ab
UBS is a global,
integrated investment
services firm
and the leading bank
in Switzerland.
Financial Report 1999.
UBS Group
Financial Highlights
UBS Group Financial Highlights
CHF million (except where indicated)
For the year ended
Income statement key figures
Operating income
Operating expenses (1997 before restructuring)
Operating profit before tax (1997 before restructuring)
Net profit / (loss)
Per share data (CHF)
Basic earnings per share 1
Basic earnings per share before goodwill 1, 2
Diluted earnings per share 1
Diluted earnings per share before goodwill 1, 2
Dividends proposed
Ratios (%)
Return on shareholders’ equity 3
Return on shareholders’ equity before goodwill 2,3
Cost / income ratio 4
Cost / income ratio before goodwill 2, 4
As of
Balance sheet key figures
Total assets
Shareholders’ equity
Market capitalization
BIS capital ratios (%)
Tier 1
Total BIS
Assets under management (CHF bn)
Total assets under management
Headcount 5
Total headcount
thereof: Switzerland
Rest of world
Long term ratings
Moody’s, New York
Fitch/IBCA, London
Standard & Poor’s, New York
BankWatch, New York
31.12.1999
31.12.1998
31.12.1997
28,621
20,452
8,169
6,300
30.28
31.91
30.12
31.75
11.00
20.1
21.2
69.1
68.0
22,328
18,258
4,070
3,030
14.31
15.92
14.23
15.84
10.00
10.3
11.4
78.4
77.0
24,880
18,636
6,244
(667)
(3.18)
(2.52)
(3.18)
(2.52)
n/a
14.5
14.9
71.2
70.7
31.12.1999
31.12.1998
31.12.1997
1,086,414
30,927
n/a
8.3
12.6
1,512
55,176
36,638
18,538
981,573
34,835
92,642
10.6
14.5
1,744
49,058
32,747
16,311
Aa1
AAA
AA+
AA
944,116
32,395
90,720
9.3
13.3
1,572
48,011
32,706
15,305
Aa1
AAA
AA+
AA
1 For EPS calculation, see Note 10 to the Financial Statements. 2 The amortization of goodwill and other purchased intangible assets are exclud-
ed from the calculation. 3 Net profit / average shareholders’ equity excluding dividends. 1997 loss and shareholders’ equity adjusted for impact
4 Operating expenses / operating income before credit loss expenses of CHF 956 million in 1999,
of restructuring including taxes thereon.
CHF 951 million in 1998 and CHF 1,278 million in 1997. 5 The Group headcount of 49,058 as of 31 December 1999 does not include the Klinik
Hirslanden headcount of 1,853.
Table of Contents
The 1999 Financial
Shareholders’ Letter
Report reflects the
Group Review
1999 UBS Group
structure and
the 2000 brand
architecture.
Group Results and Initiatives
The UBS Group
Merger Integration Update
Information Technology and Operations
Human Resources
Divisional Review
UBS Segment Reporting
UBS Private Banking
UBS Warburg
UBS Private and Corporate Clients
UBS Asset Management
UBS Capital
Corporate Center
Review of Risk Management and Control
Risk Management Framework
Analysis of Risks
Asset and Liability Management
UBS Group Financial Statements
Table of Contents
Group Financial Review
Financial Statements
Notes to the Financial Statements
Report of the Group Auditors
UBS AG (Parent Bank)
Table of Contents
Parent Bank Review
Financial Statements
Notes to the Financial Statements
Report of the Statutory Auditors
UBS Corporate Governance
Corporate and Executive Bodies
Corporate Information
Glossary
UBS Share Information
UBS Shares
Information for Shareholders
2
6
8
12
15
17
20
22
27
32
36
39
42
46
48
58
66
68
72
76
125
128
129
130
132
136
138
142
143
148
150
1
Shareholders’ Letter
Dear Shareholders,
merger now behind us, we see significant oppor-
tunity for our wealth management businesses in
the years ahead. Our new structure, announced
recently and which we explain below, is specifi-
cally designed to unlock and maximize the poten-
tial of our distinct client-facing businesses.
UBS Warburg had a great year in 1999, with
record profits and volumes in many of its business
areas, led by an outstanding Equities perform-
ance. We are proud of our world-class investment
banking and securities division, and particularly
of the turnaround since the shocks of 1998.
Our domestic business within the Private and
Corporate Clients Division is consistently managed
for enhanced profitability. Bottom line improve-
ments are starting to show through, and we are
confident that, with the delivery of merger-related
savings, a new level of profitability is attainable.
Investment performance was the principal fac-
tor behind the disappointing results of our Asset
Management Division. It also affected somewhat
the growth of Private Banking assets under man-
agement. Diversification and a more “open”
product offering will be the key to unlinking these
performance risks, and, in that light, we are ex-
cited by the opportunities provided to private
banking clients by the acquisition of Global Asset
Management.
Our private equity business continues to prove
itself highly attractive, with strong
link-
ages to private banking clients and to investment
banking, and a consistently excellent track record
of value creation, demonstrated again in 1999.
Overall, we are pleased that this year has marked
not only the integration of two banks, but also huge
progress towards our vision of an integrated busi-
ness with every UBS division interacting profitably,
and displaying true unity of purpose. As a result,
the whole is greater than the sum of the parts.
Our strategy
UBS is a global, integrated investment services
firm and the leading bank in Switzerland. But,
more fundamentally, UBS exists to provide value
to its clients and shareholders. Our strategies are
designed around the overriding objective of creat-
ing sustainable growth in shareholder returns.
We are convinced that we have the ideal set of
businesses – each a leader in its own field – to take
advantage of the sweeping global trends increas-
ing personal wealth, and driving securities invest-
ment to the forefront of financial services.
We are pleased to report that, in 1999, UBS net
profit after tax reached CHF 6,300 million. This
represents basic earnings per share of CHF 31.91
and a return on equity of 21.2% before goodwill.
Our performance has strongly rebounded after a
difficult 1998 when net profit after tax stood at
CHF 3,030 million. That said, a number of sig-
nificant one-off events in both 1999 and 1998,
explained in detail elsewhere in this report, make
like-for-like comparisons complex. However,
even taking these one-off events into considera-
tion, the year-on-year net profit increase is signif-
icant. Assets under management increased 11%
or CHF 172 billion, to CHF 1,744 billion.
The Board of Directors recommends to share-
holders a dividend of CHF 11 per share, com-
pared to CHF 10 last year.
What we accomplished in 1999
In 1999, we accomplished much of what we set
out to do at the end of 1998.
Notably, we achieved the integration of one of
the biggest and most complex banking mergers in
record time. A merger of this magnitude leaves no
area of business untouched, and it is a consider-
able tribute to the professionalism and commit-
ment of our employees that we have emerged so
rapidly as an integrated force.
While the successful accomplishment of the
merger positions us more strongly than ever at
the forefront of the financial services industry, it
has undoubtedly had a short term impact.
Private Banking, in particular, has not achieved
the growth we anticipated this year. With the
2
Shareholders’ Letter
But our success will depend on far more than
careful positioning. UBS will represent the best
combination of old and new banking methods.
Our commitment, as ever, is to the highest
standards of personalized service quality, delivered
with the ultimate in professionalism and integrity.
New technology provides an immense oppor-
tunity to deliver our services faster, cheaper, to a
much wider clientele and in a way that brings us
ever closer to our clients. In Switzerland our elec-
tronic banking service captures even higher mar-
ket share than our “traditional” offering. Proof
that our skills and services are only enhanced by
delivery through cutting edge channels.
Our new business structure
On 18 February 2000 we announced our new
business structure, regrouping our wealth man-
agement businesses with the aim of unlocking their
potential to generate superior growth.
The new organization reflects a different way
of thinking about client requirements. As new
technologies transform the financial industry
landscape, clients themselves increasingly decide
– through their choice of services and channels –
which client segment they belong to. Lifetime
relationships mean seamlessly offering a contin-
uously evolving service to match each client’s
financial aspirations as they develop.
Swiss banking has a special place in the world
of personal finance. By combining all Swiss-based
and international offshore banking, we will focus
and capitalize on this core asset.
Our asset management businesses are now under
one roof, allowing us to develop a variety of invest-
ment styles and selectively introduce more third-
party products to our clients. At the same time, we
will aggressively expand the marketing and distribu-
tion of our own mutual funds to clients outside UBS.
Investment services activities for international
private clients have significant growth potential, and
are now set to benefit additionally from proximity
to investment banking skills, services and image.
These changes are a thorough modernization,
allowing us to serve our clients in a way that re-
flects tomorrow’s world as well as today’s.
The way ahead
Our commitment to new technology will be
demonstrated in 2000 through the launch of our
new pan-European “e-services” personal invest-
ment business, expected in the autumn. We
manage this as a separate business unit with an
emphasis on “time to market”, and are excited
by its prospects. This new initiative complements
the already very successful e-commerce and mo-
bile phone services offered by our Private and
Corporate Clients Division.
It would be impossible in this short space
to reflect the diversity of the initiatives UBS is
launching in 2000. Three programs have particu-
lar resonance for us at his time.
We intend 2000 to be the year in which UBS
stock trades on the New York Stock Exchange.
To us, a globally traded share is symbolic of our
belief in UBS as a global firm, as well as giving us
the flexibility to take advantage of potential ex-
pansion opportunities in the US.
Our brand is one of our most important assets.
In 2000, all our brands will be instantly recog-
nizable as part of an integrated UBS.
And finally, our share buy-back program
demonstrates our commitment to returning value to
our shareholders, alongside our core focus on grow-
ing “top-line” revenue and “bottom-line” earnings.
Conclusion
With our new business structure in place, we now
have the agility to respond quickly to changing
client demands, allowing us to increase our mo-
mentum significantly. Our mix of businesses is
ideal for exploiting the changing financial servic-
es landscape. But success does not come easy in
today’s ultra-competitive world. All our busi-
nesses will have to fight their hardest to secure the
rewards they are so well-positioned for.
We assure you of our commitment to the
growth that you, our fellow shareholders, deserve
and we thank you – along with our staff and our
clients – for your support during the past year.
Alex Krauer
Chairman of the Board of Directors
Marcel Ospel
Group Chief Executive Officer
3
A Worldwide Presence
4
3
2
1
6
5
Main locations
Main locations
1
2
3
4
5
6
Zurich/Basel
Zurich/Basel
London
London
New Yorkork
New Y
Chicago
Chicago
Singapore
Singapor
Tokyookyo
4
Group Review
Group Review
Group Results and Initiatives
Group Results and Initiatives
UBS achieved solid
UBS Group financial results
financial results in 1999
while essentially com-
pleting its post-merger
integration. During 1999
UBS also launched a
dynamic set of Group-
wide initiatives focused
on shareholder value
creation, new technology
and growth.
6
Headline Group financial results
1999 was a strong rebound year for UBS. UBS Group
net profit after taxes and minority interests was CHF
6,300 million in 1999, while in 1998 it was CHF
3,030 million, an increase of 108%. Significant fi-
nancial events in both 1999 and 1998, explained
below, render like-for-like comparisons complex.
Compared to 1998, total operating income
after credit loss expenses increased 28% to CHF
28,621 million. This is partially attributable to a
higher level of gains on divestments during 1999
than in 1998, as UBS increased its focus on core
businesses. It was also due to significantly higher
trading income in the context of positive markets
and the strength of our global investment bank
and securities division, UBS Warburg.
Total operating expenses increased 12% to
CHF 20,452 million as compared to 1998. In
1999, personnel expenses increased as a result of
performance-related compensation associated
with good investment banking results. In con-
trast, in 1998 additional personnel expenses were
charged against the restructuring reserve as part
of our successful efforts to protect the investment
banking franchise in the face of anticipated merg-
er-related shortfalls in profits. In 1999, non-per-
sonnel expenses were below those of the previous
year period reflecting lower levels of provisions
and stringent cost reduction programs.
UBS Group assets under management in-
creased 11%, or CHF 172 billion, to CHF 1,744
billion. Acquisitions contributed CHF 38 billion
to Group assets under management, with the re-
maining increase largely performance-driven.
Significant financial events
1999 total operating income includes one-off pre-
tax gains of CHF 1,838 million mainly from di-
vestments. Total operating expenses were not im-
pacted by significant financial events as they net-
ted out to an immaterial amount. More detail on
significant financial events can be found in the
Group Financial Review on page 68.
Group financial targets
Targets policy
Our targets policy no longer emphasizes absolute
numbers and focuses rather on those ratios that
best measure shareholder return. Financial tar-
gets also relate only to organic growth and are
excluding the impact of goodwill amortization.
Following acquisitions, we will disclose any
expected impact on our targets and adjust them
accordingly.
Financial targets
UBS is confident in the ability of its existing busi-
nesses to provide good returns for our share-
holders from organic earnings growth and value
creation. UBS therefore aims to achieve:
– a return on equity averaging 15–20%, across
periods of varying market conditions;
– double-digit average annual earnings per
share growth, across periods of varying mar-
ket conditions;
– active, continuous focus and downward pres-
sure on the Group cost/revenue ratio substan-
tiated by divisional initiatives;
– clear demonstration of growth in net new
money in the Private Banking and Affluent
segment.
1999 performance against financial targets
As mentioned above, our financial targets are
based on income statement figures excluding the
impact of goodwill amortization. Furthermore,
we believe that a proper discussion and analysis
of our current core ratios against our financial
targets requires, in some cases, the adjustment of
our 1999 figures, to eliminate the effect of signif-
icant financial events.
– Return on equity: Adjusting 1999 net profit
after tax for the post-tax CHF 1,488 million
gain from significant financial events listed on
page 68 of the Group Financial Review, pre-
goodwill return on equity in 1999 amounted
to 16.4%. This is within our target range of
15–20%, but leaves us considerable scope for
further increases.
– Earnings per share: In 1999 pre-goodwill
basic earnings per share was CHF 24.76, after
adjusting for significant financial events. A
like-for-like comparison of results between
1999 and 1998 is made complex by these
events, but it is clear that our earnings re-
bound comfortably represents underlying
double digit growth.
– Cost/income: The adjusted, pre-goodwill cost/
income ratio was 72.5% in 1999. Compar-
Group Review
Group Results and Initiatives
isons to the exceptional 1998 cost/income
ratio are not meaningful. However we stress
that, as discussed on pages 13–14, UBS is im-
plementing a series of cost control measures in
UBS Private and Corporate Clients as well as
UBS Warburg which we expect to yield tangi-
ble results.
– Net new money: In 1999, net new money
growth of CHF 4.5 billion in Private Banking
fell below the high standards we strive for and
did not represent a strong growth trend. Our
reorganization announced on 18 February
2000 is specifically designed to unlock the
growth potential in all our wealth manage-
ment businesses, hence re-establishing the pos-
itive trend.
Group initiatives
UBS is a global, integrated investment services
firm and the leading bank in Switzerland. This
positioning is substantiated by our strategic vi-
sion, set out in the Shareholders’ Letter and UBS
Group Section, and is driven forward by a com-
plete set of business initiatives. Many of these
initiatives are devolved to divisional level and
discussed in the relevant divisional chapter. How-
ever, several demand mention in the overall
Group context.
We view new technology as a tremendous op-
portunity. Our commitment to seizing that op-
portunity is evident in our planned launch in au-
tumn 2000 of a major new e-services initiative in
Europe. Following an integrated multi-channel
“clicks and mortar” approach, e-services will
focus on providing financial products and servic-
es to affluent European clients. More detail re-
garding this initiative can be found on page 15 in
the e-services, Information Technology and Op-
erations section.
UBS is in the process of registering with the
US Securities and Exchange Commission and ap-
plying to list its shares on the New York Stock
Exchange. Through this action, we will position
ourselves to take advantage of the changing US
financial services landscape as the Gramm-
Leach-Bliley Financial Modernization Act liber-
alizes restrictions.
We are adjusting our brand architecture to
demonstrate more clearly our integrated business
model. Brand will continue to rise in importance
in the financial services sector as multiple
providers and channels scramble for attention.
We will devote significant effort to establishing
UBS as a renowned and recognized global brand
with all the advantages conferred by the Swiss
tradition of banking.
UBS is currently implementing a comprehen-
sive value-based management approach. This
means establishing shareholder value creation as
the primary yardstick for planning, investment
decisions, capital allocation, performance ap-
praisal and compensation, and strategic risk
management.
In line with our commitment to shareholder
value, we commenced early in 2000 a Swiss-spe-
cific, tax-efficient stock buy-back program with
the intention of subsequent share cancellation. As
of 23 February 2000, the program has resulted
in the repurchase of approximately 2.8 million
shares, or about 1.3% of our market capitaliza-
tion. This program is also discussed on page 63
of the Capital Management section of the Review
of Risk Management and Control chapter.
These Group initiatives, together with our
broader set of devolved divisional initiatives, will
deliver sustainable growth in shareholder returns
in 2000 and thereafter.
Forward-looking statements
This Financial Report includes statements that
constitute “forward-looking statements”. We
refer you to our cautionary statement regarding
forward-looking statements on page 150 for a
discussion of such forward-looking statements.
7
Group Review
The UBS Group
The UBS Group
UBS is a global, integrat-
Mission
ed investment services
firm and the leading bank
in Switzerland. Our inte-
grated business model
We are committed to providing clients with supe-
rior value-added investment services, to provid-
ing shareholders with above average rewards, to
being an employer of choice, and to being a good
corporate citizen.
encompasses a uniquely
Overview
attractive combination of
profitable and growing
client and business seg-
ments allowing us to
benefit from numerous
synergies within the
Group. We expect the
regrouping of our busi-
nesses, announced in
February 2000, to add
new agility and momen-
tum to the Group.
The philosophy of our business model is that each
operating division holds primary responsibility
for managing relationships with well-defined
client segments, while ensuring appropriate ac-
cess to the products and services of the entire
Group. The Corporate Center encompasses
Group level functions that cannot be devolved to
the operating divisions.
Integrated investment services firm
Being an integrated investment services firm
means that our business divisions work together,
in a coordinated manner to achieve our common
goals. This allows UBS to provide our clients with
the full range of products and services that they
have come to expect from a premier financial in-
stitution, while UBS benefits from efficient value
capture and structurally diversified revenue
streams.
As one example of integration, the centralized
approach to asset and liability management un-
dertaken by the Group Treasury function fosters
cost-efficient Group funding, optimal internal al-
location of funds and global liquidity manage-
Investment services model – UBS
ment. Non-trading interest rate and currency risks
are captured and pooled with the trading books to
realize the Group’s entire netting potential.
“Investment services” is a term that encom-
passes a uniquely attractive combination of prof-
itable and growing client and business segments.
It covers the full range of end-clients from high
net worth individuals through retail clients to
institutional and corporate clients. It covers the
business competencies of asset management, re-
search and advisory, and execution and risk man-
agement. It includes asset gathering businesses
across all client types, in particular, the fast-grow-
ing high net worth, affluent and defined contri-
bution segments. It further includes investment
banking, providing competitive product and risk
management expertise to the asset gathering busi-
nesses. The investment bank also serves its own
institutional and corporate client base, profiting
from access to the rapidly expanding global secu-
rities markets.
The leading bank in Switzerland
UBS is the leading bank in Switzerland, by size
and market penetration. More than four million
private individuals in Switzerland, or over half
the population, cite UBS as their primary or sec-
ondary bank. Some 180,000 small and medium
sized companies bank with UBS, and almost all
top-tier Swiss corporations can be counted
among our clients. UBS is the largest provider of
investment fund services and the leading credit
bank in Switzerland. With more than 30,000
staff in Switzerland, we are the third-largest pri-
vate employer in the country.
High net
worth clients
Retail
clients
Wholesale
clients
Market
participants
Asset Management
Research & Advisory
Execution & Risk Management
Retail/Corporate/Transaction Banking
UBS is a global,
integrated investment
services firm
and the leading bank
in Switzerland.
8
Group Review
The UBS Group
Integrated client service business model
Affluent
clients
Swiss Retail & Corporate clients
Wholesale clients
Private Banking
Private and Corporate clients
FX/MM; Research;
Securities; Derivatives;
Asset Mgmt; Funds
Investment Banking and Securities
Asset Management
Private Equity
High net worth clients
Wholesale clients
Integrated client services model
The integrated model begins with our investment
banking and asset management divisions provid-
ing wholesale clients with products and services
through direct access to the capital markets and
institutional asset management capabilities.
The base that these divisions provide allows us
to offer the full range of value-added services to
clients of our Private Banking and Private and
Corporate Clients divisions, including foreign ex-
change and money market products, research, se-
curities trading and execution, derivatives and
risk management products and services, custody
services, asset and portfolio management servic-
es and investment fund (including private equity
funds).
Our integrated model allows us to benefit
from multiple synergies within the Group. Exam-
ples of interdivisional synergies include:
– UBS Warburg provides research, securities
brokerage, OTC trading, derivatives, foreign
exchange, and value-added structured products
to clients of UBS Private Banking and UBS
Private and Corporate Clients.
the allocation of margins as the industry trans-
forms. We cannot predict precisely how this value
will be divided five years from now. However,
with our spectrum of leading businesses, we are
uniquely positioned to capture a significant
share, whatever the future shape of the industry.
The new structure
In February 2000, we announced a moderni-
zation of our organizational structure and a
regrouping of our wealth management business-
es. We took this step to align ourselves more
closely with evolving client needs. We expect this
new grouping of our wealth management busi-
nesses to unlock their immense growth potential.
We emphasize that the changed structure will not
impact client relationships, and that business
initiatives and strategies will proceed as planned.
UBS Group now consists of three main busi-
ness groups: UBS Switzerland, UBS Asset Man-
agement and UBS Warburg.
– UBS Private Banking clients also have the op-
New business structure
portunity to invest in UBS Capital funds.
– UBS Capital works closelywith UBS Warburg
for companies that are considering initial pub-
lic offerings.
– Technology and premises infrastructure, oper-
ations and other support services are general-
ly shared between all divisions in a given coun-
try, especially in Switzerland.
This model allows us to capture in-house the
profitability from the vast majority of the value
chain. This cushions us from potential shifts in
UBS
UBS Switzerland
UBS Asset
Management
UBS Warburg
Private Banking
Institutional Asset
Management
Corporate &
Institutional Clients
Private &
Corporate Clients
Mutual Funds
UBS Capital
(working titles only)
GAM
Int. Investment
Services & e-services
9
Group Review
The UBS Group
10
UBS Switzerland
UBS Switzerland, led by Stephan Haeringer, is
composed of two business units: the current
Private and Corporate Clients business and Swiss
Private Banking services, offered in Switzerland
and in major international offshore centers.
Georges Gagnebin is the CEO of Private Banking.
UBS Switzerland will rely strongly on the
product capabilities of the other two business
groups, UBS Asset Management and UBS War-
burg. In addition it will manage the products and
services most relevant for its client base, for
example consumer banking products in Switzer-
land, lending for Swiss corporates, and portfolio
management and trust services for Private Bank-
ing clients. UBS Switzerland will manage its own
multi-channel distribution network in Switzer-
land and abroad.
The new business group will re-emphasize
the strength and merit of Swiss-based banking
through the management of all Swiss-based
clients under one leadership team. The business
group will benefit from an integrated Swiss-based
infrastructure. UBS Switzerland is the leading
Swiss bank for individual and corporate clients
and the premier Swiss private banking institu-
tion.
UBS Warburg
UBS Warburg, under the leadership of Markus
Granziol, retains the existing organization struc-
ture of the integrated investment banking and se-
curities businesses. Corporate Finance, Equities,
Fixed Income and Treasury Products are joined
by Private Equity (UBS Capital), headed by Pierre
de Weck, international onshore Private Banking
and e-services to form a leading global in-
vestment services firm under the UBS Warburg
brand.
UBS Warburg will take advantage of the con-
siderable growth potential resulting from putting
investment banking and investment services ac-
tivities for wholesale and private clients outside
Switzerland under one roof. Internationally, both
high net worth and affluent clients are more at-
tuned to the investment banking style, services
and brand.
UBS Asset Management
UBS Asset Management concentrates all invest-
ment management businesses of the Group under
the leadership of Peter Wuffli. The mutual funds
business of the Group and the newly acquired
Global Asset Management (GAM) have been
regrouped with the existing Institutional Asset
Management business.
UBS Asset Management will develop a variety
of investment styles and multi-manager options
and will leverage global research capability
through combining individual and institutional
asset management. UBS Asset Management will
adopt a client-centric approach, including strate-
gic asset allocation.
Group Executive Board
As of 15 February 2000 the Group Executive
Board is composed as follows:
Group Chief Executive Officer
Marcel Ospel
Luqman Arnold Chief Financial Officer
Georges Gagnebin CEO Private Banking
Markus Granziol CEO UBS Warburg
Stephan Haeringer CEO UBS Switzerland
Pierre de Weck
Peter Wuffli
CEO UBS Capital
CEO UBS Asset Management
Clients, growth and efficiency
The new UBS reflects a radically different way of
thinking about client segmentation. As new tech-
nologies transform the financial industry land-
scape, clients increasingly drive services, seg-
menting themselves through their choice of serv-
ices and channels. The new UBS structure is de-
signed to support lifetime client relationships, of-
fering a continuously evolving service to match
each client’s financial sophistication and aspira-
tions as they develop. UBS Switzerland and UBS
Warburg will provide services to the entire range
of individual clients: on the one hand, Swiss and
offshore private clients, and on the other hand in-
ternational private clients.
UBS intends to unlock the growth potential of
its wealth management business through focus-
ing on its distinct components:
– Swiss and offshore private banking, with its
special place in the world of personal finance,
will be focused on and developed by UBS
Switzerland.
– The enormous growth potential of interna-
tional onshore investment services for high net
worth individuals and affluent investors will
be exploited.
– Mutual funds will be aggressively marketed
and distributed outside the UBS Group, from
Group Review
The UBS Group
its new position in UBS Asset Management,
where GAM will continue to provide the
“screened” architecture access to third party
managers critical for the Group’s individual
client base.
The opportunity to bring together asset manage-
ment businesses under one roof, and to rational-
ize logistics infrastructure for the Swiss-based
international businesses, positions UBS
and
strongly to continue to capture internal synergies
in the years ahead.
11
Group Review
Merger Integration Update
Merger Integration Update
Given the tremendous
Scope of merger integration
scope of the merger
between Swiss Bank
Corporation and Union
Bank of Switzerland, UBS
mastered the technical
and organizational
challenges of the merger
in record time. With the
completion of the infor-
mation technology
integration in one year
from the legal consum-
mation of the merger,
UBS set a new industry
benchmark.
12
When we announced the merger of Union Bank of
Switzerland and Swiss Bank Corporation in De-
cember 1997, we planned strict timelines in which
to manage a merger of such scope and complexi-
ty. Our ambitious total integration plan included
resolving the issues of product and service offer-
ings, branding, client communication, technical
and operational integration, a new business
model, distribution network redesign, and the re-
tention of both clients and key employees. In ad-
dition, two quite different business cultures had to
be brought together. The integration process
placed extraordinary demands on Information
Technology (IT) and Operations, and our client
representatives faced the daily challenge of main-
taining service quality and client satisfaction.
We announced that the integration timetable
would vary by division between three months and
four years. In particular, two divisional timelines
were very ambitious. First, at UBS Warburg we
aimed for, and successfully achieved, the integra-
tion of information technology platforms on the
date of the legal consummation of the merger, 29
June 1998. At UBS Private and Corporate Clients,
we planned, and also succeeded in, the integration
of the information technology platforms within
one year of the legal merger date, achieving a new
international benchmark in the industry. In
Switzerland, more than 2.5 million client ac-
counts were migrated to a common IT platform
and 173 redundant branches, or 31% of the pre-
merger branch network, have been closed.
Thanks to the exemplary efforts of our em-
ployees, the merger integration of UBS has suc-
cessfully remained on track across all divisions in
Switzerland and around the globe. All business
divisions except UBS Private and Corporate
Clients have essentially completed merger inte-
gration. Redundancy programs in Switzerland
and real estate disposal plans in the Corporate
Center will continue to gain momentum in 2000.
Integration by division
UBS Private Banking
The merger caused fundamental changes for the
UBS Private Banking Division. Not only did the
organizational structure change, but the informa-
tion technology platforms, supplied by UBS Pri-
vate and Corporate Clients, had to be integrated
at the same time. The swiftness with which we
completed the merger did have some negative ef-
fects, causing a loss of momentum in the acquisi-
tion of new clients as well as some client and em-
ployee defections. However, we remain con-
vinced that our decision to complete the integra-
tion of this division as quickly as possible result-
ed in a much smaller disruption of the business
than if it had been carried out over several years.
The transfer of client data to a common IT
platform was completed for the main interna-
tional centers (New York, Singapore, Hong
Kong, London) in 1998, and in Switzerland by
mid-1999. The resegmentation of the client base
between UBS Private and Corporate Clients and
UBS Private Banking was completed in 1999.
The completion of the integration process will
allow our wealth management businesses to
move forward with the implementation of their
powerful value proposition, thereby leveraging
UBS’s position as the global leader in quality high
net worth financial services.
UBS Warburg
The investment banking and securities business
has been built up over the last five years through
a series of successful mergers based on speed of
execution and the ability to capture complemen-
tary skills.
The successful completion of the UBS War-
burg integration by year-end 1998 created a
client platform with a strong business momentum
and a much enhanced franchise. The impressive
results are clearly reflected in the 1999 published
segment reports.
UBS Private and Corporate Clients
Thanks to the tremendous efforts of the employ-
ees involved, the integration process in Switzer-
land of the information technology platforms
was brought to a successful conclusion in July
1999. Within one year, over 1,000 ATM’s were
converted and over 23,000 employees trained in
new products, processes and systems. Organiza-
tional integration and rebranding were finished
in 1998.
A core component of the strategy of the Pri-
vate and Corporate Clients Division is to stream-
line the physical distribution network while si-
multaneously enhancing alternative distribution
channels such as phone and internet banking so-
Group Review
Merger Integration Update
lutions. As mentioned above, by the end of 1999,
31% of the pre-merger branch network had
been closed. The branch network will be further
rationalized and specialized over the course of the
next few years.
Merger-related headcount reduction plans,
branch reductions and specialization, re-engi-
neering of operations and logistics, improve-
ments in information technology, and the final
decommissioning of Swiss Bank Corporation’s IT
platform are expected to result in headcount
being continually reduced during the 2000–2002
period.
UBS Asset Management
The integration of UBS Asset Management was
successfully completed during 1998. Merger-
related client attrition, notably in Europe, was
pronounced but within corporate expectations.
UBS Capital
The merger process was smoothly completed in
1998, with the successful integration of SBC
Equity Partners (which in 1999 became CapVis,
Switzerland’s largest private equity fund) into
UBS Capital. In 1999, UBS Capital established a
new regional fund structure that will allow it to
continue making significant direct investments
within the important US market.
Corporate Center
The majority of real estate for the Group is man-
aged by the Corporate Center. Merger-related
property divestments started in 1998 and 1999,
and real estate write-offs and sales will continue
into 2000 and 2001.
Merger cost savings
By the end of 1999, we achieved sustainable
merger-related cost savings of CHF 2 billion per
year. Since 1997, headcount reductions will have
resulted in total savings of CHF 1.6 billion per
year. We estimate non-headcount savings to be
around CHF 400 million per year, including ap-
proximately CHF 75 million in eliminated depre-
ciation expenses and other costs related to real
estate.
Since the merger announcement, UBS Warburg
has essentially completed its integration including
the reduction of personnel and the integration of
information technology platforms. As we expect-
ed, most of the cost savings over the past two
years have been attributable to UBS Warburg.
UBS Private and Corporate Clients has been
rapidly integrating its business in line with a de-
tailed timetable and project schedule. As planned,
it still has additional milestones to reach. For ex-
ample, now that the integration of technology
platforms has been completed and in line with
employee association agreements made in 1998,
redundancy plans will gain momentum during
2000 and 2001. Furthermore, although the tech-
nology platform integration was completed in
mid-1999, one platform still remains to be de-
commissioned in 2000.
UBS Private Banking, UBS Asset Management
and UBS Capital have essentially completed
their integrations, while in the Corporate Center
we expect the write-off or sale of the remaining
redundant real estate to proceed in 2000 and
2001.
As with any merger, cost savings attributable
directly to the merger become increasingly diffi-
cult to track over time. Across all divisions, nor-
mal organic business growth, new investments
and initiatives, and at least three acquisitions and
six divestments cloud underlying developments
since the time of the merger.
For example, UBS Private Banking has invest-
ed heavily over the past two years in building up
its domestic private banking business outside
Switzerland. Additionally, in 1999, UBS formed
the e-services business area which will experience
further significant investment. More information
on divisional initiatives can be found in the re-
spective divisional discussions.
We are also implementing general cost control
initiatives across all divisions, which extend well-
beyond merger-related savings. These initiatives
are already well-structured at UBS Warburg and
UBS Private and Corporate Clients. UBS War-
burg is continuing to focus on cost management
with emphasis on improving overall efficiency
such that revenue growth exceeds any growth in
non-personnel costs.
In addition, the UBS Warburg Investment
Committee has carried out a rigorous review
process to ensure that investments in infrastruc-
ture are fully aligned with the strategy of the busi-
ness.
Within the UBS Private and Corporate Clients
Division, the Strategic Projects Portfolio is ex-
13
pected to enhance revenues and reduce costs, in-
cluding the ongoing realization of the division’s
remaining merger-related cost savings. The proj-
ects portfolio is well on track and is expected to
yield a significant improvement in net profit by
2002. We will continue to track and communi-
cate the progress of this portfolio.
Restructuring provision
In the fourth quarter of 1999, we recorded an ad-
ditional pre-tax restructuring charge of CHF 300
million in respect of the merger between Union
Bank of Switzerland and Swiss Bank Corpora-
tion. This increase represents four percent of the
initial CHF 7 billion charge made in 1997 and
was due to revised estimates of the cost of lease
breaks and property disposals.
Of the CHF 7 billion merger-related restruc-
turing provision created in 1997 and the addi-
tional restructuring provision of CHF 300 mil-
lion created in 1999, CHF 1,844 million was
utilized in 1999. This brings total utilization to
CHF 5,871 million and leaves CHF 1,429 mil-
lion to address the remaining restructuring,
mostly in UBS Private and Corporate Clients.
In UBS Private and Corporate Clients, the
transition to one common IT platform and
the parallel operation of the systems account
for the major part of IT provision utilization.
UBS Warburg has already essentially concluded
its restructuring activities. Premises costs at
Corporate Center are primarily due to relocation
and refurbishment costs from the move into
common bank premises and vacancy costs re-
garding decommissioned bank premises pending
disposal.
Restructuring provision used
CHF million
For the year ended
UBS Private Banking
UBS Warburg
UBS Private and Corporate Clients
UBS Asset Management
UBS Capital
Corporate Center
Group total
Personnel
IT
Premises
Total used
Total used
Other 31.12.1999 31.12.1998
40
181
123
9
3
22
378
103
75
461
0
0
3
642
1
0
165
0
0
507
673
13
60
45
0
0
33
157
316
794
9
3
565
151
1,844
147
2,382
717
18
2
761
4,027
Restructuring provision as of 31.12.1997
Additional provision in 1999
Used in 1998
Used in 1999
Total used through 31.12.1999
Restructuring provision remaining
7,000
300
4,027
1,844
5,871
1,429
Additional information on the restructuring provision remaining is provided in Note 24.
Group Review
Merger Integration Update
14
e-services, Information
Technology and Operations
Group Review
e-services, Information
Technology
and Operations
e-commerce is changing
UBS e-services initiatives
Definitions
the banking industry, and
in 1999 UBS responded
strongly to this trend with
the establishment of a
new “click and mortar”
business area. Informa-
tion Technology and
Operations are
increasingly important
differentiators in the
current competitive envi-
ronment, especially given
the advent of new tech-
nologies. UBS recognizes
this shift and will con-
tinue to invest in its
industry-leading skills and
infrastructure.
As asset allocation shifts away from deposits, as
the penetration of the internet increases, and as
technology continues to enable more user-friend-
ly and broader solutions, we recognize the criti-
cal importance of the targeted application of
e-commerce as a distribution channel in the
financial services industry.
In 1999, we established a structure to coor-
dinate Group-wide internet initiatives, centered
on the Group Internet Business Council. All
our businesses are internet-enabling their services,
building new client franchises and creating specif-
ic new products. These initiatives are reported in
the relevant divisional review sections of this
report. The success of our internet offering in
Switzerland, where our share of the electronic
banking market is greater than our share of
the traditional banking market, is testament
to our commitment and expertise in this new field.
e-services business area
This business area, known for the time being as
“e-services”, is planning to launch a pan-Euro-
pean personal investment services business in au-
tumn 2000. Following an integrated multi-chan-
nel approach, e-services will focus on providing
financial products and services to affluent Euro-
pean customers. The current plan foresees a
phased launch of this business over the next two
years in Germany, the UK, France and Italy.
e-services infrastructure will be scaleable and
open to ensure ease of further expansion, either
by product, service, or geography. Target clients
are the “second generation” of internet users who
require services pitched between the private
banking and retail levels. These clients are fo-
cused on investment advice rather than trading
services alone.
e-services will develop an internet website
as its major distribution channel. The business
will also open investment centers in its target
markets, as well as two large customer service
centers in Edinburgh and Maastricht, to provide
financial and technical advice by telephone.
Increasingly important to UBS, especially in the
current competitive environment, logistics is a
term which we use to encompass information
technology (IT) and Operations. IT today under-
pins almost everything that is delivered by a bank,
from Automatic Teller Machines (ATM’s) to net-
marketed bond issues. Operations covers the
post-transaction activities of the firm which en-
sure that our services are delivered to our clients
on time and with top quality. Once, these activi-
ties were viewed as “back-office” functions. Now
they take their place at the heart of our business.
Trends
At UBS, we view low cost and effective logistics
as an increasingly important competitive advan-
tage. As products and services in the financial
services industry are becoming increasingly com-
moditized, the traditional differentiators of prod-
uct innovation and service quality are being
joined in importance by logistics excellence.
e-commerce is placing new demands on logis-
tics. The impact of this new channel goes beyond
just the front-end interface, such as the web page.
Rather, the website acts as a clear window
through which our clients can have a direct view
into our internal systems. “Straight-through pro-
cessing” – the complete automation of services
from point of sale through execution and settle-
ment – is critical to ensure quality service delivery
in a real-time world. We are seeing an industry-
wide re-evaluation of logistics functions and their
place in the investment services enterprise.
Financial services providers must be both willing
and sufficiently capitalized to make significant in-
vestments in logistics. These investments are not
just driven by a desire to use leading-edge technol-
ogy. They are simply necessary to keep up with the
fast-paced changes in client needs and market
structures. For example, the European securities
market is in a period of unprecedented transforma-
tion of both trading and settlement platforms. At
UBS, we aim to be a thought leader in this trans-
formation, enabling us to be well-ahead in the race
to adapt our infrastructure and drive industry
change. We co-founded and chair the European
Security Industry Users’ Group (ESIUG), a forum
established to drive market change in Europe.
15
Group Review
e-services, Information
Technology
and Operations
16
Competitive environment
Fundamentally, financial services remains the
same business. However, the delivery of financial
services is changing very rapidly. Through this pe-
riod of innovation and change, we believe that es-
tablished players have several distinct advantages.
Logistics underpins the delivery of financial
services. All the trends we have discussed above
point to a significant competitive advantage for
those with successful in-house provision of the
“logistics chain”. UBS commands both the
financial resources and the intellectual expertise
to meet the challenges of this new environment
itself. This is in contrast to many smaller finan-
cial service providers and start-ups, which must
purchase such services, making them more cost-
ly and increasing their dependency on external
providers.
Our view is that the client bases of established
institutions with trusted brand names are “stick-
ier” than internet hype would have us believe.
Start-ups have marketing expertise and often
niche technology skills on their side, but they fre-
quently lack the resources and expertise to build
stable in-house infrastructure.
We believe that winners from this technologi-
cal revolution will predominantly be the big in-
cumbent players who understand the increasing
importance of the logistics function and grasp the
opportunities that new technologies offer.
UBS logistics strategy
UBS’s strategy is to build dominant expertise in fi-
nancial services logistics. This will enable us to
extract competitive advantage from having the
majority of the logistics chain in-house coupled
with the ability to manage the associated opera-
tional risks. In particular, this includes keeping
costs internal rather than outsourcing them at a
potentially higher cost. Furthermore, it ensures
full flexibility in delivering solutions and services
without excessive dependency on external ven-
dors.
Challenges
Logistics is facing significant challenges from the
industry trends mentioned above. Many of these
challenges will originate from demands of the
marketplace, for example the move to T+1 securi-
ties settlement in the US. In addition, UBS’s logis-
tics functions are faced with a tremendous expan-
sion of scope as we continue to build domestic
private client business outside Switzerland and as
“e-services” prepares to launch in autumn 2000.
UBS Operations are already global in structure
and organization. But cost-effective delivery
means that Operations must also continue glob-
alizing in processes and systems. The continuing
implementation of global processes and systems
will revolutionize functions previously seen as
“back office”, moving them from a clerical to an
analytical focus. As margins tighten, Operations
will be positioned as a revenue protector and
service enhancer as well as a cost reducer. It is on
this platform that our global, integrated invest-
ment services firm is built.
Group operations program
At UBS, we look at the cost of logistics in two
categories, “run-the-bank” and “change-the-
bank”. “Run-the-bank” expenses ensure that
logistics continues to perform the required day-
to-day work. Our cost control objective with run-
the-bank expenses is to ensure that, even with
increasing revenues or volumes, associated costs
will decrease, or at least increase at a slower rate.
“Change-the-bank” expenses are the necessary
investments we are continually making to capi-
talize on our revenue growth opportunities and
to achieve our cost control objectives. Here we
are transforming our business processes for the
better.
To extract more synergies from the Group
structure, we set up in 1999 the Group Opera-
tions Program (GOP). The GOP has created a ro-
bust governance structure for change-the-bank
initiatives across the Group. While run-the-bank
operations are still situated at the divisional level,
the GOP seeks to ensure that, through prioritized
single investments, run-the-bank expenses move
downward in the future. Through the GOP lead-
ership, Group initiatives are coordinated to avoid
duplication and examined to ensure they will
achieve returns exceeding the required hurdle
rate. In 1999, run-the-bank expenses accounted
for approximately 67% of total Operations and
IT costs with change-the-bank expenses account-
ing for 33%. Change-the-bank expenditures can
be expected to account for a much higher pro-
portion of our total Operations and IT expenses
in the future.
Human Resources
Group Review
Human Resources
When the merger of
Fierce competition for talent
the Union Bank of
Switzerland and Swiss
Bank Corporation was
announced in December
1997, the new Group set
the ambitious goal of
completing the majority
of the integration by July
1999. Thanks to the com-
mitment of all our em-
ployees, we were able to
achieve this milestone.
During recent years, the international labor mar-
ket has become more and more competitive, par-
ticularly in the financial services sector. Through
new marketing initiatives, challenging opportuni-
ties and first-class development and training, UBS
has been very successful in recruiting experienced
professionals and new graduates in this tight
market situation.
Intellectual capital is the most important asset
in the financial services sector. We recognize this by
encouraging our employees to play an active role
in their own development. Each of our divisions
has its own training department which offers a
wide range of courses, focusing on personal devel-
opment, management skills, as well as specific
business know-how. The expertise and integrity of
our staff creates value for our clients and, through
innovative and efficient processes, for the Group.
We always aim to attract and retain the best talent
in the market by providing a challenging climate of
teamwork and meritocracy which motivates staff
to achieve their full potential.
Organization of Human Resources at UBS
In April 1999, Group Human Resources was
brought directly into the Group CEO area. This en-
ables a better coordination of Human Resource
processes and has led to substantial improvements
and synergies in the fields of compensation and ben-
efits, graduate and professional recruitment, train-
ing and development and performance evaluation.
Each division takes responsibility for its own
human resources by having divisional Human
Resources organizations geared to specific busi-
ness needs. Under the lead of the Group CEO, the
Group Human Resources Committee ensures
that all Human Resources efforts support busi-
ness objectives. Group Human Resources policies
and standards are defined in all fields where con-
sistency and global applicability create synergies
and add value to the Group.
Group Human Resources policies
Recruitment and retention
UBS aims to be an employer of choice for talent-
ed individuals and therefore makes great efforts
to identify and recruit the top candidates for
every role. Internal development is emphasized to
fill senior positions. We have successfully estab-
lished a working environment in which talented
employees wish to remain and to which candi-
dates are attracted.
Appreciation of diversity
We foster a diverse workforce of varying back-
grounds, experiences and perspectives. We con-
centrate on increasing the awareness of the rele-
vance of national and organizational “culture”
with the goal of developing each employee’s per-
sonal intercultural competence and consequently
the aptitude for working in multi-cultural envi-
ronments.
Performance culture and meritocracy
Common to all divisions is an environment that
values performance and contribution. Recogni-
tion, reward and opportunity for increased re-
sponsibility are always based on merit. To meas-
ure this, we use the Group-wide Performance
Measurement and Management (PMM) tool,
which is a web-based instrument.
Compensation
We manage our staff with a total remuneration
strategy that attracts, retains, motivates and re-
inforces performance, fairness, integrity and
teamwork. We provide significant equity-based
compensation to all levels of employees to ensure
continual shareholder alignment and value
creation. Additionally, UBS has a number of
equity-based pay programs through which UBS
employees can choose to invest in shares and
options.
Staff development
Professional and personal development is a criti-
cal management responsibility in order to ensure
continued success. To be competitive as an
employer, we must visibly add value to each indi-
vidual’s career and market profile. Staff, regard-
less of their function or title, may attend seminars
or courses which focus on their development.
UBS offers a variety of programs for each level
and job function. We are focusing on expanding
our existing on-line training programs, which
will add flexibility and enable our employees to
invest in their further development at times which
are most convenient to them.
17
Group Review
Human Resources
UBS Group
Employees by region
31 December 1999
16%
7%
10%
Switzerland
Americas
Asia/Pacific
Europe
67%
UBS Group
Employees by division
31 December 1999
0.2%
3.4% 1.9%
19.5%
Technology skills
New technology and globalization have a grow-
ing impact on the world of banking. In response
to the increasingly technical nature of banking
and changing client demands, UBS has expanded
its range of services. 24-hour Banking is now the
norm and our e-services businesses are develop-
ing rapidly.
The critical importance of managing and prof-
iting from these new media means it is imperative
that we build up strong technology resources.
Therefore, we are developing our critical mass of
people with high technology skills.
The global leadership experience
The Global Leadership Experience (GLE) is a new
development initiative that seeks to institutionalize
cross-divisional cooperation. The GLE is a bank-
wide network of personal contacts and intellectu-
al opportunities that extend beyond the immediate
workplace. The first program took place in late
September 1999, bringing together key staff from
all five business divisions.
49.1%
25.9%
UBS Group personnel development
UBS Private Banking
UBS Warburg
UBS Private and Corporate Clients
UBS Asset Management
UBS Capital
Corporate Center
At the end of 1999, UBS had a total of 49,058
employees worldwide across all divisions. This
figure does not include the Klinik Hirslanden
headcount of 1,853 employees. The graphs illus-
Personnel 1
(Full-time equivalents)
UBS Private Banking
UBS Warburg
UBS Private and Corporate Clients
UBS Asset Management
UBS Capital
Corporate Center
Group total
thereof: Switzerland
trate the geographical and divisional split be-
tween divisions. Since December 1998 UBS
Group’s headcount expanded by 2.2%, or 1,047
due to UBS Private Banking expansion, which
has been partly mitigated by UBS Warburg’s
non-core business reduction. Employee turnover
was more stable during the second half of the
year than during the first six months. The net
turnover for the Group in 1999 was 11.7%
worldwide and 11% in Switzerland. Towards
the end of the year the figures stabilized signifi-
cantly in all divisions.
In 1999, UBS Private Banking’s headcount
grew by 25.3%. This occurred primarily through
the expansion of domestic private banking out-
side Switzerland and the accompanying necessary
logistics support, as well as through the integra-
tion of Global Asset Management and the inter-
national private banking business acquired from
Bank of America.
Apart from the transfer of the Swiss-related
Global Trade Finance business to UBS Private
and Corporate Clients, UBS Warburg’s head-
count decline in 1999 took place mainly in non-
core businesses, Treasury Products and Logistics.
The minimal expansion in UBS Private Cor-
porate and Clients’ headcount in 1999 is a result
of the transfer of Swiss-related Global Trade Fi-
nance from UBS Warburg which was almost com-
pletely offset by the realization of planned head-
count reductions. For example, in the fourth
quarter of 1999, on a net basis, around 400 per-
sonnel left the UBS Private and Corporate Clients
Division.
31.12.1999
31.12.1998
Change in %
9,565
12,694
24,098
1,653
116
932
49,058
32,747
7,634
13,794
24,043
1,497
122
921
48,011
32,706
25
(8)
0
10
(5)
1
2
0
1 The Group headcount of 49,058 as of 31 December 1999 does not include the Klinik Hirslanden headcount of 1,853.
18
Divisional Review
Divisional Review
UBS Segment Reporting
UBS Segment Reporting
To allow a more meaning-
UBS Segment reporting by business
ful analysis of UBS’s
results, Group results are
CHF million
For the year ended
Revenues
Credit loss expenses 1
presented on a manage-
Total operating income
ment reporting basis.
Consequently, internal
charges and transfer
pricing adjustments have
Personnel expenses
General and administrative expenses
Depreciation 2
Goodwill amortization 3
Total operating expenses
Segment performance before tax
Tax expense
Net profit before minority interests
Minority interests
been reflected in the
Net profit
performance of each
business. The basis of
Cost/income ratios (%) 4
before goodwill amortization
after goodwill amortization
the reporting reflects the
Regulatory equity used (avg)
Assets under management (bn) 5
management of the
UBS Private Banking
31.12.98
31.12.99
31.12.99
UBS Warburg
31.12.98
6,011
(24)
5,987
1,694
1,467
138
36
3,335
2,652
55
55
1,800
731
7,223
(26 )
7,197
1,458
1,277
111
15
2,861
4,336
12,909
(330)
12,579
6,861
2,448
652
134
10,095
2,484
6,987
(500 )
6,487
4,333
2,483
535
157
7,508
(1,021 )
46
46
77
78
105
107
1,500
10,050
13,300
607
0
0
business within the UBS
Purpose
Management accounting principles
Group.
20
Based on UBS’s management accounting, segment
reporting provides accurate performance meas-
urement of the UBS divisions to increase trans-
parency and accountability. Segment reports are
in line with the organizational structure of UBS.
Accounting standards
Although segment reports are based on manage-
ment accounting, they comply with International
Accounting Standards (IAS), and they are also ex-
amined by UBS’s auditors, ATAG Ernst & Young
AG. Where a different approach has been applied
in order to increase the usefulness of the data, the
figures are fully reconciled to our financial ac-
counting.
Segment reports disclose additional informa-
tion not required by IAS in order to measure the
performance of the business divisions in a more
accurate way. Examples of this supplementary in-
formation include assets under management and
headcount.
– Interest revenues are apportioned to the divi-
sions based on the opportunity costs of fund-
ing. Accordingly, all assets and liabilities are
refinanced with the Treasury Products busi-
ness based on market rates. Revenues relating
to balance sheet products are calculated on a
fully-funded basis. Therefore, there is no free
capital. As a result, in the segment reports, the
divisions are credited with the risk-free return
on the average equity used. Commissions are
credited to the business division with the cor-
responding customer relationship.
– In addition to the direct costs of the divisions,
inter-divisional costs are allocated based on
service level agreements and treated as a cost
reduction in the division providing the service.
– The allocation of Corporate Center costs to
the business segments is based upon concepts
of benefit and controllability. Essentially, the
division which controls the process or is
responsible for a logistics service bears the
costs.
– In order to manage its exposure to credit risk
effectively, and in particular to encourage ap-
propriate pricing of transactions involving
credit, UBS measures its exposure to credit
Divisional Review
UBS Segment Reporting
1 In order to show the relevant divi-
sional performance over time, adjust-
ed expected loss figures rather than
the net credit loss expense are report-
ed for all business divisions. The
statistically derived adjusted expected
losses reflect the inherent counterpar-
ty and country risks in the respective
portfolios. The difference between
the statistically derived adjusted ex-
pected loss figures to the net credit
loss expenses for financial reporting
purposes is reported in the Corporate
Center. The divisional breakdown of
the net credit loss expense for finan-
cial reporting purposes of CHF 956
million as of 31 December 1999 is as
follows: UBS Private Banking CHF
11 million, UBS Warburg CHF (20)
million, UBS Private and Corporate
Clients CHF 974 million, Corporate
Center CHF (9) million.
2 The 1998 figures have been restated
due to a refinement of the allocation
methodology for depreciation.
3 The amortization of goodwill in-
cludes other purchased intangible
assets.
4 Operating expenses / revenues
before credit loss expenses (UBS Pri-
vate Banking 1998 excluding gain
from divestment of Banca della
Svizzera Italiana).
5 UBS Asset Management Decem-
ber 1999: institutional assets
CHF 376 bn, non-institutional assets
CHF 198 bn.
UBS Private & Corporate Clients
31.12.98
31.12.99
UBS Asset Management
31.12.98
31.12.99
31.12.99
UBS Capital
31.12.98
Corporate Center
31.12.98
31.12.99
31.12.99
UBS Group
31.12.98
7,193
(1,050)
7,025
(1,170 )
6,143
3,363
1,061
555
2
4,981
1,162
69
69
8,550
439
5,855
3,238
1,025
680
4
4,947
908
70
70
8,250
434
1,096
0
1,096
444
177
29
113
763
333
59
70
160
574
1,163
0
1,163
454
154
29
78
715
448
55
61
100
531
315
0
315
105
47
2
5
159
156
49
50
340
0
585
0
585
121
35
0
1
157
428
27
27
250
0
2,053
448
2,501
110
818
141
50
1,119
1,382
296
745
1,041
212
1,643
128
87
2,070
(1,029 )
n / a
n / a
n / a
n / a
29,577
(956)
23,279
(951 )
28,621
22,328
12,577
6,018
1,517
340
9,816
6,617
1,483
342
20,452
18,258
8,169
1,815
6,354
(54)
6,300
68
69
4,070
1,045
3,025
5
3,030
77
78
7,850
6,350
28,750
29,750
0
0
1,744
1,572
risk using a forward looking statistical
estimate of the expected loss based on the
estimated probability of default of its counter-
parties. The estimate of the “Expected Loss”
associated with the credit risk in the portfolio
which results from this process is then charged
to the divisions through the management ac-
counts in order to ensure that the anticipated
risk cost associated with credit is taken into
account in the assessment of divisional results.
As each division is ultimately responsible for
its credit decisions, the difference between ac-
tual credit losses and annual expected losses
will be charged or credited back to the division
over time.
Since the International Accounting Standards
require that credit losses be recognized and
charged to the financial accounts on an ex post
basis as they arise rather than the forward look-
ing statistical basis UBS uses for performance
measurement, it is necessary to reconcile these
two different approaches to the measurement of
credit risk. This reconciliation is achieved
through an offsetting entry in the Corporate
Center accounts which represents the difference
between the statistically estimated adjusted ex-
pected loss which is charged to the management
accounts of the divisions and the credit loss ex-
pense which is recorded in the financial accounts
in accordance with the requirements of Interna-
tional Accounting Standards. Credit loss ex-
penses according to the financial accounting
methodology are also footnoted by division in
the divisional management account tables.
– Equity is allocated to the divisions based on
the average regulatory capital requirement
during the period. Utilized equity only is taken
into account, and a mark-up of 10% as a se-
curity margin is added. The remaining equity,
mainly for real estate, as well as unallocated
equity remains in Corporate Center.
– Assets under management are defined as third-
party on- and off-balance sheet assets for
which the bank has investment responsibility.
This includes both discretionary assets, where
the bank has a mandate to invest and manage
the assets, as well as advisory assets. Where
two divisions share responsibility for manage-
ment of the funds (such as investment funds),
the assets under management are included in
both business segments. Custody-only assets
are excluded. UBS is currently reviewing its
definition of assets under management.
– Headcount includes trainees and staff in
management development programs, but not
contractors.
Reorganization impact
Following our recent reorgani-
zation, we are committed to
providing continuing compara-
bility and transparency in our
segment reporting. This com-
mitment will result in substan-
tial disclosure at a level below
the three main business groups.
21
Divisional Review
UBS Private Banking
UBS Private Banking
Despite solid growth in
Mission and business description
assets under manage-
ment in 1999, UBS
Private Banking’s financial
performance was nega-
tively affected by merger-
related disruption, certain
underperforming port-
folios and substantial
investments in new busi-
ness areas. In February
2000, the UBS Group an-
nounced a reorganization
which will focus on
reigniting growth in the
wealth management
businesses.
22
UBS – The premier private bank
UBS Private Banking is an integrated, global
provider of a broad portfolio of financial prod-
ucts and services to wealthy clients, and the fi-
nancial intermediaries advising them. UBS Pri-
vate Banking’s products and services are aimed at
encompassing the complete life cycle of the client,
including succession planning and the genera-
tional change.
UBS Private Banking had CHF 731 billion
assets under management at year-end 1999, and
9,565 staff in 80 locations worldwide. Leverag-
ing its relationship with UBS Warburg and UBS
Capital, UBS Private Banking is able to provide
its clientele with a unique palette of financial
services products. It also draws on other areas of
the Group, with UBS Asset Management provid-
ing investment fund management services, and
UBS Private and Corporate Clients the use of its
information technology platform and investment
fund distribution capabilities in Switzerland.
Industry trends and strategic initiatives
Industry trends
Despite increasing competitive pressure from es-
tablished players and new market entrants, pri-
vate banking continues to remain a particularly
attractive business in the financial services sector.
According to industry forecasts, financial assets
of high net worth individuals are expected to
grow worldwide at nine percent annually over
the medium-term. In general, growth rates for
domestic markets in Europe, North America and
in Asia are expected to show even higher increases
than the international cross-border business.
At the same time, the private banking industry
is undergoing some fundamental changes. One of
the most important challenges is the changing
profile of private banking clients. New wealth is
growing much more quickly than inherited
wealth. Clients – increasingly globally oriented
and mobile – are becoming more active, less risk-
averse and more comfortable with technology.
These new challenges are leading to the demand
for superior investment performance, innovative
and sophisticated products and services, and real-
time information coupled with strong advisory
capabilities and multiple access points.
New technologies are another opportunity for
the industry. The internet will transform private
banking as it enables banks to compete globally,
outside traditional geographic barriers. Charac-
teristics of this development are an increase in in-
formation breadth and depth, new distribution
channels with marginal costs of reaching clients
approaching zero, and new techniques that facil-
itate client segmentation and increase the level of
personalization and client intimacy. Banks must
view the internet as both a new channel for serv-
ing existing customers and a fundamentally new
way of doing business to attract customers. UBS
will further strengthen its presence in this bor-
derless, highly customer-focused, and technolo-
gy-driven environment.
In this context, UBS Private Banking sees its
proven advisory strengths combined with its life-
cycle view and its attention to changing client
profiles as key differentiating factors in providing
intimacy and customization for its clients and,
ultimately, success for the business and sustain-
able long term value creation for shareholders.
Strategic initiatives
Aligned with industry trends, UBS Private Bank-
ing’s strategic initiatives in 1999 were character-
ized by four main pillars:
– Focus on wealthy clients with individualized
requirements across a broad product range
and through the entire life cycle.
In the private banking industry, the demand for
specific and targeted professional advice is in-
creasing. UBS Private Banking has addressed the
challenge by setting up special advisory teams for
the different needs of certain client groups like
entrepreneurs or executives.
New business initiatives during 1999 include
the formation of the Global Executives Group,
the Sports and Entertainment Advisory Group,
the Corporate Advisory Group and the Real Es-
tate Advisory Group. This represents our contin-
uous efforts to harness UBS capabilities across all
divisions and business units to create tailor-made
solutions for clients’ entire wealth positions.
UBS Private Banking’s unique concept behind
the Global Executives Group, established to de-
liver customized solutions for executives around
the world, is to take a holistic approach to wealth
management that uses individualized sector and
Divisional Review
UBS Private Banking
31.12.1999
31.12.1998
change (%)
6,011
(24)
5,987
1,694
1,467
138
36
3,335
2,652
1,800
55
55
731
9,565
5,835
3,730
7,223
(26 )
7,197
1,458
1,277
111
15
2,861
4,336
1,500
46
46
607
7,634
5,092
2,542
(17)
(8)
(17)
16
15
24
140
17
(39)
20
20
25
15
47
UBS Private Banking
Assets under management
Development
CHF million
Revenues 1
Credit loss expenses
CHF billion
7
0
6
5
8
+
1
3
7
e
c
n
a
m
r
o
f
r
e
P
5
+
y
e
n
o
m
w
e
n
t
e
N
8
2
+
s
n
o
i
t
i
s
i
u
q
c
a
y
n
a
p
m
o
C
6
+
s
r
e
f
s
n
a
r
t
l
a
n
o
i
s
i
v
i
d
r
e
t
n
I
Total operating imcome
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 2
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Cost / income in % 3
Cost / income in %, before goodwill amortization 3
Total 31.12.98
Total 31.12.99
Assets under management (bn)
Headcount
of which: Switzerland
of which: Rest of world
UBS Private Banking
Assets under management
Advisory vs. discretionary
100%
80%
60%
40%
20%
0%
25%
25%
75%
75%
31.12.99
31.12.98
1998 Total: CHF 607 billion
1999 Total: CHF 731 billion
Discretionary
Advisory
UBS Private Banking
Assets under management
By asset class
100%
80%
60%
40%
20%
0%
9%
29%
28%
18%
16%
9%
26%
32%
16%
17%
31.12.99
31.12.98
1998 Total: CHF 607 billion
1999 Total: CHF 731 billion
Accounts
Equities
Bonds
UBS Investment
Funds
Others
1 Includes sales profit and operating income from divested companies. 2 Includes amortization of other purchased intangible assets. 3 Before
credit loss expense, 1998 excluding gain from divestment of Banca della Svizzera Italiana.
product expertise to manage a client’s entire
wealth position. This will be achieved by com-
bining investment, executive compensation and
private banking expertise, and leveraging this
with a particular strength in managing concen-
trated equity positions. This business is also
an excellent example of what can be achieved
by drawing on the full spectrum of the UBS
Group’s resources. The experience so far indi-
cates a strong positive response from the market-
place.
A new approach in communicating with exist-
ing and potential new clients was taken in May
1999 with the launch of Optimus, a dedicated
quarterly magazine, and Optimus online, the
complementary web site with updated invest-
ment information daily. These communication
instruments will provide more interaction be-
tween UBS Private Banking and its clients.
– Strengthen the division’s position in private
banking in Switzerland and in international
offshore centers.
The traditional private banking business – pri-
vate banking in Switzerland for both Swiss and
international cross-border clients – remains of
critical importance to the UBS Group. 1999 was
characterized by strategic developments such as
expansion of our services in London, Monaco,
Luxembourg, New York and Singapore where
existing capacities were increased in line with
client demands and the potential to secure future
growth.
In March 1999, UBS acquired Bank of Amer-
ica’s international private banking activities in
Europe and Asia which added CHF 5 billion to
UBS Private Banking’s assets under management.
The business was completely integrated into ex-
isting UBS entities during 1999.
– Build onshore private banking businesses out-
side Switzerland organically and through
selective acquisitions.
Another key strategy is the expansion of onshore
private banking outside Switzerland, particularly
in Continental Europe. Thus, UBS Private Banking
opened new offices during 1999
in Spain
(Barcelona, Madrid, Marbella), Italy (Bologna,
Rome), France (Paris) and its seventh office in Ger-
many (Stuttgart). At the same time, the division
strengthened its existing onshore private banking
platforms in major financial centers, such as Lon-
don, New York, Singapore and Hong Kong.
UBS Group announced a reorganization of
wealth management businesses
in February
2000. Onshore private banking outside Switzer-
land has been grouped with the “e-services” ini-
tiative and will be managed in the new investment
banking group under the UBS Warburg brand. e-
services and onshore private banking outside
Switzerland are both high-potential growth busi-
nesses which will be driven forward under a com-
23
Divisional Review
UBS Private Banking
UBS Private Banking
Assets under management
By currency
100%
80%
60%
40%
20%
0%
22%
25%
4%
43%
6%
26%
25%
5%
38%
6%
31.12.99
31.12.98
1998 Total: CHF 607 billion
1999 Total: CHF 731 billion
CHF
EUR
GBP
USD
Others
UBS Investment funds
Development
Swiss-authorized funds only
CHF billion
5
1
0 +
1
+
1
0
2
y
c
n
e
r
r
u
C
e
c
n
a
m
r
o
f
r
e
P
5
7
1
1
+
y
e
n
o
m
w
e
n
t
e
N
31.12.98
31.12.99
24
mon management structure to maximize joint
product offerings and delivery mechanisms while
managing costs aggressively. The new private
banking and affluent clients targeted by e-servic-
es and onshore private banking outside Switzer-
land will be particularly attracted to the invest-
ment banking style, services and brand.
– Diversify available investment styles.
At UBS, the investment process has historically
been integrated. As a result, the detrimental im-
pact of 1999 investment performance in the in-
stitutional investment management franchise car-
ried over into Private Banking. In an effort to un-
link this concentration of investment perform-
ance risk, UBS will diversify the investment styles
available to its private clients.
As an important step to widen the product
range available to private banking clients, UBS
announced in September 1999 the acquisition of
Global Asset Management (GAM). GAM is a
leading global diversified asset management
group with operations in Europe, North Ameri-
ca, Asia and Middle East. It has brought assets
under management of CHF 23 billion invested in
170 mutual funds and unit trusts.
The acquisition is a cornerstone of the strate-
gic plans of the UBS Group, and it will be central
in developing a full range of wealth management
services worldwide. As announced in February
2000, GAM will be moved to the UBS Asset
Management division where it will contribute di-
rectly to the diversification of investment styles
and help to develop “screened” access to third-
party funds. UBS Asset Management will lever-
age Global Asset Management’s range of mutual
funds and its multi-manager system, in which it
selects the top 90 out of 6,000 third-party fund
providers, to enhance the range of investment
styles and investment funds. With its well-estab-
lished and successful investment styles, GAM will
retain its approach and brand identity within
UBS Asset Management.
Investment funds business
In 1999, UBS strengthened its international in-
vestment fund franchise amidst growing popular-
ity of investment funds, and retained its position
as the leading fund provider in Europe. By year-
end 1999, assets under management increased
15% to reach CHF 201 billion. Growth was
mainly attributable to good performance.
The merging of the two pre-merger banks’ fund
ranges and the amalgamations due to the intro-
duction of the Euro were completed successfully
and led to a reduction in the number of investment
funds from 214 to 148. The resulting efficiency
and liquidity impact is shown in the 67% increase
of the average size of our fund portfolios from
CHF 815 million to CHF 1,358 million.
The continuing trend towards equity invest-
ments helped grow our equity funds 51% to CHF
53.2 billion. Equities is now the largest asset cat-
egory of UBS Investment Funds and accounts for
26.5% of total UBS Investment Funds volume.
The UBS Investment Fund Account is a proven
investment service which combines the simplicity
of a bank account with the advantages of invest-
ing in a well diversified fund portfolio. It offers
six investment risk profiles as well as customized
investment plans. UBS Investment Fund Ac-
counts have been well received, growing accounts
by 80% to 90,000 and assets by 39% to a total
amount of CHF 2.5 billion in 1999. The launch
of five new investment funds generated a net in-
flow of CHF 1.7 billion.
Assets under management from external dis-
tribution partners increased by 31% to CHF 8.8
billion, while assets of funds managed under the
brand of external distribution franchises grew by
74% to CHF 5.3 billion.
With the introduction of Fund Gate on the in-
ternet in autumn 1999, UBS started providing
clients and other internet users with detailed first-
hand information on UBS Investment Funds, giv-
ing access to a unique set of price and perform-
ance data on a daily basis. In addition, substan-
tial efforts have been undertaken to further en-
hance our product offering targeted at fast grow-
ing electronic sales channels.
UBS Investment Funds continued to receive
awards in 1999 for first-class performance.
Among others, UBS has been named “Switzer-
land’s Best Overall Management Group” by
Standard & Poor’s Fund Services. The business
model for mutual fund distribution is changing.
Financial institutions selling mutual funds are
moving from a proprietary product focus to an
open, “best of class”, sales architecture.
To concentrate all investment management
business of the UBS under one management team,
Divisional Review
UBS Private Banking
UBS Investment funds
By fund category1
100%
80%
60%
40%
20%
0%
22%
23%
20%
26%
6%
3%
20%
26%
24%
20%
7%
3%
31.12.99
31.12.98
1998 Total: CHF 175 billion
1999 Total: CHF 201 billion
Asset allocation funds
Money market funds
Bond funds
Equity funds
Capital preservation funds
Real estate funds
1 Swiss-authorized funds only.
UBS announced as part of its reorganization in
February 2000 that the mutual funds business
will be combined with the UBS Asset Manage-
ment division. UBS will open its mutual fund ar-
chitecture, leveraging GAM’s abilities described
above, to create a “screened” open architecture
giving clients access to third-party funds. UBS
also plans to make its mutual funds increasingly
available to other third-party distributors.
Results discussion
In 1999, UBS Private Banking results did not
match the high standards expected. This is due to
lower levels of client transaction activity, sub-
stantial investments in the expansion of domestic
private banking activities outside Switzerland,
and a delay in establishing a positive trend in net
new money.
The pause in re-establishing this trend in net
new money stems to a large extent from the inte-
gration of the two pre-merger private banking
franchises. This involved fundamental changes
throughout the organization. By the end of July,
UBS Private Banking completed one of the final
steps of the merger: the complex integration in
Switzerland of the information technology plat-
forms of the two predecessor banks. This task
was finalized in record time, and the associated
disruption is now behind us.
Segment performance before tax was CHF
2,652 million in 1999, while it was CHF 4,336
million in 1998. Adjusted for the gain on divest-
ments of BSI-Banca della Svizzera Italiana as well
as related operating revenues and expenses, seg-
ment performance before tax was CHF 3,135
million in 1998.
Total operating income
Total operating income before credit loss expenses
was CHF 6,011 million in 1999 and CHF 7,223
million in 1998. Adjusting the 1998 period for
gains and operating revenues from divestments,
total operating income after credit loss expenses
was up 2%, or CHF 116 million, to CHF 5,987
million in 1999. Besides lower transaction-related
volumes, revenue growth was negatively impact-
ed by the effect of internally hedging net income
in foreign currencies and higher intra-Group in-
centives paid for the distribution of investment
funds.
Assets under management
Assets under management increased 20%, or
CHF 124 billion, to CHF 731 billion in 1999.
Strong markets, especially in Europe, the United
States and in the technology sector, as well as the
stronger US dollar led to a performance increase
of CHF 85 billion for the full year. In addition,
two acquisitions – Global Asset Management
and the international private banking operations
of Bank of America – accounted for a further
CHF 28 billion and interdivisional transfers
brought another CHF 6 billion. Net new money
contributed CHF 5 billion, which was lower
than expected due to merger disruption and the
effects of some underperforming investment
portfolios.
Total operating expenses
Total operating expenses, adjusting for divest-
ment-related operating expenses increased 22%,
or CHF 599 million, to CHF 3,335 million in
1999 and was to a large extent related to the ex-
pansion of front-line staff as well as related in-
frastructure investments. Cost growth is expect-
ed to flatten out during 2000, and UBS Private
Banking expects these new investments to deliver
sustainable profits in the medium term.
Personnel expenses increased 23%, or CHF
312 million, to CHF 1,694 million in 1999
mainly because of the headcount rise of 25% or
1,931 people. Growth was in line with our ex-
pansion strategy in onshore business outside of
Switzerland. This includes the recruitment of
top industry professionals as well as graduates
and post-graduates trained through a “best in
class” formal Private Banking education pro-
gram. In addition to growth in client-facing
staff, the division has increased its logistics sup-
port and added 501 people due to the GAM ac-
quisition.
General and administrative expenses increased
19%, or CHF 230 million, to CHF 1,467 million
in 1999 as the division supported expansion with
necessary infrastructure investments, for example
with new systems and offices.
Depreciation and non-goodwill amortization
increased 35%, or CHF 36 million, to CHF 138
million in 1999. Goodwill amortization (not in-
cluding GAM) increased CHF 21 million to CHF
36 million in 1999 because of the acquisition of
the international banking operations of Bank of
America.
25
Outlook
In February 2000, UBS announced the reorgani-
zation of its wealth management businesses to
focus more on meeting clients’ needs. Swiss and
international cross-border private banking will
form a core part of the new business group UBS
Switzerland.
Private banking will continue to follow the
broad set of initiatives mentioned above. At the
same time, this new structure will re-emphasize
the strength and core values of traditional private
banking: safety, privacy and service. Further-
more, it will enable the management of all Swiss-
based clients under one unified team. UBS
Switzerland will benefit from an integrated Swiss-
based infrastructure with the potential for shared
distribution for both affluent and private bank-
ing clients.
UBS remains the global leader in private bank-
ing. With the broad set of strategies set forth
above, we will leverage the fundamental strength
of our core wealth management businesses in
Switzerland and abroad to realize their full
potential in this particularly attractive industry
segment.
Divisional Review
UBS Private Banking
26
UBS Warburg
Divisional Review
UBS Warburg
As the investment banking
Mission and business description
and securities division of
the Group, UBS Warburg
provides wholesale finan-
cial and investment prod-
ucts and advisory services
to institutional, corporate
and sovereign clients
world-wide. 1999 was a
year of strong financial
performance when the
division refocused on its
core clients and products,
made significant invest-
ments in talent and tech-
nology, and positioned
itself to respond quickly
and effectively to chang-
ing client demands and
market opportunities.
Mission
UBS Warburg is a leading global investment bank
and securities firm in terms of client franchise and
financial servicing capabilities. The division aims
to provide UBS shareholders with a return on eq-
uity consistent with the leaders in the industry. It
plans to make this position sustainable by selec-
tively investing in talent, taking advantage of new
market opportunities and extending its client
reach. UBS Warburg’s profitability is based on a
solid institutional client franchise, a growing cor-
porate client franchise, and a clear strategic focus
for all business areas.
Business focus
As the investment banking and securities division
of the Group, UBS Warburg provides wholesale
financial and investment products and advisory
services to institutional, corporate and sovereign
clients world-wide. It focuses on core businesses
that have attractive risk-return profiles and a solid
basis for growth, and is organized around four
main global product areas:
– Equities
– Treasury Products
– Fixed Income – Corporate Finance
Its investment banking revenues place UBS Warburg
in the top group of equivalent global competitors.
Group reorganization
The UBS Group announced in February 2000
that these activities will be joined by private
equity, international on-shore private banking
and e-services to form a leading global invest-
ment services firm under the UBS Warburg brand.
The division will be strongly placed to take ad-
vantage of the considerable growth potential re-
sulting from putting investment banking and in-
vestment services activities for international
clients under one roof. Private, institutional and
corporate clients will be serviced via complemen-
tary distribution channels creating the potential
for considerable cost and revenue synergies.
Strategy and initiatives
Institutional client franchise
UBS Warburg has a very large and profitable in-
stitutional client franchise. The institutional
client business in equity products puts the divi-
sion in the top three globally with a significantly
improved market share in 1999 across cash and
derivative products. UBS Warburg’s strength in
selling and servicing cash and derivative fixed in-
come products with institutional clients is widely
recognized. UBS Warburg believes that it is par-
ticularly well-positioned to leverage its research
capability with institutional clients, and it will
continue to strengthen its research capabilities in
targeted sectors and regions.
In the rapidly changing investment banking
and securities industry, client connectivity and the
application of leading technology is critical for
the future success of the institutional business.
UBS Warburg is focused on developing and
delivering leading client connectivity capabilities.
It is also improving its existing infrastructure with
new technologies to extract additional trading
value and cost efficiencies, and is leading the in-
dustry in transforming our business to an elec-
tronic basis. Central to this is the IBOL (Invest-
ment Banking On-Line) website. This will be
a true home page – the only place a client needs
to go to deal with UBS Warburg. From this page,
UBS Warburg’s clients can access all content elec-
tronically: research, prices, analytic tools, and
trade ideas. They can also link to the division’s
execution capabilities across all products.
By the end of 1999, UBS Warburg had made
some significant achievements in e-commerce:
– In Equities, 50 of the largest clients executed
15% of their volume electronically.
– In Treasury Products, half of all client trans-
actions were electronically priced, captured,
settled and routed to the division’s risk en-
gines.
– In Euro Commercial Paper, 75% of the divi-
sion’s clients were accessing prices on-line at
UBS Warburg’s ground-breaking ECP website.
– To support clients in all new endeavors, UBS
Warburg has established a Global Help Ser-
vice Desk for clients 24 hours per day, 6 days
per week.
– UBS Warburg has also invested heavily in
securities processing power and is currently
dealing with 100,000 domestic and cross-
border trades per day processed straight
through, with the capacity for a five-fold
increase.
Key strategic initiatives to develop the institu-
tional client franchise include:
27
Divisional Review
UBS Warburg
28
CHF million
Corporate finance
Equities
Fixed income
Treasury products
Non-core Business
Total
Credit loss expense
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 1
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Return on equity
Return on equity before goodwill amortization
Cost / income in % 2
Cost / income in % before goodwill 2
Headcount
of which: Switzerland
of which: Rest of world
31.12.1999
31.12.1998
Change (%)
2,050
5,916
2,460
1,801
682
12,909
(330)
12,579
6,861
2,448
652
134
10,095
2,484
10,050
25
26
78
77
12,694
1,768
10,926
1,665
2,572
399
2,351
6,987
(500 )
6,487
4,333
2,483
535
157
7,508
(1,021 )
13,300
(8 )
(6 )
107
105
13,794
2,502
11,292
23
130
517
(23)
0
85
(34)
94
58
(1)
22
(15)
34
(24)
(8)
(29)
(3)
1 Includes amortization of other purchased intangible assets. 2 Before credit loss expense.
– Strengthening existing client relationships
using electronic tools.
– Enhancing cross-product marketing.
– Capturing value from increased client volume
flow.
– Improving processing efficiency.
Corporate client franchise
UBS Warburg is committed to building a stronger
position in its corporate client franchise, and in-
creasing its market share of the global fee pool,
particularly in its ten targeted global industry
sectors. The division is a leading player in the
Eurobond market and the top competitor in its
target market segments in international bond
origination. Its position in international equity
origination slipped slightly in 1999, but the divi-
sion is confident that it has the necessary re-
sources and client relationships in place to main-
tain a position in the top five on an ongoing basis.
UBS Warburg has an increasingly credible global
M&A franchise and is well positioned to grow. It
will continue to selectively invest in corporate ad-
visory talent over the next two years to strength-
en its position. UBS Warburg is not yet a major
provider of leveraged finance but has made sev-
eral key hires in 1999 to build the business, and
is committed to strengthening its advisory, re-
search and distribution capabilities in both the
US and Europe.
Key strategic initiatives to develop the cor-
porate client franchise include:
– Investment in targeted global sector-based
coverage that is tightly aligned to Equity Re-
search and marketing initiatives.
– Expansion of corporate coverage and presence
in the major growth markets of Continental
Europe.
– Building Leveraged Finance origination and
distribution capabilities in US and Europe.
– Positioning the division to become the interna-
tional debt issuer of choice for US corporates.
Results discussion
In 1999, UBS Warburg generated gross revenues
of CHF 12,909 million, and segment results be-
fore tax of CHF 2,484 million. The division en-
joyed exceptionally strong revenues across all
business areas with the exception of Treasury
Products, and our profitability was driven by the
division’s solid client franchise.
Our Equities business, with gross revenues of
CHF 5,916 million, continued to increase its
overall market share and now ranks as one of the
Divisional Review
UBS Warburg
Developments in UBS Warburg market VaR
Reductions in UBS Warburg
international credit portfolio
350
300
250
200
150
100
50
0
335
303
260
CHF million
222
210
198
224
6.98
9.98
12.98
3.99
6.99
9.99
12.99
350
300
250
200
150
100
50
0
268
200
176
CHF billion
150
132
107
99
6.98
9.98
12.98
3.99
6.99
9.99
12.99
Market risk: VaR (10-day holding period 99% confidence level).
On-balance-sheet loans and off-balance-sheet committed facilities.
leading global equities houses in both cash and
derivative markets. Compared to 1998, revenues
increased 130%, reflecting robust client flows
and a strengthening of the UBS Warburg fran-
chise with institutional and corporate clients.
1998’s results also included the loss of CHF 762
million in the pre-merger Global Equity Deriva-
tives (GED) portfolio.
UBS Warburg continued to reorient its Fixed
Income business in 1999 to be more client fo-
cused and this resulted in revenues of CHF 2,460
million, with strong client flows driving both in-
vestor and issuer activities. As prior year revenues
of CHF 399 million included losses from Long
Term Capital Management of CHF 793 million
and substantial losses in emerging markets, a
comparison between 1999 and 1998 results is not
meaningful. However, allowing for these excep-
tional items, all parts of the business showed sig-
nificantly improved profitability.
The Treasury Products business produced rev-
enues of CHF 1,801 million, primarily from the
Foreign Exchange and Cash & Collateral Trad-
ing businesses. The Foreign Exchange business,
while continuing to be profitable, experienced re-
duced levels of activity as a result of the intro-
duction of the Euro, and narrowing margins from
increased competition in the global markets. The
division’s precious metals business was adversely
impacted by the dramatic volatility in the gold
market in the fourth quarter of 1999.
Corporate Finance, which includes the Advi-
sory, Equity Capital Markets and Debt Capital
Markets results, delivered revenues of CHF
2,050 million, with strong performance in M&A
revenues, and contributions from Equity and
Debt Capital Markets in line with expectations.
Market risk
Market risk exposure, as measured by Value at
Risk (VaR) has decreased primarily as a result of
the reduction in the GED portfolio risk. UBS
Warburg remains committed as an active player
in the markets. We will also continue to take ap-
propriate risk positions where it is required to fa-
cilitate our clients needs.
Non-core activities
Non-core businesses generated revenues of CHF
682 million, which includes Global Trade Fi-
nance, the pre-merger Global Equity Derivatives
portfolio and lending to non-core clients.
UBS Warburg’s program of exiting specific
non-core businesses has yielded positive results
and is on track in terms of timing and reduction
in overall risk.
The sale of the international Global Trade
Finance business to Standard Chartered was
completed in the second quarter of 1999 and
generated a CHF 200 million gain for the divi-
sion. All inventory positions from the pre-merg-
er Global Equity Derivatives portfolio are now
on the divisional risk management platform. The
portfolio is closely monitored and the sensitivity
to extreme stress events has been significantly
reduced.
UBS Warburg is also reducing its credit expo-
sure through a selective reduction in lending to
non-core clients. The international credit port-
folio has been reduced as planned and at end of
December stood at CHF 98.8 billion.
Completion of merger
With the integration of the investment bank now
completed, the benefits of the merger have been
29
Divisional Review
UBS Warburg
30
significant in terms of increased revenues, re-
duced headcount, control over costs and lower
utilization of regulatory equity.
CHF million 1
1999
1997
Change
in %
Revenue
12,579 10,588
Total costs, including bonus
9,309
10,095
Profit before tax
1,279
2,484
12,694 18,620
Permanent headcount
Average regulatory equity used 10,050 13,600
Return on average reg. equity
24.7% 9.4%
18.8
8.4
94.2
(31.3 )
(26.1 )
1 Except headcount.
League tables and market rankings
UBS Warburg’s overall performance in 1999 has
reconfirmed its position as one of the top five
global investment banking and securities firms in
primary and secondary markets across all corpo-
rate and institutional client activities, as well as
the leader in Europe.
UBS Warburg is a leading player in the Eu-
robond market and the top competitor in its target
market segments in international bond origination.
It is ranked 2nd in Eurobonds with a market share
of 10.5%. In the specific international bond mar-
ket segments that the division has chosen to pursue
aggressively, UBS Warburg was ranked in first
place with a 7.6% market share.
The division’s position in international equi-
ty origination slipped somewhat in 1999 to 6th,
due in part to a small number of large trans-
actions in which it was not involved, but the
division is confident that it has the necessary
resources and client relationships in place to
maintain a position in the top five on an ongoing
basis.
In Mergers & Acquisitions, UBS Warburg has
an increasingly credible global franchise and is
well positioned to grow. It had a leading role in
the largest deals announced in 1999, including
Sprint / MCI WorldCom (sole advisor to Sprint)
and Vodafone AirTouch / Mannesmann (joint ad-
visor to Vodafone AirTouch). The division’s
ranking in 1999 on completed transactions was
10th globally with a market share of 6.6%, and
on announced transactions 6th with a market
share of 14.0%, the latter reflecting the increase
in market activity and its role as advisor in the
second half of the year, with many of these deals
scheduled for completion in early 2000. Togeth-
er with its global research and growing corporate
client franchise, UBS Warburg will reinforce its
position in ten targeted global sectors. It will con-
tinue to selectively invest in corporate advisory
talent over the next two years to strengthen its
position.
In the Institutional Investor Global Research
Team survey, UBS Warburg was ranked in 4th po-
sition and was lauded for its innovative approach
in the effective marketing of global research to US
investors, the result of investments in talent and
technology over the last few years in research and
corporate finance.
The Reuters / Tempest surveys rank securities
firms on the quality of research and service to
fund managers across all major regions. In the
1999 surveys, UBS Warburg was ranked No. 1 in
European Large Cap Stocks, No. 1 in Hong Kong
and China, No. 2 in UK Large Cap Stocks and
No. 2 in Global Emerging Markets.
Cost controls
UBS Warburg’s personnel costs were significant-
ly higher in 1999 due primarily to performance-
related compensation directly tied to the strong
divisional results for the year.
The division remains committed to investment
in leading edge technology and top quality talent.
Cost control will emphasize improving overall ef-
ficiency such that revenue growth exceeds any
growth of non-personnel costs. The division will
focus on managing personnel and non-personnel
costs as a percentage of net revenues.
In addition, the UBS Warburg Investment
Committee has carried out a rigorous review of
all change programs to ensure that investments in
the UBS Warburg infrastructure are fully aligned
with the strategy of the business.
Outlook
The most important trend affecting the invest-
ment banking and securities industry is the con-
tinued and substantial growth of the industry.
Client sophistication and increased competitive
pressures are squeezing industry margins, but
volume growth is consistently and significantly
outpacing this trend, and overall market fee pools
are increasing steadily.
Other significant trends include globalization
and consolidation, the changing nature of com-
petition, technology, the internet, funds available
for investment, and communications and pro-
Divisional Review
UBS Warburg
cessing power. The European single market con-
tinues to drive explosive growth in issuance ac-
tivity.
As a leading client-focused investment bank-
ing and securities organization with a unique
global reach, UBS Warburg is very well posi-
tioned to take advantage of all of these trends.
With revenues of over CHF 12.5 billion, UBS
Warburg represents a business of size, scale,
scope and franchise value that compares well
with other leading investment banks. UBS War-
burg is well positioned for further growth and
has the financial strength to fund key strategic
initiatives out of current profitability.
31
Divisional Review
UBS Private and
Corporate Clients
UBS Private and
Corporate Clients
1999 was a successful
Mission and business description
Strategy and initiatives
year for UBS Private and
Corporate Clients. Pre-tax
profits increased marked-
ly as growth in revenues
outpaced the rise in
costs. 1999 was also dis-
tinguished by the suc-
cessful, record-setting
integration of the pre-
merger technology plat-
forms as well as the
launch of several well-
received multi-channel
initiatives. As announced
in February 2000, UBS
Private and Corporate
Clients will be combined
with Swiss and interna-
tional offshore private
banking to form a new
business group, UBS
Switzerland, putting UBS
in a strong position for
future growth.
32
The overriding mission for the UBS Private and
Corporate Clients division is to further develop
the most profitable bank serving private and cor-
porate clients in Switzerland.
UBS Private and Corporate Clients’ leading
position in the Swiss market and its access to
other Group divisions enables it to offer a com-
prehensive range of products and services to a
broad client base. As of year-end 1999, UBS Pri-
vate and Corporate Clients had more than four
million individual clients. Its client base is seg-
mented into three million private clients with
assets up to CHF 50,000, and one million afflu-
ent clients with assets between CHF 50,000 and
CHF 1 million. The anticipated growth of the
affluent client segment is a tremendous oppor-
tunity and a particular focus of the division’s
energies and initiatives.
The corporate clients segment consists of some
180,000 small and medium sized businesses. It
also includes more than 10,000 larger corporate
clients, with complex financial requirements. The
170 top-tier corporate clients are frequent users
of capital market services. UBS Private and Cor-
porate Clients provides corporate clients not only
the services of a credit bank, but also structured
finance, capital market and investment advisory
services. In addition, the division offers payment
and custodial services to some 1,800 banking insti-
tutions world wide.
UBS Private and Corporate Clients had CHF
439 billion in assets under management as well as
CHF 165 billion in loans at year-end1999. Further
detail on the credit portfolio can be found in the
Credit Risk section of the Review of Risk Manage-
ment and Control on pages 48–54.
On the logistics side, UBS Private and Corpo-
rate Clients provides a wide range of services to
all divisions in Switzerland. Besides information
technology and operations, UBS Private and Cor-
porate Clients also supports other divisions in
Switzerland as a major provider of settlement and
payment services, and thus contributes signifi-
cantly to the realization of synergies.
Eighteen months after the legal consummation
of the merger, UBS Private and Corporate Clients
is especially pleased to have successfully aligned
its entire product offering, resegmented its client
base and migrated more than two million clients
to a single platform.
UBS Private and Corporate Clients’ strategy
UBS Private and Corporate Clients is committed
to providing its clients with innovative, personal-
ized products consistently meeting high stan-
dards, as well as optimizing customer-related
processes from front to back.
UBS Private and Corporate Clients’ focus on
efficiency will result in further standardization of
services, leading to an increased implementation
of alternative distribution channels, such as the in-
ternet, phone centers and Automatic Teller Ma-
chines (ATM’s). The current branch network is di-
vided into three different zones: one for ATM’s,
one for the counter area and a third one dedicat-
ed to advisory services. The division intends to
move forward to a two-zone concept, slowly elim-
inating the counter area. By doing this, it will cre-
ate a clear cash services oriented zone and a very
flexible and increasingly important advisory zone.
In addition, UBS Private and Corporate
Clients will further optimize its logistics function
to realize additional synergies in the provision of
services to all divisions in Switzerland.
Organizational changes
In October 1999, a new organization structure
was implemented in UBS Private and Corporate
Clients. Two dedicated business areas, individual
clients and corporate clients, concentrate on busi-
ness origination and allow the sales force to focus
exclusively on the recognition of customer needs,
market penetration and the exploitation of mar-
ket opportunities.
The Risk Transformation and Capital Man-
agement business area was newly created to as-
sume responsibility for managing capital alloca-
tion including equity and equity participations,
as well as asset and liability management of the
division in cooperation with the Group Treasury.
Risk Transformation and Capital Management is
the owner of the division’s loan portfolio, includ-
ing non-performing assets. One of its key respon-
sibilities is the active management of recovery po-
sitions. By implementing leading-edge portfolio
management principles, Risk Transformation
and Capital Management is able to optimize risk-
adjusted returns. In addition, close cooperation
with UBS Warburg facilitates the exploitation of
secondary market opportunities such as securiti-
zation.
Divisional Review
UBS Private and
Corporate Clients
CHF million
31.12.1999
31.12.1998
Change (%)
Individual clients
Corporate clients
Risk transformation and capital management 1
Operations
Others
Total
Credit loss expense
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 2
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Cost / income in % 3
Cost / income in % before goodwill amortization 3
Assets under management (bn)
Headcount
of which: Switzerland
of which: Rest of world
4,553
1,855
330
313
142
7,193
(1,050)
6,143
3,363
1,061
555
2
4,981
1,162
8,550
69
69
439
24,098
24,050
48
4,785
1,728
448
64
7,025
(1,170 )
5,855
3,238
1,025
680
4
4,947
908
8,250
70
70
434
24,043
23,989
54
(5)
7
0
(30)
122
2
(10)
5
4
4
(18)
(50)
1
28
4
1
0
0
(11)
1 Newly created business area in October 1999. Annualized income (1998 included in individual clients and corporate clients). 2 Includes amor-
tization of other purchased intangible assets. 3 Before credit loss expense.
To ensure the complete segregation of credit
risk management activities as well as a uniform
credit policy, the function of an independent
Chief Credit Officer was created. This allows for
increased efficiency by standardizing and central-
izing credit decisions and frees up the business to
concentrate on origination.
Strategic projects portfolio
Good progress has been made in the implemen-
tation of the Strategic Projects Portfolio. This has
resulted in a considerable contribution to net
profit. The majority is attributable to revenue en-
hancement initiatives. The continued implemen-
tation of effective risk-adjusted pricing had a bet-
ter than expected impact. The unified pricing
structure on securities accounts as well as the very
successful placement efforts of investment funds
further increased operating income.
Cost reductions have primarily been achieved
by re-engineering processes in the logistics and in-
frastructure areas as well as from positive effects
of the multi-channel strategy. In the upcoming
year, additional cost savings will be achieved by
realizing IT-related synergy potential, by in-
creased momentum in the division’s redundancy
program and by implementing re-engineered
business and logistics processes. On the customer
side, UBS Private and Corporate Clients will
focus more on advisory and customized services,
both for individual clients and corporate clients.
The division will also further optimize its credit
product portfolio.
Tight control and periodic reviews by top
management will help to achieve the timely realiza-
tion of these initiatives.
Distribution channels
In line with announced plans, branch closures
proceeded during 1999, and by year-end some
173 branches have been closed, 31% of the pre-
merger branch network. In total, the physical
distribution network at year-end 1999 consisted
of 385 locations. The division intends to further
rationalize the network over the next two years.
Following general trends, alternative distribu-
tion channel usage increased significantly. During
the last quarter of 1999, UBS focused on pushing
forward its alternative distribution, launching
new telebanking products as well as new pricing
schemes within online banking. Overall UBS
reached more than 450,000 UBS 24h-Banking
contracts in December. On the Phonebanking
side, calls over the Interactive Voice Response
System doubled between June and December.
Thirty percent of all payment orders are now
33
Divisional Review
UBS Private and
Corporate Clients
UBS Private & Corporate Clients
AuM by asset category
in CHF billion
Total 4351
125
310
Savings/Deposit accounts
Securities accounts
1 Banks AuM of CHF 4 billion are not included.
UBS Private & Corporate Clients
AuM by segment
in CHF billion
Total 4351
2
223
210
handled through electronic banking channels. At
the end of 1999, eleven percent of all UBS Private
and Corporate Clients’ stock exchange transac-
tions were made through UBS 24h-Banking.
In October, UBS launched significant and well-
received electronic banking initiatives. After the
October launch of UBS’s exclusive personal finan-
cial management software UBS Quicken, more
than 15,000 packages were sold by December.
Small and medium sized entreprises (SME’s)
Aventic AG, with share capital of CHF 30 mil-
lion, closed its first year successfully. This 100%
UBS owned company is designed to assist small
and medium sized businesses in financing inno-
vative products and services.
In 1999 more than 300 requests for capital and
finance were reviewed, and more than 100 were
passed on to Aventic itself or other venture capi-
tal companies, or are still in the review process.
Aventic holds shares in seven Venture Capital
Funds, mainly in the sectors of biotechnology, in-
ternet and medical technology. Besides that,
Aventic manages a portfolio of direct capital en-
gagements in Swiss SME’s, mostly industrial and
technology businesses. The book value of the
portfolio by the end of 1999 exceeded CHF 60
million with a commitment to an additional CHF
35 million in funding.
Corporate clients
Individual clients
Recovery
1 Banks AuM of CHF 4 billion are not included.
Results discussion
The results of UBS Private and Corporate Clients
were strong in 1999. Segment performance be-
fore tax increased 28%, or CHF 254 million, to
CHF 1,162 million. Higher operating income,
lower credit loss expenses and rigorous cost con-
trol led to this favorable result.
Total operating income
Total operating income increased 5% or CHF 288
million, to CHF 6,143 million in 1999. This im-
provement was primarily due to higher margins
on interest-related business, such as mortgages, as
well as the first full-year impact of the amalgama-
tion and repricing of products from the two former
banks.Furthermore,the improved quality of the loan
portfolio resulted in lower credit loss expenses.
It is important to note that UBS Private and
Corporate Clients’ results are dependent on in-
terest-related business, which contribute almost
60% of operating income. The increased propor-
tion of affluent clients will reduce dependency on
the interest-related business in the future.
Assets under management
Assets under management increased CHF 5 bil-
lion to CHF 439 billion from the prior year level
of CHF 434 billion. This figure includes assets of
the banks business area, which are held in trans-
action accounts, are naturally volatile, and are
not a core focus of UBS Private and Corporate
Clients. Excluding this particular asset category,
assets under management increased CHF 28 bil-
lion, or seven percent, to CHF 435 billion. This
is mainly due to positive performance of the Swiss
stock market and to currency effects.
Total operating expenses
Despite tremendous efforts in completing tech-
nology platform integration, UBS Private and
Corporate Clients’ total operating expenses re-
mained almost stable at CHF 4,981 million, an
increase of one percent, or CHF 34 million.
Personnel expenses and general and adminis-
trative expenses both increased by four percent.
These increases are due to the IT integration
work, work related to the Year 2000 transition
and the costs associated with the shift of the Swiss
Trade Finance business from UBS Warburg. In
addition, the positive development of the per-
formance led to higher performance-related com-
pensation.
Depreciation decreased 18%, or CHF 125
million, to CHF 555 million in 1999.
Headcount
Headcount for the period increased 55, or 0.2%,
to a year-end level of 24,098 comparing to 24,043
for 1998. By mid-year 1999, the Swiss Trade Fi-
nance business was transferred from UBS Warburg
to UBS Private and Corporate Clients with some
405 employees. Taking this transfer into account,
headcount was reduced in 1999 by 350, the ma-
jority of which occurred in the fourth quarter of
1999 as employees leaving the bank were not re-
placed. This development is in line with expecta-
tions for the realization of merger-related savings.
Loan portfolio
The loan portfolio remained stable at a level
of CHF 165 billion. Continued implementation of
risk-adjusted pricing has led to improved margins.
34
Divisional Review
UBS Private and
Corporate Clients
UBS Private & Corporate Clients
Loan portfolio by segment
in CHF billion
Total 165
21
68
76
Corporate clients
Individual clients
Recovery
With regard to the recovery portfolio, major
emphasis has been placed on workout initiatives.
This effort has proved to be successful and re-
duced the overall recovery positions by 20%,
from CHF 26 billion for 1998 to CHF 21 billion
for year-end 1999. As a result, the quality of the
loan portfolio continued to improve.
Mortgages account for 70% and commercial
loans 30% of the total loan portfolio. As 50% of
all mortgages relate to lower risk single family
homes and 68% are fixed-rate mortgages, the
structure of the mortgage portfolio has proved to
be very stable compared to 1998.
Outlook
With the IT integration complete, UBS Private and
Corporate Clients expects its cost savings pro-
gram to gain further momentum in the coming
year. Furthermore, the division’s employees are
now able to concentrate completely on business
growth. Together with its strong market position
in Switzerland and the initiatives from the Strate-
gic Project Portfolio, we remain confident that the
division can continue to enhance its profitability.
The organizational changes announced in
February are focused on re-establishing positive
momentum in the private banking business after
a pause in 1999. Combining Swiss-based onshore
and offshore private banking with individual
and corporate client banking in Switzerland will
unlock revenue synergies and cost efficiencies for
the UBS Group. The strength and merit of tradi-
tional Swiss banking expertise, an integrated
Swiss-based infrastructure and a shared distribu-
tion network will all contribute strongly to real-
izing these goals.
35
Divisional Review
UBS Asset Management
UBS Asset Management
UBS Asset Management
Mission and business description
Strategy and initiatives
is one of the world’s lead-
ing institutional asset
managers, and among
the most international.
During 1999, equity
markets were unfavorable
to some of the funda-
mental value-driven styles
which the division applies
to the majority of its
clients’ portfolio, having
a negative impact on
assets under manage-
ment development and
earnings. Strategically,
several initiatives were
started during the year to
diversify and broaden
global investment capa-
bilities and expand the
division’s presence in tar-
geted growth markets in
Europe and Asia-Pacific.
36
UBS Asset Management is a leading global insti-
tutional asset manager, with strong market posi-
tions in the US, UK and Switzerland. It is also one
of the largest active foreign managers in Japan.
The division has a well-diversified client base in-
cluding public and corporate pension funds,
foundations and endowments as well as central
banks. On behalf of UBS Switzerland, it also
manages UBS investment funds.
Investment capabilities are based on compre-
hensive proprietary research in major equity,
fixed income and currency markets around the
world. The principal method of delivering value
is to identify periodic discrepancies between mar-
ket price and investment value and turn them to
clients’ advantage. Investment solutions are
tailored to clients’ investment needs based on
global investment capabilities. Mandates range
from global asset allocation portfolios to single
country equity or fixed income portfolios or
alternative investments such as private equity
and real estate.
Building on significant shares within the US,
UK and Swiss markets and the breadth and depth
of its investment capabilities, the division’s mission
is to become the premier global institutional asset
management firm. “Premier” means being among
at least the top five companies in terms of market
share position in core markets, in the top third in
the industry in investment performance, and being
a recognized thought leader and trend setter.
While financial performance this past year
was disappointing, UBS Asset Management ex-
pects to fulfill its mission, the return of profit
growth in line with the industry by protecting and
strengthening the client franchise, pursuing tar-
geted growth initiatives and expanding invest-
ment capabilities.
A reorganization of the UBS Group was an-
nounced in February 2000. With the transfer of
the Investment Funds and Global Asset Manage-
ment areas of UBS Private Banking, all asset man-
agement capabilities of the Group are now under
UBS Asset Management’s responsibility which will
enable a more aggressive exploitation of global
mutual fund and defined contribution opportuni-
ties and the implementation of an open, but
screened, architectural platform for UBS private
clients.
During 1999, the management structure was re-
aligned upon the arrival of Peter Wuffli as Chief
Executive Officer. Subsequently, the UBS Brin-
son Division was renamed UBS Asset Manage-
ment and a new, more client-centric business
model was developed and implemented to meet
the increasingly differentiated needs of our
clients.
A core element of the division’s strategy is to
pursue growth by increasing market shares in the
growth areas of Europe and Asia-Pacific, and in
attractive segments globally. It will also pursue
style diversification opportunities, organically or
through acquisition, when economically attrac-
tive.
Initiatives
Regional business areas provide the leadership
and flexibility to pursue local growth initiatives
in the context of the global strategy. In Europe,
outsourcing solutions for banks and life in-
surance companies, including third-party mutu-
funds and sub-advisory assignments are
al
being developed. Also, focusing on Germany,
France and Italy, the division is developing
onshore fund products. Similarly, in Japan, the
platforms are being strengthened in order to
capture attractive institutional growth oppor-
tunities and distribute Japanese
investment
funds. Defined contribution opportunities are
being pursued in the US and globally within the
context of the Group’s overall asset gathering
strategy.
In 1999, the commitment to the broadening
of
investment capabilities was demonstrated
through the acquisition of Allegis Realty In-
vestors LLC. Allegis, a firm with top-quartile
industry performance, has more than 20 years
experience managing real estate investments for
institutional investors. Renamed UBS Brinson
Realty Investors LLC, it will provide integrated
real estate investment services to clients.
Tailored plans are being developed to address
UBS Asset Management’s largest clients’ local
and global investment needs. With the expansion
and refinement of global investment capabilities
and local delivery platforms, the division’s abili-
ty to deliver value-added solutions to these
clients should be unprecedented.
Divisional Review
UBS Asset Management
31.12.1999
31.12.1998
Change (%)
903
193
1,096
0
1,096
444
177
29
113
763
333
160
70
59
574
376
198
1,653
277
1,376
968
195
1,163
0
1,163
454
154
29
78
715
448
100
61
55
531
360
171
1,497
266
1,231
(7)
(1)
(6)
–
(6)
(2)
15
0
45
7
(26)
60
8
4
16
10
4
12
Employees by region (1999)
Total: 1,653 employees
12%
CHF million
Institutional
Non-institutional
Total
Credit loss expense
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 1
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Cost / income in %
Cost / income in % before goodwill amortization
Assets under management (bn)
Institutional
Non-institutional
Headcount
of which: Switzerland
of which: Rest of world
1 Includes amortization of other purchased intangible assets.
36%
52%
Europe, Middle East & Africa
Americas
Asia Pacific
Institutional assets
under management
Development
CHF billion
6
7
3
0
1
+
s
n
o
i
t
i
s
i
u
q
c
A
8
5
+
e
c
n
a
m
r
o
f
r
e
P
0
6
3
2
5
–
y
e
n
o
m
w
e
n
t
e
N
Total 31.12.98
Total 31.12.99
Institutional assets
under management
By client mandate
100%
80%
60%
40%
20%
0%
9%
34%
23%
34%
4%
41%
23%
32%
31.12.99
31.12.98
1998 Total: CHF 360 billion
1999 Total: CHF 376 billion
Private markets
Asset allocation
Fixed income
Equity
Results discussion
The division’s pre-tax performance year-on-year
declined by 26%, or CHF 115 million, to CHF
333 million. Results were impacted by an increase
in non-cash charges related to the buyout of the
former joint venture with the Long-Term Credit
Bank of Japan (LTCB). Excluding non-cash de-
preciation and amortization, the division’s oper-
ating profits before tax showed a decline of 14%.
Total operating income
Overall, total operating income declined by 6%,
or CHF 67 million, to CHF 1,096 million in 1999.
Institutional revenues decreased 7%, or CHF 65
million, to CHF 903 million, primarily attributa-
ble to the UK business. The institutional revenue
development reflects a slight decline in average in-
stitutional assets between 1998 and 1999, as gains
from performance and currency were offset by
client attrition related to the merger and perform-
ance issues in certain mandate types, with the ma-
jority of the attrition concentrated in Europe.
While average non-institutional assets in-
creased by 18%, non-institutional revenues de-
clined slightly to CHF 193 million as a result of
new interdivisional fee arrangements with UBS
Private Banking.
Assets under management
Total assets under management increased by
8.1%, or CHF 43 billion, to CHF 574 billion
during 1999. Institutional assets increased by
4.4% year-on-year, or CHF 16 billion, to CHF
376 billion, driven by investment performance,
the acquisition of Allegis and growth in private
markets mandates. Partially offsetting these
effects, net new money fell CHF 52 billion
reflecting client attrition related principally to
performance issues in certain equity-related
mandate types.
Total operating expenses
Total operating expenses versus the prior year in-
creased by 7%, or CHF 48 million, to CHF 763
million. Personnel expenses declined by 2%, to
CHF 444 million, reflecting decreased incentive
compensation. Year-end headcount increased from
1,497 to 1,653, due to the acquisition of Allegis
in December. Increases in general and adminis-
trative expenses year-on-year relate to revisions
in cost-sharing arrangements between UBS Asset
Management and other divisions in the Group.
Depreciation and amortization charges went up
versus the prior year primarily due to charges re-
lated to the acquisition of the LTCB joint venture
in 1998.
37
Divisional Review
UBS Asset Management
Institutional assets
under management
By client location
100%
80%
60%
40%
20%
0%
49%
37%
14%
56%
34%
10%
31.12.99
31.12.98
1998 Total: CHF 360 billion
1999 Total: CHF 376 billion
Europe, Middle East & Africa
Americas
Asia Pacific
Investment capabilities and investment
performance development
Investment performance for 1999 was mixed for
both the UBS Brinson and Phillips & Drew invest-
ment areas. Led by the US market, world equity
markets became increasingly driven by momen-
tum during 1999, with market returns dominated
by a narrow segment of technology and e-business
stocks. The fundamental price / value philosophies
at the core of the Brinson and Phillips & Drew in-
vestment processes have led to an underweight of
these stocks thereby negatively affecting invest-
ment performance versus benchmarks.
In the UBS Brinson investment area, while eq-
uity and multi-asset portfolios lagged their bench-
marks, strong returns were delivered within both
fixed income and private markets, relative to fi-
nancial indices and peers. Growth equity strate-
gies also performed well in comparison to bench-
marks. Within the Phillips & Drew investment
area, returns were strong through the end of the
third quarter. However, these gains were reversed
in the final quarter of 1999 due to the strong share
price appreciation of technology stocks in which
Phillips & Drew was underweight.
Outlook
Recent equity investment performance in both
UBS Brinson and Phillips & Drew investment
areas has suffered under the momentum-driven
markets of the past year. 2000 is also expected to
be challenging given the uncertainty of future
market developments and recent investment per-
formance in certain areas. However, strategic
growth initiatives in key markets and expansion
of investment capabilities are expected to lay the
groundwork for a return of profit growth to in-
dustry levels and ensure the attainment of the
mission of becoming the premier global institu-
tional asset management firm.
38
UBS Capital
Divisional Review
UBS Capital
UBS Capital’s aim is to
Business profile
Strategy and initiatives
establish itself as the
industry role model for
an integrated global
private equity group.
During 1999, UBS Capital
expanded substantially
and successfully, making
an important contribution
to the overall success of
the UBS Group.
UBS Capital expanded substantially and success-
fully during 1999 and will continue to make
an important and growing value contribution
to the overall success of UBS AG. Following the
Group’s reorganization, UBS Capital is operating
with the UBS Warburg business group. This is
expected to further strengthen the synergies
between the two businesses while maintaining the
synergy links with Private Banking.
During the course of last year, the private equi-
ty group achieved many important objectives: the
business comfortably surpassed investment tar-
gets, it established new international offices, and
it significantly developed its global funds strategy.
Private equity offers the opportunity for above
average investment returns with a typical invest-
ment duration of several years. Strong capital
flows into the industry have increased competi-
tive pressures on market participants seeking at-
tractive investment opportunities. However, UBS
Capital is well positioned to take advantage of
the favorable economic climate and stock market
conditions to augment its position as a strong
force in the industry.
UBS Capital has important advantages to ensure
success and is able to boast a local presence in every
major industrialized region in Europe, North
America, Latin America and Asia Pacific, with
about 120 professionals in 13 offices worldwide.
Last year, two new offices were established in Seoul
and Sydney, reflecting the division’s long-held com-
mitment to maintaining comprehensive local pres-
ence and expertise. When coupled with the opera-
tion’s global reach, the teams’ specialist knowledge
allows the early identification of opportunities and
their timely and effective development.
UBS Capital makes medium term majority or
minority investments in established or emerging
unlisted companies to maximize shareholder
value. By working in close partnership with man-
agement, UBS Capital develops the businesses
and manages these investments to optimize their
performance, unlock their value and exit the in-
vestment in a manner that will maximize the cap-
ital gain. Although the main focus of the busi-
ness’s investments is late-stage financing such as
management buyouts, expansion or replacement
capital, UBS Capital also targets a quarter of the
portfolio toward early-stage investments in the
technology and telecommunications sectors.
The growing awareness of private equity as an at-
tractive asset class for fund managers, coupled
with widespread European industrial consolida-
tion and moves to embrace shareholder value,
have improved the opportunities for investment
and increased the volume of funds available. The
rivalry among industry professionals for poten-
tial investment transactions is fierce. But despite
increased competition, UBS Capital is able to
leverage its unique strategic advantages and cap-
italize on business synergies available throughout
the UBS Group.
Strategic advantages
Using the Group’s own funds along with third-
party investors allows UBS Capital to pursue a
value strategy that differentiates it from its com-
petitors. The business is not forced to invest sole-
ly to meet target spend rates but considers trans-
actions only if they offer fair value over the peri-
od of an investment cycle.
With its successful and highly qualified net-
work of teams, UBS Capital is poised to become
a key player in this rapidly expanding business
worldwide. The main thrust of the division’s ex-
pansion has focused on Western Europe and
North America and is already seizing select value
opportunities in Latin America and Asia Pacific.
UBS Capital combines its global presence with
local expertise and resources as required. In
doing so, it aims to provide tailor-made solutions
for cross-regional and cross-border transactions,
which represent an increasingly important part of
our business worldwide.
To augment its competitive strengths, UBS
Capital plans to gradually increase its annual in-
vestment rate, targeting a portfolio book value of
CHF 5 billion committed capital from UBS and
CHF 5 billion from third-parties, while achieving
maximum diversification in the timing and geog-
raphy of earnings streams.
Funds
In view of the growing attention given by the in-
dustry to larger transactions, UBS Capital has de-
veloped plans for the formation of four regional
funds – Europe, North America, Latin America
and Asia. In the United States, the business re-
cently launched a USD 1 billion investment fund
targeting North America and Canada and a USD
39
Divisional Review
UBS Capital
Portfolio summary
31 December 1999
CHF billion
4.5
n
b
2
1
.
n
b
2
.
4
4
3
2
1
0
n
b
0
.
3
n
b
8
1
.
8
9
.
2
1
.
1
3
e
u
a
v
l
k
o
o
B
9
9
.
2
1
.
1
3
e
u
a
v
l
k
o
o
B
9
9
.
2
1
.
1
3
9
9
.
2
1
.
1
3
e
u
a
v
l
t
e
k
r
a
M
i
n
a
g
d
e
z
i
l
a
e
r
n
U
Book value by country
31 December 1999
34%
48%
3%
7%
8%
European Union
Switzerland
Latin America
Asia
North America
40
CHF million
Revenues
Credit loss expenses
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 1
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Cost/income in % 2
Cost/income in %, before goodwill amortization 2
Headcount
of which: Switzerland
of which: Rest of world
31.12.1999
31.12.1998
Change (%)
315
0
315
105
47
2
5
159
156
340
50
49
116
21
95
585
0
585
121
35
0
1
157
428
250
27
27
122
36
86
(46)
–
(46)
(13)
34
–
400
1
(64)
36
(5)
(42)
10
1 Includes amortization of other purchased intangible assets. 2 Before credit loss expense.
500 million fund targeting Latin America. Addi-
tionally, two new funds have been launched
in Europe. The first is Phildrew Ventures V, a
GBP 330 million United Kingdom private equi-
ty fund. The second is the CHF 307 million
CapVis equity partners fund run by UBS Capital’s
vehicle for investing in Switzerland. A European
and Asian fund are expected to be launched in
2000.
Group synergies
UBS Capital’s strong relationship with UBS War-
burg has cemented links between related business
units. Deal origination, funding and optional exit
strategies are just a few of the benefits.
UBS Capital will also continue to work close-
ly with the Group’s Private Banking unit to offer
innovative solutions to company owners, partic-
ularly European family businesses facing succes-
sion problems. UBS Capital also offers its fund
products to Private Banking clients and institu-
tional investors.
Portfolio
UBS Capital is rapidly expanding and has a firm
focus on building a globally diversified portfolio
from its current book value of approximately
CHF 2,993 million (compared to CHF 1,784 mil-
lion at year-end 1998) to its target size of ap-
proximately CHF 5 billion from the balance
sheet. The 1999 investment rate target of CHF
800 million was easily exceeded with an impres-
sive CHF 1,394 million of investment additions
to the portfolio.
The portfolio review and valuation resulted in
an approximate market value of around CHF
4,155 million, compared to CHF 2,651 million at
year-end 1998. This impressive growth equates to
current unrealized gains of approximately CHF
1,162 million as compared to CHF 867 million at
year-end 1998. The value creation for the year
ended 1999, including 1999 realized gains and
the increase in the portfolio’s unrealized gains, is
estimated to be CHF 610 million.
Risk control
UBS Capital has established an innovative portfolio
construction to protect its value and reduce the risk
exposure by adopting the following methodology:
– Geographic diversification with minimal con-
centration of investments in specific locations
– Diversification by industry sector to obtain a
good spread between manufacturing and serv-
ice sectors
– Investment of a quarter of the portfolio in ear-
lier-stage growth opportunities, such as tech-
nology and telecommunications
– Emphasis on later-stage investments, such as
management buy-outs of existing businesses.
Results discussion
In 1999, segment performance before tax de-
creased 64%, or CHF 272 million, to CHF 156
million. This reflects lower levels of realized gains
and fewer divestments in full-year 1999 com-
pared to full-year 1998.
Divisional Review
UBS Capital
Total operating income
Total operating income decreased 46%, or
CHF 270 million, to CHF 315 million in 1999.
This is within expectations and is due to the
lower rate of optimal divestment opportunities
and is in line with the current portfolio’s aging
profile.
Total operating expenses
Although 1999 total operating expenses have
increased by 1% from 1998, the CHF 159
million figure is still comfortably low. Operating
expenses remained stable despite expansion into
new regions and sectors, recruitment of new pro-
fessionals, the high level of investment activity
and the associated investment costs.
Personnel expenses were reduced by 13%, or
CHF 16 million, to CHF 105 million in 1999. As
part of the restructuring related to the merger,
one team from UBS Capital moved to another di-
vision effective 1 January 1999. This resulted in
a lower headcount during most of 1999 when
compared to 1998.
General and administrative expenses amount-
ed to CHF 47 million and although this repre-
sents a 34% increase over last year’s figure, this
was mainly due to deal-related expenses.
Outlook
In the year 2000, UBS Capital will continue to build
upon the considerable achievements made in recent
years. We expect higher divestment activity in 2000
when compared to 1999. Also the private equity
business will be strengthened through a portfolio
diversified both by region and sector. By exploiting
our unique strategic advantages, capitalizing on ex-
isting synergies throughout the bank and leveraging
our international presence, UBS Capital will con-
tinue to be a strongly contributing franchise with-
in the global integrated investment services firm.
Book value by sector,
including funds
31 December 1999
13%
6%
11%
20%
11%
20%
19%
Energy
Computer related
Communications
Diversified industrials
Transportation
Consumer related
Other
Book value by stage
31 December 1999
3%
15%
17%
6%
59%
Expansion capital, first stage
Expansion capital, second stage
Management buy-out
Replacement capital
Other
41
Divisional Review
Corporate Center
Corporate Center
In the context of a global,
Business description
integrated investment
services firm, Corporate
Center focuses on the
long term maximization
of shareholder value. It
does this by helping to
ensure UBS is competi-
tively positioned in grow-
ing market places with an
optimal business model
and adequate resources;
by maintaining an appro-
priate balance between
risk and profit to provide
financial stability on a
Group-wide basis; and
by ensuring that the
divisions, while being
accountable for their
results, operate as a
coherent and effective
Group with a common
set of values and
principles.
42
To perform its role, Corporate Center establishes
standards and principles to be applied by the di-
visions, thereby minimizing staffing levels within
Corporate Center itself. Corporate Center en-
compasses the following Group level governance
functions that cannot be devolved to the operat-
ing divisions:
– Group internal audit, which reports directly to
the Chairman of the Board of Directors in
order to ensure its operational independence.
– Functions reporting to the Chief Executive Of-
ficer, including human resources policies and
standards; communications with staff, public
and media; marketing and brand manage-
ment; and the Group’s general counsel.
– Functions reporting to the Chief Financial Of-
ficer, including risk control; credit risk man-
agement; financial control and management;
Group treasury; Group strategy, and commu-
nications with regulators, rating agencies, in-
vestors and analysts.
During 1999, the Corporate Center housed the
start-up of the e-services business, which will
now be brought to market by UBS Warburg.
Review of 1999
During the year, the Corporate Center was reor-
ganized following the decision taken by the
Group Executive Board and the Board of Direc-
tors to combine all risk and control functions
under the leadership of the Group Chief Financial
Officer. UBS was one of the first banks to recog-
nize the opportunities presented by combining
the controlling, risk, credit, treasury and strategic
functions into a single area. These activities are
all closely interrelated and are instrumental in
maintaining an appropriate balance between risk
and profit and allocating equity efficiently with-
in the Group and among the divisions.
The success of this reorganization is reflected
in a number of major projects such as the refine-
ment of our risk control and risk management
processes, and the preparations for registering
UBS with the US Securities and Exchange Com-
mission and listing on the New York Stock Ex-
change.
In the second quarter of 1999, we formed the
multi-discipline Group Strategic Analysis team to
act as an objective and neutral adviser to the
CEO, CFO and Group Executive Board. The
team is built around three main centers of com-
petence: the strategic analysis group covering
business and logistics strategy and competitor
analysis; the quantitative group covering risk-ad-
justed performance measurement and business
valuation; and the M&A group which analyzes
potential acquisitions and divestments.
In a market where products and services are be-
coming increasingly global and commoditized, a
strong brand is an important differentiator and a
major competitive asset. To strengthen our mar-
ket impact as an integrated investment services
firm across all target groups, a review was under-
taken during the year culminating in the decision
to streamline and unify our brand architecture.
Results discussion
During 1999 the Corporate Center posted a pre-
tax profit of CHF 1,382 million, versus a pre-tax
loss of CHF 1,029 million in 1998. The 1998 re-
sults were negatively impacted by the CHF 842
million provision for the settlement relating to
the role of Swiss banks during and after World
War II and CHF 367 million relating to the write-
off regarding Long Term Capital Management.
During 1999, a number of significant financial
events have impacted the results of Corporate
Center as follows:
– Pre-tax gains of CHF 1,490 million and CHF
110 million relating to the divestment of our
stakes in Swiss Life / Rentenanstalt and Julius
Baer registered shares, respectively.
– An additional pre-tax restructuring charge of
CHF 300 million in respect of the merger be-
tween Union Bank of Switzerland and Swiss
Bank Corporation, representing about four
percent of the original CHF 7 billion provi-
sion. The majority of this extra provision is
due to revised estimates of the cost of lease
breaks and disposals.
– Additional pre-tax provisions of CHF 154 mil-
lion relating to the settlement reached regarding
dormant accounts and World War II related
claims. When we created the corresponding
provisions in 1998, we expected a certain level
of contributions from Swiss industry. In the
fourth quarter, it became clear that this level of
contributions was not forthcoming as expected.
Divisional Review
Corporate Center
CHF million
Revenues
Credit loss expense
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 1
Total operating expenses
Segment performance before tax
Regulatory equity used (avg)
Headcount
of which: Switzerland
Rest of world
1 Includes amortization of other purchased intangible assets.
31.12.1999
31.12.1998
Change (%)
2,053
448
2,501
110
818
141
50
1,119
1,382
7,850
932
796
136
296
745
1,041
212
1,643
128
87
2,070
(1,029 )
6,350
921
821
100
594
(40)
140
(48)
(50)
10
(43)
(46)
24
1
(3)
36
– The booking of pre-paid employer pension
contributions of CHF 456 million. This repre-
sents the recognition, in accordance with in-
ternational accounting standards, of the dif-
ference between previously recorded and actu-
arially determined pension expenses. This pre-
payment has been recognized in 1999 after the
resolution of certain legal and regulatory is-
sues related to the utilization of these contri-
butions subsequent to the integration of the
pre-merger banks’ pension plans.
Revenues attributable to Corporate Center arise
from the funding, capital and balance sheet man-
agement, and management of foreign currency
earnings activities undertaken by Group Treasury.
The results of our 91.2% holding in Klinik
Hirslanden AG have been fully consolidated for
the first time, resulting in an increase in operating
income and expenses of approximately CHF 380
million. There is no material impact on net profit.
The credit loss expense booked in Corporate
Center reconciles the difference between manage-
ment accounting and financial accounting, that is
between the adjusted expected losses charged to
the divisions and the credit loss expense recog-
nized in the Group financial accounts. For more
detail on credit loss methodology please see pages
20–21.
The underlying operational costs booked in
Corporate Center have reduced compared to
1999 mainly due to the further refinement of
service level agreements with the divisions. This
reduction has been partially offset by costs relat-
ed to the build-up of the “e-services” business
area.
43
44
Review of
Risk Management
and Control
Review of Risk Management
and Control
Introduction
Risk Management Framework
Our risk processes seek
The risk process at UBS
to limit the scope for
adverse variations in the
Group’s earnings and in
particular to protect the
Group from the risk of
loss in the event of
unlikely, but possible,
stress scenarios.
46
The risk process is an integral part of UBS’s com-
mitment to providing consistent high quality re-
turns for its shareholders. UBS believes that the
delivery of superior shareholder returns depends
on achieving an appropriate balance between risk
and return. This requires a management process
that gives appropriate focus to risk as well as re-
turns and which integrates this approach with the
management of the bank’s balance sheet and cap-
ital. For this reason, UBS restructured the Corpo-
rate Center in the course of 1999 to establish an
integrated Group-wide function under the Chief
Financial Officer (CFO) to address all aspects of
finance, strategic planning, risk control and bal-
ance sheet and capital management.
The approach to risk management and control
at UBS recognizes that risk is integral to its busi-
ness. Our risk processes, which have evolved over
a number of years, seek to limit the scope for ad-
verse variations in the bank’s earnings and in par-
ticular to protect the Group from the risk of loss
in the event of unlikely, but possible, stress sce-
narios arising from any of the material risks which
the bank faces. The Group’s Risk Policy Frame-
work focuses on the procedures for managing and
controlling the risks which can affect the volatili-
ty of earnings from period to period, and distin-
guishes between the following three types of risk:
– Primary risks: risks inherent in the businesses
which UBS undertakes. The principal primary
risks are credit risk and market risk.
– Group risks: risks which UBS faces at the
Group level in managing its business and bal-
ance sheet. Principal group risks are tax risk,
liquidity and funding risk and residual balance
sheet related interest rate risk.
– Consequential risks: risks which UBS faces as
a consequence of the operational activities it
undertakes to provide services to customers.
This is sometimes referred to as “operational
risk”. Principal consequential risks are trans-
action processing risk, legal risk, compliance
risk, liability risk and security risk.
UBS’s risk framework recognizes that an effec-
tive risk management and control process de-
pends on sound processes to identify risks, and to
establish and maintain limits and procedures to
control these risks. The Chief Risk Officer (CRO)
has overall responsibility for ensuring that the
limits and procedures are appropriate and are ad-
hered to for risks other than credit risk. The Chief
Credit Officer (CCO) has overall responsibility
for ensuring that the limits and procedures are
appropriate and are adhered to for credit risk.
Credit risk remains the single largest risk which
UBS faces. The limits and procedures are de-
signed to keep UBS’s risk exposures within the
parameters determined by the Board of Directors
(BoD). These limits and procedures take into ac-
count not only the external environment that
UBS faces, but also its internal capabilities to
manage the risk, including issues such as the
availability of appropriate information process-
ing systems and the availability of suitably quali-
fied staff to manage and control the risk.
The BoD establishes the risk parameters with-
in which the bank operates – and reviews on at
least a quarterly basis the risk which UBS as-
sumes. For this purpose, the BoD sets limits both
on normal earnings volatility as well as on poten-
tial losses under a stress scenario. UBS’s risk
appetite defines the amount of earnings volatility
which the BoD deems to be acceptable in normal
market conditions in order to achieve divisional
growth targets. This potential volatility is meas-
ured by the risk control organization using meas-
ures that estimate statistically possible losses.
Value at risk (VaR) methodology is the principal
quantitative measure for evaluating this risk.
UBS’s risk bearing capacity seeks to establish a
limit to the potential scale of the loss which UBS
might face in unlikely, but possible, stress situa-
tions. Stress loss limits are set by the BoD taking
into account UBS’s overall earnings capacity.
They are set in order to protect the Group against
unacceptable damage to annual earnings, divi-
dend paying capability, business viability and
reputation. In addition, the BoD approves the key
risk policies and, through the Chairman’s Office
to which Group Internal Audit reports, maintains
ongoing oversight of the integrity of the risk man-
agement and control processes.
The responsibility for implementing the risk
framework on a day-to-day basis is delegated by
the BoD to the GEB. The GEB allocates risk lim-
its to the divisions and monitors the aggregate
risk profile on an ongoing basis. It constitutes it-
self as the Risk Council and usually meets twice
Review of Risk Management
and Control
Introduction
a month with the CRO and the CCO to review
outstanding risk issues, large exposures and sig-
nificant transactions. In addition, the GEB has es-
tablished a Group Risk Committee and a Group
Governance Committee. These Committees,
which meet quarterly, consist of representatives
from the risk control organization at the Corpo-
rate Center and from the divisions and consider
issues relating to the implementation and devel-
opment of the risk framework.
Each division also has a risk management and
control structure in place which is appropriate to
its particular business profile. The CRO and
CCO have risk control staff located in each divi-
sion who are responsible for seeing that the divi-
sion implements the Group-wide risk policies and
procedures appropriately. They ensure that all
risks are adequately taken into account in assess-
ing the risk profile of the divisions’ business ac-
tivities. The focus is on identifying those infre-
quent events with a potentially severe impact. In
addition, each division has its own structure of
risk and governance committees. This is designed
to maintain an ongoing review of the risk profile
which the division faces in new business initia-
tives and in large and complex transactions. It is
also designed to provide that any requirement for
amendments to risk policies or limits is identified
and where appropriate, is escalated in a timely
manner to the GEB.
UBS Risk Management and Control Framework
y
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P
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r
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k
s
i
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d
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e
p
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d
n
I
t
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i
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Board of Directors
Group Internal Audit
Group Executive Board
• Group Governance Committee
• Group Risk Committee
Corporate Center
CRO & CCO
Corporate Risk Control
UBS Warburg
Divisional CCO
Divisional CRO
UBS Private & Corporate Clients
UBS Private Banking
UBS Asset Management
UBS Capital
• Divisional Risk
Committees
• Divisional Logistics
Functions
47
Review of Risk Management
and Control
Analysis of Risks
Analysis of Risks
Credit loss expenses are a
known component of
the banking business and
This section summarizes the main trends and de-
velopments in the course of 1999 in the key risks
which UBS faces.
to a certain extent pre-
Credit risk
dictable. Our approach to
credit risk management is
to estimate the expected
loss as accurately as pos-
sible and to limit extraor-
dinary stress losses. Only
an accurate quantifica-
tion of future credit loss
expenses (expected and
unexpected) allows for an
optimal balance between
risk and return in our
credit business.
Credit risk is the risk of loss resulting from the de-
fault of an obligor or counterparty. UBS’s defini-
tion of credit risk includes counterparty and
country transfer risk, as well as settlement risk.
Credit risk is inherent in traditional banking
products, such as loans and commitments to lend
money or letters of credit. Credit risk is also in-
herent in derivative contracts and other traded
products, such as bonds and equity investments.
In view of the significance of credit risk for UBS,
the approval and monitoring of new transactions
giving rise to credit risk plays a central part in the
risk control process. Credit approval authorities
are exercised independently from the business
units. Credit authority is dependent on the
amount involved, quality, security and tenor of a
transaction as well as on the experience and com-
petence of the credit professionals entrusted with
this function.
Credit loss expenses are a known component
of the banking business and to a certain extent
predictable. In order to manage its exposure to
credit risk effectively, and in particular to en-
courage appropriate pricing of transactions in-
volving credit, UBS measures its exposure to
credit risk using a forward looking statistical es-
timate of the expected loss based on the estimat-
ed probability of default of its counterparties.
Such estimates are based on the volume and type
of exposure, the value of potential collateral or
support, and the quality of each counterparty.
The quality of the counterparty is expressed in a
rating with a specific default probability. For this
Summary of banking products exposure and credit risk results
purpose, the bank classifies all counterparties
into a 14 point rating scale and the transfer risk
into a 15 point country rating scale. The forward-
looking expected loss from credit exposures is
charged to the divisions through the management
accounts. This ensures that the anticipated credit
risk cost is adequately taken into account and
allows for a risk-neutral assessment of divisional
results.
Analysis of credit results
The following table provides a divisional break-
down of UBS’s credit exposure together with the
associated annual expected loss for the periods
ended 31 December 1998 and 31 December 1999
and the credit loss expense which is recorded in
the financial accounts. The fact that credit loss
expenses as per financial accounting were below
the “Expected Loss” is evidenced in the balanc-
ing item in the Corporate Center account (see ex-
planation below).
Since International Accounting Standards re-
quire that credit losses are recognized and
charged to the financial accounts on an ex-post
basis as they arise rather than on the forward
looking statistical basis UBS uses for performance
measurement, it is necessary to reconcile these
two different approaches to the measurement of
is achieved
credit risk. This reconciliation
through an offsetting entry in the Corporate Cen-
ter accounts which represents the difference be-
tween the statistically estimated adjusted expect-
ed loss which is charged to the management ac-
counts of the divisions and the credit loss expense
which is recorded in the financial accounts in ac-
cordance with the requirements of International
Accounting Standards.
The development of the total credit loss ex-
pense in 1998 and 1999 includes the effect of
allocations from the special reserve pools which
CHF million
For the year ending
Loans (gross)
Contingent claims
Unutilized committed lines
Total banking products exposure
Annual expected loss
Total credit loss expense
Corporate Center balancing items
UBS Private Banking
UBS Group
31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98
Corporate Center
UBS Warburg
UBS Private &
Corporate Clients
30,532
3,427
0
33,959
24
31,1221
4,052
0
82,265
14,986
60,412
134,6971 164,743
6,187
3,444
24,749
73,839
35,174
26
157,663
330
233,285
500
174,374
1,050
164,840
3,458
8,472
176,770
1,170
474
0
0
474
305
0
0
305
278,014
24,600
63,856
366,470
1,404
330,964
32,259
82,311
445,534
1,696
956
(448)
951
(745)
1 1998 allocation between UBS Private Banking and UBS Warburg restated (transfer of 6,989 million from UBS Warburg to UBS Private Banking).
48
Review of Risk Management
and Control
Analysis of Risks
Movements in the Special Reserve Pool (SRP) during 1998 and 1999 to date
CHF million
SRP balance at the beginning of the year
Utilized in the first quarter 1999
Utilized in the second quarter 1999
Utilized in the third quarter 1999
Utilized in the forth quarter 1999
SRP balance at the end of the year
31.12.1999
300
0
(40)
(130)
(130)
SRP balance at the beginning of the year
Utilized in the first half 1998
Utilized in the third quarter 1998
Utilized in the forth quarter 1998
0
SRP balance at the end of the year
31.12.1998
3,609
(1,629)
(303)
(1,377)
300
had been established in 1996, prior to the merg-
er, by both Union Bank of Switzerland and Swiss
Bank Corporation. These reserves were estab-
lished to absorb probable losses not specifically
identified at that time but which experience in-
dicated were present in the portfolio. These to-
talled CHF 3.6 billion at the beginning of 1998.
CHF 3.3 billion was applied against specific loan
exposures during 1998 and the balance of CHF
300 million was applied to such exposures in
1999. UBS does not believe there is a current
need for such allowances. Following these allo-
cations the credit loss expense incurred in 1998
was CHF 951 million and in 1999 CHF 956 mil-
lion.
Composition of credit risk
Credit risk is assumed, as an integral part of their
business, by UBS Warburg, UBS Private and Cor-
porate Clients, and to a lesser extent by UBS Pri-
vate Banking.
The composition of UBS’s credit exposure dif-
fers appreciably between these three divisions. As
the charts below show, a vast majority of UBS
Warburg’s counterparties fall into the internal
rating categories C1–C5 both with respect to
banking products (83%) and the traded products
(94%) portfolio. Our internal rating classes C1–
C5 compare to Moody’s Investor Services ratings
Aaa to Baa3 and are considered Investment
Grade. UBS Warburg’s exposure to lower rated
customers is generally collateralized or otherwise
structurally supported. UBS Warburg’s counter-
parties are primarily sovereigns, insurance com-
panies, financial institutions, multi-national cor-
porate clients and investment funds. The aggre-
gate unsecured exposure to hedge funds measured
in terms of net replacement value amounted to
CHF 55 million at 31 December 1999 compared
to CHF 81 million at 31 December 1998.
The charts on the next page provide an
overview of the distribution of UBS Warburg’s
banking and traded products exposure across
counterparty rating categories.
By contrast, the largest single component of the
loan portfolio within UBS Private and Corporate
Clients consists of residential mortgage lending in
Switzerland, over half of which is classified within
rating class C5. The chart “PCC mortgage port-
folio by type of property” shows the breakdown
of UBS’s mortgage lending by the type of proper-
ty involved. The remainder of the Swiss portfolio,
excluding mortgages, is fairly widely spread with
the largest concentration being in rating classes
C4 to C6 (comparable to Moody’s rating of Baa1
to Ba1). The chart “PCC banking products expo-
sure by rating” evidences the overall improvement
in the quality of the portfolio following the con-
Status of total credit risk exposure
CHF million
For the year ending
Loans utilization, net of allowances
Contingent claims
Unutilized committed lines
Derivatives (positive replacement values)
Tradable assets
(net long, maximum default exposure)
UBS Private Banking
UBS Group
31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98
Corporate Center
UBS Warburg
UBS Private &
Corporate Clients
30,437
3,427
–
3,457
31,0561
4,052
–
2,505
79,493
14,986
60,412
127,042
132,0691 154,370
6,187
3,444
–
24,749
73,839
167,395
152,996
3,458
8,472
–
19
37
219,019
82,194
2,766
3,768
465
–
–
–
471
936
945
300
–
–
–
264,765
24,600
63,856
130,499
316,421
32,259
82,311
169,900
289
222,275
86,288
589
705,995
687,179
594
719,244
701,722
Total credit risk exposure, net of allowances
37,340
37,650
500,952
480,246
166,767
168,694
Total credit risk exposure, gross
37,435
37,716
503,724
482,874
177,140
180,538
1 1998 allocation between UBS Private Banking and UBS Warburg restated (transfer of CHF 6,989 millions from UBS Warburg to UBS Private Banking).
49
Review of Risk Management
and Control
Analysis of Risks
UBS Warburg banking products
exposure by industries
4%
3%
7%
24%
8%
10%
17%
11%
Finance Sector
Manufacturing
Consumer
Goods/Retail
Commodities
16%
Services
Energy
Other
Supranationals
Real Estate
UBS Private & Corporate Clients
Mortgage exposure by
type of property
19%
30%
51%
Residential (single-family homes)
Residential (multi-family homes)
Commercial
UBS Private & Corporate Clients
Credit risk exposure
by industries
5%
6%
7%
18%
15%
Private households
Construction and real estate
Other*
Manufacturing
Wholesale and retail
Public administration
50
UBS Warburg banking products exposure by counterparty rating
in % of UBS Warburg Banking Products Exposure
30%
25%
20%
15%
10%
5%
0%
C1
Aaa
C2
C3
“Investment Grade” Categories
A2
Baa1
Aa2
C4
C5
C6
Baa3
Ba1
C8
D0
C7
“Sub-investment Grade” Categories
Ba2
Ba3
C9
B1
B2
December 1998
December 1999
UBS Warburg traded products exposure by counterparty rating
in % of UBS Warburg Traded Products Exposure
50%
40%
30%
20%
10%
0%
C1
Aaa
C2
C3
“Investment Grade” Categories
A2
Baa1
Aa2
C4
C5
C6
Baa3
Ba1
C8
D0
C7
“Sub-investment Grade” Categories
Ba2
Ba3
C9
B2
B1
D1
B3
D4
D2
Caa
D3
Classified
D
D1
B3
D4
D2
Caa
D3
Classified
D
December 1998
December 1999
UBS Private & Corporate Clients banking products exposure by counterparty rating (excluding mortgages)
in % of Private & Corporate Clients banking products exposure excluding mortgages
16%
14%
12%
10%
8%
6%
4%
2%
0%
C1
Aaa
C2
C3
“Investment Grade” categories
A2
Baa1
Aa2
C4
C5
C6
Baa3
Ba1
C9
C8
D0
C7
“Sub-investment Grade” categories
Ba2
B2
Ba3
B1
D1
B3
D4
D2
Caa
D3
Classified
D
49%
December 1998
December 1999
tinued improvement in the Swiss economy and
property markets.
PCC’s largest sectoral exposure is to private
households in Switzerland. Other significant ex-
include construction & real estate
posures
(15%), manufacturing (7%), distribution & re-
tailing (6%) and public administration (5%).
UBS Private Banking extends credit predomi-
nantly against pledge of marketable securities
and against single-family real estate property.
Loan portfolio
The most significant development in UBS’s loan
portfolio in 1999 has been the reduction in the
Review of Risk Management
and Control
Analysis of Risks
Total loan portfolio exposure by division
CHF million
For the year ending
Loans to banks (gross)
Loans to customers (gross)
Loans, gross
Counterparty allowance
Country allowance
Allowances for loan losses 2
UBS Private Banking
UBS Group
31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98
Corporate Center
UBS Warburg
UBS Private &
Corporate Clients
4,456
26,076
6,9891
24,133
25,891
56,374
62,2721
72,425
–
164,743
–
164,840
30,532
31,122
82,265
134,697
164,743
164,840
95
–
95
66
–
66
1,526
1,246
2,772
1,178
1,450
10,373
–
11,844
–
2,628
10,373
11,844
438
36
474
9
–
9
282
23
30,785
247,229
69,543
261,421
305
278,014
330,964
5
–
5
12,003
1,246
13,093
1,450
13,249
14,543
Loans, net of allowances
30,437
31,056
79,493
132,069
154,370
152,996
465
300
264,765
316,421
Counterparty provision for contingent claims
Country provision for contingent claims
Total provisions 3
Summary
Allowances and provisions for counterparty risk
Allowances and provisions for country risk
Total allowances and provisions
–
–
–
95
–
95
–
–
–
66
–
66
13
130
143
1,539
1,376
2,915
435
–
435
–
–
–
–
–
–
1,613
1,450
10,373
–
11,844
–
3,063
10,373
11,844
6
–
6
15
–
15
–
–
–
5
–
5
19
130
149
435
0
435
0
12,022
1,376
0
13,528
1,450
13,398
14,978
11998 allocation between UBS Private Banking and UBS Warburg restated (transfer of CHF 6,989 million from UBS Warburg to UBS Private Banking. 2 Deducted from assets. 3 Booked as
liabilities.
UBS Warburg portfolio. This is a continuation of
the strategy that began immediately after the
merger in 1998 with the objective to improve the
risk/reward profile of the international lending
business. This initiative included the shift in focus
away from Emerging Markets and into high qual-
ity credits in the major OECD countries and the
sale of the non-Swiss portion of the Global Trade
Finance business.
The overall impact of this shift has been a re-
duction in the international credit portfolio (con-
sisting of loans and unfunded commitments to
clients, excluding banks) from over CHF 250 bil-
lion at the time of the merger to CHF 99 billion
by 31 December 1999. The loan component of
this international lending book was reduced from
CHF 148 billion in June 1998 to CHF 56.4 bil-
lion as of 31 December 1999.
On the other hand, the UBS Private and Cor-
porate Clients loan portfolio remained virtually
flat as accelerated write-offs and a transfer of
clients to UBS Private Banking were replaced
with new business at attractive pricing.
Over-the-counter derivative contracts
A significant proportion of UBS Warburg’s cred-
it risk arises from its trading activities, including
its trading of derivative products. The provision
of risk management solutions, which involve the
use of derivative products, is a core service which
we offer to our clients. Derivative products by
their nature are particularly sensitive to changes
in market prices and consequently we pay close
attention to the management and control of these
risks. Our credit standards for entering into un-
secured derivative contracts are very high as high-
lighted in the chart “UBS Warburg traded prod-
ucts exposure by counterparty rating” and par-
ticular emphasis is paid to the maturity profile.
Transactions with counterparties of lower quali-
ty are generally only conducted on a secured
basis. Consistent with this approach, the expo-
sure shown in the C9 class is for the most part
fully secured and represents a good risk despite
the low rating. We measure our credit risk expo-
sure to derivative contracts on the basis of re-
placement value plus an add-on which reflects the
residual term of the contract. A new system has
been introduced in February 2000 to monitor this
risk on the basis of a statistically calculated po-
tential exposure, which will allow an even more
precise valuation of the credit equivalent (Poten-
tial Credit Exposure, PCE).
The chart to the left shows the distribution
of over-the-counter derivative credit exposure
measured in gross replacement value plus add-on
across products and maturities.
Settlement risk
Due to its international business, UBS is also ex-
posed to settlement risk. Settlement risk arises in
transactions involving the exchange of values
where a counterparty fails to honor its obligation
to deliver cash or securities. This risk is particu-
51
UBS Group OTC derivative
exposure by product type
and maturity1
in % of UBS Group total OTC derivative exposure
40%
35%
30%
25%
20%
15%
10%
5%
0%
0–1
year
1–5
years
>5
years
Interest rates
Foreign exchange
Precious metals
Equity/Index
Commodities
1 Measured in positive replacement value.
Review of Risk Management
and Control
Analysis of Risks
52
UBS Warburg and UBS Private & Corporate Clients
Settlement risk analysis
M
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160
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120
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110
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Settlement risk residual expected losses
Settlement risk reduction achieved
Average daily settlement volume
UBS transfer risk exposure by
country rating classes and product
All countries
Emerging Markets
100% = CHF 905 billion
100% = CHF 25 billion
17%
24%
3%
68%
22%
10%
56%
Banking products
Traded products
Tradable assets
UBS Group Emerging Markets
transfer risk exposure by region
CHF billion
16
14
12
10
8
6
4
2
0
14.4
10.0
11.5
9.6
98/99
Emerging
Asia
98/99
Emerging
Americas
98 99
Banking products
Traded products
Tradable assets
4.7
3.3
98/99
Emerging
Africa/
Middle East
1.8 1.6
98/99
Emerging
Europe
larly significant in relation to foreign exchange
and precious metals transactions. UBS limits its
exposure to settlement risk by tolerance levels as-
signed to each counterparty in relation to its
standing (rating). In addition, UBS monitors this
risk on a permanent basis and seeks to shorten as
much as practicable the period during which it is
exposed and to reduce the exposure by way of net-
ting agreements. Netting receives a high priority
within UBS. UBS has also been an active partici-
pant in an industry initiative to create a new or-
ganization, called CLS Bank, which is being es-
tablished to reduce substantially settlement risk
between major international financial institu-
tions. The participation in regulated payment and
securities clearing systems also reduces settlement
exposure. As the chart to the left shows, UBS took
particular care to limit its exposure to settlement
risk over year end 1999 in order to minimize its
exposure to Year 2000 related counterparty risk.
Country risk exposure
UBS’s definition of country risk comprises all
cross-border exposures from loans, derivative
products and tradable assets. This definition in-
cludes UBS’s own intracompany cross-border po-
sitions, which amounted to CHF 416 billion at
31 December 1999, about 44.6% of the total
non-emerging market country risk exposure of
CHF 880 billion. As at 31 December 1999,
97.3% of UBS’s country risk exposure was with
highly rated OECD countries where the risk of
default is judged to be negligible.
The chart in the middle summarizes UBS’s ag-
gregate country risk exposure as of 31 December
1999 compared to 31 December 1998.
The remaining 2.7% (CHF 24.6 billion) of our
country risk exposure is to emerging markets
which are classified in rating classes S3 to S14. This
exposure has decreased as a result of the restruc-
turing of the international loan portfolio and the
exit from the GTF business during 1999. Total ex-
posure to the emerging market group of countries
fell by CHF 7.8 billion during 1999 – a reduction
of 24%. In view of the higher risk associated with
emerging markets, UBS closely monitors this ex-
posure on an ongoing basis within the country lim-
its approved by the Board of Directors.
The chart to the left analyzes the Emerging
Markets exposures by the major geographical
areas as of 31 December 1999 compared to
31 December 1998.
Review of Risk Management
and Control
Analysis of Risks
Allowances and provisions for credit risk
CHF million
For the year ending
Loans (gross)
Impaired loans 2
Allowances for impaired loans
Non-performing loans
Allowances for non-performing loans
Total allowances for impaired
and non-performing loans
Other allowances and provisions
for credit and country risk
Total allowances and provisions
of which country allowances and provisions
Ratios
Impaired loans in % of gross loans
Non-performing loans in % of gross loans
Allowances and provisions for credit loss in %
of gross loans
Allocated allowances in % of impaired loans
UBS Private Banking
UBS Group
31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98 31.12.99 31.12.98
Corporate Center
UBS Warburg
UBS Private &
Corporate Clients
30,532
31,1221
82,265
134,6971 164,743
164,840
474
305
278,014
330,964
140
95
71
56
95
95
–
0.5
0.2
0.3
67.9
175
66
68
66
66
66
–
0.6
0.2
0.2
37.7
97.1
3,202
1,994
1,586
1,336
3,319
1,667
2,042
1,289
19,050
10,373
11,353
7,264
22,953
11,844
14,003
8,646
1,994
1,667
10,373
11,844
921
1,396
2,915
1,376
3,063
10,373
11,844
1,450
–
–
3.9
1.9
3.5
62.3
84.2
2.5
1.5
2.3
50.2
63.1
11.6
6.9
6.3
54.5
64.0
13.9
8.5
7.2
51.6
61.7
64
9
63
5
9
6
15
–
13.5
13.3
3.2
14.1
7.9
–
5
–
5
5
5
–
0.0
–
1.6
na
na
22,456
12,471
13,073
8,661
26,447
13,582
16,113
10,006
12,471
13,582
927
1,396
13,398
14,978
1,376
1,450
8.1
4.7
4.8
55.5
66.3
8.0
4.9
4.5
51.4
62.1
Allocated allowances in % of non-performing loans 78.9
1 1998 allocation between UBS Private Banking and UBS Warburg restated (transfer of CHF 6,989 million from UBS Warburg to UBS Private Banking. 2 Includes non-performing loans.
Impaired and non-performing loans
UBS classifies a loan as impaired when it judges
that there is a high probability that it will suffer
a partial or full loss. A provision is then made
with respect to the loan in question. Within this
category, non-performing loans are defined as
loans where payment of interest, principal or fees
is overdue for 90 days. Non-performing loans
have decreased to CHF 13,073 million at 31 De-
cember 1999 from CHF 16,113 million at 31 De-
cember 1998. The reduction reflects an accelerat-
ed write-down in the Swiss domestic portfolio, a
substantial reduction in our emerging markets
exposure, a significant improvement in the
macroeconomic situation in Switzerland and a
faster than expected recovery in key Asian
economies.
The above table provides a breakdown by
divisions of impaired and non-performing loans
as of the dates indicated.
Allowances and provisions
The adequacy of the allowances and provisions
for impaired loans is assessed by the Credit Risk
Management and Control function which is in-
dependent from the divisions. Allowances and
provisions are determined based upon an indi-
vidual assessment of counterparties and countries
and their creditworthiness as well as the amount
of collateral available to us to offset against the
potential loss. As the table above shows, al-
lowances and provisions for credit losses de-
creased by CHF 1,580 million, or 10.5%, from
CHF 14,978 million at 31 December 1998 to
CHF 13,398 million at 31 December 1999
caused by net write-offs and recoveries and par-
tially offset by the establishment of additional
credit loss provisions. As impaired loans were re-
duced by close to CHF 4 billion and non-per-
forming loans by more than CHF 3 billion, the
coverage ratio could be significantly increased.
We are convinced that the inherent risk in our
portfolio is adequately covered by allowances
and provisions.
The allowances and provisions for credit
losses include a component for country risk.
UBS’s approach to country risk provisioning fol-
lows the guidelines of the Swiss Bankers’ Associa-
tion, which allows banks to establish provisions
based on their own portfolio scenarios. UBS
establishes country-specific scenarios which are
reviewed and used on an ongoing basis to eval-
uate the current and future probability of default
due to country risk incidents or country-specific
53
Review of Risk Management
and Control
Analysis of Risks
54
Swiss bankruptcy rates (1985–1999)
in % of total registered companies
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
5
8
9
1
6
8
9
1
7
8
9
1
8
8
9
1
9
8
9
1
0
9
9
1
1
9
9
1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
Source: Creditreform, SHAB
systemic risks. The appropriate allowances and
provisions are then determined by evaluating the
type of credit exposure and the loss severities that
have been attributed to each exposure type. Total
provisions and allowances for emerging market
related exposures stood at CHF 1,376 million at
31 December 1999 and CHF 1,450 million at 31
December 1998, reflecting on the one hand the
reduction in the overall size of our emerging mar-
ket exposure but on the other hand also the need
for a reallocation of provisions from Asia to Latin
America.
In view of its overall credit exposure to the
Swiss market, UBS’s provisions and allowances
are highly dependent on economic developments
in Switzerland. As the following chart shows, the
better performance of the Swiss economy since
1997 has translated into a continued reduction of
the bankruptcy rate. Given the broadly support-
ed upswing now embracing all sectors of the
economy, the present growth rate of 2% is set to
continue throughout this year. The resulting im-
provement in companies’ financial condition
should result in a further reduction in default
rates into the current year.
Market risk
Market risk is the risk UBS faces as a result of ad-
verse movements in the value of foreign exchange,
commodities, equity market and interest rates po-
sitions. UBS incurs market risk mainly through its
trading activities, which are centered in UBS War-
burg, although market risk also arises – to a sub-
stantially lesser extent – in relation to other activ-
ities, notably in the context of balance sheet man-
agement activities. UBS Warburg’s primary mar-
ket risk exposure relates to its business activities
in equities, fixed income products and foreign ex-
change. The risk which UBS Warburg assumes is
primarily related to the need to facilitate its cus-
tomers activities in the major OECD markets.
UBS measures its exposure to market risk
using the framework of expected loss, statistical
loss and stress loss, as follows:
– In the context of market risk, expected losses
are the value adjustments made to the portfolio
to adjust for price uncertainties resulting from
a lack of market liquidity or the absence of a re-
liable market price for a particular instrument
– Statistical loss is measured based on a value at
risk, or VaR, methodology. VaR is a forward
looking estimate of potential loss. 1-day VaR
looks forward one trading day, while 10-day
VaR looks forward ten days. UBS calculates
VaR using a 99% confidence level. In other
words, under normal market conditions, we
would expect over the course of a day a loss
more than our 1-day VaR to occur with a 1 in
100 chance
– Stress scenario loss is defined as the risk of an
extreme market move affecting particular pre-
defined market variables.
In order to keep our exposure to market risk
within acceptable boundaries, the Board of Di-
rectors has set limits on our exposure to both sta-
tistical loss by reference to the VaR exposures as
well as to stress scenario loss by placing limits in
relation to particular stress scenarios.
UBS calculates the VaR associated with its ex-
posure to market risk and consequently also its
regulatory capital requirement using the histori-
cal simulation technique, based on five years of
data. VaR is calculated both on a 1-day 99% con-
fidence interval and a 10-day 99% confidence in-
terval, and the latter is used both for internal lim-
its setting and for calculating regulatory capital.
The calculation incorporates both the risk from
general market moves such as moves in foreign
exchange rates, equity indices and market inter-
est rates as well as the risk from price movements
that are specific to an individual issuer. During
1999 UBS Warburg operated within a CHF 450
million 10-day VaR limit.
During the course of 1999 UBS received ap-
proval from the Swiss Federal Banking Commis-
sion (FBC) to use its VaR model to compute reg-
ulatory capital requirements for market risks.
Review of Risk Management
and Control
Analysis of Risks
While a VaR measure is the principal measure
of UBS’s exposure to day-to-day movements in
market prices, UBS’s risk control process is
specifically focused on tail risks (or the risk of a
loss significantly larger than the VaR number as
a result of large movements in the risk factors,
such as equity indices, foreign exchange rates and
interest rates, on our portfolios). UBS has a con-
sistent set of predefined large price movements,
or shocks, and risk limits, which apply to all the
major risk factors to which the bank is exposed
as a basis to prevent risk concentration. This is
the primary protection against any form of ex-
treme event. In addition to this first level protec-
tion, a stress loss limit has been introduced as a
portfolio control for all the trading activities
which are concentrated within UBS Warburg.
The potential stress loss is calculated with respect
to eight base scenarios which are supplemented
by ad hoc analyses depending on external devel-
opments or specific portfolio concentrations such
as Year 2000 which we added to our stress test
analysis in the third quarter of 1999. This ensures
that both historical crises as well as forward look-
ing extreme scenarios are incorporated in the
analysis. Implementing this stress loss limit is a
way of protecting our earnings during periods of
extreme market stress.
UBS Warburg market risk developments
Since the merger, UBS Warburg has taken a num-
ber of steps to improve its overall risk profile.
These include adjusting its market risk profile,
including its exposure to emerging market risk
and equity market volatility. As the table below
shows, VaR utilization within UBS Warburg has
dropped across all major product lines in the
course of 1999. This does not reflect a rationing
of risk but a choice taken by UBS Warburg man-
agement based on the risk-return opportunities in
UBS Warburg backtesting results
CHF million
200
100
0
–100
–200
–300
10-day VaR
1-day VaR
Revenue
the market. This reduction has in fact been
achieved at a time when UBS Warburg has gener-
ated some of its strongest earnings, which reflects
a significant improvement in the risk-return pro-
file of the businesses.
All VaR models, while forward looking, are
based on past events and are dependent upon the
quality of available market data. In order to eval-
uate the VaR model actual revenues are com-
pared with the 1-day VaR on a daily basis, a
process known as “backtesting”, with losses
greater than the VaR estimate being known as
“exceptions”. As the chart above shows, UBS
Warburg’s backtesting results showed no excep-
tions in the course of 1999.
Market risk in the other divisions
Although UBS assumes almost all of its active
market risk in UBS Warburg, the Group-wide VaR
for trading book market risk exposure includes all
sources of market risk. This includes a small
amount of risk which is assumed in order to facil-
itate customer business by UBS Private Banking in
Switzerland as well as the risk associated with the
structural foreign exchange hedge positions man-
aged by Corporate Center, which are discussed
Summary of 10-day 99% confidence value at risk
UBS Warburg
CHF million
Risk type
Equities
Interest rates
Foreign exchange
Precious metals
Diversification effect
Total UBS Warburg
12 months ending 31.12.1999
6 months ending 31.12.1998
Min.
Max.
Average
31.12.1999
Min.
Max.
Average
31.12.1998
122
88
10
5
–1
177
208
188
145
36
–1
276
163
140
58
21
(168 )
213
173
140
76
28
(193 )
224
152
129
21
16
–1
210
304
279
84
48
–1
400
216
181
47
32
(181 )
295
215
170
73
19
(217)
260
55
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
Review of Risk Management
and Control
Analysis of Risks
56
UBS Warburg revenue distribution
Frequency in number of days
30
25
20
15
10
5
0
–200
–170
–140
–110
–80
–50
–20
10
40
70
100
130
160
190
Revenue in CHF million, including commissions
Summary of 10-day 99% confidence value at risk for UBS Group
UBS Group VaR
CHF million
UBS Warburg
Corporate Center
Other 1
Diversification effect
UBS Group
31.12.1999
31.12.1998
223.6
59.8
4.3
(55.5)
232.2
259.9
79.2
5.4
(62.0)
282.5
1 The above table includes interest rate exposures in the banking books of the Private Label Banks.
below under “Asset and Liability Management”.
As the table on the previous page shows, however,
the overall impact of these additional risks is to a
significant degree offset by positions in the UBS
Warburg portfolio. This is shown by the measure
of the diversification effect which arises when
total VaR for market risk is calculated at the
Group level.
Consequential risks
In addition to credit and market risks which UBS
assumes as an integral part of its business activi-
ties, UBS also assumes a number of consequential
risks – often referred to as “operational risk” –
which arise as a consequence of its business ac-
tivities. These risks include:
– Operations or transactions processing risk
– Legal risk
– Compliance risk
– Liability risk
– Security risk.
UBS is addressing the measurement of its conse-
quential risks through the introduction of a
generic operational risk-modeling framework.
This framework groups risks into predetermined
risk categories and identifies the factors behind
the risk exposure. Operational risk scenarios are
developed to stress the processes and procedures
underlying the exposure. This helps to measure
the risk of loss from the identified exposures in a
similar manner to the statistical loss measure-
ments of our credit and/or market risk exposures.
UBS is reviewing whether this framework, which
contains varied and sophisticated techniques,
provides the potential to assess more accurately
risk exposures to help ensure they are in accor-
dance with UBS’s risk appetite and risk-bearing
capacity.
The primary focus of UBS’s operational risk
monitoring during 1999 was on the need to man-
age and control the risks associated with the
transfer of customer accounts in UBS Private and
Corporate Clients from the former Swiss Bank
Corporation mainframe operating system (RTB)
to the UBS system (Abacus) as well as the need to
ensure a smooth transition to the Year 2000. The
account migration from RTB to Abacus was com-
pleted by mid-year 1999, which was the quickest
integration following any major bank merger in
recent years.
Similarly, UBS’s Year 2000 transition ran very
smoothly. Following a period of two years during
Review of Risk Management
and Control
Analysis of Risks
which the Year 2000 project had received the
highest management priority in all divisions as
well as at the Group level, UBS year end process-
ing progressed with no material interruptions and
all the bank’s business critical systems operated
satisfactorily. The total cost of UBS’s Year 2000
project in 1999 was CHF 279 million.
A further focus of UBS’s risk control process for
consequential risk is the reliability of the data
which supports its risk reporting systems. As rec-
ommended in the 1998 risk review, a data integri-
ty review of the UBS Warburg credit risk control
systems was completed during 1999. This included
the establishment of a comprehensive data quality
monitoring process, a revision of the inter-system
reconciliation procedures and continuing regular,
independent tests of data quality. The review has re-
sulted in a high degree of confidence in risk control
data and concluded that no additional provisioning
was required specifically relating to the review.
57
Review of Risk Management
and Control
Asset and Liability
Management
Asset and Liability
Management
UBS asset and liability
management processes
are designed to manage
all balance sheet related
risks on a coordinated
Group-wide basis. The
procedures and policies
cover Group liquidity,
Group funding and capi-
tal management, and the
management of non-
trading foreign exchange
UBS recognizes that the market and credit risk
framework which is set out above cannot be fully
applied to its asset and liability management ac-
tivities which include Group liquidity, Group
funding and capital management as well as the
management of non-trading foreign exchange
risk and non-trading interest rate risk. Conse-
quently, specific processes and policies have been
established for managing these risks. UBS’s asset
and liability management function is undertaken
at the Corporate Center by the Group Treasury
department which reports directly to the CFO.
Group Treasury is responsible for establishing
and effectively managing the processes in relation
to these risks in accordance with policies which
have been approved by the Board of Directors.
The overriding goals of all processes within
the asset and liability management activities are:
– Efficient management of the bank’s non trad-
ing interest rate and foreign exchange expo-
sures.
– Sustainable and cost-efficient funding of the
and interest rate risk.
bank’s balance sheet.
– Optimal liquidity management in order to
generate cash when required.
– Compliance with legal and regulatory require-
ments.
Interest rate management
Interest rate risk is inherent to most of UBS’s busi-
nesses. Interest rate risks arise from a variety of
factors, including differences in the timing be-
tween the contractual maturity or repricing of as-
sets, liabilities and derivative instruments. Net in-
terest income is affected by changes in market in-
terest rates, given that the repricing characteris-
tics of loans and other interest earning assets do
not necessarily match those of deposits, other
borrowings and capital. In the case of floating
rate assets and liabilities, UBS is also exposed to
basis risk, which is the difference in repricing
characteristics of two floating rate indices, such
as the savings rate and six months LIBOR. In ad-
dition, certain products have embedded options
that affect their pricing and principal.
UBS adopts a comprehensive Group-wide ap-
proach to managing interest rate risk, and allo-
cates the responsibility for managing this risk to
a limited number of business areas. Under this ap-
proach, interest rate risk is clearly segregated into
trading and non-trading risk. All interest rate
risks arising from non-trading business activities
are captured at the point of business origination
and transferred either to UBS Warburg’s Cash
and Collateral Trading book – “CCT” – or to the
Corporate Center’s Bank Book through a Group-
wide transfer pricing mechanism. The risk is then
managed centrally in accordance with the rele-
vant risk policy.
In the case of transactions with a fixed matu-
rity, the interest rate risk is transferred from the
relevant business area to CCT on a transaction by
transaction basis. This means that products with
fixed maturities immediately become part of the
trading book in UBS Warburg and the business
locks in an interest-rate-risk-free margin on such
products thereby relieving them of any residual
interest rate risk. As a result of this process, UBS
benefits fully from the netting potential between
its balance sheet and trading products.
In the case of client business, such as savings
accounts or current accounts, which have no con-
tractual maturity date or directly market-linked
customer rate the interest rate risk is transferred
from the business areas by pooled transactions to
the Bank Book. Since these products effectively
contain various embedded options in respect of
withdrawal/pre-payment and rate setting, they
cannot be hedged by single back-to-back transac-
tions. Consequently, Group Treasury manages
the inherent interest rate risk in these products in
the Bank Book through the establishment of
replicating portfolios of revolving fixed-rate
transactions of predefined maturities which ap-
proximate the average cash flow behaviour of
these positions. Group Treasury then hedges the
overall risk in the Bank Book by means of inter-
nal transactions with CCT. As a result of this
process, all interest rate risks arising from client
business are transferred either directly or indi-
rectly via the Bank Book, to CCT.
In addition to the interest rate risk associated
with client business, a significant amount of in-
terest rate risk arises in relation to non-business
balance sheet items, such as in the refinancing of
the bank’s real estate portfolio, equity invest-
ments in associated companies and the invest-
ment of the bank’s own equity. The refinancing of
real estate and equity investments and the invest-
ment of equity are all strategic decisions which
implicitly create non-trading interest rate expo-
sures. The interest rate risks inherent in these bal-
ance sheet items are managed in the Bank Book
by representing them as replicating portfolios, on
58
Review of Risk Management
and Control
Asset and Liability
Management
the basis of decisions taken by the Group Execu-
tive Board as to the appropriate effective maturi-
ties. Here, too, the risk is hedged by means of in-
ternal transactions with CCT.
All the replicating portfolios which are con-
tained in the Bank Book are updated monthly by
replacing maturing tranches with new aggregate
tranches which reflect the changes in the balance
sheet over the period. By their nature, the stag-
gered tranches which constitute each replicating
portfolio reduce the volume that must be hedged
by the Bank Book at each monthly rollover.
However, due to the extent of the underlying
portfolio volumes, the new aggregate tranches
are nevertheless of such a size that they cannot be
hedged instantly. The Bank Book therefore as-
sumes intramonth interest rate exposure until it
can execute all the necessary offsetting hedges
with CCT. The exposure of the Bank Book, which
thus tends to fluctuate between monthly rollovers
and the profits or losses arising out of the Bank
Book are reported on an accrual basis in the fi-
nancial statements and constitute an integral part
of the Group’s net interest income.
The Board of Directors has approved risk
management policies, risk limits and the control
framework for the entire interest rate risk man-
agement process including the establishment of a
value-at-risk limit for the interest rate exposure
of the Bank Book. Market Risk Control monitors
the risk in both CCT and in the Bank Book on a
daily basis as part of UBS’s overall market risk in
order to ensure the integrity of the interest rate
Interest rate sensitivity of the Bank Book
risk management process and its compliance
within the defined risk limits.
UBS’s approach to managing the interest rate
risks inherent in the Bank Book complies with the
regulatory framework recently introduced by
Swiss Federal Banking Commission – the “FBC”.
In the course of the year 2000, it will become
mandatory for all Swiss banks to report to the
Swiss National Bank the interest rate sensitivity
of the Bank Book on a quarterly basis. Addition-
ally, the specific composition of the underlying
replicating portfolios used to manage individual
balance sheet items must also be disclosed in
order to assist the regulators to identify “out-
liers” in terms of their interest rate risk profiles.
The table below shows the interest rate sensi-
tivity of the Bank Book as at 31 December 1999
measured in terms of the potential impact of a
one basis point (0.01%) parallel rise in interest
rates on the market value of each balance sheet
item.
The most significant component of the Bank
Book sensitivity stems from the investment of the
Group’s equity. At 31 December 1999, this was
invested in a portfolio of fixed-rate CHF deposits
with an average duration of 2.2 years and a sen-
sitivity of CHF –8.1 million per basis point, in
line with the strategic investment targets set by
the Group Executive Board. In order to ensure
that these GEB targets are met, the Group’s
equity is represented as a liability position by a
replication portfolio reflecting this target bench-
mark. The Group’s equity is thus automatically
CHF thousand
per basis point
CHF
USD
EUR
GBP
JPY
Others
Total
1 to 3
months
3 to 12
months
Within 1
month
(11 )
3
0
0
0
0
11
(33 )
(3 )
5
0
0
(8)
(20)
1 to 5
years
850
83
30
77
(1 )
0
Over 5
years
(610 )
1,207
210
815
(4 )
0
Total
279
1,250
240
858
(5)
0
1,039
1,618
2,622
39
(10 )
3
(39 )
0
0
(7)
of which replicated equity
CHF
19
19
437
7,054
610
8,139
Bank Book without replicated equity
Total
(27)
(39)
(444)
(6,015)
1,008
(5,517)
59
Review of Risk Management
and Control
Asset and Liability
Management
60
invested according to the GEB strategic targets so
as to offset the interest rate risk associated with
this equity replication portfolio. The interest rate
sensitivity of these investments indicates the ex-
tent to which their marked-to-market value
would be affected by an upward move in interest
rates. This in turn is directly related to the invest-
ment duration chosen by the GEB. However,
when measured against the equity replication
portfolio itself, the residual interest rate risk is
negligible. Moreover, any reduction in this meas-
ure of the interest rate sensitivity relating to the
investment of the bank’s equity would inevitably
require investing at significantly shorter maturi-
ties, which would lead to a higher volatility of the
bank’s interest earnings.
In addition to the above standard sensitivity to
a one basis point rise in rates, UBS uses the fol-
lowing two measures to help to monitor the risk
inherent in the Bank Book:
– Net interest income at risk, which is defined
as the exposure of the net interest income
arising in the Bank Book to an adverse move-
ment in interest rates over the next twelve
months. Given the fact that all client business
with fixed maturities is “match funded” with
UBS Warburg, these transactions are not
affected by changes in interest rates. Therefore
only net interest income positions resulting
out of replicating portfolios may be exposed
to market changes. This measure estimates
the impact of different changes in the level
of interest rates using shock scenarios as
well as gradual changes in interest rates over
a period of time. All of the scenarios are com-
pared with a scenario where current market
rates are held constant for the next twelve
months.
– The economic value sensitivity, which is de-
fined as the potential change in market value
of the Bank Book resulting from changes in in-
terest rates. This estimates the effect of an im-
mediate interest rate shock on the net position
in the Bank Book.
The net interest income at risk measure on the
Bank Book considers such variables as:
– Repricing characteristics of assets and liabilities.
– Rate barrier effects, such as caps and floors,
on assets and liabilities.
– Maturity effects of replicating portfolios.
– Behaviour of competitors.
Both measures are based on the Bank Book’s in-
terest rate position excluding the liability position
relating to the “equity replication portfolio”. The
methodology is designed to highlight the effects of
market changes in interest rates on existing bal-
ance sheet positions; it ignores future changes in
the asset and liability mix and therefore it is not by
itself a measure of future net interest income.
The two methodologies provide different
measures of the level of interest rate risk. The eco-
nomic value sensitivity measure provides a longer
term view, since this considers the present value
of all future cash flows generated from the exist-
ing balance sheet positions. The net interest in-
come at risk measure provides a shorter term
view, as it considers the repricing effect of all ma-
turing positions over the next twelve months. The
table below shows the change in risk under both
measures between the end of 1998 and 31 De-
cember 1999.
CHF million
31.12.99
31.12.98
Net interest income at risk
Economic value sensitivity
(355)
(555)
(265 )
(493 )
Among various scenarios that have been ana-
lyzed, the net interest income at risk figure shown
is the worst case and relates to an interest rate
shock (parallel shift) of – 200 basis points. At
31 December 1998, the difference to the constant
market rate scenario represents – 4.0% of 1998s
total net interest income and – 5.6% at 31 De-
cember 1999. In this extreme scenario the largest
part of the decrease would occur due to lower
margins on deposit accounts and lower returns
on the investment of the Group’s equity.
The economic value sensitivity shows the effect
of a 100 basis point adverse interest rate shock,
implying that the bank had an exposure of CHF
– 493 million to rising rates at 31 December 1998
and CHF – 555 million at 31 December 1999.
The increase in the economic value sensitivity
in the course of 1999 was primarily due to the de-
creased USD and GBP sensitivities. Since these
exposures act as a counterweight to the dominant
CHF position, this resulted in an increased over-
all CHF exposure to rising rates.
Liquidity and funding management
UBS’s approach to liquidity management seeks to
ensure that the Group will always have sufficient
liquidity to meet its liabilities in a timely manner
Review of Risk Management
and Control
Asset and Liability
Management
while preserving the option of exploiting potential
strategic market opportunities. UBS’s centralized
approach to liquidity management encompasses
the entire network of branches and all subsidiaries
and ensures that the liquidity position is more
than adequate to cover short term liabilities at all
times. UBS’s liquidity management is based on an
integrated framework that incorporates an assess-
ment of all known cash flows within the Group as
well as the availability of high grade collateral
which could be used to secure additional funding
if required. The liquidity position is prudently
managed under different potential scenarios tak-
ing stress factors into due consideration (as sug-
gested by the BIS in its 1992 working paper).
The Board of Directors has approved a policy
which establishes the core principles for liquidity
management and has defined an appropriate con-
tingency plan. A first set of principles relates to
the establishment of liquidity risk limits (e.g. a net
overnight funding limit). The risk limits are set by
the Group Executive Board and monitored by the
Financial Management Committee (“FMC”)
which is chaired by the CFO and meets on a
monthly basis in order to assess the bank’s liq-
uidity exposure. A second set of principles con-
centrates on liquidity crisis management for
which detailed contingency plans have been
worked out. Regional committees constantly
monitor the markets in which we operate for po-
tential threats and regularly report their findings
to the FMC. In the event of a liquidity crisis re-
gional crisis task forces will perform all necessary
contingency actions under the command of sen-
ior management.
The liquidity management process is under-
taken jointly by Group Treasury and CCT. Group
Treasury’s function is to establish a comprehen-
sive framework of directives and risk limits, while
CCT undertakes the operational cash and collat-
eral management transactions within the estab-
lished parameters. UBS’s centralized cash and col-
lateral business management structure facilitates
a tight control on both the global cash position
and the stock of highly liquid and rediscountable
securities.
UBS’s funding strategy seeks to ensure that
business activities are funded at the lowest possi-
ble cost. With a broad diversification (by market,
product and currency) of funding sources UBS
maintains a well balanced portfolio of liabilities
which generate a stable flow of financing and ad-
ditionally provides protection in the event of
market disruptions. In this context UBS’s strong
domestic retail business is a very valuable, cost
efficient and reliable source of funding. Through
the establishment of short, medium and long
term funding programs in Europe, in the US and
in Asia, UBS can raise funds globally in a very ef-
ficient manner and minimize its dependence on
any particular source of funding.
In the course of 1999, UBS’s long term debt
portfolio has increased from CHF 50.8 billion as
of 31 December 1998 to CHF 56.3 billion as of 31
December 1999. During this period CHF 12.6 bil-
lion of new long term securities were issued while
at the same time CHF 7.1 billion have matured.
The maturity profile of the long term debt port-
folio is well balanced with a slight bias towards
shorter term maturities due to the maturity profile
of the bank’s assets. See the Notes to the Consoli-
dated Financial Statements for further information
concerning long term debt.
Currency management
UBS’s corporate currency management activities
are designed to protect the bank’s equity and the
expected future foreign currency cash flows from
adverse currency movements against the Swiss
franc while preserving the option of exploiting any
market opportunities which may arise.
The following principles guide the approach
to managing this risk:
– Equity must be invested in Swiss francs (trans-
lation risk management).
– Recognized foreign currency exposures must
be hedged proactively for the whole financial
year, which represents the cycle of financial ac-
counting (transaction risk management).
Translation (balance sheet) currency risk:
UBS aims to maintain the flexibility to allow for-
eign assets (a business unit or a non-financial asset)
to be divested at any time without adverse curren-
cy impacts. To eliminate these undesired foreign
exchange impacts on investments and divestments
of these assets, foreign currency assets are match
funded in the relevant currency. The match-fund-
ing principle is also applied to the financing of for-
eign investments, including foreign equity invest-
ments. This strategy, together with the repatriation
into Swiss francs of foreign currency dividends and
capital, ensures that the bank’s equity is always
fully invested in Swiss francs.
61
Review of Risk Management
and Control
Asset and Liability
Management
62
The following table summarizes the VaR usage in the course of 1999:
Value at risk
CHF million
Minimum
Maximum
Average
1 July 1998 – 31 December 1998
1 January 1999 – 31 December 1999
37.2
1.4
133.7
77.8
77.5
37.1
Last value
of period
79.2
59.7
Transaction (revenues/costs) currency risk:
UBS’s transaction currency risk management
process is designed to protect the budgeted annu-
al foreign currency net profits against adverse
currency movements during the relevant report-
ing period. Foreign currency net profits are ac-
tively managed by Group Treasury on behalf of
the Group in accordance with the instructions of
the Group Executive Board and subject to the
VaR limit which has been established for this risk.
The budgeted net profits are treated as long for-
ward foreign exchange exposures in the local re-
porting currency against the Swiss franc.
The non-trading foreign currency exposures
are mainly hedged with foreign exchange for-
ward contracts, although foreign exchange op-
tions are also used particularly where there is a
measure of uncertainty about the magnitude of
the underlying income. The net position of the
budgeted net profits and the corresponding
hedges, is the basis for the VaR calculation on
Group Treasury’s non-trading currency position.
During the year, actual results are continuously
monitored. Major budget deviations must be
communicated to Group Treasury for potential
additional hedge transactions. The VaR analysis,
which is performed daily, is based on the same 10
day 99% confidence level as applies in UBS War-
burg. The validity of the VaR measurement is
evaluated by conducting backtests, which com-
pare the estimated VaR amount with the actual
shift of the positions’ profit or loss due to ex-
change rate movements.
The principal contributors to our non-trading
currency exposure are the operations in the UK
and the US. In general, the VaR position is high-
est at the beginning of the year when the budget-
ed net profits are transferred to Group Treasury
and is gradually reduced during the year depend-
ing on the exact hedge strategy being used. The
underlying policy is to keep the VaR of the non-
trading currency position as low as practicable.
Capital management
Capital management is undertaken at UBS by
Group Treasury as an integral part of the Group’s
asset and liability management function. UBS’s
overall capital needs are continually reviewed to
ensure that our capital base can appropriately
support the anticipated needs of the divisions as
well as the regulatory capital requirements.
As the table on the next page shows, UBS is
very well capitalized. In the course of 1999, UBS’s
BIS Tier 1 Ratio increased from 9.3% at 31 De-
cember 1998 to 10.6 % at 31 December 1999
primarily resulting from a significant increase in
retained earnings coupled with a reduction in risk
weighted assets. The decrease in risk weighted as-
sets is principally a result of reduced positive re-
placement values, off-balance sheet contingent li-
abilities and the reduction in the size of the inter-
national loan book. See Note 33c in the consoli-
dated financial statements for additional infor-
mation on capital adequacy.
The ratios measure capital adequacy by com-
paring UBS’s eligible capital with the risk-weight-
The following table shows the key capital figures and ratios as of 31 December 1999 and 31
December 1998:
CHF million
Balance sheet assets
Off-balance sheet and other positions
Market risk positions
Total risk-weighted assets
31.12.1999
31.12.1998
219,383
48,282
10,813
278,478
238,024
50,659
16,018
304,701
Review of Risk Management
and Control
Asset and Liability
Management
The following table sets forth BIS risk-weighted assets as of 31 December 1999 and 31 December 1998:
CHF million
BIS Tier 1 capital
BIS Tier 1 and Tier 2 capital
in %
BIS Tier 1 ratio
BIS Tier 1 and Tier 2
Capital ratio
31.12.1999
31.12.1998
29,529
40,259
28,299
40,385
10.6
14.5
9.3
13.3
ed asset positions, which include balance sheet
assets, the net positions in securities not held in
the trading portfolio, off-balance sheet transac-
tions converted into their credit equivalents and
market risk positions at a weighted amount to re-
flect their relative risk.
UBS is committed to maintaining a strong cap-
italization and rating as a distinguishing charac-
teristic of UBS for both clients and shareholders.
On 12 March 1999, UBS introduced a treasury
stock buy-back program, planned to run for a
period of two years. As of 31 December 1999, a
total of 7.3 million shares had been acquired, rep-
resenting about 3.4% of the total of outstanding
shares. The objective of the buy-back program
was to utilize the shares for acquisitions and the
employee stock ownership program. UBS has
subsequently concluded that this program is too
limited for its purposes because of the continuous
increase in capital which is projected to arise
from ongoing retained earnings and the selective
reduction in the risk profile as well as increasing
capital efficiency.
For this reason, UBS announced in December
1999 that it would replace the treasury stock
buy-back program by a Swiss-specific program
targeted at Swiss institutional shareholders,
which is the only tax-efficient means that has
been identified to achieve cancellation. This is
called a second trading line program. The second
trading line program was implemented in Janu-
ary 2000. The subsequent cancellation of the
shares bought back through the second trading
line requires shareholders’ approval. In addition
to this initiative, UBS recognizes and will address
over time the potential for introducing a more
active management of the composition of its cap-
ital. As of 23 February 2000, the program has re-
sulted in the repurchase of about 2.8 million
shares, or about 1.3% of our market capitaliza-
tion. Through this program we plan to buy back
a maximum value of CHF 4 billion which will
then be earmarked for cancellation on share-
holders’ approval. This program may last at a
maximum until March 2001.
Performance measurement
UBS is in the process of implementing a compre-
hensive value based management approach to
support management in key tasks like planning,
investments, capital allocation, performance ap-
praisal and compensation, strategic risk manage-
ment and communication to investors and ana-
lysts.
Divisional business plans, planned acquisi-
tions, investments and divestments are evaluated
and approved on the basis of their expected con-
tribution to shareholder value. Actual perform-
ance is appraised using division specific hurdle
rates and according to the contribution to value
creation. The implicit costs of risk tolerance as
well as the consumption of regulatory equity and
risk control efforts are therefore considered in an
appropriate way.
63
64
UBS Group
Financial Statements
UBS Group Financial Statements
Table of Contents
Financial Statements
Table of Contents
Group Financial Review
Financial Statements
Income Statement
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
1
2
3
Summary of significant accounting policies
Segment reporting by business division
Segment reporting by geographic location
Income statement
4
5
6
7
8
9
10
Net interest income
Net fee and commission income
Net trading income
Gains / (Losses) from disposal of
associates and subsidiaries
Other income
Operating expenses
Earnings per share
Balance sheet: assets
11 Money market paper
12a Due from banks and loans to customers
12b Allowance and provision for credit losses
12c Non-performing loans
13
Cash collateral on securities
borrowed and lent
Repurchase and reverse repurchase
agreements
Trading portfolio
Financial investments
Investments in associates
Property and equipment
Intangible assets and goodwill
Other assets
14
15
16
17
18
19
20
66
68
72
72
73
74
75
76
76
81
83
84
84
84
85
85
85
86
87
88
88
88
89
90
90
91
91
92
92
93
93
93
Balance sheet: liabilities
Due to banks and customers
21
Long term debt
22
Other liabilities
23
Provisions, including restructuring provision
24
25
Income taxes
26 Minority interests
Off balance sheet and other information
27
28
29
30
31
32
33
Derivative instruments
Pledged assets
Fiduciary transactions
Commitments and contingent liabilities
Operating lease commitments
Litigation
Financial instruments risk position
a) Interest rate risk
b) Credit risk
c) Currency risk
d) Liquidity risk
e) Capital adequacy
Fair value of financial instruments
Retirement benefit plans and
other employee benefits
Equity participation plans
Related parties
Post-balance sheet events
Significant subsidiaries and associates
Significant currency translation rates
Swiss banking law requirements
34
35
36
37
38
39
40
41
Report of the Group Auditors
UBS Group Financial Statements
Table of Contents
93
93
94
98
98
99
100
101
101
104
104
104
106
106
107
107
109
111
112
113
114
116
119
120
120
121
123
124
125
67
UBS Group Financial Statements
Group Financial Review
Group Financial Review
Overview
– Net profit was CHF 6,300 million in 1999, up
from CHF 3,030 million in 1998.
– Both years contain several significant financial
events and thus direct comparisons are com-
plex.
– For 1999, return on equity stood at 21.2%
before goodwill amortization and 20.1% after
goodwill amortization, with comparable num-
bers for 1998 of 11.4% and 10.3% respec-
tively.
– The cost/income ratio was 68.0% before
goodwill amortization and 69.1% after good-
will amortization in 1999, versus 77.0% and
78.4% in 1998, respectively.
– In 1999 basic earnings per share reached CHF
31.91 before goodwill amortization, and CHF
30.28 after goodwill amortization against
CHF 15.92 and CHF 14.31 in 1998, respec-
tively.
– Since 31 December 1998, Group assets under
management have increased 10.9% to CHF
1,744 billion.
Significant financial events
1999 total operating income includes:
– CHF 1,490 million pre-tax gain relating to the
sale of our 25% stake in Swiss Life / Renten-
anstalt.
– An additional pre-tax restructuring charge of
CHF 300 million in respect of the merger
between Union Bank of Switzerland and Swiss
Bank Corporation, representing about four
percent of the original CHF 7 billion provi-
sion. The majority of this extra provision is
due to revised estimates of the cost of lease
breaks and property disposals.
– Additional pre-tax provisions of CHF 154
million relating to the settlement reached
regarding dormant accounts and World War II
related claims. When we created the corre-
sponding provisions in 1998, we expected a
certain level of contributions from Swiss
industry. In the fourth quarter, it became clear
that this level of contributions was not forth-
coming as expected.
1999 impact on net profit:
– In sum, the significant financial items listed
above represent pre-tax gains of CHF 1,840
million (CHF 1,488 million post-tax).
– The acquisition of the international private
banking business of Bank of America has had no
material impact on Group or divisional results.
– The Global Asset Management and Allegis
acquisitions were completed in the final days
of December 1999. Both are consolidated and
have no material impact on the 1999 income
statement.
– CHF 110 million pre-tax gain from the dis-
Income statement
posal of Julius Baer registered shares.
– CHF 200 million pre-tax gain from the inter-
national Global Trade Finance disposal.
– CHF 38 million pre-tax gain from the Long
Total operating income increased 28% to CHF
28,621 million, while total operating expenses
increased 12% to CHF 20,452 million.
Term Capital Management rescue fund.
1999 total operating expenses include:
– The booking of pre-paid employer pension
contributions of CHF 456 million. This re-
presents the recognition, in accordance with
International Accounting Standards, of the
difference between previously recorded and
actuarially determined pension expenses.
This pre-payment has been recognized in
1999 after the resolution of certain legal and
regulatory issues related to the utilization of
these contributions subsequent to the inte-
gration of the pre-merger banks’ pension
plans.
Net interest income
Net interest income before credit loss expenses
decreased 4.6% compared to 1998, to 6,356 mil-
lion. Higher margins in the domestic loan portfo-
lio which resulted from more consistently applied
risk-adjusted pricing were more than offset by the
reduction of the international loan portfolio, the
impact of the sale of activities (BSI, Adler) which
contributed to the 1998 result, and lower returns
on invested equity.
Credit loss expense
The credit loss expense for 1999 amounted to
CHF 956 million. During 1998 a significant por-
68
UBS Group Financial Statements
Group Financial Review
tion of credit losses was charged against previ-
ously established provisions, thus reducing the
credit loss expense at December 1998 to CHF
951 million.
Domestically we clearly benefited from our
efforts on the recovery portfolio and the improv-
ing macro-economic climate. Internationally, the
absence of a major emerging market crisis and
recoveries of previously provisioned exposures
have impacted the results significantly and led to
a release of country provisions.
Net fee and commission income
At CHF 12,607 million in 1999, net fee and com-
mission income remained stable compared with
CHF 12,626 million in 1998. Excluding the effect
of divestments no longer reflected in 1999 figures,
there was an increase of roughly one percent.
The increase in investment fund fees of CHF
137 million is attributable to higher volumes and
to pricing adjustments from the integration of
the two pre-merger product platforms. Strong
increases in custodian fees reflect higher custodi-
an assets and a new pricing model.
Brokerage fees are higher period-on-period
mainly due to strong volumes in the UK, US and
Asia.
Underwriting and corporate finance fees are
up 8% thanks to strong results in mergers and
acquisitions.
Credit-related fees and commissions decreased
in line with reduced emerging market exposures
and the sale of the international Global Trade
Finance operations.
Net trading income
Net trading income was CHF 7,468 million in
1999, up from CHF 1,750 million in 1998. Dur-
ing 1998, net trading income was negatively
impacted by the pre-tax CHF 793 million and
CHF 762 million write-downs on LTCM and pre-
merger Global Equities Derivatives positions
respectively, as well as mark-to-market losses in
emerging markets.
Net trading income comprises predominantly
the net trading result of UBS Warburg and certain
activities related to Group asset and liability
management in the Corporate Center. The UBS
Warburg trading result includes largely customer-
related activities (market making, derivatives and
foreign exchange), as well as some proprietary
trading.
During 1999, Group net trading income ben-
efited from very strong customer volumes in equi-
ty products globally. Fixed income trading rev-
enues were strong across all major products, led
by swaps and options, and investment grade
debt. Income from foreign exchange and bank-
notes trading was down period-on-period, as a
result of Group asset and liability management,
as well as lower volumes, and volatility in foreign
exchange markets.
Income from disposal of associates and
subsidiaries
Income from disposal of associates and sub-
sidiaries was CHF 1,821 million during full-year
1999. Major items driving this line include – as
mentioned above – the pre-tax gains of CHF
1,490 million from the sale of our stake in Swiss
Life / Rentenanstalt and CHF 110 million from the
disposal of Julius Baer registered shares. In 1998,
disposal-related pre-tax gains of CHF 1,119 mil-
lion resulted mainly from the sale of BSI.
Other income
Other income increased by CHF 203 million to
CHF 1,325 million in 1999. Main contributors
were the pre-tax CHF 200 million gain from the
disposal of international Global Trade Finance
and CHF 395 million from the first-time con-
solidation of Klinik Hirslanden. This was par-
tially offset by less income from investment in
associates as a result of divestments and lower
income from other properties. 1998 was nega-
tively impacted by the CHF 367 million portion
of the LTCM write-down.
Personnel expenses
Personnel expenses amounted to CHF 12,577
million in 1999. In 1998, this amount stood at
CHF 9,816 million.
At the end of 1997, UBS foresaw the proba-
bility of a shortfall in profit in its investment
banking business as a result of the merger. In
order to protect its investment banking franchise,
UBS realized it would probably need to make
payments to personnel in excess of amounts
determined by normal compensation methodolo-
gies. An amount of approximately CHF 1 billion
was recorded as part of the merger-related
restructuring reserve for this purpose.
By the end of 1998, this shortfall had materi-
alized, and CHF 1,007 million of accrued pay-
69
UBS Group Financial Statements
Group Financial Review
70
ments to personnel were charged against the
restructuring reserve as planned. The shortfall in
profits noted above was aggravated by losses
associated with LTCM and the Global Equity
Derivatives portfolio. Adjusting the prior year for
the CHF 1,007 million, personnel expenses in
1999 increased by 16%. This is chiefly attributa-
ble to higher performance-related compensation
based on the good investment banking result in
1999.
As discussed above, UBS recognized CHF 456
million as an asset and a credit in personnel
expense.
General and administrative expenses
General and administrative expenses decreased
9%, or CHF 599 million, to CHF 6,018 million.
Excluding the impact of the provision for the set-
tlement related to the role of Swiss banks during
and after World War II, representing CHF 154
million in 1999 and CHF 842 million in 1998, as
well as the additional restructuring provision of
CHF 300 million in 1999 and the CHF 130 mil-
lion impact from the first-time full consolidation
of Klinik Hirslanden, general and administrative
expenses fell 6%, reflecting stringent cost reduc-
tion programs throughout the Group.
Depreciation and amortization
Depreciation and amortization increased two
percent to CHF 1,857 million. Excluding the
impact of Klinik Hirslanden, depreciation and
amortization remained flat.
Tax expense
UBS Group incurred a tax expense of CHF 1,815
million. The effective tax rate of 22.2% is lower
than in 1998 principally because some income
was sheltered by tax losses carried forward.
Balance sheet
Total balance sheet
Total assets increased four percent to CHF 982
billion. Excluding currency-related effects, total
assets declined four percent. Risk-weighted assets
declined 8.6% over the year to CHF 278 billion
reflecting mainly the reduction of the interna-
tional credit portfolio and the decrease in positive
replacement values.
Loan book
The reduction in our customers’ loan exposures
from CHF 261 billion to CHF 247 billion is
almost entirely attributable to UBS Warburg. The
Private and Corporate Clients Division’s gross
loans outstanding remained stable at CHF 165
billion as new business was offset by a transfer of
exposure to UBS Private Banking during the
process of integration as well as write-offs.
The improved economic environment both in
Switzerland and in Asia caused the quality of our
loan book to further improve. With the continued
positive economic outlook in mind, management
believes that current provisioning levels adequate-
ly cover the risks inherent in the portfolio.
Treasury shares
On 12 March 1999, UBS announced its intention
to invest unallocated capital in its own stock. At
31 December 1998, UBS held 4,150,150 shares,
or 2% of outstanding shares, in treasury stocks. At
31 December 1999, UBS held 7,830,110 shares,
or 3.6% of its own shares in treasury stocks. This
amount includes 526,541 shares that are at the
disposal of our Board of Directors.
On 14 December 1999 UBS announced a stra-
tegic change to its share buy-back program and the
opening of a second trading line. This trading line
has been open since 17 January 2000. As of
23 February 2000, the program has resulted in
the repurchase of about 2.8 million shares, or
about 1.3% of our market capitalization.
UBS Group Financial Statements
71
UBS Group Financial Statements
Financial Statements
Financial Statements
UBS Group Income Statement
CHF million, except per share data
For the year ended
Operating income
Interest income
Interest expense
Net interest income
Credit loss expense
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Net gains from disposal of associates and subsidiaries
Other income
Total operating income
Operating expenses
Personnel
General and administrative
Depreciation and amortization
Total operating expenses
Operating profit before tax and minority interests
Tax expense
Net profit before minority interests
Minority interests
Net profit
Basic earnings per share (CHF)
Basic earnings per share (CHF) before goodwill 1
Diluted earnings per share (CHF)
Diluted earnings per share (CHF) before goodwill 1
Note
31.12.1999
31.12.1998
Change
%
4
4
12b
5
6
7
8
9
9
9
25
26
10
10
10
10
18,323
(11,967)
22,835
(16,173 )
6,356
(956)
5,400
12,607
7,468
1,821
1,325
28,621
12,577
6,018
1,857
20,452
8,169
1,815
6,354
(54)
6,300
30.28
31.91
30.12
31.75
6,662
(951 )
5,711
12,626
1,750
1,119
1,122
22,328
9,816
6,617
1,825
18,258
4,070
1,045
3,025
5
3,030
14.31
15.92
14.23
15.84
(4,512 )
4,206
(306 )
(5 )
(311 )
(19 )
5,718
702
203
6,293
2,761
(599 )
32
2,194
4,099
770
3,329
(59 )
3,270
15.97
15.99
15.89
15.91
(20)
(26)
(5)
1
(5)
0
327
63
18
28
28
(9)
2
12
101
74
110
–
108
112
100
112
100
1 The amortization of goodwill and other purchased intangible assets are excluded from this calculation.
72
UBS Group Financial Statements
Financial Statements
UBS Group Balance Sheet
CHF million
Note
31.12.1999
31.12.1998
Change
%
Assets
Cash and balances with central banks
Money market paper
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Loans, net of allowance for credit losses
Financial investments
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Intangible assets and goodwill
Other assets
Total assets
Total subordinated assets
Liabilities
Money market paper issued
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Long term debt
Other liabilities
Total liabilities
Minority interests
Shareholders’ equity
Share capital
Share premium account
Foreign currency translation
Retained earnings
Treasury shares
Total shareholders’ equity
Total liabilities, minority interests
and shareholders’ equity
Total subordinated liabilities
11
12
13
14
15
27
12
16
17
18
19
20
21
13
14
15
27
21
22
23, 24, 25
5,073
69,717
29,907
113,162
144,796
217,001
130,500
234,858
7,039
5,167
1,102
8,701
3,543
11,007
3,267
18,390
68,495
91,695
141,285
162,588
169,936
247,926
6,914
6,627
2,805
9,886
2,210
12,092
1,806
51,327
(38,588 )
21,467
3,511
54,413
(39,436 )
(13,068 )
125
(1,460 )
(1,703 )
(1,185 )
1,333
(1,085 )
981,573
944,116
37,457
600
496
104
64,655
76,365
12,832
209,236
54,586
161,922
279,960
12,040
56,332
18,376
51,527
85,716
19,171
137,617
47,033
205,080
274,850
11,232
50,783
27,722
13,128
(9,351 )
(6,339 )
71,619
7,553
(43,158 )
5,110
808
5,549
(9,346 )
946,304
910,731
35,573
26
434
990
(556 )
4,309
13,929
(442)
20,501
(3,462)
34,835
4,300
13,740
(456 )
16,293
(1,482 )
32,395
9
189
14
4,208
(1,980 )
2,440
981,573
944,116
14,801
13,652
37,457
1,149
55
279
(56)
23
2
33
(23)
(5)
2
(22)
(61)
(12)
60
(9)
4
21
25
(11)
(33)
52
16
(21)
2
7
11
(34)
4
(56)
0
1
(3)
26
134
8
4
8
73
UBS Group statement of Changes in Equity
CHF million
For the year ended
Issued and paid up share capital
Balance at the beginning of the year
Issue of share capital
Balance at the end of the year 1
Share premium
Balance at the beginning of the year
Premium on shares issued, warrants exercised
Premium on disposal of Treasury shares
Balance at the end of the year
Foreign currency translation
Balance at the beginning of the year
Movements during the year
Balance at the end of the year
Retained earnings
Balance at the beginning of the year
Net profit for the year
Dividends paid
Balance at the end of the year
Treasury shares, at cost
Balance at the beginning of the year
Acquisitions
Disposals
Balance at the end of the year 2
31.12.1999
31.12.1998
4,300
9
4,309
13,740
45
144
13,929
(456)
14
(442)
16,293
6,300
(2,092)
20,501
(1,482)
(3,595)
1,615
(3,462)
4,296
4
4,300
13,260
111
369
13,740
(111)
(345)
(456)
15,464
3,030
(2,201)
16,293
(1,982)
(2,796)
3,296
(1,482)
Total shareholders’ equity
34,835
32,395
1 Comprising 215,446,581 ordinary shares at 31 December 1999 and 214,976,306 ordinary shares at 31 December 1998, at CHF 20 each, fully
paid. 2 Comprising 7,830,110 ordinary shares at 31 December 1999 and 4,150,150 shares at 31 December 1998.
In addition to Treasury shares, a maximum of 528,954 unissued shares (conditional capital) (999,229
at 31 December 1998) can be issued without the approval of the shareholders. This amount consists
of unissued and reserved shares for the former Swiss Bank Corporation employee share ownership
plan and optional dividend warrants. The optional dividend warrants were granted in lieu of a cash
dividend by the former Swiss Bank Corporation in February 1996 (at the option of the shareholder).
UBS Group Financial Statements
Financial Statements
74
UBS Group statement of Cash Flows
CHF million
For the year ended
Cash flow from / (used in) operating activities
Net profit
Adjustments to reconcile to cash flow from / (used in) operating activities
Non cash items included in net profit / (loss) and other adjustments:
Depreciation and amortization
Provision for credit losses
Income from associates
Deferred tax expense / (benefit)
Net gain from investing activities
Net increase / (decrease) in operating assets:
Net due from / to banks
Reverse repurchase agreements, cash collateral on securities borrowed
Trading portfolio including net replacement values
Loans due to / from customers
Accrued income, prepaid expenses and other assets
Net increase / (decrease) in operating liabilities:
Repurchase agreements, cash collateral on securities lent
Accrued expenses and other liabilities
Income taxes paid
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Investments in subsidiaries and associates
Disposal of subsidiaries and associates
Purchase of property and equipment
Disposal of property and equipment
Net (investment) / divestment in financial investments
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Money market paper issued
Net movements in Treasury shares
Capital issuance
Dividends paid
Issuance of long term debt
Repayment of long term debt
Repayment of minority interests
Net cash flow from / (used in) financing activities
Effects of exchange rate differences
Net increase / (decrease) in cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper
Bank deposits maturing in less than 3 months
Total
UBS Group Financial Statements
Financial Statements
31.12.1999
31.12.1998
6,300
3,030
1,857
956
(211)
479
(2,282)
(5,298)
(24,978)
(50,582)
17,222
2,545
65,280
(7,366)
(1,063)
2,859
(1,720)
3,782
(2,820)
1,880
356
1,478
13,128
(1,836)
54
(2,092)
12,661
(7,112)
(689)
14,114
147
18,598
83,679
102,277
5,073
69,717
27,487
102,277
1,825
951
(377)
491
(1,803)
(65,172)
66,031
41,488
(5,626)
2,107
(49,145)
1,686
(733)
(5,247)
(1,563)
1,858
(1,813)
1,134
6,134
5,750
(4,073)
869
115
(2,201)
5,566
(9,068)
0
(8,792)
(386)
(8,675)
92,354
83,679
3,267
18,390
62,022
83,679
75
UBS Group Financial Statements
Notes to the Financial Statements
76
Notes to the
Financial Statements
Note 1 Summary of significant accounting policies
a) Basis of accounting
UBS AG and subsidiaries (the “Group”) provides
a broad range of financial services such as advi-
sory, underwriting, financing, market making,
asset management, brokerage, and retail banking
on a global level. The Group was formed on
29 June 1998 when Swiss Bank Corporation and
Union Bank of Switzerland merged. The merger
was accounted for using the pooling of interests
method of accounting. Due to the merger, the
Group harmonized its accounting policies which
have been retrospectively applied for the presen-
tation of comparative information.
The consolidated financial statements are stat-
ed in Swiss francs, the currency of the country in
which UBS AG is incorporated. They are pre-
pared in accordance with International Account-
ing Standards. In preparing the consolidated
financial statements, management is required to
make estimates and assumptions that affect the
amounts reported. Actual results could differ
from such estimates and the differences may be
material to the consolidated financial statements.
b) Consolidation
The consolidated financial statements comprise
those of the parent company (UBS AG), its sub-
sidiaries and its special purpose entities, present-
ed as a single economic entity. Subsidiaries and
special purpose entities which are directly or indi-
rectly controlled by the Group are consolidated.
Subsidiaries acquired are consolidated from the
date control passes. Companies which are ac-
quired and held with a view to their subsequent
disposal are recorded as financial investments.
The effects of intra-group transactions are elim-
inated in preparing the Group financial statements.
Equity and net income attributable to minori-
ty interests are shown separately in the balance
sheet and income statement respectively.
c) Offsetting
Assets and liabilities are offset only when the
Group has a legal right to offset amounts with the
same counterparty and transactions are expected
to be settled on a net basis.
d) Trade date/settlement date accounting
When the Group becomes party to a contract in
its trading activities it recognizes from that date
(“trade date”) any unrealized profits and losses
arising from revaluing that contract to fair value.
These unrealized profits and losses are recognized
in the income statement.
On a date subsequent to the trade date, the
terms of spot and forward trading transactions
are fulfilled (“settlement date”) and a resulting
financial asset or liability is recognized on the bal-
ance sheet at the fair value of the consideration
given or received.
e) Foreign currency translation
Foreign currency transactions are recorded at the
rate of exchange on the date of the transaction.
At the balance sheet date, monetary assets and
liabilities denominated in foreign currencies are
reported using
the closing exchange rate.
Exchange differences arising on the settlement of
transactions at rates different from those at the
date of the transaction, and unrealized foreign
exchange differences on unsettled foreign curren-
cy monetary assets and liabilities, are recognized
in the income statement.
Assets and liabilities of foreign entities are
translated at the exchange rates at the balance
sheet date, while income statement items and
cash flows are translated at average rates over the
year. Differences resulting from the use of these
different exchange rates are recognized directly in
foreign currency translation within shareholders’
equity.
f) Business and geographical segments
The Group is organized on a worldwide basis
into five major operating divisions and Corporate
Center. These divisions are the basis upon which
the Group reports its primary segment informa-
tion.
Segment revenue, segment expenses and seg-
ment performance include transfers between
business segments and between geographical seg-
ments. Such transfers are accounted for at com-
petitive prices charged to unaffiliated customers
for similar services.
g) Securities borrowing and lending
Securities borrowed and lent that are collater-
alized by cash are included in the balance sheet at
amounts equal to the collateral advanced or
received.
UBS Group Financial Statements
Notes to the Financial Statements
Income arising from the securities lending and
borrowing business is recognized in the income
statement on an accrual basis.
h) Repurchase and reverse repurchase
transactions
The Group enters into purchases of securities
under agreements to resell and sales of securities
under agreements to repurchase substantially iden-
tical securities. Securities which have been sold
subject to repurchase agreements continue to be
recognized in the balance sheet and are measured
in accordance with the accounting policy for trad-
ing balances or financial assets as appropriate. The
proceeds from sale of these securities are treated as
liabilities and included in repurchase agreements.
Securities purchased subject to commitments
to resell at a future date are treated as loans col-
lateralized by the security and are included in
reverse repurchase agreements.
Interest earned on reverse repurchase agree-
ments and interest incurred on repurchase agree-
ments is recognized as interest income and inter-
est expense respectively over the life of each
agreement.
i) Trading portfolio
The trading portfolio consists of debt and equity
securities as well as of precious metals held to
meet the financial needs of our customers and to
take advantage of market opportunities. The
trading portfolio is carried at fair value. Short
positions in securities are reported as trading
portfolio liabilities. Realized and unrealized gains
and losses, net of related transaction expenses,
are recognized as net trading income. Net trading
income also includes interest and dividend
income on trading assets as well as the funding
costs for holding these positions.
j) Loans and allowance for credit losses
Loans are initially recorded at cost. For loans
originated by the Group, the cost is the amount
lent to the borrower. For loans acquired from a
third party the cost is the fair value at the time of
acquisition.
Interest income on an unimpaired loan is rec-
ognized on an accrual basis. Interest includes the
amount of amortization of any discount or pre-
mium between the cost of a loan and its amount
at maturity and the amortization of any loan fees
and costs.
The allowance for credit losses provides for
risks of losses inherent in the credit extension
process, including loans and lending-related com-
mitments. Such commitments include letters of
credit, guarantees and commitments to extend
credit. Counterparties are individually rated
and periodically reviewed and analyzed. The
allowance is adjusted for impairments identified
on a loan-by-loan basis.
Impairments in loans are recognized when it
becomes probable that the Bank will not be able
to collect all amounts due according to the con-
tractual terms of the loans. The carrying amounts
of the loans are reduced to their estimated realiz-
able value through a specific allowance. The
impairment is recognized as an expense for the
period. Loans are stated at their principal amount
net of any allowance for credit losses.
This management process has resulted in the
following components of the overall allowance:
Counterparty-specific: Individual credit expo-
sures are evaluated based upon the borrower’s
character, overall financial condition, resources
and payment record; the prospects for support
from any financially responsible guarantors; and,
if appropriate, the realizable value of any collat-
eral. Impairment is measured and allowances are
established based on discounted expected cash
flows.
Country-specific: Probable losses resulting
from exposures in countries experiencing politi-
cal and transfer risk, countrywide economic dis-
tress, or problems regarding the legal enforce-
ability of contracts are assessed using country
specific scenarios and taking into consideration
the nature of the individual exposures and their
importance for the economy. Specific country
allowances exclude exposures addressed in coun-
terparty-specific allowances.
Specific reserve pools: Specific risk reserve
pools were established in 1996 to absorb proba-
ble losses not specifically identified at that time,
but which experience indicated were present in
the portfolio. These pools subsequently have
been applied to specific loans based on the analy-
sis of individual credit exposures. The Group
does not believe there is a current need for such
allowances.
A loan is classified as non-performing when
the contractual payments of principal and/or
interest are in arrears for 90 days or more. After
the 90 day period the recognition of interest
77
UBS Group Financial Statements
Notes to the Financial Statements
income ceases and a charge is recognized for the
unpaid and accrued interest receivable.
A write-off is made when all or part of a loan
is deemed uncollectible or in the case of debt for-
giveness. Write-offs are charged against previ-
ously established allowances and reduce the prin-
cipal amount of a loan.
k) Financial investments
Financial investments are debt and equity securi-
ties held for the accretion of wealth through dis-
tributions, such as interest and dividends, and for
capital appreciation. Financial investments also
include real estate held for sale.
Debt securities held to maturity are carried at
amortized cost. If necessary, the carrying amount
is reduced to its estimated realizable value. Interest
income on debt securities, including amortization
of premiums and discounts, is recognized on an
accrual basis and reported as net interest income.
Financial investments held for sale are carried
at the lower of cost or market value. Reductions
to market value and reversals of such reductions
as well as gains and losses on disposal are includ-
ed in other income. Interest earned and dividends
received are included in net interest income.
Private equity investments are carried at cost
less write-downs for impairments in value.
Reductions of the carrying amount and reversals
of such reductions as well as gains and losses on
disposal are included in other income.
l) Investments in associates
Investments in associates in which the Group has
a significant influence are accounted for by the
equity method. Investments in which the Group
has a significant influence, but which are ac-
quired and held with a view to their subsequent
disposal are included in financial investments (see
private equity above).
Investments in companies where the parent
company does not hold a significant influence are
recorded at cost less value adjustments for less
than temporary declines in value.
m) Property and equipment
Property and equipment includes land, buildings,
furnishings, fixtures, leasehold improvements,
computer, telecommunications and other equip-
ment. Property and equipment is carried at cost
less accumulated depreciation and is periodically
reviewed for impairment.
Property and equipment is depreciated on a
straight-line basis over their estimated useful lives
as follows:
Buildings
Not exceeding 50 years
Furnishings and fixtures
Not exceeding 10 years
Leasehold improvements
Not exceeding 10 years
Equipment
Not exceeding 5 years
n) Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s
share of the net assets of the acquired subsidiary
or associate at the date of acquisition. Goodwill
and intangibles resulting from the acquisition of
client franchises are recognized as an asset and
are amortized using the straight-line basis over
their estimated useful economic life, not exceed-
ing 20 years. At each balance sheet date, goodwill
is reviewed for indications of impairment. If such
indications exist an analysis is performed includ-
ing an assessment of future cash flows to deter-
mine if a write-down is necessary.
Goodwill and fair value adjustments arising
on the acquisition of foreign subsidiaries are
treated as local currency balances and are trans-
lated into Swiss francs at the closing rate at sub-
sequent balance sheet dates.
o) Income taxes
Income tax payable on profits, based on the appli-
cable tax laws in each jurisdiction, is recognized
as an expense in the period in which profits arise.
The tax effects on income tax losses available for
carry-forward are recognized as an asset when it
is probable that future taxable profit will be avail-
able against which those losses can be utilized.
Deferred tax liabilities are recognized for tem-
porary differences between the carrying amounts
of assets and liabilities in the Group balance sheet
and their amounts as measured for tax purposes,
which will result in taxable amounts in future
periods. Deferred tax assets are recognized for
temporary differences which will result
in
deductible amounts in future periods, but only to
the extent it is probable that sufficient taxable
profits will be available against which these dif-
ferences can be utilized.
Deferred tax assets and liabilities are meas-
ured at the tax rates that are expected to apply to
the period in which the asset will be realized or
the liability will be settled.
78
UBS Group Financial Statements
Notes to the Financial Statements
Current and deferred tax assets and liabilities
are offset when they arise from the same tax
reporting group and relate to the same tax
authority and when the legal right to offset exists.
Current and deferred taxes are recognized as
tax income or expense except for deferred taxes
recognized or disposed of on the acquisition or
disposal of a subsidiary.
p) Own shares, own bonds and
derivatives on own shares
In the normal course of its trading and market
making activities, the Group buys and sells own
shares, own bonds and derivatives on own
shares. These instruments are held in the trading
portfolio similar to other trading instruments,
and are carried at fair value. Changes in fair value
and dividends received on UBS AG shares and
interest on own bonds in the trading portfolio are
recognized as net trading income.
The Group also holds its own shares for non-
trading purposes for instance employee compen-
sation schemes and other strategic purposes.
These shares are recorded within treasury shares
and are deducted from shareholders’ equity. The
difference between the proceeds of the sale of
treasury shares and their cost basis is recognized
in share premium. Dividends relating to treasury
shares are not recognized.
q) Retirement benefits
The Group sponsors a number of retirement ben-
efit plans for its employees worldwide. These
plans include both defined benefit and defined
contribution plans and various other retirement
benefits such as post-employment medical bene-
fit. As of 1 January 1999, the Group adopted IAS
19 (revised 1998) (“IAS 19”) to account for such
plans. Under IAS 19, Group contributions to
defined contribution plans are expensed when
employees have rendered services in exchange for
such contributions, generally in the year of con-
tribution.
In accordance with IAS 19, the Group uses the
projected unit credit actuarial method to deter-
mine the present value of its defined benefit obli-
gations and the related current service cost and,
where applicable, past service cost.
The principal actuarial assumptions made by
the actuary are set out in note 35.
The Group recognizes a portion of its actuar-
ial gains and losses as income or expenses if the
net cumulative unrecognized actuarial gains and
losses at the end of the previous reporting period
exceeded the greater of:
a) 10% of present value of the defined benefit
obligation at that date (before deducting plan
assets); and
b) 10% of the fair value of any plan assets at that
date.
The unrecognized actuarial gains and losses
exceeding the greater of the two values are rec-
ognized in the income statement over the expect-
ed average remaining working lives of the
employees participating in the plans.
r) Derivative instruments
Derivative instruments are carried at fair value.
Fair values are obtained from quoted market
prices, discounted cash flow models and option
pricing models as appropriate. The fair values of
derivative instruments are shown in the balance
sheet as positive and negative replacement values.
Realized and unrealized gains and losses are rec-
ognized in net trading income. Valuation adjust-
ments to cover credit and market liquidity risks
have been made.
Transactions in derivative instruments entered
into for hedging of non-trading positions are rec-
ognized in the income statement on the same
basis as to the underlying item being hedged.
s) Comparability
Certain amounts have been reclassified from pre-
vious years to conform to the 1999 presentation.
The prior year financial statements reflect the
requirements of the following revised or new
International Accounting Standards, which the
Group implemented in 1999:
IAS 1
IAS 14 Segment Reporting
IAS 17 Accounting for Leases
IAS 19 Employee Benefits
IAS 36 Impairment of Assets.
Presentation of Financial Statements
The implementation of the above standards
had no material impact for the Group.
t) Recent accounting standards
not yet adopted
IAS 37, Provisions, contingent liabilities and
contingent assets
In July 1998, the IASC issued IAS 37, Provisions,
Contingent Liabilities and Contingent Assets,
which is required to be adopted for the Group’s
79
financial statements as of 1 January 2000. The
Standard provides accounting and disclosure
requirements for contingent liabilities and con-
tingent assets. IAS 37 also provides recognition
and measurement requirements for provisions.
The Group is currently assessing the impact of
adoption on its financial statements.
IAS 38, Intangible assets
In July 1998, the IASC issued IAS 38, Intangible
Assets, which is required to be adopted for the
Group’s financial statements as of 1 January
2000. The Standard requires the capitalization
and amortization of intangible assets, if it is
probable that the future economic benefits that
are attributable to the assets will flow to the
enterprise and the cost of the asset can be meas-
ured reliably. The amortization period for rec-
ognized intangible assets should not exceed 20
years. If adopted in 1999 this standard would
have increased operating profit by approximate-
ly CHF 300 million.
IAS 39, Recognition and measurement
of financial instruments
In December 1998, the IASC issued IAS 39,
Recognition and Measurement of Financial
Instruments, which is required to be adopted
for the Group’s financial statements as of 1 Janu-
ary 2001 on a prospective basis. The Standard
provides comprehensive guidance on accounting
for financial instruments. Financial instruments
include conventional financial assets and liabili-
ties and derivatives. IAS 39 requires that all finan-
cial instruments should be recognized on the bal-
ance sheet. Most financial instruments should be
carried at fair value. IAS 39 also establishes hedge
accounting criteria and guidelines. While the spe-
cific impact on earnings and financial position of
IAS 39 has not been determined, the activities
that will be most affected by the new Standard
have been identified. Specifically, the use of deriv-
atives to hedge loans, deposits, and issuance of
debt, primarily hedge of interest rate risk, will be
affected by IAS 39. Management is currently
evaluating the impact of IAS 39. The actual
assessment of the impact of IAS 39 on the Group’s
earnings and financial position will be based on
the 1 January 2001 financial position, among
other things, in accordance with the Standard.
IAS 10 (revised), Events after the balance sheet
date
In May 1999, the IASC issued IAS 10 (revised),
Events After the Balance Sheet Date, which is
required to be adopted for the Group’s financial
statements as of 1 January 2000. IAS 10 (revised)
establishes requirements for the recognition and
disclosure of events after the balance sheet date.
Interpretation SIC 16, Share capital – reacquired
own equity instruments (Treasury shares)
In May 1999, the IASC issued Interpretation SIC
16, Share Capital – Reacquired Own Equity
Instruments (Treasury Shares), which is required
to be adopted for the Group’s financial state-
ments as of 1 January 2000. The Interpretation
provides guidance for the recognition, presenta-
tion, and disclosure of Treasury shares. SIC 16
applies to own shares and derivatives on own
shares held for trading and non-trading purpos-
es. SIC 16 requires own shares and derivatives on
own shares to be presented as Treasury shares
and deducted from Shareholders’ equity. Gains
and losses relating to the sale of own shares are
not recognized in the income statement but rather
as a change in Shareholders’ equity. The specific
impact on the Group’s financial statements of SIC
16 will be determined and based on levels of
activity upon adoption.
UBS Group Financial Statements
Notes to the Financial Statements
80
UBS Group Financial Statements
Notes to the Financial Statements
Note 2 Segment reporting by business division
To enable a more meaningful analysis of UBS’s results, these business group results have been pre-
sented on a management reporting basis. Consequently, internal charges and transfer pricing adjust-
ments have been reflected in the performance of each business. The basis of the reporting reflects the
management of the business within UBS Group. Total revenue includes income, which is directly
attributable to a segment whether from sales to external customers or from transactions with other
segments. Revenue sharing agreements are used to allocate external customer revenues to a segment
on a reasonable basis. Transactions between business segments are conducted at arms length.
For the year ended 31 December 1999
UBS
Private
UBS
Private &
UBS
Asset
UBS Corporate Manage-
ment
Clients
Banking Warburg
CHF million
Revenues
Credit loss expense 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Goodwill amortization 3
Total operating expenses
Segment performance before tax
Tax expense
Net profit before minority interests
Minority interests
Net profit
6,011
(24 )
5,987
1,694
1,467
138
36
3,335
2,652
12,909
(330 )
12,579
6,861
2,448
652
134
10,095
2,484
7,193
(1,050 )
6,143
3,363
1,061
555
2
4,981
1,162
1,096
0
1,096
444
177
29
113
763
333
UBS Corporate
Center2
Capital
315
0
315
105
47
2
5
159
156
2,053
448
2,501
110
818
141
50
1,119
1,382
UBS
Group
29,577
(956)
28,621
12,577
6,018
1,517
340
20,452
8,169
1,815
6,354
(54)
6,300
Other information as of 31.12.1999
Total assets 4
Total liabilities 4
133,562
131,553
730,575
721,636
199,817
191,205
2,438
1,983
3,222
2,796
(88,041 )
(102,435 )
981,573
946,738
1 In order to show the relevant divisional performance over time, adjusted expected loss figures rather than the net credit loss expense are
reported for all business divisions. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks in the respec-
tive portfolios. The difference between the statistically derived adjusted expected loss figures to the net credit loss expenses for financial report-
ing purposes is reported in the Corporate Center. The divisional breakdown of the net credit loss expense for financial reporting purposes of
CHF 956 million as of 31 December 1999 is as follows: UBS Private Banking CHF 11 million, UBS Warburg CHF (20) million, UBS Private and Cor-
porate Clients CHF 974 million, Corporate Center CHF (9) million. 2 Corporate Center operating income includes gains on the divestments of
Swiss Life/Rentenanstalt for CHF 1,490 million and Julius Baer registered shares for CHF 110 million. 3 The amortization of goodwill includes
other purchased intangible assets. 4 The funding surplus / requirement is reflected in each division and adjusted in Corporate Center.
81
UBS Group Financial Statements
Notes to the Financial Statements
For the year ended 31 December 1998
UBS
Private
UBS
Private &
UBS
Asset
UBS Corporate Manage-
ment
Clients
Banking Warburg
7,223
(26 )
6,987
(500 )
7,025
(1,170 )
7,197
1,458
1,277
111
15
2,861
4,336
6,487
4,333
2,483
535
157
7,508
(1,021)
5,855
3,238
1,025
680
4
4,947
908
1,163
0
1,163
454
154
29
78
715
448
CHF million
Revenues
Credit loss expense 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation 2
Goodwill amortization 3
Total operating expenses
Segment performance before tax
Tax expense
Net profit before minority interests
Minority interests
Net profit
UBS Corporate
Center
Capital
585
0
585
121
35
0
1
157
428
296
745
1,041
212
1,643
128
87
2,070
(1,029)
UBS
Group
23,279
(951)
22,328
9,816
6,617
1,483
342
18,258
4,070
1,045
3,025
5
3,030
Other information as of 31.12.1998
Total assets 4
Total liabilities 4
107,772
106,197
685,921
675,041
173,028
164,865
800
724
1,800
1,513
(25,205 )
(36,619 )
944,116
911,721
1 In order to show the relevant divisional performance over time, adjusted expected loss figures rather than the net credit loss expense are
reported for all business divisions. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks in the respec-
tive portfolios. The difference between the statistically derived adjusted expected loss figures to the net credit loss expenses for financial report-
ing purposes is reported in the Corporate Center. The divisional breakdown of the net credit loss expense for financial reporting purposes of
CHF 951 million as of 31 December 1998 is as follows: UBS Private Banking CHF 48 million, UBS Warburg CHF 506 million, UBS Private and
Corporate Clients CHF 397 million. 2 The 1998 figures have been restated due to a refinement of the allocation methodology for depreciation.
3 The amortization of goodwill includes other purchased intangible assets. 4 The funding surplus / requirement is reflected in each division and
adjusted in Corporate Center.
82
UBS Group Financial Statements
Notes to the Financial Statements
Note 3 Segment reporting by geographic location
The geographic analysis of total assets is based on customer domicile whereas operating income and
capital investment is based on the location of the office in which the transactions and assets are record-
ed. 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 investment is provided in order to comply with International
Accounting Standards, and does not reflect the way the Group is managed. Management believes that
analysis by business division, as shown in Note 2 to these financial statements, is a more meaningful
representation of the way in which the Group is managed.
For the year ended 31 December 1999
Switzerland
Europe
Americas
Asia / Pacific
Africa / Middle East
Total
Total operating income
Total assets
Capital investment
CHF million
Share % CHF million
Share % CHF million
Share %
15,172
7,626
3,861
1,945
17
28,621
53
27
13
7
0
227,821
326,112
316,363
103,703
7,574
100
981,573
23
33
32
11
1
100
1,990
356
386
87
1
2,820
70
13
14
3
0
100
For the year ended 31 December 1998
Switzerland
Europe
Americas
Asia / Pacific
Africa / Middle East
Total
Total operating income
Total assets
Capital investment
CHF million
Share % CHF million
Share % CHF million
Share %
16,838
1,655
2,548
1,251
36
22,328
75
8
11
6
0
221,945
405,675
216,989
95,402
4,105
24
43
23
10
0
234
765
513
304
2
100
944,116
100
1,818
13
42
28
17
0
100
83
UBS Group Financial Statements
Notes to the Financial Statements
84
Income statement
Note 4 Net interest income
CHF million
For the year ended
Interest income
Interest earned on loans and advances to banks
Interest earned on loans and advances to customers
Interest from finance leasing
Interest income from financial investments
Dividend income from financial investments
Other
Total
Interest expense
Interest on amounts due to banks
Interest on amounts due to customers
Interest on medium and long term debt
Funding costs for trading positions
Total
Net interest income
Note 5 Net fee and commission income
CHF million
For the year ended
Credit-related fees and commissions
Security trading and investment activity fees
Underwriting and corporate finance fees
Brokerage fees
Fiduciary fees
Custodian fees
Portfolio and other management and advisory fees
Investment fund fees
Other
Total
Commission income from other services
Total fee and commission income
Fee and commission expense
Brokerage fees paid
Other
Total
31.12.1999
31.12.1998
7,116
10,792
49
117
41
208
18,323
5,762
7,680
5,476
(6,951)
11,967
7,361
14,111
60
293
79
931
22,835
7,879
9,890
5,045
(6,641)
16,173
6,356
6,662
31.12.1999
31.12.1998
372
559
1,831
3,934
317
1,583
2,984
1,915
57
12,621
765
13,758
795
356
1,151
1,694
3,670
349
1,386
3,335
1,778
110
12,322
776
13,657
704
327
1,031
Net fee and commission income
12,607
12,626
UBS Group Financial Statements
Notes to the Financial Statements
Note 6 Net trading income
CHF million
For the year ended
Foreign exchange 1
Fixed income
Equities
Net trading income
31.12.1999
31.12.1998
841
2,178
4,449
7,468
1,793
(762)
719
1,750
1 Includes other trading income such as banknotes, precious metals and commodities.
Interest and dividends derived from the securities and derivative product portfolios held for trading
are included within net trading income. The funding costs of holding these assets are charged to net
trading income and credited to interest expense.
Note 7 Gains / (Losses) from disposal of associates and subsidiaries
CHF million
For the year ended
Net income from disposal of consolidated subsidiaries
Net gains / (losses) from the disposal of investments in associates
Net gains from disposal of associates and subsidiaries
31.12.1999
31.12.1998
8
1,813
1,821
1,149
(30)
1,119
While the 1999 figure represents mainly the disposal gains from our investments in Swiss Life /
Rentenanstalt and Julius Baer registered shares, the 1998 number is mainly attributable to the dis-
posal of the BSI – Banca della Svizzera Italiana.
Note 8 Other income
CHF million
For the year ended
Investments in financial assets (debt and equity)
Net income from disposal of private equity investments
Net income from disposal of other financial assets
Net gains / (losses) from revaluation of financial assets
Total
Investments in property
Net income from disposal of properties held for resale
Net gains / (losses) from revaluation of properties held for resale
Net income from other properties
Total
Equity income from investments in associates
Other
Total other income
31.12.1999
31.12.1998
374
180
(102)
452
78
(49)
(20)
9
211
653
587
398
(556)
429
33
(106)
328
255
377
61
1,325
1,122
85
Note 9 Operating expenses
CHF million
For the year ended
Personnel expenses
Salaries and bonuses
Contractors
Insurance and social contributions
Contributions to retirement benefit plans
Employee share plans
Other personnel expenses
Total
General and administrative expenses
Occupancy
Rent and maintenance of machines and equipment
Telecommunications and postage
Administration
Marketing and public relations
Travel and entertainment
Professional fees, including IT outsourcing
Other
Total
Depreciation and amortization
Property and equipment
Goodwill and other intangible assets
Total
31.12.1999
31.12.1998
9,872
886
717
82
151
943
12,577
847
410
756
784
335
552
1,815
519
6,018
1,517
340
1,857
7,0821
535
5421
614
201
842
9,816
822
390
820
759
262
537
1,792
1,235
6,617
1,483
342
1,825
Total operating expenses
20,452
18,258
1 CHF 121 million of bonus related social contribution costs have been reclassed from Salaries and bonuses to Insurance and social contributions.
2 Includes CHF 456 million prepaid employer contributions (see Group Financial Review).
UBS Group Financial Statements
Notes to the Financial Statements
86
UBS Group Financial Statements
Notes to the Financial Statements
Note 10 Earnings per share
For the year ended
31.12.1999
31.12.1998
Basic earnings per share calculation
Net profit for the year (CHF million)
Net profit for the year (CHF million) before goodwill amortization 1
Weighted average shares outstanding:
Registered ordinary shares
Treasury shares
6,300
6,640
3,030
3,372
215,248,513
(7,191,412)
214,855,064
(3,057,586)
Weighted average shares for basic earnings per share
208,057,101
211,797,478
Basic earnings per share (CHF)
Basic earnings per share (CHF) before goodwill amortization 1
30.28
31.91
14.31
15.92
Diluted earnings per share calculation
Net profit for the year (CHF million)
Net profit for the year (CHF million) before goodwill amortization 1
Weighted average shares for basic earnings per share
Potential dilutive ordinary shares resulting from outstanding options,
warrants and convertible debt securities
6,300
6,640
208,057,101
3,030
3,372
211,797,478
1,109,278
1,143,412
Weighted average shares for diluted earnings per share
209,166,379
212,940,890
Diluted earnings per share (CHF)
Diluted earnings per share (CHF) before goodwill amortization 1
30.12
31.75
14.23
15.84
1 See Note 9 for reconciliation of goodwill included in other expenses. The amortization of goodwill and other purchased intangible assets is exclud-
ed from this calculation.
The weighted average number of shares is calculated based upon the average outstanding shares at
the end of each month. All share amounts are restated in terms of new UBS AG shares.
87
UBS Group Financial Statements
Notes to the Financial Statements
88
Balance sheet: assets
Note 11 Money market paper
CHF million
Government treasury notes and bills
Money market placements
Other bills and cheques
Total money market paper
thereof eligible for discount at central banks
31.12.1999
31.12.1998
32,724
36,540
453
69,717
64,671
9,568
8,262
560
18,390
16,512
Note 12a Due from banks and loans to customers
The composition of due from banks, the loan portfolio and the allowance for credit losses by type of
exposure at the end of the year was as follows:
CHF million
Banks
Allowance for credit losses
Net due from banks
Loans to customers
Mortgages
Other loans
Subtotal
Allowance for credit losses
Net loans to customers
Net due from banks and loans to customers
thereof subordinated
31.12.1999
31.12.1998
30,785
(878)
29,907
127,987
119,242
247,229
(12,371)
234,858
264,765
86
69,543
(1,048)
68,495
140,785
120,636
261,421
(13,495)
247,926
316,421
133
The composition of due from banks and loans to customers by geographical region based on the
location of the borrower at the end of the year was as follows:
CHF million
Switzerland
Europe
Americas
Asia / Pacific
Africa / Middle East
Subtotal
Allowance for credit losses
Net due from banks and loans to customers
31.12.1999
31.12.1998
183,944
44,796
31,285
13,451
4,538
278,014
(13,249)
264,765
187,223
53,013
44,556
43,142
3,030
330,964
(14,543)
316,421
UBS Group Financial Statements
Notes to the Financial Statements
Note 12a Due from banks and loans to customers (continued)
The composition of due from banks and loans to customers by type of collateral at the end of the year
was as follows:
CHF million
Secured by mortgages
Collateralized by securities
Guarantees and other collateral
Unsecured
Subtotal
Allowance for credit losses
Net due from banks and loans to customers
31.12.1999
31.12.1998
130,835
19,061
28,725
99,393
278,014
(13,249)
264,765
145,247
13,185
27,953
144,579
330,964
(14,543)
316,421
Note 12b Allowance and provision for credit losses
The allowance and provision for credit losses developed as follows:
CHF million
Balance at the beginning of the year
Write-offs
Recoveries
Increase / (decrease) in credit loss allowance and provision
Net foreign exchange and other adjustments 1
Balance at the end of the year
Specific Country risk
provision
allowance
Total
31.12.1999
Total
31.12.1998
13,528
(3,271)
65
1,122
578
12,022
1,450
(4)
0
(166)
96
1,376
14,978
(3,275)
65
956
674
13,398
16,213
(2,324)
59
951
79
14,978
1 Includes allowance for doubtful interest of CHF 409 million at 31.12.1999 and CHF 423 million at 31.12.1998.
At the end of the year the aggregate allowances and provisions were apportioned and displayed as
follows:
CHF million
As a reduction of due from banks
As a reduction of loans to customers
Subtotal
Included in other liabilities related to commitments and contingent liabilities
Total allowance and provision for credit losses
31.12.1999
31.12.1998
878
12,371
13,249
149
13,398
1,048
13,495
14,543
435
14,978
89
UBS Group Financial Statements
Notes to the Financial Statements
Note 12c Non-performing loans
The non-performing loans by type of exposure were as follows:
CHF million
Banks
Loans to customers
Mortgages
Other
Subtotal
Total non-performing loans 1
31.12.1999
31.12.1998
499
7,105
5,469
12,574
13,073
477
9,280
6,356
15,636
16,113
1 Includes non-performing loans of CHF 423 million at 31.12.1999 and CHF 397 million at 31.12.1998 that defaulted based on transfer risk pre-
viously not aggregated.
The non-performing loans by geographical region based on the location of the borrower were as fol-
lows:
CHF million
Switzerland
Europe
Americas
Asia / Pacific
Africa / Middle East
Total non-performing loans 1
31.12.1999
31.12.1998
11,435
223
697
373
345
13,073
14,022
405
1,156
281
249
16,113
1 Includes non-performing loans of CHF 423 million at 31.12.1999 and CHF 397 million at 31.12.1998 that defaulted based on transfer risk pre-
viously not aggregated.
When principal and interest are overdue by 90 days, loans are classified as non-performing, the recog-
nition of interest income ceases and a charge is recognized against income for the unpaid interest
receivable. Allowances are provided for non-performing loans to reflect their net estimated recover-
able amount. Unrecognized interest related to such loans totaled CHF 409 million for the year ended
31.12.1999 and CHF 423 million for the year ended 31.12.1998.
Note 13 Cash collateral on securities borrowed and lent
CHF million
Cash collateral by counterparties
Banks
Customers
Securities
borrowed
31.12.1999
Securities
lent
31.12.1999
Securities
borrowed
31.12.1998
Securities
lent
31.12.1998
99,810
13,352
8,926
3,906
68,186
23,509
91,695
5,337
13,834
19,171
Total cash collateral on securities borrowed and lent
113,162
12,832
90
UBS Group Financial Statements
Notes to the Financial Statements
Note 14 Repurchase and reverse repurchase agreements
CHF million
Agreements by counterparties
Banks
Customers
Reverse
repurchase Repurchase
agreements agreements
31.12.1999
31.12.1999
Reverse
repurchase
agreements
31.12.1998
Repurchase
agreements
31.12.1998
100,077
44,719
131,970
77,266
107,565
33,720
77,942
59,675
Total repurchase and reverse repurchase agreements
144,796
209,236
141,285
137,617
Note 15 Trading portfolio
Trading assets and liabilities are carried at fair value. The following table presents the carrying value
of trading assets and liabilities at the end of the reporting period.
CHF million
31.12.1999
31.12.1998
Trading portfolio assets
Debt instruments
Swiss government and government agencies
US Treasury and government agency
Other government
Corporate listed instruments
Other unlisted instruments
Total
Equity instruments
Listed instruments (excluding own shares)
Own shares
Unlisted instruments
Total
Precious metals
7,391
21,821
65,821
13,646
8,439
13,448
9,969
62,639
8,519
8,100
117,118
102,675
87,227
4,561
2,968
94,756
5,127
49,848
3,409
841
54,098
5,815
Total trading portfolio assets
217,001
162,588
Trading portfolio liabilities
Debt instruments
Swiss government and government agencies
US Treasury and government agency
Other government
Corporate listed instruments
Total
Listed equity instruments
Total trading portfolio liabilities
0
24,535
11,917
6,459
42,911
11,675
54,586
96
4,455
34,979
3,154
42,684
4,349
47,033
The Group trades debt, equity, precious metals, foreign currency and derivatives to meet the financial
needs of its customers and to generate revenue through its trading activities. Note 27 provides a
description of the various classes of derivatives together with the related volumes used in the Group’s
trading activities, whereas Notes 13 and 14 provide further details about cash collateral on securities
borrowed and lent and repurchase and reverse repurchase agreements.
91
UBS Group Financial Statements
Notes to the Financial Statements
92
Note 16 Financial investments
CHF million
Debt instruments
Listed
Unlisted
Total
Equity investments
Listed
Unlisted
Total
Private equity investments
Properties held for resale
Total financial investments
thereof eligible for discount at central banks
31.12.1999
31.12.1998
1,357
609
1,966
356
557
913
3,001
1,159
7,039
563
1,880
547
2,427
400
1,048
1,448
1,759
1,280
6,914
544
The following table gives additional disclosure in respect of the valuation methods used.
CHF million
Valued at amortized cost
Debt instruments
Valued at the lower of cost or market value
Debt instruments
Equity instruments
Properties held for resale
Total
Valued at cost less adjustments for impairments
Private equity investments
Total financial investments
Book value
31.12.1999
Fair value
31.12.1999
Book value
31.12.1998
Fair value
31.12.1998
677
687
1,530
1,551
1,289
913
1,159
3,361
3,001
7,039
1,314
939
1,194
3,447
4,146
8,280
897
1,448
1,280
3,625
1,759
6,914
907
1,552
1,369
3,828
2,574
7,953
Note 17 Investments in associates
CHF million
Carrying
amount
as of
31.12.1998
Income
Additions
Disposals
Carrying
amount
as of
31.12.1999
Total investments in associates
2,805
211
47
(1,961)
1,102
The figure of CHF 1,961 million for disposals for the year ended 31 December 1999 primarily con-
sists of the sale of Swiss Life / Rentenanstalt.
UBS Group Financial Statements
Notes to the Financial Statements
Note 18 Property and equipment
CHF million
Bank premises
Other properties
Equipment and furniture
Total property and equipment1
Historical
cost
10,668
1,802
6,035
18,505
Accumulated
depreciation
as of
31.12.1998
Carrying
amount
as of
31.12.1998
Additions
Disposals
Depreciation,
write-offs
Carrying Accumulated3
amount depreciation
as of
31.12.1999
as of
31.12.1999
(4,096 )
(656 )
(3,867 )
(8,619 )
6,572
1,146
2,168
9,886
292
705
1,823
2,820
(1,050)
(325)
(525)
(1,900)
(354)
(59)
(1,692)
(2,105)2
5,460
1,467
1,774
8,701
(3,625)
(539)
(4,345)
(8,509)
1 Fire insurance value of property and equipment is CHF 15,004 million (1998: CHF 14,941 million). 2 Depreciation, write-offs of CHF 2,105 million include a charge of CHF 588 million that was
charged against the restructuring provision. 3 After elimination of CHF 2,215 million accumulated depreciation relating to disposals.
Note 19 Intangible assets and goodwill
Accu-
mulated
amorti-
zation
as of
Accu-
mulated
amorti-
zation2
as of
cost 31.12.1998 31.12.1998 Additions1 write-offs 31.12.1999 31.12.1999
Carrying
amount
as of
Carrying
amount
as of
Amorti-
zation,
Historical
553
2,447
(301 )
(489 )
252
1,958
55
1,618
(42)
(298)
265
3,278
(40)
(951)
3,000
(790 )
2,210
1,673
(340)
3,543
(991)
2 After elimination of CHF 139 million accumulated amortization relating to intangible assets fully
CHF million
Intangible assets
Goodwill
Total intangible assets
and goodwill
1 Including currency translation differences.
written off and no longer used.
Note 20 Other assets
CHF million
Deferred tax assets 1
Settlement and clearing accounts
VAT and other tax receivables
Other receivables
Total other assets
1 Additional tax information is provided in note 25.
Balance sheet: liabilities
Note 21 Due to banks and customers
CHF million
Due to banks
Due to customers in savings and investment accounts
Amounts due to customers on demand and time
Total due to customers
Total due to banks and customers
31.12.1999
31.12.1998
742
4,911
702
4,652
11,007
1,205
5,543
839
4,505
12,092
31.12.1999
31.12.1998
76,365
78,640
201,320
279,960
356,325
85,716
79,723
195,127
274,850
360,566
93
UBS Group Financial Statements
Notes to the Financial Statements
94
Note 22 Long term debt
CHF million
Total bond issues
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions
Medium term notes
Total long term debt
48,305
2,055
5,972
56,332
Contractual maturity date
UBS AG (parent)
CHF million
2000
2001
2002
2003
2004
2005–2009
Thereafter
Total
Fixed
rate
13,395
7,866
5,313
3,093
2,316
9,795
3,476
45,254
Floating
rate
524
121
270
147
47
208
32
1,349
Fixed
rate
818
1,354
2,158
129
286
581
921
6,247
Subsidiaries
Floating
rate
Total
31.12.1999
Total
31.12.1998
0
0
399
0
1,705
1,378
0
3,482
14,737
9,341
8,140
3,369
4,354
11,962
4,429
56,332
8,208
7,803
8,368
6,534
3,772
12,562
3,536
50,783
The Group issues both CHF and non-CHF
denominated fixed and floating rate debt. Pub-
licly placed fixed rate debt pays interest at rates
up to 16%. Floating rate debt pays interest based
on the three-month or six-month London Inter-
bank Offered Rate (“LIBOR”).
Subordinated debt securities are unsecured
obligations of the Group and are subordinated in
right of payment to all present and future senior
indebtedness and certain other obligations of
the Group. At 31 December 1999 and 31 Decem-
ber 1998, the Group had CHF 13,106 million
and CHF 12,071 million, respectively, in subor-
dinated debt excluding convertible and ex-
changeable debt and notes with warrants which
have been included in the following paragraph.
Subordinated debt usually pays interest annually
and provides for single principal payments upon
maturity. At 31 December 1999 and 31 Decem-
ber 1998, the Group had CHF 41,093 million
and CHF 36,379 million, respectively, in unsub-
ordinated debt.
The Group issues convertible obligations that
can be exchanged for common stock of UBS AG
and notes with warrants attached on UBS AG
shares. Furthermore, the Group issues notes
exchangeable into common stock or preferred
stock of other companies, or repaid based on the
performance of an index or group of securities.
At 31 December 1999 and 31 December 1998,
the Group had CHF 2,133 million and CHF
2,333 million, respectively, in convertible and
exchangeable debt and notes with warrants
attached outstanding.
The Group, as part of its interest-rate risk
management process, utilizes derivative instru-
ments to modify the repricing and maturity char-
acteristics of the notes/bonds issued. The Group
also utilizes other derivative instruments to man-
age the foreign exchange impact of certain long
term debt obligations. Interest rate swaps are
utilized to convert the economic characteristics of
fixed rate debt to those of floating rate debt.
The Group issues credit-linked notes generally
through private placements. The credit-linked
notes are usually senior unsecured obligations of
UBS AG, acting through one of its branches, and
can be subject to early redemption at the option
of the Group or in the event of a defined credit
event. Payment of interest and/or principal is
dependent upon the performance of a reference
entity or security. The rate of interest on each
credit-linked note is either floating and deter-
mined by reference to LIBOR plus a spread or
fixed. Medium term and credit-linked notes have
been included in the amounts disclosed above as
unsubordinated debt.
UBS Group Financial Statements
Notes to the Financial Statements
Note 22 Long term debt (continued)
Publicly placed bond issues of UBS AG (parent company) outstanding as of 31.12.1999
Year of
issue
Interest
rate in %
Remarks
Maturity
Premature
redemption
possible
Currency
Amount
in millions
1995
1996
1990
1997
1990
1998
1998
1994
1997
1990
1999
1999
1998
1998
1980
1999
1999
1998
1999
1999
1999
1999
1999
1993
1999
1999
1999
1999
1999
1999
1996
1995
1998
1999
1999
1996
1999
1999
1999
1999
1999
1996
1991
1998
1998
1999
1999
1999
1999
1998
1993
1997
1998
1998
1991
1994
1999
7.000
3.500
7.000
6.750
7.250
9.150
9.700
5.000
6.000
6.750
11.500
14.000
10.250
9.000
3.750
15.250
15.300
11.500
16.000
9.000
8.250
9.000
11.000
2.750
12.000
14.500
15.250
13.000
11.000
13.000
2.500
4.500
10.000
10.000
10.250
3.000
10.000
12.250
14.130
12.000
11.000
3.625
5.000
7.500
7.000
12.500
5.250
10.750
11.000
7.500
5.125
1.750
8.000
8.000
7.000
5.375
8.500
Subordinated
Subordinated
Subordinated
05.01.2000
18.01.2000
15.02.2000
25.02.2000
15.03.2000
27.03.2000
27.04.2000
20.06.2000
24.07.2000
31.07.2000
15.08.2000
25.08.2000
08.09.2000
14.09.2000
25.09.2000
25.09.2000
02.10.2000
09.10.2000
20.10.2000
27.10.2000
14.11.2000
20.11.2000
20.11.2000
01.12.2000
04.12.2000
06.12.2000
06.12.2000
11.12.2000
14.12.2000
18.12.2000
20.12.2000
21.12.2000
21.12.2000
29.12.2000
12.01.2001
07.02.2001
12.02.2001
15.02.2001
27.03.2001
29.03.2001
30.03.2001
10.04.2001
15.04.2001
11.05.2001
18.05.2001
06.06.2001
14.06.2001
15.06.2001
06.07.2001
10.07.2001
15.07.2001
25.07.2001
03.08.2001
17.08.2001
04.09.2001
07.09.2001
05.10.2001
Footnotes
11 Floating rate.
16 Issued by UBS Jersey Branch.
15 Convertible into Nikkei 225 Index.
17 Issued by former SBC.
18 Issued by former UBS.
21 Formerly Regiobank beider Basel.
22 Convertible into shares of ENI.
23 Convertible into shares of Pirelli.
24 GOAL on Daimler shares.
25 GOAL on Rück shares.
26 GOAL on CSG shares.
27 GOAL on Pepsico shares.
29 GOAL on Novartis shares.
30 GOAL on Roche GS.
31 GOAL on UBS shares.
32 GOAL on Zurich shares.
36 GOAL on Nokia.
38 GOAL on Compaq Computer.
39 GOAL on Pfizer.
40 GOAL on America Online.
41 GOAL on Swisscom.
42 GOAL on Bank Austria.
43 GOAL on Royal Dutch.
44 GOAL on Telefonica.
45 GOAL on Lloyds TSB.
47 GOAL on S&P.
48 Goal on British Telecom.
49 GOAL on ABB.
51 GOAL on Banco Bilbao Vizcaya.
52 Omvand Konvertible Svensk Basportfolj.
53 GOAL on Total Fina.
54 Convertible into Bank of Tokyo.
55 Convertible into DDI Corp.
56 Convertible into Sumitomo.
57 GOAL on SAP.
58 GOAL on Tesco.
62 GOAL on BP Amoco.
63 GOAL on BG plc.
64 GOAL on Deutsche Telekom.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
DEM
CHF
CHF
GBP
CHF
ITL
ITL
CHF
USD
CHF
EUR
EUR
DEM
CHF
CHF
USD
SEK
CHF
USD
JPY
CHF
JPY
EUR
CHF
EUR
GBP
GBP
USD
JPY
EUR
CHF
CHF
USD
CHF
EUR
USD
CHF
GBP
SEK
GBP
USD
CHF
CHF
CHF
CHF
GBP
CHF
EUR
EUR
CHF
CHF
USD
CHF
CHF
CHF
CHF
CHF
370 6,17
200 6,17
300 17
100 6,17
300 17
224,000 6,22
150,000 6,23
300 18
200 6,17
300 18
75 6,44
100 6,36
600 6,24
255 6,25
100 1,17
150 6,38
40 6,52
315 6,26
65 6,40
9,001 6,54
200 6,29
6,387 6,55
100 6,64
200 18
30 6,51
10 6,58
10 6,63
90 6,39
10,000 6,56
12 6,53
300 18
300 6,17
65 6,27
250 6,31
125 6,43
100 6,17
300 6,41
20 6,45
193 6,52
25 6,48
50 6,47
400 18
60 17
852 6,26
738 6,29
10 6,62
410 6,30
20 6,57
30 6,42
412 6,30
30 18,21
125 6,15,17
920 6,31
500 6,32
250 17
200 18
50 6,49
95
UBS Group Financial Statements
Notes to the Financial Statements
Note 22 Long term debt (continued)
Publicly placed bond issues of UBS AG (parent company) outstanding as of 31.12.1999
Year of
issue
Interest
rate in %
Remarks
Maturity
1999
1992
1998
1996
1999
1990
1992
1997
1997
1996
1997
1992
1996
1997
1995
1996
1991
1998
1993
1997
1998
1993
1993
1999
1998
1991
1995
1996
1993
1994
1992
1991
1999
1999
1997
1993
1995
1995
1995
1995
1995
1995
1995
1995
1999
1999
1996
1996
1999
1999
1996
1996
1995
1996
1997
1997
1998
11.625
7.000
5.750
4.000
11.000
7.500
7.500
6.500
1.000
2.000
1.000
7.000
6.750
1.250
4.375
3.250
7.500
1.000
4.875
1.500
1.000
4.000
3.500
1.000
1.625
7.000
5.250
1.500
3.000
6.250
7.250
4.250
3.500
0
7.375
4.750
4.000
5.500
5.625
8.750
6.750
5.250
5.000
4.500
0
3.500
4.250
4.000
2.500
1.500
7.250
7.250
5.000
6.250
8.000
5.750
3.500
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
PEP
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
06.12.2001
06.02.2002
18.03.2002
18.04.2002
06.06.2002
07.06.2002
10.07.2002
18.07.2002
07.08.2002
23.08.2002
17.09.2002
16.10.2002
18.10.2002
05.11.2002
07.11.2002
20.12.2002
15.02.2003
25.02.2003
03.03.2003
14.03.2003
20.03.2003
31.03.2003
31.03.2003
05.05.2003
14.05.2003
16.05.2003
20.06.2003
20.11.2003
26.11.2003
06.01.2004
10.01.2004
25.06.2004
01.07.2004
07.10.2004
26.11.2004
08.01.2005
07.02.2005
15.02.2005
13.04.2005
20.06.2005
15.07.2005
18.07.2005
24.08.2005
21.11.2005
08.12.2005
26.01.2006
06.02.2006
14.02.2006
29.03.2006
12.07.2006
15.07.2006
03.09.2006
07.11.2006
06.12.2006
08.01.2007
12.03.2007
27.08.2008
Premature
redemption
possible
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.02.2001
–
–
–
–
–
–
–
–
16.05.2001
–
–
–
–
10.01.2002
–
–
–
08.01.2003
–
–
–
–
–
–
–
–
08.12.2000
–
–
–
–
–
–
–
–
–
–
–
–
Currency
Amount
in millions
GBP
CHF
USD
CHF
GBP
CHF
CHF
USD
DEM
CHF
DEM
CHF
USD
DEM
CHF
CHF
CHF
EUR
CHF
DEM
NLG
CHF
CHF
USD
USD
CHF
CHF
CHF
CHF
USD
CHF
CHF
EUR
USD
GBP
CHF
CHF
CHF
CHF
GBP
USD
CHF
CHF
CHF
USD
EUR
CHF
CHF
CHF
USD
USD
USD
CHF
DEM
GBP
DEM
CHF
10 6,59
200 18
250 6
200 17
10 6,60
300 17
200 18
300 6,17
45 6,12,17
301 6,9,17
75 6,10,17
200 18
250 6,17
260 6,11,17
250 18
350 17
300 17
110 6,33
200 18
80 6,16,17
200 6,34
200 18
200 18
150 6,65
100 6,28
200 18
200 6,17
45 6,8,17
200 18
300 6,17
150 17
300 18
250 6
46 6,50
250 18,19
200 18
150 18
150 17
150 18
250 6,17
200 7,17
200 18
250 18
300 17
50 6,61
650 6
250 18
200 17
250 6
100 20,46
500 7,18
150 7,17
250 18
500 6,17
450 18,19
350 18,19
300
Footnotes
16 Issued by UBS Jersey Branch.
17 Issued by UBS New York Branch.
18 Convertible into SMI Index.
19 With options on Nikkei 225 Index.
10 Convertible into UBS Industrial Basket.
11 Convertible into European Bank Basket.
12 Convertible into European Insurance
shares Basket.
16 Indexed to UBS Currency Portfolio.
17 Issued by former SBC.
18 Issued by former UBS.
19 Issued by UBS London Branch.
20 Issued by UBS Stamford Branch.
28 Convertible into UBS Oil Basket.
33 Convertible into FTSE shares.
34 Convertible into UBS Dutch Corporate
Basket.
46 Convertible into AT&T.
50 GROI on Chesapeake.
59 GOAL on Granada Group.
60 GOAL on Glaxo.
61 PEP on Internet Pref. Basket /1st call at
120% thereafter annual step-ups of 20%.
65 Quanto style exchangeable bonds into
Sony.
PEP
Protected Equity Participation
96
UBS Group Financial Statements
Notes to the Financial Statements
Note 22 Long term debt (continued)
Publicly placed bond issues of UBS AG (parent company) outstanding as of 31.12.1999
Year of
issue
Interest
rate in %
Remarks
Maturity
1997
1986
1995
1995
1997
1990
1990
1995
1995
1996
5.875
5.000
7.375
7.000
7.375
0
0
7.500
8.750
7.750
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
18.08.2009
10.02.2011
15.07.2015
15.10.2015
15.06.2017
31.12.2019
31.03.2020
15.07.2025
18.12.2025
03.09.2026
Premature
redemption
possible
–
10.02.2001
–
–
–
–
–
–
–
–
UBS Finance (Cayman Islands) Ltd., Grand Cayman
1997
1994 66
1991 66
0.000 GROI on Russian Basket
5.000
0.000
08.06.2000
01.07.2000
28.02.2001
Footnotes
62 At 1021⁄2%.
63 Private placement.
64 Issue price 17.45%.
65 Issue price 19.27%.
66 Issued by UBS Jersey Branch.
67 Issued by UBS New York Branch.
17 Issued by former SBC.
18 Issued by former UBS.
19 Issued by UBS London Branch.
66 Guaranteed by UBS.
67 Zero coupon, issue price 36.55%.
68 Guaranteed by S.G. Warburg Group plc.
69 Convertible into shares of
Gillette Company.
70 Convertible into shares of UBS.
71 Zero coupon, issue price 15.68285%.
72 Zero coupon, issue price 12.41%.
Protected Index Participation
PIP
GROI Guaranteed Return on Investment
PEP
GRIP
Protected Equity Participation
Guaranteed Return on Investment
Participation
UBS Australia Limited, Sydney 66
1997
1999
1999
3.250
5.000
5.000
6.500
9.250
2.500
2.500
9.125
2.750
UBS Finance (Curaçao) N.V. Netherlands Antilles 66
1995
1993
1996
1996
1990
1997
1992
1997
1998
FRN 70
0
0
S.G.W. Finance plc. 3
13.250
1991
S.G. Warburg Group plc.
1994
1986
9.000
7.625
02.10.2001
25.02.2002
25.02.2004
02.05.2000
23.08.2000
01.03.2001
30.10.2001
08.02.2002
16.06.2002
13.11.2002
29.01.2027
03.03.2028
21.03.2001
perpetual
preference
share GBP 1.–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Currency
Amount
in millions
FRF
CHF
USD
USD
USD
CHF
CHF
USD
GBP
USD
USD
CHF
GBP
USD
AUD
AUD
DEM
ITL
USD
DEM
USD
USD
USD
ITL
DEM
AUD
GBP
GBP
2,000 18,19
250 2,17
150 7,17
300 7,17
300 7,17
351 3,5,17
59 3,4,17
350 7,17
150 6,17
300 7,17
19
150
200 67
100
100
100
250
250,000
5 69
350
225
325 70
250
2,500,000 72
880 71
60
113
11
97
UBS Group Financial Statements
Notes to the Financial Statements
Note 23 Other liabilities
CHF million
31.12.1999
31.12.1998
Provisions, including restructuring provision 1
Provision for commitments and contingent liabilities
Current tax liabilities
Deferred tax liabilities
VAT and other tax payables 2
Settlement and clearing accounts
Other payables
5,995
149
1,876
994
759
4,789
3,814
7,094
435
1,016
1,012
869
9,502
7,794
Total other liabilities
18,376
27,722
1 Further details to business risk and restructuring provisions are provided in note 24. 2 Additional information regarding income tax is provided
in Note 25.
Note 24 Provisions, including restructuring provision
Business risk provision
CHF million
Balance at the beginning of the year
New provisions charged to income
Provisions applied
Recoveries and adjustments
Balance at the end of the year
Restructuring provision
CHF million
Balance at the beginning of the year
Addition
Applied 1
Personnel
IT
Premises
Other
Total utilized during the year
Balance at the end of the year
31.12.1999
31.12.1998
4,121
539
(705)
611
4,566
1,142
3,133
(484)
330
4,121
31.12.1999
31.12.1998
2,973
300
(378)
(642)
(673)
(151)
(1,844)
1,429
5,995
7,000
(2,024)
(797)
(267)
(939)
(4,027)
2,973
7,094
Total provisions, including restructuring provision
1 The expense categories refer to the nature of the expense rather than the income statement expense line.
Provision for restructuring costs
At the time of the merger, it was announced that
the merged banks’ operations in various locations
would be combined, resulting in vacant proper-
ties, reductions in personnel, elimination of
redundancies in the information technology plat-
forms, exit costs and other costs. As a result, the
individual banks estimated that the cost of the
post-merger restructuring would be approxi-
mately CHF 7 billion, to be expended over a
period of four years. By the end of December
1999, the Group had utilized CHF 6 billion of the
provision.
As of today, many of the actions under these
plans are completed or near completion. As a
result of the real estate lease breaks or disposals
which have been identified, the Group recognized
an additional restructuring provision of CHF 300
million.
98
UBS Group Financial Statements
Notes to the Financial Statements
Note 25 Income taxes
CHF million
For the year ended
Federal and Cantonal
Current payable
Deferred
Foreign
Current payable
Deferred
31.12.1999
31.12.1998
978
511
359
(33)
354
463
200
28
Total income tax expense
1,815
1,045
The Group made net tax payments, including domestic federal, cantonal and foreign taxes, of CHF
1,063 million and CHF 733 million for the full year of 1999 and 1998, respectively.
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 statutory rate of 25% are as
follows:
CHF million
for the year ended
Operating profit before tax
Domestic
Foreign
Income taxes at statutory rate of 25%
Increase / (decrease) resulting from:
Applicable tax rates differing from statutory rate
Tax losses not recognized
Previously unrecorded tax losses now recognized
Lower taxed income
Non-deductible expenses
Adjustments related to prior years
Capital taxes
Change in deferred tax valuation allowance
Income tax expense
31.12.1999
31.12.1998
8,169
7,233
936
2,042
16
39
(215)
(278)
132
(112)
99
92
1,815
4,070
10,486
(6,416)
1,018
86
1,436
(142)
(1,849)
172
7
93
224
1,045
As of 31 December 1999 the Group had accumulated unremitted earnings from foreign subsidiaries
on which deferred taxes had not been provided as the undistributed earnings of these foreign sub-
sidiaries are indefinitely reinvested. In the event these earnings were distributed it is estimated that
Swiss taxes of approximately CHF 35 million would be due.
99
UBS Group Financial Statements
Notes to the Financial Statements
100
Note 25 Income taxes (continued)
Significant components of the Group’s deferred income tax assets and liabilities (gross) are as follows:
CHF million
Deferred tax assets
Compensation and benefits
Restructuring provision
Allowance for credit losses
Net operating loss carryforwards
Others
Total
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Property and equipment
Investments in associates
Other provisions
Unrealized gains on investment securities
Others
Total
31.12.1999
31.12.1998
316
316
138
2,194
237
3,201
(2,459)
742
342
153
142
93
264
994
114
718
370
1,610
170
2,982
(1,777)
1,205
484
299
109
103
17
1,012
The change in the balance of the net deferred tax asset (liability) at 31 December 1999 and 31 Decem-
ber 1998 does not equal the deferred tax expense (benefit) in those years. This is due to the effect of
foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF.
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net oper-
ating loss carryforwards and other items. Because recognition of these assets is uncertain, the Group
has established valuation allowances of CHF 2,459 million and CHF 1,777 million at 31 December
1999 and 31 December 1998, respectively.
Net operating loss carryforwards totalling CHF 9,149 million at 31 December 1999 are available
to reduce future taxable income of certain branches and subsidiaries.
The carryforwards have lives as follows:
One year
2 to 4 years
More than 4 years
Total
Note 26 Minority interests
CHF million
Minority interests in profit / (loss)
Preferred stock 1
Minority interests in equity
Total minority interests
31.12.1999
15
215
8,919
9,149
31.12.1999
31.12.1998
54
380
434
(5)
689
306
990
1 Represents Auction Market Preferred Stock, issued by UBS Inc., New York, a subsidiary whose ordinary share capital is completely owned by UBS.
UBS Group Financial Statements
Notes to the Financial Statements
Off balance sheet and other information
Note 27 Derivative instruments
Derivatives held or issued
for trading purposes
Most of the Group’s derivative transactions relate
to sales and trading activities. Sales activities
include the structuring and marketing of deriva-
tive products to customers at competitive prices
to enable them to transfer, modify or reduce
current or expected risks. Trading involves mar-
ket making, positioning and arbitrage activities.
Market making involves quoting bid and offer
prices to other market participants with the
intention of generating revenues based on spread
and volume. Positioning involves managing mar-
ket risk positions with the expectation of profit-
ing from favorable movements in prices, rates or
indices. Arbitrage activities involve identifying
and profiting from price differentials between
markets and products.
Derivatives held or issued
for non-trading purposes
The Group also uses derivatives as part of its
asset / liability management activities.
The majority of derivative positions used in
UBS’s asset and liability management activities
are established via intercompany transactions
with independently managed UBS dealer units
within the Group. When the Group purchases
assets and issues liabilities at fixed interest rates
it subjects itself to fair value fluctuations as mar-
ket interest rates change. These fluctuations in
fair value are managed by entering into interest
rate contracts, mainly interest rate swaps which
change the fixed rate instrument into a variable
rate instrument.
When the Group purchases foreign currency
issues foreign currency
denominated assets,
denominated debt or has foreign net investments,
it subjects itself to changes in value as exchange
rates move. These fluctuations are managed by
entering into currency swaps and forwards.
Type of derivatives
The Group uses the following derivative financial
instruments for both trading and non-trading
purposes:
Swaps
Swaps are transactions in which two
parties exchange cash flows on a specified
notional amount for a predetermined period.
Interest rate swap contracts generally repre-
sent the contractual exchange of fixed and float-
ing rate payments of a single currency, based on
a notional amount and an interest reference rate.
Cross currency interest rate swaps generally
involve the exchange of payments which are
based on the interest reference rates available at
the inception of the contract on two different cur-
rency principal balances that are exchanged. The
principal balances are re-exchanged at an agreed
upon rate at a specified future date.
Forwards and futures Forwards and futures
are contractual obligations to buy or sell a finan-
cial instrument on a future date at a specified
price. Forward contracts are effectively tailor-
made agreements that are transacted between
counterparties in the over-the-counter market
(OTC), whereas futures are standardized con-
tracts that are transacted on regulated exchanges.
Options Options are contractual agree-
ments under which the seller (writer) grants the
purchaser the right, but not the obligation, either
to buy (call option) or sell (put option) by or at a
set date, a specified amount of a financial instru-
ment at a predetermined price. The seller receives
a premium from the purchaser for this right.
101
UBS Group Financial Statements
Notes to the Financial Statements
Note 27 Derivative instruments (continued)
Notional amounts and replacement values
The following table provides the notional
amounts and the positive and negative replace-
ment values of the Group’s derivative trans-
actions.
The notional amount is the amount of a
derivative’s underlying asset, reference rate or
index and is the basis upon which changes in the
value of derivatives are measured. It provides an
indication of the volume of business transacted
by the Group but does not provide any measure
of risk.
Some derivatives are standardized in terms of
their nominal amounts and settlement dates, and
these are designed to be bought and sold in active
markets (exchange traded). Others are packaged
specifically for individual customers and are not
exchange traded although they may be bought
and sold between counterparties at negotiated
prices (OTC instruments).
Positive replacement value represents the cost
to the Group of replacing all transactions with a
receivable amount if all the Group’s counterpar-
ties were to default. This measure is the industry
standard for the calculation of current credit
exposure. Negative replacement value is the cost
to the Group’s counterparties of replacing all the
Group’s transactions with a commitment if the
Group were to default. The total positive and
negative replacement values are included in the
balance sheet separately.
102
UBS Group Financial Statements
Notes to the Financial Statements
Note 27 Derivative instruments (continued)
Term to maturity
Within 3 months
NRV2
PRV1
3 to 12 months
NRV
PRV
1 to 5 years
NRV
PRV
Over 5 years
NRV
PRV
Total
PRV
Total
NRV
Total
notional
amount
CHF bn
CHF million
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts 3
Futures
Options
Total
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts 3
Futures
Options
Total
Precious metals contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 3
Futures
Options
Total
Equity / Index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 3
Futures
Options
Total
Commodity contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Total
34
5,386
108
55
2,100
27
68
3,163
47
19
2,871
742
6
22,843
268
1
24,168
12
0
35,942
4
0
30,301
2,018
108
67,334
427
75
59,440
2,799
554.0
2,650.9
1,877.0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
774.1
54.4
5,528
2,182
3,278
3,632
23,117
24,181
35,946
32,319
67,869
62,314
5,910.4
9,669
622
3,344
14,264
520
2,708
3,661
2,036
3,934
7,008
1,826
3,138
445
529
8,883
851
6,076
411
25
2,567
30
37
1,518
10
13,800
5,754
16,191
22,160
9,940
6,267
1,077.1
252.3
813.5
0
0
1
1
0
4
0
1
0
0
0
0
0
0
0
0
0
4
1
2
3.5
3.7
13,635
17,494
9,635
11,973
9,857
7,338
2,622
1,565
35,749
38,370
2,150.1
1,112
277
1,047
215
0
0
0
5
53
594
0
5
62
466
80
1,168
60
1,059
0
8
0
0
0
10
0
117
0
0
0
130
1,245
2,156
1,169
1,870
0
0
0
5
0
23
30.0
82.9
0.8
4.9
1,389
1,267
652
536
1,248
1,129
117
130
3,406
3,062
118.6
526
1,941
1,721
1,611
1,148
4,013
2,044
10,021
503
10,146
5,325
27,182
1,762
439
2,787
2,985
3,939
16,539
11,877
41,799
149.4
264.7
74
1,061
3,602
46
304
0
1,744
0
4,047
0
72
0
63
0
0
0
0
74
2,877
46
4,414
25.1
79.8
3,682
6,905
16,112
10,721
32,570
2,201
5,772
23,429
58,136
519.0
32
15
47
25
15
40
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
32
15
47
25
15
40
Total derivative instruments 31.12.1999
24,201
24,665
20,470
32,253
44,943
65,218
40,886
39,786 130,500 161,922
Total derivative instruments 31.12.1998
31,614
50,150
32,251
29,404
57,023
75,261
49,048
50,265 169,936 205,080
1 PRV: Positive replacement value. 2 NRV: Negative replacement value. 3 Exchange-traded products include proprietary trades only.
167.9
79.7
247.6
–
–
103
UBS Group Financial Statements
Notes to the Financial Statements
104
Note 28 Pledged assets
Assets pledged or assigned as security for liabilities and assets subject to reservation of title
CHF million
Money market paper
Mortgage loans
Securities 1
Property and equipment
Other
Total pledged assets
Carrying
amount
31.12.1999
Related
liability
31.12.1999
Carrying
amount
31.12.1998
Related
liability
31.12.1998
35,578
2,536
23,837
170
2,110
64,231
707
1,736
585
91
0
3,119
6,981
2,955
13,902
147
0
23,985
5
2,047
5,636
71
0
7,759
1 Excluding securities pledged in respect of securities borrowing and repurchase agreements.
Assets are pledged as collateral for collateralized credit lines with central banks, loans from central
mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock
exchange membership and mortgages on the Group’s property. These assets are also segregated per-
suant to certain regulatory requirements.
Note 29 Fiduciary transactions
CHF million
Placements with third parties
Fiduciary credits and other fiduciary financial transactions
Total fiduciary transactions
31.12.1999
31.12.1998
60,221
1,438
61,659
60,612
652
61,264
Fiduciary placement represents funds which customers have instructed the Group to place in foreign
banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors
of the Group have a claim on the assets placed.
Note 30 Commitments and contingent liabilities
Commitments and Contingencies represent po-
tential future liabilities of the Group resulting
from credit facilities available to clients, but not
yet drawn upon by them. They are subject to
expiration at fixed dates. The Group engages in
providing open credit facilities to allow clients
quick access to funds required to meet their short
term obligations as well as their long term financ-
ing needs. The credit facilities can take the form
of guarantees, whereby the Group might guaran-
tee repayment of a loan taken out by a client with
a third party; standby letters of credit, which are
credit enhancement facilities enabling the client
to engage in trade finance at lower cost; docu-
mentary letters of credit, which are trade finance-
related payments made on behalf of a client; com-
mitments to enter into repurchase agreements;
note issuance facilities and revolving underwrit-
ing facilities, which allow clients to issue money
market paper or medium term notes when need-
ed without engaging in the normal underwriting
process each time.
The figures disclosed in the accompanying
tables represent the amounts at risk should clients
draw fully on all facilities and then default, and
there is no collateral. Determination of the cred-
itworthiness of the clients is part of the normal
credit risk management process, and the fees
charged for maintenance of the facilities reflect
the various credit risks.
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Commitments and contingent liabilities (continued)
CHF million
31.12.1999
31.12.1998
Contingent liabilities
Credit guarantees and similar instruments 1
Sub-participations
Total
Performance guarantees and similar instruments 2
Sub-participations
Total
Irrevocable commitments under documentary credits
Sub-participations
Total
Gross contingent liabilities
Sub-participations
Net contingent liabilities
Irrevocable commitments
Undrawn irrevocable credit facilities
Sub-participations
Total
Liabilities for calls on shares and other equities
Gross irrevocable commitments
Sub-participations
Net irrevocable commitments
Gross commitments and contingent liabilities
Sub-participations
Net commitments and contingent liabilities
18,822
(3,665)
15,157
6,782
(42)
6,740
2,704
0
2,704
28,308
(3,707)
24,601
65,693
(1,836)
63,857
57
65,750
(1,836)
63,914
94,058
(5,543)
88,515
22,697
(5,217)
17,480
12,092
(216)
11,876
2,942
(39)
2,903
37,731
(5,472)
32,259
82,337
(26)
82,311
109
82,446
(26)
82,420
120,177
(5,498)
114,679
1 Credit guarantees in the form of bill of exchange and other guarantees, including guarantees in the form of irrevocable letters of credit, endorse-
ment liabilities from bills rediscounted, advance payment guarantees and similar facilities. 2 Bid bonds, performance bonds, builders’ guaran-
tees, letters of indemnity, other performance guarantees in the form of irrevocable letters of credit and similar facilities.
CHF million
Overview of collateral
Gross contingent liabilities
Gross irrevocable commitments
Liabilities for calls on shares and other equities
Total 31.12.1999
Total 31.12.1998
Mortgage
collateral
Other
collateral
Unsecured
Total
191
386
0
577
389
11,356
8,774
0
20,130
33,363
16,761
56,533
57
73,351
86,425
28,308
65,693
57
94,058
120,177
105
UBS Group Financial Statements
Notes to the Financial Statements
106
Note 31 Operating lease commitments
Our minimum commitments for non-cancellable leases of premises and equipment are presented as
follows:
CHF million
Operating leases due
2000
2001
2002
2003
2004
2005 and thereafter
Total commitments for minimum payments under operating leases
31.12.1999
247
202
184
187
153
1,919
2,892
Operating expenses include CHF 742 million and CHF 797 million in respect of operating lease
rentals for the year ended 31.12.1999 and for the year ended 31.12.1998 respectively.
Note 32 Litigation
In the United States, several class actions, in rela-
tion to what is known as the Holocaust affair,
have been brought against the bank (as legal suc-
cessor to Swiss Bank Corporation and Union
Bank of Switzerland) in the United States District
Court for the Eastern District of New York
(Brooklyn). These lawsuits were initially filed in
October 1996. Another Swiss bank has been
designated as a defendant alongside us. On
12 August 1998, however, a settlement was
reached between the parties. This settlement pro-
vides for a payment by the defendant banks to the
plaintiffs, under certain terms and conditions, of
an aggregate amount of USD 1.25 billion. UBS
agreed to contribute up to two-thirds of this
amount. To the extent that other Swiss compa-
nies agreed to participate in this fund, and to the
extent of applicable payments to beneficiaries of
eligible dormant accounts, our share was to be
reduced. Based on our estimate of such expected
contributions, we provided a reserve of USD 610
million in 1998 and an additional USD 95 million
in 1999. A number of persons have elected to opt
out of the settlement and not participate in the
class action. It is expected that a decision approv-
ing the settlement will be issued in 2000, which
will be followed by hearings on the allocation of
the settlement amount.
In addition, the bank and other companies
within the UBS Group are subject to various
claims, disputes and legal proceedings, as part of
the normal course of business. The Group makes
provision for such matters when, in the opinion
of management and its professional advisors, it is
probable that a payment will be made by the
Group, and the amount can be reasonably esti-
mated. All litigation provisions are included
within Other Business Risks in the accompanying
Group balance sheet.
In respect of the further claims asserted
against the Group of which management is aware
(which, according to the principles outlined
above, have not been provided for), it is the opin-
ion of management that such claims are either
without merit, can be successfully defended or
will result in exposure to the Group which is
immaterial to both financial position and results
of operations.
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position
Overall risk position
The Group manages risk in a number of ways,
including the use of a value-at-risk model com-
bined with a system of trading limits.
This section presents information about the
results of the Group’s management of the risks
associated with the use of financial instruments.
a) Interest rate risk
Interest rate risk is the potential impact of
changes in market interest rates on the fair values
of assets and liabilities on the balance sheet and
on the annual interest income and expense in the
income statement.
Interest rate sensitivity
One commonly used method to present the
potential impact of the market movements is to
show the effect of a one basis point (0.01%)
change in interest rates on the fair values of assets
and liabilities, analyzed by time bands within
which the Group is committed. This type of pres-
entation, described as a sensitivity analysis, is set
out below. Interest rate sensitivity is one of the
inputs to the value-at-risk model used by the
Group to manage its overall market risk, of
which interest rate risk is a part.
The following sets out the extent to which the
Group was exposed to interest rate risk at 31 De-
cember 1999. The table shows the potential im-
pact of a one basis point (0.01%) increase in mar-
ket interest rates which would influence the fair
values of both assets and liabilities that are sub-
ject to fixed interest rates. The impact of such an
increase in rates depends on the net asset or net
liability position of the Group in each category,
currency and time band in the table. A negative
amount in the table reflects a potential loss to the
Group due to the changes in fair values as a result
of an increase in interest rates. A positive amount
reflects a potential gain as a result of an increase
in interest rates. Both primary and derivative
instruments in trading and non-trading activities,
as well as off-balance-sheet commitments are
included in the table.
107
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
a) Interest rate risk (continued)
Interest rate sensitivity position
CHF thousand
per basis point
Within 1
month
Interest sensitivity by time bands as of 31.12.1999
3 to 12
months
1 to 3
months
1 to 5
years
Over 5
years
CHF
USD
EUR
GBP
JPY
Others
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
171
(30 )
(411 )
3
(39 )
0
1
0
484
0
(34 )
0
(902 )
(8 )
1,018
(33 )
(239 )
(3 )
43
5
(1,708 )
0
46
0
466
(398 )
386
(10 )
113
3
10
(39 )
927
0
50
0
506
(6,204 )
(109 )
83
600
30
(34 )
77
(101 )
(1 )
(195 )
0
(417 )
(1,220 )
(908 )
1,207
(1,406 )
210
(77 )
815
135
(4 )
24
0
CHF thousand
per basis point
Within 1
month
Interest sensitivity by time bands as of 31.12.1998
3 to 12
months
1 to 3
months
1 to 5
years
Over 5
years
CHF
USD
EUR
GBP
JPY
Others
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
189
(23 )
(28 )
1
(34 )
0
10
0
(32 )
0
11
0
(672 )
6
93
(21 )
(22 )
(8 )
(214 )
2
(698 )
3
(98 )
0
450
(350 )
8
7
(158 )
0
560
(18 )
(402 )
(5 )
47
0
(322 )
(7,522 )
(575 )
72
(559 )
48
(919 )
130
1,002
6
(158 )
0
(464 )
(546 )
1,254
1,502
339
256
491
876
263
146
(152 )
0
Total
(176)
(7,860)
(24)
1,250
(971)
240
(57)
858
(263)
(5)
(109)
0
Total
(819)
(8,435)
752
1,561
(434)
296
(72)
990
133
150
(350)
0
Trading
The major part of the trading related interest rate
risk is generated in fixed income securities trad-
ing, fixed income derivatives trading, trading in
currency forward contracts and money market
trading and is being managed within the value-at-
risk model. Interest rate sensitivity arising from
trading activities is quite sizable in USD and Euro
as these are still the predominantly traded cur-
rencies in the global interest rate markets. It
should be noted that it is management’s view that
an interest sensitivity analysis at a particular
point in time has limited relevance with respect to
trading positions, which can vary significantly on
a daily basis.
108
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
a) Interest rate risk (continued)
Non-trading
The interest rate risk related to client business
with undefined maturities and non-interest bear-
ing business including the strategic management
of overall balance sheet interest rate exposure is
managed by the Corporate Center. Significant
contributors to the overall USD and GBP interest
rate sensitivity were strategic long term subor-
dinated notes issues which are intentionally
unswapped since they are regarded as constituting
a part of the Group’s equity for asset and liability
management purposes. At 31 December 1999,
the Group’s equity was invested in a portfolio of
fixed rate CHF deposits with an average duration
of 2.16 years. As this equity investment is the
most significant component of the CHF book, this
results in the entire book having an interest rate
sensitivity of CHF (7.9) million, which is reflect-
ed in the table above. This is in line with the dura-
tion and sensitivity targets set by the Group Exec-
utive Board. Investing in shorter term or variable
rate instruments would mean exposing the earn-
ings stream (interest income) to higher fluctua-
tions.
b) Credit risk
Credit risk is the risk of loss from the default by
an obligor or counterparty. This risk is managed
primarily based on reviews of the financial status
of each specific counterparty. Credit risk is
greater when counterparties are concentrated in
a single industry or geographical region. This is
because a group of otherwise unrelated counter-
parties could be adversely affected in their ability
to repay their obligations because of economic
developments affecting their common industry or
region.
Concentrations of credit risk exist if a number
of clients are engaged in similar activities, or are
located in the same geographic region or have
comparable economic characteristics such that
their ability to meet contractual obligations
would be similarly affected by changes in eco-
nomic, political or other conditions. Concentra-
tions of credit risk indicate the relative sensitivity
of the bank’s performance to developments af-
fecting a particular industry or geographic loca-
tion.
(b)(i) On-balance sheet assets
As of 31 December 1999, due from banks and
loans to customers amounted to CHF 278 billion.
66.2% of the loans were with clients domiciled in
Switzerland. Please refer to Note 12 for a break-
down by region.
(b)(ii) Off-balance sheet financial instruments
Credit commitments and contingent
liabilities
Of the CHF 94 billion in credit commitment and
contingent liabilities as at 31 December 1999,
11% related to clients domiciled in Switzerland,
36% in Europe (excluding Switzerland) and 42%
in North America.
Derivatives
Credit risk represents the current replacement
value of all outstanding derivative contracts in a
gain position without factoring in the impact of
master netting agreements or the value of any col-
109
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
b) Credit risk (continued)
lateral. Positive replacement values amounted to
CHF 130 billion as at 31 December 1999, before
applying any master netting agreements. Based
on the location of the ultimate counterparty, 4%
of this credit risk amount related to Switzerland,
49% to Europe (excluding Switzerland) and 37%
to North America. 71% of the positive replace-
ment values are with other banks.
(b)(iii) Credit risk mitigation techniques
Credit risk associated with derivative instruments
is mitigated by the use of master netting agree-
ments. A further method of reducing credit expo-
sure arising from derivative transactions is to use
collateralization arrangements.
Master netting agreements eliminate risk to
the extent that only the net claim is due to be
settled in the case of a default of the counterparty.
The impact of master netting agreements as at
31 December 1999 is to mitigate credit risk on
derivative instruments by approximately CHF
66 billion. The impact can change substantially
over short periods of time, because the exposure
is affected by each transaction subject to the ar-
rangement.
The Group subjects its derivative-related
credit risks to the same credit approval, limit and
monitoring standards that it uses for managing
other transactions that create credit exposure.
This includes evaluation of counterparties as to
creditworthiness, and managing the size, diversi-
fication and maturity structure of the portfolio.
Credit utilization for all products is compared
with established limits on a continual basis and
is subject to a standard exception reporting
process.
110
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
c) Currency risk
The Group views itself as a Swiss entity, with the Swiss franc as its reporting currency. Hedging trans-
actions are used to manage risks in other currencies.
Breakdown of assets and liabilities by currencies
31.12.1999
CHF billion
CHF
USD
EUR
Other
31.12.1998
USD
CHF
Assets
Cash and balances with central banks
Money market paper
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Loans, net of allowance
for credit losses
Financial investments
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Intangible assets and goodwill
Other assets
Total assets
Liabilities
Money market paper issued
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Long term debt
Other liabilities
Minority interests
Shareholders’ equity
Total liabilities, minority interests
and shareholders’ equity
3.4
1.5
7.5
0.1
2.0
34.1
16.7
166.4
2.5
1.7
0.9
7.4
1.2
3.1
248.5
1.0
8.1
0.1
16.5
0.0
21.7
127.5
3.1
23.7
9.1
0.3
34.8
0.2
38.6
7.7
106.4
54.8
77.4
11.5
35.0
2.9
1.8
0.1
0.5
2.2
1.9
0.5
0.7
5.3
1.1
37.9
26.9
1.3
5.3
0.7
0.5
0.0
0.1
0.0
2.5
1.0
28.9
9.4
5.6
50.1
78.6
101.0
28.2
0.9
1.2
0.1
0.7
0.1
3.5
341.0
82.8
309.3
55.7
36.3
6.5
103.6
38.2
11.7
93.8
4.9
17.6
4.0
0.0
0.0
0.3
14.5
1.0
27.8
5.4
3.4
23.7
0.5
3.1
0.8
0.0
0.0
7.7
17.5
5.2
61.3
11.0
125.1
35.0
3.6
11.9
4.5
0.1
0.0
2.4
2.2
12.7
0.2
0.2
24.8
17.8
173.5
2.6
1.2
2.6
8.5
0.3
4.9
253.9
1.0
25.4
0.1
10.7
0.2
27.3
138.0
3.3
23.4
14.6
1.0
32.4
Other
0.6
5.9
42.5
17.0
102.8
97.8
131.2
34.4
1.8
3.6
0.2
0.8
0.2
4.1
0.3
10.3
13.3
74.5
38.3
40.0
20.9
40.0
2.5
1.8
0.0
0.6
1.7
3.1
247.3
442.9
38.5
33.6
5.9
74.3
8.1
19.8
80.2
2.6
16.9
6.1
0.0
0.0
12.0
26.7
13.2
52.6
38.7
158.0
56.7
5.3
10.5
7.0
0.0
0.0
245.9
372.3
80.5
282.9
277.4
286.0
380.7
111
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
d) Liquidity risk
Maturity analysis of assets and liabilities
CHF billion
On
demand
Subject
to notice1
Due
between
3 and
12 mths
Due
between
1 and
5 years
Due
after
5 years
Assets
Cash and balances with central banks
Money market papers
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Loans, net of allowance
for credit losses
Financial investments
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Intangible assets and goodwill
Other assets
Total 31.12.1999
Total 31.12.1998
5.1
8.4
217.0
130.5
5.0
5.2
–
–
–
11.0
382.2
376.6
10.1
Liabilities
Money market paper issued
Due to banks
Cash collateral on securities lent
Repurchase agreements
54.6
Trading portfolio liabilities
161.9
Negative replacement values
58.6
Due to customers
Accrued expenses and deferred income 12.0
–
Long term debt
18.4
Other liabilities
Total 31.12.1999
Total 31.12.1998
315.6
367.9
Due
within
3 mths
–
67.8
19.1
112.7
142.9
–
–
–
–
407.5
375.8
24.3
60.2
12.8
197.9
–
–
–
53.4
–
–
–
53.4
59.9
1.1
82.1
127.0
0.4
–
83.6
83.5
6.3
428.5
371.1
–
1.9
1.6
1.9
–
–
0.5
0.5
–
64.9
0.1
39.2
0.2
70.8
0.9
–
–
0.3
–
6.6
0.8
1.1
8.7
3.5
21.0
22.3
–
–
–
72.7
66.0
0.3
0.3
1.7
2.5
28.0
13.2
30.0
29.7
16.0
16.3
Total
5.1
69.7
29.9
113.2
144.8
217.0
130.5
234.9
7.0
5.2
1.1
8.7
3.5
11.0
981.6
944.1
64.7
76.4
12.8
209.2
54.6
161.9
280.0
12.0
56.3
18.4
946.3
910.7
–
–
–
44.8
43.5
40.4
4.4
11.3
8.1
8.4
72.6
42.2
1 Deposits without a fixed term, on which notice of withdrawal or termination has not been given. (Such funds may be withdrawn by the depos-
itor or repaid by the borrower subject to an agreed period of notice.)
112
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Financial instruments risk position (continued)
e) Capital adequacy
Risk-weighted assets (BIS)
CHF million
Balance sheet assets
Due from banks and other collateralized lendings
Net positions in securities 1
Positive replacement values
Loans, net of allowances for credit losses
and other collateralized lendings
Accrued income and prepaid expenses
Property and equipment 2
Other assets
Off-balance sheet and other positions
Contingent liabilities
Irrevocable commitments
Forward and swap contracts 3
Purchased options 3
Market risk positions 4
Total risk-weighted assets
Balance
sheet /
notional
amount
31.12.1999
229,794
77,858
130,500
292,928
5,167
8,701
11,007
28,308
65,693
4,881,483
406,208
–
–
Risk-
weighted
amount
31.12.1999
9,486
11,177
18,175
159,835
3,164
9,860
7,686
14,459
17,787
13,213
2,823
10,813
278,478
Balance
sheet /
notional
amount
31.12.1998
244,246
28,109
169,936
305,155
6,627
9,886
12,092
37,731
82,337
5,177,912
489,005
–
–
Risk-
weighted
amount
31.12.1998
13,845
8,316
29,494
164,113
3,190
11,166
7,900
19,471
18,197
7,130
5,861
16,018
304,701
1 Excluding positions in the trading book, these are included in market risk positions. 2 Including CHF 1,159 million (1998: CHF 1,280 million)
foreclosed properties and properties held for disposal, which are recorded in the balance sheet under financial investments. 3 The risk-weight-
ed amount corresponds to the security margin (add-on) of the contracts. 4 Value at risk according to the internal model multiplied by a factor
of 12.5 to create the risk weighted amount of the market risk positions in the trading book.
BIS capital ratios
Tier 1
Tier 2
Total BIS
Capital
CHF million
31.12.1999
Ratio
%
31.12.1999
Capital
CHF million
31.12.1998
Ratio
%
31.12.1998
29,529
10,730
40,259
10.6
–
14.5
28,299
12,086
40,385
9.3
–
13.3
Among other measures UBS monitors the adequa-
cy of its capital using ratios established by the
Bank for International Settlements (BIS). The
Group has maintained all BIS and Swiss capital
adequacy rules for all periods presented. These
ratios measure capital adequacy by comparing the
Group’s eligible capital with its risk-weighted
positions which include balance sheet assets, net
positions in securities not held in the trading book,
off balance sheet transactions converted into their
credit equivalents and market risk positions at a
weighted amount to reflect their relative risk.
The capital adequacy rules require a minimum
amount of capital to cover credit and market risk
exposures. For the calculation of the capital
required for credit risk the balance sheet assets
are weighted according to broad categories of
notional credit risk, being assigned a risk weight-
ing according to the amount of capital deemed
to be necessary to support them. Four categories
of risk weights (0%, 20%, 50%, 100%) are
applied; for example cash, claims collateralized
by cash or claims collateralized by OECD cen-
tral-government securities have a zero risk
weighting which means that no capital is required
to be held in respect of these assets. Uncollateral-
ized loans granted to corporate or private cus-
tomers carry a 100% risk weighting, meaning
that they must be supported by capital equal to
8% of the carrying amount. Other asset cate-
gories have weightings of 20% or 50% which
require 1.6% or 4% capital.
The net positions in securities not held in the
trading book reflect the Group’s exposure to
113
UBS Group Financial Statements
Notes to the Financial Statements
114
Note 33 Financial instruments risk position (continued)
e) Capital adequacy (continued)
an issuer of securities arising from its physical
holdings and other related transactions in that
security.
For contingent liabilities and irrevocable facil-
ities granted, the credit equivalent is calculated by
multiplying the nominal value of each transaction
by its corresponding credit conversion factor. The
resulting amounts are then weighted for credit
risk using the same percentage as for balance
sheet assets. In the case of OTC forward con-
tracts and purchased options, the credit equiva-
lent is computed on the basis of the current
replacement value of the respective contract plus
a security margin (add-on) to cover the future
potential credit risk during the remaining dura-
tion of the contract.
UBS calculates its capital requirement for
market risk positions, which includes interest-
rate instruments and equity securities in the trad-
ing book as well as positions in foreign exchange
and commodities throughout the Group, using
an internal value-at-risk (VaR) model. This
approach was introduced in the BIS 1996 market
risk amendment to the Basel Accord of July 1988
and incorporated in the Swiss capital adequacy
rules of the Banking Ordinance.
The BIS proposal requires that the regulators
perform tests of the bank internal models before
giving permission for these models to be used to
calculate the market risk capital. Based on exten-
sive checks, the use of the Group internal models
was accepted by the Swiss Federal Banking Com-
mission in July 1999.
Tier 1 capital consists of permanent share-
holders’ equity and retained earnings less good-
will and investments in unconsolidated sub-
sidiaries. Tier 2 capital includes the Group’s sub-
ordinated long term debt.
Note 34 Fair value of financial instruments
The following table presents the fair value of on-
and off-balance sheet financial instruments based
on the following valuation methods and assump-
tions. It is presented because not all financial
instruments are reflected in the financial state-
ments at fair value.
Fair value is the amount for which an asset
could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s-length
transaction. A market price, where an active mar-
ket (such as a recognized stock exchange) exists,
is the best evidence of the fair value of a financial
instrument. However, market prices are not avail-
able for a significant number of the financial
assets and liabilities held and issued by the
Group. Therefore, for financial instruments
where no market price is available, the fair values
presented in the following table have been esti-
mated using present value or other estimation
and valuation techniques based on market condi-
tions existing at balance sheet date.
The values derived using these techniques are
significantly affected by underlying assumptions
concerning both the amounts and timing of future
cash flows and the discount rates used. The fol-
lowing methods and assumptions have been used:
(a) trading assets, derivatives and other transac-
tions undertaken for trading purposes are
measured at fair value by reference to quoted
market prices when available. If quoted mar-
ket prices are not available, then fair values
are estimated on the basis of pricing models,
or discounted cash flows. Fair value is equal
to the carrying amount for these items;
(b) the fair value of liquid assets and other assets
maturing within 12 months is assumed to
approximate their carrying amount. This
assumption is applied to liquid assets and the
short term elements of all other financial
assets and financial liabilities;
the fair value of demand deposits and savings
is
accounts with no specific maturity
(c)
UBS Group Financial Statements
Notes to the Financial Statements
Note 34 Fair value of financial instruments (continued)
assumed to be the amount payable on
demand at the balance sheet date;
(d) the fair value of variable rate financial instru-
ments is assumed to approximate their carry-
ing amounts;
(e) the fair value of fixed rate loans and mort-
gages is estimated by comparing market
interest rates when the loans were granted
with current market rates offered on similar
loans. Changes in the credit quality of loans
within the portfolio are not taken into
account in determining gross fair values as
the impact of credit risk is recognized sepa-
rately by deducting the amount of the
allowance for credit losses from both book
and fair values.
The assumptions and techniques have been
developed to provide a consistent measurement
of fair value for the Group’s assets and liabilities.
However, because other institutions may use dif-
ferent methods and assumptions, such fair value
disclosures cannot necessarily be compared from
one financial institution to another.
CHF billion
Assets
Cash and balances with central banks
Money market paper
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Loans, net of allowance for credit losses
Financial investments
Liabilities
Money market paper issued
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Long term debt
Fair value effect on income
of hedging derivatives recorded
on the accrual basis
Net difference between
carrying value and fair value
Carrying
value
Fair Unrealized
gain/(loss)
31.12.1999 31.12.1999 31.12.1999 31.12.1998 31.12.1998 31.12.1998
Fair Unrealized
value gain/(loss)
Carrying
value
value
5.0
69.7
30.0
113.2
144.8
217.0
130.5
235.1
5.9
64.7
76.9
12.8
209.2
54.6
161.9
280.1
56.4
5.0
69.7
30.0
113.2
144.8
217.0
130.5
235.3
7.1
64.7
76.9
12.8
209.2
54.6
161.9
280.1
57.6
3.3
18.4
68.6
91.7
141.3
162.6
169.9
248.3
5.7
51.5
86.1
19.2
137.6
47.0
205.1
275.3
51.0
3.3
18.4
68.7
91.7
141.3
162.6
169.9
250.7
6.5
51.5
86.1
19.2
137.6
47.0
205.1
275.6
53.3
0
0
0
0
0
0
0
0.2
1.2
0
0
0
0
0
0
0
(1.2)
0.5
0.7
0
0
0.1
0
0
0
0
2.4
0.8
0
0
0
0
0
0
(0.3)
(2.3)
1.0
1.7
The table does not reflect the fair values of
non-financial assets and liabilities such as prop-
erty (including those properties carried as finan-
cial investments), equipment, prepayments and
non-interest accruals. The interest amounts ac-
crued to date for respective financial instruments
are included, for purposes of the above fair value
disclosure, in the carrying value of the financial
instruments.
Substantially all of the Group’s commitments
to extend credit are at variable rates. Accordingly,
the Group has no significant exposure to fair
value fluctuations related to these commitments.
Changes in the fair value of the Group’s fixed
rate loans, long and medium term notes and
bonds issued are hedged by derivative instru-
ments, mainly interest rate swaps. The interest
rate risk inherent in the balance sheet positions
115
UBS Group Financial Statements
Notes to the Financial Statements
Note 34 Fair value of financial instruments (continued)
with no specific maturity is also hedged with
derivative instruments based on the management
view on the economic maturity of the products.
The hedging derivative instruments are carried
at fair value on the balance sheet and are part of
the replacement values in the above table. The
difference between the total amount of valuation
gains and losses and the amortized amount is
deferred and shown net in the table as fair value
effect on income of hedging derivatives recorded
on accruals basis.
During 1999, the interest rate level of leading
economies increased substantially. The biggest
move in rates was noted in Switzerland, where in
particular mid and long term rates increased.
These moves in rates had direct impact on the fair
value calculation of fixed term transactions.
As the bank has an excess volume of fixed rate
long term assets over fixed rate long term liabili-
ties, the net fair value unrealized gain is reduced
substantially. In addition to fixed rate balance
sheet positions, the bank has a number of retail
products traditionally offered in Switzerland
such as variable mortgage loans and customer
savings and deposits. These instruments have no
maturity or have a contractual repricing maturi-
ty of less than one year. Based on the assumptions
and the guidance under IAS, they are excluded
from the fair value calculations of the table
above.
The exclusion of the above traditional bank-
ing products from the fair value calculation leads
to certain fair value swings. By calculating the
fair value differences based on the economic
maturity of the non maturity liabilities, such as
savings and deposits, in an environment of rais-
ing interest rates, they would generate fair value
gains which may offset most of the fair value loss
reported for fixed term transactions.
Note 35 Retirement benefit plans and other employee benefits
The Group has established various pension plans
inside and outside of Switzerland. The major
plans are located in Switzerland, the UK, the US
and Germany. Independent actuarial valuations
are performed for the plans in those locations.
Swiss pension plans until 30 June 1999
The pension funds of the Group are set up as
trusts, domiciled in Basel and Zurich. All domes-
tic employees are covered. The pension funds are
defined benefit plans. The pension plan benefits
exceed the minimum benefits required under the
Swiss law.
Contributions are paid for by the Group and
the employees. The employee contributions are
calculated as a percentage of the insured annual
salary and are deducted monthly. The percentages
deducted from the salary are depending on age
and vary between 8% and 12%. The Group con-
tributions are variable and amount from 125% to
250% of the employees contributions depending
on the financial situation of the pension fund.
fits covered include retirement benefits, disabili-
ty, death and survivor pension.
Swiss pension plans starting 1 July 1999
The pension plans of both former banks in
Switzerland are in the process of being liquidated
and a new foundation with domicile in Zurich
has been created as of 21 January 1999. The
new pension scheme became operational as of
1 July 1999.
As a result of the merger of the plans of the
former banks in Switzerland, on 1 July 1999
there was a one-time increase of vested plan ben-
efits for the beneficiaries of such plans. This had
the effect of increasing the Defined Benefit Obli-
gation at this date by CHF 3,525 million. In
accordance with IAS 19 (revised 1998) this
resulted in a one-time charge to income which
was offset by the recognition of assets (previously
unrecognized due to the paragraph 58 (b) limita-
tion of IAS 19) (revised 1998) used to fund this
increase in benefits.
The pension plan formula is based on years of
contributions and final covered salary. The bene-
The pension plan, covers practically all
employees in Switzerland and exceeds the mini-
116
UBS Group Financial Statements
Notes to the Financial Statements
Note 35 Retirement benefit plans and other employee benefits
(continued)
mum benefits requirements under the Swiss law.
Contributions for the pension plan are paid for
by the employees and the Group. The employee
contributions are calculated as a percentage of
the insured annual salary and are deducted
monthly. The percentages deducted from the
salary for the full benefit coverage (including risk
benefits) are depending on age and vary between
7% and 10%. The Group pays a variable contri-
bution that ranges between 150% and 220% of
the sum of the employees’ contributions.
The pension plan formula is based on years of
contributions and final covered salary. The bene-
fits covered include retirement benefits, disabili-
ty, death and survivor pension.
The Group booked an amount of CHF 456
million in 1999 related to the recognition of
“Excess Employer Contributions”. These assets
were recognized in the fourth quarter as certain
legal and regulatory issues related to the Group’s
ability to utilize these assets for future funding
purposes were resolved.
CHF million
Swiss pension plans
Defined benefit obligation
Plan assets at fair value
Plan assets in excess of benefit obligation
Unrecognized net actuarial (gains) / losses
Unrecognized assets
(Unfunded accrued) / prepaid pension cost
Additional details to fair value of plan assets
Own financial instruments and securities lent to UBS included in plan assets
Any assets used by the bank included in plan assets
Retirement benefits expense
Current service cost
Interest cost
Expected return on plan assets
Adjustment to limit prepaid pension cost
Amortization of unrecognized prior service costs
Employee contributions
Actuarially determined net periodic pension cost
Actual return on plan assets (%)
Principal actuarial assumptions used (%)
Discount rate
Expected rate of return on assets p.a.
Expected rate of salary increase
Rate of pension increase
31.12.1999
31.12.1998
(17,011)
18,565
1,554
(724)
(374)
456
6,785
187
464
636
(883)
(150)
172
(180)
59
11.9
4.0
5.0
2.0–3.0
1.5
(14,944)
17,885
2,941
(385)
(2,556)
0
2,761
176
535
726
(856)
148
6
(185)
374
6.7
5.0
5.0
3.5–5.5
2.0
Foreign pension plans
The foreign locations of UBS operate various
pension schemes in accordance with the local reg-
ulations and practices. Among these schemes are
defined contribution plans as well as defined ben-
efit plans. The locations with defined benefit
plans of a material nature are in the UK, the US
and Germany. These locations together with
Switzerland cover nearly 90% of the active work-
force. Certain of these schemes permit employees
to make contributions and earn matching or
other contributions from the Group.
The retirement plans provide benefits in the
event of retirement, death, disability or employ-
ment termination. The plans’ retirement benefits
depend on age, contributions and level of com-
pensation. The principal plans are financed in full
by the Group. The funding policy for these plans
is consistent with local government and tax
requirements.
117
UBS Group Financial Statements
Notes to the Financial Statements
118
Note 35 Retirement benefit plans and other employee benefits
(continued)
The assumptions used in foreign plans take
into account local economic conditions.
The amounts shown for foreign plans reflect
the net funded positions of the major foreign
plans.
Postretirement medical and life plans
The Group in the US and the UK offers
retiree medical benefits that contribute to the
health care coverage of the employees and bene-
ficiaries after retirement. In addition to retiree
medical, the US also provides retiree life insur-
ance benefits.
The benefit obligation in excess of plan assets
for those plans amounts to CHF 113 million as of
31 December 1999 (1998 CHF 93 million, 1997
CHF 100 million) and the total unfunded accrued
postretirement liabilities to CHF 83 million
(1998 CHF 62 million, 1997 CHF 50 million).
The actuarially determined net postretirement
cost amounts to CHF 17 million for 1999 (1998
CHF 17 million, 1997 CHF 14 million).
CHF million
Pension plans abroad
Defined benefit obligation
Plan assets at fair value
Plan assets in excess of benefit obligation
Unrecognized net actuarial (gains) / losses
Unrecognized transition amount
Unrecognized past service cost
Unrecognized assets
(Unfunded accrued) / prepaid pension cost
Movement of net (liability) or asset
Prepaid pension cost at the beginning of the period
Net periodic pension cost
Employer contributions
Currency adjustment
(Unfunded accrued) / prepaid pension cost at the end of the year
Retirement benefits expense
Current service cost
Interest cost
Expected return on plan assets
Amortization of net transition liability
Adjustment to limit prepaid pension cost
Immediate recognition of transition assets under IAS 8
Amortization of unrecognized prior service costs
Amortization of unrecognized net (gain) / losses
Effect of any curtailment or settlement
Employee contributions
Actuarially determined net periodic pension cost
Actual return on plan assets (%)
Principal actuarial assumptions used (%)
Discount rate
Expected rates of return on assets p.a.
Expected rate of salary increase
Rate of pension increase
31.12.1999
31.12.1998
(2,444)
2,880
(2,009)
2,173
436
(474)
1
2
(28)
(63)
43
(123)
22
(5)
(63)
118
123
(195)
0
21
0
77
(6)
0
(15)
123
15.3
164
(63)
2
0
(60)
43
36
(33)
43
(3)
43
116
140
(191)
2
2
(23)
7
(3)
(8)
(9)
33
5.2
5.75–7.5
8.0–8.5
3.5–5.6
0.0–2.5
6.5–7.5
8.5–8.75
3.5–9.0
0.0–3.75
UBS Group Financial Statements
Notes to the Financial Statements
Note 36 Equity participation plans
UBS AG has established various equity participa-
tion plans in the form of stock plans and stock
option plans to further align the long term inter-
ests of managers, staff and shareholders.
Key personnel are awarded a portion of their
performance-related compensation in UBS AG
shares or options, which are restricted for a spec-
ified number of years. Long-term stock options
are granted to key employees under another plan.
A number of awards under these plans are made
in notional shares or options, which generally are
settled in cash and are treated as liabilities. Par-
ticipation in both plans is mandatory. Long term
stock options are blocked for three or five years,
during which they cannot be exercised. For the
1997 options and certain of the 1998 options,
one half of each award is subject to an accelera-
tion clause after which certain forfeiture provi-
sions lapse. One option gives the right to pur-
chase one registered UBS AG share at the option’s
strike price. Neither the fair value nor the intrin-
sic value of the options granted is recognized as
an expense in the financial statements.
Other employees have the choice to invest part
of their annual bonus in UBS AG shares or in
options or derivatives on UBS AG shares, which
may be exercised or settled in cash. A number of
awards under these plans are made in notional
shares or instruments, which generally are settled
in cash. A holding period, generally three years,
applies during which the instruments cannot be
sold or exercised. In addition, participants in the
plan receive a restricted matching contribution of
additional UBS AG shares or derivatives. Shares
awarded under the plan are purchased or hedged
in the market. Under another plan, employees in
Switzerland are entitled to purchase a specified
number of UBS AG shares at a predetermined dis-
counted price each year (the discount is recorded
as compensation expense). The number of shares
that can be purchased depends primarily on years
of service and rank. Any such shares purchased
must be held for a specified period of time. Infor-
mation on shares available for issuance under
these plans is included in the Group Statement of
Changes in Equity.
Number of
options
31.12.1999
Weighted-average
exercise price
(in CHF)
31.12.1999
Number of
options
31.12.1998
Weighted-average
exercise price
(in CHF)
31.12.1998
Outstanding, at the beginning
of the year
Granted during the year
Exercised during the year
Forfeited during the year
3,601,393
1,719,571
(35,883)
(215,850)
Outstanding, at the end of the year
5,069,231
Exercisable, at the end of the year
325,320
353
474
357
380
393
371
949,962
2,905,889
(11,485 )
(242,973 )
3,601,393
0
371
363
355
535
353
0
Of the total options outstanding at 31 December
1999: 4,987,385 options (325,320 of which were
exercisable) had exercise prices ranging from
CHF 340 to CHF 474, or CHF 391 on average,
and had a weighted-average remaining contrac-
tual life of 4.58 years; and 81,846 options (none
of which were exercisable) had exercise prices
ranging from CHF 510 to CHF 540, or CHF 521
on average, and had a weighted-average remain-
ing contractual life of 4.45 years.
119
Note 37 Related parties
Related parties include the Board of Directors, the Group Executive Board, the Group Managing
Board, close family members and enterprises which are controlled by these individuals.
Total remuneration of related parties recognized in the income statement during the year amounted
to CHF 193.1 million and CHF 102.8 million for the year ended 1998. The number of long term stock
options outstanding from equity plans was 137,308 at 31 December 1999 and 127,500 at 31 Decem-
ber 1998. This scheme is further explained in note 36 Equity Participation Plans.
Total amount of shares and warrants held by members of the Board of Directors, Group Executive
Board and Group Managing Board were 1,228,046 and 11,424,514 as of 31 December 1999 and
2,317,902 and 3,089,374 as of 31 December 1998.
Total loans and advances receivable (mortgages only) from related parties were as follows:
CHF million
Mortgages at the beginning of the year
Additions
Reductions
Mortgages at the end of the year
1999
27
6
(5)
28
Members of the Board of Directors, Group Executive Board and Group Managing Board are grant-
ed mortgages at the same terms and conditions as other employees. Terms and conditions are based
on third party conditions excluding credit margin.
Loans and advances to significant associated companies were as follows:
CHF million
Loans and advances at the beginning of the year
Additions
Reductions
Loans and advances at the end of the year
Note 39 provides a list of significant associates.
1999
165
42
(145)
62
Note 38 Post-balance sheet events
There have been no material post-balance sheet events which would require disclosure or adjustment
to the December 1999 financial statements.
UBS Group Financial Statements
Notes to the Financial Statements
120
UBS Group Financial Statements
Notes to the Financial Statements
Note 39 Significant subsidiaries and associates
Significant subsidiaries
Company
Registered
office
Division
Share
capital
in millions
Equity
interest
accumul-
ated in %
Bern
Zurich
Basel
Lugano
Chicago
Georgetown
Zurich
St Helier
Zurich
Zurich
Zurich
Geneva
Hamilton
Armand von Ernst & Cie AG
Aventic AG
Bank Ehinger & Cie AG
BDL Banco di Lugano
Brinson Partners Inc.
Brunswick Warburg Limited
Cantrade Privatbank AG
Cantrade Private Bank Switzerland (CI) Ltd
Crédit Industriel SA
EIBA “Eidgenössische Bank”
Factors AG
Ferrier Lullin & Cie SA
Global Asset Management Ltd
HYPOSWISS, Schweizerische Hypotheken- und Handelsbank Zurich
IL Immobilien-Leasing AG
Indelec Holding AG
Intrag
Klinik Hirslanden AG
NYRE Holding Corp
Phillips & Drew Fund Management Limited
Phillips & Drew Limited
PT Warburg Dillon Read Indonesia
SBC Equity Partners AG
Schröder Münchmeyer Hengst AG
SG Warburg & Co International BV
SG Warburg Securities SA
Solothurner Bank SoBa
Systor AG
Thesaurus Continentale Effekten-Gesellschaft Zürich
UBS Investment Management Pte Ltd
UBS (Bahamas) Ltd
UBS (Cayman Islands) Ltd
UBS (France) SA
UBS (Italia) SpA
UBS (Luxembourg) SA
UBS (Monaco) SA
UBS (Panama) SA
UBS (Sydney) Limited
UBS (Trust and Banking) Ltd
UBS (USA), Inc.
UBS Australia Holdings Ltd
UBS Australia Ltd
UBS Bank (Canada)
UBS Beteiligungs-GmbH & Co KG
UBS Brinson Asset Management Co. Ltd
UBS Brinson Inc.
UBS Brinson Investment GmbH
UBS Brinson Limited
UBS Brinson Ltd
UBS Brinson Pte Ltd
UBS Brinson SA
UBS Capital AG
UBS Capital Asia Pacific Ltd
UBS Capital BV
UBS Capital GmbH
UBS Capital II LLC
UBS Capital LLC
Opfikon
Basel
Zurich
Zurich
Wilmington
London
London
Jakarta
Opfikon
Hamburg
Amsterdam
Geneva
Solothurn
Zurich
Zurich
Singapore
Nassau
Georgetown
Paris
Milan
Luxembourg
Monte Carlo
Panama
Sydney
Tokyo
Delaware
Sydney
Sydney
Toronto
Frankfurt
Tokyo
New York
Frankfurt
London
Sydney
Singapore
Paris
Zurich
Georgetown
The Hague
Frankfurt
Delaware
New York
PB 1
PCC 2
PB
PB
AM 3
WA 4
PB
PB
CAP 5
CAP
PCC
PB
AM
PB
PCC
CAP
PB
CC 6
WA
AM
AM
WA
CAP
PB
WA
WA
PCC
PCC
CAP
WA
PB
PB
WA
PB
PB
PB
PB
WA
PB
WA
WA
WA
PB
WA
AM
AM
AM
AM
AM
AM
AM
CAP
CAP
CAP
CAP
CAP
CAP
CHF
CHF
CHF
CHF
USD
USD
CHF
GBP
CHF
CHF
CHF
CHF
USD
CHF
CHF
CHF
CHF
CHF
USD
GBP
GBP
IDR
CHF
DEM
GBP
CHF
CHF
CHF
CHF
SGD
USD
USD
EUR
ITL
CHF
EUR
USD
AUD
JPY
USD
AUD
AUD
CAD
EUR
JPY
USD
DEM
GBP
AUD
SGD
EUR
CHF
USD
EUR
EUR
USD
USD
5.0
30.0
6.0
50.0
–
50.0
10.0
0.7
10.0
14.0
5.0
30.0
2.0
26.0
5.0
10.0
10.0
22.5
102.97
–
8.0
11,000.0
71.7
100.0
148.07
14.5
50.0
5.0
30.0
0.5
4.0
5.6
10.0
43,000.0
150.0
9.2
6.0
12.7
10,500.0
763.37
11.7
15.0
90.47
398.8
800.0
72.77
10.0
8.8
8.0
4.0
0.8
0.5
5.0
104.17
–
2.77
18.67
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
91.2
100.0
100.0
100.0
85.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
90.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
121
Footnotes
1 PB: UBS Private Banking.
2 PCC: UBS Private and Corporate Clients.
3 AM: UBS Asset Management.
4 WA: UBS Warburg.
5 CAP: UBS Capital.
6 CC: Corporate Center.
7 Share capital + share premium.
UBS Group Financial Statements
Notes to the Financial Statements
Footnotes
1 PB: UBS Private Banking.
2 PCC: UBS Private and Corporate Clients.
3 AM: UBS Asset Management.
4 WA: UBS Warburg.
5 CAP: UBS Capital.
6 CC: Corporate Center.
7 Share capital + share premium.
122
Note 39 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued)
Company
UBS Capital Partners Ltd
UBS Capital S.p.A.
UBS Card Center AG
UBS España SA
UBS Finance (Cayman Islands) Limited
UBS Finance (Curaçao) NV
UBS Finance (Delaware) LLC
UBS Finanzholding AG
UBS Fund Holding (Luxembourg) SA
UBS Fund Holding (Switzerland) AG
UBS Fund Management (Japan) Co. Ltd
UBS Fund Management (Switzerland) AG
UBS Fund Services (Luxembourg) S.A.
UBS Futures & Options Limited
UBS Immoleasing AG
UBS Inc.
UBS International Holdings BV
UBS Invest Kapitalanlagegesellschaft mbH
UBS Lease Finance LLC
UBS Leasing AG
UBS Limited
UBS Overseas Holding BV
UBS Securities (Hong Kong) Ltd
UBS Securities Limited
UBS (International) Limited
UBS Services (Japan) Ltd
UBS Services Limited
UBS Trust (Canada)
UBS UK Holding Ltd
UBS UK Limited
Warburg Dillon Read (Asia) Ltd
Warburg Dillon Read (Australia) Corporation Pty Limited
Warburg Dillon Read (España) SA
Warburg Dillon Read (France) SA
Warburg Dillon Read (Hong Kong) Ltd
Warburg Dillon Read (Italia) S.I.M. SpA
Warburg Dillon Read (Japan) Ltd
Warburg Dillon Read (Malaysia) Sdn. Bhd.
Warburg Dillon Read (Nederland) BV
Warburg Dillon Read AG
Warburg Dillon Read Australia Ltd
Warburg Dillon Read Derivatives Ltd
Warburg Dillon Read Futures Inc.
Warburg Dillon Read International Limited
Warburg Dillon Read LLC
Warburg Dillon Read Pte Ltd
Warburg Dillon Read Securities (España) SVB SA
Warburg Dillon Read Securities (India) Private Ltd
Warburg Dillon Read Securities (Philippines) Inc
Warburg Dillon Read Securities (South Africa) (Pty) Ltd
Warburg Dillon Read Securities Co. Ltd
Warburg Dillon Read Securities Ltd
Registered
office
Division
Share
capital
in millions
Equity
interest
accumul-
ated in %
CAP
London
CAP
Milan
PCC
Glattbrugg
PB
Madrid
CC
Georgetown
CC
Curaçao
WA
Wilmington
CC
Zurich
PB
Luxembourg
PB
Basel
PB
Tokyo
PB
Basel
PB
Luxembourg
WA
London
PCC
Zurich
WA
New York
CC
Amsterdam
PB
Frankfurt
WA
New York
PCC
Brugg
WA
London
CAP
Amsterdam
WA
Hong Kong
WA
London
WA
London
WA
London
WA
London
PB
Toronto
WA
London
WA
London
WA
Hong Kong
WA
Sydney
WA
Madrid
WA
Paris
WA
Hong Kong
WA
Milan
Georgetown
WA
Kuala Lumpur WA
WA
Amsterdam
WA
Frankfurt
WA
Sydney
WA
Hong Kong
WA
Chicago
WA
London
WA
New York
WA
Singapore
WA
Madrid
WA
Mumbai
WA
Makati
WA
Sandton
WA
Bangkok
WA
London
GBP
ITL
CHF
EUR
USD
USD
USD
CHF
CHF
CHF
JPY
CHF
CHF
GBP
CHF
USD
CHF
DEM
USD
CHF
GBP
EUR
HKD
GBP
GBP
JPY
GBP
CAD
GBP
GBP
HKD
AUD
EUR
EUR
HKD
EUR
JPY
MYR
EUR
EUR
AUD
HKD
USD
GBP
USD
SGD
EUR
INR
PHP
ZAR
THB
GBP
6.7
50,000.0
40.0
35.3
0.5
0.1
37.37
10.0
42.0
18.0
1,000.0
1.0
2.5
2.0
3.0
308.77
5.5
5.0
16.7
10.0
10.0
18.17
20.0
10.0
10.0
41,353.5
–
10.0
5.0
609.0
20.0
50.47
1.2
22.9
30.0
1.8
30,000.0
0.5
10.9
155.7
571.57
20.0
14.37
18.0
535.07
3.0
13.4
0.4
120.0
22.0
400.0
140.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
64.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
75.0
100.0
100.0
100.0
100.0
UBS Group Financial Statements
Notes to the Financial Statements
Note 39 Significant subsidiaries and associates (continued)
Significant associates
Company
Giubergia Warburg SIM SpA, Milan
Motor Columbus AG, Baden
National Versicherung AG, Basel
Telekurs Holding AG, Zurich
Swiss Financial Services Group AG, Zurich
Equity interest in %
Share capital in millions
50.0
35.6
28.4
33.3
30.7
ITL
CHF
CHF
CHF
CHF
29,000
253
35
45
26
None of the above investments carry voting rights that are significantly different from the proportion
of shares held.
Consolidated companies: changes in 1999
New companies
Global Asset Management Ltd., Hamilton
Klinik Hirslanden AG, Zurich
UBS Brinson Realty Investors LLC, Hartford (formerly Allegis Realty Investors LLC)
UBS Capital AG, Zurich
UBS España SA, Madrid
UBS (France) SA, Paris
UBS Trustees (Channel Island) Ltd., Jersey (formerly Bankamerica Trust Company)
Deconsolidated companies
Name
UBS (East Asia) Ltd, Singapore
UBS Securities (Singapore) Pte Ltd, Singapore
Reason for deconsolidation
Deregistered
Deregistered
Note 40 Significant currency translation rates
The following table shows the significant rates used to translate the financial statements of foreign
entities into Swiss francs.
1 USD
1 EUR
1 GBP
100 JPY
100 DEM
Spot rate
Average rate
31.12.1999
31.12.1998
31.12.1999
31.12.1998
1.59
1.61
2.58
1.56
82.07
1.38
–
2.29
1.22
82.19
1.50
1.60
2.43
1.33
81.88
1.45
–
2.41
1.11
82.38
123
UBS Group Financial Statements
Notes to the Financial Statements
124
Note 41 Swiss banking law requirements
The significant differences between International
Accounting Standards (IAS), which are the prin-
ciples followed by the Group, and the accounting
requirements for banks under Swiss laws and
regulations, are as follows:
Securities borrowing and lending
Under IAS only the cash collateral delivered or
received is recognized in the balance sheet. There
is no recognition or derecognition for the securi-
ties received or delivered. The Swiss requirement
is to recognize the securities received or delivered
in the balance sheet along with any collateral in
respect of those securities for which control is
transferred.
Treasury shares
Treasury shares is the term used to describe the
holding by an enterprise, of its own equity instru-
ments. In accordance with IAS treasury shares
not held for trading are presented in the balance
sheet as a deduction from equity. No gain or loss
is recognized in the income statement on the sale,
issuance, or cancellation of those shares. Con-
sideration received is presented in the financial
statement as a change in equity.
Under Swiss requirements, treasury shares
would be carried in the balance sheet as financial
investments with gains and losses on the sale,
issuance, or cancellation of treasury shares
reflected in the income statement.
Extraordinary income and expense
Under IAS most items of income and expense
arise in the course of ordinary business, and
extraordinary items are expected to be rare.
Under the Swiss requirements, income and
expense items not directly related with the core
business activities of the enterprise (e.g. sale of
fixed assets or bank premises) are recorded as
extraordinary income or expense.
CHF million
Differences in the balance sheet
Securities borrowing and lending
Assets
Trading portfolio / Money market paper
Due from banks / customers
Liabilities
Due to banks / customers
Trading portfolio liabilities
Treasury shares
Assets
Financial investments
Differences in the income statement
Treasury shares
Reclassification of extraordinary income and expense
Other income, including income from associates
General administrative expenses
Differences in the shareholders’ equity
Treasury shares
31.12.1999
31.12.1998
47,401
273,093
375,080
(54,586)
3,136
(182)
(1,726)
(519)
97,907
40,915
185,855
(47,033)
1,482
369
(1,350)
(1,235)
3,462
1,482
UBS Group Financial Statements
Report of the Group Auditors
125
UBS AG
(Parent Bank)
UBS AG (Parent Bank)
Table of Contents
Parent Bank Review
Financial Statements
Income Statement
Balance Sheet
Statement of appropriation of retained earnings
Notes to the Financial Statements
Additional income statement information
Net trading income
Extraordinary income and expenses
Additional balance sheet information
Value adjustments and provisions
Statement of shareholders’ equity
Share capital
129
130
130
131
131
132
133
133
133
133
133
134
134
Off balance sheet and other information
Assets pledged or assigned as security for
own obligations, assets subject to reservation of title 135
135
Fiduciary transactions
Due to UBS pension plans,
loans to corporate bodies / related parties
135
135
Report of the Statutory Auditors
136
UBS AG (Parent Bank)
Table of Contents
128
Parent Bank Review
UBS AG (Parent Bank)
Parent Bank Review
Income statement
Balance sheet
Due to the merger of Union Bank of Switzerland
and Swiss Bank Corporation, the financial year
of the parent bank UBS AG in 1998 covered a 15-
month period from 1 October 1997 to 31 Decem-
ber 1998. This should be borne in mind when
comparing the two income statements where the
profit of CHF 6,788 million for 1999 relates to
CHF 650 million for the 15 months in 1998.
– Income
in associates
investments
decreased to CHF 1,669 million from CHF
2,974 million in 1998 due to the reduction of
repatriation of capital to the parent bank.
from
income
– Sundry
from ordinary activities
amounted to CHF 894 million in 1999, down
from CHF 1,162 million in 1998. It includes a
CHF 200 million gain from the disposal of the
international Global Trade Finance business.
– Allowances, provisions and losses were CHF
1,815 million. In 1998 they were CHF 4,849
million. This variance is discussed in more
detail in the Group Financial Statements.
– Extraordinary income amounted to CHF
2,518 million, while in 1998 it stood at CHF
3,940 million, reflecting the disposal of asso-
ciated companies and the sale of bank premis-
es. Further information regarding extraordi-
nary income and expenses can be found in the
Additional Income Statement Information.
Total assets grew by CHF 58 billion to CHF
1,099 billion by 31 December 1999. Excluding
currency related effects total assets declined 1%.
The growing volume of reverse repurchase agree-
ments and securities lending and borrowing led
to an increase in assets and liabilities due from
and to banks. Note that these transactions are
presented differently in the Group balance sheet.
These increases were offset by declining replace-
ment values.
129
UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement
CHF million
Interest and discount income
Interest and dividend income from financial assets
Interest expense
Net interest income
Credit-related fees and commissions
Fee and commission income from securities and investment business
Other fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Net income from disposal of financial assets
Income from investments in associated companies
Income from real estate holdings
Sundry income from ordinary activities
Sundry ordinary expenses
Other income from ordinary activities
Operating income
Personnel
General administrative
Operating expenses
Operating profit
Depreciation and write-offs on fixed assets
Allowances, provisions and losses
Profit before extraordinary items and taxes
Extraordinary income
Extraordinary expenses
Tax expense / (benefit)
Profit for the period
01.01.1999–
31.12.1999
01.10.1997–
31.12.1998
24,172
41
(18,148)
6,065
361
7,758
534
(763)
7,890
5,593
440
1,669
30
894
(21)
3,012
22,560
9,178
5,154
14,332
8,228
423
1,815
5,990
2,518
411
1,309
6,788
33,205
240
(25,412)
8,033
766
9,229
687
(781)
9,901
383
756
2,974
38
1,162
(185)
4,745
23,062
7,977
6,290
14,267
8,795
815
4,849
3,131
3,940
7,046
(625)
650
130
UBS AG (Parent Bank)
Financial Statements
31.12.1999
31.12.1998
Change
%
Balance Sheet
CHF million
Assets
Liquid assets
Money market paper
Due from banks
Due from customers
Mortgage loans
Trading balances in securities and precious metals
Financial assets
Investments in associated companies
Tangible fixed assets
Accrued income and prepaid expenses
Positive replacement values
Other assets
Total
Total subordinated assets
Total amounts receivable from Group companies
Liabilities
Money market paper issued
Due to banks
Due to customers on savings and deposit accounts
Other amounts due to customers
Medium term note issues
Bond issues and loans from central mortgage institutions
Accruals and deferred income
Negative replacement values
Other liabilities
Value adjustments and provisions
Share capital
General statutory reserve
Reserve for own shares
Other reserves
Profit brought forward
Profit for the period
3,975
62,154
356,858
195,464
123,151
196,782
5,067
6,727
5,709
3,555
131,730
7,923
2,876
14,610
303,032
192,429
131,788
191,578
3,010
6,153
6,840
5,293
173,020
10,318
1,099,095
1,040,947
939
197,211
1,236
115,140
47,931
352,775
76,414
341,509
5,918
44,254
8,746
159,713
7,835
18,554
4,309
14,528
3,462
6,356
3
6,788
30,963
314,258
77,964
295,381
8,303
36,180
9,853
207,410
14,915
15,176
4,300
14,295
490
10,806
3
650
Total
Total subordinated liabilities
Total liabilities to Group companies
1,099,095
1,040,947
13,362
160,055
12,528
108,666
Statement of appropriation of retained earnings
The Board of Directors proposes to the Annual General Meeting the following appropriation:
Profit for the financial year 1999 as per the Parent Bank’s Income Statement
Retained earnings from prior years
Available for appropriation
Appropriation to general statutory reserve
Appropriation to other reserves
Proposed dividends
Retained earnings carried forward
1,099
47,544
53,826
3,035
(8,637 )
5,204
2,057
574
(1,131 )
(1,738 )
(41,290 )
(2,395 )
58,148
(297 )
82,071
16,968
38,517
(1,550 )
46,128
(2,385 )
8,074
(1,107 )
(47,697 )
(7,080 )
3,378
9
233
2,972
(4,450 )
0
6,138
58,148
834
51,389
38
325
18
2
(7)
3
68
9
(17)
(33)
(24)
(23)
6
(24)
71
55
12
(2)
16
(29)
22
(11)
(23)
(47)
22
0
2
607
(41)
0
944
6
7
47
CHF million
6,788
3
6,791
(215)
(4,200)
(2,364)
12
Dividend distribution
Upon acceptance of this proposal, the dividend for 1999 will amount to CHF 11.– gross per share of CHF 20.– par value.
The dividend will be paid on 26 April 2000, to shareholders or to their depository bank, after deduction of 35% Swiss
withholding tax.
131
UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the
Financial Statements
Accounting and valuation principles
The parent company’s accounting and valuation
policies are in compliance with Swiss federal
banking law. The accounting and valuation poli-
cies are principally the same as outlined for the
Group Financial Statements in Note 1: Signifi-
cant Accounting Policies of the Group Financial
Statements. Major differences between the Swiss
federal banking law requirements and Interna-
tional Accounting Standards are described in
Note 41 to the Group Financial Statements. In
addition, the following principles are applied for
the parent bank:
Investments in associated companies
Investments in associated companies are equity
interests which are held on a long term basis for
the purpose of the parent company’s business
activities. They are carried at a value no higher
than their cost price.
Property and equipment
Bank buildings and other real estate are carried at
cost less depreciation at a rate which takes
account of the economic and business situation
and which is permissible for tax purposes. Depre-
ciation of computer and telecommunication
equipment, as well as other 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 Equip-
ment are summarized in Note 1, Significant
Accounting Policies, of the Group Financial
Statements.
Extraordinary income and expenses
Certain items of income and expense appear as
extraordinary within the Parent Bank Financial
Statements, whereas in the Group Financial
Statements they are considered to be operating
income or expenses and appear within the appro-
priate income or expense category. These are sep-
arately identified below.
Taxation
Deferred Tax Assets, except those relating to
Restructuring Provisions, and Deferred Tax Lia-
bilities, except for a few immaterial exceptions,
are not recognized in the Parent Bank Financial
Statements as it is not required by Swiss federal
banking law to do so.
132
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional income statement information
Net trading income
CHF million
Foreign exchange and banknotes
Bonds and other interest rate instruments
Equities
Precious metals and commodities
Total
01.01.1999–
31.12.1999
01.10.1997–
31.12.1998
717
1,816
3,089
(29)
5,593
2,156
(1,440)
(421)
88
383
Extraordinary income and expenses
Extraordinary income contains CHF 2,100 mil-
lion (1998: CHF 1,532 million) from the sale of
former subsidiaries, CHF 417 million (1998:
CHF 33 million) from the sale of tangible fixed
assets and CHF 0 million (1998: CHF 2,183 mil-
lion) from a release of provisions no longer
required.
Extraordinary expenses consist mainly of
losses of CHF 157 million (1998: CHF 38 mil-
lion) from the disposal of investments in associ-
ated companies and CHF 254 million (1998:
CHF 8 million) from the sale of tangible fixed
assets.
Additional balance sheet information
Value adjustments and provisions
Provisions Recoveries,
doubtful
applied in
interest,
accordance
currency
with their
translation
specified
differences
purpose
Balance at
31.12.1998
provisions
New Provisions
released
charged and credited
to income
to income
Balance at
31.12.1999
14,027
2,943
394
3,895
(2,980)
(358)
(146)
(2,097)
705
510
28
(223)
1,601
1,356
964
1,287
(424)
(1,184)
(87)
(482)
12,929
3,267
1,153
2,380
21,259
(5,581)
1,020
5,208
(2,177)
19,729
CHF million
Default risks
(credit and country risk)
Other business risks 1
Capital and income taxes
Other provisions
Total allowance for
general credit losses
and other provisions
Allowances deducted from assets
(6,083 )
Total provisions as
per balance sheet
15,176
–
–
1 Provisions for litigation, settlement and other business risks.
–
–
–
–
–
–
(1,175)
18,554
133
Additional balance sheet information (continued)
Statement of shareholders’ equity
CHF million
31.12.1999
31.12.1998
Change
%
Shareholders’ equity
Share capital at the beginning of the period
General statutory reserves
Reserves for own shares
Other reserves
Reserves for general banking risks
Retained earnings
Total shareholders’ equity at the beginning
of the period (before distribution of profit)
– Reduction of nominal capital
+ Increase in General statutory reserves
+ Capital increase / (decrease)
+ Premium
+ Other allocations
– Allocation / (release) of Reserves for general banking risks
– Prior-year dividend
+ Profit for the period
Total shareholders’ equity at the end of the period
(before distribution of profit)
of which:
Share capital
General statutory reserves
Reserves for own shares
Other reserves
Retained earnings
Share capital
4,300
14,295
490
10,806
0
653
5,755
12,515
964
9,266
667
3,501
30,544
32,668
190
9
45
(38)
0
(2,092)
6,788
(1,467 )
1,467
12
82
35
(667 )
(2,236 )
650
(1,455 )
1,780
(474 )
1,540
(667 )
(2,848 )
(2,124 )
1,467
(1,277 )
(3 )
(37 )
(73 )
667
144
6,138
35,446
30,544
4,902
4,309
14,528
3,462
6,356
6,791
4,300
14,295
490
10,806
653
9
233
2,972
(4,450 )
6,138
(25)
14
(49)
17
(100)
(81)
(7)
–
(87)
(25)
(45)
(209)
–
(6)
944
16
0
2
607
(41)
940
Par value
Ranking for dividends
No. of shares
Capital in CHF
No. of shares
Capital in CHF
Issued and paid up
215,446,581
4,308,931,620
214,920,040
4,298,400,800
Conditional share capital
528,954
10,579,080
–
–
UBS AG (Parent Bank)
Notes to the Financial Statements
134
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
CHF million
Money market paper
Mortgage loans
Securities
Total
31.12.1999
31.12.1998
Change in %
Book
value
35,475
1,869
3,722
41,066
Effective
liability
702
1,325
188
2,215
Book
value
6,956
2,410
14,852
24,218
Effective
liability
0
1,602
8,883
10,485
Book
value
410
(22 )
(75 )
70
Effective
liability
–
(17)
(98)
(79)
Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized
credit lines with central banks, loans from mortgage institutions and security deposits relating to
stock exchange membership.
Fiduciary transactions
CHF million
Deposits
with other banks
with Group banks
Loans and other financial transactions
Total
31.12.1999
31.12.1998
Change
47,802
759
415
46,180
1,543
479
48,976
48,202
1,622
(784 )
(64 )
774
Due to UBS pension plans, loans to corporate bodies /
related parties
CHF million
31.12.1999
31.12.1998
Change
Due to UBS pension plans (including securities borrowed)
and UBS securities held by pension plans
Loans to directors, senior executives and auditing bodies 1
6,785
61
1,250
70
5,535
(9 )
%
4
(51)
(13)
2
%
443
(13)
1 Loans to directors, senior executives and auditing bodies are loans to members of the Board of Directors, the Group Executive Board, the Group
Managing Board and the Group’s official auditors under Swiss company law. This also includes loans to companies which are controlled by these
natural or legal persons.
135
UBS AG (Parent Bank)
Report of the Statutory Auditors
136
UBS Corporate
Governance
UBS Corporate Governance
Corporate and Executive Bodies
Corporate and
Executive Bodies
UBS is committed to
meet the highest interna-
tional standards of corpo-
rate governance in its
organizational structure
and its system of checks
and balances. Corporate
and executive bodies are
organized in line with the
leading codes of best
practice as well as with
Swiss legal requirements.
138
The Board of Directors
As of 31 December 1999, the Board of Direc-
tors (BoD) consisted of eight non-executive
Directors, while the Articles of Association pro-
vide flexibility to elect between eight and twelve
members. The BoD has ultimate responsibility
for the strategic direction of the UBS Group,
developed and proposed by the Group Execu-
tive Board (GEB). The BoD is also responsible
for the supervision and control of the Group’s
executive management. At the 1999 Annual
General Meeting (AGM), two BoD members
resigned: Georges Schorderet and Manfred
Zobl. Eric Honegger, Chairman designate of
SAirGroup, was newly elected.
The BoD is organized as follows: the Chairman
and the two Vice-Chairmen form the Chairman’s
Office, which assumes a special level of authority
within the organization, mainly in credit approval
and compensation issues. The Chairman’s Office
also acts as the Remuneration Committee. It fixes
the remuneration of the BoD’s full-time members,
the members of the Group Executive Board and
of the Group Managing Board, and it proposes to
the BoD the individual remuneration for its part-
time members.
In its capacity as the Audit Supervisory Board,
the Chairman’s Office also assumes responsibili-
ty for the supervision of internal audit. The Audit
Supervisory Board and the head of Group Inter-
nal Audit meet four times per year to discuss is-
sues raised by both internal and external audit,
and decide subsequently if any special measures
need to be taken. The Audit Supervisory Board
also reviews the annual objectives and activity re-
ports of Group Internal Audit.
The Audit Committee monitors the function-
al adequacy of the auditing work and the co-
operation between internal and external audit. It
is chaired by Peter Böckli with Rolf A. Meyer
as Vice-Chairman and Andreas Reinhart as an
additional member. The Audit Committee meets
two to three times per year together with the
head of Group Internal Audit and the external
auditors, and – specifically for the review of
the annual accounts – with the Chief Financial
Officer.
With this structure in place, UBS observes the
principles of best practice in corporate gover-
nance. The world is, however, moving forward,
and new principles are being discussed and intro-
duced, primarily in the US. UBS carefully watch-
es these developments and aims to remain at the
forefront of organizational excellence.
During 1999, the Board of Directors met
eleven times for ordinary meetings, which are at-
tended by the members of the Group Executive
Board in an advisory capacity. The common
meetings serve to provide a platform for high-
level interaction between the two boards which
have both clearly defined mandates, but share ul-
timate responsibility for the success of the com-
pany. In addition the BoD attended a full-day
meeting to review the Group strategy proposed
by the GEB, and it was informed in detail about
the Group’s communication activities and the tar-
gets of the Human Resources departments during
a one-day offsite together with the GEB. The
further development of the Group, its organiza-
tional and capital structure and the plans to reg-
ister with the US Securities and Exchange Com-
mission (SEC) were major issues addressed. The
review of the quarterly and year-end financial
statements, the regular risk reports and the ap-
proval of the annual budgets are among the core
authorities of the BoD.
The Group Executive Board
The seven members of the Group Executive Board
(GEB) assume ultimate responsibility for the de-
velopment of the Group’s strategy, its implemen-
tation and the financial results. As of 1 May 1999,
Hans de Gier, CEO of the investment banking di-
vision, retired. He was replaced by Markus
Granziol, head of the Equity business area of UBS
Warburg. Peter Wuffli, UBS Group CFO until the
end of April, took over from Gary Brinson as
CEO of the Asset Management Division on 1 Sep-
tember. The position of the Group’s Chief Finan-
cial Officer was assigned to Luqman Arnold, pre-
viously Chief Operating Officer of UBS Warburg.
These personnel changes were followed by some
fundamental organizational alterations: all risk
and control functions were combined and put
under the leadership of the CFO, with the Group
Chief Risk Officer and the Group Chief Credit
Officer now reporting to the CFO. Pierre de Weck
was named CEO of UBS Capital.
As of 15 February 2000, Rudi Bogni, CEO of
the Private Banking Division, left the Bank in
connection with the reorganization of the
Group’s asset management businesses. Georges
Gagnebin, head of the business area “Interna-
tional Clients”, became CEO of Private Banking
UBS Corporate Governance
Corporate and Executive Bodies
and was appointed Member of the Group Execu-
tive Board.
At its biweekly meetings, the Group Executive
Board discussed business issues of major impor-
tance. In a two-day seminar at the beginning of
the year, the GEB evaluated the Group’s strategy.
During the year under review, it redefined inter-
nal medium-term planning targets, elaborated a
new policy of disclosing financial results and
forecasts, and informed the financial community
about these decisions during Investors’ Day on
December 14. The growing importance of e-serv-
ices in the financial industry was another focus of
numerous GEB meetings. A new business area
“e-services” was created as a result of these dis-
cussions. An important concern for the GEB re-
mained, of course, the integration of the two
merged banks. Major initiatives were defined to
take advantage of the possible synergies resulting
from an integrated approach to the Group’s ac-
tivities. It is one of the dominant functions of the
GEB to enhance synergies through cross-divi-
sional cooperation.
The Group Managing Board
The 32 members of the Group Managing Board
(GMB) – 7 GEB members, 16 members of Divi-
sional Management Boards and 9 members with
key roles at the top level of the organization – met
in London at the beginning of May to discuss
strategic issues and to initiate the 1999 planning
cycle.
Group Internal Audit
To guarantee full independence from the busi-
ness, the head of Group Internal Audit, Walter
Stürzinger, reports directly to the Chairman of
the Board of Directors.
With around 200 professionals worldwide,
Group Internal Audit provides an independent
review of the effectiveness of the system of inter-
nal controls and compliance with key rules and
regulations.
All key issues raised by Group Internal Audit
are communicated to the management respon-
sible, the CEO and the Chairman’s Office via
formal Audit Reports. The Audit Supervisory
Board and the Audit Committee are regularly in-
formed about the major findings. State-of-the-art
systems technology helps ensure that all signifi-
cant audit issues raised are globally monitored
and subsequently resolved. The efficiency of
audit work is increased by extensive cooperation
between Group Internal Audit and our external
auditors.
External auditors
After an intensive selection process ATAG Ernst
& Young Ltd. have been assigned the global audit
mandate for the UBS Group. In the past, different
firms assumed audit functions on behalf of UBS.
139
Corporate and Executive Bodies
Board of Directors
Group Executive Board
Marcel Ospel
Group Chief Executive Officer
Luqman Arnold
Chief Financial Officer
Rodolfo Bogni
CEO Private Banking Division (until 15 February 2000)
Georges Gagnebin
CEO Private Banking Division (since 15 February 2000)
Markus Granziol
CEO Investment Banking and Securities Division
Stephan Haeringer
CEO Private and Corporate Clients Division
Pierre de Weck
CEO Private Equity Division
Peter A. Wuffli
CEO Asset Management Division
Alex Krauer (AGM 2002)1
Chairman
Member of the Audit Supervisory Board
Alberto Togni (AGM 2001)
Vice Chairman
Chairman of the Audit Supervisory Board
Markus Kündig (AGM 2002)
Zug, Vice Chairman
Member of the Audit Supervisory Board
Peter Böckli (AGM 2003)
Chairman of the Audit Committee
Partner in the law firm Böckli, Bodmer & Partner, Basel
Eric Honegger (AGM 2003)
Chairman designate of SAirGroup, Zurich-Airport
Rolf A. Meyer (AGM 2003)
Member of the Audit Committee
Chairman and Delegate of the Board of Ciba Specialty
Chemicals Inc., Basel
Hans Peter Ming (AGM 2000)
Chairman of Sika Finanz AG, Baar
Andreas Reinhart (AGM 2000)
Member of the Audit Committee
Chairman of Volkart Brothers Holding Ltd., Winterthur
Secretary to the Board of Directors:
Gertrud Erismann-Peyer
1 Term of office until AGM of the year indicated.
UBS Corporate Governance
Corporate and Executive Bodies
140
UBS Corporate Governance
Corporate and Executive Bodies
Group Managing Board
In addition to the members of the Group Executive Board
the following gentlemen belong to the Group Managing
Board:
Gary Brinson
Chairman and Chief Investment Officer,
UBS Asset Management Division
Colin Buchan
Global Head of Equity, UBS Warburg Division
Richard C. Capone
Regional Manager for UBS AG’s operations in the Americas,
CEO Warburg Dillon Read LLC
Crispian Collins
CEO Phillips & Drew London,
UBS Asset Management Division
John Costas
Chief Operating Officer and Global Head Fixed Income
and Treasury Products, UBS Warburg Division
Arthur Decurtins
Deputy CEO and Head Products, Services and Logistics,
UBS Private Banking Division
Jeffrey J. Diermeier
Deputy Chief Investment Officer UBS Brinson / Brinson
Partners, UBS Asset Management Division
Thomas K. Escher
Business Area Head IT, UBS Private and Corporate Clients
Division
Carlo A. Grigioni
Business Area Head The Americas,
UBS Private Banking Division
William (Bill) Johnson
Business Area Head E-Services, Corporate Center
Benjamin F. Lenhardt, Jr.
CEO UBS Brinson/Brinson Partners,
UBS Asset Management Division
Franz Menotti
Business Area Head Individual Clients,
UBS Private and Corporate Clients Division
Urs B. Rinderknecht
Group Mandates, Corporate Center
Marcel Rohner
Group Chief Risk Officer, Corporate Center
Gian Pietro Rossetti
Business Area Head Swiss Clients,
UBS Private Banking Division
Hugo Schaub
Group Controller, Corporate Center
Jean Francis Sierro
Business Area Head Resources,
UBS Private and Corporate Clients Division
Clive Standish
CEO Warburg Dillon Read Asia/Pacific,
UBS Warburg Division
Marco Suter
Group Chief Credit Officer, Corporate Center
Rory Tapner
Joint Global Head Corporate Finance,
UBS Warburg Division
Jürg Haller
Business Area Head Risk Transformatioin and Capital
Management, UBS Private and Corporate Clients Division
Markus Weiss
Business Area Head Private Banks,
UBS Private Banking Division
Eugen Haltiner
Business Area Head Corporate Clients,
UBS Private and Corporate Clients Division
Stephan Zimmermann
Business Area Head Operations,
UBS Private and Corporate Clients Division
Auditors
External Auditor
ATAG Ernst & Young Ltd., Basel
Auditors for the Parent Bank and for the Group as
prescribed by Company Law and Swiss Banking Law
(term expires AGM 2000)
Internal Audit
Walter H. Stürzinger,
Head of Group Internal Audit
141
UBS Corporate Governance
Corporate Information
Corporate Information
UBS adopts best practice
in its relationship with
shareholders, rating
agencies and regulators,
and it has made trans-
parency vis-à-vis regula-
tors, the financial com-
munity and the media
one of its strategic
targets.
Relationship with regulators
As UBS is a Swiss registered company, our main
regulator is the Swiss Federal Banking Commis-
sion. Major regulatory contacts, however, also
exist with the Federal Reserve Board (US Fed)
and the UK Financial Services Authority (FSA),
the two countries where we have the most signif-
icant non-Swiss business units. UBS also main-
tains extensive contacts with other regulatory
bodies. It is our aim to comply with all local and
regional provisions, and we work closely togeth-
er with the respective regulators. In an attempt to
provide comprehensive, transparent, timely and
up-to-date information, we are in a process of
developing a web-based corporate information
tool which will be accessible to selected regula-
tory users. The Group Governance Committee,
chaired by the CEO, coordinates the Group’s
public policy interface with governments, central
banks and regulators. It ensures that adequate
policies and procedures exist and are enforced in
order to minimize the bank’s reputational risks.
The Group CFO, the Group Controller, the Chief
Risk and Chief Credit Officers, the head of
Group Internal Audit, the Group General Coun-
sel and the divisional heads of Corporate Gover-
nance and Legal and Compliance are the perma-
nent members of the Committee.
Relationship with shareholders
More than 200,000 shareholders are entered in
our share register. We are committed to providing
quality information and keeping them regularly
informed about the important developments of
their company. For institutional shareholders and
for all individual shareholders with an interest in
in-depth information, we produce the annual and
quarterly “Financial Reports”. These documents
provide all information required by International
Accounting Standards and the Swiss accounting
regulations as well as analyses of, and comments
on, the financial situation of the Group, its
strengths and weaknesses, and its challenges
and achievements. A more concise, easy-to-read
“Letter to Shareholders” is sent to all sharehold-
ers each quarter and explains the major factors
driving the Group’s development. The “Annual
Review” is a condensed report, centering on the
annual results, the achievements of the Group
and the divisions, and selected additional issues.
The Annual General Meeting offers the op-
portunity to our shareholders to raise any ques-
tions regarding the development of the company
and the achievements of the year under review.
The members of the BoD and of the GEB as well
as the internal and external auditors are present
to answer these questions. Proxy voting offers all
shareholders the option to express their views on
each agenda point.
UBS is committed to transparency and open-
ness in its communication with shareholders, in-
stitutional investors and equity analysts. We are
continually improving our disclosure policies,
making our information more transparent, consis-
tent and reliable over time. We are committed to
reporting our results on an absolute rather than on
a cumulative quarterly basis starting with the first
quarter of 2000, and publishing and explaining a
detailed set of value drivers every quarter.
For information about the distribution of
UBS shares (size of individual holdings, geo-
graphic origin of shareholders, individual/corpo-
rate shareholders) see page 149.
142
Glossary
Glossary
144
A
C
D
accrual basis of accounting
The effects of transactions and other
events are recognized when they
occur, not as cash or its equivalent is
received or paid, and they are record-
ed in the accounting records and re-
ported in the financial statements of
the periods to which they relate.
allowance for credit losses
An allowance, which in manage-
ment’s estimate is adequate to pro-
vide for the credit losses inherent in
the loan portfolio. The allowance for
credit losses is deducted from the re-
lated asset category on the balance
sheet.
associate
An enterprise in which the investor
has significant influence and which is
neither a subsidiary nor a joint ven-
ture of the investor. Significant influ-
ence is the power to participate in
(but not control) the financial and
operating policy decisions of the
investee.
B
basic earnings per share
The per share net profit or loss that is
attributable to ordinary shareholders.
It is calculated by dividing the net
profit or loss for the period by the
weighted average number of ordinary
shares outstanding during the period.
BIS capital ratio
A measure of the capital resources
underpinning the operations of banks
(capital adequacy), as set by the Basel
Committee on Banking Supervision
which meets at the Bank for Interna-
tional Settlements (BIS). Eligible capi-
tal is broken down into core capital
(or Tier 1 capital) and supplementary
capital (Tier 2 capital). The bank’s as-
sets are weighted from 0% to 100%.
The ratio of the capital to the bank’s
risk-weighted positions is the BIS
capital ratio.
business segment
A distinguishable component of an
enterprise that is engaged in provid-
ing a group of related services which
are subject to risks and returns that
are different from those of other
business segments.
commitment
Future obligation to enter into a
transaction, backed by an agreement.
compliance risk
The risk that the conduct of business
does not comply or appears not to
comply with the applicable laws, in-
ternal or external regulations, industry
directives, restrictions or professional
standards and practice, which may
lead in particular to regulatory or
criminal sanctions, costs and fees or
reputational damages.
concentration risk
The risk of loss resulting from exces-
sive exposure to a particular risk or a
group of risks or to a particular coun-
try, industry, currency or counterparty
group.
contingency
A condition or situation, the ultimate
outcome of which, gain or loss, will
be confirmed only on the occurrence,
or non-occurrence, of one or more
uncertain future events.
contract volume
Corresponds to the receivable side of
the underlying value or notional/
nominal amount underlying derivative
instruments.
country risk
Comprises transfer and other country
risks. Transfer risk is the risk of losses
on foreign creditors’ and investors’
claims that would arise from sover-
eign default or other restrictions on
cross-border transfers of funds. Other
country risk includes the potential for
losses by foreign creditors and in-
vestors arising from systemic country
developments such as exchange rate
or asset price reductions.
credit risk
The risk of loss to the bank due to a
counterparty unable or not willing to
perform payment obligations or other
terms of contract. (Note that credit
risk includes e.g. transfer risk.)
currency risk
The risk of loss or gain due to
changes in the exchange rates.
deferred tax asset
The amount of income taxes recover-
able in future periods in respect of (1)
deductible temporary differences; (2)
the carry forward of unused tax losses
and unused tax credits. Deductible
temporary differences are those
differences between the carrying
amount of an asset or liability and its
tax base that will result in amounts
deductible in determining taxable
profit (tax loss) of future periods.
deferred tax liability
The amount of income taxes payable
in future periods in respect of taxable
temporary differences. Taxable tem-
porary differences are those differ-
ences between the carrying amount
of an asset or liability and its tax base
that will result in taxable amounts in
determining taxable profit (tax loss) of
future periods.
defined benefit plan
A post-employment benefit plan
where the enterprise’s obligation is to
provide the defined benefits to cur-
rent and former employees. Actuarial
risks (that benefits will cost more than
expected) and investment risks (that
the assets invested will be insufficient)
fall in substance on the enterprise.
defined contribution plan
A post-employment benefit plan
under which an enterprise pays de-
fined contributions. The enterprise’s
obligation is limited to the amount
that it agrees to contribute.
derivative financial instrument
Financial instrument (1) whose value
changes in response to the change in
a specified interest rate, security
price, commodity price, foreign ex-
change rate, index of prices or rates,
a credit rating or credit index or simi-
lar variable (often called the ‘underly-
ing’); (2) that requires no initial net
investment or little initial net invest-
ment relative to other types of con-
tracts that have a similar response to
changes in market conditions; and (3)
that is settled at a future date.
diluted earnings per share
The basic earnings per share adjusted
by the potential after tax dilutive ef-
fect of financial instruments or other
contracts that entitle their holders to
ordinary shares. Dilutive means that
only the effect that results in a de-
crease from the basic earnings per
share are taken into consideration.
Glossary
E
G
L
N
employee benefits
All forms of consideration given by an
enterprise in exchange for services
rendered by employees.
equity method
The method used to account for asso-
ciates. The investment in the associ-
ate is initially recorded at cost and ad-
justed thereafter for the post acquisi-
tion change in the investors’ share of
net assets of the associate.
F
fair value
The amount for which an asset could
be exchanged, or a liability settled,
between knowledgeable, willing par-
ties in an arm’s length transaction.
finance lease
A lease that transfers substantially all
the risks and rewards incident to
ownership of an asset. Title may or
may not eventually be transferred.
financial instrument
A contract that gives rise to both a fi-
nancial asset of one enterprise and a
financial liability or equity instrument
of another enterprise.
financial intermediaries
Companies such as banks, securities
or brokerage firms, investment com-
panies, pension and mutual funds
and insurance companies which facili-
tate the flow of funds between bor-
rowers and lenders in the economy.
financial investments
Equity and debt securities held for the
accretion of wealth through distribu-
tion, such as interest and dividends,
and for capital appreciation.
forwards and futures
Contractual obligations to buy or sell
a financial instrument on a future
date at a specified price. Forward
contracts are effectively tailor-made
agreements that are transacted
between counterparties in the over-
the-counter market, whereas futures
are standardized contracts that are
transacted on regulated exchanges.
funding risk
The risk of being unable to obtain
funding for a portfolio of assets at
appropriate market rates.
goodwill
Any excess of the cost of an acquisi-
tion over the acquirer’s interest in the
fair value of the identifiable assets
and liabilities acquired as at the date
of the exchange transaction.
the Group
UBS AG (parent) and all its sub-
sidiaries.
H
hedging
An action which reduces risk, usually
at the expense of potential reward, by
use of one or more financial instru-
ments (hedging instruments) so that
their change in fair value is an offset,
in whole or in part, to the change in
fair value or cash flows of a hedged
item.
historical simulation
A methodology for calculating value
at risk which revalues the reference
portfolio using historically observed
market prices over a predefined time
period.
I
interest rate risk
The risk of gain or loss as a result of
movements in interest rates.
International Accounting
Standards (IAS)
Accounting standards issued by the
International Accounting Standards
Committee (IASC), with the objective
of achieving uniformity in the ac-
counting principles which are used by
businesses and other organizations
for financial reporting around the
world.
investment fund
A fund operated by an investment
company that raises money from
shareholders and invests it in stocks,
bonds, options, commodities, or
money market securities. It offers in-
vestors the advantages of diversifica-
tion and professional management
and charges a management fee for
these services. Product owners in the
UBS Group are Private Banking, UBS
Brinson and Warburg Dillon Read.
legal risk
The risk of loss because a contract
cannot be enforced. This includes
risks arising from inadequate docu-
mentation, insufficient capacity or au-
thority of a counterparty (ultra vires)
or uncertain legality.
liability risk
The risk of loss due to an entity being
held responsible for a contractual or
legal claim, debt or action based,
e.g., on the breach or default of a
contract, commitment of a tort, viola-
tion of criminal law, infringement of
trade marks or antitrust action.
liquidity risk
Risk that an entity will have to sell as-
sets at a loss to meet cash demands.
It is generally explained as a ratio
comparing available liquidity to the
demand for funds.
loss severity
Also referred to as loss given default –
the amount that the bank would lose
in the event that a counterparty de-
faults on its obligations.
M
market risk
Uncertainty to which future earnings
are exposed as a result of changes of
the market prices of financial instru-
ments. This risk is primarily a conse-
quence of trading and investing
activities in the interest rate, foreign
exchange, equity and commodity
markets.
master netting agreement
An arrangement providing for an en-
terprise that undertakes a number of
financial instrument transactions with
a single counterparty to make a single
net settlement of all financial instru-
ments covered by the agreement in
the event of default on, or termina-
tion of, any one contract.
minority interest
That part of the net profit or loss and
of net assets of a subsidiary attributa-
ble to interests which are not owned,
directly or indirectly through sub-
sidiaries, by the parent.
mutual fund
See investment fund.
negative replacement value
Amount representing the fair value of
a derivative financial instrument in a
payable position.
netting
Setting off between counterparties,
on the basis of bilateral or multilateral
contracts, of mutual payment obliga-
tions on expiry date, or in the case of
default of a counterparty of unreal-
ized profits and unrealized losses.
notional amount
Amount of the underlying asset, ref-
erence rate or index which is used as
the basis for calculating the value of
derivative contracts. Notional/nominal
values provide an indication of the
volume of derivatives business trans-
acted by UBS but do not provide any
measure of risk.
O
operating lease
In an operating lease, the lessor con-
veys to the lessee in return for a pay-
ment or series of payments the right
to use an asset for an agreed period
of time.
operational risk
The risk that deficiencies in informa-
tion systems or internal controls will
result in unexpected loss. This risk is
associated with human error or
human misbehaviour, system failures
and inadequate procedures and con-
trols. Particular elements of opera-
tional risk are legal risk, compliance
risk, liability risk or physical and crime
risk.
options
Options are contractual agreements
under which the seller (writer) grants
the purchaser the right, but not the
obligation, either to buy (call option)
or sell (put option) by or at a set date,
a specified amount of a financial
instrument at a predetermined price.
The seller receives a premium from
the purchaser for this right.
over-the-counter (OTC)
Refers to financial instruments that
are not traded on an organized ex-
change or are traded on a market
that is not part of an organized ex-
change. OTC instruments can be cre-
ated with any provisions allowed by
law and acceptable to counterparties.
145
Glossary
146
P
S
T
trading
Entering into positions which are ac-
tively managed and intended to be
held in order to profit in the short
term from fluctuations in the market
price.
V
value at risk
A measure of the maximum loss
which would be expected to occur in
a given portfolio with a given level of
statistical probability. Value at risk
(VaR) does not provide an estimate of
the size of loss that could occur in the
remaining cases which fall outside the
predefined probability.
securities borrowing / lending
The loan of securities, on an unse-
cured or secured basis, for which the
borrower pays a fee to the lender.
The lender retains the beneficial own-
ership, and is therefore entitled to
receive all coupons or dividends from
the borrower during the term of the
trade.
settlement risk
The risk of loss to the bank in making
a payment or delivery on «exchange-
for-value» transactions without
receiving the associated payment or
delivery from the counterparty.
statistical loss
The loss which can be predicted with
a given statistical probability.
stress scenario loss
The possible – although improbable
and unusual – extreme scenarios
which the bank should be able to
absorb in the normal course of its
business.
subsidiary
An enterprise that is controlled by
another enterprise (known as the par-
ent). Control is the power to govern
the financial and operating policies of
an enterprise so as to obtain benefits
from its activities.
swaps
Transactions in which two parties ex-
change cash flows on a specified no-
tional amount for a predetermined
period.
Interest rate swap contracts generally
represent the contractual exchange of
fixed and floating rate payments of a
single currency, based on a notional
amount and an interest reference
rate.
Cross-currency interest rate swaps
generally involve the exchange of
payments which are based on the in-
terest reference rates available at the
inception of the contract on two dif-
ferent currency principal balances that
are exchanged. The principal balances
are re-exchanged at an agreed upon
rate at a specified future date.
parent
An enterprise that has one or more
subsidiaries.
physical and crime risk
The risk of loss or damage to the
bank due to natural forces, environ-
mental dangers, fire and explosion,
war or civil unrest, criminal or any
other activity, which may cause a vio-
lation of the bank’s standards or of
laws and regulations.
positive replacement value
Amount representing the fair value of
a derivative financial instrument in a
receivable position.
private equity
Equity financing provided to, typically,
unquoted companies, in order to
actively increase their value and resell
them after 3 to 6 years. This is the
business of UBS Capital.
R
repurchase agreement
An agreement whereby the holder of
a security sells the security to a buyer,
with a simultaneous agreement to re-
purchase the security at a fixed future
date at a stipulated price.
reverse repurchase agreement
The purchase of a security at a speci-
fied price with an agreement to resell
the same security at a specified price
on a specified future date. From the
buyer’s viewpoint it is a repurchase
agreement.
risk-bearing capacity
Potential of the bank to absorb stress
losses taking into account UBS’s over-
all earnings capacity. It is set to pro-
tect the Group from unacceptable
damage to annual earnings, dividend-
paying ability, business viability and
the reputation of the bank.
risk policy framework
Organizational principles, methods
and measures (policies, structures,
processes) to manage and control
risks.
ROE (return on equity)
Net result of the reporting period di-
vided by the average equity during
the same period.
UBS Share
Information
UBS Share Information
UBS Shares
UBS Shares
UBS share price perform-
UBS share data
ance in 1999 was disap-
pointing. After a good
performance in the first
six months of the year,
UBS’s share price declined
on the basis of results
lower than market expec-
tations and pressure on
financial stocks generally
to close the year at
CHF 430.
Year-end registered shares in 1000 units
Total shares outstanding
Total shares ranking for dividend
Treasury shares (average)
Weighted average shares (for basic EPS calculation)
Weighted average shares (for diluted EPS calculation)
Per share data (basic) (CHF)
Gross operating profit
Group profit before taxes
Net profit
Dividend
Book value
Per share data (diluted) (CHF)
Gross operating profit
Group profit before taxes
Net profit
Book value
Stock exchange prices
Year-end 1999 (CHF)
High / low 1999 (CHF)
Price / net earnings (P / E) (basic)
Price / book value (P / BV) (basic)
Dividend yield, gross (high / low) (in percent)
Total return
Total return Swiss Market Index (SMI)
Total return Swiss Performance Index (SPI)
Market capitalization (CHF billion)
Year-end
% change year-on-year
In % of the Swiss Market Index (SMI)
In % of the Swiss Performance Index (SPI)
High (3 May)
Low (10 August and 25 October)
Trading volumes (SWX only) (CHF million)
Total
Daily average
Trading volumes (SWX only) (1000 units)
Total
Daily average
31.12.1999
31.12.19981
215,447
214,9202
7,191
208,057
209,166
137.56
39.26
30.28
11.00
167.43
136.83
39.06
30.12
166.54
430
528 / 405
14.2
2.6
2.7 / 2.1
4.33
5.7
11.7
92.6
2.09
10.6
8.5
113.5
87.2
214,976
214,450
3,058
211,797
212,941
105.43
19.22
14.31
10.00
152.95
104.86
19.12
14.23
152.13
422
657 / 270
29.5
2.8
3.7 / 1.5
2.63
15.7
16.8
90.7
n / a
11.8
9.6
140.0
57.9
97,584
3844
67,198
5175
214,695
8454
153,078
1,1785
1 In 1998, trading period of UBS registered shares was 29 June until 31 December. 2 Difference between shares outstanding and shares
ranking for dividend are reserved shares. 3 Return from dividend and price changes. 4 In 1999 there were a total of 254 trading days.
5 Trading period 29 June until 31 December 1998 equals 130 trading days.
Our disappointing share-price performance
has two main causes. First, UBS Private Banking
and UBS Asset Management reported weaker
than expected asset growth. The negative devel-
opment of net new money in the third quarter
had a particularly strong adverse effect. Second,
rising interest rates held back the share price de-
velopment of financial institutions in the second
half of the year.
In 1999, the world economy recovered from
the Asian, Russian and Brazilian crises. Most de-
veloping economies stabilized and regained ac-
cess to the capital markets. While Europe em-
barked on a modest cyclical recovery, the US re-
mained the driver of global growth.
Despite the worldwide shifts towards a tighter
monetary policy, global equity markets performed
well last year. However, the performance among
different sectors and regions diverged substantial-
ly. In particular, the financial services industry was
not able to match the performance of technology
and telecommunications stocks. In the second half
148
UBS Share Information
UBS Shares
of the year, rising interest rates concerns and Year
2000 concerns affected bank stock valuations.
In line with overall market trends, UBS shares
moved to a high of CHF 528 on 3 May. In
the second half of the year, this trend reversed.
UBS shares reached their low of CHF 405 on
10 August. Although the share price recovered to
CHF 479.50 during the third quarter, it closed
the year at CHF 430 reflecting an annual per-
formance of 1.9%.
UBS share price chart
100% = 1 December 1998
UBS market capitalization
130%
125%
120%
115%
110%
105%
100%
95%
90%
Recovery of
market environment
Rising interest rates
and Y2K concerns
Start of
repurchasing program
Announcement 1Q 99 results
Announcement
3Q 99 results
Announcement
1H 99 results
Announcement 24h Banking
120
115
110
105
100
95
90
85
80
12.98
2.99
4.99
6.99
8.99
10.99
12.99
9
9
.
1
9
9
.
2
9
9
.
3
9
9
.
4
9
9
.
5
9
9
.
6
9
9
.
7
9
9
.
8
9
9
.
9
9
9
.
0
1
9
9
.
1
1
9
9
.
2
1
UBS registered
SPI Swiss Performance Index
Market capitalization in CHF billion
Distribution of UBS shares registered as of 31 December 1999
Number of shares registered
(1% = 1,099,263 shares)
1–100
101–1,000
1,001–5,000
5,001–10,000
10,001–50,000
50,001–100,000
>100,000
Total
0–1%
1–2%
2–3%
3–4%
4–5%
over 5%
Total
Number of
shareholders
registered
% of
shareholders
registered
Number of
shares
% of
shares
registered registered
133,741
62,645
5,050
521
462
71
116
202,606
202,603
2
0
0
1
0
202,606
66.010
30.920
2.493
0.257
0.228
0.035
0.057
5,643,487
17,109,278
10,069,612
3,647,688
9,518,063
5,066,789
58,871,390
5.134
15.564
9.160
3.319
8.659
4.609
53.555
100 109,926,307
100
99.999
0.001
0.000
0.000
0.000
0.000
94,469,146
7,112,118
0
0
8,345,043
0
85.939
6.470
0.000
0.000
7.591
0.000
100 109,926,307
100
As of 31 December 1999 no identified investor was holding 5% or more of the total 215 million UBS shares outstanding.
UBS employees were holding 3.8% of the shares registered.
Individual shareholders
Legal entities
Nominees, fiduciaries
Total
Switzerland
Europe
North America
Other countries
Total
193,583
8,578
445
202,606
189,906
9,230
1,043
2,427
202,606
95.546
4.234
0.220
32,370,006
55,356,193
22,200,108
29.447
50.358
20.195
100 109,926,307
100
93.731
4.556
0.515
1.198
72,266,335
26,435,883
3,081,205
8,142,884
65.740
24.049
2.803
7.408
100 109,926,307
100
28,718,415 shares registered do not carry voting rights. 105,363,086 shares are classified as “non registered”,
i.e. not entered in the share register as of 31 December 1999.
149
UBS Share Information
Information for Shareholders
Information for Shareholders
UBS registered shares (par value CHF 20), ISIN number CH0008470921
Ticker symbols
Stock exchange listings
SWX (Swiss exchange)
Tokyo
London (Stock exchange automatic quotation SEAQ)
Bloomberg
UBSN SW
1264Z JP
Reuters
UBSZn.S
UBS.T
UBSZq.L
Telekurs
UBSN, 004
N16631, 106
847092, 182
Sponsored American Depository Receipt
(ADR) program in the USA
Financial calendar
Annual General Meeting
Thuesday, 18 April 2000
Ratio
Exchange
Symbol
CUSIP
20 ADR = 1 UBS Share
Dividend payment date
Wednesday, 26 April 2000
OTC (over the counter)
Publication first-quarter results
Thursday, 25 May 2000
UBBSY
Publication first-half results
Tuesday, 22 August 2000
# 90261R105
Publication third-quarter results
Tuesday, 28 Nov. 2000
For information contact
Change of address
UBS AG
Investor Relations G41B
P.O. Box
CH-8098 Zurich
Phone +41-1-234 41 00
Fax +41-1-234 34 15
UBS AG
Shareholder Services FNNB
P.O. Box
CH-8098 Zurich
Phone +41-1-235 62 02
Fax +41-1-235 31 54
Cautionary statement regarding forward-looking statements
This Financial Report contains statements that constitute “forward-
looking statements”. In addition, other written or oral statements
which constitute forward-looking statements have been made and
may in the future be made on our behalf. In this Financial Report,
such forward-looking statements include, without limitation, state-
ments relating to:
– the implementation of strategic initiatives
– the development of revenues overall and within specific business
materially from those described by these forward-looking statements
and as a result, financial results could differ from those set forth
and those differences may be material to our financial statements.
Many factors may influence our actual results and cause them to
differ materially from expected results as described in the forward-
looking statements. These factors include:
– general market trends affecting demand for our products and
areas
services
– the development of operating expenses
– the anticipated level of capital expenditures and associated depre-
– developments in the competitive environment in Switzerland and
around the world
ciation expense
– the expected impact of the risks that affect our business, includ-
ing the risk of loss resulting from the default of an obligor or
counterparty
– expected credit losses based upon our credit review
– other statements relating to our future business development and
– developments in technology
– changes in our expenses associated with acquisitions and disposi-
tions
– our ability to attract and retain skilled personnel
– credit ratings and the financial position of obligors and counter-
parties
economic performance
– our ability to control risk in our businesses, including our ability to
The words “anticipate”, “believe”, “expect”, “estimate”, “intend”,
“plan” and other similar expressions identify some of these forward-
looking statements. Readers are cautioned not to put undue reliance
on forward-looking statements because actual events may differ
– macroeconomic trends and government and regulatory policies
affecting business in Switzerland and around the world, including
changes in the level of interest or tax rates and movements in for-
eign currency exchange rates.
improve our overall risk profile
150
Imprint
Publisher / Editing: UBS AG, Investor Relations Department
Concept / Production: UBS AG, Group Management Support
Languages: English, German; Copyright: UBS AG, Switzerland
SAP-R / 3 80531E-0001; CIF-Pub-No. 012.
ab
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com