray, advancing UBS’s presence in the Midwest and western United States, and of McDonald Investments, present in the Northeast, Midwest, Rocky Mountain and Northwestern states. The Investment Bank has seen important additions in the Americas through the acquisition of Banco Pactual in Brazil, Charles Schwab Capital Markets and two ABN Amro businesses (Prime Brokerage and Global Futures and Options). Global Asset Management bolstered its position in the important German market with the integration of Siemens Real Estate in 2005.
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Our employees
Competitive strength in the financial services industry depends,
more than anything else, on the expertise, talent and commitment
of a firm’s employees. For UBS to continue to succeed,
we must be able to attract, develop and retain highly qualified
people. Our employees should be able to benefit from our
strong core businesses, our open and entrepreneurial culture,
and the breadth of opportunity for individual success.
Table of Contents
Our employees
The UBS workforce
The UBS workforce
Investing in our employees
In our industry, competitiveness and service quality depend on the expertise and talent of each individual member of staff. Since 2002, the effectiveness of our staff, as measured by “human capital value added”, has increased steadily. By comparison, the amount of shareholders’ equity deployed per person is largely unchanged from 2002. While the increase in “human capital value added” is to a certain extent attributable to the favorable market conditions seen in the past four years, we do believe that this also shows that our people are becoming steadily more skilled and, therefore, more productive.
Staffing
Our workforce
staff level increases related to the acquisition of Piper Jaffray in August 2006, which added 1,156 employees. We also recruited specialists in support and logistics functions in order to implement strategic initiatives. The Swiss commercial and retail banking business recorded lower personnel numbers (down 110). The decrease stemmed from the sale of Swiss facility management activities in first quarter 2006, which was partly offset by the higher level of IT staff needed to support growing business volumes and new hires in our Swiss domestic banking business. The asset management business (up 575) saw increases in all areas, reflecting strong business growth. The launch of Dillon Read Capital Management (DRCM) on 5 June 2006 added 175 people, including all those transferred from
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the Investment Bank. Our Investment Bank’s staff levels (up 3,725) rose in IT, operations and finance due to higher business volumes and also because of new initiatives in the investment banking and fixed income, rates and currencies businesses. Hiring was also seen in legal and compliance functions, reflecting the more stringent regulatory environment. Some of the increase in personnel was also due to the inclusion of employees from Pactual and ABN AMRO. In Corporate Center, personnel numbers were up by 849, mainly in the IT infrastructure unit, as the demand for its services grew in line with the expansion of our core businesses. Demand for offshoring services increased as well, driving up staff levels in the UBS Service Center in Hyderabad.
al background at the level of associate director or director more competitive. Vacancies within Group Internal Audit at the senior partnership level are almost exclusively filled internally. Talent development within Group Internal Audit focuses on improving individual business knowledge as well as project management and leadership skills. The required skills and in-depth knowledge of our firm are also prized by many other internal functions, making Group Internal Audit an attractive starting point for a career at UBS. While mobility to and from the Business Groups and Corporate Center is ac-
Graduate and MBA hiring across UBS | ||||||||||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||||||||||
Europe | Americas | APAC | Total | Europe | Americas | APAC | Total | |||||||||||||||||||||||||
Investment Bank | 245 | 274 | 97 | 616 | 158 | 226 | 72 | 456 | ||||||||||||||||||||||||
Global Wealth Management & Business Banking | 181 | 109 | 8 | 298 | 227 | 82 | 30 | 339 | ||||||||||||||||||||||||
Global Asset Management | 7 | 3 | 1 | 11 | 18 | 10 | 7 | 35 | ||||||||||||||||||||||||
Corporate Center (incl. ITI) | 16 | 15 | 0 | 31 | 6 | 6 | ||||||||||||||||||||||||||
Total | 449 | 401 | 106 | 956 | 409 | 318 | 109 | 836 | ||||||||||||||||||||||||
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The UBS workforce
tively encouraged, the process is managed carefully to ensure no conflicts arise between the supervisory role of Group Internal Audit and the interests of our businesses.
Recruiting and retaining staff
Graduate, vocational training
Gender distribution by employee category1 | ||||||||||||||||||||||||
Officers | Non-Officers | Total | ||||||||||||||||||||||
Number | % | Number | % | |||||||||||||||||||||
Male | 32,425 | 74.5 | 16,677 | 47.0 | 49,102 | 62.2 | ||||||||||||||||||
Female | 11,089 | 25.5 | 18,795 | 53.0 | 29,884 | 37.8 | ||||||||||||||||||
Total | 43,514 | 100.0 | 35,472 | 100.0 | 78,986 | 100.0 | ||||||||||||||||||
we hired 260 apprentices, and in total, around 1,600 young people participated in vocational training. These programs targeted apprentices, apprenticeship graduates, all-round interns and university graduates in our Graduate Training Program.
Employee retention
Developing and sustaining a diverse workforce
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tant partner in supporting our business leaders in achieving this. Since increasing the focus on diversity in 2002, we have built a firm-wide infrastructure, including 10 Regional Diversity Boards. Policies were put in place where needed to address fair treatment, professional behavior, maternal / parental leave, harassment prevention and most recently, internal entertainment.
– | an inaugural UBS Women’s Leadership Conference in Zurich that attracted nearly 1,000 women and men from the financial services industry | |
– | events for high net worth women in Mexico, Brazil, Argentina, Germany and Switzerland | |
– | “All Bar None” client events in the US and UK for female corporate and institutional clients. |
Composition of UBS’s workforce by citizenship1 | ||||||||
Country | Number | % | ||||||
US | 27,894 | 35.4 | ||||||
Switzerland | 22,881 | 29.0 | ||||||
United Kingdom | 7,587 | 9.6 | ||||||
Germany | 3,158 | 4.0 | ||||||
Australia | 1,722 | 2.2 | ||||||
Italy | 1,657 | 2.1 | ||||||
India | 1,333 | 1.7 | ||||||
Singapore | 1,247 | 1.6 | ||||||
France | 1,216 | 1.5 | ||||||
Hong Kong | 1,046 | 1.3 | ||||||
Japan | 1,024 | 1.3 | ||||||
Canada | 696 | 0.9 | ||||||
Brazil | 692 | 0.9 | ||||||
Spain | 629 | 0.8 | ||||||
China | 434 | 0.5 | ||||||
Russia | 423 | 0.5 | ||||||
Taiwan | 340 | 0.4 | ||||||
Ireland | 301 | 0.4 | ||||||
Austria | 270 | 0.3 | ||||||
Malaysia | 214 | 0.3 | ||||||
Other Countries | 4,222 | 5.3 | ||||||
Total | 78,986 | 100.0 | ||||||
Managing our staff
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The UBS workforce
Top performers receive proportionately higher rewards. The total amount of incentive awards to be granted is determined based on the financial performance of the firm and the individual businesses.
Compensation and incentives
>> A discussion of UBS’s senior executive compensation policy is available in the Corporate Governance section. | ||
Employee share ownership
For staff with annual incentive awards above a certain threshold, a mandatory component is awarded in restricted UBS shares. Select high-performing employees are granted stock options that only deliver value if the share price appreciates. We also provide the opportunity to acquire UBS shares through a number of country-specific retirement plans.
Training and development
Talent and leadership development
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month early career program, has exposed 450 high-potential employees to specific business challenges, talent and client management skills development, and cross-firm networks since it was launched in 2005. Global Wealth Management & Business Banking’s “Leading for Growth” program targets executive and managing directors, and is taught by the most senior managers of that Business Group. Participants strengthen their leadership practices and learn how to create and foster a culture of innovation and active mutual support within their teams. To date, 1,500 senior leaders have attended. Global Asset Management’s AMSLE program helps “managers of managers” strengthen their strategic leadership skills by focusing on both leadership and core technical skills. Over 70 managers have participated since 2005.
Business training
Commitment
Our corporate values are the foundation of what we do, and how we do it. Entrepreneurial leadership, partnership and meritocracy are the three core competencies that help UBS succeed in a competitive environment. Our ethical beliefs – diversity, integrity and privacy, and corporate responsibility – are the foundation for successfully implementing our vision. And focusing on meeting the needs of our clients is our ultimate purpose. These values are integrated into how we make commercial decisions, how we manage our people, and how we interact with each other in the daily course of business.
Our Purpose
Our Core Competencies
Partnership:Relationships among our people as well as with our clients are driven by the power of partnership. It requires respect, contribution, trust and mutual support. We encourage the free exchange of ideas, and demand teamwork.
Meritocracy:We ask for entrepreneurial spirit and initiative from each individual. We actively strive to be the best at attracting, developing and retaining talented people. Decisions regarding recognition, reward and promotion are based on merit. We coach our people and invest in their development.
Our Ethical Beliefs
Corporate Responsibility:We are a member of the global community and behave as a responsible corporate citizen. We, both as a corporation and through our people strive to contribute positively and actively to the communities where we do business.
Diversity:Our strengths are leveraged by globally embracing diversity of skills, perspectives and backgrounds.
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The UBS workforce
Measuring employee satisfaction
ducted this particular staff survey in March 2004. Increased communication regarding performance, promotion and compensation and the implementation of mid-year performance reviews, along with continuous management focus, have contributed to this improvement. Responses from operations and IT staff in Global Asset Management highlighted significant staffing pressures that are now being addressed.
Employee assistance
Employee representation
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Our businesses
We manage our Business Groups in a way that optimizes
value for shareholders – making the whole worth more than
the sum of the parts.
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Our businesses
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking
Global Wealth Management & Business Banking is both the leading global provider of financial services for wealthy clients and the top bank for individual and corporate clients in Switzerland.
Business Group / Business Unit reporting | ||||||||||||||||||||||||||||||||
Wealth Manage- | Global Wealth | |||||||||||||||||||||||||||||||
ment International & | Wealth | Business Banking | Management and | |||||||||||||||||||||||||||||
CHF million, except where indicated | Switzerland | Management US | Switzerland | Business Banking | ||||||||||||||||||||||||||||
For the year ended or as of | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | ||||||||||||||||||||||||
Total operating income | 10,798 | 9,011 | 5,863 | 5,156 | 5,270 | 5,071 | 21,931 | 19,238 | ||||||||||||||||||||||||
Total operating expenses | 5,595 | 4,850 | 5,281 | 4,844 | 2,914 | 2,882 | 13,790 | 12,576 | ||||||||||||||||||||||||
Business Group / Business Unit performance before tax | 5,203 | 4,161 | 582 | 312 | 2,356 | 2,189 | 8,141 | 6,662 | ||||||||||||||||||||||||
Net new money (CHF billion) | 97.6 | 68.2 | 15.7 | 26.9 | 1.2 | 3.4 | 114.5 | 98.5 | ||||||||||||||||||||||||
Invested assets (CHF billion) | 1,138 | 982 | 824 | 752 | 161 | 153 | 2,123 | 1,887 | ||||||||||||||||||||||||
Personnel (full-time equivalents) | 13,564 | 11,555 | 18,557 | 17,034 | 15,913 | 16,023 | 48,034 | 44,612 | ||||||||||||||||||||||||
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Our vision
As theglobal leader in wealth management,we are determined to become the provider of choice for private clients worldwide. The scale and significance of our wealth management business in UBS ensures the highest levels of long-term commitment to the interests of our private clients. We will provide our clients with a consistent positive experience at every point of contact with our group, anywhere in the world. This is founded on the high quality of our advisory process through which we first take the time to listen to our clients, then develop and implement solutions for and with them, and finally monitor and learn from the results. At the center of this process is the client advisor. Careful selection, development and support of our client advisors is instrumental in providing a positive experience to our clients, thus fostering long-term personal relationships with our group.
As theleading bank in Switzerland,we grow by providing a complete range of top quality banking, securities and operational services, and multi-channel access for individual and corporate clients.
Business
Our global branch network delivers comprehensive financial services to wealthy private individuals around the world and to private and corporate clients in Switzerland. Our business is to provide all our clients with the advice, financial products and tools that meet their individual needs.
Organizational structure
Our US, Swiss and international wealth management businesses, along with our Swiss corporate and retail banking unit, have formed one Business Group called Global Wealth Management & Business Banking since 1 July 2005. On the same date, we also transferred the municipal finance unit, until then a part of Wealth Management US, to the Investment Bank’s fixed income area.
– | Wealth Management International & Switzerland, serving wealthy and affluent clients around the world except domestic clients in the United States |
– | Wealth Management US, serving wealthy and affluent domestic US clients |
– | Business Banking Switzerland, serving retail and corporate clients in Switzerland. |
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Global Wealth Management & Business Banking
Wealth Management International & Switzerland
With more than 140 years of experience, an extensive global network, and CHF 1,138 billion in invested assets on 31 December 2006, our 4,742 client advisors consistently deliver high-quality, individually tailored solutions to clients worldwide.
Business
The Wealth Management International & Switzerland unit provides a comprehensive range of products and services individually tailored for wealthy clients around the world via its global branch network and through financial intermediaries.
Organizational structure
We are organized into the two business areas of:
– | Wealth Management – Swiss Clients, covering clients and financial intermediaries domiciled in Switzerland, and organized into eight geographical regions (managing invested assets of CHF 276 billion). | |
– | Wealth Management – International Clients, serving clients domiciled outside Switzerland (managing invested assets of CHF 862 billion). This area is organized into the seven regions of:Americas International; Asia Pacific; Benelux (Belgium, Netherlands, and Luxembourg), Germany and Central Europe; Eastern Mediterranean, Middle East, and Africa; Italy; UK, North, and Eastern Europe; and Western Europe. |
Competitors
The Wealth Management International & Switzerland unit’s major competitors comprise all globally active wealth managers, such as the wealth management operations of Credit Suisse, HSBC and Citigroup. We also compete with private banks that operate mainly within their respective domestic markets, such as Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Clients and markets
Wealth management is a fast-growing market. According to an internal UBS estimate, the global growth rate of liquid assets held by wealthy individuals is expected to grow by 5.8% annually between 2005 and 2009.
– | core affluent clients with investable assets of CHF 250,000 to CHF 1–2 million |
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– | high net worth clients with investable assets of CHF 1–2 million to CHF 50 million | |
– | ultra-high net worth clients with investable assets of more than CHF 50 million. |
Growth initiatives
Wealth management in Asia Pacific
the region, wealth management can draw on a wide array of products and services already on offer and share infrastructure, delivering significant cost savings.
Products and services
Our clients can count on the expertise of more than 3,600 professionals worldwide dedicated to developing wealth management solutions. We ensure that our private clients have access to what we judge to be high-quality investments. We source internally at UBS when we believe we have the requisite expertise. Otherwise, we screen the market for the best products. By aggregating private investment flows into institutional flows, we are in a position to offer
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Global Wealth Management & Business Banking
our private clients access to investments that would otherwise only be available to institutional clients.
past two years, the assets private clients have invested in alternative investment and structured products have grown from CHF 81 billion to CHF 185 billion in 2006. We also fulfill the basic banking needs of private clients with a wide variety of products – ranging from cash accounts and savings accounts to credit cards, mortgages, and securities-backed lending.
Distribution
Our extensive wealth management branch network comprises 4,742 client advisors, 107 offices in Switzerland and 77 offices worldwide.
The number of European domestic branches, now 45, has more than tripled since 2001. UBS now has 870 client advisors in the business, up from 370 then. Invested assets have risen to CHF 144 billion from CHF 16 billion,
In 2006, UBS’s main focus was to stabilize the European wealth management business after a phase of strong growth. The business, now well established and profitable, is a strong platform from which we intend to capture further growth opportunities in the ultra-high net worth client, core affluent and financial intermediary markets. In Germany, for example, the
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Global Wealth Management & Business Banking
Wealth Management US
As one of the leading wealth managers in the US, we provide a complete set of sophisticated wealth management services to private clients.
Business
With CHF 824 billion in invested assets, our focus is on providing wealth management services to private clients. We offer sophisticated products and services specifically designed to address the needs of core affluent clients (more than USD 500,000 in investable assets), high net worth clients (more than USD 5 million in investable assets) and ultra-high net worth clients (more than USD 10 million in investable assets or USD 25 million net worth). More than 7,800 financial advisors in 440 branch office locations develop, build and maintain consultative relationships with our clients.
Organizational structure
PaineWebber merged with UBS in November 2000, and its US private clients business became a separate Business Unit within UBS’s Investment Bank. The US private client business became an independent Business Group on 1 January 2002.
Legal structure
In the US, we operate through direct and indirect subsidiaries of UBS. Securities activities are conducted through three registered broker-dealers.
Competitors
Our major broker-dealer competitors include Citigroup’s Smith Barney business, and the private client group businesses of Morgan Stanley, Merrill Lynch and Wachovia. In addition, we compete with domestic and global private banks, commercial banks, trust companies, and other financial services firms offering wealth management services to US private clients.
Clients and strategy
Changing legislation and basic market forces have steadily eroded the long entrenched boundaries separating trust, banking, and brokerage in the US, creating an opportunity to deliver a seamless set of services to affluent and wealthy private clients. With 38% of the world’s wealth located in the US, the growth prospects are substantial.
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sor gets specific feedback in terms of the four consultative steps of UBS’s client experience – understanding the client’s needs, proposing solutions, agreeing and implementing them with the client, and, finally, reviewing performance on a continuous basis. This will help to generate an accurate, overall picture of what clients think about the advice they receive.
cess and increased representation in important client markets. As always, potential acquisitions must meet UBS’s financial and cultural criteria.
Products and services
We offer a full array of both proprietary and non-proprietary offerings, giving clients access to a wide array of investments that suit their specific needs and goals. Our size means that individual clients can gain access to investments that would otherwise only be available to institutions.
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Industry trends
We are already one of the premier US wealth managers. In 2007, we aim to increase our market share by further improving the delivery of our client experience, making use of the increased range of products and services available from our integration into Global Wealth Management & Business Banking. Further growth will depend on a continued commitment to recruiting, retaining and developing top-performing financial advisors and providing them with the resources that will lead to increased asset growth. We believe our various strategic initiatives, including our focus on the high net worth segment and the development of dedicated offices for wealthy private clients, will provide us with a competitive, individual profile in the market.
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Business Banking Switzerland
Business Banking Switzerland, UBS’s retail and commercial banking unit, is the market leader in Switzerland and provides a complete set of banking and securities services for individual and corporate clients.
Business
We are the leading bank in Switzerland. At the end of 2006, clients had CHF 161 billion in invested assets with us. With a total loan book of CHF 143 billion on 31 December 2006, we lead the Swiss lending and retail mortgage markets.
Organizational structure
The Business Banking Switzerland unit comprises the domestic branch network for corporate and individual clients, which is organized into eight regions.
Competitors
Business Banking Switzerland’s major competitors are banks active in the retail and corporate banking markets in Switzerland. This group includes Credit Suisse, the country’s cantonal banks, Raiffeisen Bank, and other regional or local Swiss banks as well as foreign bank branches in Switzerland.
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Global Wealth Management & Business Banking
Clients and products
Business Banking Switzerland offers high-quality, standardized products to the retail market for individual and small company clients, as well as more complex products and advisory services for larger corporate and institutional clients and financial institutions.
Individual clients
Corporate clients
financing, often working in close cooperation with specialists from other parts of UBS.
Financial institutions
Distribution
Our private clients’ needs have changed in recent years. Today, they want the flexibility of being able to access their
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accounts using the full range of modern communication technology when it is convenient for them, without restrictions imposed by regular business hours.
Total lending portfolio, gross
On 31 December 2006, Business Banking Switzerland’s total lending portfolio was CHF 143 billion, gross. Of the total, mortgages represented CHF 118 billion, almost 85%, being residential mortgages. Continued discipline in implementing our risk-adjusted pricing model has resulted in a strengthened focus of origination efforts on higher quality exposures with an attractive risk / return relationship. Thanks to the introduction of this model, the risk profile of our portfolio has clearly improved in recent years. For more details of the UBS credit portfolio, please refer to the credit risk section in the Risk Management chapter of this Handbook.
Recovery portfolio
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Global Asset Management
Global Asset Management
The Global Asset Management Business Group is one of the world’s leading investment managers, providing traditional, alternative and real estate investment solutions to private, institutional and corporate clients, and through financial intermediaries.
Business Group reporting | ||||||||
For the year ended or as of | ||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | ||||||
Total operating income | 3,220 | 2,487 | ||||||
Total operating expenses | 1,828 | 1,430 | ||||||
Business Group performance before tax | 1,392 | 1,057 | ||||||
Net new money – institutional (CHF billion) | 29.8 | 21.3 | ||||||
of which: money market funds–institutional (CHF billion) | 11.0 | (3.0 | ) | |||||
Invested assets – institutional (CHF billion) | 519 | 441 | ||||||
of which: money market funds–institutional (CHF billion) | 28 | 16 | ||||||
Net new money – wholesale intermediary (CHF billion) | 7.4 | 28.2 | ||||||
of which: money market funds–wholesale intermediary (CHF billion) | (2.5 | ) | (9.7 | ) | ||||
Invested assets – wholesale intermediary (CHF billion) | 347 | 324 | ||||||
of which: money market funds–wholesale intermediary (CHF billion) | 59 | 62 | ||||||
Personnel (full-time equivalents) | 3,436 | 2,861 | ||||||
Business
We offer a wide range of innovative investment products and services delivered through a global structure. Our approach combines the expertise of our investment professionals with sophisticated risk management processes and systems, helping us provide clients with products and services that meet their needs.
quantitative investments, global real estate, global investment solutions and infrastructure.
John A. FraserChairman and CEO Global Asset Management |
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Our vision
Ourglobal asset management businessprovides investment management solutions directly to our private, institutional and corporate clients and through financial intermediaries. We aim to deliver superior investment performance to clients through the management of their investments, across and within all major asset classes and through a number of investment approaches. The strength of our global asset management business lies in its globally integrated investment organization and processes, as well as in the quality of its client service.
Organizational structure
Our main offices are in Basel, Chicago, Frankfurt, Grand Cayman, Hartford, Hong Kong, London, Luxembourg, New York, Rio de Janeiro, Sydney, Tokyo, Toronto and Zurich. We have just under 3,500 employees located in 23 countries.
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Global Asset Management
We report revenues and key performance indicators according to our two principal asset management client segments of institutional and wholesale intermediary clients.
Significant recent acquisitions and business transfers
asset manager in Brazil, with invested assets of approximately CHF 24 billion on 31 December 2006.
Competitors
We have a range of competitors in active investments that extend from firms organized on a global basis – such as Fidelity Investments, AllianceBernstein Investments, Black-Rock, Merrill Lynch Investment Managers and Goldman Sachs – to firms managed on a regional or local basis and those that specialize in a particular asset class. In the real estate and alternative investment sectors, our competitors tend to be far more specialized and likely to be organized on a regional or local basis.
Clients and distribution
We combine investment expertise and sophisticated risk management with a clear commitment to providing clients with appropriate investment solutions. Our extensive range of investment capabilities is delivered through our integrated distribution model, based on our regions of the Americas, Asia Pacific and Europe, Middle East and Africa.
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Institutional
– | corporate and public pension plans | |
– | endowments, municipalities, charities and private foundations | |
– | insurance companies | |
– | governments and their central banks; and | |
– | supranationals. |
Wholesale intermediary
Products and services
Investment management products and services are offered in the form of segregated, pooled and advisory mandates and a range of registered investment funds.
on income generation as compared to wealth accumulation, and market volatility, we are developing a number of innovative investment solutions to meet the needs of wholesale and institutional clients. These include value-added services such as absolute return and dynamic alpha products. We are also combining traditional, alternative and real estate investments and services into integrated offerings.
Investment performance
Performance in some of the core equity capabilities is presenting challenges, although the issues are broadly confined to European, Japanese and global equity portfolios. Other regional and domestic as well as emerging market capabilities remain strong, as do our expanding growth equity capabilities. Beyond that, the strengthening of our business in recent years has been driven by the need to reduce dependence on any one investment capability or market. Consequently, the strong growth in alternative, real estate, fixed income and multi-asset businesses has more than compensated for the challenges in the core equities capabilities in question.
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Global Asset Management
industrials and an overweighting of the underperforming healthcare sector also detracted from performance. This was partly offset by positive contributions from the software and services sectors and, to a lesser extent, financials and consumer staples.
franc as well as our underweight position in the New Zealand dollar. Our positions in euro and UK sterling detracted from performance.
Strategic opportunities
The industry in which we operate is becoming more complex and client demands are changing. Key industry trends vary for each location, capability and client segment. Among major trends, we see a continuing shift in the pension industry from defined benefit to defined contribution plans – although the speed of the shift varies in each country. Access to wholesale distribution channels is increasingly becoming important. As baby boomers move into retirement, the focus is shifting from wealth accumulation to income generation and capital protection, providing attractive new opportunities. Investors are increasingly looking to standardize their core or central portfolios and adding actively managed areas or satellites, with a particular focus on alternatives and real estate. We also remain optimistic about the growth potential in emerging markets.
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mutual funds management business in India are key elements in our growth strategy to expand in emerging markets. We also see growth potential in our joint venture in China (UBS SDIC) and are seeking to build a discretionary asset management business in the restructured Beijing Securities. Opportunities in global real estate and infrastructure are being considered. We are examining options for entry into
other emerging markets such as South Korea in order to gain access to these long-term growth opportunities.
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Investment Bank
Investment Bank
UBS is one of the world’s leading investment banking and securities firms, providing a full range of products and services to our corporate and institutional clients, governments, financial intermediariesS and alternative asset managers.
Business Group reporting | ||||||||
For the year ended or as of | ||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | ||||||
Total operating income | 21,787 | 17,484 | ||||||
Total operating expenses | 15,844 | 12,303 | ||||||
Business Group performance before tax | 5,943 | 5,181 | ||||||
Personnel (full-time equivalents) | 21,899 | 18,174 | ||||||
Business
The Investment Bank is a global investment banking and securities firm. Our investment bankers, salespeople and research analysts, supported by our risk and logistics teams, deliver advice and execution to clients all over the world. In addition to serving the world’s key corporate and institutional clients, governments and financial intermediaries, we work with financial sponsors and hedge funds and indirectly meet the needs of private investors through both our own wealth management business and other private banks.
companies and governments. We have traditionally been one of the leaders in European corporate finance, and we have experienced very strong growth in the US and Asia Pacific in recent years.
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Our vision
Ourinvestment banking and securities businessprovides innovative solutions, independent research and advice for our corporate, institutional, intermediary and alternative asset management clients through complete access to the world’s financial markets across all product classes. We are a global leader in the services we provide and the leading risk manager in our industry.
Organizational structure
Our headquarters are in London and New York. We employ roughly 21,900 people in 36 countries. Our businesses are run functionally on a global basis and organized into the three distinct areas of:
– | Equities | |
– | Fixed income, rates and currencies (FIRC) | |
– | Investment banking. |
Although we mostly pursue a strategy of organic growth, we also take the opportunity to enhance our franchise with acquisitions where appropriate. In 2004, we bought Charles Schwab SoundView Capital Markets, the capital markets division of Charles Schwab. In 2005, the US wealth management business’s municipal securities business was transferred into our fixed income area. We also expanded our trading technology
by acquiring the remaining assets in Prediction Company, a financial engineering and trading software company. With the acquisition of the Brazilian financial services firm Banco Pactual, which was successfully completed in December 2006, we became a leading investment bank in the significant and growing Brazilian market. In September 2006, we closed the acquisition of ABN AMRO’s global futures and options business,
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Our businesses
Investment Bank
which is helping us to exploit product commoditization and globalization in exchange-traded derivatives. In June 2006, our principal finance, credit arbitrage and commercial real estate trading businesses transferred from the fixed income area into Dillon Read Capital Management (DRCM), the new alternative investment management business within Global Asset Management.
Legal structure
The Investment Bank operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS Securities LLC, a registered broker-dealer.
Competitors
As a global investment banking and securities firm, we compete against other major international players such as Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.
Products and services
Equities
Our equity capital markets team manages large and 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 market.
Fixed income, rates and currencies
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derwriting, structuring and distribution of primary cash and synthetic transactions. Credit fixed income also includes our activities in high yield, investment grade, syndicated loan and emerging markets trading, credit derivatives, structured credit trading and collateralized loan obligations. We identify trading opportunities and execute transactions for our clients across all of these areas and all major financial centers.
Selected deals | ||
Mergers & Acquisitions | ||
Financial advisor to the special strategic review committee ofHarrah’s Entertainmentin the USD 27.8 billion sale of the company to Apollo and TPG | ||
Joint financial adviser and joint corporate broker toBAAon the recommended GBP 15.9 billion cash offer from a consortium led by Grupo Ferrovial | ||
Equity Capital Markets | ||
Joint bookrunner on the USD 11.2 billion IPO ofBank of China | ||
Joint bookrunner on the USD 15.5 billion secondary offering forTelstra | ||
Debt Capital Markets | ||
Joint bookrunner on a USD 5.5 billion multi-tranche offering forAnadarkoin support of the acquisition of Kerr-McGee Corporation and Western Gas. UBS also provided a USD 24 billion bridge loan to finance the transaction and acted as financial advisor toAnadarkoon the acquisition | ||
Joint bookrunner onJ. Sainsbury’sGBP 2.1 billion issue of commercial mortgage-backed securities and its GBP 1.7 billion tender for outstanding unsecured bonds | ||
Global Syndicated Finance | ||
Sole underwriter of AUD 4.1 billion of debt facilities in relation to the AUD 5.5 billion recapitalization and establishment ofPBL Media.UBS also acted as joint financial advisor toPBL | ||
Joint lead arranger on USD 2.6 billion of debt facilities and joint bookrunner on USD 1.4 billion of high yield notes in support ofBlackstone’sUSD 4.3 billion acquisition of Travelport | ||
Selected awards | ||
Investment Bank | ||
Best Investment Bank, Asia – Euromoney 2006 | ||
Fixed Income | ||
EuroWeek Borrowers’ Poll 2006: | ||
“Most Impressive” bank | ||
Best Provider of Support in the Secondary Market | ||
FXCCT | ||
Best Bank Overall for FX – FX Week 2006 | ||
Equities | ||
Equities House of the Decade – Financial News 2006 | ||
No. 1 Institutional Investor All-Europe Research Team 2007 | ||
IBD | ||
Corporate Broker of the Year – Acquisitions Monthly 2006 | ||
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Investment Bank
major financial centers and most emerging markets across the globe.
Investment banking
UBS underwriting and fee revenues | ||||||||||||
CHF million | 2006 | 2005 | 2004 | |||||||||
Corporate finance fees | 1,852 | �� | 1,460 | 1,078 | ||||||||
Equity underwriting fees | 1,834 | 1,341 | 1,417 | |||||||||
Debt underwriting fees | 1,704 | 1,516 | 1,114 | |||||||||
Other capital market revenues1 | 594 | 436 | 294 | |||||||||
Gross capital market and corporate finance fees | 5,984 | 4,753 | 3,903 | |||||||||
Capital market fees booked outside investment banking2 | 856 | 943 | 813 | |||||||||
Amount shared with Equities and FIRC (Fixed Income, Rates and Currencies) | 1,689 | 1,182 | 991 | |||||||||
Financing, hedging and risk adjustment costs | 166 | 122 | 184 | |||||||||
Net investment banking area revenues | 3,273 | 2,506 | 1,915 | |||||||||
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Strategic opportunities
The financial industry will remain very competitive but the strength of the markets and the level of client activity continue to offer attractive investment opportunities. The Investment Bank’s growth agenda is derived from the needs of our clients and is based on four pillars: focusing on high growth client segments, capturing new business growth through product innovation, building a scalable and convergent infrastructure and developing employees.
In emerging markets, we are positioned to take part in future growth with the acquisition of Banco Pactual in Brazil, which will be a platform for expansion in Latin America, and we have acquired certain assets, licenses, and staff from Beijing Securities in China to be incorporated in UBS Securities. We have also received a banking license from the Central Bank in Russia and have been granted a license in Dubai to service both international and domestic clients. In Turkey, we became a member of the Istanbul Stock Exchange through an acquisition of a small broker dealer.
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Our businesses
Corporate Center
Corporate Center
Corporate Center creates value for shareholders and other 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. It helps UBS’s businesses grow sustainably through its risk, financial control, treasury, communication, legal and compliance, human resources, strategy, offshoring and technology functions.
Business Group reporting | ||||||||
For the year ended or as of | ||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | ||||||
Total operating income | 233 | 687 | ||||||
Total operating expenses | 1,320 | 1,395 | ||||||
Business Group performance from continuing operations before tax | (1,087 | ) | (708 | ) | ||||
Business Group performance from discontinued operations before tax | 4 | 4,564 | ||||||
Personnel (full-time equivalents) | 4,771 | 3,922 | ||||||
Personnel excluding IT Infrastructure (ITI) (full-time equivalents) | 1,716 | 1,370 | ||||||
Personnel for ITI (full-time equivalents) | 3,055 | 2,552 | ||||||
Aims and objectives
Our commitment to a strongly integrated business model means that our complementary businesses must be managed together to optimize returns and control risk.
ing the firm as the employer of choice. The Corporate Center assumes operational responsibility for certain business units that provide shared services to the Business Groups – among them the information technology infrastructure and offshoring units (including the service center in India).
Organizational structure
The Corporate Center is made up of one unit comprising its operational functions, plus the information technology infrastructure (ITI) and offshoring units.
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wealth and asset management businesses into a holding company on 25 April 2003.
Group Chief Financial Officer
Group Chief Risk Officer
Group General Counsel
Group Treasurer
The transfer of business processes to locations such as UBS’s India Service Center (ISC) in Hyderabad – commonly known as offshoring – is part of the firm’s global growth strategy. Offshoring helps the firm optimize and re-engineer business processes, and gives it access to a large and diverse workforce of highly educated people who can be trained relatively quickly, helping UBS remain competitive internationally.
the Group Offshoring team. As the individual Business Groups have detailed knowledge of their own processes, they ultimately decide whether offshoring makes sense for their business.
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Corporate Center
Head of Group Controlling & Accounting
Head of Group Accounting Policy
Chief Communication Officer
Group Head Human Resources
Leadership Institute
Chief Technology Officer (CTO)
Group Offshoring
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Industrial Holdings
The Industrial Holdings segment is where our majority stakes
in large non-financial businesses are held.
Table of Contents
Industrial Holdings
Industrial Holdings
Income Statement | ||||||||
For the year ended or as of | ||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | ||||||
Continuing operations | ||||||||
Total operating income | 994 | 1,236 | ||||||
Total operating expenses | 716 | 751 | ||||||
Operating profit from continuing operations before tax | 278 | 485 | ||||||
Tax expense | 35 | 175 | ||||||
Net profit from continuing operations | 243 | 310 | ||||||
Discontinued operations | ||||||||
Operating profit from discontinued operations before tax | 852 | 496 | ||||||
Tax expense / (benefit) | (13 | ) | 87 | |||||
Net profit from discontinued operations | 865 | 409 | ||||||
Net profit | 1,108 | 719 | ||||||
Net profit attributable to minority interests | 104 | 207 | ||||||
from continuing operations | 1 | (24 | ) | |||||
from discontinued operations | 103 | 231 | ||||||
Net profit attributable to UBS shareholders | 1,004 | 512 | ||||||
from continuing operations | 242 | 334 | ||||||
from discontinued operations | 762 | 178 | ||||||
Personnel (full-time equivalents) | 4,241 | 21,636 | ||||||
Business
The Industrial Holdings segment comprises UBS’s private equity investments, which were, until early 2005, held within the Investment Bank. Our strategy is to de-emphasize and reduce exposure to this asset class while capitalizing on orderly exit opportunities as they arise.
Organizational changes
On 23 March 2006, we sold UBS’s 55.6% stake in Motor-Columbus to a consortium of Atel’s Swiss minority shareholders, EOS Holding and Atel, as well as to French utility Electricité de France (EDF). The stake was sold for CHF 1,295 million, which resulted in a pre-tax gain of CHF 364 million for UBS. Motor-Columbus is a financial holding company whose only significant asset is a 59.3% interest in the Atel Group, a European energy provider.
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Risk management
Taking risks is an integral part of our business. Our aim is to
achieve an appropriate balance between risk and return
based on our assessment of potential risk developments in
both normal and stressed conditions.
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Risk management
Risk management and control
Risk management and control
Good risk management and control lie at the heart of any business, particularly a financial services firm – they are integral parts of providing consistent, high-quality returns to shareholders. If we fail to adequately manage and control our risks we may suffer significant financial losses. Potentially more important is the resultant damage to our reputation, which could undermine our growth by reducing our client base and impairing our ability to retain talented employees. Ultimately, regulators might be forced to impose constraints upon our business.
ated or priced. We strive to achieve the highest standards in protecting the confidentiality and integrity of our client information, and in the ethical approach we apply in all our business dealings.
Key responsibilities
Excellence in risk management is fundamentally based upon a management team that makes risk identification and control critical components of its processes and plans. Responsibility therefore flows from the top.
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The risk control process
There are five critical elements in our independent risk control process:
– | weidentify risk,through the continuous monitoring of portfolios, by assessing new businesses and complex or unusual transactions, and by reviewing our risk profile in the light of market developments and external events | |
– | wemeasure quantifiable risks,using methodologies and models which have been independently verified and approved | |
– | we establishrisk policiesto reflect our risk principles, risk capacity and risk appetite, consistent with evolving business requirements and international best practice | |
– | we have comprehensiverisk reportingto stakeholders, and to management at all levels, against the approved risk control framework and, where applicable, limits | |
– | wecontrol riskby monitoring and enforcing compliance with the risk principles, our policies and limits, and regulatory requirements. |
control of our business. Our risk policies have widespread application, cover ongoing activities, and are developed in close consultation between the business and control functions.
The risks we take
Business risks are the risks associated with a chosen business strategy, including business cycles, industry cycles, and technological change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the firm’s planning and budgeting process and the assessment of our risk capacity and overall risk exposure.
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Risk management and control
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 risks arise as a consequence of business undertaken and as a consequence of internal control gaps.
– | credit riskis the risk of loss resulting from client or counterparty default and arises on credit exposure in all forms, including settlement risk | |
– | market riskis exposure to market variables including general market risk factors such as interest rates, exchange rates, equity market indices and commodity prices, and factors specific to individual names affecting the values of securities and other obligations in tradable form, and derivatives referenced to those names | |
– | liquidity and funding riskis the risk that we are unable to meet our payment obligations when due, or that we are unable, on an ongoing basis, to borrow funds in the market on an unsecured, or even secured basis at an acceptable price to fund actual or proposed commitments. |
– | from errors, failures or shortcomings at any point in the transaction process, from deal execution and capture to final settlement | |
– | by not complying with rules, regulations, laws, accounting standards, local or international best practice, or our own internal standards, which can result in regulatory fines or penalties, restriction or suspension of business, or mandatory corrective action | |
– | if we are unable to enforce our actual or anticipated rights under law, a contract or other arrangement | |
– | if we, or someone acting on our behalf, fail to fulfill the obligations, responsibilities or duties imposed by law or assumed under a contract, which can lead to claims against us | |
– | through loss of confidentiality, integrity or availability of our information or other assets | |
– | by taking technically incorrect positions on tax matters, or failing to comply with tax withholding or reporting requirements on behalf of clients or employees, or as a result of our involvement in tax-sensitive products or transactions. |
Failure to identify, manage or control any of these risks, including business risks, may result not only in financial loss but also in loss of reputation, and repeated or widespread failure compounds the impact. Reputational risk is not directly quantifiable and cannot be managed and controlled independently of other risks.
How we measure risk
Expected loss, statistical loss and stress loss
Our primary day-to-day quantitative controls govern normal periodic adverse results (statistical loss) and protect us from stress events. These are the limits we apply to individual risk types, to portfolios and sub-portfolios, and to specific concentrations of risk and individual exposures. The identification of stress events and scenarios to which we are vulnerable and an assessment of their potential impact – in particular the danger of aggregated losses from a single event through concentrated exposures – is therefore a key component of the risk control process.
“Earnings at risk”
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nation of budgeted / forecast and historical revenues and costs, adjusted for performance related compensation, and dividends and related taxes. The Board of Directors annually reviews the historical evolution and forecast development of risk capacity and risk exposure and sets a ceiling on risk exposure – effectively, an upper bound on aggregate utilization of the portfolio operating limits. The GEB and the Chairman’s Office monitor current and projected risk capacity and risk exposure as part of the regular quarterly risk reporting cycle. In the event of any significant adverse development in risk capacity or disproportionate growth in risk exposure, the risk exposure ceiling would be revisited and underlying operating limits adjusted if necessary.
Qualitative controls
Although measurement of risk is clearly important, quantification does not always tell the whole story, and not all risks are quantifiable. We therefore pay equal attention to “soft” risks, avoiding the temptation to ignore those that cannot be properly quantified. We also place great emphasis on qualitative controls and rigorous risk control processes to ensure that both quantifiable and unquantifiable risk is identified, assessed and reported.
Development of our risk profile
UBS’s average risk-weighted assets (as measured for regulatory capital purposes) are, today, at a similar level to 1998, just after the UBS-SBC merger, but the underlying risk profile is very different. Today, we are a more integrated firm, our business model has evolved, and the way we view, manage and control our risks has changed.
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Risk management
Risk management and control
Trading assets contribute substantially to our balance sheet but they are very liquid and the major part of the inventory consists of highly rated securities – we have eliminated pockets of low quality, low liquidity exposure, and continuously monitor the portfolio to identify stale and problem positions.
It is largely as a result of these efforts that we have, in the last couple of years, been in a position to speed up our entry into new markets and assume the related risk. But while we are willing to expand into new and potentially higher risk areas such as emerging markets, we will continue to exercise caution where this might involve illiquid and concentrated exposures.
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Risk management
Credit risk
Credit risk
Credit risk is the risk of loss as a result of failure by a client or counterparty to meet its contractual obligations. It is an integral part of many of our business activities and is inherent in traditional banking products – loans, commitments to lend and contingent liabilities, such as letters of credit – and in “traded products” – derivative contracts such as forwards, swaps and options, repurchase agreements (repos and reverse repos), and securities borrowing and lending transactions.
Credit risk measurement
Components of credit risk
– | the“probability of default”,which is an estimate of the likelihood of the client or counterparty defaulting on its contractual obligations | |
– | the current exposure to the counterparty and its likely future development, from which we derive the“exposure at default”and | |
– | the likely recovery ratio on the defaulted claims, based on which we derive the“loss given default”. |
UBS internal rating scale and mapping | ||||||
of external ratings | ||||||
UBS | Moody's Investor | Standard & Poor's | ||||
Rating | Description | Services equivalent | equivalent | |||
0 and 1 | Investment grade | Aaa | AAA | |||
2 | Aa1 to Aa3 | AA+ to AA- | ||||
3 | A1 to A3 | A+ to A- | ||||
4 | Baa1 to Baa2 | BBB+ to BBB | ||||
5 | Baa3 | BBB- | ||||
6 | Sub-investment grade | Ba1 | BB+ | |||
7 | Ba2 | BB | ||||
8 | Ba3 | BB- | ||||
9 | B1 | B+ | ||||
10 | B2 | B | ||||
11 | B3 | B- | ||||
12 | Caa to C | CCC to C | ||||
13 | Impaired and defaulted | D | D | |||
14 | D | D | ||||
into force in 2008. In line with our own internal governance standards and the requirements of the new regulatory capital framework, we subject all models developed for credit risk measurement, including the components of such measures, to independent verification by a specialist team in Corporate Center prior to implementation. The model owners in the Business Groups are responsible for monitoring performance once the models are deployed.
Probability of default
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mented. In the interim, we account for the impact of such changes in our internal credit risk measures.
Exposure at default
Loss given default
Portfolio risk measures
Expected loss
transactions entered into in previous accounting periods. In order to reflect the fact that future credit losses are implicit in today’s portfolio, we use the concept of “expected loss”.
Statistical and stress loss
Credit risk control
Limits and controls
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Bank also uses, as a management tool, a measure which translates all exposures into a benchmark loan equivalent, taking into account expected changes in exposure profile of traded products and credit rating migration of the counter-party, with the possibility that exposure reduction through syndication, sale or hedging may be required if maximum guidelines are exceeded.
Temporary versus take and hold exposures
in sub-portfolios) is evolving over time. We actively manage this portfolio, which includes the retained portions of loans which we have originated primarily for distribution.
Risk mitigation
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Credit risk
The Investment Bank uses risk transfers, purchase of credit protection and securitization as part of its active management of credit risk to avoid concentrations of exposure to individual names or sectors or in specific portfolios. Most of this credit hedging is achieved by transferring underlying credit risk to high-grade market counterparties using single name credit default swaps, executed under bilateral netting agreements and generally also under collateral agreements. We also use credit-pooling vehicles to transfer risk to outside investors via credit linked notes.
Composition of credit risk
counterparty risk we take in connection with the underlying products. Exposure to banks includes money market deposits with highly rated institutions. Excluding financial institutions, the largest industry exposure is CHF 25 billion (7% of the total) to the services sector.
Global Wealth Management & Business Banking
Total credit exposure | ||||||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||
International & Switzerland | Wealth Management US | |||||||||||||||||||||||||||
CHF million | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||
Lending portfolio, gross3 | 67,982 | 58,907 | 43,571 | 17,645 | 17,105 | 14,617 | ||||||||||||||||||||||
Contingent claims | 5,336 | 4,778 | 3,444 | 336 | 265 | 274 | ||||||||||||||||||||||
Unutilized committed lines3 | 834 | 372 | 669 | 16 | 0 | 0 | ||||||||||||||||||||||
Total banking products3 | 74,152 | 64,057 | 47,684 | 17,997 | 17,370 | 14,891 | ||||||||||||||||||||||
Unsecured OTC products | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Other derivatives (secured or exchange-traded) | 6,462 | 5,480 | 3,207 | 0 | 0 | 0 | ||||||||||||||||||||||
Securities lending / borrowing | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Repo / Reverse-Repo | 0 | 0 | 1 | 102 | 191 | 171 | ||||||||||||||||||||||
Total traded products5 | 6,462 | 5,480 | 3,208 | 102 | 191 | 171 | ||||||||||||||||||||||
Total credit exposure, gross | 80,614 | 69,537 | 50,892 | 18,099 | 17,561 | 15,062 | ||||||||||||||||||||||
Total credit exposure, net of allowances and provisions | 80,604 | 69,524 | 50,864 | 18,089 | 17,549 | 15,044 | ||||||||||||||||||||||
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Global Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking Switzerland | & Business Banking | Investment Bank1 | Other2 | UBS1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||||||||||||||
143,394 | 141,315 | 137,147 | 229,021 | 217,327 | 195,335 | 134,479 | 96,557 | 78,046 | 610 | 598 | 5,479 | 364,110 | 4 | 314,482 | 4 | 278,860 | 4 | |||||||||||||||||||||||||||||||||||||||||||
7,466 | 6,748 | 7,570 | 13,138 | 11,791 | 11,288 | 4,770 | 4,775 | 3,370 | 0 | 0 | 216 | 17,908 | 16,566 | 14,874 | ||||||||||||||||||||||||||||||||||||||||||||||
1,213 | 1,252 | 1,275 | 2,063 | 1,624 | 1,944 | 95,224 | 71,281 | 51,224 | 0 | 0 | 0 | 97,287 | 72,905 | 53,168 | ||||||||||||||||||||||||||||||||||||||||||||||
152,073 | 149,315 | 145,992 | 244,222 | 230,742 | 208,567 | 234,473 | 172,613 | 132,640 | 610 | 598 | 5,695 | 479,305 | 403,953 | 346,902 | ||||||||||||||||||||||||||||||||||||||||||||||
1,264 | 1,749 | 1,226 | 1,264 | 1,749 | 1,226 | 51,992 | 54,361 | 53,372 | 0 | 0 | 329 | 53,256 | 56,110 | 54,927 | ||||||||||||||||||||||||||||||||||||||||||||||
1,054 | 454 | 322 | 7,516 | 5,934 | 3,529 | 27,586 | 28,282 | 15,741 | 0 | 0 | 0 | 35,102 | 34,216 | 19,270 | ||||||||||||||||||||||||||||||||||||||||||||||
7,284 | 7,082 | 3,953 | 7,284 | 7,082 | 3,953 | 32,975 | 27,904 | 27,301 | 0 | 0 | 0 | 40,259 | 34,986 | 31,254 | ||||||||||||||||||||||||||||||||||||||||||||||
99 | 103 | 37 | 201 | 294 | 209 | 18,780 | 17,726 | 20,305 | 0 | 0 | 0 | 18,981 | 18,020 | 20,514 | ||||||||||||||||||||||||||||||||||||||||||||||
9,701 | 9,388 | 5,538 | 16,265 | 15,059 | 8,917 | 131,333 | 128,273 | 116,719 | 0 | 0 | 329 | 147,598 | 143,332 | 125,965 | ||||||||||||||||||||||||||||||||||||||||||||||
161,774 | 158,703 | 151,530 | 260,487 | 245,801 | 217,484 | 365,806 | 300,886 | 249,359 | 610 | 598 | 6,024 | 626,903 | 547,285 | 472,867 | ||||||||||||||||||||||||||||||||||||||||||||||
160,563 | 157,108 | 149,213 | 259,256 | 244,181 | 215,121 | 365,705 | 300,730 | 248,987 | 610 | 598 | 5,962 | 625,571 | 545,509 | 470,070 | ||||||||||||||||||||||||||||||||||||||||||||||
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Credit risk
Global Wealth Management & Business Banking: distribution of banking products | ||||||||||||||||||||||||
exposure across counterparty rating and loss given default (LGD) buckets | ||||||||||||||||||||||||
Loss given default (LGD) buckets | Weighted | |||||||||||||||||||||||
CHF million | Gross Exposure | 0-25% | 26-50% | 51-75% | 76-100% | Average LGD (%) | ||||||||||||||||||
0 | 800 | 68 | 727 | 5 | 0 | 29 | ||||||||||||||||||
1 | 668 | 9 | 397 | 262 | 0 | 46 | ||||||||||||||||||
2 | 48,407 | 44,977 | 3,245 | 185 | 0 | 20 | ||||||||||||||||||
3 | 37,369 | 32,058 | 3,512 | 503 | 1,296 | 21 | ||||||||||||||||||
4 | 22,000 | 18,897 | 2,900 | 203 | 0 | 18 | ||||||||||||||||||
5 | 57,029 | 51,800 | 3,506 | 1,718 | 5 | 17 | ||||||||||||||||||
6 | 27,454 | 24,086 | 3,234 | 133 | 1 | 19 | ||||||||||||||||||
7 | 18,827 | 16,159 | 2,138 | 526 | 4 | 22 | ||||||||||||||||||
8 | 15,836 | 10,964 | 4,106 | 740 | 26 | 25 | ||||||||||||||||||
9 | 8,803 | 6,629 | 825 | 281 | 1,068 | 29 | ||||||||||||||||||
10 | 2,291 | 1,782 | 443 | 62 | 4 | 24 | ||||||||||||||||||
11 | 1,085 | 950 | 103 | 32 | 0 | 23 | ||||||||||||||||||
12 | 1,101 | 1,083 | 13 | 5 | 0 | 23 | ||||||||||||||||||
Total non-impaired | 241,670 | 209,462 | 25,149 | 4,655 | 2,404 | 20 | ||||||||||||||||||
Investment grade | 166,273 | 147,809 | 14,287 | 2,876 | 1,301 | |||||||||||||||||||
Sub-investment grade | 75,397 | 61,653 | 10,862 | 1,779 | 1,103 | |||||||||||||||||||
Impaired and defaulted1 | 2,552 | |||||||||||||||||||||||
Total banking products | 244,222 | 209,462 | 25,149 | 4,655 | 2,404 | |||||||||||||||||||
engagements with individual clients, excluding mortgages, amounted to CHF 83 billion and are predominantly extended against the pledge of marketable securities. The volume of collateralized lending to private individuals rose by CHF 6.6 billion or 12% from the previous year. The increasing demand for this product, as in 2005, reflects the continuing low interest rate environment.
Investment Bank
are primarily sovereigns, financial institutions, multinational corporate clients and investment funds.
Banking products exposure
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Investment Bank: banking products | ||||||||
CHF million | 31.12.06 | 31.12.05 | ||||||
Total banking products exposure IFRS (accounting view) | 234,473 | 172,613 | ||||||
less: IFRS adjustments1 | (82,829 | ) | (51,345 | ) | ||||
less: traded loans | (2,383 | ) | (2,388 | ) | ||||
plus: residential and commercial real estate2 | 9,959 | 11,520 | ||||||
other reconciliation items | 1,535 | 490 | ||||||
Adjusted banking products exposure, gross | 160,756 | 130,890 | ||||||
Sub- | Impaired | Sub- | Impaired | |||||||||||||||||||||||||||||
Investment | investment | and | Investment | investment | and | |||||||||||||||||||||||||||
grade | grade | defaulted | Total | grade | grade | defaulted | Total | |||||||||||||||||||||||||
Adjusted banking products exposure, gross | 160,756 | 130,890 | ||||||||||||||||||||||||||||||
less: funded risk participations and cash collateral | (1,201 | ) | (3,505 | ) | ||||||||||||||||||||||||||||
risk transfers3 | 2,576 | (2,551 | ) | (25 | ) | 1,207 | (1,176 | ) | (31 | ) | ||||||||||||||||||||||
less: specific allowances for credit losses and loan loss provisions | (101 | ) | (131 | ) | ||||||||||||||||||||||||||||
Adjusted banking products exposure, net | 101,377 | 57,952 | 125 | 159,454 | 127,254 | |||||||||||||||||||||||||||
less: credit protection bought (credit default swaps, credit-linked notes)4 | (32,656 | ) | (24,121 | ) | ||||||||||||||||||||||||||||
Adjusted banking products exposure, net, after application of credit hedges | 73,132 | 53,542 | 124 | 126,798 | 59,876 | 43,024 | 233 | 103,133 | ||||||||||||||||||||||||
Temporary exposure | (6,833 | ) | (21,354 | ) | (28,187 | ) | (6,872 | ) | (14,198 | ) | (37 | ) | (21,107 | ) | ||||||||||||||||||
Net take & hold banking products exposure (risk view) | 66,299 | 32,188 | 124 | 98,611 | 53,004 | 28,826 | 196 | 82,026 | ||||||||||||||||||||||||
Investment Bank: distribution of net take and hold banking products exposure across counterparty rating and loss given default (LGD) buckets | ||||||||||||||||||||||||
Loss given default (LGD) buckets | Weighted Average | |||||||||||||||||||||||
CHF million | Exposure1 | 0–25% | 26–50% | 51–75% | 76–100% | LGD (%) | ||||||||||||||||||
0 and 1 | 4,812 | 15 | 4,688 | 48 | 61 | 49 | ||||||||||||||||||
2 | 21,063 | 1,118 | 18,220 | 1,519 | 206 | 48 | ||||||||||||||||||
3 | 20,465 | 811 | 17,327 | 1,561 | 766 | 49 | ||||||||||||||||||
4 | 13,927 | 2,009 | 9,547 | 1,992 | 379 | 44 | ||||||||||||||||||
5 | 6,108 | 1,920 | 2,821 | 1,299 | 68 | 39 | ||||||||||||||||||
6 | 1,744 | 85 | 1,403 | 225 | 31 | 48 | ||||||||||||||||||
7 | 15,645 | 14,438 | 972 | 210 | 25 | 7 | ||||||||||||||||||
8 | 5,484 | 3,161 | 1,790 | 273 | 260 | 25 | ||||||||||||||||||
9 | 3,410 | 1,395 | 1,468 | 456 | 91 | 31 | ||||||||||||||||||
10 | 2,637 | 1,069 | 1,430 | 138 | 0 | 31 | ||||||||||||||||||
11 | 2,599 | 1,121 | 1,178 | 284 | 16 | 30 | ||||||||||||||||||
12 | 593 | 411 | 121 | 52 | 9 | 24 | ||||||||||||||||||
Total non-impaired | 98,487 | 27,553 | 60,965 | 8,057 | 1,912 | 38 | ||||||||||||||||||
Investment grade | 66,375 | 5,873 | 52,603 | 6,419 | 1,480 | 46 | ||||||||||||||||||
Sub-investment grade | 32,112 | 21,680 | 8,362 | 1,638 | 432 | 19 | ||||||||||||||||||
Impaired and defaulted2 | 124 | 12 | 111 | 1 | 0 | 38 | ||||||||||||||||||
Net take and hold exposure | 98,611 | 27,565 | 61,076 | 8,058 | 1,912 | |||||||||||||||||||
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Credit risk
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On 31 December 2006 we had a total of CHF 33 billion in credit hedges in place against our banking products exposure.
Traded products exposure
Settlement risk
Settlement risk arises in transactions involving exchange of value when we must honor our obligation to deliver without first being able to determine that we have received the counter-value. Market volumes have continued to rise year on year. We have expanded our own transaction volume without increasing settlement risk by the same proportion, through the use of multilateral and bilateral arrangements, and in fourth quarter 2006, settlement exposure was reduced to 22% of gross volumes.
ship in CLS (Continuous Linked Settlement), a foreign exchange clearing house which allows transactions to be settled on a delivery versus payment basis, has significantly reduced our foreign exchange-related settlement risk relative to the volume of our business. In 2006, the transaction volume settled through CLS continued to increase, although the proportion of our overall gross settlement volumes settled through CLS fell to 55% in fourth quarter 2006 from 59% in fourth quarter 2005. Of our CLS volume, 72% was with other CLS Settlement Members and the remainder with so-called Third Party Members, who settle their eligible trades via CLS Settlement Members. While the number of CLS Settlement Members is relatively stable, in 2006 the number of Third Party Members we deal with has again increased considerably.
Country risk
We assign ratings to all countries to which we have exposure. Sovereign ratings express the probability of occurrence of a country risk event that would lead to impairment of our claims. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty rating classes (as described under “Probability of default”). In the case of country rating, the three lowest classes (12 to 14) are designated “distressed”.
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Credit risk
Counterparty defaults resulting from multiple insolvencies (“systemic risk”) or general prevention of payments by authorities (“transfer risk”) are the most significant effects of a country crisis, but in our internal measurement and control of country risk we also consider the probable financial impact of market disruptions arising prior to, during and following a country crisis. These might take the form of severe falls in the country’s markets and asset prices, longer-term devaluation of the currency, and potential immobilization of currency balances.
Country risk exposure
Impairment and provisioning policies
We classify a claim as impaired if we consider it probable that we will suffer a loss on that claim as a result of the obligor’s inability to meet commitments (including interest payments, principal repayments or other payments due, for example, on a derivative product or under a guarantee) according to the contractual terms, and after realization of
any available collateral. We classify loans carried at amortized cost as non-performing where payment of interest, principal or fees is overdue by more than 90 days and there is no firm evidence that they will be made good by later payments or the liquidation of collateral, or when insolvency proceedings have commenced or obligations have been restructured on concessionary terms.
Emerging markets exposure by major geographical area and product type | ||||||||||||||||||||||||||||||||||||||||||||||||
CHF million | Total | Banking products | Traded products | Tradable assets | ||||||||||||||||||||||||||||||||||||||||||||
As of | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||||
Emerging Europe | 4,663 | 3,955 | 2,878 | 1,476 | 970 | 683 | 1,110 | 808 | 955 | 2,077 | 2,177 | 1,240 | ||||||||||||||||||||||||||||||||||||
Emerging Asia | 15,904 | 13,003 | 9,461 | 4,266 | 3,326 | 2,398 | 3,401 | 2,954 | 2,438 | 8,236 | 6,723 | 4,625 | ||||||||||||||||||||||||||||||||||||
Latin America | 7,282 | 2,000 | 1,646 | 1,024 | 305 | 193 | 2,267 | 378 | 319 | 3,991 | 1,317 | 1,134 | ||||||||||||||||||||||||||||||||||||
Middle East / Africa | 2,768 | 2,491 | 2,219 | 1,145 | 1,065 | 842 | 892 | 1,003 | 842 | 732 | 423 | 535 | ||||||||||||||||||||||||||||||||||||
Total | 30,617 | 21,449 | 16,204 | 7,911 | 5,666 | 4,116 | 7,670 | 5,143 | 4,554 | 15,036 | 10,640 | 7,534 | ||||||||||||||||||||||||||||||||||||
Temporary exposures1 | 2,160 | 25 | ||||||||||||||||||||||||||||||||||||||||||||||
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yet be identified. Note that such portfolios are not included in the totals of impaired loans in the tables on pages 68, 69 and 74 / 75 or in note 10c in the financial statements.
Credit loss expense
Our financial statements are prepared in accordance with IFRS, under which credit loss expense charged to the financial statements in any period is the sum of net allowances and direct write-offs minus recoveries arising in that period, i.e. the credit losses actually incurred. By contrast, in our internal management reporting and in the management discussion and analysis section of our financial report, we measure credit loss expense based on the expected loss concept described under “Portfolio risk measures”. To hold the Business Groups accountable for credit losses actually incurred, we additionally charge or refund them with the difference between actual credit loss expense and expected loss, amortized over a three-year period. The difference between the amounts charged to the Business Groups (“adjusted expected credit loss”) and the credit loss expense recorded at Group level is reported in Corporate Center (see note 2 to the financial statements).
Impaired loans, allowances and provisions
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Impaired loans have decreased to CHF 2,628 million on 31 December 2006 from CHF 3,434 million on 31 December 2005.
sequence of applying the Swiss approach is that, for UBS, recoveries of amounts written off in prior accounting periods tend to be small, and the level of outstanding impaired loans and non-performing loans as a percentage of gross loans tends to be higher than for our US peers.
Credit loss (expense) / recovery versus adjusted expected credit loss charged to the Business Groups | ||||||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||
CHF million | International & Switzerland | Wealth Management US | ||||||||||||||||||||||||||
For the year ended | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||
Total banking products exposure | 74,152 | 64,057 | 47,684 | 17,997 | 17,370 | 14,891 | ||||||||||||||||||||||
Credit loss (expense) / recovery | 1 | (8 | ) | (1 | ) | (1 | ) | 0 | 3 | |||||||||||||||||||
– as a proportion of total banking products exposure (bps) | 0 | (1 | ) | (0 | ) | (1 | ) | 0 | 2 | |||||||||||||||||||
Adjusted expected credit loss charged to the Business Groups2 | (29 | ) | (13 | ) | (8 | ) | (0 | ) | (2 | ) | (5 | ) | ||||||||||||||||
– as a proportion of total banking products exposure (bps) | (4 | ) | (2 | ) | (2 | ) | (0 | ) | (1 | ) | (3 | ) | ||||||||||||||||
Allowances and provisions for credit losses | ||||||||||||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||||||
CHF million | International & Switzerland | Wealth Management US | ||||||||||||||||||||||||||
As of | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||
Due from banks | 160 | 441 | 300 | 1,096 | 1,171 | 1,518 | ||||||||||||||||||||||
Loans | 67,822 | 58,466 | 43,271 | 16,549 | 15,934 | 13,099 | ||||||||||||||||||||||
Total lending portfolio, gross3 | 67,982 | 58,907 | 43,571 | 17,645 | 17,105 | 14,617 | ||||||||||||||||||||||
Allowances for credit losses | (10 | ) | (13 | ) | (28 | ) | (10 | ) | (12 | ) | (18 | ) | ||||||||||||||||
Total lending portfolio, net | 67,972 | 58,894 | 43,543 | 17,635 | 17,093 | 14,599 | ||||||||||||||||||||||
Impaired lending portfolio, gross | 4 | 7 | 10 | 10 | 12 | 18 | ||||||||||||||||||||||
Estimated liquidation proceeds of collateral for impaired loans | 0 | 0 | (2 | ) | 0 | 0 | 0 | |||||||||||||||||||||
Impaired lending portfolio, net of collateral | 4 | 7 | 8 | 10 | 12 | 18 | ||||||||||||||||||||||
Allocated allowances for impaired lending portfolio | 4 | 7 | 7 | 10 | 12 | 18 | ||||||||||||||||||||||
Other allowances and provisions | 6 | 6 | 21 | 0 | 0 | 0 | ||||||||||||||||||||||
Total allowances and provisions for credit losses | 10 | 13 | 28 | 10 | 12 | 18 | ||||||||||||||||||||||
of which country allowances and provisions | 0 | 0 | 15 | 0 | 0 | 0 | ||||||||||||||||||||||
Ratios | ||||||||||||||||||||||||||||
Allowances and provisions as a % of total lending portfolio, gross | 0.0 | 0.0 | 0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||||||||||||
Impaired lending portfolio as a % of total lending portfolio, gross | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | 0.1 | ||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, gross | 100.0 | 100.0 | 70.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||
Allocated allowances as a % of impaired lending portfolio, net of collateral | 100.0 | 100.0 | 87.5 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||||||
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Impaired assets1 | ||||||||||||||||||||||||
Impaired since | ||||||||||||||||||||||||
CHF million | 0–90 days | 91–180 days | 181 days–1 year | 1 year–3 years | > 3 years | Total | ||||||||||||||||||
Switzerland | 85 | 96 | 112 | 452 | 1,806 | 2,551 | ||||||||||||||||||
Europe | 13 | 2 | 6 | 90 | 48 | 159 | ||||||||||||||||||
North America | 1 | 1 | 2 | 9 | 37 | 50 | ||||||||||||||||||
Latin America | 1 | 0 | 1 | 14 | 29 | 45 | ||||||||||||||||||
Asia Pacific | 0 | 1 | 23 | 18 | 42 | |||||||||||||||||||
Other | 0 | 0 | 23 | 23 | ||||||||||||||||||||
Total 31.12.2006 | 100 | 100 | 121 | 588 | 1,961 | 2,870 | ||||||||||||||||||
Allocated allowances, provisions and valuation reserves | (24 | ) | (40 | ) | (49 | ) | (199 | ) | (1,087 | ) | (1,399 | ) | ||||||||||||
Carrying value | 76 | 60 | 72 | 389 | 874 | 1,471 | ||||||||||||||||||
Estimated liquidation proceeds of collateral | (61 | ) | (47 | ) | (62 | ) | (224 | ) | (665 | ) | (1,059 | ) | ||||||||||||
Net impaired assets | 15 | 13 | 10 | 165 | 209 | 412 | ||||||||||||||||||
Global Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking Switzerland | & Business Banking | Investment Bank | Other1 | UBS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||||||||||||||
152,073 | 149,315 | 145,992 | 244,222 | 230,742 | 208,567 | 234,473 | 172,613 | 132,640 | 610 | 598 | 5,695 | 479,305 | 403,953 | 346,902 | ||||||||||||||||||||||||||||||||||||||||||||||
109 | 231 | 92 | 109 | 223 | 94 | 47 | 152 | 147 | 0 | 0 | 0 | 156 | 375 | 241 | ||||||||||||||||||||||||||||||||||||||||||||||
7 | 15 | 6 | 4 | 10 | 5 | 2 | 9 | 11 | 0 | 0 | 0 | 3 | 9 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||
185 | 122 | (25 | ) | 156 | 107 | (38 | ) | 61 | 36 | (7 | ) | 0 | 0 | 0 | 217 | 143 | (45 | ) | ||||||||||||||||||||||||||||||||||||||||||
12 | 8 | (2 | ) | 6 | 5 | (2 | ) | 3 | 2 | (1 | ) | 0 | 0 | 0 | 5 | 4 | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
Global Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Banking Switzerland | & Business Banking | Investment Bank1 | Others2 | UBS1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.06 | 31.12.05 | 31.12.04 | ||||||||||||||||||||||||||||||||||||||||||||||
4,989 | 3,893 | 3,052 | 6,245 | 5,505 | 4,870 | 43,612 | 26,954 | 26,572 | 506 | 502 | 3,313 | 50,363 | 32,961 | 34,755 | ||||||||||||||||||||||||||||||||||||||||||||||
138,405 | 137,422 | 134,095 | 222,776 | 211,822 | 190,465 | 90,867 | 69,603 | 51,474 | 104 | 96 | 2,166 | 313,747 | 281,521 | 244,105 | ||||||||||||||||||||||||||||||||||||||||||||||
143,394 | 141,315 | 137,147 | 229,021 | 217,327 | 195,335 | 134,479 | 96,557 | 78,046 | 610 | 598 | 5,479 | 364,110 | 4 | 314,482 | 4 | 278,860 | 4 | |||||||||||||||||||||||||||||||||||||||||||
(1,139 | ) | (1,500 | ) | (2,135 | ) | (1,159 | ) | (1,525 | ) | (2,181 | ) | (97 | ) | (131 | ) | (308 | ) | 0 | 0 | (62 | ) | (1,256 | ) | (1,656 | ) | (2,551 | ) | |||||||||||||||||||||||||||||||||
142,255 | 139,815 | 135,012 | 227,862 | 215,802 | 193,154 | 134,382 | 96,426 | 77,738 | 610 | 598 | 5,417 | 362,854 | 4 | 312,826 | 4 | 276,309 | 4 | |||||||||||||||||||||||||||||||||||||||||||
2,493 | 3,231 | 4,171 | 2,507 | 3,250 | 4,199 | 121 | 184 | 395 | 0 | 0 | 105 | 2,628 | 3,434 | 4,699 | ||||||||||||||||||||||||||||||||||||||||||||||
(1,034 | ) | (1,335 | ) | (1,678 | ) | (1,034 | ) | (1,335 | ) | (1,680 | ) | (25 | ) | (31 | ) | (33 | ) | 0 | 0 | (45 | ) | (1,059 | ) | (1,366 | ) | (1,758 | ) | |||||||||||||||||||||||||||||||||
1,459 | 1,896 | 2,493 | 1,473 | 1,915 | 2,519 | 96 | 153 | 362 | 0 | 0 | 60 | 1,569 | 2,068 | 2,941 | ||||||||||||||||||||||||||||||||||||||||||||||
1,107 | 1,444 | 2,038 | 1,121 | 1,463 | 2,063 | 97 | 130 | 299 | 0 | 0 | 62 | 1,218 | 1,593 | 2,424 | ||||||||||||||||||||||||||||||||||||||||||||||
104 | 151 | 279 | 110 | 157 | 300 | 4 | 26 | 73 | 0 | 0 | 0 | 114 | 183 | 373 | ||||||||||||||||||||||||||||||||||||||||||||||
1,211 | 1,595 | 2,317 | 1,231 | 1,620 | 2,363 | 101 | 156 | 372 | 0 | 0 | 62 | 1,332 | 1,776 | 2,797 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 53 | 119 | 0 | 53 | 134 | 0 | 12 | 49 | 0 | 0 | 0 | 0 | 65 | 183 | ||||||||||||||||||||||||||||||||||||||||||||||
0.8 | 1.1 | 1.7 | 0.5 | 0.7 | 1.2 | 0.1 | 0.2 | 0.5 | 0.0 | 0.0 | 1.1 | 0.4 | 0.6 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||
1.7 | 2.3 | 3.0 | 1.1 | 1.5 | 2.1 | 0.1 | 0.2 | 0.5 | 0.0 | 0.0 | 1.9 | 0.7 | 1.1 | 1.7 | ||||||||||||||||||||||||||||||||||||||||||||||
44.4 | 44.7 | 48.9 | 44.7 | 45.0 | 49.1 | 80.2 | 70.7 | 75.7 | na | na | 59.0 | 46.3 | 46.4 | 51.6 | ||||||||||||||||||||||||||||||||||||||||||||||
75.9 | 76.2 | 81.7 | 76.1 | 76.4 | 81.9 | 101.0 | 85.0 | 82.6 | na | na | 103.3 | 77.6 | 77.0 | 82.4 | ||||||||||||||||||||||||||||||||||||||||||||||
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Market risk
Market risk
Market risk is exposure to market variables, including general market risk factors such as interest rates, exchange rates, equity market indices and commodity prices, and factors specific to individual names affecting the values of securities and other obligations in tradable form, and derivatives referenced to those names.
Sources of market risk
There are two broad categories of market variables – general market risk factors and idiosyncratic components. General market risk factors are variables which are driven by macroeconomic, geopolitical and other market-wide considerations, independent of any instrument or single name. They include changes in the level, slope or shape of yield curves (interest rates), widening or tightening of general spread levels, and directional movements in equity market indices, exchange rates, and energy, metal and commodity prices. Changes in associated volatilities, and correlations between risks factors – which may be unobservable or only indirectly observable – are also general market risks. Idiosyncratic components are those that cannot be explained by general market moves – broadly, changes in the prices of debt and equity instruments and derivatives linked to them, resulting from factors and events specific to individual names.
Trading
ations that drive changes in the level of Investment Bank VaR, although the impact of any switch depends on the composition of the whole portfolio at the time.
Non-trading
>> These activities are described in more detail in the chapter “Treasury management” | ||
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Investment positions
Risk control
In 2006, we appointed a Group Head of Market Risk, reporting to the Group Chief Risk Officer (CRO). There is a CRO in each Business Group and a designated CRO for Treasury. The Group Head of Market Risk, the CROs and their teams are responsible for the independent control of market risk. They ensure that all market risks are identified and captured in risk systems. They establish the necessary controls, including limits, and monitor positions and exposures. An important element of the Business Group CRO’s role is the assessment of market risk in new businesses and products and in structured transactions.
We apply market risk measures, limits and controls at the portfolio level, and we apply concentration limits and other controls, where necessary, to individual risk types, to particular books and to specific exposures. The portfolio risk measures are common to all Business Groups, but concentration limits and other controls are tailored to the nature of the activities and the risks they create. Such measures therefore differ significantly between, for example, the Investment Bank, where the risks are most varied and complex, and Treasury which carries market risk in a limited range of risk types and not generally in complex instruments.
Portfolio risk measures
The principal portfolio measures of market risk are VaR and stress loss. Certain risks may be controlled outside VaR in the start-up phase but the level of risk is deliberately kept small – this was, for example, the case for our commodities and base metals derivatives trading business until March 2006. There are very few market risk positions that are not included in VaR. They are not material to UBS and they are subject to other controls and reporting.
Value at Risk (VaR)
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company and short in that of another. The deal break measure assesses the probability of collapse of a merger or takeover, and its impact on the two stock prices – a one-off jump move generating the same potential loss for both 10-day and 1-day VaR. For debt positions, our VaR model includes potential rating migration.
Backtesting
Stress loss
conditions. Stress loss measures quantify our exposure to these more extreme market movements and are an essential complement to VaR. Our VaR measure is based on observed historical movements and correlations. Stress loss measures do not have to be (and should not be) constrained by historical events. Our approach is designed to ensure that a wide range of possible outcomes is explored, that we understand our vulnerabilities and that the governance and control framework is comprehensive, transparent and responsive to market conditions and developments in the world economy.
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stress results between institutions can therefore be highly misleading, and for this reason we do not publish quantitative stress results.
Concentration limits and other controls
The market risk VaR and stress loss limits are the principal portfolio controls on UBS’s exposure to day-to-day movements in market prices, but measures are also applied to control risk concentrations, taking into account variations in price volatility and market depth and liquidity. They include controls on exposure to general market risk factors and to single names.
Other applications of market risk measures
Our portfolio and concentration risk measures are generally applied to trading activities and general market risks in non-trading activities to set and monitor utilization of limits, or to determine approval authorities.
Regulatory capital treatment of market risk
Our VaR model is consistent with the regulatory measure of market risk capital and has been approved by the Swiss Federal Banking Commission (SFBC), our main regulator.
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Market risk
are included in VaR for regulatory capital purposes. There are some non-material legacy commodities positions in the form of warrants for which the market risk capital requirement is calculated using the “standardized method” prescribed by regulation. Other non-trading general market risks (interest rate and equity) are not subject to a market risk capital charge but interest rate risk which is not included in VaR for regulatory capital purposes is reported to Swiss regulators.
Market risk in 2006
The movements in the S&P 500 Composite and FTSE 100 and the historical volatility of these indices, which are shown in the charts below, reflect the variations in market conditions in general over the course of 2006.
ity increased, followed by a period of uncertainty and challenging market conditions. As market sentiment picked up in fourth quarter, equity markets resumed their upward trend, which continued to the end of the year when many reached all-time highs, and credit spreads tightened once more.
Value at Risk
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Interest rate risk was, as usual, the largest contributor to overall Investment Bank VaR averaging CHF 417 million, an increase from the 2005 average of CHF 364 million. Credit spread exposure remained the dominant element of interest rate VaR and the main driver of both the fluctuations over the period and the year-on-year increase, but changes in directional interest rate positions also contributed to the variations
end, UBS VaR was lower than Investment Bank VaR as Corporate Center exposures provided some offset to Investment Bank positions. Market risk exposure in the other Business Groups have only a marginal impact on the total UBS VaR.
Changes in VaR limits in 2006
Investment Bank: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||||||
Year ended 31.12.06 | Year ended 31.12.05 | |||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.06 | Min. | Max. | Average | 31.12.05 | ||||||||||||||||||||||||||||
Risk type | ||||||||||||||||||||||||||||||||||||
Equities | 144 | 360 | 203 | 232 | 120 | 266 | 173 | 235 | ||||||||||||||||||||||||||||
Interest rates | 237 | 607 | 417 | 405 | 223 | 514 | 364 | 269 | ||||||||||||||||||||||||||||
Foreign exchange | 16 | 65 | 31 | 40 | 11 | 63 | 30 | 23 | ||||||||||||||||||||||||||||
Energy, metals and commodities1 | 26 | 102 | 49 | 44 | 6 | 88 | 38 | 46 | ||||||||||||||||||||||||||||
Diversification effect | 2 | 2 | (280 | ) | (248 | ) | 2 | 2 | (259 | ) | (218 | ) | ||||||||||||||||||||||||
Total | 331 | 559 | 420 | 473 | 245 | 512 | 346 | 355 | ||||||||||||||||||||||||||||
UBS: Value at Risk (10-day, 99% confidence, 5 years of historical data) | ||||||||||||||||||||||||||||||||||||
As of 31.12.06 | Year ended 31.12.06 | Year ended 31.12.05 | ||||||||||||||||||||||||||||||||||
CHF million | Limits | Min. | Max. | Average | 31.12.06 | Min. | Max. | Average | 31.12.05 | |||||||||||||||||||||||||||
Business Groups | ||||||||||||||||||||||||||||||||||||
Investment Bank1, 2 | 775 | 331 | 559 | 420 | 473 | 245 | 512 | 346 | 355 | |||||||||||||||||||||||||||
Global Asset Management3 | 30 | 4 | 16 | 9 | 10 | 3 | 13 | 10 | 8 | |||||||||||||||||||||||||||
Global Wealth Management & Business Banking | 25 | 4 | 14 | 10 | 5 | 4 | 14 | 9 | 12 | |||||||||||||||||||||||||||
Corporate Center4 | 100 | 25 | 69 | 43 | 27 | 32 | 84 | 63 | 62 | |||||||||||||||||||||||||||
Diversification effect | 5 | 5 | (54 | ) | (52 | ) | 5 | 5 | (62 | ) | (64 | ) | ||||||||||||||||||||||||
Total | 850 | 336 | 565 | 429 | 464 | 255 | 520 | 366 | 373 | |||||||||||||||||||||||||||
UBS: Value at Risk (1-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||||||
Year ended 31.12.06 | Year ended 31.12.05 | |||||||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.06 | Min. | Max. | Average | 31.12.05 | ||||||||||||||||||||||||||||
Investment Bank2 | 129 | 230 | 172 | 160 | 105 | 206 | 150 | 155 | ||||||||||||||||||||||||||||
UBS | 131 | 233 | 173 | 162 | 109 | 211 | 157 | 164 | ||||||||||||||||||||||||||||
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Risk management
Market risk
Backtesting
Stress loss
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Risk management |
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Risk management
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external causes, whether deliberate, accidental or natural. It is inherent in all our activities, not only in the business we conduct but also from the fact that we are a business – because we are an employer, we own and occupy property, and we hold assets, including information, belonging to ourselves and to our clients. Our approach to operational risk is not designed to eliminate risk per se but, rather, to contain it within acceptable levels, as determined by senior management, and to ensure that we have sufficient information to make informed decisions about additional controls, adjustments to controls, or other risk responses. The Group CRO, and the Group Head of Operational Risk who reports to him, are responsible for the independence, objectivity and effectiveness of our operational risk framework.
Operational risk framework
Every function, whether a front-end business or a control or logistics unit, must manage the operational risks that arise from its own activities. Because these risks are all-pervasive, with a failure in one area potentially impacting many others, our framework is based on mutual oversight across all functions. Each Business Group has therefore established cross-functional bodies as an integral part of its governance structure, to actively manage operational risk.
control framework differentiates potential events depending on their likely frequency and impact. Our mitigation and avoidance efforts are focused on areas where we believe we are most exposed to severe events – including both those that are reasonably foreseeable and those that, while not predictable, are thought to be reasonably possible. For lower impact risks we concentrate on management and monitoring.
Operational risk measurement
The specific risks that are identified by operational risk management and reported to senior management are evaluated in terms of their potential frequency of occurrence and the likely severity of the resulting impact. These assessments are validated by the Operational Risk Control units within the Business Groups.
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Risk management |
mately form the basis of our operational risk regulatory capital requirement under Basel II, for which we intend to use an advanced measurement approach.
Operational risk developments
We use the operational risk framework as the basis for specialist internal control assessments in areas such as legal,
compliance, tax and human resources and to assist in meeting internal control-related regulatory requirements including Basel II and Sarbanes-Oxley Section 404 (SOX 404).
>> This assessment, together with the associated report of our external auditors, appears in our Financial Report 2006. | ||
Following the precedent of the approach to SOX 404, we have continued to work during the past year to leverage the operational risk framework to assist with assessments of policy implementation, regulatory reporting, and legal entity governance. A key focus over the coming year will be alignment of the framework with a group-wide approach for business continuity and crisis management.
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Treasury management
Treasury, which is part of the Corporate Center, is responsible
for the management of UBS’s financial resources.
Table of Contents
Treasury Management
Introduction
Introduction
Our treasury department assumes market risk as a result of its balance sheet and capital management responsibilities. Treasury manages the interest rate risk arising from the funding of non-business items and the transfer of long-term interest rate risk from other Business Groups. It is also respon-
sible for the foreign exchange risk resulting from the multi-currency nature of our business.
Treasury: Value at Risk (10-day, 99% confidence, 5 years of historical data)1 | ||||||||||||||||||||||||||||||||
Year ended 31.12.06 | Year ended 31.12.05 | |||||||||||||||||||||||||||||||
CHF million | Min. | Max. | Average | 31.12.06 | Min. | Max. | Average | 31.12.05 | ||||||||||||||||||||||||
Interest rates | 19 | 72 | 36 | 19 | 31 | 84 | 65 | 62 | ||||||||||||||||||||||||
Foreign exchange | 4 | 51 | 30 | 20 | 3 | 67 | 26 | 30 | ||||||||||||||||||||||||
Diversification effect | 2 | 2 | (23 | ) | (12 | ) | 2 | 2 | (26 | ) | (30 | ) | ||||||||||||||||||||
Total | 25 | 69 | 43 | 27 | 33 | 86 | 65 | 62 | ||||||||||||||||||||||||
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Treasury Management
Interest rate and currency management
Interest rate and currency management
Interest rate and currency management
Management of non-trading interest rate risk
UBS’s largest non-trading interest rate exposures arise in our wealth management and Swiss-based banking business. These risks are transferred from the originating businesses into one of the two centralized interest rate risk management units – Treasury or the Investment Bank’s Cash and Collateral Trading unit (CCT). They manage the risks on an integrated basis to exploit the full netting potential across risks from different sources.
Market risk arising from management of
consolidated capital
We are required, by international banking regulation (BIS regulations), to hold a minimum level of capital against assets and other exposures (risk-weighted assets). The relationship between our capital and our risk-weighted assets – the BIS Tier 1 ratio – is monitored by regulators and analysts and is a key indicator of our financial strength.
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Interest rate and currency management
resented in the Treasury book by replicating portfolios (liabilities) with the target currency and interest rate profile. The interest rate positions created by Treasury’s deposits with CCT or other units, and the associated derivatives, generally offset the interest rate risk of the replicating portfolios but any mismatches between the two are managed, together with other non-trading interest rate risk positions within Treasury’s market risk limits (VaR and stress), and are reflected in the table ”Treasury: Value at Risk”.
Treasury interest rate risk development
In measuring Treasury’s interest rate risk – expressed as VaR and shown in the table “Treasury: Value at Risk” – both the representation of the consolidated equity (replicating portfolios) and the deployment of the equity described above are included in the calculations. At 31 December 2006, UBS consolidated equity was deployed as follows: in Swiss francs (including most of the capital of the parent bank) with an average duration of approximately 3 years and an interest rate sensitivity of CHF 7.4 million per basis point; in US dollar with an average duration of approximately 4 years and sensitivity of CHF 8.4 million per basis point; in euro with an average duration of approximately 3 years and a sensitivity
The bulk of the interest rate exposure managed by Treasury stems from retail lending and deposit transactions.
Given the nature of the Swiss retail business, the overwhelming part of the lending business has a long-term and fixed-rate contractual maturity while the liability business is rather of a short-term nature. Consequently, Treasury regularly enters into derivative transactions to actively manage the resultant interest rate risk. Most of these derivatives receive hedge accounting treatment according to IAS39 under the “Cash Flow Hedge” model, which means that income recognition on the swaps is symmetrical with income recognition on the underlying assets and liabilities. In order to qualify as an “effective” hedge, a derivative, such as a swap, has to meet certain criteria, one being that UBS must be able to demonstrate that it is hedging future expected cash flows, and another that the hedging derivative is denominated in the same currency as the hedged item. The second criterion may conflict with a globally diversified funding approach, which is, by nature, based on a variety of currencies. UBS optimizes its funding needs by raising cash through the most efficient products and currencies. This may lead to an external funding
transaction in a foreign currency, followed by an FX-swap transaction to convert the foreign-currency borrowings into Swiss franc liabilities, which are then used to fund a Swiss franc asset.
The following diagram illustrates this multi-stage process.
Although in this example we achieve an economic hedge of all relevant market risks in the most efficient way, we may not necessarily be permitted to apply full hedge accounting under the Cash Flow Hedge model. As a consequence, the fair value gains or losses on the derivative transactions
(block 3 in the diagram) are recognized in profit and loss. These gains and losses are reported in Corporate Center and lead to volatility in reported quarterly earnings.
At Group level, changes in long-term Swiss franc interest rates led to immaterial income volatility during 2006 on derivative transactions for which hedge accounting was not applied. While interest rates moving higher had a positive impact on most of the Corporate Center’s quarterly results, the sharp decline of interest rates during the third quarter resulted in a negative impact.
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CHF 0.7 million per basis point; and in UK sterling with a duration of approximately 3 years and a sensitivity CHF 0.5 million per basis point. The interest rate sensitivity of these positions is directly related to the chosen duration – targeting significantly shorter maturities would reduce the apparent interest rate sensitivity but would lead to greater fluctuation in interest income.
Corporate currency management
Our corporate currency management activities are designed to limit and control the impact of adverse currency fluctuations on our reported financial results and on our ability to continue operations, given regulatory constraints. We specifically focus on three principal areas of currency risk management: match funding / investment of non-Swiss franc assets / liabilities; sell-down of non-Swiss franc profit and loss; and selective hedging of anticipated non-Swiss franc profit and loss.
Match funding and investment of non-Swiss franc
assets and liabilities
Sell-down of reported profits and losses
For accounting purposes, reported profits and losses are translated each month from the original transaction currencies into Swiss francs at the exchange rate prevailing at the end of the month. Treasury centralizes profits (or losses) in foreign currencies that arise in the parent bank, and sells (or
buys) them for Swiss francs in order to eliminate earnings volatility which would arise from retranslation at different exchange rates of previously reported non-Swiss franc profits and losses. Other UBS operating entities follow a similar monthly sell-down process into their own reporting currencies. Profits retained in operating entities with a reporting currency other than Swiss franc are managed as part of our consolidated equity, as described earlier in this section.
Hedging of anticipated future reported profits
The monthly sell-down process cannot protect UBS’s earnings from swings caused by a sustained depreciation against the Swiss franc of one of the main currencies in which we earn net revenues or by an appreciation of one in which we incur significant net costs.
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Treasury Management
Liquidity and funding management
Liquidity and funding management
Liquidity and funding management are critical to a financial institution. Liquidity must be continuously managed to ensure that the firm can survive a crisis, whether it is a general market event, a local disruption affecting a smaller number of institutions, or a problem unique to an individual firm. An institution that is unable to meet its liabilities when they are due may collapse, even though it is not insolvent, because it is unable to borrow on an unsecured basis, or does not have sufficient assets of adequate quality to borrow against or liquid assets to sell to raise immediate cash without severely damaging its net asset value. At UBS, we manage our liquidity position in order to be able to ride out a crisis without damaging the ongoing viability of our business. This is complemented by our funding risk management which aims to achieve the optimal liability structure to finance our businesses cost-efficiently and reliably. The long-term stability and security of our funding in turn helps protect our liquidity position in the event of a UBS-specific crisis.
Liquidity approach
Our approach to liquidity management, which covers all branches and subsidiaries, is to ensure that we will always have sufficient liquidity to meet liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or risking sustained damage to our various business franchises. Our integrated framework incorporates an assessment of all material, known and expected cash flows and the level of high-grade collateral that could be used to raise additional funding. This framework entails both careful monitoring and control of our daily liquidity position, and regular liquidity stress testing. Risk limits are set by the GEB and monitored by Treasury and contingency plans for a liquidity crisis are incorporated into our general crisis management process.
Liquidity position
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analysis, although they are not as vulnerable since they are generally not unconditional but, rather, are linked to other, independent conditions being fulfilled.
Liquidity limits and controls
events. The liquidity contingency plan would be implemented under a core crisis team with representatives from Treasury, which is the liquidity risk control unit, from CCT, which is the primary liquidity manager, and from related areas including the functions responsible for payments and settlements, market and credit risk control, collateral and margin management, and IT and infrastructure. The cornerstone of our contingency plans is our access to secured funding either from the market or from the major central banks, coupled with the ability to turn sufficient liquid assets into cash within a short timeframe. Moreover, CCT’s centralized global management model lends itself naturally to efficient liquidity crisis management.
Funding sources and approach
With a broad diversification of funding sources (by market, product and currency), we maintain a well-balanced portfolio of liabilities, which generates a stable flow of financing and provides protection in the event of market disruptions. This, together with our centralized funding management, enables us to pursue a strategy to fund business activities at the lowest possible cost.
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Liquidity and funding management
funding status and reports its findings on a quarterly basis to the GEB. We employ two main analysis tools – “cash capital” and “secured funding capacity”. We complement these analyses with regular assessments of any concentration risks in our main funding portfolios.
our funding status would not be significantly affected if capital markets were to become inaccessible for such securitization transactions. UBS has no long-term commitments to continue to purchase the types of assets being securitized.
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Capital Management & UBS Shares
We strive to create value for shareholders while protecting our
strong capitalization and credit ratings.
Table of Contents
Capital Management & UBS Shares
Capital Management
Capital management
The approach we take to capital management is one of our hallmarks. We endeavor to maintain strong debt ratings and sound capital ratios (see capital strength box below), to reinforce our position as one of the best-capitalized financial services firms in the world. Being strongly capitalized allows us to invest in the growth of our businesses – whether organically or by acquisition. If we do not see opportunities to invest in growth, we return capital to our shareholders.
Capital requirement
The capital we are required, by banking regulation, to hold is determined by our risk-weighted assets – our balance sheet, off-balance sheet and market risk positions, measured and risk-weighted according to criteria defined by our lead regulator, the Swiss Federal Banking Commission (SFBC). For instance, credit exposures to third parties are measured according to the type of instrument (and collateral, if any) and risk-weighted according to the type of counterparty. Market risk positions are generally measured using a Value at Risk (VaR) model. For more detail on these calculations please refer to note 29 to the financial statements. Most of our capital requirement arises from balance sheet assets. Off-balance sheet positions contributed 14% and market risk positions 6% of total risk-weighted assets and, correspondingly, of our total capital requirement on 31 December 2006.
Long-term ratings | ||||||||||||
As of | ||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
Fitch, London | AA+ | AA+ | AA+ | |||||||||
Moody’s, New York | Aa2 | Aa2 | Aa2 | |||||||||
Standard & Poor’s, New York | AA+ | AA+ | AA+ | |||||||||
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marily shareholders’ equity with certain adjustments defined by regulation, and Tier 2 capital which consists of long-term subordinated debt. Tier 1 capital is required to be at least 4% and total capital (Tier 1 plus Tier 2) at least 8% of risk-weighted assets.
– | where BIS guidelines apply a maximum risk weight of 100%, the SFBC applies risk weights above 100% to certain asset classes (for example real estate, fixed assets, intangibles, and non-trading equity positions) | |
– | where the BIS guidelines apply a 20% risk weight to obligations of OECD banks, the SFBC applies risk weights of 25% to 75%, depending on maturity. |
Capital ratios
On 31 December 2006, risk-weighted assets were CHF 341.9 billion, up 10% from CHF 310.4 billion a year earlier. Roughly 75% of the increase was driven by our Investment Bank activities (including acquisitions in 2006) and the remainder was contributed by our lending business in Global Wealth Management & Business Banking. On 31 December 2006, BIS Tier 1 capital was CHF 40.5 billion, up from CHF 39.8 billion a year earlier, reflecting a strong operational profit in 2006, partially offset by various acquisitions in 2006, negative currency fluctuations and higher dividend accruals. The
combination of the 10% risk-weighted assets increase and the 2% growth in BIS Tier 1 capital resulted in a decrease of our BIS Tier 1 ratio by 0.9 percentage point to 11.9% at the end of 2006 from 12.8% on 31 December 2005. Our total BIS ratio at 31 December 2006 was 14.7%, up from 14.1% a year earlier, due to the issuance of additional lower Tier 2 capital (subordinated debt) in 2006.
Introduction of Basel II
Upon implementation of Basel II on 1 January 2008, we expect the overall impact on our BIS Tier 1 ratio to be slightly negative, depending on the further development of our business mix, in particular the profile of our loan book. This expectation is based on a direct comparison between our capital requirements under current regulations at 31 December 2006, and the corresponding requirements for the same date but using the Basel II rules, generated using the IT systems and processes we plan to use when Basel II comes into effect.
Capital adequacy | ||||||||||||
As of | ||||||||||||
CHF million, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
BIS Tier 1 capital | 40,528 | 39,834 | 31,320 | |||||||||
of which hybrid Tier 1 capital1 | 5,633 | 4,975 | 2,963 | |||||||||
BIS total capital | 50,364 | 43,808 | 36,135 | |||||||||
BIS Tier 1 capital ratio (%) | 11.9 | 12.8 | 11.8 | |||||||||
BIS total capital ratio (%) | 14.7 | 14.1 | 13.6 | |||||||||
Balance sheet assets | 273,588 | 252,364 | 218,476 | |||||||||
Off balance sheet and other positions | 48,444 | 37,010 | 28,205 | |||||||||
Market risk positions2 | 19,860 | 21,035 | 18,151 | |||||||||
Total BIS risk-weighted assets | 341,892 | 310,409 | 264,832 | |||||||||
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Capital Management & UBS Shares
Treasury shares
Treasury shares
Under IFRS accounting rules, UBS’s holdings of its own shares for trading or non-trading purposes are recorded as treasury shares and deducted from shareholders’ equity. Our holding of treasury shares decreased to 164,475,699 or 7.8% of shares issued on 31 December 2006, from 208,519,748 or 9.6% on the same date a year ago. Of the treasury shares held, 22,600,000 are earmarked for cancellation whereas the other 141,875,699 cover employee share and option programs and, to a limited extent, market-making activities at the Investment Bank.
Share buyback programs
Our strong cash flow generation combined with our sound capitalization and careful management of our balance sheet allows us to invest in the growth of our businesses by growing organically or making acquisitions. In the absence of such opportunities, we return excess capital to shareholders through share buybacks or dividends. In recent years we
have been able to buy back shares on a regular basis, reducing the number of issued UBS shares and thereby enhancing earnings per share. Under Swiss regulations, a company wishing to cancel shares must purchase them on the stock exchange under a special security code that clearly identifies to the market the time and quantity of shares repurchased for that specific purpose (the so-called second trading line). For each buyback program to date, UBS has announced a maximum Swiss franc amount to be used for share purchases. The level of actual repurchases is determined by our capital management plan, which is adjusted throughout the year to reflect changes in business plans or acquisition opportunities. UBS publishes the number of shares repurchased and the average price paid on a weekly basis on the internet atwww.ubs.com/investors.
Treasury shares earmarked for cancellation (share
buyback program 2006/2007)
At the Annual General Meeting (AGM) on 19 April 2006, shareholders gave the Board of Directors a mandate to set up a repurchase program in 2006 / 2007 for a maximum amount of CHF 5 billion. At the AGM on 18 April 2007, shareholders will be asked to approve the cancellation of 33,020,000 shares representing a total value of CHF 2.4 billion under the program that ended on 7 March 2007. The shares will be cancelled in summer 2007.
Treasury share holdings for employee participation
plans
UBS shares are also purchased and held to satisfy share delivery obligations under UBS’s share and option-based par-
Effect of second trading line program on basic earnings per share (EPS) | ||||||||||||
For the year ended | ||||||||||||
31.12.06 | 31.12.05 | 31.12.04 | ||||||||||
Weighted average shares for basic EPS after treasury shares | 1,976,405,800 | 2,013,987,754 | 2,059,836,926 | |||||||||
Weighted average second trading line treasury shares1 | 598,982,426 | 544,339,510 | 473,940,830 | |||||||||
Basic EPS (CHF) | 6.20 | 6.97 | 3.89 | |||||||||
Cumulative impact of treasury shares on basic EPS (CHF)1 | 1.44 | 1.49 | 0.73 | |||||||||
Cumulative impact of treasury shares on basic EPS (%)1 | 23.2 | 21.4 | 18.8 | |||||||||
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ticipation plans that align the long-term interests of executives, managers, staff and shareholders. For share-based participation plans, UBS shares are purchased in the market and set aside for future distribution to employees once the holding period criteria have been met.
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the equity futures market and as a market maker in UBS shares and derivatives, has issued derivatives linked to UBS stock. Most of these instruments are classified as cash-settled derivatives and are held for trading purposes only. To hedge the economic exposure, a limited number of UBS shares are held by the Investment Bank.
Treasury shares – statutory limit
Under the Swiss Stock Exchange Act, treasury shares held by the company must be reported once they rise above a certain threshold. UBS’s holding in its own shares remained between 5% and 10% throughout 2006.
Treasury share activities | ||||||||||||||||||||||||||||||
Treasury shares for employee share | ||||||||||||||||||||||||||||||
Share buyback program | and option plans and acquisitions1 | Total number of shares | ||||||||||||||||||||||||||||
Number | Average | Remaining volume of share | Number | Average | Number | Average | ||||||||||||||||||||||||
Month of purchase | of shares | price in CHF | buyback program in CHF million | of shares | price in CHF | of shares | price in CHF | |||||||||||||||||||||||
January, 2006 | 6,130,000 | 66.65 | 2005/2006 program | 994 | 84,790 | 66.69 | 6,214,790 | 66.65 | ||||||||||||||||||||||
February, 2006 | 300,000 | 69.14 | 2005/2006 program | 974 | 97,578 | 69.70 | 397,578 | 69.28 | ||||||||||||||||||||||
March, 2006 | 2006/2007 program | 5,000 | 16,768,792 | 70.47 | 16,768,792 | 70.47 | ||||||||||||||||||||||||
April, 2006 | 2006/2007 program | 5,000 | 816,604 | 70.78 | 816,604 | 70.78 | ||||||||||||||||||||||||
May, 2006 | 3,520,000 | 71.00 | 2006/2007 program | 4,750 | 9,214,808 | 69.80 | 12,734,808 | 70.13 | ||||||||||||||||||||||
June, 2006 | 800,000 | 64.06 | 2006/2007 program | 4,699 | 12,128,854 | 66.29 | 12,928,854 | 66.15 | ||||||||||||||||||||||
July, 2006 | 1,400,000 | 63.05 | 2006/2007 program | 4,611 | 88,000 | 65.10 | 1,488,000 | 63.18 | ||||||||||||||||||||||
August, 2006 | 1,800,000 | 67.63 | 2006/2007 program | 4,489 | 608,403 | 69.31 | 2,408,403 | 68.05 | ||||||||||||||||||||||
September, 2006 | 3,745,000 | 71.31 | 2006/2007 program | 4,222 | 2,179,473 | 71.02 | 5,924,473 | 71.20 | ||||||||||||||||||||||
October, 2006 | 685,000 | 73.79 | 2006/2007 program | 4,171 | 40,591 | 78.38 | 725,591 | 74.05 | ||||||||||||||||||||||
November, 2006 | 6,050,000 | 74.85 | 2006/2007 program | 3,718 | 18,269,837 | 75.41 | 24,319,837 | 75.27 | ||||||||||||||||||||||
December, 2006 | 4,600,000 | 72.45 | 2006/2007 program | 3,385 | 11,155,302 | 73.01 | 15,755,302 | 72.85 | ||||||||||||||||||||||
Maximum | Unutilized | |||||||||||||||||||||||||||||||||||
volume | Amount | Total shares | Average price | volume | ||||||||||||||||||||||||||||||||
Program | Announcement | Beginning | Expiration | Cancellation | (CHF billion) | (CHF billion) | purchased | (CHF) | (CHF billion) | |||||||||||||||||||||||||||
2000/2001 | 14.12.1999 | 17.01.2000 | 02.03.2001 | 13.07.2001 | 4.0 | 4.0 | 110,530,698 | 1 | 36.18 | 1 | 0 | |||||||||||||||||||||||||
2001/2002 | 22.02.2001 | 05.03.2001 | 05.03.2002 | 05.07.2002 | 5.0 | 2.3 | 57,637,380 | 39.73 | 2.7 | |||||||||||||||||||||||||||
2002/2003 | 14.02.2001 | 06.03.2002 | 08.10.2002 | 10.07.2003 | 5.0 | 5.0 | 135,400,000 | 36.92 | 0 | |||||||||||||||||||||||||||
2002/2003 | 09.10.2002 | 11.10.2002 | 05.03.2003 | 10.07.2003 | 3.0 | 0.5 | 16,540,160 | 32.04 | 2.5 | |||||||||||||||||||||||||||
2003/2004 | 18.02.2003 | 06.03.2003 | 05.03.2004 | 30.06.2004 | 5.0 | 4.5 | 118,964,000 | 37.97 | 0.5 | |||||||||||||||||||||||||||
2004/2005 | 10.02.2004 | 08.03.2004 | 07.03.2005 | 08.07.2005 | 6.0 | 3.5 | 79,870,188 | 44.36 | 2.5 | |||||||||||||||||||||||||||
2005/2006 | 08.02.2005 | 08.03.2005 | 07.03.2006 | 13.07.2006 | 5.0 | 4.0 | 74,200,000 | 54.26 | 1.0 | |||||||||||||||||||||||||||
2006/20072 | 14.02.2006 | 08.03.2006 | 07.03.2007 | 5.0 | 1.6 | 22,600,000 | 71.46 | 3.4 | ||||||||||||||||||||||||||||
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Distributions to shareholders
Distributions to shareholders
UBS normally pays an annual dividend to shareholders registered as of the date of the Annual General Meeting (the record date). Payment is usually scheduled three business days thereafter.
Total distributions in 2006
From the results of our ordinary business we transferred a total of CHF 5.8 billion in equity to our shareholders in 2006. This included CHF 2.0 billion in shares we repurchased during 2006 for purposes of cancellation and a total payout to shareholders for the 2005 financial year of CHF 3.8 billion or CHF 1.90 per share (after the 2-for-1 share split). The payout comprised a regular dividend of CHF 1.60, up 7% from a year earlier, with payment on 24 April 2006, plus an additional one-time par value repayment of CHF 0.30 per share on 12 July 2006.
Proposed distributions to shareholders in 2007
Dividend in 2007
Share buyback program 2007-2010
US shareholders
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to transfer shares from one register to the other upon giving proper instruction to the transfer agents.
>> For more details on “Shareholders’ participation rights”, see Corporate Governance. | ||
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UBS shares in 2006
UBS shares in 2006
UBS shares are listed on the Swiss Exchange (where they are traded on virt-x), and on the New York and Tokyo stock exchanges. For a detailed definition of UBS shares (par value, type, rights of security), see the Capital Structure section of the Corporate Governance chapter.
In the US, the Federal Reserve continued to raise interest rates. By the end of the year, the effect of the rate increases had become evident as house prices started to fall, mortgage default rates increased and economic growth slowed. Weakness in the US economy, combined with a growing trade deficit, were factors in the considerable decline of the dollar against major currencies. Despite this, US markets remained robust, with the DJIA up 14.9% in the year, driven by record profits in the energy sector and continued strength in banking and financials, particularly for investment banks. The MSCI (World) Index showed stronger gains, rising 17.8%, benefiting from strong Asian economic growth as well as the buoyant performance in the energy and banking sectors. The DJ Stoxx Banks Index reported similar gains, up 18.3%. UBS shares traded broadly in line with the index, closing 17.5% higher on the year.
Ticker symbols | ||||
Trading exchange | Bloomberg | Reuters | ||
virt-x | UBSN VX | UBSN.VX | ||
New York Stock Exchange | UBS US | UBS.N | ||
Tokyo Stock Exchange | 8657 JP | UBS.T | ||
Security identification codes | ||||
ISIN | CH0024899483 | |||
Valoren | 2.489.948 | |||
Cusip | CINS H89231 33 8 | |||
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Capital management & UBS shares |
UBS share data | ||||||||||||
As of | ||||||||||||
Registered shares | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Total shares outstanding | 1,940,797,587 | 1,968,745,296 | 2,004,389,734 | |||||||||
Total shares ranking for dividend | 2,082,673,286 | 2,109,495,044 | 2,173,846,166 | |||||||||
Treasury shares | 164,475,699 | 208,519,748 | 249,326,620 | |||||||||
Weighted average shares (for basic EPS calculations) | 1,976,405,800 | 2,013,987,754 | 2,059,836,926 | |||||||||
Weighted average shares (for diluted EPS calculations) | 2,058,834,812 | 2,097,191,540 | 2,163,922,720 | |||||||||
For the year ended | ||||||||||||
CHF | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Earnings per share | ||||||||||||
Basic EPS | 6.20 | 6.97 | 3.89 | |||||||||
Basic EPS from continuing operations | 5.81 | 4.85 | 3.66 | |||||||||
Diluted EPS | 5.95 | 6.68 | 3.70 | |||||||||
Diluted EPS from continuing operations | 5.58 | 4.66 | 3.49 | |||||||||
UBS shares and market capitalization | ||||||||||||||||
As of | % change from | |||||||||||||||
Number of shares, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | ||||||||||||
Total ordinary shares issued | 2,105,273,286 | 2,177,265,044 | 2,253,716,354 | (3 | ) | |||||||||||
Second trading line treasury shares | ||||||||||||||||
2004 program | (79,870,188 | ) | ||||||||||||||
2005 program | (67,770,000 | ) | ||||||||||||||
2006 program | (22,600,000 | ) | ||||||||||||||
Shares outstanding for market capitalization | 2,082,673,286 | 2,109,495,044 | 2,173,846,166 | (1 | ) | |||||||||||
Share price (CHF) | 74.05 | 62.55 | 47.68 | 18 | ||||||||||||
Market capitalization (CHF million) | 154,222 | 131,949 | 103,638 | 17 | ||||||||||||
Total treasury shares | 164,475,699 | 208,519,748 | 249,326,620 | (21 | ) | |||||||||||
Trading volumes | ||||||||||||
For the year ended | ||||||||||||
1,000 shares | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
SWX total (virt-x) | 2,731,841 | 2,568,531 | 2,454,468 | |||||||||
SWX daily average (virt-x) | 10,884 | 10,073 | 9,663 | |||||||||
NYSE total | 214,912 | 167,231 | 147,987 | |||||||||
NYSE daily average | 853 | 664 | 587 | |||||||||
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Capital Management & UBS Shares
UBS shares in 2006
First quarter 2006
A record performance by US investment banks at the close of 2005, growing merger and acquisition deal pipelines, high levels of market liquidity and relatively low interest rates left investors upbeat at the outset of 2006. UBS shares rose 13.1% in the first quarter of the year, supported by its record fourth quarter performance, which closed its then best-ever year. The Board of Directors recommended a 7% increase in the dividend to CHF 3.20, plus a one time par value repayment of CHF 0.60, reflecting the gain realized from the sale of Private Banks & GAM to Julius Baer (both figures before the 2-for-1 share split).
Second quarter 2006
Market sentiment remained buoyant well into the second quarter, although the market rally that had started in early 2003 came to an abrupt end in May 2006. Rising interest rates, high commodity prices, which fed inflation, and geopolitical concerns in the Middle East led to a sharp and sudden decline in world equity markets in late May. The financials sector bore the brunt of the decline, as deal flows dried up and higher interest rates prompted investors to shift into cash and defensive stocks. While the DJIA remained flat, supported by energy stocks, the MSCI fell 1.7%. Despite reporting a record first quarter result, UBS shares declined by 7.1%, marginally underperforming the DJ Stoxx Banks index, which fell 6.2%.
Third quarter 2006
Geopolitical concerns deepened in summer on the Israeli-Lebanese conflict, driving oil prices to record highs. Many investors chose to remain on the sidelines of the market, resulting in a sharp drop in trading activity. September heralded a re-
turn to rising markets and active trading as commodity prices eased. UBS shares gained 10.6% in the third quarter, supported by robust second quarter results. The DJ Stoxx banks index also delivered a strong performance, up 8.3% in the quarter. The broader indices showed more muted performance, with the Dow Jones up 3.7% and the MSCI flat.
Fourth quarter 2006
The fourth quarter of 2006 saw many world markets reach all-time highs buoyed by vigorous M&A activity and growing support for a soft landing in the US. The MSCI and Dow Jones indices showed very strong performance up 8.6% and 8.7% respectively. UBS shares closed the quarter up 5.1%, but performance lagged that of its wider peer group, with the DJ Stoxx banks up 8.7%, reflecting the market’s disappointment with third quarter results.
Share liquidity
During 2006, daily average volume in UBS shares on virt-x was 10.9 million shares. On NYSE, it was 0.85 million shares.
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Stock exchange prices | ||||||||||||||||||||||||
SWX Swiss Exchange | New York Stock Exchange | |||||||||||||||||||||||
High(CHF) | Low(CHF) | Period end(CHF) | High(USD) | Low(USD) | Period end(USD) | |||||||||||||||||||
2006 | 79.90 | 59.85 | 74.05 | 63.39 | 48.34 | 60.33 | ||||||||||||||||||
Fourth quarter 2006 | 79.90 | 70.70 | 74.05 | 63.39 | 58.50 | 60.33 | ||||||||||||||||||
December | 75.05 | 70.70 | 74.05 | 61.95 | 59.04 | 60.33 | ||||||||||||||||||
November | 76.70 | 71.55 | 72.05 | 61.63 | 59.23 | 60.22 | ||||||||||||||||||
October | 79.90 | 72.80 | 74.30 | 63.39 | 58.50 | 59.84 | ||||||||||||||||||
Third quarter 2006 | 74.80 | 59.85 | 74.80 | 59.77 | 48.34 | 59.31 | ||||||||||||||||||
September | 74.80 | 69.25 | 74.80 | 59.77 | 55.83 | 59.31 | ||||||||||||||||||
August | 71.75 | 63.95 | 69.65 | 58.30 | 52.63 | 56.77 | ||||||||||||||||||
July | 68.15 | 59.85 | 66.95 | 55.73 | 48.34 | 54.40 | ||||||||||||||||||
Second quarter 2006 | 75.65 | 61.35 | 67.00 | 61.70 | 49.36 | 54.85 | ||||||||||||||||||
June | 70.85 | 61.35 | 67.00 | 58.16 | 49.36 | 54.85 | ||||||||||||||||||
May | 75.65 | 66.10 | 68.90 | 61.70 | 54.69 | 56.61 | ||||||||||||||||||
April | 73.90 | 71.55 | 73.50 | 59.34 | 54.80 | 58.43 | ||||||||||||||||||
First quarter 2006 | 72.35 | 62.80 | 71.60 | 55.55 | 48.66 | 54.99 | ||||||||||||||||||
March | 72.20 | 67.55 | 71.60 | 55.55 | 51.66 | 54.99 | ||||||||||||||||||
February | 72.35 | 68.15 | 69.65 | 55.13 | 52.41 | 53.12 | ||||||||||||||||||
January | 69.70 | 62.80 | 69.50 | 54.62 | 48.66 | 54.40 | ||||||||||||||||||
2005 | 63.50 | 46.75 | 62.55 | 49.02 | 38.60 | 47.58 | ||||||||||||||||||
Fourth quarter 2005 | 63.50 | 52.75 | 62.55 | 49.02 | 41.22 | 47.58 | ||||||||||||||||||
Third quarter 2005 | 56.15 | 50.40 | 55.00 | 43.40 | 38.92 | 42.75 | ||||||||||||||||||
Second quarter 2005 | 51.40 | 47.23 | 50.00 | 42.93 | 38.60 | 38.93 | ||||||||||||||||||
First quarter 2005 | 52.30 | 46.75 | 50.50 | 44.71 | 39.70 | 42.20 | ||||||||||||||||||
2004 | 49.18 | 40.80 | 47.68 | 42.19 | 32.47 | 41.92 | ||||||||||||||||||
Fourth quarter 2004 | 48.17 | 42.00 | 47.68 | 42.19 | 35.05 | 41.92 | ||||||||||||||||||
Third quarter 2004 | 45.50 | 40.80 | 43.95 | 36.19 | 32.47 | 35.17 | ||||||||||||||||||
Second quarter 2004 | 49.17 | 44.12 | 44.13 | 38.03 | 34.45 | 35.53 | ||||||||||||||||||
First quarter 2004 | 48.52 | 42.85 | 47.05 | 39.63 | 33.96 | 37.25 | ||||||||||||||||||
2003 | 42.70 | 24.90 | 42.35 | 34.08 | 19.00 | 34.00 | ||||||||||||||||||
Fourth quarter 2003 | 42.70 | 37.43 | 42.35 | 34.08 | 28.77 | 34.00 | ||||||||||||||||||
Third quarter 2003 | 40.25 | 36.75 | 37.05 | 29.63 | 27.19 | 28.12 | ||||||||||||||||||
Second quarter 2003 | 37.88 | 29.45 | 37.68 | 29.18 | 21.79 | 27.70 | ||||||||||||||||||
First quarter 2003 | 36.05 | 24.90 | 28.75 | 25.93 | 19.00 | 21.35 | ||||||||||||||||||
2002 | 42.15 | 25.53 | 33.60 | 26.00 | 17.27 | 24.06 | ||||||||||||||||||
Fourth quarter 2002 | 37.73 | 25.53 | 33.60 | 25.44 | 17.27 | 24.06 | ||||||||||||||||||
Third quarter 2002 | 37.58 | 28.40 | 30.65 | 24.97 | 18.93 | 20.50 | ||||||||||||||||||
Second quarter 2002 | 42.08 | 34.90 | 37.43 | 26.00 | 23.45 | 24.95 | ||||||||||||||||||
First quarter 2002 | 42.15 | 36.50 | 41.40 | 25.25 | 21.64 | 24.88 | ||||||||||||||||||
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Corporate Governance
UBS is committed to meeting high standards of corporate
governance. Our corporate and executive bodies are organized
in line with leading codes of best practice. The ultimate aim
of our corporate governance is to lead UBS to success.
Table of Contents
Corporate Governance
Introduction and principles
Introduction and principles
Corporate governance – the way that the leadership and management of the firm are organized and how they operate in practice – ultimately aims to lead UBS to success, protecting the interests of its shareholders and creating value for them and for all stakeholders. Good corporate governance seeks to balance entrepreneurship, control and transparency, while supporting the firm’s success by ensuring efficient decision-making processes.
SWX Swiss Exchange Reporting on
Corporate Governance
The Corporate Governance section contains the following information required by the SWX Swiss Exchange Directive on Information relating to Corporate Governance:
– | Group structure and shareholders | |
– | Capital structure | |
– | Board of Directors | |
– | Senior management (Group Executive Board / GEB) | |
– | Compensation, shareholdings and loans | |
– | Shareholders’ participation rights | |
– | Change of control and defense measures | |
– | Auditors | |
– | Information policy |
This section summarizes the regulatory and supervisory environment of UBS in its principal locations and describes how UBS complies with the NYSE listing standards on corporate governance. In addition, it provides a list of all members of the Group Managing Board and the Vice Chairmen of the Business Groups who, together with the GEB, form the senior leadership of the firm.
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Corporate Governance
Group structure and shareholders
Group structure and shareholders
Under Swiss company law, UBS is organized as a limited company, a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure
The legal entity structure of UBS is designed to support its businesses within an efficient legal, tax, regulatory and funding framework. None of the Business Groups of UBS or its Corporate Center are separate legal entities. They operate out of the parent bank, UBS AG, through its branches worldwide. The goal of this structure is to capitalize on the increased business opportunities and cost efficiencies offered by the use of a single legal platform and to enable the flexible and efficient use of capital.
Operational group structure
The three Business Groups – Global Wealth Management & Business Banking (with its three business units Wealth Management International & Switzerland, Wealth Management US, and Business Banking Switzerland), Global Asset Management, and Investment Bank – together with Corporate Center – form the operational structure of the Group’s financial businesses. Performance is reported according to this structure (see our Financial Report 2006). In addition, the UBS Group accounts contain a separate reporting segment called Industrial Holdings which includes our private equity holdings. This allows UBS to maintain continuity in the presentation and analysis of the core financial businesses.
>> See the “Our Businesses” chapter for detailed descriptions of the Business Groups and their strategy, structure, organization, products and services. | ||
Listed and non-listed companies belonging to the Group (consolidated entities)
The UBS Group includes a great number of subsidiaries, none of which, however, is listed. For details of significant subsidiaries, see note 35 to the financial statements.
Significant shareholders
Chase Nominees Ltd., London, acting in its capacity as a nominee for other investors, was registered with 8.81% of all shares issued as of 31 December 2006, compared to 8.55% at year-end 2005 and 8.76% at year-end 2004. DTC (Cede & Co.), New York, “The Depository Trust Company”, a US securities clearing organization, was registered as a shareholder for a great number of beneficial owners with 13.21% of all shares issued as of 31 December 2006 (9.95% as of 31 December 2005). According to UBS’s Regulation on the Registration of Shares, voting rights of nominees are restricted to 5%, while clearing and settlement organizations are exempt from this restriction. No other shareholders hold more than 5% of all shares issued. Ownership of UBS shares is widely spread. The tables on the next page provide information about the distribution by category of shareholders and by geography. This information relates only to registered shareholders and cannot be assumed to be representative of the entire UBS investor base. Only registered shareholders are entitled to exercise voting rights.
Cross shareholdings
UBS has no cross shareholdings in excess of a reciprocal 5% of capital or voting rights with any other company.
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Group structure and shareholders
Distribution of UBS shares | ||||||||||||||||
As of 31.12.06 | Shareholders registered | Shares registered | ||||||||||||||
Number of shares registered | Number | % | Number | % of shares issued | ||||||||||||
1–100 | 24,449 | 13.4 | 1,357,538 | 0.1 | ||||||||||||
101–1,000 | 108,784 | 59.6 | 46,079,603 | 2.2 | ||||||||||||
1,001–10,000 | 45,424 | 24.8 | 120,980,866 | 5.8 | ||||||||||||
10,001–100,000 | 3,700 | 2.0 | 90,392,786 | 4.3 | ||||||||||||
100,001–1,000,000 | 383 | 0.2 | 109,700,004 | 5.2 | ||||||||||||
1,000,001–5,000,000 | 73 | 0.0 | 156,758,747 | 7.5 | ||||||||||||
5,000,001–21,052,732 (1%) | 23 | 0.0 | 217,887,253 | 10.3 | ||||||||||||
1–2% | 2 | 0.0 | 74,643,418 | 3.5 | ||||||||||||
2–3% | 1 | 0.0 | 43,941,400 | 2.1 | ||||||||||||
3–4% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
4–5% | 0 | 0.0 | 0 | 0.0 | ||||||||||||
Over 5% | 2 | 1 | 0.0 | 463,590,138 | 22.1 | |||||||||||
Total registered | 182,841 | 100.00 | 1,325,331,753 | 63.0 | ||||||||||||
Unregistered2 | 779,941,533 | 37.0 | ||||||||||||||
Total shares issued | 2,105,273,286 | 3 | 100.0 | |||||||||||||
Shareholders: type and distribution | ||||||||||||||||
Shareholders | Shares | |||||||||||||||
As of 31.12.06 | Number | % | Number | % | ||||||||||||
Individual shareholders | 176,061 | 96.3 | 235,514,218 | 11.2 | ||||||||||||
Legal entities | 6,353 | 3.5 | 262,262,939 | 12.5 | ||||||||||||
Nominees, fiduciaries | 427 | 0.2 | 827,554,596 | 39.3 | ||||||||||||
Unregistered | 779,941,533 | 37.0 | ||||||||||||||
Total | 182,841 | 100.0 | 2,105,273,286 | 100.0 | ||||||||||||
Switzerland | 164,012 | 89.7 | 445,735,841 | 21.2 | ||||||||||||
Europe | 13,448 | 7.3 | 468,341,140 | 22.2 | ||||||||||||
North America | 1,739 | 1.0 | 384,784,813 | 18.3 | ||||||||||||
Other countries | 3,642 | 2.0 | 26,469,959 | 1.3 | ||||||||||||
Unregistered | 779,941,533 | 37.0 | ||||||||||||||
Total | 182,841 | 100.0 | 2,105,273,286 | 100.0 | ||||||||||||
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Corporate Governance |
Corporate Governance
Capital structure
Capital structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to remaining one of the best-capitalized financial services firms in the world.
Capital
Under Swiss company law, shareholders have to approve in a shareholders’ meeting any increase in the total number of issued shares, which may be an ordinary share capital increase or the creation of conditional or authorized capital. At year-end 2006, the ordinary share capital was CHF 210,527,328.60.
Conditional and authorized share capital
At year-end 2006, total conditional share capital amounted to CHF 15,143,741.00, corresponding to a maximum of 151,437,410 shares. Conditional capital was created in 2000 in connection with the acquisition of PaineWebber Group Inc. to cover option rights granted by the PaineWebber Group to its employees. In addition, at the 2006 AGM, shareholders approved conditional capital in the amount of 150 million UBS shares to be used for employee option grants limited to a period of three years. Options under both plans are exercisable at any time between their vesting and the expiry date. Shareholders’ pre-emptive rights are excluded. In 2006 options with respect to 2,208,242 shares were exercised under the PaineWebber option plans, and 1,350 options expired without being exercised. No new shares using conditional capital were issued relating to the UBS employee stock option plans.
Changes of shareholders’ equity
Equity attributable to UBS shareholders for the Group amounted to CHF 49.7 billion on 31 December 2006.
>> For all details on changes in shareholders equity over the last three years, please refer to the Financial Report 2006. | ||
Shares, participation and bonus certificates,
capital securities
UBS shares are issued as Global Registered Shares. Each share has a par value of CHF 0.10 and carries one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his own name and for his own account. Global Registered Shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange where they are traded.
>> For details, see the Shareholders’ participation rights section in this chapter. | ||
On 31 December 2006, 1,059,699,907 shares carried voting rights, 265,631,846 shares were entered in the share register without voting rights, and 779,941,533 shares were not registered. All 2,105,273,286 shares were fully paid up, and 2,082,673,286 shares ranked for dividends. There are no preferential rights for individual shareholders.
Limitation on transferability and nominee registration
UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered according to the provisions in the Articles of Association (express declaration of beneficial ownership) may be voted without any limit in scope.
Ordinary share capital | ||||||||||||
Share capital in CHF | Number of shares | Par value in CHF | ||||||||||
As of 31 December 2005 | 217,726,504 | 2,177,265,044 | 0.10 | |||||||||
Share repurchase programs 2005 / 2006: | ||||||||||||
Cancellation of shares upon AGM decision of 19 April 2006 | (7,420,000 | ) | (74,200,000 | ) | 0.10 | |||||||
Options excercised from conditional capital | 220,824 | 2,208,242 | 0.10 | |||||||||
As of 31 December 2006 | 210,527,329 | 2,105,273,286 | 0.10 | |||||||||
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Corporate Governance
Capital structure
Convertible bonds and options
UBS currently has no convertible debt on UBS shares outstanding. Employee options outstanding amounted to 176,779,087, of which a total of 80,312,503 were exercisable. UBS satisfies share delivery obligations under its option based participation plans either by purchasing UBS shares in
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Corporate Governance |
Corporate Governance
Board of Directors
Board of Directors
The Board of Directors is the most senior body with ultimate responsibility for the strategy and management of the company and for the supervision of its executive management. The shareholders elect each member of the Board, which appoints the Chairman, the Vice Chairmen, and the members of the various Board Committees.
Members of the Board of Directors
The texts in the boxes below provide information on the composition of the Board of Directors as of 31 December 2006. It shows each member’s functions in UBS, nationality, year of initial appointment to the Board and current term of office, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corporations, organizations and foundations, permanent
functions for important interest groups and official functions and political mandates.
Marcel Ospel | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman | |
Nationality | Swiss | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2008 | |
Professional history, education and date of birth
Other activities and functions
Stephan Haeringer | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Executive Vice Chairman | |
Member of the | ||
Corporate Responsibility | ||
Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2007 (proposed for | |
re-election at the | ||
AGM 2007) | ||
Professional history, education and date of birth
Other activities and functions
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Corporate Governance
Board of Directors
Marco Suter | ||
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Executive Vice Chairman | |
Chairman of the | ||
Corporate Responsibility | ||
Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2005 | |
Current term of office runs until | 2008 | |
Professional history, education and date of birth
Other activities and functions
Ernesto Bertarelli | ||
Address | Bemido SA | |
2, chemin des Mines | ||
CH-1211 Geneva 20 | ||
Function in UBS | Member of the | |
Nominating Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2002 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Other activities and functions
Sir Peter Davis | ||
Address | 41 Bloomfield Terrace, | |
UK-London SW1W 8BQ | ||
Functions in UBS | Member of the | |
Compensation | ||
Committee | ||
Nationality | British | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2007 (not standing | |
for re-election) | ||
Professional history, education and date of birth
Other activities and functions
Address | Schellenberg Wittmer | |
15bis, rue des Alpes | ||
CH-1201 Geneva 1 | ||
Functions in UBS | Member of the | |
Corporate Responsibility | ||
Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Other activities and functions
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Corporate Governance |
Rolf A. Meyer | ||
Address | Heiniweidstrasse 18 | |
CH-8806 Bäch | ||
Functions in UBS | Chairman of the | |
Compensation | ||
Committee / Member of | ||
the Audit Committee | ||
Nationality | Swiss | |
Year of initial appointment | 1998 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
Other activities and functions
Helmut Panke | ||
Address | BMW AG | |
Petuelring 130 | ||
D-80788 Munich | ||
Function in UBS | Chairman of the | |
Nominating Committee | ||
Nationality | German | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2007 (proposed for | |
re-election at the | ||
AGM 2007) | ||
Professional history, education and date of birth
Other activities and functions
Peter Spuhler | ||
Address | Stadler Bussnang AG | |
Bahnhofplatz | ||
CH-9565 Bussnang | ||
Function in UBS | Member of the | |
Compensation | ||
Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2004 | |
Current term of office runs until | 2007 (proposed for | |
re-election at the | ||
AGM 2007) | ||
Professional history, education and date of birth
Other activities and functions
Peter Voser | ||
Address | Royal Dutch Shell plc | |
2501 AN | ||
NL-The Hague | ||
Function in UBS | Member of the Audit | |
Committee | ||
Nationality | Swiss | |
Year of initial appointment | 2005 | |
Current term of office runs until | 2008 | |
Professional history, education and date of birth
Other activities and functions
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Corporate Governance
Board of Directors
Lawrence A. Weinbach | ||
Address | Yankee Hill Capital | |
Management | ||
300 East 42nd Street | ||
USA-New York, | ||
NY 10017 | ||
Function in UBS | Chairman of the Audit | |
Committee | ||
Nationality | American (US) | |
Year of initial appointment | 2001 | |
Current term of office runs until | 2008 | |
Professional history, education and date of birth
Other activities and functions
Joerg Wolle | ||
Address | DKSH Holding AG | |
Wiesenstrasse 8 | ||
CH-8034 Zurich | ||
Functions in UBS | Member of the | |
Nominating Committee | ||
Nationality | German | |
Year of initial appointment | 2006 | |
Current term of office runs until | 2009 | |
Professional history, education and date of birth
The Board of Directors is the key body that shareholders rely on for the ultimate direction of the firm and the effective supervision of management. To this end, UBS relies on a Board that consists of highly qualified individuals. A Board that combines the experience of former members of UBS senior management with the diverse skills of fully independent external members is one that is best positioned to carry out the governance responsibilities given to it by shareholders.
UBS believes this approach has many inherent advantages. Former UBS executives, with the experience and
know-how of complex business activities and processes inherent to a modern global financial services provider, are often in a better position to challenge management decisions. Moreover, as they do not have any significant business commitments outside UBS or external directorships they have the resources and time necessary to dedicate themselves to their comprehensive responsibilities as UBS Board members.
The executive members of the Board are complemented by a number of fully independent directors, who have the competence and expertise to deal
with the wide range of global strategy and business issues that UBS faces. They are specialists from different business and industry sectors. Some are entrepreneurs who have built their own businesses; some are senior executives of global companies and some are senior legal and accounting experts. In selecting candidates, UBS also strives for an adequate balance of nationality, mirroring our global presence. It is this blend of experience and skill that ensures successful leadership at UBS.
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Corporate Governance |
Elections and term of office
All the members of the Board of Directors are elected individually by the AGM for a term of office of three years. The initial term of each member is fixed in such a way as to ensure that about one third of all the members have to be newly elected or re-elected every year.
>> The year of first appointment to the Board and the expiry of the current mandate of each Board member are listed in the table on pages 113–116. | ||
Changes in 2007
As of the Annual General Meeting on 18 April 2007, Sir Peter Davis, whose term of office expires in 2007, is stepping down from the Board as he has reached retirement age. The Board of Directors will propose as non-executive director the following new member for election: Sergio Marchionne, CEO of Fiat S.p.A., Turin. The Board of Directors will still consist of twelve members.
Organizational principles
The Board of Directors has ultimate responsibility for the mid- and long-term strategic direction of the Group, for appointments and dismissals at top management levels and the definition of the firm’s risk principles and risk capacity. While the majority of the Board members are always non-executive and independent, the Chairman and at least one Vice Chairman have executive roles in line with Swiss banking laws, and assume supervisory and leadership responsibilities.
Internal organization, Board committees and meetings in 2006
After each Annual General Meeting of Shareholders, the Board elects its Chairman and one or more Vice Chairmen and appoints its Secretary. It meets as often as business requires, but at least six times per year. In 2006, the Board held seven meetings with the members of the Group Executive Board participating, one telephone conference and a full-day strategy seminar. In addition, the Board met six times without participation of executive management. On average, 92% of Board members were present at the meetings, and 93% at the Private Board Meeting (i.e. without executive management). The Board, without executive management, was also asked to take one decision by written consent (circular decision).
The new Board members were introduced to their new function by a tailored program, consisting of two sessions with the following main topics: the legal and regulatory environment for UBS, group strategy, risk policy, management and control, financial accounting and applicable reporting standards, corporate governance, human resources management and internal audit.
The Board is organized as follows:
Chairman’s Office
Audit Committee
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Board of Directors
Rolf A. Meyer and Peter Voser have accounting or financial management expertise and are therefore considered “financial experts”, according to the rules established by the US Sarbanes-Oxley Act of 2002. The Audit Committee does not itself perform audits, but supervises the work of the auditors. Its primary responsibility is thereby to monitor and review the organization and efficiency of internal control procedures and the financial reporting process. The Audit Committee plays an important role in ensuring the independence of the external auditors and therefore has to authorize all mandates assigned to them. It also has responsibility for the treatment of complaints regarding accounting and auditing matters (“whistleblowing”).
Compensation Committee
>> For details on the decision-making procedures within the Committee, please refer to pages 130–132 of this Handbook. | ||
Nominating Committee
man’s Office and the full Board in evaluating Board performance. It reviews the proposals of the Chairman’s Office on corporate governance principles and design for submission to the full Board.
Corporate Responsibility Committee
>> For additional information on corporate responsibility, please refer to the specific chapter at the end of this Handbook. | ||
>> The Charters of the Board, of the Chairman’s Office and of all Board Committees are available on www.ubs.com/boards. | ||
Roles and responsibilities of executive Board members
Marcel Ospel, Stephan Haeringer and Marco Suter, the Chairman and the two Executive Vice Chairmen of the Board, have entered into employment contracts with UBS AG in connection with their services on the Board, and are entitled to receive pension benefits upon retirement. They assume clearly defined management responsibilities.
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Stephan Haeringer is responsible for strategic planning as well as corporate governance issues on behalf of the Board and supervises financial and business planning. In addition, he chairs the Chairman’s Office meetings on group internal audit issues, where the Chairman’s Office acts as supervisory body for Group Internal Audit. He also assumes responsibility for supporting major client relationships.
Non-executive Board members
The nine non-executive members of the Board have never had any management responsibility at UBS or any of its subsidiaries; neither have any of their close family members. These non-executive directors and their close family members have not been employed by UBS’s principal Auditors, Ernst & Young Ltd. There are no employment or service contracts with any of them. They receive fixed fees for their Board mandate and for the special functions they assume in the various Board Committees.
Important business connections of non-executive Board members with UBS
Board of Directors and Group Executive Board: checks and balances
UBS operates under a strict dual Board structure, as mandated by Swiss banking law. The functions of Chairman of
the Board of Directors (Chairman) and Group Chief Executive Officer (Group CEO) are assigned to two different people, thus providing separation of powers. This structure establishes checks and balances and creates an institutional independence of the Board of Directors from the day-to-day management of the firm, for which responsibility is delegated to the Group Executive Board. No member of one Board may be a member of the other.
>> Please refer to www.ubs.com/corporate-governance for more information. | ||
Information and control instruments vis-à-vis the Group Executive Board
>> For further details on the organization of Risk Management and Control, please refer to the Risk Management chapter of this Handbook. | ||
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Group Executive Board
Group Executive Board
The Group Executive Board (GEB) has business management responsibility for UBS. The Group CEO and the members of the GEB are appointed by the Board of Directors and are accountable to the Chairman and the Board for the firm’s results.
Members of the Group Executive Board
The texts in the boxes below provide information on the composition of the Group Executive Board as of 31 December 2006. It shows each member’s function in UBS, nationality, year of initial appointment to the GEB, professional history and education, date of birth, and other activities and functions such as mandates on boards of important corpora-
tions, organizations and foundations, permanent functions for important interest groups and official functions and political mandates.
Peter A. Wuffli
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group Chief Executive Officer | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 1998 | |
Professional history, education and date of birth
Other activities and functions
John A. Fraser
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Global Asset Management | |
Nationality | Australian | |
Year of initial appointment to the GEB | 2002 | |
Professional history, education and date of birth
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Huw Jenkins
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Investment Bank | |
Nationality | British | |
Year of initial appointment to the GEB | 2005 | |
Professional history, education and date of birth
Peter Kurer
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group General Counsel | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2002 | |
Professional history, education and date of birth
Other activities and functions
Marcel Rohner
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Deputy Group CEO and Chairman & CEO Global Wealth Management & Business Banking | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2002 | |
Professional history, education and date of birth
Other activities and functions
Clive Standish
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group Chief Financial Officer | |
Nationality | British | |
Year of initial appointment to the GEB | 2002 | |
Professional history, education and date of birth
Walter Stuerzinger
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Group Chief Risk Officer | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2005 | |
Professional history, education and date of birth
Other activities and functions
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Group Executive Board
Mark B. Sutton
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer, Americas (retired as of 1 January 2007) | |
Nationality | American (US) | |
Year of initial appointment to the GEB | 2002 | |
Professional history, education and date of birth
Other activities and functions
Rory Tapner
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Chairman and Chief Executive Officer Asia Pacific | |
Nationality | British | |
Year of initial appointment to the GEB | 2006 | |
Professional history, education and date of birth
Raoul Weil
Address | UBS AG | |
Bahnhofstrasse 45 | ||
CH-8098 Zurich | ||
Function in UBS | Head of Wealth Management International | |
Nationality | Swiss | |
Year of initial appointment to the GEB | 2005 | |
Professional history, education and date of birth
Other activities and functions
Only committed and effective executive teams can ensure that sustainable value is created for shareholders. The Group Executive Board (GEB) shares a common vision for UBS – to be the best global financial services company. Achieving this strategic goal requires that members of the GEB agree on a fundamental set of values – including professional respect, trust and openness – in order to pursue a common agenda.
The GEB comprises the CEOs of the three Business Groups as well as senior leaders representing major growth businesses and geographic markets. It also includes the heads of the key control functions at UBS – risk, finance and legal – reflecting their importance in the overall success of the firm. The careers of the present GEB members indicate that UBS has been successful in retaining the executive members of most of the predecessor firms it has
acquired or merged with in the last two decades. UBS believes the experience they have gathered over time is integral to their understanding and balancing of the different facets of the firm and its complex businesses. The different nationalities of its members also represent the fact that UBS is a truly global firm. This results in a spirit of partnership that creates a candid, productive and healthy ability to debate, take and implement decisions.
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Responsibilities, authorities and
organizational principles
The GEB has executive management responsibility for the Group and is accountable to the Board for the firm’s results. Together with the Chairman’s Office, the GEB assumes overall responsibility for the development of UBS’s strategies. The GEB, and in particular the CEO, is responsible for the implementation and results of the firm’s business strategies, for the alignment of the Business Groups to UBS’s integrated business model, and for the exploitation of synergies across the firm. Through its Risk Subcommittee, the GEB assumes responsibility for the Group’s risk control standards, concepts, methodologies and limits. The GEB plays a key role in defining the human resources policy and the compensation principles of the Group. It also fosters an entrepreneurial leadership spirit throughout the firm.
>> The authorities of the GEB are defined in the Organization Regulations, which are available on the internet at www.ubs.com/corporate-governance. | ||
Regional coordination
As a result of the increasingly integrated nature of UBS’s business, the GEB’s regional coordination and governance processes have been strengthened and formalized. As publicly announced in November 2006, a number of GEB members were appointed as regional sponsors. In addition, at the Group Managing Board (GMB) level, a regional coordinator role was established.
For more information on the GMB, see pages 151 / 152 of this section. | ||
Huw Jenkins was appointed GEB regional sponsor for the US, Canada and Latin America, with Robert Wolf named
GMB coordinator for Canada and the US. Andre Esteves was appointed GMB coordinator for Latin America.
Management contracts
UBS has not entered into management contracts with any third parties.
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Compensation, shareholdings and loans
Compensation, shareholdings and loans
Our competitive strength depends on our ability to attract, retain and motivate the most talented people in financial services. The policies established by the Board of Directors Compensation Committee create incentives to promote an entrepreneurial, performance-driven culture and to support the firm’s integrated business strategy. By linking the compensation of senior executives to sustainable shareholder returns while adhering to our ethical values, the Compensation Committee aims to establish a framework for long-term value creation.
Compensation Committee
The Compensation Committee is made up of three non-executive, independent members of the Board. As of 31 December 2006, these were Rolf A. Meyer (chair), Sir Peter Davis and Peter Spuhler.
Governance, authorities and responsibilities
UBS has long been committed to the highest standards of corporate governance. The approval of senior executive compensation follows a rigorous process designed to ensure that no one participates in any decision affecting his or her own compensation.
1. | Reviewing and approving the design of the compensation system, including compensation programs and plans; |
2. | Determining the relationship between pay and performance; | |
3. | Approving salaries and incentive awards for senior executives; | |
4. | Reviewing and approving individual employment contracts; and |
5. | Reviewing and approving the terms and conditions for GEB members relinquishing their positions. |
>> The full Charter of the Compensation Committee and the appendix to UBS’s Organization Regulations containing the authorities for compensation related decisions, are available on the firm’s website www.ubs.com/corporate-governance. | ||
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Activities
During 2006, the Compensation Committee carried out:
– | A review of best practice in compensation governance, design, pay mix and disclosure. This combined publicly-available data on key competitors with information provided by compensation consultants; |
– | A review of pay and performance to ensure that senior executive compensation levels were appropriate compared with counterparts of competitors; |
– | A review of the compensation plan rules for senior executives to ensure they clearly reflected shareholders’ interests and provided appropriate incentives for long-term value creation. |
Senior executive compensation policy
Principles
– | All elements of compensation are managed in a globally consistent and integrated fashion, with clear recognition of pay for performance; |
– | Compensation levels and practices are benchmarked against competitors; and | |
– | Significant exposure to UBS shares serves to align senior executive and shareholder interests. |
Annual total compensation is competitively positioned and we place a strong emphasis on the variable components of compensation, with the understanding that only superior performance will be rewarded with superior compensation. Such incentives provide the motivation to excel in the entrepreneurial, performance-oriented culture that is required to execute our integrated business strategy. In addition, the Compensation Committee verifies whether the senior executive fulfilled their objectives, in particular with regard to the importance of maintaining and spreading UBS’s ethical values throughout the firm.
Shareholder Alignment
– | It rewards the achievement of personal and business objectives that balance individual performance and long-term business growth; |
– | A minimum of half of the annual incentive compensation awarded to senior executives takes the form of UBS shares that vest or become unrestricted over five years, ensuring focus on long-term decisions and actions, and aiding retention of executive talent. |
– | In addition to this significant mandatory deferral of compensation, all senior executives are required to accumulate and hold five times their cash compensation in UBS shares after five years in their position; |
– | The strike price of stock options is set at 110% of the average high and low sale price of UBS shares on the grant date resulting in a 10% performance hurdle; significant share price growth is thus required before the exercise price becomes meaningful; |
– | In certain circumstances, share and stock option plans are forfeited at termination or thereafter; |
– | No additional severance payments are offered in instances of termination, although obligations earned up to and including the notice period are honoured in line with the contractual arrangements; and |
– | All senior executives are offered the opportunity to invest voluntarily in additional UBS shares from their cash compensation. |
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Compensation, shareholdings and loans
Pay for performance
Elements of compensation
Senior executive compensation plans
Senior Executive Equity Ownership Plan (SEEOP)
Senior Executive Stock Option Plan (SESOP)
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Base salaries
Base salary levels are established in a manner consistent with the role of each senior executive. Base salary adjustments are limited to significant changes in job responsibility.
Annual incentive awards
Each annual incentive award is assessed according to the individual’s achievement of his or her business goals and personal objectives. All senior executives are considered for an annual incentive award provided performance targets are achieved, but with a few rare exceptions (e.g., competitive practice or business strategy), annual incentives are completely discretionary and vary considerably, both from individual to individual and from year to year.
Discretionary stock option awards
Stock options help align executive performance with long-term shareholder interests, since they deliver value only to the degree the share price appreciates more than 10% after the grant.
Benefits
UBS provides benefits to help attract and retain the best employees in each local market. Changes, terminations and the introduction of new benefits are governed by the procedures contained in the firm’s Organization Regulations. Benefits are a supplemental element of total compensation and vary substantially from location to location. In Switzerland, for example, senior executives participate in a general pension plan made up of three elements: (1) a basic component operated on the defined benefit principle (defined contribution principle as of 1.1.2007); (2) a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments; and (3) a defined contribution bonus plan. No special pension schemes are offered to senior executives.
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Compensation, shareholdings and loans
Senior executive share ownership policy
– | As previously noted, a substantial part of the annual incentive award for senior executives is delivered in the form of mandatory restricted or deferred UBS shares. | |
– | Senior executives, moreover, who voluntarily elect to take an even greater proportion of their annual incentive award in the form of restricted or deferred UBS shares receive two additional UBS stock options for each additional share. The options are granted under SESOP in accordance with the conditions described before. |
Five years after appointment, senior executives are required to accumulate – and then hold – UBS shares with an aggregate value of five times the amount of the last three
years’ average cash component of total compensation (base salary plus cash portion of incentive award). Holdings in UBS shares to be accumulated range from CHF 19 million to CHF 71 million per senior executive and thus constitute a substantial part of their personal wealth. Progress reports are provided to each senior executive annually, and executives will be expected to make steady progress towards their targets. Missed targets may lead the Compensation Committee to deny the grant of discretionary stock option awards.
Contracts of employment and severance payments
Shares held by executive members of the Board and members of the Group Executive Board1 | ||||||||||
Shares held as of 31 December 2006 | 7,774,048 | |||||||||
Of which | ||||||||||
Vested | vesting 2007 | vesting 2008 | vesting 2009 | vesting 2010 | vesting 2011 | |||||
3,760,905 | 1,385,229 | 989,902 | 782,131 | 570,492 | 285,389 | |||||
No individual BoD or GEB member holds 1% or more of all shares issued.
Options held by executive members of the Board and members of the GEB, as of 31 December 2006 | ||||||||||
Number of options | Year of grant | Vesting date | Expiry date | Subscription ratio | Strike price | |||||
585,192 | 2001 | 20.02.2004 | 20.02.2009 | 1:1 | CHF 50.00 | |||||
648,886 | 2002 | 20.02.2005 | 31.01.2012 | 1:1 | CHF 38.88 | |||||
376,144 | 2002 | 31.01.2005 | 31.01.2012 | 1:1 | USD 22.63 | |||||
680,000 | 2002 | 28.06.2005 | 28.06.2012 | 1:1 | CHF 40.38 | |||||
120,000 | 2002 | 28.06.2005 | 28.12.2012 | 1:1 | CHF 40.38 | |||||
360,000 | 2003 | 31.01.2006 | 31.01.2013 | 1:1 | USD 24.00 | |||||
690,000 | 2003 | 31.01.2006 | 31.07.2013 | 1:1 | CHF 32.50 | |||||
1,144,564 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | CHF 51.88 | |||||
717,072 | 2004 | 28.02.2007 | 28.02.2014 | 1:1 | USD 40.63 | |||||
2,493,308 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | CHF 55.75 | |||||
560,772 | 2005 | 01.03.2008 | 28.02.2015 | 1:1 | USD 47.75 | |||||
2,510,860 | 2006 | 01.03.2009 | 28.02.2016 | 1:1 | CHF 77.33 | |||||
Parties closely linked to the executive members of the Board and members of the GEB do not hold any options on UBS shares.
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Key elements for decision-making process within the Compensation Committee
Key competitors
their core business to that of UBS, as well as for comparable size, geographic distribution, business strategy and performance. Typically, these are also the companies from which UBS is most likely to hire and to which it is most likely to lose senior employees. Competitive compensation at a senior level is therefore a vital element in preventing the loss of leadership talent and experience from UBS to its competitors. Generally nine key competitors are considered to represent the most relevant labor market for senior executive compensation: Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley. In the view of the Compensation Committee, UBS’s compensation systems compare favorably with these nine key competitors. For certain positions and for purposes of other analysis (including the best practice review), additional competitors may be taken into account (such as the large Swiss private banks, private equity firms and hedge funds, which are increasingly becoming attractive alternatives for our employees).
Comparison by business activity (key peers) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Key competitors | Others | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
UBS | BS | Citi | CS | DB | GS | JPM | LB | ML | MS | HSBC | RBS | ING | BofA | |||||||||||||||||||||||||||||||||||||||||||
Global Wealth Management & Business Banking | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
WM CH | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||||||
WM Int. | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||
WM US | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||||
BB/Retail CH | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equities | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||||
Fixed Income | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||
Foreign Exchange | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||||
Corporate Finance | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||||||||||||||||||
Global Asset Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||||
Alternatives | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||||||||||||||||
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Compensation, shareholdings and loans
Actual process and decisions taken
Determination of 2006 incentive targets
Determination of 2006 actual incentives
Decision-making factors for 2006 senior executive compensation
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well in line with UBS’s target of double-digit average annual growth. Total shareholder returns for the year under review were 21.5%. Cumulatively over a three-year period, they were 90.3%, and 104.4% over a five-year period. The UBS share price, moreover, has outperformed the DJ Stoxx Banks Europe Index over the recent three-year period by 15.4%.
level, financial performance improved in all the firm’s core businesses, with a commensurate rise in both market share and competitiveness.
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Compensation, shareholdings and loans
Actual 2006 compensation for executive members of the Board of Directors and the Group Executive Board
stock options based on fair market value. The corresponding ratios in 2005 were 1.55% and 1.71%.
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Compensation for acting executive BoD members and members of the GEB1 | ||||||||||||
Compensation details and additional information | ||||||||||||
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Base salaries and other cash payments | 16,199,045 | 15,592,026 | 14,767,068 | |||||||||
Incentive awards – cash | 107,253,962 | 89,672,195 | 69,745,013 | |||||||||
Employer’s contributions to retirement benefit plans | 873,239 | 1,064,640 | 1,050,322 | |||||||||
Benefits in kind, fringe benefits (at market value) | 1,809,429 | 2,582,112 | 1,607,166 | |||||||||
Total (requested by SWX) | 126,135,675 | 108,910,973 | 87,169,569 | |||||||||
Incentive awards – UBS shares (fair value) | 95,340,402 | 92,877,243 | 79,723,391 | |||||||||
Restricted UBS options (fair value)2 | 25,356,663 | 20,768,251 | 23,736,337 | |||||||||
Total (including shares and options) | 246,832,740 | 222,556,467 | 190,629,297 | |||||||||
Total number of shares granted | 1,258,370 | 1,311,492 | 1,584,510 | |||||||||
Total number of options awarded2 | 2,439,776 | 2,877,526 | 2,188,104 | |||||||||
of which CHF options | 2,439,776 | 1,937,526 | 947,332 | |||||||||
of which USD options | 0 | 940,000 | 1,240,772 | |||||||||
Explanations: | ||
– | Number and distribution of senior executives: | |
– | 2004: three executive BoD, seven GEB members in office as of 31 December and two who stepped down during the year. | |
– | 2005: three executive BoD, and ten GEB members in office as of 31 December and one executive BoD who retired during the year. | |
– | 2006: three executive BoD, and ten GEB members in office as of 31 December. | |
– | Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits, general expense allowances. | |
– | Shares for 2006 are valued at CHF 75.85 per share (average price of UBS shares at virt-x over the last ten trading days of February 2007), and USD 61.49 per share (average price of UBS shares at the NYSE over the last ten trading days of February 2007). 2005 values per share: CHF 70.75 / USD 53.93. 2004 values per share: CHF 50.90 / USD 43.37. | |
– | Options on UBS shares were granted at a strike price of CHF 77.33. This represents ten percent above the average high and low price at the virt-x on the last trading day of February 2006. Options vest three years after grant and expire ten years after the date of grant. | |
– | Fair values per option at grant: CHF 10.40 for options granted in February 2006; CHF 6.23 / USD 6.73 for op- |
tions granted in February 2005 and CHF 9.54 for options granted to match higher share elections in February 2007. No US dollar options have been issued since February 2005. 2004 fair values per option at grant: CHF 11.95 / USD 10.26. | ||
– | Retirement plan benefits: In Switzerland, UBS senior executives participate in the firm’s general pension plans. These comprise: (1) a basic component operated on the defined benefit principle (defined contribution principle as of 1.1.2007); (2) a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments; and (3) a defined contribution principle bonus plan. In 2006, the cap compensation amount included in these plans (for all employees) was set at CHF 774,000. This translates into a maximum annual pension of CHF 313,708 after retirement plus a one-off payout of accumulated capital from the savings plan, in a maximum amount of CHF 297,617. In the US there are two different plans, one operating on a cash balance basis, which entitles the participant to receive a contribution based on compensation limited to USD 250,000. The other plan is a defined contribution plan with compensation included up to a limit of USD 220,000. US senior executives may also participate in the UBS 401K defined contribution plan open to all employees. In the UK, the pension plan for senior executives is limited to an earnings cap of GBP 100,000. |
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Compensation, shareholdings and loans
Additional honorariums and remuneration
Loans granted to executive Board members and members of the GEB
Highest total remuneration for a BoD member
over his 2005 total compensation compares favorably to the Group’s profit increase for financial businesses of 19%.
Compensation of the Chairman
Compensation for former members of the Board and GEB
Highest total compensation for a BoD member
Compensation details and additional information
Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, amounted to CHF 26,591,803 for the financial year 2006:
For the year ended | ||||||||||||
CHF, except where indicated | 31.12.06 | 31.12.05 | 31.12.04 | |||||||||
Base salary | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||
Incentive awards – cash | 10,550,000 | 9,625,000 | 9,500,000 | |||||||||
Employer’s contributions to retirement benefit plans | 98,949 | 98,949 | 82,588 | |||||||||
Benefits in kind, fringe benefits (at market value) | 272,802 | 197,192 | 190,371 | |||||||||
Incentive award – UBS shares (fair value) | 10,550,052 | 9,625,113 | 9,500,078 | |||||||||
Restricted UBS options (fair value) | 3,120,000 | 2,429,700 | 0 | 1 | ||||||||
Total | 26,591,803 | 23,975,954 | 21,273,037 | |||||||||
Number of UBS shares granted | 139,091 | 136,044 | 186,642 | |||||||||
Number of UBS options granted | 300,000 | 390,000 | 0 | 1 | ||||||||
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Additional information on equity-based compensation
Disclosure differences between IFRS and SWX requirements
Disclosure of management transactions
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Compensation, shareholdings and loans
Non-executive directors’ remuneration
– | Remuneration of non-executive directors is not dependent on the Group’s financial performance. | |
– | Board members receive a base fee of CHF 300,000. This excludes a CHF 15,000 reimbursement of business expenses incurred in the performance of their duties. | |
– | The chairmen and members of the Audit, Compensation, Nominating and Corporate Responsibility Committees receive additional retainers between CHF 100,000 and CHF 600,000 per mandate, commensurate with the workload associated. | |
– | Fees are paid 50% in cash and 50% in restricted UBS shares. However, non-executive Board members can elect to have 100% of their remuneration paid in restricted UBS shares. For the period between the 2006 and 2007 |
AGMs, four non-executive Board members elected to receive 100% – rather than the mandatory minimum 50% – of their remuneration in restricted UBS shares. This preference, disclosed in accordance with the management transaction requirements of the SWX, will be effective for 2007 only. |
Actual remuneration 2006 for non-executive members of the Board of Directors
Remuneration for non-executive members of the Board | ||||||||||||
For the period | ||||||||||||
CHF, except where indicated | AGM 2006/2007 | AGM 2005/2006 | AGM 2004/2005 | |||||||||
Cash | 1,688,802 | 2,292,321 | 2,210,130 | |||||||||
Restricted UBS shares at fair value | 4,249,951 | 3,772,956 | 3,516,681 | |||||||||
Total | 5,938,753 | 6,065,277 | 5,726,811 | |||||||||
Number of UBS shares granted (15% discount) | 56,031 | 53,328 | 69,090 | |||||||||
Explanations: | ||
– | Number of non-executive BoD members: 2004: seven acting members as of 31 December. 2005: eight acting members as of 31 December. 2006: nine acting members as of 31 December. | |
– | Shares valued at CHF 75.85 (average price of UBS shares at virt-x over the last ten trading days of February 2007), |
discount price CHF 64.45. The shares are blocked for four years. Related parties of non-executive BoD members are not granted any shares. Value per share 2005: CHF 70.75; 2004: CHF 50.90 | ||
– | Allowance for “out of pocket” expenses (CHF 15,000) are in addition. |
Memberships on Board committees for non-executive members of the Board | ||||||||||||||||
For the AGM period 2006 / 2007 | ||||||||||||||||
Corporate | ||||||||||||||||
Audit | Compensation | Nominating | Responsibility | |||||||||||||
Name | Committee | Committee | Committee | Committee | ||||||||||||
Ernesto Bertarelli | ü | |||||||||||||||
Sir Peter Davis | ü | |||||||||||||||
Gabrielle Kaufmann-Kohler | ü | |||||||||||||||
Rolf A. Meyer | ü | Chair | ||||||||||||||
Helmut Panke | Chair | |||||||||||||||
Peter Spuhler | ü | |||||||||||||||
Peter Voser | ü | |||||||||||||||
Lawrence A. Weinbach | Chair | |||||||||||||||
Joerg Wolle | ü | |||||||||||||||
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Share and option ownership
Loans granted to non-executive Board members
granted to companies related to six non-executive Board members amounted to CHF 865.5 million, including guarantees, contingent liabilities and unused committed credit facilities. For details see note 33 to the financial statements.
Shares held by non-executive members of the Board1 | ||||||||
Shares held as of 31 December 2006: | 200,676 | |||||||
Of which | ||||||||
Non-restricted | Blocked until 2007 | Blocked until 2008 | Blocked until 2009 | Blocked until 2010 | ||||
23,668 | 42,164 | 39,242 | 53,494 | 42,108 | ||||
No individual board member holds 1% or more of all shares issued.
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Shareholders’ participation rights
Shareholders’ participation rights
UBS is committed to making it as easy as possible for shareholders to take part in its decision-making processes. Almost 200,000 directly registered shareholders and some 70,000 US shareholders registered via nominee companies regularly receive written information about the firm’s activities and performance and are personally invited to shareholder meetings.
Relations with shareholders
UBS fully subscribes to the principle of equal treatment of all shareholders, ranging from large investment institutions to individual investors, and regularly informs them about the development of the company of which they are co-owners.
Voting rights, restrictions and representation
UBS places no restrictions on share ownership and voting rights. Nominee companies and trustees, who normally represent a great number of individual shareholders, may register an unlimited number of shares, but voting rights are limited to a maximum of 5% of outstanding UBS shares in order to avoid the risk of unknown shareholders with large stakes being entered into the share register. Securities clearing organizations such as The Depository Trust Company (DTC) in New York and SIS SegaInterSettle in Switzerland are exempt from the 5% voting limit. SIS, however, does not register its holdings with voting rights.
Statutory quorums
Shareholder resolutions, the election and re-election of Board members, and the appointment of the Group and Statutory Auditors are decided at the General Meeting of Shareholders by an absolute majority of the votes cast, excluding blank and invalid ballots. Swiss company law requires that for certain specific issues a majority of two-thirds of the votes represented at the meeting vote in favor of the resolution. These issues include the introduction of voting shares, the introduction of restrictions on the transferability of registered shares, conditional and authorized capital increases, and restrictions or exclusion of shareholders’ preemptive rights.
Convocation of general meetings of shareholders
The Annual General Meeting of Shareholders normally takes place in April, but in any case within six months of the close of the financial year. A personal invitation including a detailed agenda and explanation of each motion is sent to every registered shareholder at least 20 days ahead of the scheduled meeting. The meeting agenda is also published in various Swiss and international newspapers and on the internet at www.ubs.com/shareholder-meeting.
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at least 10% of the share capital may, at any time, ask in writing that an Extraordinary General Meeting be convened to deal with a specific issue put forward by them. Such a request may also be brought forward during the AGM.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an aggregate par value of CHF 62,500 may submit proposals for matters to be placed on the agenda for consideration by the shareholders’ meeting.
to be placed on the agenda must include the actual motions to be put forward, together with a short explanation, if necessary. The Board of Directors formulates an opinion on the proposals, which is published together with the motions.
Registrations in share register
The general rules for being entered with voting rights in the Swiss or US Share Register of UBS also apply before General Meetings of Shareholders (for details see previous page). There is no “closing of the share register” in the days ahead of the meeting. Registrations including the transfer of voting rights are processed for as long as technically possible, normally until two days before the meeting.
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Change of control and defense measures
Change of control and defense measures
UBS refrains from restrictions that would hinder developments initiated in or supported by the financial markets. It also does not have any specific defenses in place to prevent hostile takeovers.
Duty to make an offer
An investor who acquires 331/3% of all voting rights, whether they are exercisable or not, has to submit a takeover offer for all shares outstanding, according to Swiss stock exchange law. UBS has not elected to change or opt out of this rule.
Clauses on changes of control
The service agreements and employment contracts of the executive Board members, of the members of the Group Ex-
ecutive Board and of the Group Managing Board do not contain clauses triggered by a change of control. UBS does not offer “golden parachutes” to its senior executives. Employment contracts contain notice of termination periods of twelve months for GEB members and six to twelve months for GMB members, depending on local market practice. During this notice period they are entitled to salary and bonuses.
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Corporate Governance
Auditors
Auditors
Audit plays an important role in corporate governance. While putting high priority on remaining independent, the external auditors and Group Internal Audit closely coordinate their work, thereby ensuring the most effective performance of their responsibilities. The Chairman’s Office, the Audit Committee and ultimately the Board of Directors supervise the functioning of audit work.
External, independent auditors
Ernst & Young Ltd., Basel, have been assigned the mandate to serve as global auditors for the UBS Group. They assume all auditing functions according to laws, regulatory requests, and the UBS Articles of Association (see also the paragraph about auditors responsibilities in the regulation and supervision section on page 145–147). The Audit Committee of the Board annually assesses the independence of Ernst & Young Ltd. and has determined that they meet all independence requirements established by the US Securities and Exchange Commission (SEC). Authority for pre-approval of all additional audit, audit-related and non-audit mandates to the principal auditors lies with the Audit Committee, ensuring that independence of the auditors is not jeopardized by conflicts of interests through additional mandates. Ernst & Young Ltd. inform the Audit Committee annually of the measures they are taking to ensure their own and their employees’ independence from UBS. The Audit Committee assesses this information on behalf of the Board and informs the Board accordingly.
Duration of the mandate and term of office of the lead partners
After the UBS-SBC merger, Ernst & Young Ltd., Basel were first appointed as UBS’s principal external auditor for the audit of the 1998 financial statements. Following a comprehensive evaluation process during 1999, they were proposed for re-election at the 2000 AGM. The AGMs through 2006 annually confirmed their mandate, and they will be proposed for re-election at the 2007 AGM.
Fees paid to principal external auditors
UBS paid the fees (including expenses) listed in the table below to its principal external auditors Ernst & Young Ltd.
Fees paid to external auditors
UBS paid the following fees (including expenses) to its principal external auditors Ernst & Young Ltd.:
For the year ended | ||||||||
in CHF thousand | 31.12.06 | 31.12.05 | ||||||
Audit | ||||||||
Global audit fees | 48,925 | 39,802 | ||||||
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) | 14,766 | 9,984 | ||||||
Total audit | 63,691 | 49,786 | ||||||
Non-audit | ||||||||
Audit-related fees | 7,843 | 10,870 | ||||||
Tax advisory | 1,249 | 2,511 | ||||||
Other | 3,043 | 3,076 | ||||||
Total non-audit | 12,135 | 16,457 | ||||||
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Auditors
agreed upon procedures reports required by contract and audits performed at the request of management. It also includes due diligence work on acquisitions and initial work relating to the eventual attestation as to UBS’s compliance with section 404 of the US Sarbanes-Oxley Act of 2002.
Pre-approval procedures and policies
All services provided by Ernst & Young Ltd. have to be pre-approved by the Audit Committee of the Board. A pre-approval may be granted either for a specific mandate or in the form of a general pre-approval authorizing a limited and well-defined type and amount of services. The Audit Committee has delegated pre-approval authority to its chairman. After endorsement by the Group CFO, requests for mandates are routed to the Company Secretary, who submits them to the chairman of the Audit Committee for approval. At each quarterly meeting, the Audit Committee is informed on the approvals granted by its chairman.
Group Internal Audit
With 300 staff members worldwide at 31 December 2006, Group Internal Audit supports the Board of Directors and its Committees by independently assessing the effectiveness of UBS’s system of internal controls and compliance of the Firm with statutory, legal and regulatory requirements. All key issues raised by Group Internal Audit are communicated to the management responsible, to the Group CEO and to the executive members of the Board of Directors via formal Audit Reports. The Chairman’s Office and the Audit Committee of the Board are regularly informed of important findings. Group Internal Audit closely cooperates with internal and external legal advisors and risk control units on investigations into major control issues.
To maximize its independence from management, the Head of Group Internal Audit, Markus Ronner, reports directly to the Chairman of the Board. Group Internal Audit has unrestricted access to all accounts, books and records and must be provided with all information and data needed to fulfil its auditing duties. The Chairman’s Office may order special audits to be conducted, and the Group Executive Board, with the agreement of the Chairman, may also instruct Group Internal Audit to conduct such audits.
Supervisory and control instruments vis-à-vis
the external auditors
The Audit Committee, on behalf of the Board of Directors, monitors the qualification, independence and performance of the Group Auditors and their lead partners. It prepares proposals for appointment or removal of the external auditors for review by the full Board, which then submits the proposal to the AGM.
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Corporate Governance
Information policy
Information policy
Our financial disclosure policies aim at achieving a fair market value for UBS shares through open, transparent and consistent communication with investors and financial markets.
UBS provides regular information to its shareholders and to the financial community.
Financial results will be published as follows:
First Quarter | 3 May 2007 | |
Second Quarter | 14 August 2007 | |
Third Quarter | 30 October 2007 | |
Fourth Quarter | 14 February 2008 | |
The Annual General Meeting of Shareholders will take place as follows:
2007 | 18 April 2007 | |
2008 | 23 April 2008 | |
2009 | 15 April 2009 | |
UBS meets with institutional investors worldwide throughout the year. We regularly hold results presentations, specialist investor seminars, roadshows, individual and group meetings. Where possible, meetings involve senior management as well as members of our Investor Relations team. We make use of diverse technologies such as webcasting, audio links and cross-location video-conferencing to widen our audience and maintain contact with shareholders around the world.
Financial disclosure principles
Based on our discussions with analysts and investors, we believe that the market rewards companies that provide clear, consistent and informative disclosure about their business. Our aim therefore is to communicate UBS’s strategy and results in such a way that shareholders and investors can gain a full and accurate understanding of how the company works, what its growth prospects are and what risks they might entail.
– | Transparency:our disclosure is designed to enhance understanding of the economic drivers and detailed results of the business, in order to build trust and credibility | ||
– | Consistency:we aim to ensure that our disclosure is consistent and comparable within each reporting period and between reporting periods | ||
– | Simplicity:we try to disclose information in as simple a manner as possible, allowing readers to gain the appropriate level of understanding of our businesses’ performance | ||
– | Relevance:we aim to avoid information overload by focusing our disclosure on what is relevant to UBS’s stakeholders, or required by regulation or statute | ||
– | Best practice:we strive to ensure that our disclosure is in line with industry norms, and if possible leads the way to improved standards. |
Financial reporting policies
We report UBS’s results after the end of every quarter, and include a breakdown of results by business groups and business units and extensive disclosures relating to credit and market risk.
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Information policy
We are committed to maintaining the transparency of UBS’s reported results and to ensuring that analysts and investors can make meaningful comparisons with previous periods. If there is a major reorganization of our business units or if changes to accounting standards or interpretations lead to a material change in the Group’s reported results, we restate UBS’s results for previous periods to show how they would have been reported according to the new basis, and provide clear explanations of all changes.
US regulatory disclosure requirements
As a Swiss company listed on the New York Stock Exchange (NYSE), we comply with the disclosure requirements of the Securities and Exchange Commission (SEC) and the NYSE for private foreign issuers. These include the requirement to make certain filings with the SEC. As a private foreign issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to UBS. We provide UBS’s regular quarterly reports to the SEC under cover of Form 6-K, and file an annual report on Form 20-F. We also provide additional disclosure at half-year to meet specific SEC requirements, which again is provided under cover of Form 6-K.
These reports, as well as materials sent to shareholders in connection with annual and special meetings, are all available on our website, at www.ubs.com/investors. As of the end of the period covered by this Annual Report, an evaluation was carried out under the supervision of our management, including the Group CEO and Group CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15e) under the US Securities Exchange Act of 1934. Based upon that evaluation, the Group CEO and Group CFO concluded that these disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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Corporate Governance
Regulation and supervision
Regulation and supervision
We aim to comply with all applicable provisions and to work closely and maintain good relations with regulators in all jurisdictions where we conduct business.
Regulation and supervision in Switzerland
General
Regulatory policy
– | Guidelines on the simplified prospectus for structured products (forthcoming) | |
– | Agreement of Swiss Banks on Deposit Insurance, 2005 | |
– | Allocation Directives for the New Issues Market, 2004 | |
– | Agreement on Swiss banks’ code of conduct with regard to the exercise of due diligence (CDB 03), 2003 | |
– | Directives on the Independence of Financial Research, 2003 | |
– | Guidelines on Internal Control, 2002 | |
– | Guidelines on the handling of dormant accounts, custody accounts and safe-deposit boxes held in Swiss banks, 2000 |
Certain aspects of securities broking, such as the organization of trading, are subject to self-regulation through the SWX Swiss Exchange (for example, the Listing regulation of 24 January 1996, as amended) and the Swiss Bankers’ Association (for example, the Code of Conduct for securities brokers), under the overall supervision of the SFBC. As a means of improving information flows to investors, the SWX Swiss Exchange on 1 July 2005 enacted an amendment requiring the disclosure of management transactions.
Role of external auditors and direct supervision of large banking groups
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Regulation and supervision
Reporting requirements and capital requirements
Disclosures to the Swiss National Bank
Regulation and supervision in the US
Banking regulation
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– | Sales methods | |
– | Trade practices among broker-dealers | |
– | Use and safekeeping of customers’ funds and securities | |
– | Capital structure | |
– | Record-keeping | |
– | The financing of customers’ purchases | |
– | The conduct of directors, officers and employees. |
These entities are regulated by a number of different government agencies and self-regulatory organizations, including the Securities and Exchange Commission and the National Association of Securities Dealers (NASD). Depending upon the specific nature of a broker-dealer’s business, it may also be regulated by some or all of the New York Stock Exchange (NYSE), the Municipal Securities Rulemaking Board, the US Department of the Treasury, the Commodities Futures Trading Commission, and other exchanges of which it may be a member. In addition, the US states, provinces and territories have local securities commissions that regulate and monitor activities in the interest of investor protection. These regulators have a variety of sanctions available, including the authority to conduct administrative proceedings that can result in censure, fines, the issuance of cease-and-desist orders or the suspension or expulsion of the broker-dealer or its directors, officers or employees.
Regulation and supervision in the United Kingdom
UBS’s operations in the United Kingdom are regulated by the Financial Services Authority (FSA), the UK’s single regulator, which establishes a regime of rules and guidance governing all relevant aspects of financial services business.
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Compliance with NYSE listing standards on corporate governance
Compliance with NYSE listing standards on
corporate governance
UBS aims to comply with all relevant standards on corporate governance. As a foreign company, listed on the New York Stock Exchange (NYSE), we are only required to comply with the rules relating to audit committees and annual certifications. UBS, however, has voluntarily adopted the overwhelming majority of the NYSE rules for US companies.
On 4 November 2003, the Securities and Exchange Commission (SEC) approved the revised New York Stock Exchange corporate governance rules. Foreign private issuers – such as UBS – were required to comply with the rules on Audit Committees by 31 July 2005 and had to also disclose significant differences and material non-compliance with all other NYSE standards by the first annual shareholders meeting after 15 January 2004. UBS fully complies with the SEC requirements relating to Audit Committees and fulfills the overwhelming majority of the NYSE listing standards on corporate governance. The few exceptions are mainly due to the different legal system in Switzerland and are explained in detail in this chapter.
Independence of directors
The Board of Directors, based on the listing standards of the NYSE, approved “Criteria for defining external Board members’ independence”, which are published on the firm’s website under www.ubs.com/corporate-governance. Each external director has to personally confirm his compliance with the criteria. The Board, at its meeting of 8 February 2007, affirmatively determined that Ernesto Bertarelli, Sir Peter Davis, Gabrielle Kaufmann-Kohler, Rolf A. Meyer, Helmut Panke, Peter Spuhler, Peter Voser, Lawrence A. Weinbach and Joerg Wolle have no material relationship with UBS, either directly or as a partner, controlling shareholder or executive officer of a company that has a relationship with UBS. Each of them also met all other requirements of the Board and of the New York Stock Exchange with respect to independence, with the exception of Ernesto Bertarelli. Mr. Bertarelli does not satisfy one of the independence requirements because UBS is the main sponsor to Team Alinghi, the defender of the “America’s Cup 2007”. Mr. Bertarelli is the owner of Team Alinghi SA. Otherwise Ernesto Bertarelli fully satisfies the New York Stock Exchange independence requirements. The Board of Directors does not believe that UBS’s sponsorship of Team Alinghi impairs Mr. Bertarelli’s independence in any way.
Board committees
UBS has established audit, compensation and nominating committees. The charters for all Board Committees are published on www.ubs.com/corporate-governance. Additional information on the Board Committees’ mandates, responsibilities and authorities and their activities during 2006 can be found on pages 113–119 of this section.
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Differences from NYSE standards
According to Rule 303A.11 of the NYSE Corporate Governance listing standards, foreign private issuers have to disclose any significant ways in which their corporate governance practices differ from those to be followed by domestic companies. The UBS Board of Directors has determined the following differences:
For US listed companies the NYSE rules require: | ||
– | Responsibility of the Audit Committee for appointment, compensation, retention and oversight of the Independent Auditors. | |
UBS’s Audit Committee has been assigned all these responsibilities, except for appointment of the Independent Auditors, which – according to Swiss Company Law – is required to be voted upon by shareholders. The Audit Committee assesses the performance and qualification of the External Auditors and submits its proposal for appointment, re-appointment or removal to the full Board, which brings this proposal to the shareholders for vote at the Annual General Meeting (AGM). | ||
– | Discussion of risk assessment and risk management policies by Audit Committee. | |
UBS, as a global financial services firm, has a sophisticated and complex system of risk management and control. Risk management and control is the clear responsibility of the business. The Board of Directors, of which the Audit Committee members are part, has authority to define the firm’s risk principles and its risk capacity. The Chairman’s Office, acting as Risk Committee on behalf of the full Board, is responsible for monitoring the adherence to the defined risk principles and for reviewing whether the business and control units run appropriate systems for the management and control of risks. The Audit Committee is regularly updated by Group Internal Audit on specific risk issues. | ||
– | Assistance by Audit Committee of the internal audit function. | |
In accordance with the Swiss Federal Banking Commission’s Circular Letter on Internal Audit, dated 14 December 1995, UBS gave the Chairman’s Office responsibility and authority for supervising the internal audit function. The complexity of the financial services industry requires in-depth knowledge to allow for an effective supervision of the internal audit function. The Chairman’s Office reports back to the full Board on all important findings, and the Audit Committee is regularly updated directly by the Head of Group Internal Audit. | ||
– | Responsibility of the Nominating Committee for oversight of management and Board evaluation. |
Management evaluation (performance of the Group CEO and the members of the Group Executive Board) is done by the Chairman’s Office and reported to the full Board. All Board Committees perform a self-assessment of their activities and report back to the full Board. The Board has direct responsibility and authority to evaluate its own performance, without preparation by a Board Committee. | ||
– | Proxy statement reports of the Audit and Compensation Committees. | |
Under Swiss Company Law, all reports addressed to shareholders are provided and signed by the full Board, which has ultimate responsibility vis-à-vis shareholders. The Committees submit their reports to the full Board. | ||
– | Shareholders’ votes on equity compensation plans. | |
Under Swiss Company Law, the approval of compensation plans is not within the authority of the AGM, but of the Board of Directors. The reason for this approach is that the capital of a Swiss company is determined in the Articles of Association and, therefore, each increase of capital has to be submitted for shareholders’ approval. If equity-based compensation plans result in a need for a capital increase, AGM approval is mandatory. If, however, shares for such plans are purchased in the market, shareholders do not have the authority to vote on their approval. | ||
– | Non-management directors to meet at least once per year separately, without any directors participating who are not independent because of their employment by the company. | |
Under Swiss Banking Laws Board members are not allowed to assume any day-to-day management responsibility. UBS therefore considers all its Board members as “non-management directors”, despite the fact that three “executive” Board members perform their mandate on a full-time basis and are remunerated by the company for their services. The Board meets regularly without executive management, but including the three executive Board members. |
The New York Stock Exchange has published new forms for the annual and interim written affirmation required under Section 303A.12(c) of the NYSE Corporate Governance listing standards. NYSE-listed foreign private issuers are required to submit an annual written affirmation and accompanying exhibits to the NYSE, certifying that it is in compliance with the NYSE corporate governance requirements applicable to foreign private issuers – specifically the audit committee requirements and the requirement to provide a statement of significant corporate governance differences. NYSE-listed foreign private issuers have become subject to these requirements as of 31 July 2005. UBS filed the requested affirmation forms and exhibits in mid-July 2005.
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Compliance with NYSE listing standards on corporate governance
Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Whistleblowing Protection
The Board of Directors has adopted corporate governance guidelines, which are published on the UBS website at www. ubs.com/corporate-governance.
>> The code is available on the UBS website at www.ubs.com/corporate-governance. | ||
>> The Audit Committee Procedures are available on the UBS website (www.ubs.com/corporate-governance). | ||
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Corporate Governance
Senior leadership
Senior leadership
The senior leadership of UBS, in addition to the Group Executive Board, includes the members of the Group Managing Board (GMB) and the Vice Chairmen of the Business Groups.
Group Managing Board
The members of the GMB are drawn from the management teams of the Business Groups and the Corporate Center or assume special Group functions. The GMB plays a crucial role in achieving UBS’s one-firm vision and promoting the UBS agenda. Its role is to understand, challenge and contribute to further developing the firm’s direction, values and principles and to promote and communicate its culture.
Members as of 31 December 2006 and announced changes.
Global Wealth Management & Business Banking | ||
Michel Adjadj | Head of Wealth Management Eastern Mediterranean, Middle East & Africa | |
Bernhard Buchs | Chief Risk Officer | |
Robert J. (Bob) Chersi | Deputy Chief Financial Officer | |
Arthur Decurtins | Head of Wealth Management Benelux, Germany & Central Europe (stepped down on 1 March 2007) | |
Diane Frimmel | Director of Operations and Services, Wealth Management US | |
Marten Hoekstra | Head of Wealth Management US | |
Dieter Kiefer | Head of Wealth Management Western Europe | |
Martin Liechti | Head of Wealth Management Americas | |
Hans-Ulrich Meister | Head of Business Banking | |
Francesco Morra | Head of Wealth Management Italy | |
Tom Naratil | Head of Market Strategy and Development | |
Rolf Olmesdahl | Head Information Technology | |
Werner H. Peyer | Head of Wealth Management for Zurich region | |
James M. Pierce | Head Western Division, Wealth Management US | |
James D. Price | Head Eastern Division, Wealth Management US | |
Joe Rickenbacher | Chief Credit Officer | |
Alain Robert | Head of Wealth Management Switzerland | |
Felix B. Ronner | Global Head of Transaction Products and Head of Products & Services Europe | |
Kathryn Shih | Head of Wealth Management Asia Pacific | |
Jean Francis Sierro | Head of Resources (retired on 1 February 2007) | |
Anton Stadelmann | Chief Financial Officer | |
Michael A. Weisberg | Global Head of Products & Services | |
Klaus W. Wellershoff | Global Head Wealth Management Research | |
Stephan Zimmermann | Chief Operations Officer | |
Global Wealth Management & Business Banking (continued) | ||
New members as of 1 March 2007: | ||
Matthew J. Brumsen | Head Business Unit UK, Northern and Eastern Europe | |
Gabriela Payer Fruithof | Global Head Human Resources | |
Niklaus Pfau | Head Advisory & Sales Management WM International | |
Michael Strobaek | Global Head Investment Solutions | |
Juerg Zeltner | CEO of UBS Deutschland AG | |
Investment Bank | ||
Andy Amschwand | Head of Investment Bank Switzerland | |
Global Head of Foreign Exchange / | ||
Cash and Collateral Trading | ||
David Aufhauser | Global General Counsel | |
David A. Bawden | Chief Credit Officer | |
Maria Bentley | Global Head of Human Resources | |
Michael Bolin | Chief Administrative Officer | |
(stepped down on 1 March 2007) | ||
Mark Branson | CEO and President of UBS Securities Japan Ltd. | |
Simon C. Bunce | Global Head of Fixed Income and Rates | |
Daniel Coleman | Joint Global Head of Equities | |
Regina A. Dolan | Chief Financial Officer | |
André Esteves | Chairman and CEO UBS Latin America | |
Juerg Haller | Chief Operating Officer UBS Latin America, Investment Bank | |
J. Richard Leaman III | Joint Global Head Investment Banking Department | |
Jeffrey A. McDermott | Joint Global Head Investment Banking Department | |
Ken Moelis | President of Investment Bank | |
Brad Orgill | CEO and Chairman, Australasia | |
Jeremy Palmer | CEO of the Investment Bank in Europe, Middle East and Africa (EMEA) | |
John Pius Wall | Joint Global Head of Equities | |
Alexander Wilmot-Sitwell | Joint Head Investment Banking Department | |
Robert Wolf | Chief Operating Officer UBS Investment Bank and Chairman of UBS Investment Bank Americas | |
New members as of 1 March 2007: | ||
Peter W. Burnett | Executive Chairman, Middle East | |
Suneel Kamlani | Chief of Staff, Investment Bank | |
Richard B. Metcalf | Chief Risk Officer | |
Global Asset Management | ||
Mario Cueni | Global Head of Legal, Compliance & Risk Control | |
Gabriel Herrera | Head of Europe, Middle East & Africa | |
Christof Kutscher | Head of Asia Pacific | |
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Global Asset Management (continued) | ||
Thomas Madsen | Global Head of Equities | |
John A. Penicook Jr. | Global Head of Fixed Income | |
Joe Scoby | Head of Alternative and Quantitative Investments | |
Brian Singer | Head of Global Investment Solutions | |
Kai Sotorp | Head of the Americas | |
Paul Yates | Global Head of Strategic Client Development | |
(stepped down on 1 March 2007) | ||
New members as of 1 March 2007: | ||
Paresh Sodha | Chief Financial Officer | |
Corporate Center | ||
Scott G. Abbey | Chief Technology Officer | |
Charles Nicholas Bolton | Group Head of Operational Risk | |
Thomas Hammer | Group Head of Human Resources | |
(to step down on 1 April 2007) | ||
Tom Hill | Chief Communication Officer | |
Stephan Keller | Group Treasurer | |
Philip J. Lofts | Group Chief Credit Officer | |
Robert W. Mann | Head of Leadership Institute | |
Neil R. Stocks | Head of Group Compliance | |
M. Andrew Threadgold | Group Head of Market Risk | |
Peter Thurneysen | Head of Group Controlling & Accounting | |
William Widdowson | Head of Group Accounting Policy | |
New members as of 1 March 2007: | ||
Gerhard Bruederlin | Group Head of Human Resources | |
Seth F. Cohen | Head of Group Offshoring | |
Chairman’s Office | ||
Luzius Cameron | Company Secretary | |
Markus Ronner | Head of Group Internal Audit | |
Business Group Vice Chairmen
Business Group Vice Chairmen are appointed to support the businesses in their relationships with key clients. They strongly contribute to the success of UBS and work closely together with the members of the Group Managing Board.
Members as of 31 December 2006 and announced changes
Global Wealth Management & Business Banking | ||
Thomas K. Escher | Wealth Management | |
Carlo Grigioni | Wealth Management | |
New members as of 1 March 2007: | ||
Arthur Decurtins | Wealth Management | |
Investment Bank | ||
Ken Costa | ||
Lord Brittan of Spennithorne, QC | ||
Robert Gillespie | ||
Phil Gramm | ||
New members as of 1 March 2007: | ||
Chris Brodie | ||
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Corporate Responsibility
Responsible behavior is an important part of our culture,
identity and business practice.
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Corporate Responsibility
As a leading financial services firm, one of our main purposes is to create long-term value. We achieve this by providing our clients with value-added products and services, promoting a corporate culture that adheres to high ethical standards, and by generating superior and sustainable returns for our shareholders. We firmly believe that sustainable growth and investment for any business is also dependent on what it does above and beyond what laws and regulations require. It is why we are committed to creating a working environment based on the values of equal opportunity, diversity and meritocracy. We have also adopted measures to protect the environment, we adhere to high social standards and contribute to the communities we are a part of. All our activities are underpinned by our governance structure, which complies with the leading codes of best practices.
>> For more on our workforce, see the employees section. | ||
>> For more on governance, see the corporate governance section. | ||
Adherence to the UN Global Compact initiative
In 2000, UBS was one of the first companies to join the UN Global Compact initiative. Since then, the Global Compact
has expanded its scope, and it now comprises ten principles covering the areas of human rights, labor standards, environment and corruption. Its geographic reach is now global, with over 2,900 business participants from 100 countries adhering to it at the end of 2006. Although it is an important component in any discussion with the public about the role of business in society, it is ultimately aimed at concrete action. Key among these, from our point of view, is the “Who Cares Wins” initiative which, initiated by 20 financial institutions in June 2004, maps the progress made by different actors in integrating environmental, social and governance issues into mainstream investment decisions. UBS has been involved in this initiative since its inception and we also participate in other Global Compact-related endeavors, including its Swiss network, which was established in 2006.
Human rights
In this spirit, the UBS Statement on Human Rights sets out our approach to promote and respect human rights standards within our sphere of influence. This is in line with our endorsement of the UN Global Compact and its underlying principles.
Employees
Suppliers and Contractors
Clients
We regularly report on our progress in implementing this Statement as part of UBS’s annual reporting.
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Financial institutions have been dealing with human rights issues for years, but have frequently employed different descriptions for the issue. For example, human resources and diversity policies for equal opportunity and anti-discrimination programs can address human rights issues, as can employment and health and safety policies. The UBS Statement on Human Rights both sets out our position and embraces the key issues in a single document.
Labor standards
>> For more on our labor standards, see the employee section. | ||
Environment
>> For more information on the environment, see the end of this section. | ||
Fighting corruption
>> For more information on our AML activities, see next page. | ||
Our corporate responsibility processes
In 2001, we created a Corporate Responsibility Committee (CRC). It assesses how to meet the evolving expectations of our stakeholders related to our corporate conduct. If the committee concludes that there is a gap between what stakeholders expect and what we practice – and that this gap represents either a risk or an opportunity to the firm – the CRC suggests appropriate actions to management.
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CR training and awareness raising
It is important that our employees are aware of UBS’s corporate responsibility efforts and processes. Apart from the general information published on our intranet and internet, in 2006 we directly provided nearly 3,000 employees in all businesses with information on the approach UBS takes towards corporate responsibility through a range of training sessions.
Contributing to society – preventing money laundering
Extensive and constant efforts to prevent money laundering and terrorist financing are important contributions to society. The integrity of the financial system is the responsibility of all those involved in it. We take our duties extremely seriously – in protecting both the system at large and our own operations. Our stakeholders expect us to be at the forefront of developing strategies and implementing measures necessary to achieve these objectives. The threats posed by money laundering and terrorism are real, and we all have a role in contributing to the fight against them as effectively as possible.
nancing of terrorism. Its key task is to help employees to recognize, and then manage and report suspicious activities – in a way that neither treats all clients as potential criminals nor unduly hinders our normal banking business. While doing so, we remain completely committed to the respect and protection of our clients’ privacy, a cornerstone of our firm’s philosophy, which we integrate into our money laundering prevention structure to the best of our abilities.
OurVision and Valuesstate that we are a member of the global community and should behave as a responsible corporate citizen. Our firm and its employees should conduct themselves in a manner that is above reproach, as preserving our integrity is vital to our most valuable asset – our reputation.
Employment of staff
Conflicts of interest
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tion to “principle based” regulation (including the so called “risk based” approach) continued. This requires UBS to continue to reassess its own policies and procedures, focusing on our particular risks, further develop our own risk based model and ensure we continue to differentiate with external stakeholders on what is possible regarding terrorism and money laundering prevention. For these reasons, risk based AML policies were updated during the year both at Group level and in each Business Group. This allowed us to streamline and increase consistency between Business Groups in their AML / KYC policies and procedures using consistent methodologies and tools (for example the creation of a consistent country risk framework for identifying sensitive countries) while allowing divergence where this made sense.
GRI |
See www.ubs.com/corporateresponsibility for the GRI content index. The GRI content index refers to the GRI 3 Guidelines and the Financial Services Sector Supplements which form together a voluntary reporting framework that provides guidance on how organizations can disclose their sustainability performance.
monitoring, screening, and searching guidelines, its correspondent banking principles, and its efforts to suppress terrorism finance. Most recently, we have collaborated on AML guidance for mutual funds and investment and commercial banking and in a statement against corruption.
Anti-money laundering and
bribery of public officials
We have a policy governing the handling and uniform treatment of memberships and donations by UBS globally. It specifies that donations are goodwill payments made to organizations whose activities serve (among others) nonprofit, charitable, cultural and educational purposes.
Information security
UBS is committed to integrating environmental considerations into all its business activities. Our environmental policy has put the practices prescribed by UNEP into operation in the areas of banking and in-house operations.
Human rights
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inars for countries still developing anti-money laundering and / or contra terrorist financing legislation.
Investing in our communities
The “raison d’être” behind our well-established community affairs program is the recognition that in addition to the economic impact generated through our business activities, UBS seeks to have a positive influence on the social and environmental well being of local communities in which it is active.
and associations that donate money to worthy causes in Switzerland. The association “A Helping Hand from UBS Employees” assists disabled and disadvantaged people to lead active, independent lives. UBS encourages this employee involvement by matching the funds raised in 2006. The UBS Cultural Foundation fosters creativity, appreciation of different forms of art, and contact between artists and society. The foundation financially supports fine arts, film, literature, music, preservation of historic buildings, archeological projects and studies in history and philosophy in Switzerland. In similar fashion, the purpose of the UBS Foundation for Social Issues and Education is to support deprived communities in Switzerland in various forms. Non-profit, charitable organizations, projects and initiatives aiming at improving social welfare receive monetary assistance from these funds.
InSwitzerland, among other projects, we support the “Lukas house”, a facility for the handicapped. Located in Grabs, it provides a home and workplace for about 50 handicapped adults. In autumn 2006, UBS employee volunteers built, together with the handicapped residents, a path called “the school of walking”. Through a series of exercises, the path helps to raise the self-esteem for the
In theAsia Pacificregion, UBS assists the Education Development Fund of Thailand’s (EDF) “Barter between Brothers” project in northeastern Thailand, a rural area frequently ravaged by drought. A substantial number of students still lack proper food to eat, stunting their growth. EDF, realizing the importance of lunch meals and the need for agricultural skills training, teaches them how to grow oyster mushrooms, breed frogs
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SRI invested assets | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
CHF billion, except where indicated | GRI1 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||||
UBS | 2,989 | 2,652 | 2,217 | 13 | ||||||||||||||||
Socially Responsible Investments (SRI) | ||||||||||||||||||||
Positive criteria | F9 | 1.84 | 1.05 | 0.78 | 75 | |||||||||||||||
Engagement | F9 | 55.81 | 38.90 | 31.60 | 43 | |||||||||||||||
Exclusion criteria | F9 | 16.17 | 10.73 | 7.32 | 51 | |||||||||||||||
Total SRI assets | F9 | 73.82 | 50.68 | 39.70 | 46 | |||||||||||||||
Proportion of invested assets (%)2 | 2.47 | % | 1.91 | % | 1.79 | % | ||||||||||||||
Performance of UBS’s SRI Funds (%) | ||||||||||||||||||||
Absolute performance Eco Performance3 | 10.82 | 21.79 | 4.66 | |||||||||||||||||
Relative performance Eco Perf. vs. MSCI4 | (0.41 | ) | (5.72 | ) | (1.30 | ) | ||||||||||||||
Positive criteria:applies to the active selection of companies, focusing on how a company’s strategies, processes and products impact its financial success, the environment and society.
Engagement:investors enter into a dialog with boards or management of companies with the aim of influencing corporate behavior and policies, if appropriate, in relation to environmental, social or ethical issues.
Exclusion criteria:companies or sectors are excluded based on environmental, social or ethical criteria, e.g. companies involved in weapons, tobacco, gambling, or with high negative environmental impacts.
Socially Responsible Investments
UBS has strong expertise in incorporating environmental and social aspects into its research and advisory activities. In addition to financial considerations, Socially Responsible Investments (SRI) put special focus on environmental, social, or ethical criteria.
and a Global Innovators fund. The latter mainly invests in small companies with products that have significant potential in the areas of renewable energy and energy efficiency, mobility, water management, food and healthcare. The SRI funds use both our SRI and mainstream research platforms to construct a portfolio of leading SRI stocks. In the US, Global Asset Management manages various institutional accounts that exclude certain companies or sectors using “negative” screening criteria. In the UK, Global Asset Management seeks to influence corporate responsibility and corporate governance performance of the companies it invests in. UBS’s open architecture also allows clients to invest in SRI products from third-party providers.
In theAmericas,one of our top priorities is to support the development of children and youth by working with the public education system by
>> For more information on our Community Affairs program, see www.ubs.com/corporateresponsibility. | ||
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In the Investment Bank, UBS has a well-established SRI research team that produces original research on areas of increasing or diminishing risk and hosts conferences on timely topics. It also monitors ratings provided by external SRI agencies, organizes collaborative research by analysts about emerging SRI themes, and writes about and advises on quantifying the effects on share prices of companies with exposure to such issues. A SRI page is available to UBS’s institutional clients on UBS’s Research Web. In 2006, the Investment Bank launched the world’s first biofuel index – the UBS Diapason Global Biofuel Index and the world’s first emissions index – the UBS World Emissions Index. Index-linked products offered by the Investment Bank allow clients to participate in the indices’ performance.
At Global Wealth Management & Business Banking, the key focus of activities in the last two years has been making client advisors aware of SRI-related issues. In 2006, senior executive management launched a strategy aiming to fully integrate SRI into the UBS Client Experience framework. The UBS Climate Change Strategy Certificate, an actively managed basket of around 20-25 stocks, was launched in February 2007 from the cooperation of existing capabilities in the investment banking and asset management businesses. The certificate gives investors access to innovative companies that develop solutions to fight climate change. The investment areas are energy production (renewable energy and cleaner energy) and energy efficiency (in buildings, in transport and in industrial processes and products).
Reducing our direct impact
We have started to roll out ambitious programs to help us achieve this target.
In parallel, we also continued our efforts to improve in-house energy efficiency and green energy purchasing. Some examples of measures taken in 2006 to that effect were:
– | UBS signed a new agreement in Zurich, under which all the electricity supply for our buildings there now comes from renewable sources (roughly 100 GWh per year). As a result, more than three quarters of the total energy we consume in Switzerland now comes from renewable energy sources and district heating. | |
– | In Stamford, Connecticut, the location of one of our main trading floors and one of our largest buildings globally, we are beginning to see the benefits of a major retrofitting project that included infrastructure upgrades and improved energy monitoring. Our 2006 electricity consumption decreased by 5% despite significant business growth and higher occupancy density. The estimated |
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Environmental management
Our commitment to the environment is underpinned by a global environmental management system certified under the ISO 14001 standard. The system covers both banking activities and in-house operations and was successfully recertified in 2005 by our auditors SGS. The current certificate is valid until 2008.
– | we seek to consider environmental risks in all our businesses, especially in lending, investment banking, advisory and research, and in our own investments. |
– | we seek to pursue opportunities in the financial market for environmentally friendly products and services, such as Socially Responsible Investments. | |
– | we are committed to actively seeking ways to reduce our direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. We will also seek to assess the environmental impact of our suppliers’ products and services. | |
– | we ensure efficient implementation of our policy through a global environmental management system certified according to ISO 14001 – the international environmental management standard. | |
– | we invest in know-how and integrate environmental considerations into internal communications and training. |
annual energy saving of 2.3 GWh lowered costs by over USD 270,000 and cut indirect CO2 emissions by 740 metric tons. Additionally, the measures helped reduce the building’s draw on the local electricity grid, helping to mitigate some of the increased demand in the city of Stamford itself. | ||
– | A new functionality for PC workstations was introduced in Switzerland. Called Wake on LAN, this functionality allows PCs to be ‘shut off’ after work, and be ‘woken up’ for software upgrades during the night. It was rolled out for over 30,000 workstations and notebooks in Switzerland in 2006, and is expected to result in annual power savings of 8 GWh, and worth CHF 1 million. |
Engaging investors and markets
At the end of January 2007, Wealth Management Research published a report examining the scientific, technological, and economic effects of climate change. Its authors argue that climate change will have far-reaching implications for the global economy and the worldwide investment climate, and conclude that measures to combat global warming will increasingly influence people’s behavior, the risk profiles of certain industries, and prospects for investment. The analysis suggests that products and processes that improve energy efficiency, as well as the development of renewable or low-CO2 energy sources, have great potential to slow climate change.
UBS trades carbon financial instruments on behalf of clients and is a member of the Intercontinental Exchange (ICE), an electronic marketplace for energy and emissions trading in conjunction with the European Climate Exchange (ECX).
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The Group Executive Board is responsible for approving UBS’s environmental policy and for nominating a Group Environmental Representative to guide UBS’s environmental strategy and raise relevant environmental concerns with the Corporate Responsibility Committee. The primary responsibility for implementing environmental policy lies within the Business Groups.
Environmental performance indicators
Every year, we provide a detailed description of our environmental performance using key performance indicators (KPIs), which allow for annual comparisons. They are based on reporting standards such as the Global Reporting Initiative (GRI) and include environmental performance indicators tailored to financial institutions.
Managing environmental risks in our business transactions
For UBS, it is key to identify, manage, or control environmental risks in our business transactions. An example of such risks might be when a counterparty’s cash flow or assets are impaired by environmental factors such as inefficient production processes, or polluted or contaminated property. Another is liability risk, such as when a bank takes over collateral onto its own books.
Investment Bank
gence and approval processes. Investment Bank staff identify potential environmental risks in the initial due diligence phase and alert the Business Group’s Environmental Risk Group of significant potential risks. Assessments by lawyers and/or external consultants are routinely sought for certain sectors and products. The Environmental Risk Group works with the relevant business and control functions to assess the risks, determine any mitigating measures and direct further due diligence, as required, so that the relevant senior business committee may fully consider the potential environmental risk in the course of its review of the transaction and / or client. In 2006, 48 such internal assessments were carried out.
Global Wealth Management & Business Banking
Environmental management indicators | ||||||||||||||||||||
For the year ended | % change from | |||||||||||||||||||
Full-time equivalent, except where indicated | GRI1 | 31.12.06 | 31.12.05 | 31.12.04 | 31.12.05 | |||||||||||||||
Personnel financial businesses2 | 78,140 | 69,569 | 67,407 | 12 | ||||||||||||||||
In specialized environmental units3 | 30 | 25 | 22 | 18 | ||||||||||||||||
Environmental awareness raising | ||||||||||||||||||||
Employees trained | F5 | 2,489 | 2,251 | 1,664 | 11 | |||||||||||||||
Training time (hours) | F5 | 1,498 | 1,214 | 2,124 | 23 | |||||||||||||||
Specialized environmental training | ||||||||||||||||||||
Employees trained | F5 | 977 | 1,010 | 602 | (3 | ) | ||||||||||||||
Training time (hours) | F5 | 1,758 | 2,066 | 1,932 | (15 | ) | ||||||||||||||
External environmental audits4 | ||||||||||||||||||||
Employees audited | F6 | 30 | 147 | 11 | (80 | ) | ||||||||||||||
Auditing time (days) | F6 | 6 | 17 | 2 | (67 | ) | ||||||||||||||
Internal environmental audits5 | ||||||||||||||||||||
Employees audited | F6 | 154 | 216 | 148 | (29 | ) | ||||||||||||||
Auditing time (days) | F6 | 44 | 39 | 29 | 13 | |||||||||||||||
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Group’s environmental risk unit. In 2006, 25 such detailed assessments took place. If a transaction poses substantial environmental risks, the bank can take several courses of action. It can adapt the terms of the loan contract, it may engage the client in a dialogue about possible remedial action, or it may decline the transaction altogether.
Global Asset Management
Environmental and CO2 footprints
We directly impact the environment in a number of ways. Our businesses consume electricity, employees travel for business purposes, they use paper and generate waste in the course of their work, and offices require heating and cooling systems. Improving our use of these resources can boost our operating margins and enhance environmental performance and, therefore, we have a series of measures that manage our environmental impact efficiently.
Environmental indicators per FTE | ||||||||||||||||||||
Unit | 2006 | Trend | 2005 | 2004 | ||||||||||||||||
Total direct and intermediate energy | kWh / FTE | 12,736 | è | 12,925 | 13,095 | |||||||||||||||
Total indirect energy | kWh / FTE | 23,974 | î | 26,024 | 24,699 | |||||||||||||||
Total business travel | Pkm / FTE | 12,544 | é | 10,659 | 9,617 | |||||||||||||||
Total paper consumption | kg / FTE | 188 | è | 197 | 198 | |||||||||||||||
Total waste | kg / FTE | 303 | î | 325 | 363 | |||||||||||||||
Total water consumption | m3 / FTE | 26.0 | è | 26.0 | 25.9 | |||||||||||||||
Total environmental footprint | kWh / FTE | 38,148 | î | 41,129 | 38,868 | |||||||||||||||
CO2 footprint | t / FTE | 3.93 | ê | 5.24 | 5.27 | |||||||||||||||
according to ISO 14064, the new international standard for quantification and reporting of greenhouse gas emissions (see verification statement on page 164). The review showed we had overstated our reported CO2 emissions in the past by applying overly conservative assumptions. By applying the latest internationally accepted standards for converting air travel and electricity consumption into CO2 emissions, our reported emissions decreased significantly.
>> More detailed information on UBS’s environmental management system is available on the internet: www.ubs.com/environment. | ||
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Environmental indicators1 | ||||||||||||||||||||||||
20062 | 20052 | 20042 | ||||||||||||||||||||||
Absolute | Data | Absolute | Absolute | |||||||||||||||||||||
GRI3 | normalized4 | quality5 | Trend6 | normalized4 | normalized4 | |||||||||||||||||||
Total direct and intermediate energy consumption7 | 951 GWh | * | ** | è | 918 GWh | 895 GWh | ||||||||||||||||||
Total direct energy consumption8 | EN3 | 154 GWh | * | ** | î | 169 GWh | 203 GWh | |||||||||||||||||
natural gas | 85.5 | % | * | ** | è | 86.0 | % | 84.3 | % | |||||||||||||||
heating oil | 11.8 | % | * | ** | ì | 11.0 | % | 11.4 | % | |||||||||||||||
fuels (petrol, diesel, gas) | 2.7 | % | * | ** | î | 3.0 | % | 4.3 | % | |||||||||||||||
renewable energy (solar power, etc.) | 0.03 | % | * | ** | é | 0.02 | % | 0.02 | % | |||||||||||||||
Total intermediate energy purchased9 | EN4 | 797 GWh | * | ** | ì | 749 GWh | 692 GWh | |||||||||||||||||
electricity from gas-fired power stations | 13.2 | % | * | ** | î | 14.3 | % | 15.5 | % | |||||||||||||||
electricity from oil-fired power stations | 4.5 | % | * | ** | è | 4.3 | % | 4.4 | % | |||||||||||||||
electricity from coal-fired power stations | 21.7 | % | * | * | è | 22.9 | % | 23.8 | % | |||||||||||||||
electricity from nuclear power stations | 20.5 | % | * | ** | ê | 29.9 | % | 24.9 | % | |||||||||||||||
electricity from hydroelectric power stations | 21.4 | % | * | ** | é | 12.1 | % | 16.3 | % | |||||||||||||||
electricity from biomass and waste power stations | 0.5 | % | * | * | è | 0.5 | % | 0.5 | % | |||||||||||||||
electricity from wind power stations | 2.0 | % | * | ** | é | 1.3 | % | 1.6 | % | |||||||||||||||
electricity from other renewable resources | 10.3 | % | * | ** | é | 9.3 | % | 8.0 | % | |||||||||||||||
district heating | 6.0 | % | * | * | ì | 5.4 | % | 5.1 | % | |||||||||||||||
Total indirect energy consumption10 | EN4 | 1,790 GWh | * | ** | è | 1,849 GWh | 1,689 GWh | |||||||||||||||||
Total business travel | EN29 | 936 m Pkm | * | ** | é | 757 m Pkm | 658 m Pkm | |||||||||||||||||
rail travel11 | 4.1 | % | * | * | ì | 3.7 | % | 5.0 | % | |||||||||||||||
road travel11 | 0.6 | % | * | * | î | 0.7 | % | 0.8 | % | |||||||||||||||
air travel | 95.3 | % | * | ** | è | 95.6 | % | 94.2 | % | |||||||||||||||
Number of flights (segments) | 402,629 | * | ** | é | 358,992 | 323,467 | ||||||||||||||||||
Total paper consumption | EN1 | 14,013 t | * | ** | è | 14,020 t | 13,551 t | |||||||||||||||||
post-consumer recycled | EN2 | 6.2 | % | * | ** | ê | 7.1 | % | 8.1 | % | ||||||||||||||
new fibers ECF + TCF12 | 93.8 | % | * | ** | è | 92.9 | % | 91.9 | % | |||||||||||||||
new fibers chlorine bleached | 0.0 | % | * | ** | è | 0.0 | % | 0.0 | % | |||||||||||||||
Total waste | EN22 | 22,631 t | * | ** | è | 23,073 t | 24,852 t | |||||||||||||||||
valuable materials separated and recycled | 58.2 | % | * | ** | ê | 64.8 | % | 64.4 | % | |||||||||||||||
incinerated | 12.7 | % | * | ** | é | 9.3 | % | 8.0 | % | |||||||||||||||
landfilled | 29.1 | % | * | * | ì | 25.9 | % | 27.6 | % | |||||||||||||||
Total water consumption | EN8 | 1.94 m m3 | * | * | è | 1.84 m3 | 1.77 m3 | |||||||||||||||||
Total environmental footprint13 | 2,848 GWh | * | * | è | 2,922 GWh | 2,658 GWh | ||||||||||||||||||
Total CO2 footprint14 | 293,169 t | * | ** | ê | 372,184 t | 360,502 t | ||||||||||||||||||
Total direct CO2 (GHG scope 1)15 | EN16 | 31,519 t | * | ** | î | 34,556 t | 41,858 t | |||||||||||||||||
Total indirect CO2 (GHG scope 2)15 | EN16 | 230,015 t | * | * | è | 225,854 t | 219,727 t | |||||||||||||||||
Total other indirect CO2 (GHG scope 3)15 | EN17 | 132,635 t | * | ** | é | 111,773 t | 98,918 t | |||||||||||||||||
Total CO2e offsets (business air travel)16 | 101,000 t | * | ** | é | – | – | ||||||||||||||||||
Verification by SGS Société Générale de Surveillance SA
“We have verified the correctness of the statements in the 2006 Environmental Report of UBS AG and, where necessary, have requested that proof be presented. We hereby confirm that the report has been prepared with the necessary care, that its contents are correct with regard to environmental performance, that it describes the essential aspects of the environmental management system at UBS AG and that it reflects the actual practices and procedures at UBS AG.
We have also conducted a third party verification of the CO2 emissions in the years 2004, 2005 and 2006 against the principles of ISO 14064-I (2006). In our opinion, the reported CO2 emissions are fair, accurate, transparent and free from material errors or misstatements and meet the materiality threshold.”
Elvira Bieri, Dr. Erhard Hug and Dr. Jochen Gross, Zurich, February 2007
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Cautionary statement regarding forward-looking statements |This communication contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to the implementation of strategic initiatives 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 and macro-economic trends, (2) legislative developments, governmental and regulatory trends, (3) movements in local and international securities markets, currency exchange rates and interest rates, (4) competitive pressures, (5) technological developments, (6) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2006. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Imprint |Publisher/Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80532E-0701
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UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com