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Financial Report 2001
The Power of Partnership
Flawless strategy, teamwork, and
technology are the prerequisites for
competing in the world’s great ocean
races. The same elements underpin
success in the global financial markets.
UBS is Main Partner of Alinghi, Swiss
Challenge for the Americas’ Cup 2003
and is also Principal Partner of the
Nautor Challenge team for the 2001-
2002 Volvo Ocean Race. Our Annual
Review carries pictures of the two
teams.
The very essence of yacht racing with
the relentless demands of the ocean
relies upon the crew to operate as
a team. Whether on a match racing
course, in the midst of the southern
ocean, or indeed in the world of
global finance – individual efforts are
eclipsed by the Power of Partnership.
Contents
Profile
Introduction
UBS Group Financial Highlights
UBS Group
Our Business Groups
Sources of Information about UBS
Information for Readers
Group Financial Review
Group Results
Review of Business
Group Performance
Introduction
UBS Switzerland
UBS Asset Management
UBS Warburg
Corporate Center
UBS Group
Financial Statements
UBS AG (Parent Bank)
Additional Disclosure
Required under
SEC Regulations
1
2
3
4
5
8
17
18
31
32
38
50
56
70
75
171
183
Introduction
The Financial Report 2001 forms an essential part of our report-
ing portfolio. It includes the audited Financial Statements of UBS
Group for 2001 and 2000, prepared according to International
Accounting Standards (IAS) and reconciled to United States
Generally Accepted Accounting Principles (US GAAP), and the
audited financial statements of UBS AG (the Parent Bank) for
2001, prepared according to Swiss Banking Law requirements. It
also contains a discussion and analysis of the financial and business
performance of UBS Group and its Business Groups, and some
additional disclosures required under Swiss and US regulations.
The Financial Report should be read in conjunction with the other
information published by UBS described on page 5.
We hope that you will find the information in these documents
useful and informative. We believe that UBS is among the leaders
in corporate disclosure, but we would be very interested to hear
your views on how we might improve the content and presenta-
tion of our information portfolio.
Mark Branson
Head of Group Communications
UBS AG
1
Profile
UBS Group Financial Highlights
1 Operating expenses / operating income
before credit loss expense.
CHF million, except where indicated
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
2 Excludes the amortization of goodwill and
other intangible assets.
3 For EPS calculation, see Note 9 to the
Financial Statements.
4 Net profit / average shareholders’ equity
excluding dividends.
5
Includes hybrid tier 1 capital, please
refer to Note 30e in the Notes to the
Financial Statements.
6 Calculated using the former definition
of assets under management.
7 The Group headcount does not include
the Klinik Hirslanden AG headcount
of 2,450, 1,839 and 1,853 for 31
December 2001, 31 December 2000
and 31 December 1999, respectively.
8 See the Capital strength section
on pages 10 to 11 of the UBS Handbook
2001/2002.
9 Details of significant financial events can
be found in the Group Financial Review.
All earnings per share figures have been
restated for the 3 for 1 share split which
took place on 16 July 2001.
Except where otherwise stated, all 31 De-
cember 2001 and 31 December 2000
figures throughout this report include the
impact of the acquisition of PaineWebber,
which occurred on 3 November 2000.
All invested assets figures for 31 December
2000 have been restated to reflect the new
definition.
2
Income statement key figures
Operating income
Operating expenses
Operating profit before tax
Net profit
Cost / income ratio (%) 1
Cost / income ratio before goodwill (%) 1, 2
Per share data (CHF)
Basic earnings per share 3
Basic earnings per share before goodwill 2, 3
Diluted earnings per share 3
Diluted earnings per share before goodwill 2, 3
Return on shareholders’ equity (%)
Return on shareholders’ equity 4
Return on shareholders’ equity before goodwill 2, 4
37,114
30,396
6,718
4,973
80.8
77.3
3.93
4.97
3.78
4.81
11.7
14.8
36,402
26,203
10,199
7,792
72.2
70.4
6.44
7.00
6.35
6.89
21.5
23.4
28,425
20,532
7,893
6,153
69.9
68.7
5.07
5.35
5.02
5.30
22.4
23.6
2
16
(34)
(36)
(39)
(29)
(40)
(30)
CHF million, except where indicated
As at
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Balance sheet key figures
Total assets
Shareholders’ equity
Market capitalization
BIS capital ratios
Tier 1 (%) 5
Total BIS (%)
Risk-weighted assets
Invested assets (CHF billion)
Headcount (full time equivalents) 7
Long-term ratings 8
Fitch, London
Moody’s, New York
Standard & Poor’s, New York
1,253,297
43,530
1,087,552
44,833
105,475
112,666
11.6
14.8
253,735
2,457
69,985
AAA
Aa2
AA+
11.7
15.7
273,290
2,452
71,076
AAA
Aa1
AA+
896,556
30,608
92,642
10.6
14.5
273,107
1,7446
49,058
AAA
Aa1
AA+
15
(3)
(6)
(1)
(6)
(7)
0
(2)
Earnings adjusted for significant financial events and pre-goodwill 2, 9
CHF million, except where indicated
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Operating income
Operating expenses
Operating profit before tax
Net profit
Cost / income ratio (%) 1
Basic earnings per share (CHF) 3
Diluted earnings per share (CHF) 3
Return on shareholders’ equity (%) 4
37,114
29,073
8,041
6,296
77.3
4.97
4.81
14.8
36,402
25,096
11,306
8,799
69.2
7.28
7.17
24.3
26,587
20,194
6,393
5,005
73.3
4.12
4.09
18.2
2
16
(29)
(28)
(32)
(33)
UBS Group
UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organ-
ization, we combine financial strength with a reputation for innovation and a global culture which
embraces change. Our vision is to be the pre-eminent global integrated investment services firm and
the leading bank in Switzerland. We are the world’s leading provider of private banking services and
one of the largest asset managers globally. In the investment banking and securities businesses we are
among the select bracket of major global houses. In Switzerland, we are the clear market leader in cor-
porate and retail banking. As an integrated group, not merely a holding company, we create added
value for our clients by drawing on the combined resources and expertise of all our businesses.
Our client philosophy puts advice at the heart of relationships. Our priority is to provide premium-
quality services to our clients, giving them the best possible choice by supplementing best-in-class
products we develop ourselves with a quality-screened selection of products from others.
With head offices in Zurich and Basel, we operate in over 50 countries and from all major inter-
national financial centers. Our global physical presence is complemented by leading edge on-line
services. All our clients can benefit from our technology – it complements our advisory services and
allows us to deliver our services faster, more widely and more cost-effectively than ever before.
3
Profile
Our Business Groups
All our Business Groups are in the top echelons of their sectors globally and are committed to
vigorously growing their franchises.
UBS Switzerland
UBS Switzerland includes the world’s leading private banking business, with CHF 682 billion of
invested assets at 31 December 2001. UBS Private Banking provides a comprehensive range of prod-
ucts and services individually tailored for wealthy clients, through offices around the world.
UBS Switzerland also provides a complete set of banking and securities services for some four million
individual and corporate clients in Switzerland. Its CHF 182 billion of outstanding loans at
31 December 2001 give it around a quarter of the Swiss lending market.
UBS Asset Management
UBS Asset Management is a leading institutional asset manager and mutual fund provider, with
invested assets of CHF 672 billion at 31 December 2001, offering a broad range of asset management
services and products for institutional and individual clients across the world.
UBS Warburg
UBS Warburg operates globally as a client-driven securities, investment banking and wealth manage-
ment firm. UBS Warburg provides innovative products, top-quality research and advice, and compre-
hensive access to the world’s capital markets, for both its own corporate and institutional clients and
for the other parts of the UBS Group. UBS PaineWebber, one of the top US wealth managers, became
part of UBS Warburg in November 2000. Its distribution network of 8,870 financial advisors
manages over CHF 782 billion of invested assets at 31 December 2001. On 1 January 2002, UBS
PaineWebber was separated from UBS Warburg to form a new Business Group within UBS.
Corporate Center
Our portfolio of businesses is planned and managed for the long-term maximization of shareholder
value. The role of the Corporate Center is to ensure that the Business Groups operate as a coherent
and effective whole, in alignment with UBS’s overall corporate goals.
4
Sources of Information about UBS
This Financial Report contains our audited Financial Statements for the year 2001 and accompanying detailed analysis.
You can find out more about UBS from the sources shown below.
Publications
This Financial Report is available in English and
German. (SAP-R/3 80531-0201)
Annual Review 2001
Our Annual Review contains a short descrip-
tion of UBS, and a summary review of our
performance in the year 2001. It is available in
English, German, French, Italian and Spanish.
(SAP-R/3 80530-0201)
Handbook 2001/2002
Our Handbook 2001/2002 contains a detailed
description of UBS, its strategy, its organization
and the businesses that make it up. It is available
in English and German. (SAP-R/3 80532-0201)
Quarterly reports
We provide detailed quarterly financial reporting
and analysis, including comment on the progress
of our businesses and key strategic initiatives.
These reports are available in English.
How to order reports
Each of these reports is available on the internet
at: www.ubs.com/investors, in the Financials
section. Alternatively, printed copies can be
ordered, quoting the SAP number and the
language preference where applicable, from
UBS AG, Information Center, CA50-XMB,
P.O. Box, CH-8098 Zurich, Switzerland.
E-information tools for investors
Website
Our
at
Investors and Analysts website
www.ubs.com/investors offers a wide range of
information about UBS, including our financial
reporting, media releases, UBS share price
graphs and data, corporate calendar and divi-
dend information and copies of recent presen-
tations given by members of senior management
to investors at external conferences.
Our internet-based information is available
in English and German, with some sections also
in French and Italian.
Messenger service
On the Investors and Analysts website, you can
register to receive news alerts about UBS via
SMS or e-mail. Messages are sent in either
English or German and users are able to state
their preferences for the theme of the alerts
received, e. g. SEC filings or webcasts.
Results presentations
Senior management presents UBS’s quarterly
results every quarter on publication date. These
presentations are broadcast live over the inter-
net, and can be downloaded on demand. The
most recent results webcasts can also be found
in the Financials section of our Investors and
Analysts website.
UBS and the Environment
The Handbook 2001/2002 contains a sum-
mary of UBS environmental policies. More
detailed information is available at www.
ubs.com/environment.
Form 20-F and other submissions to the
US Securities and Exchange Commission
We file periodic reports and other information
about UBS with the US Securities and Exchange
Commission (SEC). Principal among these
filings is the Form 20-F, our Annual Report
filed pursuant to the US Securities Exchange
Act of 1934.
Our Form 20-F filing is structured as a
“wrap-around” document. Most sections of the
filing are satisfied by referring to part of the
Handbook or to part of this Financial Report
5
Profile
2001. However, there is a small amount of addi-
tional information in the Form 20-F which is not
presented elsewhere, and is particularly targeted
at readers from the US. You are encouraged to
refer to this additional disclosure.
You may read and copy any document that
we file with the SEC on the SEC’s website,
www.sec.gov, or at the SEC’s public reference
room at 450 Fifth Street NW, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330
(in the US) for further information on the opera-
tion of its public reference room. You may also
inspect our SEC reports and other information at
the New York Stock Exchange, Inc., 20 Broad
Street, New York, NY 10005 and the American
Stock Exchange LLC, 86 Trinity Place, New
York, NY 10006. Much of this additional infor-
mation may also be found on the UBS website
at www.ubs.com/investors, and copies of docu-
ments filed with the SEC may be obtained from
UBS’s Investor Relations team, at the addresses
shown below.
Corporate information
The legal and commercial name of the com-
pany is UBS AG. The company was formed on
29 June 1998, when Union Bank of Switzerland
(founded 1862) and Swiss Bank Corporation
(founded 1872) merged to form UBS.
UBS AG is incorporated and domiciled in
Switzerland and operates under Swiss Company
Law and Swiss Federal Banking Law as an
Aktiengesellschaft, a corporation that has issued
shares of common stock to investors.
The address and telephone number of our
two registered offices and principal places of
business are:
Bahnhofstrasse 45, CH-8098 Zurich, Switzer-
land, telephone +41-1-234 11 11;
and Aeschenvorstadt 1, CH-4051 Basel,
Switzerland, telephone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss
Exchange and traded through virt-x (a joint ven-
ture between Tradepoint and the SWX Swiss
Exchange). They are also listed on the New York
Stock Exchange and on the Tokyo Stock Exchange.
6
UBS Investor Relations
Our Investor Relations team supports
institutional, professional
and retail investors from offices in
Zurich and New York.
E-mail: sh-investorrelations@ubs.com
Web: www.ubs.com/investors
Zurich
New York
Hotline Zurich:
+41 1 234 4100
Hotline New York:
+1 212 713 3641
Christian Gruetter
+41 1 234 4360
Richard Feder
+1 212 713 6142
Mark Hengel
+41 1 234 8439
Christopher McNamee
+1 212 713 3091
Charles Gorman
+41 1 234 2733
Catherine Lybrook
+41 1 234 2281
Fax
+41 1 234 3415
Fax
+1 212 713 1381
UBS AG
Investor Relations G41B
P.O. Box
CH-8098 Zurich, Switzerland
UBS Americas Inc.
Investor Relations
1285 Avenue of the Americas, 14th Floor
New York, NY 10019, USA
UBS Group Media Relations
Other useful contacts
Switchboards
For all general queries.
UBS Shareholder Services
UBS Shareholder Services, a unit of
the Company Secretary, is responsible
for the registration of the Global
Registered Shares. It is split into two
parts – a Swiss register, which is main-
tained by UBS acting as Swiss transfer
agent, and a US register, which is
maintained by Mellon Investor Services
as US transfer agent (see below).
Zurich
London
New York
Tokyo
Zurich
London
New York
Tokyo
Zurich
Telephone
+41 1 234 8500
+44 20 7567 4714
+1 212 713 83 91
+81 3 5208 6275
Fax
E-mail
+41 1 234 8561
sh-gpr@ubs.com
+44 20 7568 0955
sh-mr-london@ubsw.com
+1 212 713 98 18
mediarelations-ny@ubsw.com
+81 3 52 08 69 51
sh-comms-mktg-tokyo@ubs.com
Telephone
+41 1 234 1111
+44 20 7568 0000
+1 212 821 3000
+81 3 5293 3000
Telephone
+41 1 235 6202
Fax
E-mail
+41 1 235 3154
sh-shareholder-service@ubs.com
UBS AG
Shareholder Services
P.O. Box
CH-8098 Zurich, Switzerland
UBS Transfer Agent
For all Global Registered Share
related queries in the USA.
Mellon Investor Services
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660, USA
Telephone: +1 866 541 9689
Fax: +1 201 296 4801
Web: http:// www.melloninvestor.com
UBS listed its Global Registered Shares on the New York Stock Exchange on 16 May 2000. Prior to that date UBS operated
an ADR program. See the Frequently Asked Questions (FAQs) section at www.ubs.com/investors for further details about
the UBS share.
7
Profile
Information for Readers
You should read the discussion and analysis in
the Group Financial Review and Review of
Business Group Performance in conjunction
with the UBS Group Financial Statements and
the related notes, which are shown in pages 75
to 169 of this document.
Parent Bank
Pages 171 to 181 contain the financial statements
for the UBS AG Parent Bank – the Swiss com-
pany, including branches worldwide, which owns
all the UBS Group companies, directly or indi-
rectly. Except in those pages, or where otherwise
explicitly stated, all references to “UBS” refer to
the UBS Group and not to the Parent Bank.
Accounting standards
The UBS Group Financial Statements have
been prepared in accordance with International
Accounting Standards (IAS). As a US listed com-
pany, UBS Group provides a description in Note
40 of its Financial Statements of the significant
differences which would arise were our accounts
to be presented under United States Generally
Accepted Accounting Principles (US GAAP), and
a detailed reconciliation of IAS shareholders’
equity and net profit to US GAAP. Major dif-
ferences between Swiss federal banking law
requirements and IAS are described in Note 39
to the UBS Group Financial Statements.
Except where clearly identified otherwise, all
of UBS Group’s financial information presented
in this document is presented on a consolidated
basis under IAS.
The Parent Bank’s financial statements are
prepared in order to meet Swiss regulatory
requirements and in compliance with Swiss
federal banking law.
All references to 2001, 2000 and 1999 refer
to the UBS Group and the Parent Bank’s fiscal
years ended 31 December 2001, 2000, and 1999,
respectively. The Financial Statements for the
UBS Group and the Parent Bank for each of
these periods have been audited by Ernst &
Young Ltd., as described in the Report of the
Independent Auditors on page 169 and the
Report of the Statutory Auditors on page 181.
Implementation of IAS 39
On 1 January 2001, UBS Group adopted the new
accounting standard IAS 39: Recognition and
measurement of financial instruments. The prin-
cipal effects on our accounts are outlined below.
Profit and loss impact
UBS’s strategy has always been to minimize the
profit and loss volatility that can be caused by
“non-qualifying” hedges. As a result, implemen-
tation of IAS 39 has not had any significant
effects on UBS’s net profit, and is not expected to
do so in the foreseeable future.
Changes to shareholders’ equity
For the first time this year we identify “Gains /
Losses not recognized in the income statement” as
a separate section within shareholders’ equity.
Within this we show three sub-sections, Foreign
currency translation (which was an existing line in
shareholders’ equity, reported in previous years)
and two new sub-sections introduced as a result
of the adoption of IAS 39 on 1 January 2001:
Unrealized gains/losses on available for sale
investments and Changes in fair value of deriva-
tive instruments designated as cash flows hedges.
Both sub-sections had opening balances:
– The opening balance of Unrealized gains /
losses on available-for-sale investments was a
net gain of CHF 1,577 million, net of taxes,
due to unrealized mark-to-market gains on
financial investments classified as available
for sale which were principally attributable
to private equity investments, but also includ-
ed other financial investments held by the
Group.
– The opening balance of Changes in fair value
of derivative instruments designated as cash
flows hedges was a net loss of CHF 380 mil-
lion, net of taxes, due to unrealized mark-to-
market
losses on derivatives designated as
cash flow hedges. These losses were previously
8
UBS / SBC merger restructuring provision used
CHF million
Personnel
UBS Switzerland
UBS Asset Management
UBS Warburg
Corporate Center
Group total
361
2
0
7
370
IT
23
0
0
0
23
Initial restructuring provision in 1997
Additional provision in 1999
Used in 1998
Used in 1999
Used in 2000
Used in 2001
Total used up to 31.12.2001
Released to the income statement
Restructuring provision at 31.12.2001
Premises
Other
31.12.01
31.12.00
31.12.99
For the year ended
228
7
0
464
699
916
15
348
565
1,844
35
0
0
267
302
0
0
0
14
14
419
2
0
288
709
7,000
300
4,027
1,844
699
709
7,279
21
0
recorded in the balance sheet as a part of
deferred losses.
All movements within these categories are
now recorded each year in the Statement of
changes in equity.
Other changes to accounting presentation
For comparative purposes, UBS Group’s 2000
and 1999 figures have been restated to conform
to the presentation used in 2001, reflecting
changes in methods of presentation, including
the reclassification of Money market paper held
as Trading portfolio assets or Financial Invest-
ments, as appropriate, and of Money market
paper issued as Debt issued.
Note 1 to the UBS Group Financial State-
ments includes a detailed explanation of these
and other accounting changes.
The segment reporting shown in Note 2 to
UBS Group Financial Statements has been
restated to reflect the organization of the Group
during 2001. See the Review of Business Group
performance for details of changes since the
2000 presentation.
PaineWebber merger
Except where otherwise stated, all 2000 figures
for UBS Group throughout this report, include the
impact of the merger with Paine Webber Group,
Inc., which was completed on 3 November 2000.
Under purchase accounting rules, the results for
2000 reflect PaineWebber’s income and expenses
for two months only, from 3 November 2000
until 31 December 2000. Results for 2001 include
PaineWebber for the full year, while results for
1999 contain no contribution from PaineWebber.
Restructuring provision
The 1998 merger of Swiss Bank Corporation
and Union Bank of Switzerland, which was
completed on 29 June 1998, was accounted
for under the “pooling-of-interests” method of
accounting, referred to in IAS as “uniting of
interests”. Under this method, a single uniform
set of accounting policies was adopted and ap-
plied retrospectively for the restatement of com-
parative information.
After the merger was effected, we began inte-
grating the operations of the two predecessor
banks. This process included streamlining opera-
tions, eliminating duplicate information technol-
ogy infrastructure, and consolidating banking
premises. At the time of the merger, we estab-
lished a restructuring provision of CHF 7 billion
to cover UBS’s expected costs associated with the
integration process.
In December 1999, we recognized an addi-
tional pre-tax restructuring charge of CHF 300
million in respect of the merger. The majority
of the additional provision was due to revised
estimates of the cost of lease breaks and property
disposals.
We have now completed the integration and
restructuring process relating to the merger. At
9
Profile
31 December 2001, CHF 21 million of the restruc-
turing provision remained and was released to
the income statement.
affecting this accounting policy relate to how
we determine fair value for such assets and lia-
bilities.
Critical accounting policies
We prepare our Financial Statements in accor-
dance with IAS, and provide a reconciliation to
US GAAP. When feasible, we try to reduce the dif-
ferences between our Financial Statements under
the two standards by applying accounting policies
that are in accordance with both sets of standards.
This approach limits (but does not completely
eliminate) the range of elective accounting treat-
ments available to us, but there are still rules
under both standards which require us to apply
judgment and make estimates in preparing our
Financial Statements. The more significant of
these accounting treatments are discussed in this
section, as a guide to better understanding how
their application affects our reported results and
our disclosure. A broader description of the
accounting policies we employ is shown in Note 1
to the UBS Group Financial Statements.
The existence of alternatives and the applica-
tion of judgment mean that any selection of dif-
ferent alternatives or estimates would cause our
reported results to differ. We believe that the
choices we have made are appropriate, and that
our Financial Statements therefore present our
financial position and results fairly, in all materi-
al respects. The alternative outcomes discussed
below are presented solely to assist the reader to
understand our Financial Statements, and are
not intended to suggest that other alternatives or
estimates would be more appropriate.
Many of the judgments which we make in
applying accounting principles depend on an
assumption, which we believe to be correct, that
UBS maintains sufficient liquidity to hold posi-
tions or investments until a particular trading
strategy matures – i.e. that we do not need to
realize positions at unfavorable prices in order to
fund immediate cash needs. Liquidity is dis-
cussed in more detail on pages 80 to 83 of the
UBS Handbook 2001/2002.
Financial instruments – fair value
Our trading portfolio assets and liabilities are
recorded at fair value. As such, they must be
recorded at fair value at each balance sheet date,
with changes in fair value recorded as trading
income in the income statement. Key judgments
Where liquid markets exist, fair value is based
on quoted market prices. However, for certain
complex or illiquid financial instruments, we
have to use projections, estimates and models to
determine fair value. In addition, judgmental
factors such as the need for credit adjustments,
liquidity adjustments and other valuation adjust-
ments affect the reported fair value amounts of
many assets and liabilities. Further details of our
valuation policies, including stress loss scenarios
and interest rate risks, are given in the Risk
Analysis section of
the UBS Handbook
2001/2002, on pages 61 to 76.
We believe the assumptions and estimates we
have used are reasonable and supportable in the
existing market environment. Because of the
range of assumptions and estimates that could be
used and the number of different sorts of prod-
ucts covered, it is not possible to quantify or
meaningfully disclose the impact of using differ-
ent assumptions and estimates that would also
be supportable.
Hedge accounting. IAS 39 allows a company
to apply hedge accounting if it fully complies
with the specified hedge criteria. We have chosen
to apply hedge accounting whenever we meet
these criteria so that our Financial Statements
clearly reflect the economic hedge effect
obtained from the use of these instruments.
Over the entire life of an effective hedging
instrument, changes in the fair value or cash
flows of the hedged item can be expected to be
almost fully offset by changes in the fair value or
cash flows of the hedging instrument, so the net
impact on profit over time is relatively small.
However, if the hedged item is one that would
normally not be recorded at fair value (for
instance if it is held at cost less impairment), but
the hedging instrument is of a sort that would
normally be accounted for at fair value, there
could be substantial differences in the profit and
loss effect for the two items during specific
accounting periods, although over the whole life
of the instrument these would be expected to
balance out.
Applying hedge accounting means that
changes in the fair values of designated hedging
instruments affect reported net profit in a period
only to the extent that each hedge is ineffective.
10
Alternatively, if we were to choose not to apply
hedge accounting, the entire change in fair value
of the designated hedging instruments in each
individual reporting period would be reported in
net income for that period, regardless of the
economic effectiveness of the hedge. For 2001,
this would have resulted in a pre-tax gain of
CHF 240 million. We believe that not applying
hedge accounting could lead to misinterpre-
tations of our results and financial position,
since hedging transactions could have a material
impact on reported net profit in a particular
period, although over the total life of a hedge the
net effect of the two treatments is identical.
Financial investments – available for sale
UBS has classified some of its financial assets,
including investments not held for trading pur-
poses, as available-for-sale. This classification
is based on our determination that these assets
are not held for the purpose of generating short-
term trading gains. Upon adoption of IAS 39 at
1 January 2001, we elected to record changes in
the fair value of available-for-sale assets in a sep-
arate component of shareholders’ equity rather
than in income. Had we made a different elec-
tion, any changes in the fair value of these assets
(i.e. unrealized gains or losses) would be reflect-
ed in the income statement. Similarly, if we had
originally decided that these were trading assets,
or if we were to reclassify these assets as trading
assets, changes in fair value would then have to
be reflected in income rather than shareholders’
equity. The amount of unrealized gains or losses
on the balance sheet date is disclosed in the state-
ment of changes in equity in the UBS Group
Financial Statements.
Companies held in our private equity port-
folio are not consolidated in UBS’s Financial
Statements. This treatment has been determined
after considering such matters as liquidity, exit
strategies and degree and timing of our influence
and control over these investments.
We classify our private equity investments as
financial investments available-for-sale, and carry
them on the balance sheet at fair value, with
changes in fair value being recorded directly in
equity, while unrealized losses which are deter-
mined to be permanent are recorded in our
income statement as impairment charges. Since
quoted market prices are generally unavailable for
these companies, fair value is determined by
applying recognized valuation techniques, which
require the use of assumptions and estimates.
While we believe that the assumptions and esti-
mates we use to determine fair value are reason-
able and supportable, different assumptions and
estimates could be used, which would lead to dif-
ferent results. In addition, the determination of
when a decline in fair value below cost is per-
manent is judgmental by nature, so profit and loss
would be affected by differences in this judgment.
Goodwill and other intangible assets
We regularly review assets that are not carried at
fair value for possible impairment indications. If
impairment indicators are identified we make
an assessment about whether the carrying value
of such assets remains fully recoverable. When
making this assessment we compare the carrying
value to the market value, if available, or the
value in use. Value in use is determined by dis-
counting expected future net cash flows gener-
ated by an asset or group of assets to its present
value. Determination of the value in use requires
management to make assumptions and use esti-
mates. We believe that our assumptions and esti-
mates used are reasonable and supportable in
the existing market environment, but different
ones could be used which would lead to differ-
ent results.
The single most significant amount of goodwill
relates to the acquisition of PaineWebber. The val-
uation model used to determine the fair value of
UBS PaineWebber is sensitive to changes in the
assumptions about the discount rate, growth rate
and expected cash flows (i. e., assumptions about
the future performance of the business). Adverse
changes in any of these factors could lead us to
record a goodwill impairment charge.
Allowances and provisions for credit losses
UBS has an extensive loan portfolio which is
exposed to credit risk. These loans are initially
recorded at cost (i. e., at the net amount of pro-
ceeds lent), and then held at amortized cost
reduced for credit reserves. Credit reserves are
based upon management’s assessment of the
likelihood that the borrower will not repay prin-
cipal and interest according to the contractually
agreed terms. Had we made different judgments
about the need for credit reserves and their
amounts, our credit loss expense charge would
have been different.
11
Profile
Further details of our policies in this area are
given in the Risk Analysis section of the UBS
Handbook 2001/2002, on pages 61 to 76.
majority of our SPEs fall into this category. SPEs
created for client investment purposes are gener-
ally not consolidated.
Securitizations and Special Purpose Entities
UBS sponsors the formation of Special Purpose
Entities (SPEs) primarily for the purpose of
allowing clients to hold investments, for asset
securitization transactions, and for credit protec-
tion. In accordance with IAS we do not consoli-
date those SPEs that we do not control. Under
applicable accounting standards, determining
the existence of control of an SPE is a complex
matter and often requires judgments to be made
about risks and rewards and the ability to make
operating decisions for the SPE.
The main difference to our financial state-
ments between consolidation and non-consolida-
tion of SPEs is generally that only in the latter
case can we recognize gains arising on securiti-
zation of assets and other transactions.
UBS has a comprehensive process for moni-
toring and controlling the creation and running
of SPEs, designed to ensure that they are only
created for purposes connected with our busi-
ness, that any change of status, such as the acti-
vation of a dormant SPE, is appropriate and that
the SPEs and their assets and liabilities are cor-
rectly accounted for.
UBS manages the risk of consolidated SPEs
in the same way as for any other subsidiary.
Unconsolidated SPEs are treated like any other
unaffiliated counterparty, under normal credit
risk principles.
SPEs used for securitization. SPEs for securi-
tization are created when UBS has an asset (for
example a portfolio of loans) which it sells to an
SPE. The SPE in turn sells interests in the asset as
securities to investors. Consolidation of these
SPEs depends on whether UBS retains the risks
and rewards of the assets in the SPE.
We do not consolidate SPEs for securitization
if UBS no longer retains any significant exposure
(gain or loss) to the returns, including liquida-
tion, on the assets sold to the SPE. This type of
SPE is a bankruptcy remote entity – if UBS were
to go bankrupt the holders of the securities
would clearly be owners of the asset, while if the
SPE were to go bankrupt the securities holders
would have no recourse to UBS.
However, in some cases UBS does retain
exposure to some of the returns from the assets
sold to the SPE – for example first loss on a loan
portfolio. In these cases we consolidate the SPE
and then derecognize the assets to the extent that
we do not have exposure.
SPEs for credit protection are set up to allow
UBS to sell the credit risk on portfolios to
investors. They are primarily to allow UBS to
have a single counterparty (the SPE) which sells
credit protection to UBS. The SPE in turn has a
large number of investors who provide it with
capital and participate in the risks and rewards
of the credit events that it insures. SPEs for cred-
it protection are generally consolidated.
Principal types of SPE used by UBS
SPEs used to allow clients to hold investments
are structures that allow one or more clients to
invest in an asset or set of assets which are pur-
chased by the SPE in the open market and not
transferred from UBS. The risk or reward of
the assets held by the SPE resides with the cus-
tomer – UBS has no exposure to them. Typically,
UBS will receive service and commission fees
for creation of the SPE, or because it acts as
investment manager, custodian or in some other
function.
These SPEs range from mutual funds to trusts
investing in real estate, for example UBS Alter-
native Portfolio AG, which provides a vehicle for
investors to invest in a diversified range of alter-
native investments through a single share. The
Equity compensation
IAS does not specifically address the recognition
and measurement of equity-based compensation
including employee option plans.
plans,
Extensive literature on accounting for options
granted to employees exists under US GAAP,
which permits a company to elect either the
intrinsic value method or the fair value method.
Under the intrinsic value method, if the exercise
price of options granted is equal to or greater
than the fair value of the underlying equity at
grant date, no compensation expense need be
recorded. Under the fair value method, an
amount would be computed for such options
and charged to compensation expense. For IAS,
UBS records as compensation expense only the
intrinsic value at grant date, if any, of options
12
granted to employees. Subsequent changes in
value are not recognized. Further information on
UBS equity compensation plans is disclosed in
Note 33 to the Financial Statements.
Deferred tax
UBS records a valuation allowance to reduce its
deferred tax assets to the amount that we believe
can be realized in our future tax returns. Our val-
uation allowance is based on the assessment of
future taxable income and our tax planning
strategies. At each balance sheet date, existing
assessments are reviewed and, if necessary, revised
to reflect changed circumstances. Changes in cir-
cumstances may result in either an increase or
reduction of the valuation allowance, and there-
fore net income, depending on an adverse or
favorable change of the factors that impact the
recognized deferred tax assets. See Note 22 to the
Financial Statements for further details.
Segment reporting
The policies used in preparation of our segment
reporting affect the split of our income and
expenses between the different Business Groups.
Applying different rules would lead to different
net profit in the different Business Groups, but
would have no effect on the total Group profits.
The most significant of these policies is the
treatment of credit loss expense. If we had not
applied the concept of adjusted expected loss in
calculating the credit loss expense for each
Business Group, Corporate Center would have
incurred a significantly higher loss, UBS War-
burg would have achieved a slightly lower profit
and UBS Switzerland a significantly higher
profit, in both 2001 and 2000. The concept of
adjusted expected credit loss is explained in
more detail in the Management Accounting sec-
tion of this report on pages 32 to 36, which
includes a table which reconciles the adjusted
expected credit loss amount charged to the
Business Groups with the actual IAS credit loss.
Significant financial events
We analyze UBS’s performance on a reported
basis determined in accordance with IAS, and on
a normalized basis which excludes from the
reported amounts certain items we term signifi-
cant financial events.
We use figures adjusted for significant finan-
cial events to illustrate the underlying opera-
tional performance of our business, insulated
from the impact of one off gains or losses outside
the normal run of business. In particular, our
financial targets have been set in terms of adjust-
ed results, excluding significant financial events.
A policy approved by the Group Executive
Board defines which items may be classified as
significant financial events. In general an item
that is treated as a significant financial event
should be:
– Non-recurring
– Event specific
– Material at Group level
– UBS-specific, not industry-wide
and should not be a consequence of the normal
run of business.
Examples of items that we would treat as
significant financial events include the gain or
loss on the sale of a significant subsidiary or
associate, such as the divestment in 1999 of
UBS’s stake in Swiss Life / Rentenanstalt, or the
restructuring costs associated with a major inte-
gration, such as the merger with PaineWebber.
Significant financial events are not a recog-
nized accounting concept under IAS or US GAAP,
and are therefore not separately reflected in the
UBS Group Financial Statements. We restrict the
use of numbers which have been adjusted for sig-
nificant financial events to UBS’s business unit
reporting and to the discussion and analysis of
the Group’s results and the accompanying illus-
trative tables. Where tables in the Business Group
reporting show adjusted figures, we also include
a table showing the reported figures.
We clearly identify all adjusted figures as
such, and clearly disclose both the pre-tax
amount of each individual significant financial
event, and the net tax benefit or loss associated
with all the significant financial events in each
period.
We have not declared any significant financial
events in 2001.
Significant financial events during 1999 and
2000 are shown in the table on page 14 and
described in more detail below.
– During 2000, we recorded restructuring
charges and provisions of CHF 290 million
pre-tax relating to the integration of Paine-
Webber into UBS.
– During 1999, we recognized pre-tax gains of
CHF 1,490 million on the sale of our 25%
stake in Swiss Life / Rentenanstalt; CHF 110
13
Profile
Significant Financial Events
CHF million
For the year ended
Operating income as reported
Julius Baer registered shares divestment
International Global Trade Finance divestment
Swiss Life / Rentenanstalt divestment
LTCM gain
Adjusted operating income
Operating expenses as reported
US Global Settlement Fund provision
Pension Fund Accounting credit
UBS / SBC Restructuring provision
PaineWebber integration costs
Adjusted operating expenses
30,396
Adjusted operating profit before tax
and minority interests
Tax expense
Tax effect of significant financial events
Adjusted tax expense
Minority interests
Adjusted net profit
Adjusted net profit before goodwill
6,718
1,401
1,401
(344)
4,973
6,296
31.12.01
31.12.00
31.12.99
% change from
31.12.00
37,114
36,402
37,114
30,396
28,425
(110 )
(200 )
(1,490 )
(38 )
26,587
20,532
(154 )
456
(300 )
20,534
6,053
1,686
(352 )
1,334
(54 )
4,665
5,005
2
2
16
18
(37)
(40)
(42)
295
(39)
(28)
36,402
26,203
(150 )
(290 )
25,763
10,639
2,320
100
2,420
(87 )
8,132
8,799
million on the disposal of Julius Baer regis-
tered shares; CHF 200 million on the sale of
our international Global Trade Finance busi-
ness; and CHF 38 million from our residual
holding in Long Term Capital Management.
– In fourth quarter 1999, we recognized a one-
time credit of CHF 456 million in connection
with excess employer pre-payments to staff
pension funds.
– In fourth quarter 1999, UBS recognized an
additional pre-tax restructuring charge of
CHF 300 million in respect of the 1998
merger between Union Bank of Switzerland
and Swiss Bank Corporation.
– During 1998, we established a provision of
CHF 842 million in connection with the
US Global Settlement of World War II
related claims. We recognized additional
pre-tax provisions relating to this claim of
CHF 154 million in 1999 and CHF 150 mil-
lion in 2000.
Risk factors
As a global financial services firm, UBS’s busi-
nesses are affected by the external environment in
the markets in which UBS operates. In particular,
the results of our business in Switzerland, and
notably the results of our credit-related activities,
would be adversely affected by any deterioration
in the state of the Swiss economy because of the
impact this would have on our customers’ credit-
worthiness. More generally, global economic and
political conditions can impact UBS’s results and
financial position by affecting the demand for our
products and services, and the credit quality of
our borrowers and counterparties. Similarly, any
continued prolonged weakness in international
securities markets would affect our business rev-
enues through its effect on our clients’ investment
activity and the value of their invested assets,
which would in turn reduce our revenues from
wealth management businesses.
Competitive forces
UBS faces intense competition in all aspects of its
business. We compete with asset managers, retail
and commercial banks, private banking firms,
investment banking firms, brokerage firms and
other investment services firms. In addition, the
trend toward consolidation in the global finan-
cial services industry is creating competitors with
broader ranges of product and service offerings,
increased access to capital, and greater efficiency
and pricing power.
14
Fluctuations in currency exchange rates
and interest rates
Because UBS prepares its accounts in Swiss francs,
changes in currency exchange rates, particularly
between the Swiss franc and the US dollar, may
have an effect on the earnings that UBS reports.
(Revenues in US dollars represent the major part
of our non-Swiss franc earnings). Our approach
to managing this risk is explained in the Currency
management section of the Group Treasury chap-
ter in the UBS Handbook 2001/2002.
In addition, changes in financial market struc-
tures can affect our earnings. For example, the
establishment of the euro during 1999 affected
foreign exchange markets in Europe by reducing
the extent of foreign exchange dealings among
member countries and generating more harmo-
nized financial products. Movements in interest
rates can also affect our results. Our interest
income is affected by changes in interest rates,
although the precise mechanisms are compli-
cated. Interest rate movements can also affect
our fixed income trading portfolio and the
investment performance of our asset manage-
ment businesses. For further discussion of the
effect of interest rate changes on our business see
the Interest rate risk management section of the
discussion of the Group Treasury chapter in the
UBS Handbook 2001/2002.
Operational risks
All our businesses are dependent on our ability
to process a large number of complex transac-
tions across numerous and diverse markets in
different currencies and subject to many differ-
ent legal and regulatory regimes. UBS’s systems
and processes are designed to ensure that the
risks associated with our activities are appro-
priately controlled, but we recognize that any
weaknesses in these systems could have a nega-
tive impact on the results of our operations.
As a result of these and other factors beyond
our control, UBS’s revenues and operating profit
have been and are likely to continue to be subject
to a measure of variability from period to period.
Therefore UBS’s revenues and operating profit
for any particular fiscal period may not be
indicative of sustainable results, may vary from
year to year and may impact our ability to
achieve UBS’s strategic objectives.
For a discussion of UBS’s risk management
and control procedures see the Risk Manage-
ment and Control section of the UBS Hand-
book 2001/2002.
15
16
Group Financial Review
17
Group Financial Review
Group Results
Group Results
2001
UBS made significant progress in 2001, successful-
ly integrating UBS PaineWebber, building our
European wealth management business and
expanding our presence in corporate finance, par-
ticularly in the US. Our clients invested substantial
net new money through our private client and
asset management businesses, and we significantly
improved our investment banking market share. It
has been a challenging year for us financially, with
a difficult market environment depressing trading
returns, transaction volumes, and private equity
valuations, in stark contrast to the buoyant cli-
mate in 2000. Despite the markets, relative opera-
tional performance in our core businesses has
remained strong and we have benefited from our
prudent attitude to risk and careful cost control.
Group targets
We focus on four key performance targets,
designed to ensure that UBS delivers continually
improving returns to its shareholders.
– We seek to increase the value of UBS by
achieving a sustainable, after-tax return on
equity of 15–20%, across periods of varying
market conditions.
– We aim to increase shareholder value through
double-digit average annual percentage
growth of basic earnings per share (EPS),
across periods of varying market conditions.
– Through cost reduction and earnings enhance-
ment initiatives, we aim to reduce UBS’s cost/
income ratio to a level that compares posi-
tively with best-in-class competitors.
– We aim to achieve a clear growth trend in net
new money in the private client businesses
(Private Banking and Private Clients).
The first three targets are all measured pre-
goodwill amortization, and adjusted for signifi-
cant financial events.
Our performance against these targets in
2001 reflects the extremely difficult market con-
ditions we have faced. Before goodwill and
adjusted for significant financial events:
– Our return on equity for 2001 was 14.8%,
only just below our target range of 15–20%.
UBS Group Performance against Targets
For the year ended
31.12.01
31.12.00
31.12.99
RoE (%)
as reported
before goodwill and adjusted for significant financial events 1
Basic EPS (CHF)
as reported
before goodwill and adjusted for significant financial events 1
Cost / income ratio (%)
as reported
before goodwill and adjusted for significant financial events 1
Net new money, private client units (CHF bn)2,3
UBS Switzerland – Private Banking
UBS Warburg – Private Clients
Total
11.7
14.8
3.93
4.97
80.8
77.3
22.5
36.0
58.5
21.5
24.3
6.44
7.28
72.2
69.2
2.8
15.2
18.0
22.4
18.2
5.07
4.12
69.9
73.3
2.3
2.0
4.3
1 Excludes the amortization of goodwill and other intangible assets. 2 Excludes interest and dividend income. 3 Calculated using the former def-
inition of assets under management in 2000 and 1999.
18
Although this is lower than the 24.3% that we
achieved in 2000, it represents a solid per-
formance when set in the context of the trad-
ing environment. Our return on equity in 2000
was boosted by extremely high returns in the
exuberant markets of the first half-year, while
this year has seen much weaker economic and
stock market performance combined with
higher average equity resulting from the acqui-
sition of PaineWebber in fourth quarter 2000.
UBS PaineWebber’s business. Despite this rise,
operating expenses remained under tight con-
trol, with decreases from 2000 levels in UBS
Switzerland’s Private Banking and Private and
Corporate Clients business units and UBS
Warburg’s Corporate and Institutional Clients
business unit, and a clear reduction through
the year in UBS Warburg’s Private Clients
business unit.
Cost/income ratio1 (%)
RoE1 (%)
30
25
20
15
10
5
0
e
g
a
r
e
v
A
9
9
9
9
9
1
0
0
Q
2
0
0
Q
3
0
0
0
2
1
0
Q
1
1
0
Q
2
1
0
0
2
1
0
Q
4
1 Excludes the amortization of goodwill and other intangible assets
and adjusted for significant financial events.
– Basic earnings per share fell 32% to CHF
4.97, a level still 21% higher than we
achieved in 1999. Outstanding shares started
2001 higher than in most of 2000, as a result
of issuance to fund the merger with Paine-
Webber, but our continued buy-back program
meant that by 31 December 2001 they were
again below the pre-merger level.
– The cost/income ratio for the year rose from
69.2% to 77.3%, reflecting lower revenues,
the poor performance of our private equity
portfolio this year and the influence of the
relatively high cost / income ratio typical of
Basic EPS1 (CHF)
8
7
6
5
4
3
2
1
0
e
g
a
r
e
v
A
9
9
9
9
9
1
0
0
Q
2
0
0
Q
3
0
0
0
2
1
0
Q
1
1
0
Q
2
1
0
0
2
1
0
Q
4
1 Excludes the amortization of goodwill and other intangible assets
and adjusted for significant financial events.
80
75
70
65
60
e
g
a
r
e
v
A
9
9
9
9
9
1
0
0
Q
2
0
0
Q
3
0
0
0
2
1
0
Q
1
1
0
Q
2
1
0
0
2
1
0
Q
4
1 Excludes the amortization of goodwill and other intangible assets
and adjusted for significant financial events.
Our disciplined approach to both compen-
sation and non-personnel costs allows us to con-
tinue investing in the future growth of our key
businesses. The percentage of revenue which we
dedicate to rewarding our staff has remained
almost unchanged since last year in our most
important businesses, reflecting a substantial
decrease in bonus payments.
Net new money, private client units1 (CHF billion)
60
50
40
30
20
10
0
e
g
a
r
e
v
A
9
9
9
9
9
1
0
0
Q
2
0
0
Q
3
0
0
0
2
1
0
Q
1
1
0
Q
2
1
0
0
2
1
0
Q
4
1 Private Banking and Private Clients.
Our asset gathering activities have delivered
very strong results this year, with inflows in
the private client units (Private Banking and
Private Clients) of CHF 58.5 billion during
2001, compared to CHF 18.0 billion in 2000.
Over the whole Group, we attracted a total of
19
Group Financial Review
Group Results
Invested Assets
CHF billion
UBS Group
UBS Switzerland
Private and Corporate Clients
Private Banking
UBS Asset Management
Institutional
Mutual funds
UBS Warburg
Private Clients
UBS Capital
Net new
money2
2001
Net new
money
2000
2, 3
31.12.01
31.12.001
2,457
2,452
320
682
328
344
782
1
345
691
323
319
773
1
8.5
22.5
6.2
28.7
36.0
0.1
0.4
2.8
(70.8)
2.9
15.2
1 Calculated using the new definition of invested assets.
assets under management.
2 Excludes interest and dividend income.
3 Calculated using the former definition of
CHF 102.0 billion in net new money, as clients
increasingly value the quality of our advice and
the breadth and depth of our wealth manage-
ment capabilities.
The UBS Group
Private client invested assets by client domicile
33%
US
Americas – Other
Switzerland
Europe and the
rest of the world
50%
11%
6%
As at 31.12.2001
Net profit
Our net profit for the year 2001 was CHF 4,973
million, 36% less than the CHF 7,792 million
achieved in 2000, reflecting the much more diffi-
cult market environment in 2001.
The merger with PaineWebber resulted in
much higher goodwill amortization expense in
2001 than in 2000. Pre-goodwill, net profit for
the year was CHF 6,296 million, 26% lower
than we achieved in the much stronger markets
of 2000 and 28% lower if adjusted for signifi-
cant financial events.
Operating income
Operating income was 2% higher in 2001 than
in 2000, at CHF 37,114 million, with the effect
of much more difficult market conditions offset
by the addition of UBS PaineWebber’s busi-
nesses.
There were no significant financial events that
affected operating income in either 2001 or 2000.
Net interest income was 1% lower than in
2000, at CHF 8,041 million, compared to CHF
8,130 million in 2000, and net trading income
was 12% lower than in 2000 at CHF 8,802 mil-
lion, compared to CHF 9,953 million in 2000.
Various factors can alter the mix between net
interest income and net trading income between
periods.
As well as income from interest margin based
activities (for example loans and deposits), net
interest income includes some income earned as
a result of trading activities (such as coupon and
dividend income). This component is volatile
from period to period, depending on the compo-
sition of the trading portfolio.
Furthermore, the classification of income
arising from positions and their offsetting eco-
nomic hedging transactions may be different. In
fourth quarter 2001 this effect was particularly
pronounced, as a result of the significant fall in
short term USD interest rates which substantially
reduced our borrowing costs, so boosting net
interest income for the quarter. Our overall
interest rate exposures are limited by hedging
transactions using derivative instruments. As the
USD rates fell, these economic hedges generated
mark-to-market losses recorded in fixed income
net trading income, offsetting a portion of the
gains in net interest income.
20
Net Interest and Trading Income
CHF million
For the year ended
Net interest income
Net trading income
Total net interest and trading income
Breakdown by business activity:
Net income from interest margin products
Net income from trading activities
Net income from treasury activities
Other 1
Total net interest and trading income
1 Principally goodwill funding costs.
31.12.01
31.12.00
31.12.99
% change from
31.12.00
8,041
8,802
16,843
5,694
11,529
1,424
(1,804)
16,843
8,130
9,953
18,083
5,430
12,642
762
(751 )
18,083
5,909
7,719
13,628
5,139
8,200
628
(339 )
13,628
(1)
(12)
(7)
5
(9)
87
(140)
(7)
In order to provide a better explanation of
the movements in net interest income and net
trading income, we produce the disclosure
shown above which sums net interest income
and net trading income, and then analyzes the
total according to the business activities which
gave rise to the income, rather than by the type
of income generated.
Net income from interest margin products
increased 5% from CHF 5,430 million to CHF
5,694 million, driven by the inclusion of UBS
PaineWebber.
Net income from trading activities was CHF
11,529 million, 9% lower than the CHF 12,642
million achieved in 2000. Falling interest rates
and increased volatility in debt markets led to a
very strong year for fixed income and foreign
exchange trading, but equity trading revenues
suffered from much lower market volumes,
increased volatility and reduced arbitrage oppor-
tunities.
Net income from treasury activities was 87%
higher than in 2000, at CHF 1,424 million,
reflecting two main factors:
– increased income from our invested equity,
as a result of the expansion of our capital base
since the PaineWebber merger, and changes
in the investment portfolio’s maturity struc-
ture leading to an increase in average interest
rates;
– and improved currency management results
due to introduction of a new economic hedg-
ing strategy and some one-off gains.
Other net trading and interest income princi-
pally reflects the costs of goodwill funding, with
the CHF 1,053 million increase in cost from
CHF 751 million in 2000 to CHF 1,804 million
in 2001 mainly due to goodwill funding costs
arising from the acquisition of PaineWebber.
Credit loss expense. In 2001 credit loss
expenses amounted to CHF 498 million, com-
pared to a net recovery of CHF 130 million in
2000 but down from an expense of CHF 956 mil-
lion in 1999.
The global credit environment declined rapid-
ly throughout 2001, with overall default rates as
high as during the last major global recession in
1991. The phenomenon of investment grade
companies falling into restructuring and default
within a very short period of time became very
prominent in the United States during 2001, and
subsequently spread to Europe. In this difficult
Actual IAS Credit Loss Expense (Recovery)
CHF million
For the year ended
UBS Switzerland
UBS Asset Management
UBS Warburg
Corporate Center
Total
31.12.01
31.12.00
31.12.99
123
0
375
498
(695 )
0
565
(130 )
965
0
0
(9)
956
21
Group Financial Review
Group Results
Net Fee and Commission Income
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Underwriting fees
Corporate finance fees
Brokerage fees 1
Investment fund fees
Fiduciary fees
Custodian fees
Portfolio and other management and advisory fees 1
Insurance-related and other fees 1
2,158
1,339
6,445
4,276
355
1,356
4,650
538
1,434
1,772
5,742
2,821
351
1,439
3,666
111
905
1,298
3,934
1,915
317
1,583
2,612
57
Total security trading and investment activity fees
21,117
17,336
12,621
Credit-related fees and commissions
Commission income from other services
307
946
310
802
372
765
Total fee and commission income
22,370
18,448
13,758
Brokerage fees paid
Other
Total fee and commission expense
1,281
878
2,159
1,084
661
1,745
795
356
1,151
Net fee and commission income
20,211
16,703
12,607
50
(24)
12
52
1
(6)
27
385
22
(1)
18
21
18
33
24
21
1 Fee and commission income from insurance products now reported in Insurance-related and other fees was previously reported in Brokerage
fees and in Portfolio and other management and advisory fees. Prior years have been restated.
and challenging environment we have focused
on ensuring that our counterparty ratings are
rapidly adjusted to reflect the changing econom-
ic situation. At the same time, we have increased
the frequency of sector and geographic rating
reviews.
In UBS Warburg, the ongoing strategy of
actively hedging credit exposure has kept new
provisions to a relatively low level, resulting in a
credit loss expense of CHF 375 million in 2001,
compared to CHF 565 million in 2000.
Corporate bankruptcies in Switzerland have
now reached their lowest level since the early
1990s, and we have successfully improved the
credit quality of our domestic portfolio over
recent years. The level of recoveries of previ-
ously existing provisions has, however, declined
compared to the somewhat exceptional levels
of 2000, reflecting less robust growth in the
Swiss economy towards the end of 2001, fol-
lowing the global economic slowdown. As a
result, the trend of net recoveries of loan loss
provisions observed in the previous year was
reversed and credit loss expenses increased
accordingly during 2001, although remaining
below the long-term trend. Credit loss expense
in UBS Switzerland in 2001 was CHF 123 mil-
lion, compared to a net recovery of CHF 695
million in 2000.
For further details on our risk management
approach, how we measure credit risk and the
development of our credit risk exposures, please
see the Capital and Risk Management chapter of
our Handbook 2001/2002.
Net fee and commission income was CHF
20,211 million, up 21% from 2000 and at a
record level, reflecting the inclusion of UBS
PaineWebber and the introduction of higher
fees for
investment funds. Without UBS
PaineWebber, net fee and commission income
would have dropped 7%, driven by much lower
brokerage fees and a reduction in corporate
finance fees, with increases in market share
during the year achieved against a background
of much reduced market activity.
Underwriting fees increased 50%, from CHF
1,434 million in 2000 to CHF 2,158 million in
2001. The majority of this increase was due to
UBS PaineWebber, whose extensive retail net-
work in the US provides a strong platform for
distribution of both bonds and equities.
UBS PaineWebber has a significant US
municipal securities business, which completed
the largest deal in its history in fourth quarter,
raising USD 1.9 billion for the New Jersey
Transit Trust Fund Authority, and helping to
push it into first place in the league table rank-
ings for fourth quarter, and second place for the
22
whole of 2001. The mortgage-backed securities
business in the US has also benefited from the
combination of UBS’s franchise and capital
strength with existing PaineWebber expertise.
UBS Warburg ranked first in US residential
mortgage-backed securities in 2001, according
to Thomson Financial Data.
Equity underwriting was depressed in 2001,
as volatile and uncertain markets reduced
issuance. However, UBS’s league table rankings
improved, from seventh in international equity
new issues in 2000 to second in 2001, according
to Capital Data Bondware. Even excluding the
contribution from UBS PaineWebber, equity
underwriting revenues increased by CHF 77 mil-
lion, or 7%, from 2000.
Although our corporate finance league table
rankings were disappointing, down from sixth in
2000 for completed global mergers and acquisi-
tions to eighth in 2001, we outperformed 2000
in terms of market share, with full year analysis
showing us with a 4.5% share of fees, compared
to 3.6% in 2000. Despite this, Corporate
Finance fees were down 24%, from CHF 1,772
million in 2000 to CHF 1,339 million in 2001,
reflecting the much more difficult market envi-
ronment this year.
Net brokerage fees rose 11% from CHF
4,658 million in 2000 to CHF 5,164 million in
2001, driven by the inclusion of UBS Paine-
Webber. Without the contribution from UBS
PaineWebber, net brokerage fees would have
fallen by about 17% compared to 2000, reflect-
ing the much lower trading volumes experienced
in almost all major markets world wide in 2001.
The level of net brokerage fees is closely linked
to transaction volumes, and performance in
2002 will largely depend on whether markets
improve and investor confidence returns.
Investment fund fees rose 52% from CHF
2,821 million in 2000 to CHF 4,276 million in
2001, driven by the inclusion of UBS Paine-
Webber. Excluding UBS PaineWebber, invest-
ment fund fees would have increased by CHF
268 million, mainly reflecting a change in the
pricing structure for UBS Investment Funds,
introduced in January 2001, which brought
charges up to market levels.
Custodian fees, at CHF 1,356 million in
2001 were down 6% from 2000’s level of CHF
1,439 million, principally reflecting lower aver-
age assets in Private Banking in Switzerland.
Portfolio and other management and advisory
fees increased 27% from CHF 3,666 million in
2000 to CHF 4,650 million in 2001, due to the
addition of UBS PaineWebber. Excluding UBS
PaineWebber, there would have been a slight
decline from 2000, as a full year’s contribution
from the O’Connor business in UBS Asset
Management (created in June 2000) was more
than offset by the effect of lower average assets
on managed account fees.
Insurance related and other fees increased
substantially from CHF 111 million in 2000 to
CHF 538 million in 2001, with almost all this
increase due to UBS PaineWebber, where the
biggest contribution came from the deferred an-
nuities business.
Other income fell 62% from CHF 1,486 mil-
lion in 2000 to CHF 558 million in 2001, reflect-
ing the very difficult conditions in the private
equity market this year, which led to minimal
opportunities for divestment and much greater
levels of write-downs than last year.
Operating expenses
In light of lower revenues in 2001, cost control
was a key focus of all our management teams,
as we maintained strong discipline on both
personnel and non-personnel costs, particularly
in the Corporate and Institutional Clients and
Private and Corporate Clients business units,
bringing their operating expenses to record low
levels.
Total operating expenses increased 16% from
CHF 26,203 million in 2000 to CHF 30,396 mil-
lion in 2001, driven by the inclusion of UBS
PaineWebber. Excluding significant financial
events in 2000 and UBS PaineWebber, costs
fell 7%, as performance-related compensation
reduced, and non-personnel costs were carefully
restricted.
The principal significant financial events
affecting the comparison of operating expenses
are the CHF 150 million additional provision
for the US Global Settlement of World War II
related claims, recorded in 2000 in General and
administrative expenses, and CHF 290 million
of costs from the integration of PaineWebber,
also recorded in 2000. Of this CHF 290 million,
CHF 118 million was charged to Personnel
expenses, CHF 93 million to General and
administrative expenses and CHF 79 million to
Depreciation.
23
Group Financial Review
Group Results
Headcount 1
(full time equivalents)
UBS Switzerland
Private and Corporate Clients
Private Banking
UBS Asset Management
UBS Warburg
Corporate and Institutional Clients
UBS Capital
Private Clients
Corporate Center
Group total
thereof: Switzerland
31.12.01
31.12.00
Change in %
29,204
19,938
9,266
3,281
36,368
15,562
128
20,678
1,132
69,985
29,163
30,025
21,100
8,925
2,860
37,205
15,262
129
21,814
986
71,076
30,095
(3)
(6)
4
15
(2)
2
(1)
(5)
15
(2)
(3)
1 The Group headcount does not include the Klinik Hirslanden AG headcount of 2,450 at 31 December 2001 and 1,839 at 31 December 2000.
Personnel expenses in 2001 reflect consid-
erable reductions in bonus and performance-relat-
ed compensation, with average variable compen-
sation per head down 23%, ensuring that overall
compensation ratios for the year were kept in line
with 2000’s ratio in our core businesses. However,
the inclusion of CHF 5,178 million of Paine-
Webber personnel expenses more than offset the
reduction in performance-related pay, bringing
the total to CHF 19,828 million, 16% up from
2000. Approximately 43% of this year’s person-
nel expenses were bonus or other variable com-
pensation, down from 48% last year.
UBS Group headcount
fell by 2% from
71,076 at 31 December 2000 to 69,985 at
31 December 2001, principally reflecting the
effect of successful cost control efforts at UBS
Switzerland’s Private and Corporate Clients
business unit and UBS Warburg’s Private Clients
business unit, slightly offset by the effect of
acquisitions in UBS Asset Management and the
expansion in Europe of UBS Switzerland’s
Private Banking business unit.
General and administrative expenses in-
creased by 13% from CHF 6,765 million in
2000 to CHF 7,631 million in 2001 reflecting a
full year’s costs for UBS PaineWebber, which
more than offset the absence of the one-off
charges and provisions recorded in 2000.
General and administrative expenses in 2000
included a final provision of CHF 150 million
related to the US Global Settlement of World
War II related claims, and CHF 93 million of
PaineWebber integration costs, which were both
treated as significant financial events. Excluding
these provisions and the extra costs in 2001 due
to the inclusion of UBS PaineWebber, general
and administrative costs would have been almost
unchanged in 2001 compared to 2000.
Depreciation and amortization increased
29% from CHF 2,275 million in 2000 to CHF
2,937 million in 2001, driven primarily by the
goodwill amortization resulting from the merger
with PaineWebber.
UBS Group incurred a tax expense of CHF
1,401 million in 2001, down from CHF 2,320 mil-
lion in 2000. This corresponds to an effective tax
rate of 21% in 2001, compared to 23% in 2000.
This relatively low rate results from significantly
lower tax in Switzerland, reflecting the effect of
lower profits triggering lower progressive tax
rates, and a change in geographical earnings mix
of the Group. We believe that this year’s tax rate of
21% is also a reasonable indicator for 2002.
PaineWebber merger-related costs
In 2001, UBS incurred amortization costs of
CHF 846 million on goodwill and intangible
assets resulting from the acquisition of UBS
PaineWebber, while goodwill funding costs
amounted to CHF 763 million.
As part of the merger, UBS agreed to make
retention payments to PaineWebber financial
advisors, senior executives and other staff, sub-
ject to these employees’ continued employment
and other restrictions. The payments vest over
periods of up to four years from the merger and
the vast majority of them will be paid in the form
of UBS shares. Because these payments are a
regular and continuing cost of the business, they
are not treated as significant financial events.
Personnel expenses in 2001 include retention
payments for key PaineWebber staff of USD 284
million (CHF 482 million) for the full year.
24
Dividend
This year we plan once again to make a tax effi-
cient distribution of capital to our shareholders
rather than paying a dividend. The Board of
Directors will recommend to the Annual General
Meeting on 18 April 2002 that UBS make a par
value repayment of CHF 2.00 per share, consis-
tent with last year’s total per share distribution
to shareholders of CHF 2.03.
Balance sheet
Total assets increased CHF 165 billion, or 15%,
from CHF 1,088 billion at 31 December 2000,
to CHF 1,253 billion at 31 December 2001. The
balance sheet growth mostly occurred during
the first half of the year, with a contraction
following the terrorist attacks in the US on
11 September 2001, although this reduction was
reversed during fourth quarter.
Cash and balances with central banks rose
from CHF 3 billion at 31 December 2000 to
21 billion at 31 December 2001, of which the
overwhelming part stemmed from increased
deposits with the Bank of Japan. This build-up
relates to a change in the structure of our
Japanese financial assets triggered by the regime
of negative short-term interest rates in Japan.
Trading related assets (cash collateral on secu-
rities borrowed, trading portfolio assets and
reverse repurchase agreements), grew by CHF
143 billion from 31 December 2000 to 31 De-
cember 2001. A significant part of this change
reflects an increase in collateralized positions,
which grew by CHF 61 billion, due to increased
client demand for collateralized funding in uncer-
tain markets.
Loans, net of allowances for credit losses
declined from CHF 245 billion at 31 December
2000 to CHF 227 billion at 31 December 2001
as a result of reduced lending to corporate cus-
tomers and public authorities.
Total liabilities increased 16%, from CHF
1,040 billion at 31 December 2000 to CHF
1,206 billion at 31 December 2001, principally
reflecting expansion of trading related liabilities
(cash collateral on securities lent, repurchase
agreements and trading portfolio liabilities)
which together increased by CHF 103 billion
during 2001. Amounts due to customers rose
CHF 23 billion to CHF 334 billion at 31 Decem-
ber 2001 due to an increase in time deposits
originated with our retail and institutional cus-
tomer base in Switzerland. Debt issued increased
CHF 26.6 billion largely due to increased
issuance of money market paper in support of
the Principal Finance business in the US.
UBS’s long-term debt portfolio increased from
CHF 55 billion at 31 December 2000 to CHF
57 billion at 31 December 2001, driven by
increased sales of retail structured products in
the US and Europe, as clients sought ways to
compensate for higher market volatility. During
this year CHF 18.2 billion of long-term debt
were issued while CHF 18.5 billion matured.
UBS believes the maturity profile of the long-
term debt portfolio is well balanced to match the
maturity profile of UBS’s assets.
Shareholders’ equity decreased CHF 1.3 bil-
lion, or 3%, from 31 December 2000 to 31 De-
cember 2001. The increase in retained earnings
was more than offset by the effect of the repur-
chase of own shares in 2001. Shares were repur-
chased under UBS’ second trading line buy-back
program, for employee share schemes and in
order to repay the shares borrowed to pay the
PaineWebber merger consideration.
UBS maintains a significant percentage of
liquid assets, including collateralized receivables
and trading portfolios that can be converted into
cash on relatively short notice and without
adversely affecting UBS’s ability to conduct its
ongoing businesses, in order to meet short-term
funding needs. Collateralized receivables include
reverse repurchase agreements and cash collat-
eral on securities borrowed, and marketable cor-
porate debt and equity securities and a portion
of UBS’s loans and amounts due from banks
which are secured primarily by real estate. The
value of UBS’s collateralized receivables and
trading portfolio will fluctuate depending on
market conditions and client business. The indi-
vidual components of UBS’s total assets, includ-
ing the proportion of liquid assets, may vary sig-
nificantly from period to period due to changing
client needs, economic and market conditions
and trading strategies.
Cash flows
In the twelve-month period to December 2001,
cash equivalents increased by CHF 22,889 mil-
lion, principally as a result of financing activities,
which generated positive cash flow of CHF
18,103 million. CHF 24,226 million from the
issuance of money market paper was offset by
25
Group Financial Review
Group Results
CHF 6,038 million for treasury shares and
treasury share contract activity as well as CHF
683 million for capital repayment.
Operating activities generated positive cash
flow of CHF 12,873 million. Of this amount,
CHF 4,973 million resulted from net profit,
CHF 27,306 million from a net increase in
amounts due to and from banks, a net increase
in amounts due to customers and loans of CHF
42,813 million and a net cash inflow of CHF
19,470 million from repurchase and reverse
repurchase agreements and cash collateral on
securities borrowed and lent. These were offset
by CHF 78,456 million from an increase in the
size of the trading portfolio. Investing activities
generated negative cash flow of CHF 7,783 mil-
lion. CHF 5,770 million from the purchase of
financial investments and CHF 2,021 million
from the purchase of property and equipment.
was 24.3%, clearly above our target range of
15–20%. Pre-goodwill earnings per share, again
on an adjusted basis, were CHF 7.28 in 2000,
representing an increase of 77% over 1999, well
in excess of our target of double-digit growth
over the cycle. Continued focus on cost control
brought the pre-goodwill cost/income ratio,
adjusted for significant financial events, down to
69.2% in 2000, from 73.3% in 1999.
Net new money in the private client busi-
nesses (Private Banking and Private Clients) was
CHF 18.0 billion for the year, compared to CHF
4.3 billion in 1999, and including CHF 8.3 bil-
lion of net new money in UBS PaineWebber in
the last two months of 2000. UBS PaineWebber’s
net new money growth since completion of the
merger demonstrates the strength of its franchise
and the momentum that it brings to UBS’s asset
gathering performance.
Outlook 2002
UBS’s core businesses have performed relatively
strongly in 2001, demonstrating their ability to
enhance market share in a challenging environ-
ment. As 2002 begins, markets remain difficult,
with uncertainty and volatility continuing to
affect transaction levels and corporate activity. In
the face of this challenging environment, we will
continue to assess our cost base carefully, invest-
ing where strategically most important. Our pru-
dent resource management over the last two years
means that we do not believe that significant staff
reductions are likely to be necessary, unless mar-
kets stagnate. With prospects for an economic
recovery receding into the latter part of the year,
potential for this year to outperform 2001 is lim-
ited. However, our businesses have shown them-
selves to be increasingly competitive and we are
confident that we can continue the progress we
have made in the past year, expanding in corpo-
rate finance, further developing our European
wealth management initiative and ensuring that
all the strengths of our integrated group are
focused on building the world’s leading wealth
management and investment banking businesses.
2000
Group targets
Adjusted for significant financial events, our
pre-goodwill return on equity for the year 2000
Net profit
Full year net profit was CHF 7,792 million, up
27% from the CHF 6,153 million reported in
1999. When adjusted for significant financial
events, net profit for 2000 was CHF 8,132 mil-
lion, up 74% from the CHF 4,665 million
achieved in 1999. These results reflect the very
strong and consistent performance recorded by
the Group in every quarter of 2000.
Operating income and expense includes
income and expense of the former PaineWebber
businesses from 3 November 2000, the date of
the completion of the merger with PaineWebber.
Operating income
Total operating income increased 28% from 1999,
to CHF 36,402 million, from CHF 28,425 million.
Adjusted for significant financial events, total
operating income increased 37%, to CHF 36,402
million, from CHF 26,587 million in 1999. This
strong performance relative to 1999 was driven
by excellent trading results, improved credit con-
ditions in the Swiss market, much higher fee and
commission income, and a successful year for the
Group’s investment banking business.
The principal significant financial events
affecting the income comparison were from the
one-off sales of businesses and investments in
1999, including pre-tax gains of CHF 1,490
million on the sale of UBS’s 25% stake in
Swiss Life/Rentenanstalt, CHF 110 million on
the disposal of Julius Baer registered shares, and
26
CHF 200 million on the sale of UBS’s inter-
national Global Trade Finance business, which
were all recorded in Other income. In addition
UBS recognized a CHF 38 million gain in 1999
from its residual holdings in Long Term Capital
Management, L.P., which was also recorded in
Other income.
Net
interest
income before credit
loss
increased by CHF 2,221 million, or 38%, from
CHF 5,909 million in 1999 to CHF 8,130 mil-
lion in 2000. This was principally the result of
much stronger trading-related performance, as a
result of buoyant markets, and the return of the
balance sheet to more normal proportions after
the contraction implemented as part of the
Group’s precautions against potential Year 2000
related problems.
Net trading income increased CHF 2,234 mil-
lion, or 29%, to CHF 9,953 million for 2000,
compared to CHF 7,719 million for 1999, driven
by strong growth in equity trading income as a
result of increased global market activity, espe-
cially in the first quarter of 2000, and the
increasing strength of UBS Warburg’s secondary
client franchise.
Net income from interest margin products
increased 6% from 1999 to CHF 5,430 million in
2000, driven by the addition of UBS PaineWebber.
In the main lending and deposit taking business
in Switzerland, a reduction in loan volumes was
more than offset by a slight improvement in mar-
gins, reflecting a change in product mix.
Net income from trading activities in 2000
was CHF 12,642 million, 54% higher than in
1999, driven by the exceptionally strong per-
formance of the equity business in first half
2000, reflecting increased trading volumes, high-
er market share and record levels of mergers and
acquisitions activity. Fixed income and foreign
exchange trading income also improved com-
pared to 1999, driven by improved markets, a
strong government bond and derivatives busi-
ness and higher client flow in treasury products.
Net income from treasury activities was CHF
762 million in 2000, 21% higher than in 1999,
reflecting better results from the hedging of
foreign currency revenues and higher income
from the investment of equity. Income from
invested equity increased due to the higher
average equity following the issuance of trust
preferred securities in September 2000 and the
merger with PaineWebber.
Other net trading and interest income princi-
pally reflects the costs of goodwill funding, with
the increase since 2000 mainly due to goodwill
funding costs arising from the acquisition of
PaineWebber in November 2000 and the acqui-
sition of Global Asset Management (GAM) at
the end of 1999.
Credit loss expense. As a result of the signifi-
cant recovery of the Swiss economy in 2000 and
especially its effect on the real estate and con-
struction markets, UBS was able to write back
CHF 695 million of credit loss provisions in UBS
Switzerland in 2000. These write-backs were
only partly offset by additional provisions for
the UBS Warburg portfolio of CHF 565 million,
leading to an overall net credit recovery of CHF
130 million for 2000, compared to an expense of
CHF 956 million in 1999.
Net fee and commission income increased by
CHF 4,096 million, or 32%, from CHF 12,607
million in 1999 to CHF 16,703 million in 2000.
This was principally the result of high levels of
brokerage fees, due to increased client activity in
strong markets, especially in the first quarter of
2000, and the addition of PaineWebber. In addi-
tion, two other new businesses, GAM, acquired
at the end of 1999, and O’Connor, created in
June 2000, contributed to the increase, as did the
strong performance of UBS’s investment banking
business during 2000.
Credit-related fees and commissions de-
creased by CHF 62 million in 2000 mainly as a
result of the sale of UBS’s international Global
Trade Finance business in 1999.
Underwriting fees increased by 58% over
1999 with strong results in both fixed income
and equity underwriting, despite UBS’s rela-
tively limited involvement in the Technology,
Media and Telecoms (TMT) sector, which led to
lower equity league table rankings in 2000 than
in 1999. Corporate Finance fees grew 37%, or
CHF 474 million, from CHF 1,298 million in
1999 to CHF 1,772 million in 2000, reflecting
good results in Europe and a strong perform-
ance in mergers and acquisitions, where our
league table rankings improved compared to
1999.
Net brokerage fees were 48% higher in 2000
than in 1999 as a result of high levels of client
activity in the exuberant markets of the early
part of the year, and the inclusion of two months
of results from PaineWebber. The increase of
27
Group Financial Review
Group Results
47% in Investment fund fees from 1999 to 2000
resulted from higher average volumes in 2000
and a shift in the product mix, with a higher pro-
portion of assets under management invested in
higher margin equity funds. In addition, Invest-
ment fund fees in 2000 benefited from the inclu-
sion of GAM and PaineWebber’s contribution.
Custodian fees and Portfolio and other manage-
ment and advisory fees increased by a total of
CHF 910 million, or 22%, from 1999, due to
higher asset-related fees in 2000 and the inclu-
sion of PaineWebber and the new O’Connor
business.
Other income decreased CHF 1,660 million,
or 53%, from CHF 3,146 million in 1999 to
CHF 1,486 million in 2000, driven by gains
from the sales of our holdings in Swiss Life/
Rentenanstalt in 1999.
Operating expenses
Total operating expenses increased 28% from
CHF 20,532 million to CHF 26,203 million in
2000. Adjusted for significant financial events,
total operating expenses increased 25% to CHF
25,763 million from CHF 20,534 million in
1999. The increase was principally due to
increased personnel expenses, reflecting higher
performance-related pay driven by UBS’s excel-
lent results in 2000, the inclusion of Paine-
Webber and the cost of retention payments for
PaineWebber staff.
The principal significant financial events
affecting the comparison of operating expenses
are the CHF 150 million additional provision
for the US Global Settlement of World War II
related claims, recorded in 2000 in General and
administrative expenses, and CHF 290 million of
costs from the integration of PaineWebber, also
recorded in 2000. Of this CHF 290 million, CHF
118 million was charged to Personnel expenses,
CHF 93 million to General and administrative
expenses and CHF 79 million to Depreciation.
The various significant financial events affect-
ing expenses in 1999, described on page 13,
resulted in an increase in expense of CHF 2 mil-
lion, made up of a CHF 456 million increase to
personnel expenses and a decrease of CHF 454
million in General and administrative expenses.
Personnel expenses increased CHF 4,586 mil-
lion, or 36%, from CHF 12,577 million in 1999
to CHF 17,163 million in 2000. This increase
was driven by increased bonus compensation, in
line with the Group’s excellent results, and CHF
1,083 million resulting from the inclusion of
PaineWebber. Approximately 48% of the annual
total represented bonus and other variable
compensation.
Personnel expenses in 2000 include retention
payments for key UBS PaineWebber staff of USD
76 million (CHF 128 million), charged in fourth
quarter 2000.
UBS’s headcount grew 45% over the year
from 31 December 1999, to 71,076. The vast
majority of this change was due to the inclusion
of 23,000 PaineWebber staff.
General and administrative expenses increased
CHF 667 million, or 11%, from CHF 6,098 mil-
lion in 1999 to CHF 6,765 million in 2000.
General and administrative expenses in 2000
included a final provision of CHF 150 million
related to the US Global Settlement of World
War II related claims, and CHF 93 million of
PaineWebber integration costs, which were both
treated as significant financial events. General
and administrative expenses in 1999 included a
provision of CHF 154 million related to the US
Global Settlement of World War II related claims,
and CHF 300 million of additional provisions in
respect of the 1998 merger of Union Bank of
Switzerland and Swiss Bank Corporation.
Adjusting for these effects, General and admin-
istrative costs rose 16%, reflecting the incre-
mental costs from the inclusion of PaineWebber
offset by the success of UBS’s continued efforts to
control non-revenue driven costs.
Depreciation and amortization expenses
increased CHF 418 million, or 23%, from CHF
1,857 million in 1999 to CHF 2,275 million in
2000, mainly due to the PaineWebber merger.
Tax expense increased CHF 634 million, or
38%, from CHF 1,686 million in 1999 to CHF
2,320 million in 2000, principally due to in-
creased operating profit. The effective tax rate of
23% in 2000 is slightly higher than the 21%
effective tax rate in 1999, reflecting increased
income in higher taxation jurisdictions.
UBS Group’s performance without the
impact of PaineWebber
There are limitations to our ability to track the
effect of the PaineWebber merger on the Group’s
performance. Principally this is because of the
full integration of PaineWebber’s capital markets
business into the Corporate and Institutional
28
Earnings Adjusted for Significant Financial Events and
the Estimated Impact of the PaineWebber Merger
CHF million, except where indicated
For the year ended
31.12.00
31.12.99
% change from
31.12.99
Operating income
Operating expenses
Operating profit before tax
Net profit
Cost / income ratio before goodwill (%)
Basic earnings per share before goodwill (CHF)
Diluted earnings per share before goodwill (CHF)
Return on shareholders’ equity before goodwill (%)
Clients unit. This was carried out very soon after
the merger was completed on 3 November 2000,
with staff and revenues completely integrated
into the existing UBS Warburg structure. It is
therefore not possible to identify clearly the
specific impact of the capital markets business
on results. However, the remaining PaineWebber
businesses were reported as a separate business
unit: US Private Clients. It is possible therefore to
distinguish their contribution to Group profits.
If additional adjustments are made for: goodwill
amortization, funding costs, the share issuance,
borrowing and subsequent repurchase, restruc-
turing costs, and retention payments; it is possi-
ble to make an approximate estimate of the
underlying performance of UBS for 2000.
Although this analysis should not be relied
on as a definitive indication of the performance
of the continuing UBS businesses during 2000,
it demonstrates the very positive underlying per-
formance of the Group.
Par value reduction
In October 2000, UBS paid a dividend of CHF
4.50 per share (CHF 1.50 per share adjusted for
the July 2001 share split) in respect of the first
three quarters of 2000, as part of the arrange-
ments for the merger with PaineWebber.
On 16 July 2001, UBS made a distribution to
shareholders in respect of fourth quarter 2000 of
CHF 1.60 per share (CHF 0.53 per share post
split), paid in the form of a reduction in the par
value of its shares, from CHF 10.00 to CHF 8.40.
For shareholders who pay tax in Switzerland this
payment is treated as a return of capital to share-
holders, not as income, and is therefore tax effi-
cient. The par value reduction also has advan-
tages for shareholders outside Switzerland, as no
Swiss withholding tax is payable on it.
35,309
24,319
10,990
8,403
67.6
7.48
7.39
27.5
26,587
20,534
6,053
4,665
73.3
4.12
4.09
18.2
33
18
82
80
82
81
This par value reduction brought the total
distribution for the year 2000 to CHF 6.10 per
share (CHF 2.03 per share post split), compared
to the dividend of CHF 5.50 per share (CHF
1.83 per share post split) for 1999.
At the same time as the par value reduction,
UBS split its share 3 for 1, resulting in a new par
value of CHF 2.80 per share.
Cash flows
In the twelve-month period to December 2000,
cash equivalents decreased by CHF 8,907 mil-
lion, principally as a result of investment activi-
ties, which generated negative cash flow of
CHF 19,135 million. This was mainly due to
CHF 10,722 million of cash required for the
PaineWebber merger and the purchase of CHF
8,770 million of financial investments.
The positive cash flow of CHF 11,697 mil-
lion from operating activities principally result-
ed from net profit of CHF 7,792 million, a net
increase in amounts due to customers and loans
of CHF 12,381 million, CHF 11,553 million
from an increase in the size of the trading port-
folio and a net cash inflow of CHF 10,236 mil-
lion from other assets and liabilities and accrued
income and expenses. These were partially off-
set by a net cash outflow of CHF 30,292 million
for repurchase and reverse repurchase agree-
ments and cash collateral on securities bor-
rowed and lent.
Financing activities generated net cash
outflow of CHF 1,581 million. CHF 10,125 mil-
lion from the issuance of money market paper,
CHF 14,884 million from long-term debt and
CHF 2,594 million from the issuance of trust
preferred securities were offset by CHF 24,640
million for repayment of long-term debt and
CHF 3,928 million for dividend payments.
29
30
Review of Business Group Performance
31
Review of Business Group Performance
Introduction
Introduction
2
1 Figures for 2000 have been restated to
reflect the current business structure of
the Group. All figures have been adjusted
for significant financial events.
In management accounts, statistically
derived adjusted expected credit loss
rather than the IAS actual net credit loss
expense is reported in the business units.
See Note 2 to the Financial Statements
for further details.
3 Excludes the amortization of goodwill and
other intangible assets.
4 Operating expenses / operating income
before credit loss expense.
5 Excludes dividend and interest income.
Figures for 2000 are calculated using
the former definition of assets under
management.
32
Reporting by Business Unit 1
CHF million
For the year ended
Income
Credit loss expense / recovery 2
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 3
Cost income ratio before goodwill (%) 3,4
Invested assets
Net new money 5
Headcount
Private and
Corporate Clients
Private Banking
31.12.01
31.12.00
31.12.01
31.12.00
7,161
(576)
6,585
2,988
991
459
0
4,438
2,147
2,147
62
320
8.5
19,938
7,443
(759 )
6,684
3,187
1,058
419
27
4,691
1,993
2,020
63
345
0.4
21,100
6,314
(28)
6,286
1,776
1,609
157
41
3,583
2,703
2,744
56
682
22.5
9,266
6,928
(26 )
6,902
1,956
1,561
142
43
3,702
3,200
3,243
53
691
2.8
8,925
Management accounting
The discussion in this chapter reviews UBS’s
2001 and 2000 results by Business Group and
business unit.
Our management reporting systems and poli-
cies determine the revenues and expenses directly
attributable to each business unit. Internal charges
and transfer pricing adjustments are reflected in
the performance of each business unit.
Inter-business unit revenues and expenses.
Revenue sharing agreements are used to allocate
external customer revenues to Business Groups
on a reasonable basis. Transactions between
Business Groups are conducted at arms length.
Inter-business unit charges are recorded as a
reduction to expenses in the business unit pro-
viding the service. Corporate Center expenses
are allocated to the operating business units, to
the extent appropriate.
Interest revenues are apportioned to business
units based on the opportunity costs of funding
their activities. Accordingly, all assets and liabil-
ities are refinanced with the Group Treasury
based on market rates. Revenues relating to bal-
ance sheet products are calculated on a fully-
funded basis. As a result, business units are addi-
tionally credited with the risk-free return on the
average equity used.
Commissions are credited to the business unit
with the corresponding customer relationship.
Regulatory equity is allocated to business
units based on the average regulatory capital
requirement during the period. Only utilized
equity is taken into account, and a buffer of
10% is added. The remaining equity, mainly
covering real estate, and any unallocated equity,
remains in Corporate Center.
Headcount
includes trainees and staff in
management development programs, but not
contractors.
Changes to disclosure since 2000
Business unit structure
We now report UBS Asset Management as a
single Business Group, with no split into busi-
ness units. However we continue to report sep-
arate revenues and Key performance indicators
UBS Asset Management
Corporate and
Institutional Clients
UBS Capital
Private Clients
Corporate Center
31.12.01
31.12.00
31.12.01
31.12.00
31.12.01
31.12.00
31.12.01
31.12.00
31.12.01
31.12.00
2,110
0
2,110
1,003
564
46
266
1,879
231
497
76
672
34.9
3,281
1,953
0
1,953
880
439
49
263
1,631
322
585
70
642
(67.9 )
2,860
16,011
(112)
15,899
8,339
2,705
454
145
11,643
4,256
4,401
18,033
(243 )
17,790
9,284
2,779
555
149
12,767
5,023
5,172
72
70
15,562
15,262
(868)
0
(868)
96
66
2
0
164
(1,032)
(1,032)
1
128
368
0
368
142
49
2
2
195
173
175
1
129
6,969
(18)
6,951
5,080
1,489
124
0
6,693
258
258
96
782
36.0
20,678
1,321
(3 )
1,318
1,106
355
42
1
1,504
(186 )
(185 )
114
773
15.2
21,814
678
236
914
546
207
372
25
1,150
(236)
(211)
358
1,161
1,519
490
281
320
44
1,135
384
428
1,132
986
for the mutual funds and institutional busi-
nesses. In addition, UBS Asset Management now
includes Brinson Advisors (formerly Mitchell
Hutchins), whose results were previously
reported in UBS Warburg’s US Private Clients
business unit.
Reflecting the launch of our European wealth
management initiative in February 2001, we
UBS business units
in 2000 reporting
Private Banking
(UBS Switzerland)
e-services
(UBS Warburg)
International Private Clients
(UBS Warburg)
US Private Clients
(UBS Warburg)
Europe
US, Japan and Australia
UBS PaineWebber
Mitchell Hutchins
Institutional Asset Management
(UBS Asset Management)
Investment Funds/GAM
(UBS Asset Management)
in 2001 reporting
Private Banking
(UBS Switzerland)
Private Clients
(UBS Warburg)
UBS Asset Management
33
Review of Business Group Performance
Introduction
reorganized our business unit reporting with
effect from first quarter 2001.
The e-services and International Private Clients
business units which were previously part of
UBS Warburg are no longer reported separately.
The e-services initiative is no longer running as a
stand-alone project and its infrastructure has now
been inherited by the European wealth manage-
ment initiative within UBS Private Banking.
The domestic European private client busi-
nesses previously reported as part of Internatio-
nal Private Clients are now part of the Private
Banking business unit, with separate key per-
formance indicators for the European wealth
management initiative, maintaining the trans-
parency of this strategic development.
We now report UBS Warburg’s US, Australian
and Japanese private client operations, including
the UBS PaineWebber business, in a combined
Private Clients business unit.
We have restated prior periods for the Private
Banking and Private Clients units to reflect these
changes.
In December 2001 we announced that UBS
Warburg’s Private Clients business unit would
become a separate Business Group, and be
renamed UBS PaineWebber. This change is effec-
tive 1 January 2002 and will first be reflected in
our financial reporting starting with the First
Quarter 2002 Report, which will be published in
May 2002.
excludes wholesale custody-only assets, corre-
spondent banking assets and transactional cash
or current accounts. Non-bankable assets (e. g.
Art collections) and interbank deposits are
excluded from both measures.
Where products are created in one Business
Group, but sold in another, they are counted in
both the investment management unit and the
distribution unit, and double counted in group
totals. (For example a mutual fund provided by
UBS Asset Management but sold by Private
Banking will be counted as invested assets in
both business units.)
Net new money is defined as the net inflow
or outflow of invested assets during a period,
excluding interest and dividend income. The
effects of market or currency movements and of
acquisitions and divestments are reported sepa-
rately.
System limitations mean that we are unable
to restate 1999 assets under management figures
in terms of the new definition, but invested assets
at 31 December 2000 have been restated under
the new definition. Group invested assets for
31 December 2000 were CHF 2,452 billion,
CHF 17 billion lower than assets under manage-
ment at the same date, under the old definition.
Further details of the new definition can be
found at: www.ubs.com/e/index/investors/archive/
corporate_information.html in the client assets
reporting section.
Client assets reporting
In November 2000, we launched a proposal for
a new definition of assets held for our clients.
Following a positive reception for this initiative,
we introduced the definitions into our reporting
in our first quarter 2001 report. We now show
the two assets metrics, Client assets and Invested
assets, replacing the assets under management
definition we previously used.
– Client assets represents all client assets man-
aged by or deposited with UBS.
– Invested assets is more restricted and includes
all client assets managed by or deposited with
UBS for investment purposes.
Invested assets is our central measure and
excludes all assets held for purely transactional
purposes. It includes, for example, managed
institutional assets, mutual funds, discretionary
and advisory private client portfolios, and pri-
vate client securities or brokerage accounts, but
Credit loss expense
Credit loss expense represents the charges to the
profit and loss account relating to amounts due
to UBS from loans and advances, OTC deriva-
tives or off-balance sheet products, that have had
to be written-down because they are impaired or
uncollectable.
We determine the amounts of Credit loss
expense in UBS’s financial accounts and in the
business unit reporting on different bases. In the
Group income statement, we report UBS’s results
according to IAS. Under these standards, Credit
loss expense is the total of net new allowances
and direct write-offs less recoveries. These actual
losses are recognized and charged to the income
statement in the period when they arise.
In contrast, in our segment and business unit
reporting, we apply a different approach to the
measurement of credit risk which reflects the
average annual cost that management antici-
34
Business Group Credit Loss Charge
CHF million
For the year ended 31.12.01
Actuarial expected loss
Deferred releases
Credit loss expense charged to the Business Groups
IAS actual credit loss expense
UBS
Switzerland
UBS
UBS Asset
Warburg Management
722
(118)
604
123
168
(38)
130
375
0
0
0
0
Balancing item charged as Credit loss expense in Corporate Center
Total
890
(156)
734
498
(236)
pates will arise from today’s transactions that
may become impaired in future. In order to
manage exposure to credit risk more effectively,
we price transactions with a view to earning –
over time – sufficient income to compensate for
the losses that are expected to be caused by value
adjustments for impaired assets. The basis for
measuring these inherent risks in the credit port-
folios is the concept of “actuarial expected loss”
(see further page 62 in the Risk Analysis section
of the UBS Handbook 2001/2002).
We quantify Credit loss expense at business
unit level based on the actuarial expected loss
rather than the actual credit loss expense report-
ed in UBS’s income statement. However, while
the actuarial expected loss should equal the
actual credit loss expense over time, the latter are
more erratic, in both timing and amount. In the
business unit reporting therefore, in addition to
the actuarial expected loss, we amortize the dif-
ference between actual credit loss expense and
actuarial expected loss. This deferral mechanism
aims to ensure that each business unit is ulti-
mately accountable for its credit decisions.
Under amended management accounting
policies effective for all Business Groups from
1 January 2001, the difference between actual
credit losses and the actuarial expected loss cal-
culated for management reporting purposes is
charged or credited back to the business units
over a three-year period, so that the risks and
rewards are better reflected in their results. The
sum of this deferral is reported together with the
expected loss as the credit loss expense charged
in the segment and business unit reporting.
We reconcile the difference between the
Credit loss expense in UBS’s income statement
(the actual loss) and the credit loss expense
shown in business unit reporting (expected loss
plus deferral), by recording a balancing item in
the Corporate Center. We also show the alloca-
tion of actual Credit loss expense to the business
units in the footnotes to Note 2a of the UBS
Group Financial Statements.
Key performance indicators
We report carefully chosen key performance
indicators for each of UBS’s business units or
Business Groups, as appropriate. These do not
carry explicit targets, but are intended as indica-
tors of the business units’ success in creating
value for shareholders and are an important part
of our business planning process. They include
both financial metrics, such as the cost / income
ratio, and non-financial metrics, such as Invested
assets or the number of Client advisors in a busi-
ness unit.
We use these key performance indicators for
internal performance measurement as well as
external reporting. This ensures that manage-
Reconciliation of Business Group Credit Loss Charge to
IAS Actual Credit Loss Expense/(Recovery)
CHF million
For the year ended
UBS Switzerland
UBS Asset Management
UBS Warburg
Corporate Center
Total
Credit loss charge
IAS actual credit loss expense
31.12.01
31.12.00
31.12.99
31.12.01
31.12.00
31.12.99
604
0
130
785
0
246
1,071
0
333
734
1,031
1,404
123
0
375
498
(695 )
0
565
(130 )
Balancing item in Corporate Center
(236)
(1,161 )
(448 )
965
0
0
(9)
956
35
Review of Business Group Performance
Introduction
Indicative Tax Rates
UBS Switzerland
Private and Corporate Clients
Private Banking
UBS Asset Management
UBS Warburg
Corporate and Institutional Clients
US Private Clients
UBS Capital
Tax rate
Pre-goodwill
Post-goodwill
20
22
19
23
39
32
37
4
20
22
19
33
68
33
37
4
ment have a clear responsibility to lead their busi-
nesses towards achieving success in the Group’s
key value drivers and avoids any risk of manag-
ing to purely internal performance measures.
Business Group tax rates
The Business Groups of UBS do not represent
separate legal entities. Business Group results are
prepared through the application of UBS’s man-
agement accounting policies to the results of the
entities through which they operate.
Indicative Business Group and business unit
tax rates are calculated on an annual basis based
on the results and statutory tax rates of the cur-
rent financial year. These rates are approximate
calculations, based upon the application to the
year’s adjusted earnings of statutory tax rates for
the locations in which the Business Groups oper-
ated. These tax rates therefore give guidance on
the tax cost to each Business Group of doing
business during 2001 on a stand alone basis,
without the benefit of tax losses brought for-
ward from earlier years.
The indicative tax rates are presented “pre-
goodwill” and “post-goodwill”. The tax rate
pre-goodwill gives an indication of what the tax
rate would have been if goodwill were not
charged for accounting purposes. It is the sum of
the tax expense payable on net profit before tax
and goodwill in each location, divided by the
total net profit before tax and goodwill. In con-
trast, the tax rate post-goodwill reflects the
actual tax treatment of goodwill in different
jurisdictions, expressed as a percentage of net
profit before tax (after goodwill). The tax rates
post-goodwill are higher than the pre-goodwill
rates, because in some jurisdictions there are
limitations on the tax deductibility of amorti-
zation costs.
Please note that these tax rates are not neces-
sarily indicative of future tax rates for the busi-
nesses or UBS Group as a whole.
36
Changes to disclosure in 2002
The following changes will be implemented in
our financial disclosure with effect from the First
Quarter Report 2002. They do not apply to the
Business Group disclosures in this Financial
Report – details are provided here to help read-
ers who may read our future reports.
With effect from the beginning of 2002, we
will implement a new Business Group structure,
with UBS PaineWebber becoming a separate
Business Group, and we will be making some
other changes to our financial disclosure and
management accounting.
At present, goodwill and intangible assets
relating to the merger of UBS and PaineWebber
are reported in the UBS Warburg Business Group
and are not reflected in the results of the business
units which make up the Business Group. With
the separation of UBS PaineWebber to form a
new Business Group, this goodwill will be
assigned to the different business units that have
benefited from the merger with PaineWebber. We
expect that the majority of the goodwill will be
allocated to UBS PaineWebber, but that a signif-
icant portion will also be allocated to the
Corporate and Institutional Clients business unit
in UBS Warburg and smaller amounts to UBS
Asset Management, which inherited the Mitchell
Hutchins asset management business (now
called Brinson Advisors), and also to UBS
Switzerland’s Private Banking business unit.
Associated amortization expense and funding
charges will be charged to each business unit in
proportion to its share of the goodwill and
intangible assets.
At the same time, we will take the opportuni-
ty to rationalize our allocation of Corporate
Center costs to the Business Groups, restricting
charges to those services which are provided
directly under explicit Service Level Agreements
(“SLAs”), and discontinuing the practice of allo-
cating a proportion of central Group overheads.
Finally, earnings from the O’Connor business,
which are currently allocated equally between
the Equities business area in UBS Warburg’s
Corporate and Institutional Clients unit and UBS
Asset Management will now be allocated fully to
UBS Asset Management.
We will provide restated Business Group fig-
ures for 2000 and 2001 reflecting the new
Business Group structure and other disclosure
changes, and expect to publish these at least two
weeks prior to our first quarter 2002 financial
report, which will be published on 14 May
2002.
treatment of goodwill
Accounting for goodwill under US GAAP
A new accounting standard, SFAS 142, changes
in Financial
the
Statements prepared under US GAAP. Instead of
amortizing goodwill over its expected life, it will
be retained on a company’s balance sheet at the
level of 31 December 2001 and the company will
be required to perform an annual impairment
test according to detailed rules set out in the
standard. These specify that the goodwill
impairment test must be carried out at the level
of a “reporting unit”, equivalent in UBS terms to
a Business Group. If the goodwill is found to be
impaired, the company must record a write-
down, charged to its income statement.
The
introduction of SFAS 142 under
US GAAP will not have a direct effect on our
accounts, which are prepared under IAS, and
will still show amortization costs. However, as
part of the preparation of the reconciliation of
our IAS Financial Statements to US GAAP we
will have to perform annual SFAS 142 goodwill
impairment tests, starting on 1 January 2002.
We do not anticipate that we will need to
record any write-downs of goodwill upon
adoption of this standard. See Note 40 to the
Financial Statements for further details.
37
Review of Business Group Performance
UBS Switzerland
UBS Switzerland
“UBS Switzerland has completed another successful
year, with the launch of the European wealth
management initiative and very strong progress
in asset gathering.”
Stephan Haeringer
Business Group Reporting
CHF million, except where indicated
For the year ended
Income
Credit loss expense 2
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 4
Additional information
Regulatory equity used (average)
Cost / income ratio (%) 5
Cost / income ratio before goodwill (%) 4, 5
31.12.01
31.12.001
31.12.991
% change from
31.12.00
13,475
(604)
12,871
4,764
2,600
616
41
8,021
4,850
4,891
9,300
60
59
14,371
(785 )
13,586
5,143
2,699
633
70
8,545
5,041
5,111
10,550
59
59
12,884
(1,071 )
11,813
4,882
2,450
475
38
7,845
3,968
4,006
10,150
61
61
(6)
(23)
(5)
(7)
(4)
(3)
(41)
(6)
(4)
(4)
(12)
Stephan Haeringer
CEO UBS Switzerland and
CEO Private and Corporate Clients
Georges Gagnebin
CEO UBS Private Banking
38
Business Group Reporting Adjusted for Significant Financial Events
CHF million, except where indicated
For the year ended
31.12.01
31.12.001
31.12.991
% change from
31.12.00
Income
Credit loss expense 2
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 4
Additional information
Cost / income ratio (%) 5
Cost / income ratio before goodwill (%) 4, 5
13,475
(604)
12,871
4,764
2,600
616
41
8,021
4,850
4,891
60
59
14,371
(785 )
13,586
5,143
2,6193
5613
70
8,393
5,193
5,263
58
58
12,884
(1,071 )
11,813
4,882
2,450
475
38
7,845
3,968
4,006
61
61
(6)
(23)
(5)
(7)
(1)
10
(41)
(4)
(7)
(7)
1 The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001.
2 In management accounts,
statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial
3 Excludes Significant Financial Events: General and administrative expenses, CHF 80 million, Depreciation, CHF 72 million for the
Statements).
5 Operating expenses / operating income
PaineWebber integration.
before credit loss expense.
4 Excludes the amortization of goodwill and other intangible assets.
39
Review of Business Group Performance
UBS Switzerland
Private and Corporate Clients
Business Unit Reporting
CHF million, except where indicated
For the year ended
Individual clients
Corporate clients
Risk transformation and capital management
Operations
Other
Income
Credit loss expense 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 2
KPI’s
Invested assets (CHF billion)
Net new money (CHF billion) 4, 5
Cost / income ratio (%) 6
Cost / income ratio before goodwill (%) 2, 6
Non-performing loans / gross loans outstanding (%)
Impaired loans / gross loans outstanding (%)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
4,532
1,891
358
242
138
7,161
(576)
6,585
2,988
991
459
0
4,438
2,147
2,147
320
8.5
62
62
4.6
7.4
5,026
1,975
307
205
(70 )
7,443
(759 )
6,684
3,187
1,058
419
27
4,691
1,993
2,020
345
0.4
63
63
5.3
9.1
4,553
1,855
330
313
142
7,193
(1,050 )
6,143
3,363
1,123
384
2
4,872
1,271
1,273
4393
68
68
6.8
11.4
(10)
(4)
17
18
(4)
(24)
(1)
(6)
(6)
10
(100)
(5)
8
6
(7)
Additional information
As at
Client assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
640
7,350
19,938
8,550
21,100
8,550
24,098
(14)
(6)
1 In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units
2 Excludes the amortization of goodwill and other intangible assets.
3 Calculated using the former
(see Note 2 of the Financial Statements).
4 Calculated using the former definition of assets under management up to and including second
definition of assets under management.
6 Operating expenses / operating income before credit loss expense.
quarter 2001.
5 Excludes dividend and interest income.
Components of Operating Income
Private and Corporate Clients derives its operating
income principally from:
– net interest income from its loan portfolio and cus-
tomer deposits;
– fees for investment management services; and
– transaction fees.
As a result, Private and Corporate Clients’ operating
income is affected by movements in interest rates, fluctu-
ations in invested assets, client activity levels, investment
performance and changes in market conditions.
40
Significant Financial Events
There were no significant financial events that
affected this business unit in 2001, 2000 or 1999.
2001
Key performance Indicators
In 2001, Private and Corporate Clients attracted
net new money of CHF 8.5 billion, a clear
improvement over last year’s disappointing CHF
0.4 billion, and reflecting improved flows from
both private clients and corporate clients, where
flows can be larger and more volatile. Invested
assets declined CHF 25 billion from CHF 345
billion at 31 December 2000 to CHF 320 billion
at 31 December 2001, reflecting the effect of
market declines during the year.
Pre-goodwill cost / income ratio (%)
80
70
60
50
40
9
9
9
1
0
0
0
2
1
0
0
2
Private and Corporate Clients continues to
focus successfully on stringent cost control meas-
ures, reflected in a 1 percentage point decline in
the full year’s pre-goodwill cost/income ratio
from 63% in 2000 to 62% in 2001. This result-
ed from reductions in headcount and in per-
formance-related compensation expense.
Private and Corporate Clients’ loan portfolio
decreased from CHF 156 billion at 31 Decem-
Impaired loans / gross loans (%)
14
12
10
8
6
4
2
0
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
ber 2000 to CHF 152 billion at 31 December
2001, driven by reductions in the more volatile
business with banks and the further reduction in
the recovery portfolio from CHF 15 billion to
CHF 12 billion.
The strength of the Swiss economy in the
early part of 2001 and our continued successful
recovery efforts were reflected in an improve-
ment in key asset quality ratios since the end of
last year. The non-performing loans to total
loans ratio decreased from 5.3% to 4.6% while
the ratio of impaired loans to gross loans further
improved from 9.1% to 7.4%.
Results
Private and Corporate Clients enjoyed a very
strong year, despite the much more difficult
market conditions, with profit before tax in
2001 up 8% compared to 2000, at CHF 2,147
million, its highest level ever. The implementa-
tion of risk adjusted pricing and the strength of
the Swiss economy in 2000 and early 2001 led to
a significant increase in credit quality, while
operating expenses have remained under tight
control, falling 5% compared to 2000.
Performance before tax (CHF million)
2500
2000
1500
1000
500
0
9
9
9
1
0
0
0
2
1
0
0
2
Operating income
Operating income in 2001 was down CHF 99 mil-
lion from 2000 at CHF 6,585 million, princi-
pally reflecting the effect of weaker markets in
2001 on fee and commission income, which
more than offset the reduction in credit loss
expense.
Private and Corporate Clients has improved
the quality of its loan portfolio considerably in
recent years, principally through the introduc-
tion of risk adjusted pricing, leading to a lower
adjusted expected loss charge in 2001 compared
to 2000. We have also introduced a new process
for calculating the adjusted expected loss
41
Review of Business Group Performance
UBS Switzerland
charged to the Business Groups, under which the
difference between the actual IAS credit losses
and the actuarial expected loss calculated for
management reporting purposes is charged or
credited back to the business units over a three
year period, so that the risks and rewards over
the cycle are better reflected in their results. Since
actual credit losses in Private and Corporate
Clients have recently been lower than the adjust-
ed expected loss charge, this deferral process has
also resulted in a lower adjusted expected loss
charge (see page 35 for further details).
Together these effects led to a credit loss
expense of CHF 576 million in 2001, down 24%
from CHF 759 million in 2000.
Income in Individual Clients declined 10%
from CHF 5,026 million in 2000 to CHF 4,532
million in 2001. This change was driven by the
much more difficult and uncertain conditions in
securities markets, which led to lower brokerage
fees and lower sales of investment funds. Interest
income also declined, driven by the effect of the
sale of Solothurner Bank in fourth quarter 2000.
Income in Corporate Clients declined 4%
from CHF 1,975 million in 2000 to CHF 1,891
in 2001, principally reflecting lower interest
income as risk adjusted pricing shifted our focus
to higher credit quality counterparties leading to
lower lending volumes, but also to lower credit
loss expense.
Income from the Risk Transformation and
Capital Management area benefited from higher
interest income, following a change in the treat-
ment of interest on impaired loans (previously
recorded as a reduction in credit loss expense),
which more than offset the effects of write-
downs in some small investments. Overall
income increased to CHF 358 million in 2001,
from CHF 307 million in 2000.
Income from Operations rose CHF 37 mil-
lion, to CHF 242 million in 2001, reflecting
one-off revenues from minority holdings in
other companies, a decrease in custody fees
paid due to lower average assets, which more
than offset a decrease in custody revenues,
again reflecting lower average assets, and high-
er interest income from correspondent bank
overdraft balances.
Operating expenses
Operating expenses remain under strict control,
totaling CHF 4,438 million in 2001, CHF 253
million lower than in 2000. Operating expenses
declined through the year and reached an all-
time low in fourth quarter 2001.
General and administrative expenses in 2001,
were 6% lower than in 2000, at CHF 991 mil-
lion, principally reflecting lower IT outsourcing
costs and the continued effect of our efforts to
control costs. As a result, general and adminis-
trative expenses have now fallen for two years
running, and are below their 1998 level.
Personnel expenses declined by CHF 199 mil-
lion compared to 2000, to CHF 2,988 million,
reflecting a fall in headcount of 1,162 since the
end of 2000, and lower performance related pay.
Over the full year, the compensation ratio in
Private and Corporate clients was 42%, down
from 43% in 2000.
Depreciation increased 10% from 2000, to
CHF 459 million, principally reflecting can-
cellation of previously capitalized software
projects as a result of cost control measures.
Goodwill amortization dropped from CHF 27
million in 2000 to CHF 0 in 2001, reflecting
the write-off of goodwill on a credit card port-
folio in 2000.
Headcount
Private and Corporate Clients’ headcount
declined by a further 6% in 2001, from 21,100
at 31 December 2000 to 19,938 at 31 Decem-
ber 2001, as the cost control effects from the
systematic implementation of the strategic proj-
ects portfolio and the benefits of the merger
between Union Bank of Switzerland and Swiss
Bank Corporation continue to be realized.
Headcount has reduced by more than 5,700
since the merger, in line with the targets we set at
the time. We expect that headcount will remain
around the current level during 2002.
Headcount (full time equivalents)
25
20
15
(in thousands)
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
42
2000
Key performance indicators
Invested assets decreased by CHF 94 billion
from CHF 439 billion at 31 December 1999 to
CHF 345 billion at 31 December 2000. The vast
majority of this change was due to the new defi-
nition of invested assets introduced at 31 Decem-
ber 2000, which excludes certain asset classes
previously included in the old definition of assets
under management, particularly current ac-
counts. The underlying development was almost
flat, with net new money of CHF 0.4 billion and
slightly positive market performance over the
year, roughly offsetting transfers of CHF 5 bil-
lion to other business units.
The pre-goodwill cost / income ratio in 2000,
at 63%, improved significantly from 68% in
1999. This was principally due to lower operat-
ing expenses resulting from continuing strict cost
control, as the benefits of the 1998 merger
between Union Bank of Switzerland and Swiss
Bank Corporation continued to be realized.
The quality of the Private and Corporate
Clients’ loan portfolio improved considerably
during the year, resulting in a non-performing
loans / total loans ratio of 5.3% at 31 December
2000, compared to 6.8% at the end of 1999.
This improvement was due in part to the unex-
pected strengthening of the Swiss economy, and
also to Private and Corporate Clients’ efforts to
further enhance the risk / return profile of its
loan portfolio. This was achieved through selec-
tive origination with clear focus on higher
quality counterparties, secondary market trans-
actions, the disposal of non-core business sub-
sidiaries, and the continued work-out of the
recovery portfolio, which decreased from CHF
21 billion to CHF 15 billion during the year.
Although UBS Switzerland’s non-performing
loans ratio is somewhat higher than some com-
parable banks, particularly in the US, the com-
parison reflects different structural practices
rather than underlying asset quality. In general,
Swiss practice is to write off loans entirely only
on final settlement of bankruptcy proceedings,
the sale of the underlying assets or a formal debt
forgiveness. In contrast, US practice is to write
off non-performing loans much sooner, reducing
the amount of such loans and corresponding
provisions recorded at any given date.
Results
Record pre-tax profit for the year, at CHF 1,993
million, was an increase of CHF 722 million,
or 57%, over 1999, clearly demonstrating the
substantial benefits of the merger between the
Union Bank of Switzerland and Swiss Bank
Corporation for the combined domestic banking
franchise.
Operating income
Private and Corporate Clients’ operating income
in 2000 was CHF 6,684 million, CHF 541 mil-
lion, or 9%, higher than in 1999. This improved
performance primarily reflected higher fee
income, particularly in the first half of the year,
and reduced expected credit losses as the quality
of the loan portfolio improved.
Both of Private and Corporate Clients’ two
main client business areas recorded increases in
their operating income in 2000 as compared to
1999.
– Individual Clients: Operating income in 2000
was CHF 5,026 million, an increase of CHF
473 million, or 10%, from CHF 4,553 mil-
lion in 1999. This was primarily due to
increases in brokerage and investment fund
fees resulting from increased investment activ-
ity, and minor gains on sales of subsidiaries
and participations.
– Corporate Clients: Operating income in 2000
was CHF 1,975 million, an increase of CHF
120 million, or 6%, from CHF 1,855 million
in 1999, primarily due to higher interest
income resulting from improved margins as
well as increased fee and commission income.
On the other hand, the two support business
areas saw their incomes reduce.
– Risk Transformation and Capital Manage-
ment: Income was CHF 307 million in 2000.
This was a decrease of CHF 23 million, or
7%, from the CHF 330 million recorded in
1999, primarily as a result of the reduced
average size of the recovery loan portfolio,
managed by this unit.
– Operations: Revenues in 2000 were CHF
205 million, a decrease of CHF 108 million,
or 35%, from CHF 313 million in 1999.
Operations revenues were affected by lower
interest revenues as a result of reduced corre-
spondent bank overdraft balances, partially off-
set by small one-off revenues from the revalua-
tion of minority holdings in other companies.
43
Review of Business Group Performance
UBS Switzerland
Operating expenses
Full year operating expenses in 2000 were CHF
4,691 million, down 4%, or CHF 181 million,
from 1999. This was primarily due to falling per-
sonnel costs as headcount was reduced.
Personnel expense fell by CHF 176 million, or
5%, from CHF 3,363 million in 1999 to CHF
3,187 million in 2000. Increased performance-
related compensation, reflecting the good results,
was more than offset by a substantial reduction
in headcount during the year.
General and administrative expenses fell 6%
over the year, despite our continued investments
in online services, reflecting continued cost con-
trol efforts.
Depreciation expense increased by CHF 35 mil-
lion, or 9%, to CHF 419 million, primarily due
to the implementation of IAS 38, relating to the
capitalization of software costs.
Amortization of goodwill and other intan-
gible assets increased CHF 25 million, from CHF
2 million in 1999 to CHF 27 million in 2000.
This increase was primarily due to the acquisi-
tion of a credit card portfolio during second
quarter 2000.
Headcount
Private and Corporate Clients’ headcount declined
by almost 3,000 in 2000 from 24,098 at the end of
1999 to 21,100 at 31 December 2000. This reduc-
tion includes 948 staff transferred with Systor,
which became an independent company at the start
of 2000, 413 staff of Solothurner Bank, which was
sold during 2000, and the transfer of 148 financial
planning and wealth management staff to Private
Banking. The remaining reduction of 1,489 staff
demonstrates UBS’s continued success in realizing
UBS / SBC merger-related synergies.
44
Private Banking
Business Unit Reporting
CHF million, except where indicated
For the year ended
Income
Credit loss expense 2
Total operating income
31.12.01
31.12.001
31.12.991
% change from
31.12.00
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 4
KPI’s
Invested assets (CHF billion)
Net new money (CHF billion) 6
Gross margin on invested assets (bps) 7
Cost / income ratio (%) 8
Cost / income ratio before goodwill (%) 4, 8
Cost / income ratio before goodwill and
excluding the European Wealth Management Initiative (%) 4, 8
6,928
(26 )
6,902
1,956
1,5613
1423
43
3,702
3,200
3,243
691
2.85
99
53
53
5,691
(21 )
5,670
1,519
1,327
91
36
2,973
2,697
2,733
6825
2.35
90
52
52
6,314
(28)
6,286
1,776
1,609
157
41
3,583
2,703
2,744
682
22.5
92
57
56
49
Client advisors (full time equivalents)
2,346
1,744
KPI’s for the European Wealth Management Initiative
Income
(9)
8
(9)
(9)
3
11
(5)
(3)
(16)
(15)
(1)
(7)
35
140
16
5.6
370
Invested assets (CHF billion)
Net new money (CHF billion) 6
Client advisors (full time equivalents)
Additional information
As at
Client assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
840
1,950
9,266
2,000
8,925
1,600
8,131
(3)
4
1 The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001. 2 In management accounts, sta-
tistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial
Statements). 3 Excludes Significant Financial Events: General and administrative expenses, CHF 80 million, Depreciation, CHF 72 million for the
PaineWebber integration. 4 Excludes the amortization of goodwill and other intangible assets. 5 Calculated using the former definition of
assets under management. 6 Excludes dividend and interest income. 7 Income / average invested assets. 8 Operating expenses / operating
income before credit loss expense.
45
Review of Business Group Performance
UBS Switzerland
Components of Operating Income
Private Banking derives its operating income principally
from:
– fees for financial planning and wealth management
services;
– fees for investment management services; and
– transaction-related fees.
Private Banking’s fees are based on the market value of
invested assets and the level of transaction-related
activity. As a result, Private Banking’s operating income
is affected by such factors as fluctuations in invested
assets, changes in market conditions, investment per-
formance and inflows and outflows of client funds.
Significant financial events
Following the merger with PaineWebber, our
strategy for extending our wealth management
services in Europe was reassessed and focus
shifted to more affluent clients than those origi-
nally targeted by the e-services initiative. The
multi-currency and multi-entity core banking
systems developed by the e-services initiative now
form part of UBS Private Banking’s new wealth
management strategy in Europe. Those parts of
the infrastructure that were tailored to the mass
affluent market, such as telephone call-centers,
were closed and the investment in them written
off. This resulted in a charge of CHF 80 million
to General and administrative expenses. In addi-
tion, capitalized software costs relating to parts
of the systems which will now not be used were
written off, resulting in a CHF 72 million charge
to depreciation. These two amounts form part of
the PaineWebber integration costs, which were
treated as a significant financial event in 2000,
and as a result these costs do not appear in the
adjusted business unit results above.
There were no significant financial events that
affected this business unit in 2001 or 1999.
2001
Key performance indicators
Net new money inflows in 2001, at CHF
22.5 billion, an eight-fold increase over 2000,
demonstrate our success this year in re-energiz-
ing our asset-gathering performance, and our
determined focus on growing this world-leading
business.
Over the year from 31 December 2000, in-
vested assets have fallen only 1%, despite the
poor performance of securities markets, reflect-
ing strong net new money growth and a rela-
tively conservative asset mix.
The gross margin fell from 99 basis points in
2000 to 92 basis points in 2001, clearly reflect-
ing reduced transaction volumes, especially com-
pared to the exuberant markets of the early part
of 2000.
The pre-goodwill cost/income ratio increased
by three percentage points from 53% in 2000 to
56% in 2001, reflecting the costs of our invest-
Net new money (CHF billion)
25
20
15
10
5
0
9
9
9
1
0
0
0
2
Invested assets (CHF billion)
800
600
400
200
0
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
Gross margin on invested assets (bps)
1
0
0
2
1
0
.
2
1
.
1
3
100
80
60
40
20
0
9
9
9
1
0
0
0
2
1
0
0
2
46
Pre-goodwill cost / income ratio (%)
70
60
50
40
30
9
9
9
1
0
0
0
2
1
0
0
2
ments in the European wealth management
initiative, and weaker transaction volumes.
European wealth management
Early in 2001 we launched a European wealth
management initiative, designed to expand our
market share in five key target countries: Ger-
many, the UK, France, Italy and Spain, a scope
that covers about 80% of Europe’s investable
assets.
Our strategy is focused on wealthy clients,
with services designed primarily for those with
more than EUR 500,000 of investable assets,
and developed within the context of our clear
commitment to open architecture and the provi-
sion of a full range of “best of breed” investment
products to all our clients. The initiative makes
full use of UBS PaineWebber’s top-class abilities
in marketing, product management and innova-
tion, technology, and training, deployed as a key
catalyst for our European businesses.
Net new money
European Wealth Management (CHF billion)
3.0
2.0
1.0
0.0
1
0
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
Initial progress has been very promising, with
net new money of CHF 5.6 billion in our target
countries in 2001, despite the relatively difficult
market conditions. Opening new offices and
hiring new staff is a key component of the initia-
tive – expanding our physical presence in the
target markets. Hiring plans progressed well in
2001, with the number of client advisers in our
five target countries rising to 370 at 31 Decem-
ber 2001, an increase of 208 for the year. A fur-
ther 40 newly hired advisors started on 1 Janu-
ary 2002, bringing our total hiring in 2001 to
248, in line with our intention to recruit around
250 advisors a year.
Client advisors European Wealth
Management (full time equivalents)
400
300
200
100
0
1
0
.
3
.
1
3
1
0
.
6
.
0
3
1
0
.
9
.
0
3
1
0
.
2
1
.
1
3
Results
Weaker markets than 2000 and the costs of
investing in the European wealth management
initiative brought full year pre-tax profits in 2001
down 16% from last year to CHF 2,703 million,
despite a continued focus on controlling operat-
ing costs.
Performance before tax (CHF million)
4000
3000
2000
1000
0
9
9
9
1
0
0
0
2
1
0
0
2
Operating income
Full year operating income was CHF 6,286 mil-
lion, down 9% from the record CHF 6,902 mil-
lion in 2000. This was driven by falling trans-
action based revenues, reflecting the much less
active markets in 2001. Asset based revenues fell
only very slightly compared to last year, despite
lower average assets, reflecting our success in
providing added value services to our clients.
47
Review of Business Group Performance
UBS Switzerland
Operating expenses
At CHF 3,583 million, operating expenses in
2001 were down 3% from 2000, driven by
lower personnel expenses, which were down 9%
at CHF 1,776 million due to lower performance-
related compensation despite a 4% increase in
headcount during the year.
General and administrative expenses in-
creased 3% from CHF 1,561 million in 2000 to
CHF 1,609 million in 2001, principally reflect-
ing the cost of investments in new product devel-
opment, premises and systems in support of the
European wealth management initiative.
Depreciation increased from CHF 142 million
in 2000 to CHF 157 million in 2001, reflecting
increased investment in IT and premises.
Headcount
At 31 December 2001, Private Banking employ-
ed 9,266 professionals, a 4% increase compared
with year end 2000, driven by recruitment of
client advisors and support personnel for the
European Wealth Management initiative. At
31 December 2001, client advisors represented
25% of Private Banking’s staff, up from 20% at
the end of 2000.
Headcount (full time equivalents)
(in thousands)
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
10
9
8
7
6
2000
from CHF 682 billion
Key performance indicators
Invested assets increased by CHF 9 billion, or
1%,
to CHF
691 billion during 2000, primarily reflecting
market performance and currency effects. Net
new money during the year was disappointing,
with a net inflow of CHF 2.8 billion, with the
majority of the net inflow in the domestic
European business.
48
Gross margin for the year, at 99 basis points,
partly reflects the very strong performance in the
exceptional markets of the first quarter. The
rates for most of the year, (95 basis points in sec-
ond quarter, 94 basis points in third quarter, and
96 basis points in fourth quarter) represent a
solid improvement over the average of 90 basis
points recorded in 1999, as we introduce more
value-added products to our client base.
The pre-goodwill cost / income ratio was
53% a slight increase from 52% in 1999, as
higher revenues were offset by investment in the
e-services project and expansion of the domestic
business during 1999 and 2000.
Results
Net profit before tax for the year increased sig-
nificantly, by CHF 503 million, or 19%, to CHF
3,200 million, from CHF 2,697 million in 1999.
This reflects strong markets in the early part of
2000, and the margin enhancing benefits of
introducing more added-value products during
the year.
Operating income
The increase in gross margin to 99 basis points
resulted in operating income of CHF 6,902 mil-
lion, which was 22%, or CHF 1,232 million,
higher than in 1999. Revenue quality also
improved with asset-based fees growing faster
over the year than transaction-based fees.
Operating expenses
Full year operating expenses were CHF 3,702
million, CHF 729 million or 25% higher than in
1999.
Personnel expenses increased CHF 437 mil-
lion, or 29%, mainly due to higher performance
related compensation, investment in the e-servic-
es project and the transfer of financial planning
and wealth management staff from the Private
and Corporate Clients unit.
and
General
administrative
expenses
increased CHF 234 million, or 18%, primarily
due to the investment in the e-services project.
Recruitment and training expenses, and volume-
driven
transaction processing costs, also
increased, as did project related technology
costs.
Depreciation expense increased by CHF 51
million, or 56%, principally due to investments
in the e-services project.
Headcount
Headcount at year end 2000 was 8,925, repre-
senting an increase of 794 during the year. This
was mainly the result of an increase of 340
employees relating to the e-services project, the
transfer of 148 financial planning and wealth
management staff
the Private and
from
Corporate Clients business unit and the comple-
tion in first quarter 2000 of previous initiatives
to strengthen product capabilities.
49
Review of Business Group Performance
UBS Asset Management
UBS Asset Management
“A second straight year of successful relative invest-
ment performance provides a strong foundation for
continued progress in 2002.”
John Fraser
Business Group Reporting
CHF million, except where indicated
For the year ended
Institutional fees
Mutual funds fees
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 1
KPI’s
Cost / income ratio (%) 2
Cost / income ratio before goodwill (%) 1, 2
Institutional
Invested assets (CHF billion)
Net new money (CHF billion) 4
Gross margin on invested assets (bps) 5
Mutual funds
Invested assets (CHF billion)
Net new money (CHF billion) 4
Gross margin on invested assets (bps) 5
Additional information
As at
Client assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
1,007
1,103
2,110
1,003
564
46
266
1,879
231
497
89
76
328
6.2
32
344
28.7
33
1,119
834
1,953
880
439
49
263
1,631
322
585
84
70
323
(70.8)3
34
319
2.93
36
857
512
1,369
516
271
32
113
932
437
550
68
60
3673
(49.9)3
24
2313
(0.3)3
25
(10)
32
8
14
28
(6)
1
15
(28)
(15)
2
(6)
8
(8)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
672
1,250
3,281
1,250
2,860
162
2,576
0
15
1 Excludes the amortization of goodwill and other intangible assets. 2 Operating expenses / operating income. 3 Calculated using the former
definition of assets under management. 4 Excludes dividend and interest income. 5 Income / average invested assets.
John Fraser
CEO UBS Asset Management
50
Components of Operating Income
UBS Asset Management generates most of its revenue
from the asset management services it provides to insti-
tutional clients, and from the distribution of investment
funds. Fees charged to institutional clients and on invest-
ment funds are based on the market value of invested
assets and on successful investment performance. As a
result, UBS Asset Management’s revenues are affected by
changes in market levels as well as flows of client funds.
Significant Financial Events
There were no significant financial events that
affected this Business Group in 2001, 2000 or
1999.
2001
Key performance indicators
Invested assets increased 5% during the year
from CHF 642 billion at 31 December 2000 to
CHF 672 billion at 31 December 2001. Net new
money was CHF 34.9 billion for the year, reflect-
ing the recognition of strong relative investment
performance and business development efforts.
The pre-goodwill cost/income ratio rose from
70% in 2000 to 76% in 2001, principally reflect-
ing the higher cost/income ratio of the Brinson
Advisors business transferred from UBS Paine-
Webber at the start of the year.
Pre-goodwill cost / income ratio (%)
80
70
60
50
40
9
9
9
1
0
0
0
2
1
0
0
2
Institutional
Institutional invested assets increased from
CHF 323 billion at 31 December 2000 to CHF
328 billion at 31 December 2001. This 2%
increase was due to CHF 6.2 billion net new
money and a CHF 34 billion increase in invested
assets from the acquisition of RT Capital (now
Brinson Canada) which more than offset nega-
tive market performance.
Net new money in 2001 was CHF 6.2 billion,
a great improvement from net outflows of CHF
Net new money; Institutional (CHF billion)
9
9
9
1
0
0
0
2
1
0
0
2
20
0
–20
–40
–60
–80
70.8 billion in 2000 and CHF 49.9 billion in
1999, as clients start to recognize the success of
our integrated global investment management
platform, which delivered strong relative invest-
ment performance in both 2001 and 2000.
Gross margin on invested assets; Institutional (bps)
40
35
30
25
20
15
10
5
0
9
9
9
1
0
0
0
2
1
0
0
2
Full year gross margin was 32 basis points, a
decrease of 2 basis points from 2000, primarily
due to lower performance fees in O’Connor
and the addition of the lower margin Brinson
Advisors business.
Mutual funds
Mutual funds invested assets increased CHF 25
billion, from CHF 319 billion at 31 December
2000 to CHF 344 billion at 31 December 2001,
driven by net new money. Market performance
was limited to a negative impact on invested
assets of less than 1%.
Net new money of CHF 28.7 billion in 2001,
51
Review of Business Group Performance
UBS Asset Management
Net new money; Mutual funds (CHF billion)
30
25
20
15
10
5
0
–5
9
9
9
1
0
0
0
2
1
0
Q
1
1
0
0
2
compared to CHF 2.9 billion in 2000, reflected
much better asset gathering performance in both
Europe and the Americas, particularly in fixed
income mandates.
Gross margin on invested assets; Mutual funds (bps)
40
35
30
25
20
15
10
5
0
9
9
9
1
0
0
0
2
1
0
0
2
The gross margin for the year decreased
3 basis points to 33 basis points due to the addi-
tion of Brinson Advisors, which has a high pro-
portion of lower margin money market funds,
partially offset by the introduction of a new pric-
ing structure for UBS Investment Funds.
Investment capabilities and performance
In 2001, UBS Asset Management experienced
one of its best years of relative investment per-
formance, second only to 2000. Individual secu-
rity selection made a very significant contribu-
tion to 2001 performance, owing much to the
benefits of our integrated global investment plat-
form, and our improved ability to share research
and knowledge across investment teams world-
wide. A slowing global economy, continued de-
clines in equity markets, and the ramifications
from the terrorist attacks of 11 September were
the predominant developments in 2001.
Our Multi Asset Composite had another
impressive year exceeding its benchmark by more
than 10% and placing it in the top decile for the
last two years. It currently sits ahead of its bench-
mark for all periods since inception. The Multi
Asset Composite has only had one down year in
twenty and in the challenging equity market of
the last two years returned 12.2% and 3.7%,
respectively.
Our Global Equity and US Equity composites
also had a strong year in very tough markets.
The Global Equity Composite outperformed its
benchmark by more than 12%, placing it in the
top quartile of peers. Its two-year annualized
return compares favorably to its benchmark by
more than 13% and by more than 6% for three
years. Many of our equity portfolios returned
positive absolute gains for the year despite con-
siderable declines in their benchmark indices.
For example, our US Equity Large/Intermediate
and US Value Equity Composite each gained
more than 3%, while their benchmarks had
losses of 11% and 5.6%. Both of these compos-
ites ranked near the top decile for the year.
Nearly all of our major equity composites hold a
sizable edge when compared to their bench-
marks over two-, three- and five-year periods.
Our fixed income composites also fared well
during the year. The UK Fixed Interest portfolio
gained 5% and the US Bond Composite posted
gains of nearly 9% for the year, both beating
their benchmark. In addition, the Emerging
Markets Debt Composite returned 11% for the
year, placing it well ahead of its benchmark.
Our UK Balanced Composite finished in the
top five of its peer group, giving up only 5.8% as
the average balanced fund in the UK fell nearly
12% for the year. The UK Balanced Composite
currently sits ahead of the CAPS median for
one-, three-, five- and ten-year periods.
UBS Investment Funds continued their strong
relative investment performance with 70% of all
funds outperforming their peer group averages
for the year. More specifically, the UBS Strategy
Funds performed well as a group, with more
than 90% outperforming the peer group for the
year. In addition, GAM had a successful year
benefiting from a defensive stance on equities,
excellent security selection and an allocation to
alternative investments.
Results
Pre-tax profit of CHF 231 million in 2001 was
28% lower than 2000. Despite market declines
and lower performance fees in the O’Connor busi-
52
ness, income increased as a result of the new
investment funds pricing structure introduced in
2001, the acquisition of RT Capital (renamed
Brinson Canada) and the inclusion of Brinson
Advisors. This was more than offset by higher per-
sonnel expenses and general and administrative
expenses driven by spending on growth initiatives,
the integration of Brinson Advisors and the acquisi-
tion of Brinson Canada in third quarter.
Performance before tax (CHF million)
600
500
400
300
200
100
0
e
g
a
r
e
v
A
9
9
9
9
9
1
0
0
Q
2
0
0
Q
3
0
0
0
2
1
0
Q
1
1
0
Q
2
1
0
0
2
1
0
Q
4
Operating income
Operating income increased CHF 157 million, or
8%, from 2000 to CHF 2,110 million in 2001, as
a result of the inclusion of Brinson Advisors, the
new pricing structure introduced this year for
investment funds and the acquisition of Brinson
Canada. These effects were partially offset by
lower performance fees at O’Connor, our alter-
native investment business, and the effect on asset
based revenues of market declines in 2001 and
institutional asset outflows in 2000 which led to
lower average assets compared to 2000.
Institutional income fell 10% in 2001 com-
pared to 2000, to CHF 1,007 million, while
mutual fund revenue increased 32% from 2000
to CHF 1,103 million in 2001.
Depreciation decreased 6% from CHF 49 mil-
lion in 2000 to CHF 46 million in 2001.
Amortization of goodwill and other intangible
assets increased 1% to CHF 266 million in 2001,
reflecting the effect of the acquisition of Brinson
Canada.
Headcount
Headcount increased by 421 in 2001, from
2,860 at 31 December 2000 to 3,281 at 31 De-
cember 2000, mostly due to the integration of
Brinson Advisors and Brinson Canada.
Headcount (full time equivalents)
(in thousands)
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2000
Key performance indicators
The cost / income ratio before goodwill increased
to 70% in 2000, from 60% in 1999, principally
as a result of the inclusion of O’Connor, Global
Asset Management (GAM) and UBS Realty
Investors (which generate higher gross margins
than the rest of the business, but at higher cost),
spending on strategic initiatives to expand global
reach, and lower asset-based revenues towards
the end of the year.
Operating expenses
Operating expenses increased 15% to CHF
1,879 million in 2001, driven by the addition of
Brinson Advisors and Brinson Canada.
General and administrative expenses in-
creased 28% from CHF 439 million in 2000 to
CHF 564 million in 2001, principally reflecting
the addition of Brinson Advisors.
Personnel expenses increased 14% from CHF
880 million in 2000 to CHF 1,003 million in
2001, again mostly due to the addition of Brinson
Advisors, which more than offset a considerable
decline in performance related compensation.
Institutional
Invested assets at 31 December 2000 include
CHF 31 billion invested at Brinson Advisors
(formerly Mitchell Hutchins), which was pur-
chased as part of the acquisition of Paine Webber
Group, Inc. and subsequently transferred to UBS
Asset Management.
Invested assets decreased 12%, or CHF
44 billion, from CHF 367 billion at 31 Decem-
ber 1999 to CHF 323 billion at 31 December
2000, with the majority of the decline due to
client losses in the institutional business, particu-
larly in the earlier part of the year.
53
Review of Business Group Performance
UBS Asset Management
Net new money for the year saw a net out-
flow of CHF 70.8 billion. Net new money out-
flows moderated as the year progressed, as loss-
es of equity mandates continued to decline.
Client losses continued to be concentrated pri-
marily within US and to a lesser degree UK man-
dates, reflecting past investment performance
issues.
The gross margin in 2000 was 34 basis
points, an increase of 10 basis points over 1999.
This rise reflects the contributions from two new
higher margin businesses: O’Connor, created in
June 2000, and UBS Realty Investors (formerly
Allegis), purchased in December 1999.
Mutual funds
Invested assets at 31 December 2000 include
CHF 90 billion invested at Brinson Advisors
(formerly Mitchell Hutchins), which was pur-
chased as part of the acquisition of Paine Webber
Group, Inc., and subsequently transferred to
UBS Asset Management.
Invested assets increased 38%, from CHF
231 billion at 31 December 1999 to CHF 319
billion at year end 2000. The addition of
Brinson Advisors assets offset a slight underlying
decline. This underlying performance was
largely a result of negative currency and market
movements, partly offset by net new money of
CHF 2.9 billion.
The gross margin for the year, at 36 basis
points, is significantly higher than the 25 basis
points recorded in 1999, principally due to the
contribution from GAM.
Investment performance in 2000
The return of global equity markets towards
fundamental values was the predominant
development during 2000. This trend acceler-
ated during the fourth quarter as the US econ-
omy began to slow, and many companies with-
in the Technology, Media and Telecommuni-
cations (TMT) sector posted disappointing
earnings. Within this challenging environment,
strategic positions benefiting from the decline
in the TMT sector, the associated drop in
equity markets, the under-performance of the
very largest capitalization equities, and the
year-end turnaround in the euro, helped
Institutional Asset Management deliver the
best relative annual investment performance in
its history.
US equity strategies outperformed bench-
marks by wide margins. Global, international
and UK equity strategies were also significantly
positive. Phillips & Drew was ranked the top-
performing pension fund manager in Britain
for the year 2000 by Combined Actuarial
Performance Services (CAPS), the leading UK
performance measurement consultancy. Phillips
& Drew’s flagship Managed Exempt fund (equi-
ties mixed with property) outperformed the
average fund manager by more than 10% for the
full year. Phillips & Drew’s strong performance
in 2000 also benefited their balanced fund’s
three and five year records, moving its ranking
up from fourth quartile at the end of 1999 to
second quartile at the end of 2000.
Results
Pre-tax profit of CHF 322 million was 26% lower
than 1999. Despite asset losses in the core institu-
tional business, operating income increased as a
result of the launch of the O’Connor business and
the acquisition of Allegis; but this was more than
offset by higher performance-related personnel
expenses, the additional costs of spending on new
business initiatives, chiefly targeted at marketing
investment funds outside UBS, and goodwill
amortization costs relating to Allegis and GAM.
Operating income
Operating income increased CHF 584 million,
or 43%, from CHF 1,369 million in 1999 to
CHF 1,953 million in 2000.
Institutional revenue increased CHF 262 mil-
lion, or 31%, from CHF 857 million in 1999 to
CHF 1,119 million in 2000. Despite the decrease
in invested assets, operating income increased as
a result of the acquisition of Allegis and the
creation of the new O’Connor alternative asset
management business, partially offset by lost
revenue from client losses.
Mutual fund income increased CHF 322 mil-
lion, or 63%, from CHF 512 million in 1999 to
CHF 834 million in 2000, primarily as a result
of the GAM acquisition.
Operating expenses
Full year expenses increased by CHF 699 million
to CHF 1,631 million.
Personnel expenses increased 71%, or CHF
364 million, from CHF 516 million in 1999 to
CHF 880 million in 2000 and General and
54
administrative expenses increased 62%, or CHF
168 million, over 1999 to CHF 439 million in
2000. Both categories of expense increased as a
result of the acquisitions of GAM and Allegis,
the addition of the new O’Connor business and
investments in distribution initiatives.
Depreciation and amortization expense
increased CHF 167 million, or 115%, from
CHF 145 million in 1999 to CHF 312 million
in 2000, principally due to the goodwill amor-
tization resulting from the acquisitions of
Allegis and GAM.
Headcount
Headcount increased 11% from 2,576 at 31 De-
cember 1999 to 2,860 at 31 December 2000,
primarily as a result of an increase of staff to
support mutual funds distribution initiatives and
the creation of the new O’Connor business in
June 2000.
55
Review of Business Group Performance
UBS Warburg
UBS Warburg
“We have made excellent strategic progress in 2001,
with increased share of fees in corporate finance and
the successful merger with UBS PaineWebber.”
Markus Granziol
Business Group Reporting
CHF million, except where indicated
For the year ended
Income 2
Credit loss expense 3
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets 2
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 6
Additional information
Regulatory equity used (average)
Cost / income ratio (%) 7
Cost / income ratio before goodwill (%) 6, 7
31.12.01
31.12.001
31.12.991
% change from
31.12.00
21,349
(130)
21,219
13,515
4,260
580
991
19,346
1,873
2,864
26,200
91
86
19,590
(246 )
19,344
10,618
3,196
606
290
14,710
4,634
4,924
24,850
75
74
13,118
(333 )
12,785
7,087
2,538
644
139
10,408
2,377
2,516
10,590
79
78
9
(47)
10
27
33
(4)
242
32
(60)
(42)
5
Markus Granziol
Chairman UBS Warburg
John Costas
CEO UBS Warburg
Joseph J. Grano
Chairman and CEO, UBS PaineWebber
56
Business Group Reporting Adjusted for Significant Financial Events
CHF million, except where indicated
For the year ended
31.12.01
31.12.001
31.12.991
% change from
31.12.00
Income 2
Credit loss expense 3
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets 2
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 6
Additional information
Cost / income ratio (%) 7
Cost / income ratio before goodwill (%) 6, 7
21,349
(130)
21,219
13,515
4,260
580
991
19,346
1,873
2,864
19,590
(246 )
19,344
10,5325
3,1835
5995
290
14,604
4,740
5,030
12,9184
(333 )
12,585
7,087
2,538
644
139
10,408
2,177
2,316
91
86
75
73
81
79
9
(47)
10
28
34
(3)
242
32
(60)
(43)
1 The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001. 2 Goodwill funding costs of
CHF 763 million (2000: CHF 132 million) and amortization of goodwill and other intangible assets of CHF 846 million (2000: CHF 138 million)
in respect of the PaineWebber acquisition are included in UBS Warburg results but are not reflected in any of its individual business units. 3 In
management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see
Note 2 of the Financial Statements). 4 Excludes Significant Financial Events: Income, CHF 200 million for the sale of the international Global
Trade Finance business. 5 Excludes Significant Financial Events: Personnel expenses, CHF 86 million, General and administrative expenses, CHF
13 million and Depreciation, CHF 7 million, for the PaineWebber integration. 6 Excludes the amortization of goodwill and other intangible
assets. 7 Operating expenses / operating income before credit loss expense.
Goodwill costs
UBS Warburg’s Business Group operating
expenses for 2001 include CHF 846 million
(2000: CHF 138 million) of amortization of
goodwill and intangible assets and CHF 763 mil-
lion (2000: CHF 132 million) of goodwill fund-
ing costs which result from the merger with
PaineWebber on 3 November 2000. These costs
are recorded at the Business Group level, but are
not allocated to the individual business units.
In particular, the results of the Private Clients
includes the former
business unit, which
PaineWebber private client businesses, do not
reflect amortization or funding costs relating to
the merger.
57
Review of Business Group Performance
UBS Warburg
Corporate and Institutional Clients
Business Unit Reporting
CHF million, except where indicated
For the year ended
Corporate Finance
Equities
Fixed income and foreign exchange
Non-core business
Income
Credit loss expense 2
Total operating income
Personnel expenses 3
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 5
KPI’s
Compensation ratio (%) 6
Cost / income ratio (%) 7
Cost / income ratio before goodwill (%) 5, 7
Non-performing loans / gross loans outstanding (%)
Impaired loans / gross loans outstanding (%)
Average VaR (10-day 99%)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
2,544
6,655
6,536
276
16,011
(112)
15,899
8,339
2,705
454
145
11,643
4,256
4,401
52
73
72
2.6
5.4
252
2,701
10,429
4,622
281
18,033
(243 )
17,790
9,2844
2,7794
5554
149
12,767
5,023
5,172
51
71
70
2.8
5.6
242
2,054
5,724
4,269
4821
12,529
(330 )
12,199
6,861
2,429
629
134
10,053
2,146
2,280
55
80
79
1.6
3.4
213
(6)
(36)
41
(2)
(11)
(54)
(11)
(10)
(3)
(18)
(3)
(9)
(15)
(15)
4
Additional information
As at
Client assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
108
9,900
15,562
10,000
15,262
10,050
12,694
(1)
2
1 Excludes Significant Financial Events: Income, CHF 200 million for the sale of the international Global Trade Finance business. 2 In manage-
ment accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2
of the Financial Statements). 3 Includes retention payments in respect of the PaineWebber acquisition. 2001: CHF 46 million. 2000: CHF 11
million. 4 Excludes Significant Financial Events: Personnel expenses, CHF 86 million, General and administrative expenses, CHF 13 million and
Depreciation, CHF 7 million, for the PaineWebber integration. 5 Excludes the amortization of goodwill and other intangible assets. 6 Personnel
expenses / operating income before credit loss expense. 7 Operating expenses / operating income before credit loss expense.
58
Components of Operating Income
The Corporate and Institutional Clients unit generates
operating income from:
– commissions on agency transactions and spreads or
markups on principal transactions;
– fees from debt and equity capital markets transactions,
leveraged finance, and the structuring of derivatives
and complex transactions;
– mergers and acquisitions and other advisory fees;
– interest income on principal transactions and from the
– gains and losses on market making, proprietary, and
arbitrage positions.
As a result, Corporate and Institutional Clients’ operating
income is affected by movements in market conditions,
interest rate swings, the level of trading activity in primary
and secondary markets and the extent of merger and
acquisition activity. These and other factors have had, and
may in the future have, a significant impact on results of
operations from year to year.
loan portfolio; and
Significant financial events
PaineWebber integration costs were treated as a
significant financial event in 2000, and are not
reflected in the figures shown in the table. The
amounts involved were: personnel expenses CHF
86 million, general and administrative expenses
CHF 13 million and depreciation CHF 7 million.
In addition, a CHF 200 million gain on the
sale of UBS’s international Global Trade Finance
business in 1999 was treated as a significant
financial event and is not reflected in the operat-
ing income shown in the table.
There were no significant financial events that
affected this business unit in 2001.
2001
Key performance indicators
UBS Warburg measures its expense base primari-
ly in terms of percentage of revenues, looking at
both personnel costs and non-personnel costs on
this basis.
Compensation / income (%)
60
55
50
45
40
9
9
9
1
0
0
0
2
1
0
0
2
We continue to maintain a tight focus on cost
management in light of the current operating
environment, and achieved a pre-goodwill cost /
income ratio of 72% in 2001, up slightly from
70% in 2000, as a result of the reduced revenues
in difficult market conditions. The ratio of per-
sonnel costs to income was 52% in 2001, only a
slight increase on the 51% recorded in 2000,
and favorably comparable with our peer group.
Pre-goodwill cost / income ratio (%)
100
90
80
70
60
50
9
9
9
1
0
0
0
2
1
0
0
2
Average Value at Risk (VaR) for Corporate
and Institutional Clients increased only slightly
from CHF 242 million in 2000 to CHF 252 mil-
lion in 2001 and, in general, market risk expo-
sures have stayed within the normal ranges.
There was, however, a short term but significant
increase in VaR in December 2001 resulting
from sizeable client-driven equity transactions.
The need for a temporary increase in limits was
anticipated and pre-approved by the Group
Average VaR (10-day 99%)
300
250
200
150
100
50
0
9
9
9
1
0
0
0
2
1
0
0
2
59
Review of Business Group Performance
UBS Warburg
Executive Board. The trades were successfully
executed and the risk reduced to normal levels.
Total loans decreased by 17% from CHF
73.8 billion at 31 December 2000 to CHF 61.2
billion at 31 December 2001, due to a reduction
in Japanese government exposures, and repay-
ments from European multinationals, reflecting
the continued reduction of our commercial lend-
ing risk profile.
Impaired loans / gross loans (%)
8
7
6
5
4
3
2
1
0
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
Continued successful recovery efforts led the
ratio of impaired loans to total loans to fall from
5.6% at 31 December 2000 to 5.4% at the end
of 2001. The non-performing loans to total
loans ratio declined from 2.8% to 2.6% over the
same period.
Results
We recorded a strong performance in 2001,
relative to the much weaker markets this year.
Pre-tax profit in 2001 was CHF 4,256 million, a
decline of 15% over 2000, our best year ever.
Equities and corporate finance both suffered
from the economic downturn and the conse-
quent weakness in their global markets, while
the fixed income and foreign exchange business
delivered record results, driven by interest rate
reductions and increased volatility, and sup-
ported by the expansion of businesses acquired
from PaineWebber. In corporate finance we con-
tinued to outperform 2000 in terms of market
share, with full year analysis showing us with a
4.5% share of fees, compared to 3.6% in 2000.
Costs fell sharply to their lowest ever total.
Operating income
Operating income of CHF 15,899 million in
2001 was 11% lower than in 2000.
Corporate finance revenues were CHF 2,544
million in 2001, 6% lower than in 2000, as our
improved share of fees this year was more than
offset by the general contraction experienced in
corporate finance in 2001.
Equities revenues for 2001 were also lower
than in 2000, down 36% from CHF 10,429 mil-
lion to CHF 6,655 million in 2000. This decline
principally reflects reduced trading revenues,
driven by the lack of mergers and acquisitions
activity and increased volatility, together with a
cautious approach to risk in difficult market
conditions. Commission revenues have been
broadly consistent with levels in 2000, reflecting
the breadth and depth of our client franchise.
Corporate and Institutional Clients
Operating income by business area1
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
CHF million
482
4,269
2,054
5,724
281
4,622
2,701
10,429
276
6,536
2,544
6,655
31.12.99
31.12.00
31.12.01
For the year ended
Equities
Corporate finance
Fixed income and
foreign exchange
Non-core business
Performance before tax (CHF million)
1 Before credit loss expense.
6000
4000
2000
0
9
9
9
1
0
0
0
2
1
0
0
2
Fixed income and foreign exchange per-
formed very strongly in 2001, with revenues up
41% from 2000, at CHF 6,536 million. This
reflects the effect of interest rate reductions dur-
ing the year, which led to increased issuance and
higher volatility, and the inclusion of businesses
taken over from PaineWebber.
Non core revenues in 2001 were 2% lower
than in 2000, at CHF 276 million.
60
Operating expenses
Personnel expenses declined 10%, from CHF
9,284 million in 2000 to CHF 8,339 million in
2001, driven by reductions in incentive compen-
sation in line with labor market conditions and
full year results.
General and administrative expenses in 2001
were 3% lower than in 2000, at CHF 2,705 mil-
lion, reflecting the impact of cost control meas-
ures put in place during 2001. (Fourth quarter
2001 general and administrative expenses were
25% lower than in fourth quarter 2000.)
Depreciation fell 18% from 2000 to CHF
454 million in 2001, driven by reductions in
IT expenditure as a result of cost control
initiatives.
Amortization of goodwill and other intangi-
bles was almost unchanged at CHF 145 million
in 2001, just CHF 4 million lower than in
2000.
Headcount
Headcount at 31 December 2001 remained lit-
tle changed, at 15,562 compared to 15,262 at
Headcount (full time equivalents)
16
15
14
13
12
11
10
(in thousands)
9
9
.
2
1
1
3
.
0
0
.
2
1
1
3
.
1
0
.
2
1
1
3
.
the end of 2000. We have not engaged in wide-
spread headcount reductions that might have
long-term detrimental impact on our client
franchises, but are upgrading staff quality in
selected areas.
2000
The results for Corporate and Institutional
Clients include the costs and revenues for
November and December 2000 of the former
PaineWebber capital markets businesses, which
were integrated into this business unit from the
completion of the merger on 3 November 2000.
Key performance indicators
Continued strong revenue performance in
2000 and active cost management led to a pre-
goodwill cost / income ratio of 70%, down
from 79% in the previous year, representing
the result of significant cost management
efforts on both personnel and non-personnel
expenses.
Corporate and Institutional Clients’ ratio of
personnel cost to income fell to 51% in 2000,
from 55% in 1999. UBS Warburg continues to
invest in top quality professionals to help
expand its capabilities and client reach and
aims to compensate its employees at similar
levels to its global competitors.
Changes in non-personnel costs are less
directly related to changes in income than per-
sonnel costs. As a percentage of income, non-
personnel costs decreased to 19% in 2000,
from 25% in 1999. Improvements in overall
cost management were offset by increased
expenditure on technology and professional
fees and
the
PaineWebber capital markets business.
incremental costs of
the
Corporate and Institutional Clients’ non-
performing loans rose CHF 905 million, or
78%, from CHF 1,163 million at 31 December
1999 to CHF 2,068 million at 31 December
2000, reflecting the weaker credit environment
in the US. At the same time, the gross loans
outstanding rose from CHF 72,717 million at
31 December 1999 to CHF 73,761 million at
31 December 2000. As a result, the ratio of
non-performing loans to total loans increased
to 2.8% at the end of 2000 from 1.6% at the
end of 1999.
Market risk utilization, as measured by
average VaR, continued to remain well within
the limit of CHF 450 million, although increas-
ing from an average of CHF 213 million in
1999 to an average of CHF 242 million in
2000, reflecting the exceptional trading oppor-
tunities in the early part of 2000.
Results
UBS Warburg’s Corporate and Institutional
Clients business unit delivered record financial
results in 2000, with each quarter performing
significantly above the levels in the comparable
quarter of 1999. Pre-tax profit of CHF 5,023
million was more than double the CHF 2,146
million achieved in 1999, itself a good year.
61
Review of Business Group Performance
UBS Warburg
Operating income
Corporate and Institutional Clients generated
revenues of CHF 18,033 million in 2000, an
increase of 44% over 1999.
Equities revenues during 2000 were CHF
10,429 million, or 82% higher than 1999’s
revenues of CHF 5,724 million reflecting the
strength of UBS Warburg’s global client franchise
and increased market share in significantly
stronger secondary markets, and strong market-
making and trading revenues. UBS Warburg’s
secondary equity sales business continues to be
ranked as one of the global leaders, and the
leading non-US equities house.
Fixed Income and Foreign Exchange experi-
enced a strong 2000, driven by active fixed
income markets, significant principal finance
activity and a good performance by the govern-
ment bond and derivatives business, contribut-
ing to overall revenues for the year 2000 of
CHF 4,622 million, an improvement of 8%,
or CHF 353 million over 1999’s revenues of
CHF 4,269 million. Revenues for 1999 also
included revenues relating to exchange-traded
derivatives and alternative asset management,
which were transferred to the Equities business
area in 2000.
Market conditions for mergers and acquisi-
tions, advisory work and primary underwriting
continued to be strong, driving Corporate
Finance’s excellent performance. UBS Warburg’s
corporate client franchise continued to develop,
with strong performance in critical sectors in
2000, particularly Telecommunications and
Consumer Goods. Productivity per head also
increased in comparison to prior years. Overall,
2000 was a year of very strong growth in this
area for UBS Warburg, with revenues of CHF
2,701 million, 31% ahead of 1999.
The Corporate Finance business area within
Corporate and Institutional Clients provides both
advisory services and financing services. Financing
services include both equity and fixed-income
offerings undertaken in cooperation with the
Equities and Fixed income business areas.
Accordingly, a portion of operating income associ-
ated with these services is allocated to those areas.
Non core income
In October and November 1998, UBS’s Board
of Directors mandated and undertook a review
of UBS’s risk profile and risk management and
of UBS’s control processes and procedures.
Corporate and Institutional Clients used the
review to define its core and non-core business
areas, and decided to wind down over time
the identified non-core businesses, and the
associated loan portfolio. In 2000, non-core
revenues fell 42% compared to 1999, to CHF
281 million.
UBS’s non-core loan portfolio decreased
approximately CHF 65 billion, or 61%, from
approximately CHF 106 billion as of 31 De-
cember 1998 to CHF 41 billion as of 31 De-
cember 1999. It has further reduced since, to
CHF 23 billion at 31 December 2000 and CHF
10 billion at 31 December 2001.
Operating expenses
Corporate and Institutional Clients continues to
carefully manage its cost base, with the pre-
goodwill cost/income ratio remaining well below
1999 levels at 70%. Personnel expenses in-
creased 35% from 1999, to CHF 9,284 million,
reflecting increased headcount and growth in
performance-related compensation in line with
the excellent results. Personnel expenses include
CHF 11 million of retention payments made to
former PaineWebber staff.
General and administrative expenses in-
creased 14% compared to 1999, as a result of
increased expenditure on technology outsourc-
ing, professional fees and the incremental costs
of the PaineWebber capital markets business.
Overall costs grew at a significantly slower
rate than revenues, delivering continued strong
pre-tax profit growth.
Headcount
Corporate and Institutional Clients headcount
rose 20% during the year, to 15,262, mainly due
to business growth in the Corporate Finance and
Equities areas, including the impact of the inte-
gration of 1,628 staff from the PaineWebber
capital markets businesses.
62
UBS Capital
Business Unit Reporting
CHF million, except where indicated
For the year ended
Total operating income / (loss)
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 1
KPI’s
31.12.01
31.12.00
31.12.99
% change from
31.12.00
(868)
96
66
2
0
164
(1,032)
(1,032)
368
142
49
2
2
195
173
175
(32)
35
0
(100)
(16)
315
105
46
2
5
158
157
162
0.6
31.12.01
31.12.00
31.12.99
% change from
31.12.00
5.0
5.5
3.0
(9)
5.6
1
800
128
6.9
1
600
129
4.2
340
116
(19)
0
33
(1)
2 Historic cost of investments made, less divestments and permanent
Value creation (CHF billion)
(1.4)
0.6
As at
Investment (CHF billion) 2
Additional information
Portfolio fair value (CHF billion)
Invested assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
1 Excludes the amortization of goodwill and other intangible assets.
impairments.
Components of Operating Income
UBS Capital’s primary source of operating income is capi-
tal gains from the disposal or sale of its investments, which
are recorded at the time of ultimate divestment. As a
result, appreciation in fair market value is recognized as
operating income only at the time of sale. The level of
annual operating income from UBS Capital is directly
affected by the level of investment disposals that take
place during the year. Similarly, depreciation in fair market
value is only recognized against operating income if an
investment becomes permanently impaired and has to be
written-down. Write-downs of the value of its investments
can negatively affect UBS Capital’s operating income.
63
Review of Business Group Performance
UBS Warburg
Significant financial events
There were no significant financial events that
affected this business unit in 2001, 2000 or 1999.
2001
Full year results for UBS Capital reflect the very
challenging market in 2001, with few opportu-
nities for divestments, and write-downs of
several investments as a result of the problems
caused for some of our investee companies by
the deteriorating economic conditions. Pre-tax
losses for 2001 of CHF 1,032 million, com-
pared to pre-tax profits of CHF 173 million
in 2000.
Following a strategic review of the business,
UBS will in future be focused on private equity
asset management, with a restricted level of
direct investments through UBS Capital, limited
to those sectors and regions with a strong per-
formance track record. We expect results in
2002 to show continued volatility, and net
losses, unless there is a material improvement
in economic conditions.
Key performance indicators
UBS Capital’s private equity investments have
decreased to CHF 5.0 billion at 31 December
2001, from CHF 5.5 billion at the end of 2000,
with the decline due to write-downs on the book
value of investments, as well as a small number
of divestments during the year, which more than
offset the draw-down of previously committed
investments and the small level of other new
investments during the year.
The fair value of the portfolio at the end
of December 2001 was CHF 5.6 billion, down
Investment (CHF billion)
19% from CHF 6.9 billion at 31 December
2000. The fair value included net unrealized
gains of CHF 0.6 billion. Value reduction during
2001, was CHF 1.4 billion, compared to value
creation of CHF 0.6 billion in 2000.
Value Creation (CHF billion)
9
9
9
1
0
0
0
2
1
0
0
2
0.8
0.4
0.0
–0.4
–0.8
–1.2
–1.6
Results
UBS Capital recorded an operating loss of CHF
868 million in 2001, compared to income of
CHF 368 million in 2000. Challenging markets
and the continued slow-down in corporate activ-
ity meant that there were few opportunities for
significant divestments in 2001, while weak eco-
nomic conditions led to deteriorating valuations
across a range of industry sectors resulting in a
high level of write-downs of investments in the
portfolio.
Performance before tax (CHF million)
9
9
9
1
0
0
0
2
1
0
0
2
250
0
–250
–500
–750
–1000
–1250
9
9
.
2
1
.
1
3
0
0
.
2
1
.
1
3
1
0
.
2
1
.
1
3
Personnel expenses were CHF 96 million in
2001, down from CHF 142 million in 2000,
reflecting lower incentive compensation which is
driven by realized gains on divestments.
General and administrative expenses were
CHF 66 million, up from CHF 49 million in
2000 due principally to professional fees relating
to our strategic review of the business.
6
5
4
3
2
1
0
64
2000
Key performance indicators
The book value of UBS Capital’s private equity
investments grew from CHF 3.0 billion at the end
of 1999 to CHF 5.5 billion at 31 December 2000.
New investments of CHF 2.1 billion were made
during the full year, including new shareholdings
across a diverse range of sectors. In addition, CHF
0.8 billion of investments made by PaineWebber
were added to UBS Capital’s private equity port-
folio in December 2000. The portfolio value was
reduced by certain write-downs in investments in
second and fourth quarters 2000.
Until the introduction in 2001 of IAS 39, UBS
Capital accounted for its private equity invest-
ments at cost less permanent impairments. Our
regular portfolio review and valuation at 31 De-
cember 2000 resulted in an approximate current
fair value of CHF 6.9 billion, compared to CHF
4.2 billion at 31 December 1999. This equated
to unrealized gains of approximately CHF
1.4 billion at 31 December 2000, compared
to CHF 1.2 billion at year-end 1999. The value
creation during the year 2000, including realized
gains since 1 January 2000, and the increase in
the portfolio’s unrealized gains, was approxi-
mately CHF 0.6 billion.
Results
In 2000, net profit was CHF 173 million, up
CHF 16 million or 10% from CHF 157 million
in 1999.
Operating income
Operating income increased 17% to CHF
368 million in 2000, from CHF 315 million in
1999. This reflects the realized gains from sales
of investments in the year, partially offset by
write-downs of the value of several under-per-
forming companies in different sectors of the
portfolio.
Operating expenses
Personnel, general and administrative expenses
were CHF 191 million in 2000, an increase from
the previous year of CHF 40 million, or 26%,
driven mainly by bonus expenses. Bonuses are
accrued when an investment is successfully
exited, so personnel expenses move in line with
successful divestments.
65
Review of Business Group Performance
UBS Warburg
Private Clients
Business Unit Reporting
CHF million, except where indicated
For the year ended
Income
Credit loss expense 3
Total operating income
Personnel expenses 4
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business unit performance before tax
Business unit performance before tax and goodwill 5
KPI’s
Invested assets (CHF billion)
Net new money (CHF billion) 7
Gross margin on invested assets (bps) 8
Cost / income ratio (%) 9
Cost / income ratio before goodwill (%) 5, 9
Cost / income ratio before goodwill
and retention payments (%) 5, 9
Recurring fees 10
Financial advisors (full time equivalents)
Additional information
As at
Client assets (CHF billion)
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.012
31.12.001, 2
31.12.991
% change from
31.12.00
6,969
(18)
6,951
5,080
1,489
124
0
6,693
258
258
782
36.0
90
96
96
90
2,277
8,870
1,321
(3 )
1,318
1,106
355
42
1
1,504
(186 )
(185 )
773
15.26
72
114
114
105
430
8,871
74
(3 )
71
121
63
13
0
197
(126 )
(126 )
256
2.06
35
266
266
428
500
427
359
319
195
(100)
345
1
25
430
0
31.12.01
31.12.00
31.12.99
% change from
31.12.00
854
1,750
20,678
2,750
21,814
200
581
(36)
(5)
1 The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001. 2 Private Clients results include
PaineWebber for 2001 and for 2000 from the date of acquisition, 3 November 2000. 3 In management accounts, statistically derived adjust-
ed expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements). 4 Includes
retention payments in respect of the PaineWebber acquisition. 2001: CHF 436 million. 2000: CHF 117 million. 5 Excludes the amortization of
goodwill and other intangible assets. 6 Calculated using the former definition of assets under management. 7 Excludes interest and dividend
income. 8 Income / average invested assets. 9 Operating expenses / operating income before credit loss expense.
10 Asset based and advi-
sory revenues including fees from mutual funds, wrap fee products and insurance products.
Components of Operating Income
The Private Clients business unit principally derives its
operating income from:
–
fees for financial planning and wealth management
services;
fees for discretionary management services; and
transaction-related fees.
–
–
66
These fees are based on the market value of invested
assets and the level of transaction-related activity. As a
result, operating income is affected by such factors as
fluctuations in invested assets, changes in market condi-
tions, investment performance and inflows and outflows
of client funds.
Significant financial events
There were no significant financial events that
affected this business unit in 2001, 2000 or 1999.
PaineWebber
The Private Clients business unit primarily con-
sists of UBS PaineWebber, the fourth largest pri-
vate client business in the US, which became part
of UBS following the merger between UBS and
Paine Webber Group, Inc., which was completed
on 3 November 2000.
The merger was accounted for using purchase
accounting, so the results shown for Private
Clients for 2000 reflect the inclusion of the
PaineWebber businesses only for the period from
3 November 2000 until 31 December 2000.
Results for 1999 do not include any contribution
from UBS PaineWebber, while results for 2001
reflect a full year’s contribution.
2001
Comparisons of full year results reflect the very
different scale of the UBS Warburg Private
Clients business prior to the acquisition of Paine-
Webber in November 2000.
Key performance indicators
At the end of 2001, Private Clients had CHF
782 billion of invested assets, compared to CHF
773 billion at 31 December 2000, a change of
1%, with negative market performance during
the year more than offset by strong net new
money flows.
Invested assets (CHF billion)
900
750
600
450
300
150
0
0
0
.
2
1
.
1
3
1
0
.
3
.
1
3
1
0
.
6
.
0
3
1
0
.
9
.
0
3
1
0
.
2
1
.
1
3
Net new money for the year was CHF 36.0
billion, compared to CHF 15.2 billion in 2000,
more than half of which was earned in the last
quarter of 2000 after the integration of
PaineWebber. Private Clients’ ability to continue
to generate high levels of net new money despite
the uncertain markets in 2001 reflects the
strength of its client franchise amongst high net
worth individuals in the US.
Net new money (CHF billion)
15
10
5
0
0
0
Q
4
1
0
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
Gross Margin on invested assets increased to
90 basis points, from 72 basis points in 2000,
reflecting the addition of UBS PaineWebber.
Gross margin in the pre-existing business for the
9 months to 30 September 2000, before the addi-
tion of UBS PaineWebber was 36 basis points.
The gross margin fell slightly during 2001,
reflecting the effect of uncertain markets on
transaction volumes.
Gross margin on invested assets (bps)
100
80
60
40
0
0
Q
4
1
0
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
The cost / income ratio before goodwill and
retention payments was 90% in 2001 compared
to 105% in 2000. Until the addition of UBS
PaineWebber, the pre-existing business was loss
making, reflecting the relatively early stage of its
business development. Cost control has
remained a strong focus during the year, with the
cost income ratio in fourth quarter 2001 only
one percentage point higher than in fourth quar-
ter 2000.
Recurring fees were CHF 2,277 million in
2001. This metric was not tracked prior to the
67
Review of Business Group Performance
UBS Warburg
Pre-goodwill cost / income ratio before retention (%)
100
90
80
70
60
0
0
Q
4
1
0
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
Performance before tax (CHF million)
Results
Pre-tax profits were CHF 258 million, a strong
result relative to our peers, achieved against a
particularly poor market environment, with two
successive years of market declines in the US for
the first time since the late 1970s leading to much
lower transaction volumes. In 2000, Private
Clients incurred a loss of CHF 186 million.
140
120
100
80
60
40
20
0
–20
0
0
Q
4
1
0
Q
1
1
0
Q
2
1
0
Q
4
1
0
Q
3
Operating income
Operating income for the year was CHF 6,951
million, compared to CHF 1,318 million in
2000. Revenues were resilient during 2001,
declining just 11% from first quarter to fourth
quarter, despite recession and market uncer-
tainty in the US.
Operating expenses
Total operating expenses were CHF 6,693 mil-
lion in 2001 compared to CHF 1,504 million
in 2000, reflecting the addition of UBS Paine-
Webber.
Private Clients implemented a number of cost
control initiatives during the year, aimed at
reducing discretionary expenditure and support
costs, while protecting the business’s ability to
serve its clients to the highest standards.
Personnel expenses were CHF 5,080 million
in 2001, compared to CHF 1,106 million in
2000, reflecting the completely different scale of
the business. Expenses in 2001 included CHF
436 million of retention payments for key UBS
PaineWebber staff, compared to CHF 117 mil-
lion in 2000. Through 2001 personnel expenses
reduced, from CHF 1,311 million in first quarter
to CHF 1,216 million in fourth quarter, reflect-
ing lower performance related and variable com-
pensation and a reduction of support headcount.
General and administrative expenses were
CHF 1,489 million in 2001, compared to CHF
integration of UBS PaineWebber in November
2000. During 2001, recurring fees declined
6% to CHF 545 million in fourth quarter 2001
compared to CHF 580 in first quarter 2001,
due to the effects of market depreciation on
client assets – recurring fees are priced based
on the asset level at the end of the prior
quarter.
Recurring fees (CHF million)
600
500
400
300
200
100
0
0
0
Q
4
1
0
Q
1
1
0
Q
2
1
0
Q
3
1
0
Q
4
At the end of December 2001, Private Clients
had 8,870 financial advisors, unchanged from a
year before. Although we have continued to
recruit and train new financial advisors during
the year, the difficult market conditions have led
to higher turnover amongst the least productive
advisors.
Financial advisors (full time equivalents)
10
9
8
7
(in thousands)
0
0
.
2
1
.
1
3
1
0
.
3
.
1
3
1
0
.
6
.
0
3
1
0
.
9
.
0
3
1
0
.
2
1
.
1
3
68
355 million in 2000, reflecting the addition of
UBS PaineWebber. Cost control efforts drove
expenses down during 2001, with fourth quarter
general and administrative expenses 4% lower
than in first quarter.
Depreciation expenses were CHF 124 million
in 2001, compared to CHF 42 million in 2000,
reflecting the addition of UBS PaineWebber.
with net new money flows averaging CHF
202.3 million per day in November and Decem-
ber 2000, and totaling CHF 8.3 billion between
the merger and the end of the quarter. This com-
pared very favorably to the average pre-merger
rate in the third quarter of 2000 of CHF 172.5
million per day, despite the effects of the holiday
season.
Headcount
Headcount decreased 5% during the year from
21,814 at 31 December 2000 to 20,678 at 31 De-
cember 2001. We continue to monitor market
conditions, but prudent cost control in previous
years means that we have not needed to make
franchise threatening cuts to our headcount.
Financial advisor headcount is almost unchanged
over the year, but we continue to implement effi-
ciency measures to help manage support head-
count downwards.
Headcount (full time equivalents)
23
22
21
20
19
18
(in thousands)
0
0
.
2
1
.
1
3
1
0
.
3
.
1
3
1
0
.
6
.
0
3
1
0
.
9
.
0
3
1
0
.
2
1
.
1
3
2000
Results for 2000 reflect the inclusion of UBS
PaineWebber only for the period from the
merger, on 3 November 2000, until 31 Decem-
ber 2000.
Key performance indicators
At 31 December 2000, Private Clients had CHF
773 billion of invested assets.
Net new money for the year was significant,
at CHF 15.2 billion. Private Clients’ asset gath-
ering continued successfully after the merger,
Results
Private Clients recorded a net loss for 2000 of
CHF 186 million, compared to a net loss in 1999
of CHF 126 million. Adjusting for the addition
of UBS PaineWebber, the previously existing
businesses made a loss of CHF 167 million in
2000, partly due to restructuring costs incurred
in first quarter 2000.
Operating income
Operating income was CHF 1,318 million in
2000, an increase of CHF 1,247 million from the
CHF 71 million achieved in 1999. This change
was mainly due to CHF 1,225 million income of
UBS PaineWebber in November and December
2000.
Operating expenses
Operating expenses were CHF 1,504 million in
2000, up from CHF 197 in 1999 including CHF
1,244 million at UBS PaineWebber in November
and December.
Personnel expenses in 2000 were CHF 1,106
million, an increase of CHF 985 million from
1999. CHF 955 million of this increase resulted
from UBS PaineWebber, and included CHF
117 million of retention payments to staff under
the terms of the PaineWebber merger agreement.
General and administrative expenses in 2000
were CHF 355 million, an increase of CHF
292 million from 1999, including CHF 258 mil-
lion from UBS PaineWebber.
Headcount
Total headcount at 31 December 2000 was
21,814, up from 581 at 31 December 1999, with
the vast majority of the change due to the ad-
dition of UBS PaineWebber.
69
Review of Business Group Performance
Corporate Center
Corporate Center
Business Group Reporting
CHF million, except where indicated
For the year ended
Income
Credit loss recovery 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 2
31.12.01
31.12.00
31.12.99
% change from
31.12.00
678
236
914
546
207
372
25
1,150
(236)
(211)
358
1,161
1,519
522
431
320
44
1,317
202
246
2,010
448
2,458
92
839
366
50
1,347
1,111
1,161
89
(80)
(40)
5
(52)
16
(43)
(13)
Additional information
As at
Regulatory equity used (average)
Headcount (full time equivalents)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
6,200
1,132
8,450
986
7,850
862
(27)
15
Business Group Reporting Adjusted for Significant Financial Events3
CHF million, except where indicated
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Income
Credit loss recovery 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill and other intangible assets
Total operating expenses
Business Group performance before tax
Business Group performance before tax and goodwill 2
678
236
914
546
207
372
25
1,150
(236)
(211)
358
1,161
1,519
490
281
320
44
1,135
384
428
372
448
820
548
385
366
50
1,349
(529 )
(479 )
89
(80)
(40)
11
(26)
16
(43)
1
1 In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the net IAS actual credit loss
expenses are reported for all business units. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks
in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the net IAS actual credit loss
expenses recorded at Group level is reported in the Corporate Center (see Note 2 to the Financial Statements). 2 Excludes the amortization of
3 Excludes Significant Financial Events: Income, year ended 31 December 1999, CHF 38 million from the
goodwill and other intangible assets.
Long Term Capital Management (LTCM) fund, CHF 1,490 million for the sale of our 25% stake in Swiss Life / Rentenanstalt and CHF 110 mil-
lion for the sale of Julius Baer registered shares. Personnel expenses, year ended 31 December 2000, CHF 32 million for the PaineWebber inte-
gration. General and administrative expenses, year ended 31 December 2000, CHF 150 million net additional provision relating to the US Global
Settlement. Personnel expenses, year ended 31 December 1999, CHF 456 million for the Pension Fund Accounting Credit. General and admin-
istrative expenses, year ended 31 December 1999, CHF 300 million for the UBS / SBC Restructuring Provision and CHF 154 million for the increase
in the provision for the US Global Settlement.
70
Significant financial events
There were no significant financial events in
Corporate Center in 2001.
principally reflecting the swing in the credit loss
results, offset by higher income from treasury
activities.
Significant financial events booked in Cor-
porate Center in 2000 and 1999 were:
– Personnel expenses of CHF 32 million relat-
ing to the integration of PaineWebber into
UBS in 2000.
– Costs of CHF 154 million in 1999 and CHF
150 million in 2000 in General and adminis-
trative expenses in connection with the US
Global Settlement of World War II related
claims.
– Operating income of CHF 1,490 million from
the sale of UBS’s 25% stake in Swiss Life /
Rentenanstalt, CHF 110 million from the sale
of Julius Baer registered shares, and CHF
38 million from UBS’s residual holding in Long
Term Capital Management L.P., all in 1999.
– A credit to Personnel expenses in 1999 of
CHF 456 million in connection with excess
pension fund employer pre-payments.
– Costs of CHF 300 million in General and
administrative expenses in 1999 in respect of
an additional restructuring charge relating to
the 1998 merger between UBS and SBC.
2001
Operating expenses
Total operating expenses were CHF 1,150 mil-
lion in 2001, 1% higher than in 2000.
General and administrative expenses for 2001
were CHF 74 million lower than in 2000, at
CHF 207 million. This was due to lower corpo-
rate real estate costs and lower professional fees
connected to the US global settlement of World
War II related claims, offset by higher IT costs
and one-off charges relating to the bankruptcy of
SAir Group.
In 2001 personnel expenses were CHF 546 mil-
lion, an increase of 11% compared to 2000, driven
by severance payments and the full year cost of
senior management and other additional person-
nel added through the PaineWebber merger.
Headcount
Headcount increased 15% during 2001 to 1,132
at 31 December 2001, driven by the transfer of
International Mobility Program participants to
Corporate Center headcount and the transfer of
human resources staff from UBS Warburg. The
International Mobility Program provides out-
standing young employees of UBS with oppor-
tunities for work experience overseas.
Results
Corporate Center recorded a pre-tax loss of
CHF 236 million in 2001, compared to a pre-tax
profit of CHF 384 million in 2000, adjusted for
significant financial events.
2000
Results
Operating income
The credit loss expense or recovery booked in
Corporate Center represents the difference
between the adjusted statistically expected losses
charged to the business units and the actual
credit loss recognized in the Group income state-
ment. UBS Group’s credit loss expense increased
to CHF 498 million in 2001, compared to a
recovery of CHF 130 million in 2000. For both
2000 and 2001, actual credit loss was less than
the charge to the business units, resulting in a
credit loss recovery in Corporate Center of CHF
236 million in 2001, compared to a recovery of
CHF 1,161 million in 2000.
Operating income decreased by CHF 605 mil-
lion from 2000 to CHF 914 million in 2001,
Operating income
Adjusted for significant financial events, operating
income before credit loss expense decreased CHF
14 million, or 4%, from CHF 372 million in 1999
to CHF 358 million in 2000. Gains and losses
attributable to Corporate Center arise from fund-
ing, capital and balance sheet management, the
management of corporate real estate and the man-
agement of foreign currency activities.
Credit loss expense in Corporate Center
reconciles the difference between management
accounting and financial accounting, that is
between the adjusted statistically calculated
expected losses charged to the business units and
the actual credit
loss expense recognized
in the Group income statement. The Swiss econ-
71
Review of Business Group Performance
Corporate Center
omy was strong in 2000, leading to credit loss
expenses below the statistically calculated
expected level, and to a net write back of credit
loss provisions of CHF 695 million, resulting
in a credit of CHF 130 million at the Group
level. Corporate Center’s credit loss recovery
of CHF 1,161 million reflects the balancing item
between this amount and the CHF 1,031 million
expected loss charged to the business units.
Operating expenses
Operating expenses decreased from CHF 1,349
million in 1999 to CHF 1,135 million in 2000.
Headcount
Headcount in Corporate Center increased 124
during 2000, reflecting the addition of staff from
PaineWebber.
72
73
74
UBS Group Financial Statements
75
UBS Group Financial Statements
Table of Contents
Financial Statements
Table of Contents
Financial Statements
UBS Group Income Statement
UBS Group Balance Sheet
UBS Group Statement of Changes in Equity
UBS Group Statement of Cash Flows
Notes to the Financial Statements
1
2a
2b
Summary of Significant Accounting Policies
Segment Reporting by Business Group
Segment Reporting by Geographic Location
Income Statement
3
4
5
6
7
8
9
Net Interest Income
Net Fee and Commission Income
Net Trading Income
Other Income
Personnel Expenses
General and Administrative Expenses
Earnings per Share (EPS) and Outstanding Shares
Balance Sheet: Assets
10a
10b
10c
10d
11
Due from Banks and Loans to Customers
Allowances and Provisions for Credit Losses
Impaired Loans
Non-Performing Loans
Securities Borrowing, Securities Lending,
Repurchase and Reverse Repurchase Agreements
and Other Collateralized Transactions
Trading Portfolio
Financial Investments
Investments in Associates
Property and Equipment
Goodwill and Other Intangible Assets
Other Assets
12
13
14
15
16
17
Balance Sheet: Liabilities
18
19
20
21
22
23
24
Due to Banks and Customers
Debt Issued
Other Liabilities
Provisions, including Restructuring Provision
Income Taxes
Minority Interests
Derivative Instruments
76
78
78
79
80
82
83
83
92
95
96
96
96
97
97
97
98
98
99
99
100
100
101
102
103
104
106
106
107
107
108
108
108
114
114
116
118
118
Off-Balance Sheet and other Information
25
26
27
28
29
30
Pledged Assets
Fiduciary Transactions
Commitments and Contingent Liabilities
Operating Lease Commitments
Litigation
Financial Instruments Risk Position
a)
b) Credit Risk
Interest Rate Risk
(b)(i) On-balance sheet assets
(b)(ii) Off-balance sheet financial instruments
(b)(iii) Credit risk mitigation techniques
c) Currency Risk
d) Liquidity Risk
e) Capital Adequacy
Fair Value of Financial Instruments
Retirement Benefit Plans and Other Employee Benefits
Equity Participation Plans
a) Equity Participation Plans Offered
b) UBS Share Awards
c) UBS Option Awards
d) Compensation Expense
e) Pro-Forma Net Income
Related Parties
Post–Balance Sheet Events
Significant Subsidiaries and Associates
Acquisition of Paine Webber Group, Inc.
Currency Translation Rates
Swiss Banking Law Requirements
Reconciliation to US GAAP
Additional Disclosures Required under
US GAAP and SEC Rules
31
32
33
34
35
36
37
38
39
40
41
Report of the Group Auditors
123
123
123
124
125
126
127
127
129
129
130
130
131
132
133
135
137
141
141
143
144
145
145
146
147
147
151
151
151
154
164
169
77
UBS Group Financial Statements
Financial Statements
Financial Statements
UBS Group Income Statement
CHF million, except per share data
For the year ended
Note
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Operating income
Interest income
Interest expense
Net interest income
Credit loss expense / recovery
Net interest income after
credit loss expense / recovery
Net fee and commission income
Net trading income
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Amortization of goodwill and
other intangible assets
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) 1
Basic earnings per share before
goodwill (CHF) 1, 2
Diluted earnings per share (CHF) 1
Diluted earnings per share before
goodwill (CHF) 1, 2
3
3
4
5
6
7
8
15
16
22
23
9
9
9
9
52,277
(44,236)
8,041
(498)
7,543
20,211
8,802
558
37,114
19,828
7,631
1,614
1,323
30,396
6,718
1,401
5,317
(344)
4,973
3.93
4.97
3.78
4.81
51,745
(43,615 )
8,130
130
8,260
16,703
9,953
1,486
36,402
17,163
6,765
1,608
667
26,203
10,199
2,320
7,879
(87 )
7,792
6.44
7.00
6.35
6.89
35,604
(29,695 )
5,909
(956 )
4,953
12,607
7,719
3,146
28,425
12,577
6,098
1,517
340
20,532
7,893
1,686
6,207
(54 )
6,153
5.07
5.35
5.02
5.30
1
1
(1)
(9)
21
(12)
(62)
2
16
13
0
98
16
(34)
(40)
(33)
295
(36)
(39)
(29)
(40)
(30)
1 All earnings per share figures have been restated for the 3 for 1 share split which took place on 16 July 2001. 2 Excludes the amortization of
goodwill and other intangible assets.
78
UBS Group Balance Sheet
CHF million
Note
31.12.01
31.12.001
% change from
31.12.00
Assets
Cash and balances with central banks
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
Goodwill and other intangible assets
Other assets
Total assets
Total subordinated assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Minority interests
Shareholders’ equity
Share capital
Share premium account
Gains / (losses) not recognized in the income statement
Retained earnings
Treasury shares
Total shareholders’ equity
10
11
11
12
24
10
13
14
15
16
17, 22
18
11
11
12
24
18
19
20, 21, 22
20,990
27,526
162,938
269,256
397,886
73,447
226,545
28,803
7,554
697
8,695
19,085
9,875
2,979
29,147
177,857
193,801
315,588
57,875
244,842
19,583
7,062
880
8,910
19,537
9,491
1,253,297
1,087,552
407
475
106,531
30,317
368,620
105,798
71,443
333,781
17,289
156,218
15,658
82,240
23,418
295,513
82,632
75,923
310,679
21,038
129,635
18,756
1,205,655
1,039,834
23
4,112
2,885
3,589
14,408
(193)
29,103
(3,377)
43,530
4,444
20,885
(687 )
24,191
(4,000 )
44,833
Total liabilities, minority interests and shareholders’ equity
1,253,297
1,087,552
Total subordinated liabilities
13,818
13,996
1 Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies).
605
(6)
(8)
39
26
27
(7)
47
7
(21)
(2)
(2)
4
15
(14)
30
29
25
28
(6)
7
(18)
21
(17)
16
43
(19)
(31)
(72)
20
(16)
(3)
15
(1)
79
UBS Group Financial Statements
Financial Statements
UBS Group Statement of Changes in Equity
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
Issued and paid up share capital
Balance at the beginning of the year
Issue of share capital
Capital repayment by par value reduction 3
Cancellation of second trading line treasury shares (2000 Program)
Balance at the end of the year
Share premium
Balance at the beginning of the year
Premium on shares issued and warrants exercised
Net premium / (discount) on treasury share and
own equity derivative activity
Share premium increase due to PaineWebber acquisition
Borrow of own shares to be delivered
Settlement of own shares to be delivered
Cancellation of second trading line treasury shares (2000 Program)
Balance at the end of the year
Gains / (losses) not recognized in the income statement
Foreign currency translation
Balance at the beginning of the year
Movements during the year
Subtotal – balance at the end of the year
4,444
12
(683)
(184)
3,589
20,885
80
(239)
(2,502)
(3,816)
14,408
(687)
(82)
(769)
Unrealized gains / (losses) on available for sale investments, net of taxes
Balance at the beginning of the year
Change in accounting policy 1
Net unrealized gains / (losses) on available for sale investments
Gains reclassified to the income statement
Losses reclassified to the income statement
0
1,577
(92)
(461)
11
Subtotal – balance at the end of the year
1,035
4,300
9
4,309
13,617
45
775
4,309
135
4,444
14,437
139
(391 )
4,198
5,895
(3,393 )
20,885
14,437
(442 )
(245 )
(687 )
(456)
14
(442)
Change in fair value of derivative instruments designated as cash flow hedges, net of taxes
Balance at the beginning of the year
Change in accounting policy 1
Net unrealized gains / (losses) on the revaluation of cash flow hedges
Net losses reclassified to the income statement
0
(380)
(316)
237
Subtotal – balance at the end of the year
Balance at the end of the year
Retained earnings
Balance at the beginning of the year
Change in accounting policy 1
Balance at the beginning of the year (restated)
Net profit for the year
Dividends paid 2, 3
Balance at the end of the year
Treasury shares, at cost
Balance at the beginning of the year
Acquisitions
Disposals
Cancellation of second trading line treasury shares (2000 Program)
Balance at the end of the year
Total shareholders’ equity
(459)
(193)
24,191
(61)
24,130
4,973
29,103
(4,000)
(13,506)
10,129
4,000
(3,377)
43,530
(687 )
(442)
20,327
20,327
7,792
(3,928 )
24,191
(8,023 )
(16,330 )
20,353
(4,000 )
44,833
16,224
16,224
6,153
(2,050)
20,327
(4,891)
(6,595)
3,463
(8,023)
30,608
2 Dividends declared per
1 Opening adjustments to reflect the adoption of IAS 39 (see Note 1: Summary of Significant Accounting Policies).
3 On 16 July 2001, UBS made a distribution to shareholders
share were CHF 1.50 in 2000 and CHF 1.83 in 1999, both paid in the year 2000.
of CHF 1.60 per share, paid in the form of a reduction in the par value of its shares, from CHF 10.00 to CHF 8.40. At the same time, UBS split its
share 3 for 1, resulting in a new par value of CHF 2.80 per share.
80
UBS Group Statement of Changes in Equity (continued)
Shares issued
For the year ended
Balance at the beginning of the year
Issue of share capital
Issue of share capital due to
PaineWebber acquisition
Cancellation of second trading line
treasury shares (2000 Program)
Number of shares
% change from
31.12.01
31.12.00
31.12.99
31.12.00
1,333,139,187
3,843,661
1,292,679,486
4,459,701
1,289,857,836
2,821,650
3
(14)
36,000,000
(55,265,349)
Balance at the end of the year
1,281,717,499
1,333,139,187
1,292,679,486
(4)
Treasury shares
Number of shares
% change from
For the year ended
31.12.01
31.12.00
31.12.99
31.12.00
Balance at the beginning of the year
Acquisitions
Disposals
Cancellation of second trading line
treasury shares (2000 Program)
55,265,349
162,818,045
(121,563,094)
110,621,142
16,824,039
(72,179,832 )
73,370,094
87,659,019
(50,407,971 )
(50)
868
68
(55,265,349)
Balance at the end of the year
41,254,951
55,265,349
110,621,142
(25)
During the year a total of 55,265,349 shares acquired under the second trading line buyback pro-
gram 2000 were cancelled. At 31 December 2001, a maximum of 13,017,716 shares can be issued
against the excercise of options from former PaineWebber employee option plans. Out of the total
number of 41,254,951 treasury shares, 23,064,356 shares (CHF 1,834 million) were acquired under
the second trading line buyback program 2001 and are earmarked for cancellation. The Board of
Directors will propose to the Annual General Meeting on 18 April 2002 to reduce the outstanding
number of shares and the share capital by the number of shares purchased for cancellation.
81
UBS Group Financial Statements
Financial Statements
UBS Group Statement of Cash Flows
CHF million
For the year ended
Cash flow from / (used in) operating activities
Net profit
Adjustments to reconcile net profit to cash flow from /
(used in) operating activities
Non-cash items included in net profit and other adjustments:
Depreciation of property and equipment
Amortization of goodwill and other intangible assets
Credit loss expense / (recovery)
Equity in income of associates
Deferred tax expense
Net loss / (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
and securities pledged as collateral
Loans / due to 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
Net money market paper issued
Net movements in treasury shares and
treasury share contract activity
Capital issuance
Capital repayment by par value reduction
Dividends paid
Issuance of long-term debt
Repayment of long-term debt
Issuance of trust preferred securities
Dividend payments to / and purchase from 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 the year
Cash and cash equivalents, end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper 1
Due from banks maturing in less than three months
Total
31.12.01
31.12.00
31.12.99
4,973
7,792
6,153
1,614
1,323
498
(72)
292
513
27,306
1,608
667
(130 )
(58 )
544
(730 )
(915 )
(60,536)
(81,054 )
(78,456)
42,813
(424)
80,006
(5,235)
(1,742)
12,873
(467)
95
(2,021)
380
(5,770)
(7,783)
11,553
12,381
6,923
50,762
3,313
(959 )
11,697
(9,729 )
669
(1,640 )
335
(8,770 )
(19,135 )
24,226
10,125
(6,038)
12
(683)
18,233
(18,477)
1,291
(461)
18,103
(304)
22,889
93,370
116,259
20,990
69,938
25,331
116,259
(647 )
15
(3,928 )
14,884
(24,640 )
2,683
(73 )
(1,581 )
112
(8,907 )
102,277
93,370
2,979
66,454
23,937
93,370
1,517
340
956
(211)
479
(2,282)
(5,298)
(12,656)
(49,956)
17,222
2,545
52,958
(7,366)
(1,063)
3,338
(1,720)
3,782
(2,820)
1,880
356
1,478
13,128
(2,312)
9
(2,050)
12,661
(7,112)
(689)
13,635
148
18,599
83,678
102,277
5,073
69,717
27,487
102,277
1 Money market paper is included in the Balance sheet under Trading portfolio assets and Financial investments.
82
UBS Group Financial Statements
Notes to the Financial Statements
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
a) Basis of accounting
UBS AG and subsidiaries (“UBS” or the
“Group”) provide a broad range of financial
services including advisory services, underwrit-
ing, financing, market making, asset manage-
ment, 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 account-
ed for using the uniting of interests method of
accounting.
The consolidated financial statements of the
Group (the “Financial Statements”) are prepared
in accordance with International Accounting
Standards and stated in Swiss francs (CHF), the
currency of the country in which UBS AG is
incorporated. On 12 February 2002 the Board of
Directors approved them for issue.
b) Use of estimates in the
preparation of Financial Statements
In preparing the Financial Statements, manage-
ment is required to make estimates and assump-
tions that affect reported income, expenses,
assets, liabilities and disclosure of contingent
assets and liabilities. Use of available informa-
tion and application of judgement are inherent in
the formation of estimates. Actual results in the
future could differ from such estimates and the
differences may be material to the Financial
Statements.
c) Consolidation
The Financial Statements comprise those of the
parent company (UBS AG), its subsidiaries and
certain special purpose entities, presented as a
single economic entity. The effects of intra-group
transactions are eliminated in preparing the
Financial Statements. Subsidiaries and special
purpose entities which are directly or indirectly
controlled by the Group are consolidated. Sub-
sidiaries acquired are consolidated from the date
control is transferred to the Group. Subsidiaries
to be divested are consolidated up to the date of
disposal. Temporarily controlled entities that are
acquired and held with a view to their subse-
quent disposal, are recorded as Financial invest-
ments.
Assets held in an agency or fiduciary capacity
are not assets of the Group and are not reported
in the Financial Statements.
Equity and net income attributable to minori-
ty interests are shown separately in the Balance
sheet and Income statement, respectively.
Investments in associates in which the Group
has a significant influence are accounted for
under the equity method of accounting. Signifi-
cant influence is normally evidenced when UBS
owns 20% or more of a company’s voting rights.
Investments in associates are initially recorded at
cost and the carrying amount is increased or
decreased to recognize the Group’s share of the
investee’s profits or losses after the date of acqui-
sition.
The Group sponsors the formation of com-
panies, which may or may not be directly or
indirectly owned subsidiaries, for the purpose
of asset securitization transactions and to
accomplish certain narrow and well defined
objectives. These companies may acquire assets
directly or indirectly from UBS or its affiliates.
Some of these companies are bankruptcy-
remote entities whose assets are not available to
satisfy the claims of creditors of the Group or
any of its subsidiaries. Such companies are con-
solidated in the Group’s Financial Statements
when the substance of the relationship between
the Group and the company indicate that the
company is controlled by the Group. Certain
transactions of consolidated entities meet the
criteria for derecognition of financial assets.
Derecognition of a financial asset takes place
when the Group loses control of the contractual
rights that comprise the financial asset. These
transactions do not affect the consolidation
status of an entity.
83
UBS Group Financial Statements
Notes to the Financial Statements
d) Foreign currency translation
Foreign currency transactions are recorded at the
rate of exchange on the date of the transaction.
At the balance sheet date, monetary assets and
liabilities denominated in foreign currencies are
reported using the closing exchange rate.
Exchange differences arising on the settlement of
transactions at rates different from those at the
date of the transaction, and unrealized foreign
exchange differences on unsettled foreign cur-
rency monetary assets and liabilities, are recog-
nized in the income statement.
Exchange differences on non-monetary finan-
cial assets are a component of the change in their
fair value. Depending on the classification of a
non-monetary financial asset, exchange differ-
ences are either recognized in the income state-
ment (applicable for example for equity securi-
ties held for trading), or within Shareholder’s
equity if non-monetary financial assets are classi-
fied as available-for-sale financial investments.
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.
e) Business and geographical segments
The Group is organized on a worldwide basis into
Business Groups and the Corporate Center. This
organizational structure is the basis upon which the
Group reports its primary segment information.
Segment income, segment expenses and seg-
ment performance include transfers between
business segments and between geographical
segments. Such transfers are accounted for at
prices in line with charges to unaffiliated cus-
tomers for similar services.
f) Cash and cash equivalents
Cash and cash equivalents consist of Cash and
balances with central banks, balances included in
Due from banks that mature in less than three
months, and Money market paper included in
Trading portfolio assets and Financial investments.
been provided. Portfolio and other management,
advisory and other service fees are recognized
based on the terms of the applicable service con-
tracts. Asset management fees related to invest-
ment funds are recognized ratably over the period
the service is provided. The same principle is
applied for fees earned for wealth management,
financial planning and custody services that are
continuously provided over an extended period of
time. Transaction-related fees earned from merger
and acquisition and other advisory services, secu-
rities underwriting, fund raising, and from other
investment banking and similar services that have
a non-recurring character, are recognized at the
time the service has been completed.
h) Securities borrowing and lending
Securities borrowed and securities lent are
recorded at the amount of cash collateral
advanced or received. The Group monitors the
market value of the securities borrowed and lent
on a daily basis and calls for additional collateral
when appropriate.
Fees and interest received or paid are record-
ed as interest income or interest expense, on an
accrual basis.
i) Repurchase and reverse repurchase
transactions
Securities purchased under agreements to resell
(reverse repurchase agreements) and securities sold
under agreements to repurchase (repurchase agree-
ments) are generally treated as collateralized financ-
ing transactions and are carried at the amounts at
which the securities were acquired or sold, plus
accrued interest. The Group monitors the market
value of the underlying securities, (which collateral-
ize the related receivables) on a daily basis and
requests additional collateral when appropriate.
Interest earned on reverse repurchase agree-
ments and interest incurred on repurchase agree-
ments is recognized as interest income and inter-
est expense, over the life of each agreement.
The Group offsets reverse repurchase agree-
ments and repurchase agreements with the same
counterparty for transactions covered by legally
enforceable master netting agreements when net
or simultaneous settlement is intended.
g) Fee income
Brokerage fees earned from executing securities
transactions are recorded when the service has
j) Trading portfolio
Trading portfolio assets consist of money market
paper, other debt instruments and equity instru-
84
ments as well as traded loans and precious
metals which are owned by the Group (“long”
positions). Obligations to deliver trading securi-
ties sold but not yet purchased are reported as
Trading portfolio liabilities. Trading portfolio
liabilities consist of money market paper, other
debt instruments and equity instruments which
the Group has sold to third parties but does not
own (“short” positions).
The trading portfolio is carried at fair value,
which includes valuation allowances for instru-
ments, for which liquid markets do not exist, to
adjust primarily for credit and settlement risks.
Gains and losses realized on disposal or redemp-
tion and unrealized gains and losses from
changes in the fair value of trading portfolio
assets or liabilities are reported as Net trading
income. Interest and dividend income and
expense on trading portfolio assets or liabilities
are included in Interest and dividend income or
Interest and dividend expense, respectively.
When the Group becomes party to a contract
classified in its trading portfolio, it recognizes
from that date (trade date) in the income state-
ment any unrealized profits and losses arising
from revaluing that contract to fair value. On a
date subsequent to the trade date, the terms of
spot and forward trading transactions are ful-
filled (settlement date) and a resulting financial
asset or liability is recognized on the balance
sheet at the fair value of the consideration given
or received plus the change in fair value of the
contract since the trade date.
The determination of fair values of trading
portfolio assets or liabilities is based on quoted
market prices in active markets or dealer price
quotations, pricing models (using assumptions
based on market and economic conditions), or
management’s estimates, as applicable.
k) Loans originated by the Group
Loans originated by the Group include loans
where money is provided directly to the borrower,
other than those that are originated with the
intent to be sold immediately or in the short term,
which are recorded as Trading portfolio assets. A
participation in a loan from another lender is
considered to be originated by the Group, provid-
ed it is funded on the date the loan is originated
by the lender. Purchased loans are either classified
as Financial investments available-for-sale, or as
Trading portfolio assets, as appropriate.
Loans originated by the Group are recognized
when cash is advanced to borrowers. They are
initially recorded at cost, which is the fair value
of the cash given to originate the loan, including
any transaction costs, and are subsequently
measured at amortized cost using the effective
interest rate method.
l) Allowance and provision for credit losses
An allowance for credit losses is established if
there is objective evidence that the Group will
be unable to collect all amounts due. The
allowance and provision for credit losses repre-
sents management’s estimate of probable losses
inherent in the loan portfolio and other lending-
related commitments. Such commitments nor-
mally include letters of credit, guarantees and
commitments to extend credit. However, credit
risk exposures are also inherent in other instru-
ments.
The allowance for credit losses is reported as
a reduction of loans whereas the provision for
credit losses for lending related commitments is
reported in Other liabilities. Additions to the
allowances and provisions for credit losses are
made through the credit loss expense account.
Allowance and provision for credit exposures
are evaluated at a counterparty-specific and/or
country-specific level based on following prin-
ciples:
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 for
credit losses are established for the difference
between the carrying amount and its estimated
recoverable amount.
A loan is considered impaired when manage-
ment determines that it is probable that the
Group will not be able to collect all amounts due
according to the original contractual terms,
unless such loans are secured, in process of col-
lection, or other factors exist which make the
Group expect that all future cash flows accord-
ing to the original terms of the contract will
be received. An impaired loan is classified as
non-performing when the contractual payments
of principal and/or interest are in arrears for
90 days or more.
85
UBS Group Financial Statements
Notes to the Financial Statements
When a loan has been identified as impaired,
the carrying amount of the loan is reduced by
recording specific allowances for credit losses to
its estimated recoverable amount, which is the
present value of expected future cash flows dis-
counted at the original effective interest rate of
the loan. Upon impairment the accrual of inter-
est income based on the original terms of the
loan is discontinued. The increase of the present
value of impaired loans due to the passage of
time is reported as interest income.
All impaired loans are reviewed and analyzed
at least annually. Any subsequent changes to the
amounts and timing of the expected future cash
flows compared to the prior estimates will result
in a change in the allowance for credit losses and
be charged to credit loss expense. If there are
indications of significant probable losses in the
portfolio that have not been specifically identi-
fied, allowances for credit losses would also be
provided for on a portfolio basis.
An allowance for an impairment is reversed
only when the credit quality has improved such
that there is reasonable assurance of timely col-
lection of principal and interest in accordance
with the original contractual terms of the loan
agreement.
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 for credit losses and
reduce the principal amount of a loan. Recover-
ies in part or in full of amounts previously writ-
ten off are credited to credit loss expense.
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. Specific
country allowances are established based on this
assessment, and exclude exposures addressed in
counterparty-specific allowances.
m) Securitizations
The Group securitizes various consumer and
commercial financial assets, which generally
results in the sale of these assets to special-pur-
pose vehicles which, in turn issue securities to
investors. Financial assets are partially or wholly
derecognized when the Group gives up control
of the contractual rights that comprise the finan-
cial asset.
Interests in the securitized financial assets
may be retained in the form of senior or subordi-
nated tranches, interest-only strips or other
residual interests (“retained interests”). Retained
interests are primarily recorded in Trading port-
folio assets and carried at fair value. The deter-
mination of fair values of retained interest is gen-
erally based on listed market prices or by deter-
mining the present value of expected future cash
flows using pricing models that incorporate
management’s best estimates of critical assump-
tions which may include credit losses, discount
rates, yield curves and other factors.
Gains or losses on securitization depend in
part on the carrying amount of the transferred
financial assets, allocated between the financial
assets derecognized and the retained interests
based on their relative fair values at the date of
the transfer. Gains or losses on securitization are
recorded in Net trading income.
n) Financial investments
Financial investments are classified as available-
for-sale and recorded on a settlement date basis.
Management determines the appropriate classi-
fication of its investments at the time of the pur-
chase. Financial investments consist of money
market paper, other debt instruments and equity
instruments, including private equity investments.
Available-for-sale financial investments may
be sold in response to needs for liquidity or
changes in interest rates, foreign exchange rates
or equity prices.
Available-for-sale financial investments are
carried at fair value. Unrealized gains or losses
on available-for-sale investments are reported in
Shareholders’ equity, net of applicable taxes,
until such investment is sold, collected or other-
wise disposed of, or until such investment is
determined to be impaired. If an available-for-
sale investment is determined to be impaired, the
cumulative unrealized gain or loss previously
recognized in Shareholders’ equity is included in
net profit or loss for the period and reported in
Other income. A financial investment is consid-
ered impaired if its carrying value exceeds the
recoverable amount. For non-quoted invest-
ments, the recoverable amount is determined by
applying recognized valuation techniques. Quot-
ed financial investments are considered impaired
86
if the decline in market price below cost is of
such a magnitude that recovery of the cost value
cannot be reasonably expected within the fore-
seeable future.
On disposal of an available-for-sale invest-
ment, the accumulated unrealized gain or loss
included in Shareholders’ equity is transferred to
net profit or loss for the period and reported in
Other income. Gains and losses on disposal are
determined using the average cost method.
The determination of fair values of available-
for-sale financial investments is generally based
on quoted market prices in active markets, dealer
price quotations, discounted expected cash flows
using market rates commensurate with the credit
quality and maturity of the investment or based
upon review of the investee’s financial results,
condition and prospects including comparisons
to similar companies for which quoted market
prices are available.
Interest and dividend income on available-for-
sale financial investments is included in Interest
and dividend income from financial investments.
o) Property and equipment
Property and equipment includes bank occupied
properties, investment properties, software, IT
and communication and other machines and
equipment.
Bank-occupied property is defined as property
held by the Group for use in the supply of servic-
es or for administrative purposes whereas invest-
ment property is defined as property held by the
Group to earn rentals and/or for capital apprecia-
tion. If a property of the Group includes a por-
tion that is bank occupied and another portion
that is held to earn rentals or for capital appreci-
ation, the classification is based on whether or
not these portions can be sold separately. If both
portions of the property can be sold separately
these portions are accounted for as bank-occu-
pied property and investment property, respec-
tively. If the portions can not be sold separately,
the whole property is classified as bank-occupied
property unless the portion used by the bank is
minor. The classification of property is reviewed
on a regular basis to account for major changes
in its usage. In 2001, investment properties
with a carrying value of CHF 350 million (cost
CHF 447 million less accumulated depreciation of
CHF 97 million) have been reclassified to Bank
occupied property. Assets with a value of CHF
144 million related to the PaineWebber acquisi-
tion were transferred from Other machines and
equipment to IT, software and communication,
and CHF 30 million for leasehold improvements
were reclassified from Investment properties to
Other machines and equipment.
Software development costs are capitalized
when they meet certain criteria relating to identi-
fiability, it is probable that future economic ben-
efits will flow to the enterprise, and the cost can
be measured reliably. Internally developed soft-
ware meeting these criteria is classified in Prop-
erty and equipment on the balance sheet.
Property and equipment is carried at cost less
accumulated depreciation and accumulated
impairment losses. Property and equipment is
periodically reviewed for impairment.
Property and equipment is depreciated on a
straight-line basis over its estimated useful life as
follows:
Properties
Not exceeding 50 years
Other machines and equipment
Not exceeding 10 years
IT, software and communication
Not exceeding 3 years
Property formerly bank-occupied or leased to
third parties under an operating lease, which the
Group has decided to dispose of and foreclosed
property are defined as Properties held for resale
and disclosed in Other assets. They are carried at
the lower of cost or recoverable value. During
2001, properties with a carrying value of CHF
293 million (cost CHF 482 million less accumu-
lated depreciation of CHF 189 million) have
been reclassified from Investment property to
Property held for resale.
p) Goodwill and other intangible assets
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s
share of net identifiable assets of the acquired
entity at the date of acquisition.
Other intangible assets are comprised of sepa-
rately identifiable intangible items arising from
acquisitions and certain purchased trademarks
and similar items.
Goodwill and other intangible assets are
recognized as assets and are amortized using the
straight-line basis over their estimated useful
economic life, not exceeding 20 years. At each
balance sheet date, goodwill and other intangible
assets are reviewed for indications of impair-
87
UBS Group Financial Statements
Notes to the Financial Statements
ment. If such indications exist an analysis is per-
formed to assess whether the carrying amount of
goodwill or other intangible assets is fully recov-
erable. A write-down is made if the carrying
amount exceeds the recoverable amount.
q) Income taxes
Income tax payable on profits, based on the
applicable tax laws in each jurisdiction, is recog-
nized as an expense in the period in which prof-
its arise. The tax effects of income tax losses
available for carry-forward are recognized as an
asset when it is probable that future taxable
profit will be available against which those loss-
es 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 recog-
nized 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 in
the period in which the asset will be realized or
the liability will be settled based on enacted rates.
Current and deferred tax assets and liabilities
are offset when they arise from the same tax
reporting group and relate to the same tax
authority and when the legal right to offset exists.
Current and deferred taxes are recognized as
income tax benefit or expense except for
deferred taxes recognized or disposed of upon
the acquisition or disposal of a subsidiary.
r) Debt issued
Debt issued is initially measured at cost, which is
the fair value of the consideration received, net of
transaction costs incurred. Subsequent measure-
ment is at amortized cost, using the effective
interest rate method to amortize cost at inception
to the redemption value over the life of the debt.
Combined debt instruments that are related
to non-UBS AG equity instruments, foreign
exchange or credit instruments or indices are
considered structured instruments. The embed-
ded derivative is separated from the host con-
tract and accounted for as a stand alone deriva-
tive if the criteria for separation are met. The
host contract is subsequently measured at amor-
tized cost.
Debt instruments with embedded derivatives
that are related to UBS AG shares or to a deriva-
tive instrument that has UBS AG shares as
underlying are separated into a liability and an
equity component at issue date, if they will be
physically settled. Initially, a portion of the net
proceeds from issuing the combined debt instru-
ment are allocated to the equity component
based on its fair value and reported in Share pre-
mium account. The determination of fair values
is generally based on listed market prices or
option pricing models. Subsequent changes in
fair value of the separated equity component are
not recognized. The remaining amount is allo-
cated to the liability component and reported as
Debt issued. The liability component is subse-
quently measured at amortized cost.
However, if the combined instrument or the
embedded derivative related to UBS AG shares is
cash settled or the holder of the hybrid instru-
ment has the right to require cash settlement,
then the separated derivative is accounted for as
a trading instrument with changes in fair value
recorded in income.
It is the Group’s policy to hedge the fixed
interest rate risk on debt issues (except for cer-
tain subordinated long-term notes issues, see
Note 30a) and apply fair value hedge account-
ing. The effect is such that when hedge account-
ing is applied to fixed rate debt instruments, the
carrying value of debt issues are adjusted for
changes in fair value related to the hedged expo-
sure rather than carried at amortized cost. See v)
Derivative instruments for further discussion.
Interest expense on debt instruments is
included in Interest on debt issued.
s) Treasury shares
UBS AG shares held by the Group are classified
in Shareholders’ equity as Treasury shares and
accounted for at weighted average cost. The dif-
ference between the proceeds from sales of treas-
ury shares and their cost (net of tax, if any) is
classified as Share premium.
Contracts that require physical settlement or
net share settlement in UBS AG shares or provide
the Group with a choice to physically settle are
classified as Shareholders’ equity and reported as
Share premium. Upon settlement of such con-
88
tracts the proceeds received less cost (net of tax,
if any), are reported as Share premium.
t) Retirement benefits
The Group sponsors a number of retirement
benefit plans for its employees worldwide. These
plans include both defined benefit and defined
contribution plans and various other retirement
benefits such as post-employment medical bene-
fits. Group contributions to defined contribution
plans are expensed when employees have ren-
dered services in exchange for such contribu-
tions, generally in the year of contribution.
The Group uses the projected unit credit actuar-
ial method to determine the present value of its
defined benefit obligations and the related current
service cost and, where applicable, past service cost.
The principal actuarial assumptions used by
the actuary are set out in Note 32.
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 em-
ployees participating in the plans.
u) Equity participation plans
The Group provides various equity participation
plans in the form of stock plans and stock option
plans. UBS generally uses the intrinsic value
based method of accounting for such awards.
Consequently, compensation expense is meas-
ured as the difference between the quoted mar-
ket price of the stock at the measurement date
less the amount, if any, that the employee is
required to pay, or by the excess of stock price
over option strike price, if any. The Group’s pol-
icy is to recognize compensation expense for
equity awards at the date of grant.
v) Derivative instruments
All derivative instruments of the Group are car-
ried at fair value on the balance sheet and are
reported as Positive or Negative replacement val-
ues. Fair values are obtained from quoted mar-
ket prices, dealer price quotations, discounted
cash flow models and option pricing models,
which consider current market and contractual
prices for the underlying instrument, as well as
time value of money, yield curve and volatility
of the underlying. The Group offsets positive
and negative replacement values with the same
counterparty for transactions covered by legally
enforceable master netting agreements.
Where the Group enters into derivatives for
trading purposes, realized and unrealized gains
and losses are recognized in Net trading income.
The Group also uses derivative instruments as
part of its asset and liability management activi-
ties to manage exposures to interest rate risks,
credit risks and foreign currency risks. The Group
applies either fair value or cash flow hedge
accounting when it meets the specified criteria to
obtain hedge accounting treatment. Derivative
instruments not qualifying for hedge accounting
are treated as derivative instruments used for trad-
ing purposes. The Group has entered into eco-
nomic hedges of credit risk within the loan portfo-
lio using credit default swaps to which it does not
apply hedge accounting. However, in the event the
Group recognizes an impairment on a loan that is
economically hedged in this way, the gain on the
credit default swap is offset against Credit loss
expense/recovery. See Note 24 for additional
information.
In a qualifying hedge of exposures to changes
in fair value, the change in fair value of the hedg-
ing derivative is recognized in net profit and loss.
The change in fair value of the hedged item
attributable to the hedged risks adjusts the carry-
ing value of the hedged item and is also recog-
nized in net profit or loss. If the hedge
relationship is terminated, the unamortized fair
value adjustment of the hedged item is amortized
to net profit or loss over the original hedge term
or recognized in income if the hedged item is
derecognized. In a qualifying cash flow hedge,
the effective portion of the gain or loss on the
hedging derivative is recognized in Shareholders’
equity while the ineffective portion is reported
in net profit or loss. When the hedged firm
commitment or forecasted transaction results in
income or expense, then the associated gain or
loss on the hedging derivative is removed from
Shareholders’ equity and included in net profit
89
UBS Group Financial Statements
Notes to the Financial Statements
or loss in the same period during which the fore-
casted transaction affects net profit or loss. If the
forecasted transaction is no longer expected to
occur, the cumulative gain or loss on the hedging
derivative is recognized immediately in net profit
or loss. If the hedge relationship is terminated,
the cumulative gain or loss on the hedging deriv-
ative that initially had been reported in Share-
holders’ equity when the hedge was effective,
remains in Shareholders’ equity until the com-
mitted or forecasted transaction occurs, at which
point it is reported in net profit or loss.
In some cases, a derivative may be part of a
hybrid instrument that includes both a derivative
and a host contract. This is known as an embed-
ded derivative. An embedded derivative is separat-
ed from the host contract and accounted for as a
stand alone derivative instrument if and only if the
following conditions are met: the economic char-
acteristics and risks of the embedded derivative are
not closely related to the economic characteristics
and risks of the host contract, the host contract is
not carried at fair value with changes in fair value
reported in net profit or loss, and the embedded
derivative meets the definition of a derivative.
w) Comparability
Certain amounts have been reclassified from pre-
vious years to conform to the 2001 presentation.
The Group adopted the following revised or
new International Accounting Standards and
Interpretations of the Standing Interpretation
Committee (SIC) in 2001:
IAS 12 (Revised)
Income Taxes
IAS 39
IAS 40
Interpretation SIC 17
Financial Instruments: Recognition
and Measurement
Investment Property
Equity – Costs of an
Equity Transaction
Interpretation SIC 18
Consistency – Alternative Methods
Interpretation SIC 19
Interpretation SIC 22
Interpretation SIC 24
Reporting Currency –
Measurement and Presentation of
Financial Statements under
IAS 21 and IAS 29
Business Combinations –
Subsequent Adjustment of
Fair Values and
Goodwill Initially Reported
Earnings Per Share – Financial
Instruments and Other Contracts
that May Be Settled in Shares
Additional SIC interpretations became effec-
tive during 2001, which are not applicable to
the Group. The implementation of the above
standards and interpretations had no material
impact on the Group’s Financial Statements in
2001 except for the following:
IAS 39, Recognition and measurement of
financial instruments
The Group adopted IAS 39 prospectively as at
1 January 2001. The Standard provides compre-
hensive guidance on accounting for financial
instruments.
Upon adoption, the Group decided to record
unrealized gains and losses arising from changes
in the fair value of available-for-sale financial
investments directly in Shareholders’ equity until
such investment is disposed of or until such
investment is determined to be impaired.
As a result of the adoption of IAS 39, the fol-
lowing adjustments or changes in classification
occurred:
Gains/losses not recognized in the income
statement is a new component of Share-
holders’ equity as at 1 January 2001. It includes
unrealized gains and losses on available for
sale financial investments and on derivatives
designated as cash flow hedges as well as Foreign
currency translation. The opening adjustment
as at 1 January 2001 to financial investments
recorded as available for sale was a net unreal-
ized gain of CHF 1,769 million (CHF 1,577 mil-
lion net of taxes), and for derivatives designated
as cash flow hedges an unrealized net loss of
CHF 506 million (CHF 380 million net of
taxes).
Available-for-sale financial investments were
previously carried at the lower of cost or market
value and private equity investments were car-
ried at cost less write-downs for impairments in
value. Reductions of the carrying amount of
available-for-sale financial investments and pri-
vate equity investments and reversals of such
reductions as well as gains and losses on disposal
are included in Other income. As at 1 January
2001 these financial investments are now classi-
fied as available-for-sale financial investments
and carried at fair value. Changes in fair value
are reported in Gains/losses not recognized in the
income statement within Shareholders’ equity
until these investments are disposed of. At the
time an available-for-sale financial investment is
90
determined to be impaired, the cumulative unre-
alized loss previously recognized in Share-
holders’ equity is included in net profit or loss
for the period.
The opening adjustment to Retained earnings,
a net debit of CHF 61 million as at 1 January
2001, consisted of CHF 19 million reflecting the
impact of adopting the new hedge accounting
rules and CHF 42 million reflecting the impact
of remeasuring assets to either amortized cost or
fair value as required under the Standard.
Properties held for resale include properties
formerly bank-occupied or leased to third parties
under an operating lease, which the Group has
decided to dispose of, and foreclosed properties
which the Group received in satisfaction of a
secured loan and which it does not intend to
occupy. As at 1 January 2001, Properties held
for resale in the amount of CHF 984 million
were reclassified from Financial investments to
Other assets. Comparative amounts have been
reclassified accordingly.
Money market paper and Money market
paper issued
Money market paper held for trading is now
disclosed within Trading portfolio assets and
Money market paper held as available-for-sale is
now disclosed within Financial investments.
Money market paper issued is disclosed within
Debt issued. Interest income on Money market
paper held as available-for-sale is disclosed as
Interest and dividend income from financial
investments. These changes became effective as
at 1 January 2001 and all prior periods present-
ed have been reclassified.
The reclassification of Money market paper
in the amount of CHF 66,454 million as at
31 December 2000 resulted in an increase of
Trading portfolio assets by CHF 62,292 million
and Financial investments by CHF 4,162 million
for the year ended 31 December 2000. Money
market paper issued in the amount of CHF
74,780 million as at 31 December 2000 was
reclassified to Debt issued.
91
UBS Group Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group
UBS is organized into three Business Groups:
UBS Switzerland, UBS Warburg and UBS Asset
Management, and our Corporate Center.
UBS Switzerland
UBS Switzerland is the leading bank in Switzer-
land. It is made up of two business units.
The Private Banking business unit offers a
comprehensive range of products and services
individually tailored for wealthy clients, from
offices around the world. It is the world’s largest
private banking business.
Within Switzerland, the Private and Corpo-
rate Clients business unit provides a complete
set of banking and securities services for indi-
vidual and corporate clients, focused foremost
on customer service excellence, profitability
and growth via multi-channel distribution.
The two business units share technolog-
ical and physical infrastructure, and have
joint departments supporting major functions
such as e-commerce, financial planning and
wealth management, and investment policy and
strategy.
UBS Asset Management
UBS Asset Management is a leading institutional
asset manager and mutual fund provider, offer-
ing a broad range of asset management services
and products for institutional and individual
clients across the world.
UBS Warburg
UBS Warburg operates globally as a client-
driven securities, investment banking and wealth
management firm. It is made up of three business
units.
Corporate and Institutional Clients provides
innovative products, top-quality research and
advice, and comprehensive access to the world’s
capital markets, for both its own corporate and
institutional clients and for the other parts of the
UBS Group.
UBS Capital is the private equity business unit
of UBS Warburg, investing UBS and third party
funds, primarily in unlisted companies.
UBS PaineWebber, one of the top US wealth
managers, became part of UBS Warburg in
November 2000. On 1 January 2002, UBS
PaineWebber was separated from UBS Warburg
and in future years will be reported as a separate
Business Group within UBS.
Corporate Center
UBS’s Business Groups are accountable for their
results and enjoy considerable autonomy in pur-
suing their business objectives. The Corporate
Center ensures that the Business Groups operate
as a coherent and effective whole with a common
set of values and principles. Corporate Center’s
remit covers areas such as risk management, finan-
cial reporting, marketing and communications,
funding, capital and balance sheet management
and management of foreign currency earnings.
92
Note 2a Segment Reporting by Business Group (continued)
The Business Group results are presented on a management reporting basis. Consequently, internal
charges and transfer pricing adjustments have been reflected in the performance of each business.
Revenue sharing agreements are used to allocate external customer revenues to a Business Group on
a reasonable basis. Transactions between Business Groups are conducted at arm’s length. The seg-
ment reporting for all periods presented reflects the changes in business unit structure implemented
1 January 2001.
For the year ended 31 December 2001
UBS
Switzerland
UBS Asset
Management
Corporate
Center
UBS Group
CHF million
Income
Credit loss expense 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill
and other intangible assets
Total operating expenses
Business Group performance
before tax
Tax expense
Net profit before minority interests
Minority interests
Net profit
13,475
(604 )
12,871
4,764
2,600
616
41
8,021
4,850
UBS
Warburg
21,349
(130 )
21,219
13,515
4,260
580
991
19,346
2,110
0
2,110
1,003
564
46
266
1,879
678
236
914
546
207
372
25
1,150
231
1,873
(236)
37,612
(498)
37,114
19,828
7,631
1,614
1,323
30,396
6,718
1,401
5,317
(344)
4,973
Other information as at 31 December 2001 2
Total assets
Total liabilities and minority interests
Capital expenditure
313,389
304,875
540
5,988
4,638
37
1,045,297
1,022,907
633
(111,377 )
(122,653 )
811
1,253,297
1,209,767
2,021
1 In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss
expense are reported for each Business Group. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks
in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the IAS actual net credit loss expense
recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss
expense for financial reporting purposes of CHF 498 million for the year ended 31 December 2001 is as follows: UBS Switzerland CHF 123 million,
UBS Warburg CHF 375 million. 2 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
93
UBS Group Financial Statements
Notes to the Financial Statements
Note 2a Segment Reporting by Business Group (continued)
For the year ended 31 December 2000
CHF million
Income
Credit loss recovery 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill
and other intangible assets
Total operating expenses
Business Group performance
before tax
Tax expense
Net profit before minority interests
Minority interests
Net profit
UBS
UBS Asset
Switzerland Management
Corporate
Center
UBS Group
UBS
Warburg
19,590
(246 )
19,344
10,618
3,196
606
290
14,710
1,953
0
1,953
880
439
49
263
1,631
358
1,161
1,519
522
431
320
44
1,317
322
4,634
202
14,371
(785 )
13,586
5,143
2,699
633
70
8,545
5,041
36,272
130
36,402
17,163
6,765
1,608
667
26,203
10,199
2,320
7,879
(87)
7,792
Other information as at 31 December 2000 2
Total assets
Total liabilities and minority interests
281,780
272,134
6,727
5,513
870,608
846,451
(71,563 )
(81,379 )
1,087,552
1,042,719
1 In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss expense
are reported for each Business Group. 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 and the IAS actual net credit loss expense recorded at
Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net credit loss recovery for finan-
cial reporting purposes of CHF 130 million for the year ended 31 December 2000 is as follows: UBS Switzerland CHF 695 million recovery, UBS War-
burg CHF 565 million expense.
2 The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.
For the year ended 31 December 1999
CHF million
Income
Credit loss expense 1
Total operating income
Personnel expenses
General and administrative expenses
Depreciation
Amortization of goodwill
and other intangible assets
Total operating expenses
Business Group performance
before tax
Tax expense
Net profit before minority interests
Minority interests
Net profit
UBS
UBS Asset
Switzerland Management
UBS
Warburg
Corporate
Center
UBS Group
12,884
(1,071 )
11,813
4,882
2,450
475
38
7,845
3,968
1,369
0
1,369
516
271
32
113
932
437
13,118
(333 )
12,785
7,087
2,538
644
139
10,408
2,010
448
2,458
92
839
366
50
1,347
2,377
1,111
29,381
(956)
28,425
12,577
6,098
1,517
340
20,532
7,893
1,686
6,207
(54)
6,153
Other information as at 31 December 1999 2
Total assets
Total liabilities and minority interests
254,577
270,137
10,451
4,614
719,568
693,633
(88,040 )
(102,436 )
896,556
865,948
1 In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss
expense are reported for each Business Group. The statistically derived adjusted expected losses reflect the inherent counterparty and country
risks in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the IAS actual net credit loss
expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The Business Group breakdown of the net
credit loss expense for financial reporting purposes of CHF 956 million for the year ended 31 December 1999 is as follows: UBS Switzerland
2 The funding surplus or requirement is reflected in each Business Group
CHF 965 million expense and Corporate Center CHF 9 million recovery.
and adjusted in Corporate Center.
94
Note 2b Segment Reporting by Geographic Location
The geographic analysis of total assets is based on customer domicile whereas operating income and
capital expenditure is based on the location of the office in which the transactions and assets are
recorded. Because of the global nature of financial markets the Group’s business is managed on an
integrated basis worldwide, with a view to profitability by product line. The geographical analysis of
operating income, total assets, and capital expenditure is provided in order to comply with Inter-
national Accounting Standards, and does not reflect the way the Group is managed. Management
believes that analysis by Business Group, as shown in Note 2a to these Financial Statements, is a
more meaningful representation of the way in which the Group is managed.
For the year ended 31 December 2001
Total operating income
Total assets
Capital expenditure
CHF million
Share % CHF million
Share % CHF million
Share %
14,223
7,411
13,587
1,859
34
37,114
38
20
37
5
0
195,321
236,775
691,157
126,725
3,319
16
19
55
10
0
100
1,253,297
100
1,039
303
630
48
1
2,021
52
15
31
2
0
100
Total operating income
Total assets
Capital expenditure
CHF million
Share % CHF million
Share % CHF million
Share %
15,836
10,907
6,976
2,626
57
36,402
44
30
19
7
0
211,851
305,342
474,617
87,831
7,911
19
28
44
8
1
100
1,087,552
100
1,135
311
1,169
36
8
2,659
43
12
44
1
0
100
Switzerland
Rest of Europe
Americas
Asia / Pacific
Africa / Middle East
Total
For the year ended 31 December 2000
Switzerland
Rest of Europe
Americas
Asia / Pacific
Africa / Middle East
Total
For the year ended 31 December 1999
Switzerland
Rest of Europe
Americas
Asia / Pacific
Africa / Middle East
Total
Total operating income
Total assets
Capital expenditure
CHF million
Share % CHF million
Share % CHF million
Share %
14,976
7,626
3,861
1,945
17
28,425
52
27
14
7
0
207,702
303,365
281,974
96,469
7,046
23
34
31
11
1
100
896,556
100
1,990
356
386
87
1
2,820
70
13
14
3
0
100
95
UBS Group Financial Statements
Notes to the Financial Statements
Income Statement
Note 3 Net Interest Income
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Interest income
Interest earned on loans and advances 1
Interest earned on securities borrowed and
reverse repurchase agreements
Interest and dividend income from financial investments 2
Interest and dividend income from trading portfolio
Total
Interest expense
Interest on amounts due to banks and customers
Interest on securities lent and repurchase agreements
Interest and dividend expense from trading portfolio
Interest on debt issued
Total
16,955
20,413
18,340
18,337
453
16,532
52,277
14,088
14,517
7,815
7,816
44,236
19,088
402
11,842
51,745
15,660
14,915
5,309
7,731
43,615
11,422
244
5,598
35,604
13,845
8,446
2,070
5,334
29,695
Net interest income
8,041
8,130
5,909
(17)
(4)
13
40
1
(10)
(3)
47
1
1
(1)
1 Includes interest income from finance leasing and other interest income. All prior year figures have been restated accordingly. 2 Includes inter-
est income from money market paper available for sale which was previously disclosed as other interest income. All prior year figures have been
restated accordingly.
Note 4 Net Fee and Commission Income
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Underwriting fees
Corporate finance fees
Brokerage fees 1
Investment fund fees
Fiduciary fees
Custodian fees
Portfolio and other management and advisory fees 1
Insurance-related and other fees 1
2,158
1,339
6,445
4,276
355
1,356
4,650
538
1,434
1,772
5,742
2,821
351
1,439
3,666
111
905
1,298
3,934
1,915
317
1,583
2,612
57
Total Security trading and investment activity fees
21,117
17,336
12,621
Credit-related fees and commissions
Commission income from other services
307
946
310
802
372
765
Total fee and commission income
22,370
18,448
13,758
Brokerage fees paid
Other
Total fee and commission expense
1,281
878
2,159
1,084
661
1,745
795
356
1,151
Net fee and commission income
20,211
16,703
12,607
50
(24)
12
52
1
(6)
27
385
22
(1)
18
21
18
33
24
21
1 Fee and commission income from insurance products now reported in Insurance-related and other fees was previously reported in Brokerage
fees and in Portfolio and other management and advisory fees. All prior year figures have been restated accordingly.
96
Note 5 Net Trading Income
Foreign exchange net trading income include gains and losses from spot and forward contracts,
options, futures, and translation of foreign currency assets and liabilities, bank notes, precious
metals, and commodities. Fixed income net trading income includes the results of making markets in
instruments of both developed and emerging countries in government securities, corporate debt secu-
rities, money market instruments, interest rate and currency swaps, options, and other derivatives.
Equities net trading income includes the results of making markets globally in equity securities and
equity derivatives such as swaps, options, futures, and forward contracts.
CHF million
For the year ended
Foreign exchange 1
Fixed income
Equities
Net trading income
31.12.01
31.12.00
31.12.99
% change from
31.12.00
2,045
2,731
4,026
8,802
1,287
912
7,754
9,953
1,108
2,603
4,008
7,719
59
199
(48)
(12)
1 Includes other trading income such as banknotes, precious metals and commodities.
Note 6 Other Income
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Gains / losses from disposal of associates and subsidiaries
Net gain from disposal of:
Consolidated subsidiaries
Investments in associates
Total
Financial Investments available for sale
Net gain from disposal of:
Private equity investments
Other financial investments
Impairment charges on private equity investments
and other financial investments
Total
Net income from investments in property
Equity in income of associates
Other 1
Total other income
1 Includes income from properties held for disposal.
Note 7 Personnel Expenses
CHF million
For the year ended
Salaries and bonuses
Contractors
Insurance and social contributions
Contribution to retirement plans
Employee share plans
Other personnel expenses
Total personnel expenses
3
0
3
454
256
(1,294)
(584)
68
72
999
558
57
26
83
919
162
(507 )
574
96
58
675
8
1,813
1,821
374
180
(102 )
452
(20 )
211
682
1,486
3,146
(95)
(100)
(96)
(51)
58
155
(29)
24
48
(62)
31.12.01
31.12.00
31.12.99
% change from
31.12.00
15,238
729
984
603
103
2,171
19,828
13,523
725
959
475
97
1,384
17,163
9,872
886
717
8
151
943
12,577
13
1
3
27
6
57
16
97
UBS Group Financial Statements
Notes to the Financial Statements
Note 8 General and Administrative Expenses
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Occupancy
Rent and maintenance of machines and equipment
Telecommunications and postage
Administration
Marketing and public relations
Travel and entertainment
Professional fees
IT and other outsourcing
Other
Total general and administrative expenses
1,314
632
1,213
906
574
700
667
1,224
401
7,631
979
520
914
750
480
656
660
1,246
560
6,765
847
410
756
784
335
552
526
1,289
599
6,098
34
22
33
21
20
7
1
(2)
(28)
13
Note 9 Earnings per Share (EPS) and Outstanding Shares
CHF million
For the year ended
31.12.01
31.12.00
31.12.99
% change from
31.12.00
Earnings (CHF million)
Net profit
Net profit before goodwill amortization 1
Net profit for diluted EPS
Net profit before goodwill amortization for diluted EPS 1
4,973
6,296
4,8742
6,1972
7,792
8,459
7,7782
8,4452
6,153
6,493
6,153
6,493
Weighted average shares outstanding
Weighted average shares outstanding
Potentially dilutive ordinary shares resulting from
outstanding options, warrants and convertible
debt securities 3
Weighted average shares outstanding for
diluted EPS
Earnings per share (CHF)
Basic EPS
Basic EPS before goodwill amortization 1
Diluted EPS
Diluted EPS before goodwill amortization 1
1,266,038,193
1,209,087,927
1,214,227,446
22,539,745
16,489,773
10,898,010
1,288,577,938
1,225,577,700
1,225,125,456
3.93
4.97
3.78
4.81
6.44
7.00
6.35
6.89
5.07
5.35
5.02
5.30
(36)
(26)
(37)
(27)
5
37
5
(39)
(29)
(40)
(30)
2 Net profit has been adjusted for the dilutive impact of own equity derivative
1 Excludes amortization of goodwill and other intangible assets.
3 Total equivalent shares outstanding on options that were not dilutive for the respective periods but could potentially dilute earnings
activity.
per share in the future were 28,741,886, 27,524,280 and 72,135,783 for the years ended 31 December 2001, 31 December 2000 and
31 December 1999, respectively.
Shares outstanding
As at
Total ordinary shares issued
Own shares to be delivered
Second trading line treasury shares
(2000 program)
(2001 program)
Other treasury shares
Total treasury shares
Outstanding shares
31.12.01
31.12.00
31.12.99
% change from
31.12.00
1,281,717,499
1,333,139,187
28,444,788
1,292,679,486
(4)
55,265,349
23,064,356
18,190,595
0
110,621,142
41,254,951
55,265,349
110,621,142
1,240,462,548
1,306,318,626
1,182,058,344
(25)
(5)
All shares and earnings per share figures have been restated for the 3 for 1 share split which took
place on 16 July 2001.
98
Balance Sheet: Assets
Note 10a Due from Banks and Loans to Customers
By type of exposure
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
By geographical region (based on the location of the borrower)
CHF million
Switzerland
Rest of Europe
Americas
Asia / Pacific
Africa / Middle East
Subtotal
Allowance for credit losses
Net due from banks and loans to customers
By type of collateral
CHF million
Secured by real estate
Collateralized by securities
Guarantees and other collateral
Unsecured
Subtotal
Allowance for credit losses
Net due from banks and loans to customers
31.12.01
31.12.00
28,261
(735)
27,526
126,211
107,512
233,723
(7,178)
226,545
254,071
249
31.12.01
158,996
42,279
42,809
15,986
1,914
261,984
(7,913)
254,071
31.12.01
128,259
30,635
20,217
82,873
261,984
(7,913)
254,071
30,064
(917)
29,147
120,554
133,898
254,452
(9,610)
244,842
273,989
393
31.12.00
164,645
46,882
52,939
16,504
3,546
284,516
(10,527)
273,989
31.12.00
122,898
37,714
28,373
95,531
284,516
(10,527)
273,989
99
UBS Group Financial Statements
Notes to the Financial Statements
Note 10b Allowances and Provisions for Credit Losses
CHF million
Specific
allowances
Country risk
allowances
and provisions
Total
31.12.01
Total
31.12.00
Balance at the beginning of the year
Write-offs
Recoveries
Increase / (decrease) in credit loss allowance and provision
Foreign currency translation and other adjustments
Balance at the end of the year
9,289
(2,967)
81
756
53
7,212
1,292
(41)
0
(258)
13
1,006
10,581
(3,008)
81
498
66
8,218
13,398
(2,995)
163
(130)
145
10,581
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 allowances and provisions for credit losses
Note 10c Impaired Loans
31.12.01
31.12.00
735
7,178
7,913
305
8,218
917
9,610
10,527
54
10,581
A loan is classified as impaired if the book value of the claim exceeds the present value of the cash
flows actually expected in future periods – interest payments, scheduled principal repayments and
including liquidation of collateral. Impaired obligations are thus obligations where losses are prob-
able and estimable. A provision is then made with respect to the loan in question.
CHF million
Impaired loans 1, 2
Amount of allowance for credit losses related to impaired loans
31.12.01
31.12.00
14,629
7,294
16,555
18,494
9,685
20,804
2 Interest income on impaired loans was CHF 504 million for 2001.
3 Aver-
Average impaired loans 3
1 All impaired loans have a specific allowance for credit losses.
age balances were calculated from quarterly data.
100
Note 10d Non-Performing Loans
When principal, interest or commission are overdue by 90 days, loans are classified as non-per-
forming, the recognition of interest or commission income ceases according to the original terms of
the loan agreement. Allowances are provided for non-performing loans to reflect their net estimated
recoverable amount.
CHF million
Non-performing loans
Amount of allowance for credit losses related to non-performing loans
Average non-performing loans 2
31.12.01
31.12.00
8,639
5,374
9,648
10,452
6,3291
11,884
1 31 December 2000 figure has been restated to account for an overallocation of allowances to non-performing loans.
calculated from quarterly data.
2 Average balances are
CHF million
Non-performing loans at beginning of year
Net additions / (reductions)
Write-offs and disposals
Non-performing loans at the end of the year
By type of exposure
CHF million
Banks
Loans to customers
Mortgages
Other
Total loans to customers
Total non-performing loans
By geographical region (based on the location of the borrower)
CHF million
Switzerland
Rest of Europe
Americas
Asia / Pacific
Africa / Middle East
Total non-performing loans
31.12.01
31.12.00
10,452
1,111
(2,924)
8,639
13,073
(290)
(2,331)
10,452
31.12.01
386
2,659
5,594
8,253
8,639
31.12.00
172
4,586
5,694
10,280
10,452
31.12.01
31.12.00
6,531
466
737
653
252
8,639
7,588
342
1,865
307
350
10,452
101
UBS Group Financial Statements
Notes to the Financial Statements
Note 11 Securities Borrowing, Securities Lending, Repurchase
and Reverse Repurchase Agreements and Other Collateralized
Transactions
The Group enters into collateralized reverse repurchase and repurchase agreements and securities
borrowing and securities lending transactions that may result in credit exposure in the event that the
counterparty to the transaction is unable to fulfill its contractual obligations. The Group minimizes
credit risk associated with these activities by monitoring counterparty credit exposure and collateral
values on a daily basis and requiring additional collateral to be deposited with or returned to the
Group when deemed necessary.
CHF million
Cash collateral by counterparty
Banks
Customers
Total cash collateral on
securities borrowed and lent
CHF million
Agreements by counterparty
Banks
Customers
Total repurchase and
reverse repurchase agreements
Securities
borrowed
31.12.01
Securities
lent
31.12.01
Securities
borrowed
31.12.00
Securities
lent
31.12.00
155,214
7,724
27,640
2,677
159,619
18,238
18,291
5,127
162,938
30,317
177,857
23,418
Reverse
repurchase
agreements
31.12.01
Repurchase
agreements
31.12.01
Reverse
repurchase
agreements
31.12.00
Repurchase
agreements
31.12.00
197,902
71,354
213,942
154,678
144,505
49,296
175,421
120,092
269,256
368,620
193,801
295,513
Under reverse repurchase, securities borrowing, and other collateralized arrangements, the Group
obtains securities on terms which permit it to repledge or resell the securities to others. At 31 Decem-
ber 2001, the Group held CHF 593 billion (CHF 478 billion at 31 December 2000) of securities on
such terms, CHF 475 billion (CHF 407 billion at 31 December 2000) of which have been either
pledged or otherwise transferred to others in connection with its financing activities or to satisfy its
commitments under short sale transactions.
102
Note 12 Trading Portfolio
CHF million
Trading portfolio assets
Money market paper 1
Debt instruments
Swiss government and government agencies
US Treasury and government agencies
Other government
Corporate listed instruments
Other unlisted instruments 2
Total
thereof pledged as collateral
thereof can be repledged or resold by the counterparty
Equity instruments
Listed instruments
Unlisted instruments
thereof pledged as collateral
thereof can be repledged or resold by the counterparty
Total
Precious metals
Total trading portfolio assets
Trading portfolio liabilities
Debt instruments
Swiss government and government agencies
US Treasury and government agencies
Other government
Corporate listed instruments
Other unlisted instruments
Total
Equity instruments
Total trading portfolio liabilities
31.12.01
31.12.00
63,164
62,292
1,246
95,203
18,811
108,114
32,781
256,155
153,464
101,517
67,772
6,367
21,264
19,939
74,139
4,428
397,886
565
25,117
12,187
10,868
30,793
79,530
26,268
105,798
1,104
19,769
33,222
64,514
26,583
145,192
63,071
49,687
102,571
2,320
8,683
9,761
104,891
3,213
315,588
439
13,645
5,070
31,905
192
51,251
31,381
82,632
1 CHF 29,895 million is pledged with central banks (CHF 28,395 million at 31 December 2000).
2 Includes CHF 6,139 million of traded loans
reclassified to trading portfolio assets at 31 December 2001, upon the adoption of IAS 39. The amounts at 31 December 2000 have not been
restated.
The Group trades money market paper, debt, equity, precious metals, foreign currency and deriva-
tives to meet the financial needs of its customers and to generate revenue through its trading activi-
ties. Note 24 provides a description of the various classes of derivatives together with the related
notional amounts, whereas Note 11 provides further details about cash collateral on securities bor-
rowed and lent and repurchase and reverse repurchase agreements.
103
UBS Group Financial Statements
Notes to the Financial Statements
Note 13 Financial Investments
Due to the adoption of IAS 39, Financial investments, available for sale, are reported at fair value
from 1 January 2001. 31 December 2000 amounts have not been restated.
CHF million
Money market paper
Debt instruments
Listed
Unlisted
Total
Equity investments
Listed
Unlisted
Total
Private equity investments
Total financial investments
thereof eligible for discount at central banks
31.12.01
6,774
31.12.00
4,162
1,194
10,348
11,542
1,949
1,819
3,768
6,719
28,803
10,370
1,403
4,803
6,206
1,119
1,438
2,557
6,658
19,583
381
The following table gives additional disclosure in respect of the valuation methods used in 2000.
CHF million
Valued at fair value
Money market paper
Valued at amortized cost
Debt instruments
Valued at the lower of cost or market value
Debt instruments
Equity instruments
Total
Valued at cost less adjustments for impairments
Private equity investments
Total financial investments
Book Value
31.12.00
Fair Value
31.12.001
4,162
5,851
355
2,557
2,912
6,658
19,583
4,162
5,853
367
3,031
3,398
7,940
21,353
1 This column is presented for comparison purposes only and does not reflect amounts recorded in the Financial Statements.
104
Note 13 Financial Investments (continued)
Unrealized gains
not recognized
in the income statement
Unrealized losses
not recognized
in the income statement
CHF million
Fair value
Gross
Tax effect
Net
Gross
Tax effect
31 December 2001
Money market paper
Debt securities issued by the Swiss national government and agencies
Debt securities issued by Swiss local governments
Debt securities issued by US Treasury and agencies
Debt securities issued by foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Other debt securities
Equity securities
Private equity investments
Total
6,774
36
45
32
10,089
1,218
5
117
3,768
6,719
28,803
1
1
1
2
31
4
0
0
627
1,189
1,856
0
0
0
1
11
1
0
0
206
28
247
1
1
1
1
20
3
0
0
421
1,161
1,609
0
0
0
0
1
2
0
0
65
539
607
0
0
0
0
0
1
0
0
19
13
33
Net
0
0
0
0
1
1
0
0
46
526
574
Contractual maturities of the investments in debt instruments
CHF million, except percentages
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Within 1 year
1–5 years
5–10 years
Over 10 years
31 December 2001
Swiss national government and agencies
Swiss local governments
US Treasury and agencies
Foreign governments and
official institutions
Corporate debt securities
Mortgage-backed securities
Other debt securities
Total fair value
9
3
0
5,014
63
0
2
5,091
5.26
4.36
0.00
0.97
4.53
0.00
4.77
10
38
24
5,048
1,102
5
87
6,314
4.50
3.90
4.38
1.01
4.59
5.41
3.91
16
4
8
27
30
0
28
113
3.43
3.59
5.15
2.88
3.22
0.00
3.56
1
0
0
0
23
0
0
24
4.00
0.00
0.00
0.00
15.371
0.00
0.00
1 The yield presented is the current contractual yield based on current market rates at 31 December 2001, but may not represent the yield through maturity since this is a floating rate debt
instrument.
Proceeds from sales and maturities of investment securities available for sale during the year ended 31 December 2001 were CHF
27,910 million. Gross gains of CHF 223 million and gross losses of CHF 28 million were realized on those sales in 2001.
105
UBS Group Financial Statements
Notes to the Financial Statements
Note 14 Investments in Associates
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Income
Write-offs
Change in equity
Carrying amount at the end of the year
31.12.01
31.12.00
880
11
(216)2
74
(2)
(50)
697
1
1,102
65
(287)
62
(4)
(58)
880
1 Primarily consists of disposal of an investment in National Versicherung AG.
following a review of the level of influence by the bank over certain investees. The impact of this reclassification on net profit is immaterial.
2 Includes a transfer of CHF 172 million to Financial Investments
Note 15 Property and Equipment
CHF million
Historical cost
Balance at the beginning of the year
Additions
Additions from acquired companies
Disposals 1
Reclassifications 2
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation 3
Disposals 1
Reclassifications 2
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 4
Bank
occupied Investment
properties5
properties
IT, soft-
ware and
communi-
Other
machines
and
cation equipment
31.12.01
31.12.00
8,807
222
0
(179 )
447
0
9,297
3,840
262
(162 )
97
2
4,039
5,258
1,830
148
0
(132 )
(959 )
6
893
550
13
(40 )
(286 )
2
239
654
4,257
919
4
(184 )
144
6
5,146
3,074
933
(76 )
0
1
3,932
1,214
3,737
728
0
(220 )
(114 )
12
4,143
2,257
446
(125 )
0
(4 )
2,574
1,569
18,631
2,017
4
(715)
(482)
24
19,479
9,721
1,654
(403)
(189)
1
10,784
8,695
17,210
1,640
1,019
(769)
(432)
(37)
18,631
8,509
1,885
(453)
(176)
(44)
9,721
8,910
1 Includes write-offs of fully depreciated assets.
Summary of significant accounting policies).
2000 includes CHF 40 million in 2001 and CHF 277 million in 2000 which were charged against the UBS / SBC restructuring provision.
insurance value of property and equipment is CHF 15,531 million (2000: CHF 14,570 million).
ment properties was CHF 990 million.
2 Properties held for resale and foreclosed properties have been reclassified (see Note 1:
3 Depreciation of CHF 1,654 million at 31 December 2001 and CHF 1,885 million at 31 December
4 Fire
5 At 31 December 2001 the fair value of Invest-
106
Note 16 Goodwill and Other Intangible Assets
CHF million
Goodwill
Other
intangible
assets
31.12.01
31.12.00
Historical cost
Balance at the beginning of the year
Additions
Write-offs 1
Foreign currency translation
Balance at the end of the year
Accumulated amortization
Balance at the beginning of the year
Amortization
Write-offs 1
Foreign currency translation
Balance at the end of the year
16,272
454
(232)
325
16,819
1,445
1,025
(232)
3
2,241
4,894
2
(15)
92
4,973
184
298
(15)
(1)
466
21,166
456
(247)
417
21,792
1,629
1,323
(247)
2
2,707
4,534
17,841
(16)
(1,193)
21,166
991
667
(16)
(13)
1,629
Net book value at the end of the year
14,578
4,507
19,085
19,537
1 Represents write-offs of fully amortized goodwill and other intangible assets.
A significant portion of the Goodwill and other intangible assets relates to the acquisition of Paine
Webber Group, Inc. For more information, please refer to Note 37.
Note 17 Other Assets
CHF million
Deferred tax assets
Settlement and clearing accounts
VAT and other tax receivables
Prepaid pension costs
Properties held for resale
Other receivables
Total other assets
Note
22
31.12.01
31.12.00
3,449
1,431
452
567
844
3,132
9,875
2,208
3,153
419
405
984
2,322
9,491
107
UBS Group Financial Statements
Notes to the Financial Statements
Balance Sheet: Liabilities
Note 18 Due to Banks and Customers
CHF million
Due to banks
Due to customers in savings and investment accounts
Other amounts due to customers
Total due to customers
Total due to banks and customers
31.12.01
106,531
67,782
265,999
333,781
440,312
31.12.00
82,240
68,213
242,466
310,679
392,919
Note 19 Debt Issued
The Group issues both CHF and non-CHF
denominated fixed and floating rate debt. Float-
ing rate debt pays interest based on the three-
month or six-month London Interbank Offered
Rate (LIBOR).
Subordinated debt securities are unsecured
obligations of the Group and are subordinated
in right of payment to all present and future
senior indebtedness and certain other obliga-
tions of the Group. At 31 December 2001 and
31 December 2000, the Group had CHF 14,598
million and CHF 14,233 million, respectively,
in subordinated debt. Subordinated debt
usually pays interest annually and provides
for single principal payments upon maturity. At
31 December 2001 and 31 December 2000,
the Group had CHF 42,613 million and CHF
40,622 million, respectively, in unsubordinat-
ed debt (excluding money market paper).
The Group issues debt with returns linked to
equity, foreign exchange and credit instruments
or indices. As described in Note 1r), derivatives
embedded in these instruments are separated
from the host debt contract and reported as
stand alone derivatives. The amount recorded
within Debt issued represents the host contract
after the separation of the embedded derivative.
At 31 December 2001 and 31 December 2000,
the Group had CHF 1,397 million and CHF
1,380 million, respectively, in convertible and
exchangeable debt on UBS shares and notes with
warrants attached on UBS shares outstanding.
In addition the Group uses interest rate and
foreign exchange derivatives to manage the risk
inherent in certain debt issues. In the case of inter-
est rate risk management, the Group applies hedge
accounting as discussed in Note 1 – Summary of
Significant Accounting Policies and Note 24 –
Derivative Instruments. As a result of applying
hedge accounting, the carrying value of Debt
issued has increased by CHF 220 million to reflect
changes in fair value due to interest rate risk.
CHF million
Money market paper issued
Total bond issues
Shares in bond issues of the Swiss Regional or
Cantonal Banks’ Central Bond Institutions
Medium-term notes
Total debt issued
31.12.01
31.12.00
99,006
51,061
934
5,217
74,780
48,179
1,305
5,371
156,218
129,635
108
Note 19 Debt Issued (continued)
Contractual maturity date
CHF million
2002
2003
2004
2005
2006
2007–2009
Thereafter
Total
UBS AG (Parent Bank)
Subsidiaries
Fixed
rate
64,596
6,287
2,661
3,119
3,343
2,930
2,581
85,517
Floating
rate
1,503
887
778
1,041
1,833
592
984
7,618
Fixed
rate
48,161
1,461
1,451
700
1,242
2,353
1,387
56,755
Floating
rate
1,779
125
1,164
227
635
1,708
690
6,328
Total
31.12.01
116,039
8,760
6,054
5,087
7,053
7,583
5,642
156,218
The table above shows the split between fixed and floating rate debt issues based on the contractual
terms. However, it should be noted that the Group uses interest rate swaps to hedge many of the
fixed rate debt issues, which changes their re-pricing characteristics into that of floating rate debt.
The table below shows the notional amount and stated interest rate on the Group’s publicly placed
bonds prior to the separation of any embedded derivatives or the application of hedge accounting. As
a result, the notional amount shown does not necessarily correspond to the carrying amount of the
debt and the stated interest rate on the debt does not necessarily refelect the effective interest rate the
Group is paying to service its debt after the separation of embedded derivatives and the application
of hedge accounting.
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.2001 1
Year of
issue
Interest
rate in %
Remarks
Maturity
Early
redemption
option
Currency
1992
2000
2000
2000
1992
2001
1986
2000
2001
2001
2001
2001
2001
2000
1998
2001
2000
1996
2000
2001
1990
7.250
13.250
12.500
0.100
7.000
FRN
5.000
3.300
1.980
16.000
20.750
11.250
11.250
9.010
5.750
18.000
10.010
4.000
18.500
23.125
7.500
GOAL on Carrefour shares
GOAL on Bayer shares
Convertible into Nikkei 225 Index
subordinated
Resettable Daily Accrual Note
GOAL on JP Morgan Chase shares
GOAL on Nokia shares
GOAL on
Royal Dutch Petroleum shares
GOAL on Allianz shares
GOAL on ABB shares
GOAL on Alcatel shares
GOAL on UBS shares
GOAL on Motorola shares
GOAL on EMC Corp shares
subordinated
10.01.2002
18.01.2002
18.01.2002
28.01.2002
06.02.2002
08.02.2002
10.02.2002
12.02.2002
28.02.2002
01.03.2002
01.03.2002
08.03.2002
08.03.2002
14.03.2002
18.03.2002
22.03.2002
10.04.2002
18.04.2002
28.05.2002
31.05.2002
07.06.2002
CHF
EUR
EUR
JPY
CHF
USD
CHF
JPY
USD
USD
EUR
EUR
EUR
CHF
USD
EUR
CHF
CHF
USD
USD
CHF
Notional
amount
in millions
in local
currency
150
45
85
13,000
200
200
250
3,807
130
30
135
85
50
366
250
75
100
200
75
45
300
109
Protected Index Participation
PIP
PEP
Protected Equity Participation
GOAL Geld- oder Aktien-Lieferung (cash or
share delivery)
BULS
Bullish Underlying Linked Securities
GROI Guaranteed Return On Investment
FRN
Floating Rate Note
UBS Group Financial Statements
Notes to the Financial Statements
Note 19 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20011
Year of
issue
Interest
rate in %
Remarks
Maturity
Early
redemption
option
Currency
Notional
amount
in millions
in local
currency
2000
1997
2001
1992
2001
2001
2001
2001
2001
2000
2001
2001
1996
2001
2000
1992
1996
2001
1995
2001
2001
2001
1996
2001
1993
2001
1997
1998
2001
1993
1993
2001
2001
2001
2001
1995
2001
1993
1994
2000
2001
2001
1991
1999
2001
1997
1993
1995
1995
2000
2000
Protected Index Participation
PIP
PEP
Protected Equity Participation
GOAL Geld- oder Aktien-Lieferung (cash or
share delivery)
BULS
Bullish Underlying Linked Securities
GROI Guaranteed Return On Investment
FRN
Floating Rate Note
110
18.250
6.500
19.500
7.500
19.250
19.500
8.000
12.250
18.250
8.375
14.125
14.000
2.002
GOAL on Intel shares
GOAL on Deutsche Telecom shares
subordinated
GOAL on SAP shares
GOAL on Cisco Systems shares
GOAL on Nestlé shares
GOAL on Deutsche Post shares
GOAL on UBS shares
GOAL on DaimlerChrysler shares
GOAL on Home Depot shares
GOAL on Deutsche Bank shares
26.000 GOAL on Uniphase Corporaton shares
GOAL on UBS shares
subordinated
9.000
7.000
6.750
12.500
4.375
10.000
7.375
8.125
3.250
8.000
4.875
8.750
1.500
GOAL on AOL Time Warner shares
GOAL on Credit Suisse shares
GOAL on Novartis shares
GOAL on Roche shares
GOAL on UBS shares
subordinated
GOAL on General Electric shares
Indexed to UBS Currency Portfolio
Convertible into
UBS Dutch Corporate Basket
GOAL on PepsiCo shares
subordinated
subordinated
BULS on technology stock basket
BULS on Celestica and others
BULS on Biotech shares
GOAL on Aventis shares
subordinated
GOAL on Pfizer shares
1.000
8.500
3.500
4.000
FRN
0.000
0.000
7.250
FRN
8.250
3.000
FRN
0.500
0.000
0.000 Cliquet GROI on NASDAQ 100 Index
4.250
subordinated
3.500
1.750
7.375
4.750
4.000
5.500
1.000
1.000
Exchangeable bonds on Yukos
subordinated
subordinated
subordinated
Convertible into Nasdaq 100 Index
Convertible into STOXX 50 Index
subordinated
Convertible into NTT shares
27.06.2002
08.07.2002
08.07.2002
10.07.2002
15.07.2002
23.07.2002
25.07.2002
25.07.2002
31.07.2002
07.08.2002
15.08.2002
19.08.2002
23.08.2002
12.09.2002
02.10.2002
16.10.2002
18.10.2002
01.11.2002
07.11.2002
15.11.2002
22.11.2002
06.12.2002
20.12.2002
26.02.2003
03.03.2003
07.03.2003
14.03.2003
20.03.2003
28.03.2003
31.03.2003
31.03.2003
10.04.2003
28.04.2003
16.05.2003
05.06.2003
20.06.2003
16.07.2003
26.11.2003
06.01.2004
10.02.2004
14.04.2004
27.05.2004
25.06.2004
01.07.2004
31.08.2004
26.11.2004
08.01.2005
07.02.2005
10.02.2005
18.02.2005
21.03.2005
08.01.2003
USD
USD
EUR
CHF
EUR
USD
CHF
EUR
USD
EUR
USD
EUR
CHF
USD
CHF
CHF
USD
USD
CHF
CHF
CHF
CHF
CHF
CHF
CHF
USD
EUR
EUR
USD
CHF
CHF
USD
USD
USD
EUR
CHF
USD
CHF
USD
USD
USD
USD
CHF
EUR
USD
GBP
CHF
CHF
CHF
USD
EUR
50
300
45
200
45
60
325
45
45
70
30
70
299
51
345
200
250
48
250
325
100
325
350
220
200
105
51
57
30
200
200
80
40
32
55
200
45
200
300
40
46
40
300
250
310
265
200
150
150
50
50
Note 19 Debt Issued (continued)
Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.20011
Year of
issue
Interest
rate in %
Remarks
Maturity
Early
redemption
option
Currency
1995
2000
1995
1995
1995
1995
2001
1995
1999
1999
2001
1996
1996
2000
2001
1996
2001
2001
1996
2001
2001
1995
1996
2001
1997
1997
1997
2001
2001
1998
1997
1995
1995
1997
1995
1995
1996
Protected Index Participation
PIP
PEP
Protected Equity Participation
GOAL Geld- oder Aktien-Lieferung (cash or
share delivery)
BULS
Bullish Underlying Linked Securities
GROI Guaranteed Return On Investment
FRN
Floating Rate Note
subordinated
Convertible into Nikkei 225 Index
subordinated
subordinated
subordinated
subordinated
PEP on Internet Perf. Basket
Equity Exchangeables into
Euro. Insurance Basket
subordinated
5.625
0.000
FRN
6.750
5.250
5.000
0.000
4.500
0.000
3.500
1.000
4.250
4.000
2.500
Bermuda Callable
Daily Accrual Range Note
FRN
7.250
subordinated
7.500 Bermuda Callable Daily Accrual Note
Callable Reverse Floater
subordinated
BULS on S&P 500
GOAL on UBS shares
subordinated
subordinated
Zero-rate Note O’Connor Fund
subordinated
subordinated
subordinated
Fixed/Reverse Floating Note
Notes on World Index Basket
FRN
7.250
0.000
5.500
5.000
FRN
0.000
8.000
8.000
5.750
FRN
1.000
3.500
5.875
7.375
7.000
7.375
7.500
FRN
7.750
subordinated
subordinated
subordinated
subordinated
subordinated
subordinated
subordinated
15.04.2005
31.05.2005
20.06.2005
15.07.2005
18.07.2005
24.08.2005
18.10.2005
21.11.2005
08.12.2005
26.01.2006
01.02.2006
06.02.2006
14.02.2006
29.03.2006
29.06.2006
17.07.2006
26.07.2006
17.08.2006
01.09.2006
01.09.2006
02.10.2006
07.11.2006
06.12.2006
29.12.2006
08.01.2007
08.01.2007
12.03.2007
02.11.2007
11.12.2007
27.08.2008
18.08.2009
15.07.2015
15.10.2015
15.06.2017
15.07.2025
18.12.2025
01.09.2026
CHF
JPY
GBP
USD
CHF
CHF
USD
CHF
USD
EUR
EUR
CHF
CHF
CHF
USD
USD
USD
USD
USD
USD
CHF
CHF
EUR
EUR
GBP
GBP
EUR
USD
EUR
CHF
EUR
USD
USD
USD
USD
GBP
USD
Notional
amount
in millions
in local
currency
150
5,000
249
200
200
250
288
300
50
650
100
250
200
250
98
500
39
30
150
54
66
250
254
40
237
296
197
59
50
300
329
150
300
300
350
149
300
111
UBS Group Financial Statements
Notes to the Financial Statements
Note 19 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.2001 1
Year of
issue
Interest
rate in %
Remarks
Maturity
Early
redemption
option
Currency
Brooklands Euro Referenced Linked Notes 2001-1 Ltd
2001
2001
FRN
FRN
20.12.2003
20.12.2013
20.12.2003
20.12.2013
Alpine Partners L.P.
2000
FRN
North Street
2000
2000
2000
2000
2000
2000
2000
2000
2001
2001
2001
2001
FRN
FRN
FRN
20.000
9.490
18.000
FRN
FRN
FRN
FRN
FRN
FRN
UBS Americas Inc. (former PaineWebber)
1999
1995
2000
1992
1999
1993
2000
1998
1993
1998
1999
1999
1999
1999
1995
1998
1993
1996
1998
1998
1998
1996
1999
1998
1994
1997
1997
6.020
8.250
FRN
7.750
FRN
7.875
1.270
6.320
6.785
6.450
FRN
6.375
2.580
2.670
8.875
6.520
6.500
6.750
6.720
6.730
6.550
7.625
7.625
6.640
7.625
8.060
8.080
UBS Principal Finance LLC
2000
8.670
subordinated
08.10.2009
08.01.2003
28.04.2011
28.04.2011
28.04.2011
28.04.2011
30.10.2011
30.10.2011
30.10.2011
30.10.2011
30.04.2031
30.04.2031
30.07.2031
30.07.2031
22.04.2002
01.05.2002
15.07.2002
02.09.2002
18.11.2002
17.02.2003
13.03.2003
18.03.2003
01.07.2003
01.12.2003
11.05.2004
17.05.2004
13.10.2004
15.03.2005
15.03.2005
06.04.2005
01.11.2005
01.02.2006
01.04.2008
03.04.2008
15.04.2008
15.10.2008
01.12.2009
14.04.2010
17.02.2014
17.01.2017
01.03.2037
01.03.2002
20.01.2009
20.01.2002
EUR
EUR
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
JPY
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Notional
amount
in millions
in local
currency
50
50
709
31
40
36
43
36
43
61
33
100
60
100
60
45
125
100
175
40
100
9,000
45
30
340
45
525
30
45
125
30
200
100
35
43
250
150
275
30
200
25
199
102
Protected Index Participation
PIP
PEP
Protected Equity Participation
GOAL Geld- oder Aktien-Lieferung (cash or
share delivery)
Bullish Underlying Linked Securities
BULS
GROI Guaranteed Return On Investment
FRN
Floating Rate Note
112
Note 19 Debt Issued (continued)
Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.2001 1
Year of
issue
Interest
rate in %
Eisberg Finance Ltd.
1998
1998
1998
FRN
FRN
FRN
UBS Finance N.V., Curaçao
1990
1992
1997
1998
9.125
FRN
0.000
0.000
UBS Australia Holdings Ltd.
1999
1999
5.000
5.000
SBC Glacier Finance Ltd.
1997
1997
1997
FRN
FRN
FRN
UBS Warburg AG
0.000
1998
0.000
2001
0.000
2001
0.000
2001
0.000
2001
0.000
2001
0.000
2001
0.000
2001
0.000
2001
0.000
2001
Remarks
Maturity
Early
redemption
option
Currency
Notional
amount
in millions
in local
currency
15.06.2004
15.06.2004
15.06.2004
10.10.2003
10.10.2003
10.10.2003
08.02.2002
13.11.2002
29.01.2027
03.03.2028
25.02.2002
25.02.2004
03.03.2003
10.09.2004
10.09.2004
10.09.2006
10.09.2002
10.03.2002
10.03.2002
19.12.2005
30.06.2006
30.06.2006
31.07.2006
30.09.2006
30.09.2006
02.01.2007
02.01.2007
02.01.2007
30.09.2011
USD
USD
USD
USD
USD
EUR
EUR
AUD
AUD
USD
USD
USD
EUR
USD
EUR
EUR
CHF
USD
EUR
EUR
EUR
EUR
41
65
83
225
250
210
77
104
104
36
798
798
56
202
505
500
200
200
100
100
100
50
1 In this table only bonds with a carrying value exceeding CHF 50 million have been disclosed. The total notional amount of the bonds disclosed
in this table is CHF 40,859 million. The total notional amount of publicly placed bonds of UBS Group is CHF 48,646 million of the total bond
issues.
Protected Index Participation
PIP
Protected Equity Participation
PEP
GOAL Geld- oder Aktien-Lieferung (cash or
share delivery)
BULS
Bullish Underlying Linked Securities
GROI Guaranteed Return On Investment
FRN
Floating Rate Note
113
UBS Group Financial Statements
Notes to the Financial Statements
Note 20 Other Liabilities
CHF million
Provisions, including restructuring provision
Provision for commitments and contingent liabilities
Current tax liabilities
Deferred tax liabilities
VAT and other tax payables
Settlement and clearing accounts
Other payables
Note
21
10b
22
31.12.01
31.12.00
1,748
305
1,799
2,827
622
4,473
3,884
3,024
54
2,423
1,565
1,071
4,906
5,713
Total other liabilities
15,658
18,756
Note 21 Provisions, including Restructuring Provision
Business risk provisions
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
CHF million
Litigation
Operational
Other
Total
UBS / SBC merger restructuring provision
CHF million
Balance at the beginning of the year
Addition
Applied 1
Personnel
IT
Premises
Other
Total utilized during the year
Released to the Income Statement
Balance at the end of the year
31.12.01
31.12.00
2,294
384
(1,020)
90
1,748
2,182
746
(1,316)
682
2,294
31.12.01
31.12.00
712
240
796
1,748
598
374
1,322
2,294
31.12.01
31.12.00
730
0
(370)
(23)
(302)
(14)
(709)
(21)
0
1,429
0
(188)
(63)
(399)
(49)
(699)
0
730
Total provisions, including restructuring provision
1,748
3,024
1 The expense categories refer to the nature of the expense rather than the income statement expense line.
114
Note 21 Provisions, including Restructuring Provision (continued)
Cumulative utilization, since establishment of UBS / SBC merger restructuring provision
through 31 December 2001
CHF million
UBS Switzerland
Private and Corporate Clients
Private Banking
UBS Asset Management
UBS Warburg
Corporate Center
Group total
Personnel
837
707
130
34
1,983
106
2,960
IT
1,109
974
135
9
373
34
1,525
Premises
Other
219
209
10
0
1
1,421
1,641
220
217
3
3
413
517
1,153
Released to the Income Statement
Total
Total
2,385
2,107
278
46
2,770
2,078
7,279
21
7,300
At the announcement of the UBS / SBC merger in December 1997, it was communicated that the
merged firm’s operations in various locations would be combined, resulting in vacant properties,
reductions in personnel, elimination of redundancies in the information technology platforms, exit
costs and other costs. As a result, a restructuring provision of CHF 7,300 million (of which CHF
7,000 million was recognized as a restructuring expense in 1997 and CHF 300 million was recog-
nized as a component of general and administrative expense in the fourth quarter of 1999) was
established, to be used over a period of four years.
The restructuring provision included approximately CHF 3,000 million for employee termination
benefits, CHF 1,500 million for sale and lease breakage costs associated with the closure of premis-
es, CHF 1,650 million for IT integration projects and write-offs of equipment which management
had committed to dispose of and CHF 1,150 million for other costs classified as Personal expenses,
General and administrative expense or Other income.
The employee terminations affected all functional levels and all operating Business Groups.
CHF 2,000 million of the provision related to employee termination benefits reflects the costs of
eliminating approximately 7,800 positions, after considering attrition and redeployment within the
Company. CHF 1,000 million of the provision related to payments to maintain stability in the work-
force during the integration period. As of 31 December 2001, approximately 7,100 employees had
been made redundant or retired early.
At 31 December 2001, the restructuring plan was completed, substantially in accordance with the
above-mentioned plans. The remaining balance of the restructuring provision of CHF 21 million was
recognized in the income statement.
115
UBS Group Financial Statements
Notes to the Financial Statements
Note 22 Income Taxes
CHF million
For the year ended
Domestic
Current payable
Deferred
Foreign
Current payable
Deferred
Total income tax expense
31.12.01
31.12.00
31.12.99
563
231
546
61
1,401
1,325
233
451
311
2,320
849
511
359
(33)
1,686
The Group made net tax payments, including domestic and foreign taxes, of CHF 1,742 million,
CHF 959 million and CHF 1,063 million for the full years of 2001, 2000 and 1999, 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 Swiss statutory rate of 25%
are as follows:
CHF million
For the year ended
Operating profit before tax
Domestic
Foreign
Income taxes at Swiss statutory rate of 25%
Increase / (decrease) resulting from:
Applicable tax rates differing from Swiss statutory rate
Tax losses not recognized
Previously unrecorded tax losses now recognized
Lower taxed income
Non-deductible goodwill amortization
Other non-deductible expenses
Adjustments related to prior years
Change in deferred tax valuation allowance
31.12.01
31.12.00
31.12.99
6,718
5,565
1,153
1,680
(239)
77
(630)
(499)
429
134
371
78
10,199
7,079
3,120
2,550
(336 )
164
(655 )
(401 )
159
432
245
162
7,893
6,957
936
1,973
55
39
(215)
(278)
98
34
(112)
92
Income tax expense
1,401
2,320
1,686
116
Note 22 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 carry forwards
Trading assets
Other
Total
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Property and equipment
Investments
Other provisions
Trading assets
Other
Total deferred tax liabilities
31.12.01
31.12.00
1,778
0
122
2,902
259
1,365
6,426
(2,977)
3,449
449
464
571
298
1,045
2,827
1,705
160
148
1,690
24
1,045
4,772
(2,564)
2,208
457
86
133
306
583
1,565
The change in the balance of net deferred tax assets and deferred tax liabilities does not equal the
deferred tax expense in those years. This is due to the effect of foreign currency rate changes on tax
assets and liabilities denominated in currencies other than CHF and also due to the acquisition of
PaineWebber.
Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net
operating loss carry forwards and other items. Because realization of these assets is uncertain, the
Group has established valuation allowances of CHF 2,977 million (CHF 2,564 million at 31 Decem-
ber 2000). For companies that suffered tax losses in either the current or preceding year an amount
of CHF 965 million (CHF 59 million at 31 December 2000) has been recognized as deferred tax
assets based on expectations that sufficient taxable income will be generated in future years to utilize
the tax loss carry forwards.
The company provides deferred income taxes on undistributed earnings of non-Swiss subsidiaries
except to the extent that such earnings are indefinitely invested. In the event these earnings were
distributed, additional taxes of approximately CHF 22 million would be due.
At 31 December 2001 net operating loss carry forwards totaling CHF 7,462 million are available
to reduce future taxable income of certain branches and subsidiaries.
The carry forwards expire as follows:
Within 1 year
From 2 to 4 years
After 4 years
Total
31.12.01
123
148
7,191
7,462
117
UBS Group Financial Statements
Notes to the Financial Statements
Note 23 Minority Interests
CHF million
Balance at the beginning of the year
Issuance of trust preferred securities
Increases
Decreases and dividend payments
Foreign currency translation
Minority interest in net profit
Balance at the end of the year
31.12.01
31.12.00
2,885
1,291
0
(461)
53
344
4,112
434
2,594
2
(73)
(159)
87
2,885
Note 24 Derivative Instruments
Type of derivatives
The Group uses the following derivative finan-
cial instruments for both trading and hedging
purposes:
Swaps
Swaps are transactions in which two parties
exchange cash flows on a specified notional
amount for a predetermined period. The major
types of swaps transactions undertaken by the
Group are described below.
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.
Foreign currency swaps generally involve the
exchange of two different currency principal bal-
ances at inception and re-exchanged at an agreed
upon rate at a specified future date. In addition,
foreign currency interest rate swaps include the
exchange of interest payments based on the two
different currency principal balances and interest
reference rates.
Credit default swaps (CDS) are instruments
where the seller of the CDS promises to pay the
buyer an amount equal to the loss that would be
incurred on holding an underlying reference
asset as a result of a defined credit event. The
buyer is not required to hold the underlying ref-
erence asset. The buyer pays the seller a credit
protection fee expressed in basis points, the
amount of which is dependent on the credit
spread of the reference asset.
are effectively tailor-made agreements that are
transacted between counterparties in the over-
the-counter market (OTC), whereas futures are
standardized contracts that are transacted on
regulated exchanges.
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 predeter-
mined price. The seller receives a premium from
the purchaser for this right.
Derivatives held or issued for
trading purposes
Most of the Group’s derivative transactions
relate to sales and trading activities. Sales activi-
ties include the structuring and marketing of
derivative products to customers at competitive
prices to enable them to transfer, modify or
reduce current or expected risks. Trading in-
volves market-making, positioning and arbitrage
activities. Market-making involves quoting bid
and offer prices to other market participants
with the intention of generating revenues based
on spread and volume. Positioning involves
managing market risk positions with the expec-
tation of profiting from favorable movements in
prices, rates or indices. Arbitrage activities
involve identifying and profiting from price dif-
ferentials between markets and products.
Forwards and futures
Forwards and futures are contractual obligations
to buy or sell a financial instrument on a future
date at a specified price. Forward contracts
Derivatives held or issued for
hedging purposes
The Group enters into various derivative finan-
cial instruments which are designated and qualify
118
as either fair value or cash flow hedges. The
Group also enters into derivative transactions to
hedge against economic risk exposures that
do not receive hedge accounting treatment. As
stated in Note 1 Summary of Significant
Accounting Policies, the Group uses CDS to eco-
nomically hedge credit risk exposures in the loan
portfolio to which it does not apply hedge
accounting. Gains on CDS used as economic
hedges have been offset against Credit loss
expense/recovery.
Derivatives designated and accounted for as
hedging instruments
At inception of a hedge, the Group formally
documents the relationship between hedging
instruments and hedged items. This includes its
risk management objectives and strategies for
undertaking the hedge transaction, which are in
accordance with the Group’s risk management
policies, together with the methods that will be
used to assess the effectiveness of the hedging
relationship. In accordance with this, the Group
formally assesses, both at the inception of the
hedge and on an ongoing basis, whether the
derivatives used in its hedging transactions have
been highly effective in offsetting changes in the
fair value or cash flows of the hedged item. In
the case of hedging a forecasted transaction, the
transaction must be highly probable and present
an exposure to variations in cash flows that
could ultimately affect reported net profit or
loss. A hedge is normally regarded as highly
effective if, at inception and throughout the life
of the hedge, the Group can expect changes in
the fair value or cash flows of the hedged item
to be almost fully offset by the changes in the
fair value or cash flows of the hedging instru-
ment, and actual results are within a range of
80% to 125%. The Group discontinues hedge
accounting when it is determined that a deriva-
tive is not, or has ceased to be, highly effective
as a hedge, or if the derivative expires, or is sold,
terminated, or exercised.
A highly effective hedging relationship is one
in which the Group achieves offsetting changes
in fair value or cash flows for the risk being
hedged. Hedge ineffectiveness (which represents
the amount by which the changes in the fair
value of the derivative differ from changes in the
fair value of the hedged item or where changes in
the cash flow of the derivative differ from
expected changes in the cash flow of the hedged
item) and gains and losses on components of a
derivative that are excluded from assessing
hedge effectiveness are recorded in current
period earnings.
Fair value hedges
The Group’s fair value hedges principally consist
of interest rate swaps that are used to protect
against changes in the fair value of fixed-rate
long-term debt due to changes in market interest
rates.
For the year ended 31 December 2001, the
Group recognized a net loss of CHF 12 million
(reported as Net trading income in the Financial
Statements), which represents the ineffective
portion of fair value hedges. Foreign currency
interest rate swaps are also used as hedging
instruments but only the interest rate element is
designated against the interest rate risk exposure
of the underlying hedged debt instruments.
Therefore, when measuring hedge effectiveness,
we consider only changes in fair value due
to market interest rates. For the year ended
31 December 2001, CHF 275 million of foreign
currency transaction net gains associated with
foreign currency interest rate swaps used as fair
value hedges were excluded from the assessment
of hedge effectiveness. These foreign currency
transaction gains were recorded as Net trading
income. As of 31 December 2001, the fair values
of outstanding derivatives designated as fair
value hedges was a CHF 895 million net unreal-
ized gain.
Cash flow hedges of individual variable
rate assets and liabilities
The Group also uses interest rate swaps to protect
against changes in cash flows of certain variable
rate debt issues. For the year ended 31 December
2001, there has been no material gain or loss
associated with ineffective portions of cash flow
hedges. Gains and losses on derivative contracts
that are reclassified from accumulated Gains/
losses not recognized in the income statement to
current period earnings are included in Net inter-
est income. As of 31 December 2001, CHF 14 mil-
lion of the deferred net gains on derivative instru-
ments accumulated in shareholders’ equity is
expected to be reclassified into earnings during
the next twelve months at the time the hedged
cash flows occur. As of 31 December 2001, the
119
UBS Group Financial Statements
Notes to the Financial Statements
Note 24 Derivative Instruments (continued)
fair value of outstanding derivatives designated as
cash flow hedges was a CHF 16 million net unre-
alized gain recorded in shareholders’ equity.
Cash flow hedges of forecasted transactions
The Group applies hedge accounting for its non-
trading interest rate risk in major currencies by
analyzing expected cash flows on an enterprise
basis. The objective is to protect against changes
in future interest cash flows relating to the fore-
casted reinvestment or re-borrowing of cash flows
due to changes in market interest rates. The
Group accumulates information about financial
assets and liabilities that it uses to estimate and
aggregate cash flows and to schedule such esti-
mated cash flows into applicable future periods in
which they are expected to be paid or received.
The forecasted cash flows include the expected
future reinvestment or re-borrowing of financial
assets and liabilities and are extended over a
twenty-four year period. The Group has hedges
that extend over this twenty-four year period.
These cash flows are based on the contractual
terms of the instruments and other factors, includ-
ing estimates of prepayments and defaults. The
aggregate cash flows form the basis for identifying
the non-trading interest rate risk of the Group.
Interest rate swaps are designated as hedges of
these forecasted cash inflows and outflows.
The schedule of forecasted cash flows as of
31 December 2001 is as follows.
CHF million
Cash in flows (Assets)
Cash out flows (Liabilities)
< 1 year
92,483
183,482
1–3 years
3–5 years
5–10 years
over 10 years
154,733
299,566
81,015
229,368
92,027
401,674
11,253
352,707
Net cash flows
(90,999)
(144,833)
(148,353)
(309,647)
(341,454)
Gains and losses on derivative contracts that are
reclassified from accumulated Gains/losses not
recognized in the income statement to current
period earnings are included in Net interest
income. As of 31 December 2001, the fair value
of outstanding derivatives designated as cash
flow hedges of forecasted transactions was a
CHF 554 million unrealized loss. Amounts
reclassified from Gains/losses not recognized in
the income statement to the Income statement
due to discontinued hedges of forecasted trans-
actions were immaterial.
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 notional 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.
120
Note 24 Derivative Instruments (continued)
As at 31 December 2001
Term to maturity
Within 3 months
NRV2
PRV1
3–12 months
NRV
PRV
1–5 years
PRV
NRV
over 5 years
PRV
NRV
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
Credit derivative contracts
Over the counter (OTC) contracts
Credit default swaps
Total rate of return swaps
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
Total derivative instruments
Replacement value netting
Replacement values after netting
2,844
2,807
388
3,260
4,322
950
114
5,724
670
530
6,393
2,095
108
49,043
3,037
245
45,029
4,048
48
25,232
2,830
134
22,866
3,336
3,114
82,806
6,925
4,169
78,610
10,429
1,768.7
4,552.4
784.9
3
24
0
3
0
24
83.6
63.2
6,042
8,532
6,508
9,042
52,188
49,322
28,110
26,336
92,848
93,232
7,252.8
6
6
18
18
707
84
791
1,104
621
1,725
1,020
1,020
1,490
636
2,126
773
12
785
1,184
0
1,184
2,506
96
2,602
3,796
1,257
5,053
75.7
3.6
79.3
3,615
19,344
2,138
3,163
11,224
1,942
1,639
8,991
2,148
1,899
7,763
1,888
755
7,463
445
428
7,673
433
20
3,465
23
2,312
1
6,029
39,263
4,754
5,490
28,972
4,264
279.7
1,699.3
1,033.7
1
2
0
1
0
2
0.0
0.8
25,097
16,329
12,779
11,552
8,663
8,534
3,508
2,313
50,047
38,728
3,013.5
242
177
419
223
164
2
389
210
535
3
748
198
507
1
706
195
740
179
805
6
90
653
1,542
600
1,557
81
3
3
17.0
54.1
0.0
0.9
935
984
96
81
2,198
2,160
72.0
1,402
6,140
1,422
6,222
445
4,294
1,713
5,105
1,461
4,076
1,464
6,991
111
1,087
85
2,844
3,419
15,597
4,684
21,162
35.3
238.0
1,497
9,039
1,080
8,724
1,187
5,926
1,431
8,249
601
463
21
14
0
3,306
0
2,988
6,138
8,918
1,219
2,943
22,322
28,834
12.4
440.3
726.0
8
8
14
14
1
1
1
1
0
0
0
0
9
0
9
15
0
15
6.4
0.0
6.4
40,611
34,006
26,753
31,275
68,944
69,884
33,718
32,857 170,026 168,022
96,579
96,579
73,447
71,443
1 PRV: Positive replacement value. 2 NRV: Negative replacement value. 3 Exchange-traded products include proprietary trades only.
121
UBS Group Financial Statements
Notes to the Financial Statements
Note 24 Derivative Instruments (continued)
As at 31 December 2000
Term to maturity
CHF million
Interest rate contracts
Over the counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts 3
Futures
Options
Total
Credit derivative contracts
Over the counter (OTC) contracts
Credit default swaps
Total rate of return swaps
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
Total derivative instruments
Replacement value netting
Replacement values after netting
Within 3 months
NRV2
PRV1
3–12 months
NRV
PRV
1–5 years
PRV
NRV
over 5 years
PRV
NRV
Total
PRV
Total
NRV
Total
notional
amount
CHF bn
517
1,566
542
791
4,231
453
167
5,398
865
360
1,694
2,882
284
15,759
623
256
7,793
5,162
27,892
625
20,872
2,044
968
50,615
2,655
1,407
34,590
10,541
1,066.3
3,030.2
829.1
6
10
0
0
0
16
454.6
24.1
2,625
5,481
6,430
4,946
16,666
13,211
28,517
22,916
54,238
46,554
5,404.3
313
313
88
88
87
91
178
889
1,087
1,976
1,700
1,453
3,153
76
356
432
2,497
121
2,618
965
1,756
2,721
4,372
1,665
6,037
35.5
3.0
38.5
0
22,652
2,563
2,958
20,140
1,621
2,726
8,098
2,921
2,896
9,410
2,507
3,031
939
8,715
821
1,084
7,031
438
35
3,019
28
27
2,098
35
31,724
17,218
6,703
30,661
13,257
6,230
1,250.3
345.9
786.8
4
1
21
4
0
25
0
5
1.0
1.2
28,177
24,488
13,936
14,952
10,475
8,553
3,082
2,160
55,670
50,153
2,385.2
176
128
1
305
187
80
2
269
211
206
6
423
181
201
12
394
369
934
394
936
2
85
17
119
758
1,353
779
1,336
7
14
15.3
75.2
0.7
1.3
1,303
1,330
87
136
2,118
2,129
92.5
1,417
1,751
3,186
3,867
1,170
6,977
2,271
12,358
2,424
4,752
3,019
17,985
1,715
311
2,948
2,648
6,726
13,791
11,424
36,858
32.2
283.8
1,771
4,939
1,647
8,700
819
1,051
400
446
2
3
0
2,992
0
3,147
15.3
45.2
8,966
15,680
7,576
21,450
2,028
5,599
23,509
51,429
376.5
1
1
2
0
1
1
0
3
3
1
3
4
0
0
0
4
4
2
4
6
0.0
0.0
0.0
36,359
39,028
29,756
36,150
37,999
47,701
34,146
33,429 138,260 156,308
80,385
80,385
57,875
75,923
1 PRV: Positive replacement value. 2 NRV: Negative replacement value. 3 Exchange-traded products include proprietary trades only.
122
Off-Balance Sheet and other Information
Note 25 Pledged Assets
Assets pledged or assigned as security for liabilities and assets subject to reservation of title
CHF million
Mortgage loans
Securities 1
Property and equipment
Other
Total pledged assets
Carrying
amount
31.12.01
1,311
204,623
160
2
206,096
Related
liability
31.12.01
873
163,134
89
0
164,096
Carrying
amount
31.12.00
1,639
116,266
137
1
118,043
Related
liability
31.12.00
1,121
62,616
66
0
63,803
1 Includes securities pledged in respect of securities lending 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.
Note 26 Fiduciary Transactions
CHF million
Placements with third parties
Fiduciary credits and other fiduciary financial transactions
Total fiduciary transactions
31.12.01
31.12.00
58,466
1,136
59,602
69,300
1,234
70,534
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.
123
UBS Group Financial Statements
Notes to the Financial Statements
Note 27 Commitments and Contingent Liabilities
The Group utilizes various lending-related financial instruments in order to meet the financial needs
of its customers. The Group issues commitments to extend credit, standby and other letters of credit,
guarantees, commitments to enter into repurchase agreements, note issuance facilities and revolving
underwriting facilities. Guarantees represent irrevocable assurances, subject to the satisfaction of cer-
tain conditions, that the Group will make payment in the event that the customer fails to fulfill its
obligation to third parties. The Group also enters into commitments to extend credit in the form of
credit lines which are available to secure the liquidity needs of our customers, but not yet drawn
upon by them, the majority of which range in maturity from 1 month to 5 years.
The contractual amount of these instruments is the maximum amount at risk for the Group if the
customer fails to meet its obligations. The risk is similar to the risk involved in extending loan facili-
ties and is monitored with the same risk control processes and specific credit risk policies. For the
years ended 31 December 2001, 2000 and 1999 the Group recognized expense in the income
statement related to obligations incurred for contingencies and commitments of CHF 25 million,
CHF 1 million and CHF 2 million, respectively.
The Group generally enters into sub-participations to mitigate the risks from the Group’s com-
mitments and contingencies. A sub-participation is an agreement with another party to fund a por-
tion of the credit facility and to take a share of the loss in the event that the borrower fails to fulfill
its obligations. The Group retains the contractual relationship with the borrower and the sub-partic-
ipant has only an indirect relationship with the borrower. The Group will only enter into sub-partic-
ipation agreements with banks whose rating is at least equal to or higher than that of the borrower.
CHF million
31.12.01
31.12.00
Contingent liabilities
Credit guarantees and similar instruments 1
Sub-participations
Total
Performance guarantees and similiar 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
18,566
(4,944)
13,622
4,865
(4)
4,861
2,056
0
2,056
25,487
(4,948)
20,539
50,608
(532)
50,076
98
50,706
(532)
50,174
76,193
(5,480)
70,713
18,651
(5,669)
12,982
6,337
(62)
6,275
2,798
0
2,798
27,786
(5,731)
22,055
53,510
(788)
52,722
133
53,643
(788)
52,855
81,429
(6,519)
74,910
1 Credit guarantees in the form of bill of exchange and other guarantees, including guarantees in the form of irrevocable letters of credit,
endorsement liabilities from bills rediscounted, advance payment guarantees and similar facilities. 2 Bid bonds, performance bonds, builders’
guarantees, letters of indemnity, other performance guarantees in the form of irrevocable letters of credit and similar facilities.
124
Note 27 Commitments and Contingent Liabilities (continued)
CHF million
Overview of collateral
Gross contingent liabilities
Gross irrevocable commitments
Liabilities for calls on shares and other equities
Total 31.12.2001
Total 31.12.2000
Other commitments
Mortgage
collateral
Other
collateral
Unsecured
Total
293
1,418
1,711
1,278
14,243
11,382
25,625
20,158
10,951
37,808
98
48,857
59,993
25,487
50,608
98
76,193
81,429
The Group enters into commitments to fund external private equity funds and investments, which
typically expire within five years. These commitments do not involve credit or market risk as the
funds purchase investments at market value at the time the commitments are drawn. The maximum
amount available to fund these investments at 31 December 2001 and 31 December 2000 was CHF
3,548 million and CHF 3,276 million, respectively.
Note 28 Operating Lease Commitments
Our minimum commitments for non-cancellable leases of premises and equipment are presented as
follows:
CHF million
Operating leases due
2002
2003
2004
2005
2006
2007 and thereafter
Total commitments for minimum payments under operating leases
31.12.01
1,200
1,081
965
823
742
5,953
10,764
Operating expenses include CHF 1,092 million, CHF 816 million and CHF 742 million in respect
of operating lease rentals for the year ended 31 December 2001, 31 December 2000 and 31 Decem-
ber 1999, respectively.
125
UBS Group Financial Statements
Notes to the Financial Statements
Note 29 Litigation
In the United States, several class actions in rela-
tion to the business activities of Swiss Compa-
nies during World War II, have been brought
against the bank (as legal successor to Swiss
Bank Corporation and Union Bank of Switzer-
land) 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 was designated as a defen-
dant alongside us. On 12 August 1998, howev-
er, a settlement was reached between the parties.
This settlement provides 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. As a result of
contributions by Swiss industrial companies to
the settlement, UBS’ share was reduced by CHF
50 million. A number of persons have elected to
opt out of the settlement and not to participate
in the class action. The settlement agreement
was approved by the court on 26 July 2000, and
on 22 November 2000 the distribution plan has
been approved. By 23 November 2000 the
banks have transferred the last instalment of the
settlement amount to the court for distribution.
The approval of the Settlement became final by
30 May 2001. There is one appeal by the banks
regarding the interpretation of the Settlement
Agreement which has yet to be decided. Howev-
er, this appeal is without financial impact to the
bank.
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 Business risk provisions.
In respect of the further claims asserted
against the Group of which management is
aware (and which, according to the principles
outlined above, have not been provided for), it is
the opinion of 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.
126
Note 30 Financial Instruments Risk Position
Overall risk position
The Group manages risk in a number of ways,
including the use of a Value-at-Risk (VaR) model
combined with a system of trading limits.
This section presents information about
Group’s exposure to and its management of the
risks associated with the use of financial instru-
ments.
a) Interest Rate Risk
Interest rate risk is the potential impact from
changes in market interest rates on the fair val-
ues 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 presentation, described as a sensitivity analy-
sis, is set out below. Interest rate sensitivity is one
of the inputs to the VaR model used by the
Group to manage its overall market risk, of
which interest rate risk is a part.
The following table sets out the extent to
which the Group was exposed to interest rate risk
at 31 December 2001 and 2000. The table shows
the potential net impact of a one basis point
(0.01%) increase in market interest rates on the
fair values of both assets and liabilities that are
subject 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 catego-
ry, currency and time band in the table. A nega-
tive 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 deriv-
ative instruments in trading and non-trading
activities, as well as off-balance-sheet commit-
ments are included in the table.
The information presented below distin-
guishes between trading and non-trading port-
folios. This distinction follows the classification
used by the business for VaR purposes, which
differs somewhat from the accounting classifica-
tion of trading and non-trading assets and liabili-
ties. For purposes of this table, trading includes
all assets and liabilities that are kept in the
Group’s trading book and which receive a valua-
tion-at-risk treatment for capital adequacy pur-
poses. Non-trading includes all other assets and
liabilities that are kept on the banking book
including derivatives designated as hedging
instruments for hedge accounting purposes.
127
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Financial Instruments Risk Position (continued)
a) Interest Rate Risk (continued)
Interest rate sensitivity position
Interest sensitivity by time bands as of 31.12.2001
CHF thousand
per basis point increase
Within 1
month
1 to 3
months
3 to 12
months
CHF
USD
EUR
GBP
JPY
Others
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
22
3
(299 )
35
(129 )
(2)
(89 )
0
175
1
(51 )
0
(121 )
(24 )
35
(113 )
73
(6)
27
(7)
695
0
167
(1)
(35 )
(366 )
96
(157 )
(269 )
(38 )
(520 )
(57 )
(98 )
(3)
126
0
1 to 5
years
(297 )
(7,656 )
(960 )
(274 )
(308 )
182
65
175
(1,386 )
1
(404 )
(1 )
Interest sensitivity by time bands as of 31.12.2000
CHF thousand
per basis point increase
Within 1
month
1 to 3
months
3 to 12
months
CHF
USD
EUR
GBP
JPY
Others
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
Trading
Non-trading
41
(39 )
(493 )
13
(82 )
0
(227 )
0
293
0
(2 )
0
(471 )
49
2,007
58
(152 )
9
152
0
(1,532 )
0
(41 )
0
854
(49 )
293
11
114
1
145
(36 )
1,088
0
124
0
1 to 5
years
63
(6,802 )
(2,293 )
(342 )
1,190
82
(229 )
270
62
(1 )
(50 )
0
Over 5
years
(314 )
(6,030 )
(2,115 )
(15 )
(806 )
0
172
624
246
(4 )
369
(4)
Over 5
years
(478 )
(3,018 )
380
(183 )
(1,801 )
177
521
585
(450 )
(4 )
(44 )
0
Total
(745)
(14,073)
(3,243)
(524)
(1,439)
136
(345)
735
(368)
(5)
207
(6)
Total
9
(9,859)
(106)
(443)
(731)
269
362
819
(539)
(5)
(13)
0
Trading
The major part of the trading related interest
rate risk is generated in fixed income securities
trading, fixed income derivatives trading, trad-
ing in currency forward contracts and money
market trading and is managed within the VaR
model. Interest rate sensitivity arising from trad-
ing activities is quite sizeable in USD, EUR, GBP
and JPY as these are still the predominantly trad-
ed currencies 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.
128
Note 30 Financial Instruments Risk Position (continued)
a) Interest Rate Risk (continued)
Non-trading
The management of the non-trading interest rate
risk is primarily done within the Corporate Cen-
ter. The interest rate risk of UBS Switzerland,
related to client business with undefined maturi-
ties and of CHF transactions with maturities
above 1 year, is transferred to the Corporate
Center where the strategic interest rate risk man-
agement of the overall balance sheet is per-
formed centrally.
The most significant part of the interest rate
sensitivity of the CHF book of CHF (14.1) mil-
lion relates to the investment of the Group’s equi-
ty. This is invested – in line with the duration and
sensitivity targets set by the Board of Directors –
in a portfolio of fixed rate CHF loans with an
average duration of 3.0 years (previously 2.5
years). Investing in shorter-term or variable rate
instruments would mean exposing the earnings
stream (interest income) to higher fluctuations.
For the currencies EUR and GBP the interest rate
sensitivity arises mainly from subordinated notes
issues which are intentionally unhedged as they
are regarded as constituting a part of the Group’s
equity for asset and liability management purpos-
es. The interest rate sensitivity in USD can be
attributed predominantly to the short-term refi-
nancing of financial investments.
b) Credit Risk
Credit risk represents the loss which the Group
would suffer if a counterparty or issuer failed to
perform its contractual obligations in all forms.
Credit risk is inherent in traditional banking
products – loans, commitments to lend, and con-
tracts to support counterparties’ obligations to
third parties such as letters of credit – and in for-
eign exchange and derivatives contracts, such as
swaps and options (“traded products”). Positions
in tradable assets such as bonds and equities,
including both direct holdings and synthetic posi-
tions through derivatives, also carry credit risk.
This risk is managed primarily based on the
review of the financial status of each specific
counterparty, which is rated on a 14 point rating
scale, based on probability of default for prod-
ucts other than tradeable assets.
Concentrations of credit risk exist if clients
are engaged in similar activities, or are located in
the same geographic region or have comparable
economic characteristics such that their ability to
meet contractual obligations would be similarly
affected by changes in economic, political or
other conditions.
(b)(i) On-balance sheet assets
As of 31 December 2001, due from banks and
loans to customers amounted to CHF 262 bil-
lion. 60.7% of the loans were with clients domi-
ciled in Switzerland. Please refer to Note 10 for a
breakdown by region.
The issuer default risk of securities posi-
tions reported at fair value in the trading port-
folio assets amounted to CHF 398 billion as of
31 December 2001. Please refer to Note 12 for a
further breakdown by type of issuer.
Derivatives
Credit risk represents the current replacement
value of all outstanding derivative contracts in a
gain position by taking into consideration legally
enforceable master netting agreements. Positive
replacement values amounted to CHF 73 billion
as at 31 December 2001. Based on the location
of the ultimate counterparty, 10% of this credit
risk amount related to Switzerland, 47% to
Europe (excluding Switzerland) and 29% to
North America. 50% of the positive replacement
values are with other banks.
129
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)
(b)(ii) Off-balance sheet financial instruments
Credit commitments and contingent
liabilities
Of the CHF 76 billion in credit commitment and
contingent liabilities as at 31 December 2001,
13% related to clients domiciled in Switzerland,
24% in Europe (excluding Switzerland) and
55% in North America.
(b)(iii) Credit risk mitigation techniques
Credit risk associated with derivative instru-
ments is mitigated by the use of master netting
agreements. A further method of reducing credit
exposure 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 counter-
party. The impact of master netting agreements
as at 31 December 2001 is to mitigate credit risk
on derivative instruments by approximately
CHF 97 billion. The impact can change substan-
tially over short periods of time, because the
exposure is affected by each transaction subject
to the arrangement.
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 suitability, and managing
the size, diversification and maturity structure of
the portfolio. Credit utilization for all products
is compared against established limits on a con-
tinual basis and is subject to a standard excep-
tion reporting process.
130
Note 30 Financial Instruments Risk Position (continued)
c) Currency Risk
The Swiss franc is the Group’s reporting currency. Hedging transactions are used to manage forgeign currency risks (see Note 24: Deriv-
ative Instruments).
Breakdown of assets and liabilities by currencies
CHF billion
CHF
USD
31.12.01
31.12.00
Other
CHF
USD
Assets
Cash and balances with central banks
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
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Minority interests
Shareholders’ equity
Total liabilities, minority interests
and shareholders’ equity
3.0
5.0
0.1
5.1
9.6
30.6
151.4
2.9
0.7
0.7
6.3
0.2
2.1
217.7
8.0
0.0
12.8
2.8
25.7
123.3
2.4
15.7
7.2
0.1
43.5
0.3
8.6
156.4
142.9
265.2
11.4
43.1
7.4
4.9
0.0
1.5
18.5
5.6
665.8
68.6
24.3
271.1
65.2
6.5
138.8
10.0
120.0
6.1
3.9
0.0
EUR
0.6
5.2
2.5
40.2
47.2
1.2
11.9
1.5
0.8
0.0
0.1
0.0
0.8
17.1
8.7
3.9
81.1
75.9
30.2
20.1
17.0
1.2
0.0
0.8
0.4
1.4
112.0
257.8
12.9
3.2
30.7
12.5
1.6
41.5
0.9
8.8
0.9
0.0
0.0
17.0
2.8
54.0
25.3
37.7
30.2
4.0
11.7
1.5
0.1
0.0
1.9
5.8
0.5
5.3
16.1
11.7
154.2
6.5
1.6
0.7
6.9
0.3
3.2
214.7
6.5
0.1
10.0
2.0
8.6
118.8
3.0
18.3
9.9
0.2
44.8
0.2
10.4
169.2
83.7
184.1
6.9
52.3
8.3
4.4
0.0
1.4
19.1
3.3
543.3
46.5
12.6
194.6
52.4
6.3
129.7
11.8
90.7
3.6
2.5
0.0
241.5
714.5
113.0
184.3
222.2
550.7
EUR
0.5
8.0
2.4
37.4
38.2
0.6
7.1
0.9
0.2
0.1
0.0
0.0
0.6
96.0
10.6
5.0
16.1
11.4
2.0
29.9
1.7
4.4
2.5
0.1
0.0
83.7
Other
0.4
4.9
5.8
67.4
77.2
38.7
31.2
3.9
0.9
0.1
0.6
0.1
2.4
233.6
18.6
5.7
74.9
16.8
59.0
32.4
4.5
16.2
2.8
0.1
0.0
231.0
131
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Financial Instruments Risk Position (continued)
d) Liquidity Risk
Maturity analysis of assets and liabilities
CHF billion
Assets
Cash and balances with central banks
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
Goodwill and other intangible assets
Other assets
Total 31.12.2001
Total 31.12.2000
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total 31.12.2001
Total 31.12.2000
On
demand
Subject
to notice1
Due
within
3 mths
Due
between
3 and
12 mths
Due
between
1 and
5 years
Due
after
5 years
21.0
10.6
0.0
0.0
397.9
73.4
0.0
9.3
7.6
0.0
0.0
0.0
9.9
529.7
351.8
11.1
0.0
0.0
105.8
71.5
141.4
17.3
0.0
15.7
362.8
283.1
0.0
0.0
0.0
0.0
0.0
29.7
0.3
0.0
0.0
0.0
0.0
0.0
30.0
38.8
2.7
0.0
0.0
0.0
0.0
3.7
0.0
0.0
0.0
6.4
77.2
14.7
162.5
236.9
0.0
0.0
96.0
3.3
0.0
0.0
0.0
0.0
0.0
513.4
502.3
87.9
30.3
336.9
0.0
0.0
178.9
0.0
66.0
0.0
700.0
536.5
1.5
0.0
31.4
0.0
0.0
36.5
4.8
0.0
0.0
0.0
0.0
0.0
74.2
87.3
4.2
0.0
31.7
0.0
0.0
7.7
0.0
50.3
0.0
93.9
84.3
0.4
0.4
1.0
0.0
0.0
54.7
7.1
0.0
0.0
0.0
0.0
0.0
63.6
60.8
0.5
0.0
0.0
0.0
0.0
1.2
0.0
27.6
0.0
29.3
33.3
0.3
0.0
0.0
0.0
0.0
9.6
4.0
0.0
0.7
8.7
19.1
0.0
42.4
46.6
0.1
0.0
0.0
0.0
0.0
0.9
0.0
12.3
0.0
13.3
25.4
Total
21.0
27.5
162.9
269.3
397.9
73.4
226.5
28.8
7.6
0.7
8.7
19.1
9.9
1,253.3
1,087.6
106.5
30.3
368.6
105.8
71.5
333.8
17.3
156.2
15.7
1,205.7
1,039.8
1 Deposits without a fixed term, on which notice of withdrawal or termination has not been given (such funds may be withdrawn by the depositor
or repaid by the borrower subject to an agreed period of notice).
132
Note 30 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 on securities 2
Positive replacement values
Loans, net of allowances for credit losses
and other collateralized lendings
Accrued income and prepaid expenses
Property and equipment
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
31.12.01
380,641
29,500
73,447
305,624
7,554
13,202
9,875
25,487
50,705
8,362,374
365,100
Risk-
weighted
amount
31.12.01
7,640
10,992
19,556
154,908
3,679
13,202
4,504
9,868
5,034
9,256
1,777
13,319
253,735
Balance
sheet /
notional
amount1
31.12.00
333,270
20,463
57,875
312,376
7,062
13,620
9,491
27,786
53,643
5,743,239
380,411
Risk-
weighted
amount1
31.12.00
7,409
10,979
18,763
162,539
4,653
13,620
5,565
12,548
12,599
10,933
2,922
10,760
273,290
1 Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies).
3 The risk-weighted amount corresponds to the security
2 Excluding positions in the trading book, these are included in market risk positions.
4 Value at Risk according to the internal model multiplied by a factor of 12.5 to create the risk-weighted
margin (add-on) of the contracts.
amount of the market risk positions in the trading book.
BIS capital ratios
Tier 1
of which hybrid Tier 1
Tier 2
Total BIS
Capital
CHF million
31.12.01
Ratio
%
31.12.01
Capital
CHF million
31.12.00
Ratio
%
31.12.00
29,322
3,638
8,149
37,471
11.6
1.4
3.2
14.8
31,892
2,456
10,968
42,860
11.7
0.9
4.0
15.7
The Tier 1 capital includes CHF 3,638 million (USD 2,175 million) trust preferred securities at
31 December 2001 and CHF 2,456 million (USD 1,500 million) at 31 December 2000.
Among other measures the Group monitors the
adequacy of its capital using ratios established
by the Bank for International Settlements (BIS).
The BIS ratio is required to be at least 8%. The
Group has complied with all BIS and Swiss capi-
tal adequacy rules for all periods presented.
These ratios measure capital adequacy by com-
paring 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 con-
verted into their credit equivalents and market
risk positions at a weighted amount to reflect
their relative risk.
The capital adequacy rules require a mini-
mum amount of capital to cover credit and mar-
ket risk exposures. For the calculation of the
capital required for credit risk the balance sheet
assets are weighted according to broad cate-
gories of notional credit risk, being assigned a
133
UBS Group Financial Statements
Notes to the Financial Statements
Note 30 Financial Instruments Risk Position (continued)
e) Capital Adequacy (continued)
risk weighting according to the amount of capi-
tal deemed to be necessary to support them.
Four categories of risk weights (0%, 20%, 50%,
100%) are applied; for example cash, claims col-
lateralized by cash or claims collateralized by
OECD central-government securities have a zero
risk weighting which means that no capital is
required to be held in respect of these assets.
Uncollateralized loans granted to corporate or
private customers carry a 100% risk weighting,
meaning that they must be supported by capital
equal to 8% of the carrying amount. Other asset
categories 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
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 trans-
action 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
contracts and purchased options, the credit
equivalent is computed on the basis of the cur-
rent replacement value of the respective contract
plus a security margin (add-on) to cover the
future potential credit risk during the remaining
duration of the contract.
The Group 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
throughout the Group, using an internal Value-
at-Risk (VaR) model. This approach was intro-
duced in the BIS 1996 market risk amendment to
the Basel Accord of July 1988 and incorporated
in the Swiss capital adequacy rules of the Swiss
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 share capital, share
premium, retained earnings including current
year profit, foreign currency translation and
minority interest less accrued dividends, net long
positions in own shares and goodwill. Tier 2
capital includes the Group’s subordinated long-
term debt.
134
Note 31 Fair Value of Financial Instruments
The following table presents the fair value of
financial instruments based on the following val-
uation methods and assumptions. It is presented
because not all financial instruments are reflect-
ed in the financial statements at fair value.
Fair value is the amount for which an asset
could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s-length
transaction. We use market price to determine
fair value, where an active market (such as a rec-
ognized stock exchange) exists, as it is the best
evidence of the fair value of a financial instru-
ment. However, market prices are not available
for a significant number of the financial assets
and liabilities held and issued by the Group.
Therefore, for financial instruments where no
market price is available, the fair values presented
in the following table have been estimated using
present value or other estimation and valuation
techniques based on market conditions existing
at balance sheet dates.
The values derived from applying these tech-
niques are significantly affected by the under-
lying assumptions used concerning both the
amounts and timing of future cash flows and
the discount rates. The following methods and
assumptions have been used:
(a) trading assets, derivatives and other trans-
actions 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) financial investments classified as available-
for-sale are measured at fair value by reference
to quoted market prices when available. If
quoted market prices are not available, then
fair values are estimated on the basis of pricing
models or other recognized valuation tech-
niques. Prior to the adoption of IAS 39 in
2001, financial investments were carried at
cost or if considered held for sale, at the lower
of cost or market. Upon the adoption of the
standard, all financial investments are carried
at fair value. Unrealized gains and unrealized
losses, excluding impairment write-downs, are
recorded in shareholders’ equity until an asset
is sold, collected or otherwise disposed of;
(c) 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;
(d) the fair value of demand deposits and sav-
ings accounts with no specific maturity is as-
sumed to be the amount payable on demand
at the balance sheet date;
(f)
(e) the fair value of variable rate financial
instruments is assumed to approximate their
carrying amounts;
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
in the following table. However, because other
institutions may use different methods and
assumptions, such fair value disclosures in this
note cannot necessarily be compared from one
financial institution to another.
135
UBS Group Financial Statements
Notes to the Financial Statements
Note 31 Fair Value of Financial Instruments (continued)
CHF billion
Assets
Cash and balances with central banks
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
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Debt issued
Subtotal
Unrealized gains and losses recorded
in shareholders’ equity before tax on:
Financial investments
Derivative instruments designated
as cash flow hedges
Net unrealized gains and losses
not recognized in the income statement
Carrying
value
31.12.01
Fair Unrealized
value gain / (loss)
31.12.01
31.12.01
Carrying
value
31.12.00
Fair Unrealized
value gain / (loss)
31.12.00
31.12.00
21.0
27.7
162.9
269.3
397.9
73.4
226.7
28.8
107.2
30.3
368.6
105.8
71.4
334.0
157.5
21.0
27.7
162.9
269.3
397.9
73.4
227.0
28.8
107.2
30.3
368.6
105.8
71.4
334.0
158.6
3.0
29.1
177.9
193.8
315.6
57.9
245.1
19.6
82.8
23.4
295.5
82.6
75.9
311.2
130.5
3.0
29.1
177.9
193.8
315.6
57.9
244.9
21.4
82.8
23.4
295.5
82.6
75.9
311.2
131.4
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(1.1)
(0.8)
1.2
(0.6)
(0.2)
0.0
0.0
0.0
0.0
0.0
0.0
(0.2)
1.8
0.0
0.0
0.0
0.0
0.0
0.0
(0.9)
0.7
(0.5)
1
0.2
1 Relates to the cash flow hedge opening adjustment for IAS 39 at 1 January 2001 (see Note 1 Summary of Significant Accounting Policies for
more information on the adoption of IAS 39).
136
Note 31 Fair Value of Financial Instruments (continued)
The table does not reflect the fair values of non-
financial assets and liabilities such as property,
equipment, goodwill, prepayments and non-
interest accruals. The interest amounts accrued
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 predominantly hedged by deriv-
ative instruments, mainly interest rate swaps.
The interest rate risk inherent in the balance
sheet positions 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. When
fixed rate financial instruments are hedged with
derivatives in a fair value hedge, they are reflected
in the above table at fair value related to the
hedged exposure with fair value changes record-
ed in net profit. When derivative instruments are
designated as cash flow hedges, the difference
between the total amount of valuation gains and
losses and the amortized amount of the deriva-
tives is deferred and shown net in the table as
unrealized gains and losses on derivative instru-
ments designated as cash flow hedges.
The decrease in the Net unrealized gains and
losses during 2001 of CHF 0.4 billion is mainly
attributable to the lower unrealized fair value
gain from financial investments (down CHF
0.6 billion to CHF 1.2 billion). The change in the
unrealized gains and losses of fixed rate long-
term assets has increased by CHF 0.5 billion
from the prior year as a result of declining inter-
est rates during 2001. This was partially offset by
an increase in fair value loss from fixed rate long-
term debt issues and from hedging derivatives.
Note 32 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 these locations.
Swiss pension plans until 30 June 1999
The pension funds of the Group were set up as
trusts, domiciled in Basel and Zurich. All domes-
tic employees were covered. The pension funds
were defined benefit plans. The pension plan
benefits exceeded the minimum benefits required
under Swiss law.
Contributions were paid for by the Group
and its employees. The employee contributions
were calculated as a percentage of the insured
annual salary and were deducted monthly. The
percentages deducted from salary were depend-
ent on age and varied between 8% and 12%.
The Group contributions were variable and
amount to 125% to 250% of the employees con-
tributions depending on the financial situation of
the pension fund.
The pension plan formula was based on years
of contributions and final covered salary. The
benefits covered included retirement benefits,
disability, 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 liqui-
dated and a new foundation with domicile in
Zurich was 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 an increase of vested plan benefits for
the beneficiaries of such plans due to the alloca-
tion of the excess of the fair value of plan assets
over the benefit obligation. This had the effect of
increasing the Defined benefit obligation by
137
UBS Group Financial Statements
Notes to the Financial Statements
Note 32 Retirement Benefit Plans and Other Employee Benefits
(continued)
CHF 3,525 million. In accordance with IAS 19
(revised 2000) this resulted in a one-time charge
to income which was offset by the recognition of
assets previously unrecognized due to the para-
graph 58 (b) limitation of IAS 19 (revised 2000)
used to fund this increase in benefits.
The pension plan covers practically all
employees in Switzerland and exceeds the mini-
mum benefit requirements under Swiss law. Con-
tributions to the pension plan are paid for by
employees and the Group. The employee con-
tributions are calculated as a percentage of
insured annual salary and are deducted monthly.
The percentages deducted from salary for full
benefit coverage (including risk benefits) depend
on age and vary between 7% and 10%. The
Group pays a variable contribution that ranges
between 150% and 220% of the sum of employ-
ees’ contributions.
The pension plan formula is based on years
of contributions and final covered salary. The
benefits covered include retirement benefits, dis-
ability, death and survivor pension.
In 1999, the Group recognized a prepaid
pension asset of CHF 456 million representing
excess employer contributions. In 2000, CHF
100 million of this asset was used to satisfy
the benefit obligation. There was no asset used
in 2001.
Foreign pension plans
The foreign locations of UBS operate various
pension schemes in accordance with local regula-
tions and practices. Among these schemes are
defined contribution plans as well as defined
benefit plans. The locations with defined benefit
plans of a material nature are in the UK, the US
and Germany. These locations together with
Switzerland cover nearly 90% of the active
workforce. 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.
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
In the US and the UK the Group offers retiree
medical benefits that contribute to the health
care coverage of employees and beneficiaries
after retirement. In addition to retiree medical
benefits, the Group in the US also provides
retiree life insurance benefits.
The benefit obligation in excess of plan assets
for those plans amounts to CHF 142 million as
of 31 December 2001 (2000 CHF 111 million,
1999 CHF 113 million) and the total unfunded
accrued postretirement liabilities to CHF 130 mil-
lion as of 31 December 2001 (2000 CHF 108 mil-
lion, 1999 CHF 83 million). The actuarially
determined net postretirement cost amounts to
CHF 24 million as of 31 December 2001 (2000
CHF 22 million, 1999 CHF 17 million).
138
Note 32 Retirement Benefit Plans and Other Employee Benefits
(continued)
CHF million
31.12.01
31.12.00
31.12.99
31.12.01
31.12.00
31.12.99
Swiss
Foreign
(17,712)
(541)
(674)
(17,011 )
(545 )
(666 )
(262)
421
889
(211 )
721
(14,944 )
(464 )
(636 )
(3,517 )
1,000
571
979
(3,406)
(121)
(204)
(1)
(345)
107
(12)
429
(2,444 )
(165 )
(162 )
(3 )
(99 )
84
(740 )
123
(2,009)
(118)
(123)
(2)
2
133
(269)
(58)
(17,879)
(17,712 )
(17,011 )
(3,553)
(3,406 )
(2,444)
19,074
(765)
656
213
(889)
18,565
535
490
205
(721 )
17,885
2,136
515
180
(979 )
(1,172 )
3,378
(220)
258
(107)
7
(429)
2,880
13
23
(84 )
676
(130 )
2,173
352
22
15
(133)
333
118
18,289
19,074
18,565
2,887
3,378
2,880
Reconciliation of benefit obligation
Defined benefit obligation
at beginning of the year
Service cost
Interest cost
Plan amendments
Special termination benefits
Actuarial gain/(loss)
Benefits paid
Acquisition of PaineWebber
Currency adjustment
Other
Defined benefit obligation
at the end of the year
Reconciliation of fair value of plan assets
Fair value of plan assets
at the beginning of the year
Actual return on plan assets
Employer contributions
Plan participant contributions
Benefits paid
Special termination benefits
Acquisition of PaineWebber
Currency adjustments
Other
Fair value of plan assets
at the end of the year
Funded status
Plan assets in excess of benefit obligation
Unrecognized net actuarial gains
Unrecognized transition amount
Unrecognized past service cost
Unrecognized assets
410
961
1,362
(331 )
1,554
(724 )
(666)
673
(Unfunded accrued) / prepaid pension cost
356
(1,015)
(675 )
356
(374 )
456
Movement in the net (liability) or asset
(Unfunded accrued) / prepaid pension cost
at the beginning of the year
Net periodic pension cost
Employer contributions
Acquisition of PaineWebber
Currency adjustments
356
(656)
656
456
(590 )
490
0
(59 )
515
(Unfunded accrued) / prepaid pension cost
356
356
456
Amounts recognized in the balance sheet
Prepaid pension cost
Accrued pension liability
356
(Unfunded accrued) / prepaid pension cost
356
356
356
456
456
2
9
(153)
(97)
258
1
9
185
(176)
9
(28 )
(81 )
1
2
(47 )
(153 )
(63 )
(55 )
13
(63 )
15
(153 )
53
(206 )
(153 )
436
(474)
1
2
(28)
(63)
43
(123)
22
(5)
(63)
49
(112)
(63)
139
UBS Group Financial Statements
Notes to the Financial Statements
Note 32 Retirement Benefit Plans and Other Employee Benefits
(continued)
CHF million
31.12.01
31.12.00
31.12.99
31.12.01
31.12.00
31.12.99
Swiss
Foreign
Amounts recognized
in the Income Statement
Current service cost
Interest cost
Expected return on plan assets
Adjustment to limit prepaid pension cost
Amortization of unrecognized prior service costs
Amortization of unrecognized net (gains) / losses
Employee contributions
Actuarially determined
net periodic pension cost
Actual return on plan assets (%)
Principal actuarial assumptions used (%)
Discount rate
Expected rate of return on plan assets
Expected rate of salary increase
Rate of pension increase
541
674
(947)
339
262
545
666
(927 )
300
211
464
636
(883 )
(150 )
172
(213)
(205 )
(180 )
656
(4.0)
4.0
5.0
2.5
1.5
590
2.9
4.0
5.0
2.5
1.5
59
11.9
4.0
5.0
2.5
1.5
Additional details to fair value
of plan assets
Swiss
31.12.01
31.12.00
31.12.99
Own financial instruments
Securities lent to UBS included in plan assets
Other assets used by UBS included in plan assets
781
824
104
1,211
3,432
179
846
5,939
187
121
204
(228)
97
(7.3)
6.2
7.9
4.4
1.5
165
162
(243 )
3
(9 )
(23 )
55
(0.9 )
6.3
8.1
4.4
1.6
118
123
(195)
21
77
(6)
(15)
123
15.3
6.0
8.1
4.6
2.2
140
Note 32 Retirement Benefit Plans and Other Employee Benefits
(continued)
Foreign post-retirement medical and life plans
CHF million
31.12.01
31.12.00
31.12.99
Post-retirement benefit obligation at beginning of the year
Service cost
Interest cost
Plan amendments
Actuarial gain/(loss)
Benefits paid
Acquisition of PaineWebber
Currency adjustment
Other
Post-retirement benefit obligation at end of the year
(115)
(7)
(9)
(10)
(6)
4
(2)
(145)
(117 )
(6 )
(8 )
(7 )
27
5
(9 )
0
0
(115 )
(96)
(2)
(6)
0
0
4
0
(16)
(1)
(117)
CHF million
31.12.01
31.12.00
31.12.99
Fair value of plan assets at beginning of the year
Actual return on plan assets
Company contributions
Benefits paid
Fair value of plan assets at end of the year
4
0
3
(4)
3
4
0
4
(4 )
4
3
1
4
(4)
4
The assumed health care cost trend used in determining the benefit expense for 2001 is 5.32%.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plan. A one-percentage-point change in the assumed health care cost trend rates would change
the US post-retirement benefit obligation and the service and interest cost components of the net
periodic post-retirement benefit costs as follows:
CHF million
Effect on total service and interest cost
Effect on the post-retirement benefit obligation
1% increase
1% decrease
3.0
17.0
(2.0)
(14.0)
Note 33 Equity Participation Plans
a) Equity Participation Plans Offered
UBS has established several equity participation
plans to further align the long-term interests of
executives, managers, staff and shareholders.
The plans are offered to eligible employees in
approximately 50 countries and are designed to
meet the complex legal, tax and regulatory
requirements of each country in which they are
offered. The explanations below describe the
most significant plans in general, but specific
plan rules and investment offerings may vary by
country.
Equity Plus Program (EPP): This plan replaces
the Equity Investment Plan (EIP) (see below)
and will be the main plan for all UBS employees
going forward. It was previously only available
to UBS PaineWebber employees. Equity Plus
gives eligible UBS employees the opportunity to
purchase UBS shares at fair market value on the
purchase date and receive two options on UBS
shares for each share purchased, up to a maxi-
mum limit. The options have a strike price equal
to the fair market value of the stock on the date
the option is granted. Share purchases can be
made annually from bonus compensation or
quarterly, based on regular deductions from
salary. Shares purchased under EPP are restrict-
ed from resale for two years from the time of
purchase, and the options granted have either a
141
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Equity Participation Plans (continued)
a) Equity Participation Plans Offered (continued)
two or three year vesting requirement and
expire either seven or ten years after the date
of grant.
Discounted Purchase Plans: All employees in
Switzerland are entitled to purchase a specified
number of UBS 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.
Equity Ownership Plan (EOP): Selected per-
sonnel receive a mandatory portion of their per-
formance related compensation in UBS shares
and are also awarded a matching contribution in
the form of additional UBS shares or options.
Participants in certain countries are eligible to
receive a portion of their award in Alternative
Investment Vehicles (AIVs). These are generally
money market funds, UBS and non-UBS mutual
funds and other UBS sponsored funds. The
awards vest either at the end of the restriction
period (“cliff” vesting) which is normally three
years or ratably over the vesting period. Under
certain conditions, these awards are fully for-
feitable by the employee.
Long Term Incentive Plans: Under these
plans, key employees are granted options to pur-
chase UBS shares at a price not less than the fair
market value of the shares on the date the option
is granted. Long-term stock options are blocked
for either three or five years during which they
cannot be exercised. Expiration of the options is
generally six years. One option gives the right to
purchase one registered UBS share at the option’s
strike price. In some grants, accelerated vesting
or non-forfeitability may occur if certain share
appreciation targets are met.
Other deferred compensation plans: UBS
sponsors other deferred compensation plans
for selected eligible employees. Generally, contri-
butions are made on a tax deferred basis. Partic-
ipants are allowed to invest in UBS shares or
AIVs. No additional company match is granted,
and the plan is generally not forfeitable. In addi-
tion, UBS also grants deferred compensation
awards to new recruits, senior management and
other key employees in the form of UBS shares,
options or other leveraged interests in non-UBS
instruments.
Equity Investment Plan (EIP) (now discon-
tinued): Prior to the discontinuance of new
awards under this plan in 2001, employees had
the choice to invest part of their annual bonus in
UBS shares, warrants or other derivatives on
UBS shares. A holding period, generally three
years, applied during which the instruments
could not be sold or exercised. In addition, par-
ticipants in the plan received a matching contri-
bution of additional UBS shares or derivatives.
Only the UBS matching contribution was for-
feitable. The last EIP vesting will take place in
2004. Staff who used to have the possibility to
take part in EIP are now offered the opportunity
to take part in EPP.
142
Note 33 Equity Participation Plans (continued)
b) UBS Share Awards
i) Stock bonus plans
Shares granted under the various equity participation plans mentioned above are as follows:
Stock bonus plans
Shares awarded
Weighted-average fair market value per share (in CHF)
31.12.01
15,644,000
90
31.12.00
38,340,000
76
31.12.99
10,407,000
73
The stock bonus awards for 2000 include
approximately 19.8 million shares granted under
the retention agreements with key employees of
UBS PaineWebber. The bonus awards for 1999
include 4.2 million shares issued in exchange for
previously issued non-share awards and for spe-
cial bonuses.
9.5 million, 4.0 million and 3.1 million shares
vested in 2001, 2000 and 1999, respectively. Of
these shares, the majority vested on 15 March of
each year and the remaining shares vested on
various dates throughout the year. On 31 De-
cember 2001, 2000 and 1999, there were 52.3 mil-
lion, 47.5 million and 14.4 million unvested shares
outstanding in various equity participation plans
with a corresponding market value of CHF
4.4 billion in 2001, CHF 4.2 billion in 2000
and CHF 1.0 billion in 1999.
ii) Stock purchase plans
The following table shows the shares awarded and the weighted-average fair value per share for the
Group’s stock purchase plans.
Stock purchase plans
Share quantity for discounted purchase plans
Weighted-average purchase price (in CHF)
Share quantity for UBS PaineWebber plans
Weighted-average fair value purchase price (in USD)
31.12.01
1,701,099
47
1,221,416
51
31.12.00
966,000
35
298,725
46
31.12.99
5,406,000
49
143
UBS Group Financial Statements
Notes to the Financial Statements
Note 33 Equity Participation Plans (continued)
c) UBS Option Awards
Movements in options granted under various equity participation plans are as follows:
Outstanding, at the beginning
of the year
Options due to the acquisition
of PaineWebber
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding, at the end of the year
Exercisable, at the end of the year
Weighted
average
exercise
price
(in CHF)
31.12.01
Number of
options
31.12.00
Weighted
average
exercise
price
(in CHF)
31.12.00
Number of
options
31.12.01
63,308,502
58
30,415,386
0
11,070,992
(10,083,075)
(1,009,750)
63,286,669
25,550,932
18,975,8101
21,248,0462
(5,390,307 )
(1,940,433 )
63,308,502
18,310,839
94
49
74
66
50
66
34
72
50
64
58
34
Number of
options
31.12.99
21,608,358
0
10,317,426
(215,298 )
(1,295,100 )
30,415,386
1,951,920
Weighted
average
exercise
price
(in CHF)
31.12.99
59
0
79
60
63
66
62
1 UBS AG issued options in exchange for options of PaineWebber which have been included in the purchase price for PaineWebber at a fair value of CHF 992 million. 2 Includes options granted
to key employees of UBS PaineWebber, vesting over a 3-year period, subject to employee’s continued employment and other restrictions.
Some of the options in the table above have exercise prices denominated in US dollars which have been converted into CHF at the year-
end spot exchange rate for purposes of this table. The exercise dates can occur on any business day during the year.
The following table summarizes additional information about stock options outstanding at 31 December 2001:
Range of exercise
prices per share
Number of options
outstanding
Weighted-average
exercise price
Weighted-average
remaining contractual life
Number of
options exercisable
Weighted-average
exercise price
Options outstanding
Options exercisable
CHF
56.67–70.00
70.01–85.00
85.01–106.00
56.67–106.00
USD
6.34–15.00
15.01–25.00
25.01–35.00
35.01–45.00
45.01–55.00
55.01–58.76
6.34–58.76
19,966,200
11,017,595
6,024,480
37,008,275
5,269,657
2,879,652
5,983,999
0
10,067,766
2,077,320
26,278,394
CHF
63.08
78.41
98.60
73.42
USD
8.79
22.61
28.62
0
48.05
57.81
33.74
Years
3.3
3.3
6.8
3.8
Years
2.7
3.2
4.3
0.0
6.1
6.1
4.7
4,374,462
0
31,800
4,406,262
5,269,657
2,879,652
5,983,999
0
7,011,362
0
21,144,670
CHF
57.85
0
90.00
58.08
USD
8.79
22.61
28.62
0
47.05
0
28.97
Options are normally granted with a strike price either equal to fair market value or approximately 10% greater than the fair value of
the underlying share on the grant date.
144
Note 33 Equity Participation Plans (continued)
d) Compensation Expense
Generally, the Group’s policy is to recognize
expense at the date of grant for equity participa-
tion instruments (shares, warrants, options and
other derivatives for which the underlying is the
Group’s own shares). The amount of expense
recognized is equal to the intrinsic value of the
instrument at such date and is calculated as
follows: 1) For stock options, it is the difference
between the strike price and fair value of shares
at the date of grant, if any. 2) For UBS shares and
other derivative instruments, it is the fair market
value. 3) For discounted share plans, the expense
is equal to the difference between the fair market
value and discounted value.
The accrued expense for share based compen-
sation for the years ended 31 December 2001,
2000 and 1999 was CHF 974 million, CHF
1,749 million and CHF 1,684 million, respec-
tively. The accruals include awards earned cur-
rently but issued in the following year.
e) Pro-Forma Net Income
The following table presents Net income and Earnings per share for 2001, 2000 and 1999 as if the
Group had adopted the fair value method of accounting for its equity compensation plans, rather
than the intrinsic value method described in paragraph d) above.
CHF million, except per share data
31.12.01
31.12.00
31.12.99
Net income
Basic EPS
Diluted EPS
As reported
Pro-forma
As reported
Pro-forma
As reported
Pro-forma
4,973
4,626
3.93
3.65
3.78
3.51
7,792
7,6341
6.44
6.31
6.35
6.22
6,153
6,0281
5.07
4.96
5.02
4.92
1 Pro-forma net income at 31 December 2000 and 31 December 1999 has been adjusted for expense reversals related to forfeitures.
The effects of recognizing compensation expense and providing pro-forma disclosures are not likely
to be representative of the effects on reported Net profit for future years.
The fair value of options granted was determined using a proprietary option pricing model, substan-
tially similar to the Black-Scholes model, with the following assumptions:
Expected volatility
Risk free interest rate (CHF)
Risk free interest rate (USD)
Expected dividend rate
Expected life (years)
31.12.01
31.12.00
31.12.99
30%
3.51%
5.81%
2.67%
4.5
30%
3.27%
5.66%
2.44%
4.4
33%
2.07%
–
1.44%
6
The weighted-average fair value of options granted in 2001, 2000 and 1999 was CHF 23, CHF
16 and CHF 20 per share, respectively.
145
UBS Group Financial Statements
Notes to the Financial Statements
Note 34 Related Parties
Related parties include Associated companies, the Board of Directors, the Group Executive Board,
the Group Managing Board, close family members and enterprises which are controlled by these
individuals as well as certain persons performing similar functions.
Total remuneration to related parties recognized in the income statement amounted to CHF 321.4
million in 2001, CHF 272.3 million in 2000 and CHF 193.1 million in 1999, including accrued pen-
sion benefits of approximately CHF 35.4 million in 2001, CHF 30.0 million in 2000 and CHF 21.2
million in 1999. The remuneration paid to related parties in 2001 includes approximately USD 70
million (CHF 118 million) paid to employees of Paine Webber Group, Inc. who joined UBS at the
merger on 3 November 2000.
The number of long-term stock options outstanding to related parties from equity plans was
8,366,103 at 31 December 2001 and 4,693,458 at 31 December 2000. These plans are further
explained in Note 33 Equity Participation Plans.
The external members of the Board of Directors do not have employment or service contracts
with UBS, and thus are not entitled to benefits upon termination of their service on the Board of
Directors. The full-time Chairman and Vice-Chairmen have top-management employment contracts
and receive pension benefits upon retirement.
The total amounts of shares and warrants held by members of the Board of Directors, Group
Executive Board and Group Managing Board were 4,068,918 and 60,578,417 as of 31 December
2001 and 7,583,184 and 69,504,577 as of 31 December 2000. No member of the Board of Direc-
tors, Group Executive Board or Group Managing Board is the beneficial owner of more than 1% of
the Group’s shares.
Loans and advances receivable from related parties were as follows:
CHF million
Mortgages at the beginning of the year
Additions
Reductions
Mortgages at the end of the year
31.12.01
31.12.00
36
8
(12)
32
28
9
(1)
36
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 adjusted for reduced credit risk.
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
31.12.01
31.12.00
0
65
0
65
62
0
(62)
0
All loans and advances to associated companies are transacted at arm’s length. At 31 December 2001,
there are trading exposures and guarantees to significant associated companies of CHF 306 million.
The Group routinely receives services from associated companies at an arm’s length basis. For the
year ended 31 December 2001, the amount paid to significant associates was CHF 98 million. Note
36 provides a list of significant associates.
146
Note 35 Post-Balance Sheet Events
There have been no material post-balance sheet
events which would require disclosure or adjust-
ment to the 31 December 2001 Financial State-
ments.
Bond issues have decreased by CHF 1,109 million
from the balance sheet date to 12 February 2002.
On 12 February 2002, the Board of Directors
reviewed the Financial Statements and author-
ized them for issue. These Financial Statements
will be submitted to the Annual General Meeting
of Shareholders to be held on 18 April 2002 for
approval.
Note 36 Significant Subsidiaries and Associates
The legal entity group structure of UBS is designed to support the Group’s businesses within an effi-
cient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely
UBS Warburg, UBS Switzerland and UBS Asset Management) nor Corporate Center are replicated in
their own individual legal entities but rather they generally operate out of the parent bank, UBS AG,
through its Swiss and foreign branches.
The parent bank structure allows UBS to capitalize on the advantages offered by the use of one
legal platform by all the Business Groups. It provides for the most cost efficient and flexible struc-
ture and facilitates efficient allocation and use of capital, comprehensive risk management and
straightforward funding processes.
Where, usually due to local legal, tax or regulatory rules or due to additional legal entities join-
ing the UBS Group via acquisition, it is either not possible or not efficient to operate out of the par-
ent bank then local subsidiary companies host the appropriate businesses. The significant operating
subsidiary companies in the Group are listed below:
Significant subsidiaries
Company
Jurisdiction
of incorporation
Business
Group 1
Share
capital
in millions
Equity
interest
accumul-
ated in %
CH
Bern, Switzerland
CH
Zurich, Switzerland
WA
Rio de Janeiro, Brazil
CH
Basel, Switzerland
CH
Lugano, Switzerland
AM
Delaware, USA
AM
Halifax, Canada
AM
New York, USA
Delaware, USA
AM
George Town, Cayman Islands WA
CH
Zurich, Switzerland
CH
CH
Armand von Ernst & Cie AG
Aventic AG
Banco UBS Warburg SA
Bank Ehinger & Cie AG
BDL Banco di Lugano
Brinson Advisors Inc
Brinson Canada Co
Brinson Partners (New York) Inc
Brinson Partners Inc
Brunswick UBS Warburg Limited
Cantrade Privatbank AG
Cantrade Private Bank Switzerland (CI) Limited St. Helier, Jersey
Crédit Industriel SA
EIBA «Eidgenössische Bank»
Beteiligungs- und Finanzgesellschaft
Factors AG
Ferrier Lullin & Cie SA
Fondvest AG
Global Asset Management Limited
Hirslanden Holding AG
HYPOSWISS, Schweizerische
Hypotheken- und Handelsbank
Zurich, Switzerland
Zurich, Switzerland
Geneva, Switzerland
Zurich, Switzerland
Hamilton, Bermuda
Zurich, Switzerland
WA
CH
CH
AM
AM
CC
CH
Zurich, Switzerland
Zurich, Switzerland
CHF
CHF
BRL
CHF
CHF
USD
CAD
USD
USD
USD
CHF
GBP
CHF
CHF
CHF
CHF
CHF
USD
CHF
5.0
30.0
52.9
6.0
50.0
35.22
117.0
0.5
–
25.02
10.0
0.7
10.0
14.0
5.0
30.0
4.3
2.0
22.5
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
91.2
CHF
26.0
100.03
147
Footnotes
1 CH: UBS Switzerland, AM: UBS Asset
Management, WA: UBS Warburg,
CC: Corporate Center.
2 Share Capital and Share Premium.
3 Sold subsequently to 31 December 2001.
UBS Group Financial Statements
Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
Company
IL Immobilien-Leasing AG
PaineWebber Capital Inc
PT UBS Warburg Indonesia
PW Trust Company
SG Warburg & Co International BV
SG Warburg Securities SA
Thesaurus Continentale
Effekten-Gesellschaft Zürich
UBS (Bahamas) Ltd
UBS (Cayman Islands) Ltd
UBS (France) SA
UBS (Italia) SpA
UBS (Luxembourg) SA
UBS (Monaco) SA
UBS (Sydney) Limited
UBS (Trust and Banking) Ltd
UBS (USA) Inc
UBS Americas Inc
UBS Asset Management (Australia) Ltd
UBS Asset Management (France) SA
UBS Asset Management (Italia) SIM SpA
UBS Asset Management (Japan) Ltd
UBS Asset Management (Singapore) Ltd
UBS Asset Management (Taiwan) Ltd
UBS Asset Management Holding Limited
UBS Australia Limited
UBS Bank (Canada)
UBS Beteiligungs-GmbH & Co KG
UBS Bunting Warburg Inc
UBS Capital (Jersey) Ltd
UBS Capital AG
UBS Capital Americas Investments II LLC
UBS Capital Asia Pacific Limited
UBS Capital BV
UBS Capital II LLC
UBS Capital Latin America LDC
UBS Capital LLC
UBS Capital Partners Limited
UBS Capital SpA
UBS Card Center AG
UBS España SA
UBS Finance (Cayman Islands) Limited
UBS Finance (Curação) NV
UBS Finance (Delaware) LLC
UBS Finanzholding AG
UBS Fund Holding (Luxembourg) SA
UBS Fund Holding (Switzerland) AG
UBS Fund Management (Switzerland) AG
UBS Fund Services (Luxembourg) SA
UBS Global Trust Corporation
UBS Immoleasing AG
UBS International Holdings BV
UBS Invest Kapitalanlagegesellschaft mbH
UBS Leasing AG
Jurisdiction
of incorporation
Business
Group 1
CH
Opfikon, Switzerland
WA
Delaware, USA
WA
Jakarta, Indonesia
New Jersey, USA
WA
Amsterdam, the Netherlands WA
WA
Geneva, Switzerland
CH
Zurich, Switzerland
Nassau, Bahamas
CH
George Town, Cayman Islands CH
CH
Paris, France
CH
Milan, Italy
CH
Luxembourg, Luxembourg
CH
Monte Carlo, Monaco
WA
Sydney, Australia
AM
Tokyo, Japan
WA
Delaware, USA
WA
Delaware, USA
AM
Sydney, Australia
AM
Paris, France
AM
Milan, Italy
AM
Tokyo, Japan
AM
Singapore, Singapore
AM
Taipei, Taiwan
AM
London, Great Britain
WA
Sydney, Australia
CH
Toronto, Canada
WA
Frankfurt, Germany
WA
Toronto, Canada
WA
St. Helier, Jersey
WA
Zurich, Switzerland
Delaware, USA
WA
George Town, Cayman Islands WA
WA
The Hague, the Netherlands
Delaware, USA
WA
George Town, Cayman Islands WA
WA
Delaware, USA
WA
London, Great Britain
WA
Milan, Italy
CH
Glattbrugg, Switzerland
Madrid, Spain
CH
George Town, Cayman Islands CC
Willemstad, Netherlands Antilles CC
WA
Delaware, USA
CC
Zurich, Switzerland
AM
Luxembourg, Luxembourg
AM
Basel, Switzerland
AM
Basel, Switzerland
AM
Luxembourg, Luxembourg
CH
St. John, Canada
CH
Zurich, Switzerland
CC
Amsterdam, the Netherlands
AM
Frankfurt, Germany
CH
Brugg, Switzerland
Share
capital
in millions
CHF
5.0
25.72
USD
IDR 11,000.0
4.42
USD
40.5
GBP
14.5
CHF
30.0
CHF
4.0
USD
5.6
USD
10.0
EUR
22.2
EUR
150.0
CHF
9.2
EUR
AUD
12.7
JPY 10,900.0
USD
315.0
USD 3,562.92
8.0
AUD
0.8
EUR
EUR
0.5
2,200.0
JPY
4.0
SGD
340.0
TWD
8.02
GBP
50.0
AUD
CAD
20.7
398.8
EUR
33.3
CAD
36.02
GBP
5.0
CHF
90.02
USD
5.0
USD
3.2
EUR
2.62
USD
–
USD
18.52
USD
6.7
GBP
25.8
EUR
40.0
CHF
65.3
EUR
0.5
USD
0.1
USD
37.32
USD
10.0
CHF
42.0
CHF
18.0
CHF
1.0
CHF
2.5
CHF
0.1
CAD
3.0
CHF
5.5
CHF
6.4
EUR
10.0
CHF
Equity
interest
accumul-
ated in %
100.0
100.0
85.0
99.6
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
84.1
100.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
92.9
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
Footnotes
1 CH: UBS Switzerland, AM: UBS Asset
Management, WA: UBS Warburg,
CC: Corporate Center.
2 Share Capital and Share Premium.
148
Note 36 Significant Subsidiaries and Associates (continued)
Significant subsidiaries (continued)
Company
Jurisdiction
of incorporation
Business
Group 1
Zurich, Switzerland
London, Great Britain
Delaware, USA
Delaware, USA
CH
WA
AM
WA
WA
California, USA
WA
Delaware, USA
WA
Delaware, USA
WA
Hamburg, Germany
CH
Connecticut, USA
AM
London, Great Britain
WA
Toronto, Canada
CH
CH
Nassau, Bahamas
George Town, Cayman Islands CH
CH
St. Helier, Jersey
CH
Singapore, Singapore
WA
London, Great Britain
WA
London, Great Britain
WA
Hong Kong, China
WA
Paris, France
Milan, Italy
WA
George Town, Cayman Islands WA
WA
Kuala Lumpur, Malaysia
Amsterdam, the Netherlands WA
WA
Frankfurt, Germany
WA
WA
WA
WA
WA
WA
WA
WA
WA
WA
WA
WA
WA
WA
UBS Life AG
UBS Limited
UBS O’Connor LLC
UBS PaineWebber Inc
UBS PaineWebber Incorporated of Puerto Rico Hato Rey, Puerto Rico
UBS PaineWebber Life Insurance Company
UBS Portfolio LLC
UBS Principal Finance LLC
UBS Private Banking Deutschland AG
UBS Realty Investors LLC
UBS Securities Limited
UBS Trust (Canada)
UBS Trustees (Bahamas) Ltd
UBS Trustees (Cayman) Ltd
UBS Trustees (Jersey) Ltd
UBS Trustees (Singapore) Ltd
UBS UK Holding Limited
UBS UK Limited
UBS Warburg Asia Limited
UBS Warburg (France) SA
UBS Warburg (Italia) SpA
UBS Warburg (Japan) Limited
UBS Warburg (Malaysia) Sdn Bhd
UBS Warburg (Nederland) BV
UBS Warburg AG
UBS Warburg Australia Corporate Finance Ltd Sydney, Australia
UBS Warburg Australia Corporation Pty Limited Sydney, Australia
Sydney, Australia
UBS Warburg Australia Equities Ltd
Sydney, Australia
UBS Warburg Australia Limited
Hong Kong, China
UBS Warburg Derivatives Limited
Hong Kong, China
UBS Warburg Hong Kong Limited
London, Great Britain
UBS Warburg International Ltd
Delaware, USA
UBS Warburg LLC
London, Great Britain
UBS Warburg Ltd
Auckland, New Zealand
UBS Warburg New Zealand Equities Ltd
Melbourne, Australia
UBS Warburg Private Clients Ltd
Singapore, Singapore
UBS Warburg Pte Limited
Delaware, USA
UBS Warburg Real Estate Securities Inc
Madrid, Spain
UBS Warburg Securities (España) SV SA
UBS Warburg Securities
(South Africa) (Pty) Limited
UBS Warburg Securities Co Ltd
UBS Warburg Securities India Private Limited Mumbai, India
UBS Warburg Securities Ltd
UBS Warburg Securities Philippines Inc
London, Great Britain
Makati City, Philippines
Sandton, South Africa
Bangkok, Thailand
WA
WA
WA
WA
WA
Share
capital
in millions
25.0
CHF
10.0
GBP
USD
1.0
USD 1,672.32
31.02
USD
29.32
USD
0.1
USD
0.1
USD
51.0
EUR
–
USD
10.0
GBP
12.5
CAD
2.0
USD
0.5
USD
0.7
GBP
3.3
SGD
GBP
5.0
609.0
GBP
20.0
HKD
22.9
EUR
EUR
1.9
JPY 50,000.0
0.5
MYR
EUR
10.9
155.7
EUR
–
AUD
50.42
AUD
190.02
AUD
571.52
AUD
20.0
HKD
30.0
HKD
GBP
18.0
948.1
USD
17.5
GBP
7.5
NZD
53.9
AUD
55.0
SGD
0.42
USD
15.0
EUR
ZAR
THB
INR
GBP
PHP
22.1
400.0
237.8
140.0
150.0
Equity
interest
accumul-
ated in %
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
70.0
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
75.0
100.0
100.0
149
Footnotes
1 CH: UBS Switzerland, AM: UBS Asset
Management, WA: UBS Warburg,
CC: Corporate Center.
2 Share Capital and Share Premium.
UBS Group Financial Statements
Notes to the Financial Statements
Note 36 Significant Subsidiaries and Associates (continued)
Consolidated companies: changes in 2001
Significant new companies
Brinson Canada Co - Halifax, Canada
Deconsolidated companies
Significant deconsolidated companies
UBS (Panama) SA - Panama City, Panama
Reason for deconsolidation
Liquidated
Significant associates
Company
FSG Swiss Financial Services Group AG - Zurich, Switzerland
Giubergia UBS Warburg SIM SpA - Milan, Italy
Motor Columbus AG - Baden, Switzerland
Telekurs Holding AG - Zurich, Switzerland
Volbroker.com Limited - London, Great Britain
Industry
Financial
Financial
Electricity
Financial
Financial
Equity interest
in %
Share capital
in millions
33.0
49.9
35.6
33.3
20.6
CHF 26
EUR 15
CHF 253
CHF 45
GBP 19
None of the above investments carry voting rights that are significantly different from the proportion of shares held.
150
Note 37 Acquisition of Paine Webber Group, Inc.
On 3 November 2000, UBS completed its acquisition of 100% of the outstanding common stock of
the Paine Webber Group, Inc. (“PaineWebber”), a full-service broker-dealer and one of the largest
securities and commodities firms in the United States servicing both individual and institutional clients.
The transaction was accounted for using the purchase method of accounting, making PaineWebber a
wholly owned subsidiary of UBS. Results of operations of PaineWebber have been included in the con-
solidated results beginning on the date of acquisition. Under IAS, the valuation of shares and options
issued was measured on the date the acquisition was completed, 3 November 2000.
Purchase consideration amounted to CHF 22.0 billion (USD 12.5 billion) consisting of shares,
options and cash. Total goodwill recorded in connection with the acquisition amounted to CHF 12.8
billion (USD 7.3 billion) at 3 November 2000 and is being amortized using the straight line method
over an estimated useful life of 20 years.
In 2001, the goodwill amount increased by CHF 54.3 million, net of tax benefits, including real-
ized tax benefits on options granted to employees before the merger and subsequently exercised, and
other adjustments to the identifiable assets and liabilities acquired. At 31 December 2001 and 2000,
the balance of goodwill related to the PaineWebber acquisition amounted to CHF 11.6 billion and
CHF 11.8 billion respectively.
Note 38 Currency Translation Rates
The following table shows the principal rates used to translate the financial statements of foreign
entities into Swiss francs:
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As at
Average rate
Year-to-date
31.12.01
31.12.00
31.12.01
31.12.00
31.12.99
1.67
1.48
2.43
1.27
1.64
1.52
2.44
1.43
1.69
1.50
2.44
1.40
1.69
1.56
2.57
1.57
1.50
1.60
2.43
1.33
Note 39 Swiss Banking Law Requirements
The consolidated financial statements of UBS are
prepared in accordance with International
Accounting Standards. Set out below are the
deviations which would result if the provisions
of the Banking Ordinance and the Guidelines of
the Swiss Banking Commission governing finan-
cial statement reporting pursuant to Article 23
through Article 27 of the Banking Ordinance
were applied in the preparation of the consoli-
dated financial statements of UBS.
1. Treasury shares
Under IAS, treasury shares are presented in
the balance sheet as a deduction from Share-
holders’ equity and accounted for at weighted
average cost. Contracts that require physical
settlement or net share settlement in UBS AG
shares are classified in the Shareholders’ equity
as Share premium and accounted for at weight-
ed average cost. The difference between the
proceeds from sales of treasury shares or con-
tracts that require physical settlement or con-
tracts that require net share settlement and
their cost (net of tax) is reported as Share pre-
mium. The par value of shares repurchased and
cancelled is debited to the issued and paid up
share capital for the par value, with the remain-
der of the cost of the repurchased shares debit-
ed to Share premium. No dividends are paid on
treasury shares.
151
UBS Group Financial Statements
Notes to the Financial Statements
Under Swiss law, own shares held for market
making purposes are presented in the balance
sheet as Trading portfolio assets. Own shares
held for other purposes are classified as Financial
investments and a corresponding reserve for own
shares is established within Shareholders’ equity.
All derivative contracts on own shares are
reported as Positive or Negative replacement
values. Traded own shares and derivatives on
own shares are carried at fair value. Gains and
losses realized on disposal and unrealized gains
and losses from changes in the fair value are
recorded as Net trading income. Own shares
reported within Financial
investments are
reported at the lower of cost or market value.
Reductions to market value and reversals of such
reductions, as well as gains and losses on dispos-
al, are included in Other income. Own shares
repurchased for cancellation are reported as
financial investments and accounted for at cost.
Upon cancellation, the par value of shares repur-
chased and cancelled is debited against Share
capital for the par value, with the remainder of
the purchase cost debited against General statu-
tory reserve.
2. Financial investments
Under IAS, available-for-sale financial invest-
ments are carried at fair value. Changes in the
fair value of available-for-sale financial invest-
ments are recorded as increases or decreases
to Shareholders’ equity until an investment is
sold, collected or otherwise disposed of, or
until an investment is determined to be
impaired. At the time an available-for-sale
investment is determined to be impaired, the
cumulative unrealized gain or loss previously
recognized in Shareholders’ equity is included
in net profit or loss for the period. On dispos-
al of an available-for-sale investment, the dif-
ference between the net disposal proceeds and
the carrying amount, including any previously
recognized unrealized gain or loss arising from
a change in fair value reported within Share-
holders’ equity, is included in net profit or loss
for the period.
Under Swiss law financial investments are
carried at the lower of cost or market value.
Reductions to market value and reversals of such
reductions as well as gains and losses on dispos-
al are included in Other income.
3. Cash flow hedges
The Group also uses derivative instruments to
hedge against the exposure from varying cash
flows receivable and payable. Under IAS, when
hedge accounting is applied for these instru-
ments, the unrealized gain or loss on the effective
portion of the derivatives is recorded in share-
holders’ equity until the hedged cash flows occur,
at which time the accumulated gain or loss is
realized and released to income.
Under Swiss law, the gains or losses on the
effective portion of the derivative instruments
used to hedge cash flow exposures are deferred
on the balance sheet. The deferred amounts are
released to income when the hedged cash flows
occur.
4. Gains/losses not recognized in
the income statement
Gains/losses not recognized in the income state-
ment is a separate line within Shareholders’ equity
where under IAS unrealized gains and losses
from currency translation, changes in fair value
of financial investments available-for-sale and of
derivative instruments designated as cash flow
hedges are reported.
Under Swiss law, only foreign currency trans-
lation differences are reported in shareholders’
equity. The other two components are reported
according to the methods described in captions
2. and 3. above.
5. Extraordinary income and expense
Under IAS, items of income and expense can
only be classified as extraordinary if they are
clearly distinct from the ordinary activities and
their occurrence is expected to be rare.
Under Swiss law, income and expense items
related to other accounting periods and/or not
directly related with the core business activities
of the enterprise (e.g. realized gains or losses on
sale of Investments in associated companies or
Property and equipment) are recorded as
extraordinary income or expense.
The significant differences between IAS and
Swiss banking law are as follows:
152
Note 39 Swiss Banking Law Requirements (continued)
CHF million
Differences in the Balance Sheet
Treasury shares
Trading portfolio
Financial investments
Due to banks
Shareholders’ equity
Financial investments
Due to banks
Other liabilities
Shareholders’ equity
Cash flow hedges
Other liabilities
Shareholders’ equity
Differences in the Income Statement
Treasury shares
Net trading income
Other income
Financial investments
Other income
Reclassification of extraordinary income and expense
Other income
Extraordinary income
Extraordinary expense
31.12.01
31.12.00
128
3,253
24
3,357
(1,856)
(215)
(1,641)
(459)
459
(70)
(231)
(607)
(95)
109
14
4,007
2,516
1,491
133
68
(211)
233
22
153
UBS Group Financial Statements
Notes to the Financial Statements
Note 40 Reconciliation of International Accounting Standards (IAS)
to United States Generally Accepted Accounting Principles (US GAAP)
Note 40.1 Valuation and income recognition differences between
IAS and US GAAP
The consolidated financial statements of the
Group have been prepared in accordance with
IAS. The principles of IAS differ in certain
respects from United States Generally Accepted
Accounting Principles (“US GAAP”). The fol-
lowing is a summary of the relevant significant
accounting and valuation differences between
IAS and US GAAP.
a. Purchase accounting (merger of Union Bank
of Switzerland and Swiss Bank Corporation)
Under IAS, the Group accounted for the 1998
merger of Union Bank of Switzerland and Swiss
Bank Corporation under the uniting of interests
method. The balance sheets and income state-
ments of the banks were combined, and no
adjustments were made to the carrying values of
the assets and liabilities. Under US GAAP, the
business combination creating UBS AG is
accounted for under the purchase method with
Union Bank of Switzerland being considered the
acquirer. Under the purchase method, the cost of
acquisition is measured at fair value and the
acquirer’s interests in identifiable tangible assets
and liabilities of the acquiree are restated to fair
values at the date of acquisition. Any excess con-
sideration paid over the fair value of net tangible
assets acquired is allocated, first to identifiable
intangible assets based on their fair values, if
determinable, with the remainder allocated to
goodwill.
Goodwill
Under US GAAP until 31 December 2001, good-
will acquired before 30 June 2001 is capitalized
and amortized over its estimated useful life with
adjustments for any impairment.
For US GAAP purposes, the excess of the con-
sideration paid for Swiss Bank Corporation over
the fair value of the net tangible assets received
has been recorded as goodwill and is being
amortized on a straight line basis over a weight-
ed average life of 13 years from 29 June 1998.
Upon the adoption of Statement of Financial
Accounting Standard (SFAS) 142, “Goodwill
and Other Intangible Assets”, on 1 January
2002, the amortization of goodwill will no
longer be recorded under US GAAP. Instead,
goodwill will be subject to an annual impairment
test, with any decrease in value recorded in the
Income statement. Refer to section l of this note,
“Recently issued accounting standards” for a
more detailed discussion of SFAS 142.
In 2001 and 2000, goodwill recorded under
US GAAP was reduced by CHF 53 million and
CHF 211 million respectively, due to recognition
of deferred tax assets of Swiss Bank Corporation
which had previously been subject to valuation
reserves.
Other purchase accounting adjustments
The restatement of Swiss Bank Corporation’s net
assets to fair value in 1998 resulted in decreasing
net tangible assets by CHF 1,077 million for
US GAAP. This amount is being amortized over
periods ranging from two years to 20 years.
b. Harmonization of accounting policies
The business combination of Union Bank of
Switzerland and Swiss Bank Corporation was
accounted for under the uniting of interests
method under IAS. Under the uniting of interests
method of accounting, a single uniform set of
accounting policies was adopted and applied to
all periods presented. This resulted in a restate-
ment of 1997 Shareholders’ equity and Net loss.
US GAAP requires that accounting changes
be recorded in the Income statement in the
period the change is made. For US GAAP, the
accounting policy harmonization recorded under
IAS for 1997 was reversed, and the impact of the
accounting changes was recorded in 1998.
c. Restructuring provision
Under IAS, restructuring provisions are recog-
nized when a legal or constructive obligation has
been incurred. In 1997, the Group recognized a
CHF 7,000 million restructuring provision to
cover personnel, IT, premises and other costs
associated with combining and restructuring the
154
merged Group. A further CHF 300 million pro-
vision was recognized in 1999, reflecting the
impact of increased precision in the estimation of
certain leased and owned property costs.
Under US GAAP, the criteria for establishing
restructuring provisions were more stringent
than under IAS prior to 2000. For US GAAP, the
aggregate CHF 7,300 million restructuring pro-
vision was reversed. As a result of the business
combination with Swiss Bank Corporation and
the decision to combine and streamline certain
activities of the banks for the purpose of reduc-
ing costs and improving efficiencies, Union Bank
of Switzerland recognized a restructuring pro-
vision of CHF 1,575 million during 1998 for
US GAAP. CHF 759 million of this provision
related to estimated costs for restructuring the
operations and activities of Swiss Bank Corpo-
ration, and that amount was recorded as a lia-
bility of the acquired business. The remaining
CHF 816 million of estimated costs were charged
to restructuring expense during 1998. The US
GAAP restructuring provision was increased by
CHF 600 million and CHF 130 million in 1999
and 2000, respectively.
During 2001, CHF 112 million restructuring
costs were expensed as incurred under US GAAP.
These costs were already part of the restructur-
ing provision under IAS, but were not eligible for
recognition under US GAAP until 2001. The
restructuring plan was completed and the
remaining balance of the US GAAP restructuring
provision was used substantially in accordance
with previously disclosed plans. At 31 December
2001, the restructuring provision for both IAS
and US GAAP has been fully utilized.
d. Derivative instruments held or issued for
hedging activities
Prior to 1 January 2001, the Group applied no
hedge accounting for US GAAP. As a result, all
derivative instruments were carried on the bal-
ance sheet at fair value, with changes in fair val-
ue recorded in the Income statement. Under IAS,
the Group accounted for derivative instruments
hedging non-trading positions in the Income
statement using the accrual or deferral method,
which was the same as the accounting method-
ology applied to the underlying item hedged.
On 1 January 2001, the Group adopted IAS 39
for its IAS financial statements (see Note 1: Sum-
mary of Significant Accounting Policies) and SFAS
133, “Accounting for Derivative Instruments and
Hedging Activities” for its US GAAP financial
statements. These standards introduce new rules
for the accounting and reporting of derivative
instruments, including certain derivative instru-
ments embedded in other contracts, and of hedg-
ing activities. The adoption of SFAS 133 did not
result in any transition items for the Group on 1
January 2001 as the Group previously did not
apply hedge accounting under US GAAP.
Under IAS 39, the Group is permitted to
hedge interest rate risk based on forecasted cash
inflows and outflows on a group basis. For this
purpose, the Group accumulates information
about financial assets, financial liabilities, and
forward commitments which is then used to esti-
mate and aggregate cash flows and to schedule
the future periods in which these cash flows are
expected to occur. Appropriate derivative instru-
ments are then used to hedge the estimated
future cash flows. SFAS 133 does not permit
hedge accounting for hedges of future cash flows
determined by this methodology. Accordingly,
for US GAAP such items continue to be carried
at fair value with changes in fair value recog-
nized in Net trading income.
Since 1 January 2001, the Group’s hedging rela-
tionships have been treated the same under both
IAS and US GAAP, except for hedges of interest
rate risk of forecasted cash flows on a group basis
as mentioned in the previous paragraph.
In addition, amounts deferred under previous
hedging relationships that now do not qualify as
hedges under IAS 39 are being amortized against
IAS net profit over the remaining life of the
hedging relationship. Such amounts have been
reversed for US GAAP as they have never been
treated as hedges.
e. Financial investments
(prior to the adoption of IAS 39)
Prior to the adoption of IAS 39 on 1 January
2001, financial investments were classified as
either current investments or long-term invest-
ments under IAS. The Group considered current
financial investments to be held for sale and
carried at lower of cost or market value
(“LOCOM”). The Group accounted for long-
term financial investments at cost, less any per-
manent impairments. Under US GAAP, the
Group’s financial investments are classified as
available for sale (debt and marketable equity
155
UBS Group Financial Statements
Notes to the Financial Statements
securities), and are carried at fair value with
changes in fair value recorded in Other compre-
hensive income. Gains and losses are recognized
in Net profit in the period sold, and losses are
recognized in the period of permanent impair-
ment. For the IAS to US GAAP reconciliation,
debt and marketable equity securities were adjust-
ed from LOCOM to fair value and classified as
available for sale investments. Unrealized gains
or unrealized losses relating to these investments
were recorded in Other comprehensive income.
f. Financial investments and private equity
(after the adoption of IAS 39)
With the adoption of IAS 39 on 1 January 2001,
the accounting for financial investments classi-
fied as available for sale is now generally the
same under IAS and US GAAP. Two exceptions
exist, however: 1) private equity investments
and non-marketable equity financial invest-
ments, which are classified as available for sale
and carried at fair value under IAS, continue to
be valued at cost less other than temporary
impairments under US GAAP; and 2) write-
downs on impaired assets can be fully or par-
tially reversed under IAS if the value of the
impaired assets increases. Such reversals of
impairment write-downs are not allowed under
US GAAP. There were no significant reversals
under IAS in 2001.
The opening adjustment and subsequent
changes in fair value recorded in Unrealized
gains/losses on available for sale investments
related to private equity investments and non-
marketable equity financial investments due to
the implementation of IAS 39 on 1 January 2001
have been reversed under US GAAP to reflect the
difference between the two standards in measur-
ing such investments.
g. Retirement benefit plans
Under IAS, the Group recognizes pension
expense based on a specific method of actuarial
valuation used to determine the projected plan
liabilities for accrued service, including future
expected salary increases, and expected return
on plan assets. Plan assets are recorded at fair
value and are held in a separate trust to satisfy
plan liabilities. Under IAS the recognition of a
prepaid asset is subject to certain limitations,
and any unrecognized prepaid asset is recorded
as pension expense.
Under US GAAP, pension expense is based on
the same actuarial method of valuation of liabil-
ities and assets as under IAS. Differences in the
amounts of expense and liabilities (or prepaid
assets) exist due to different transition date rules,
stricter provisions for recognition of a prepaid
asset, and the treatment of the 1998 merger of
Union Bank of Switzerland and Swiss Bank Cor-
poration.
In addition, under US GAAP, if the fair value
of plan assets falls below the accumulated bene-
fit obligation (current value of accrued benefits
without allowance for future salary increases),
an additional minimum liability must be shown
in the balance sheet. If an additional minimum
liability is recognized, an equal amount will
be recognized as an intangible asset up to the
amount of any unrecognized past service cost.
Any amount not recognized as an intangible
asset is reported in Other comprehensive in-
come. In order to record the net additional min-
imum liability required under US GAAP in 2001,
UBS booked a pre-tax adjustment to the liability
of CHF 306 million, of which CHF 3 million was
recognized in intangible assets and CHF 303 mil-
lion in Other comprehensive income. In 2000,
no adjustment was required.
h. Other employee benefits
Under IAS, the Group has recorded expenses and
liabilities for post-retirement medical and life
insurance benefits, determined under a method-
ology similar to that described above under
retirement benefit plans.
Under US GAAP, expenses and liabilities for
post-retirement medical and life insurance bene-
fits are determined under the same methodology
as under IAS. Differences in the levels of expens-
es and liabilities have occurred due to different
transition date rules and the treatment of the
merger of Union Bank of Switzerland and Swiss
Bank Corporation under the purchase method.
i. Equity participation plans
IAS does not specifically address the recognition
and measurement requirements for equity partic-
ipation plans.
US GAAP permits the recognition of compen-
sation cost on the grant date for the estimated
fair value of equity instruments issued (SFAS
123) or based on the intrinsic value of equity
instruments issued (Accounting Principles Board
156
“APB” No. 25), with the disclosure of the pro
forma effects of equity participation plans on net
profit and earnings per share, as if the fair value
had been recorded on the grant date. Under IAS,
the Group recognizes only intrinsic values at the
grant date with subsequent changes in value not
recognized. Under US GAAP, the Group applies
the APB No. 25 intrinsic value method, which
requires adjustments to intrinsic values subse-
quent to the grant date in certain circumstances.
The shares and other diversified instruments
of the Group’s equity participation plans are held
in trusts on behalf of the participants. Certain of
these trusts are recorded on the Group’s balance
sheet for US GAAP presentation, the effect of
which is to increase assets by CHF 1,485 million
and CHF 1,419 million, liabilities by CHF 1,607
million and CHF 1,559 million, and decrease
shareholders’ equity by CHF 122 million and
CHF 140 million (for UBS AG shares held by the
trusts which are treated as treasury shares) at
31 December 2001 and 2000 respectively.
For US GAAP, certain of the Group’s option
awards have been determined to be variable pur-
suant to APB No. 25, primarily because they
may be settled in cash or because the Group
has offered to hedge the value of the award. The
effect of applying variable accounting to these
option awards in the US GAAP reconciliation for
the years ended 31 December 2001, 2000 and
1999, is a CHF 30 million decrease in compen-
sation expense, CHF 85 million increase in com-
pensation expense and CHF 41 million increase
in compensation expense, respectively. In addi-
tion, certain of the Group’s equity participation
plans required a new expense measurement date
due to diversification or cash settlement of
awards. Additional expense was also recorded
related to the consolidation of the trusts in the
US GAAP Balance sheet and for social tax pay-
ments on exercised options recorded directly in
Shareholders’ equity for IAS. For US GAAP, the
net effect of these transactions is an increase to
expense of CHF 41 million, CHF 82 million and
CHF 8 million for the years ended 31 December
2001, 2000 and 1999, respectively.
j. Software capitalization
Under IAS, effective 1 January 2000, certain
costs associated with the acquisitions or devel-
opment of internal use software must be capital-
ized. Once the software is ready for its intended
use, the costs capitalized are amortized to the
Income statement over the estimated life of the
software. Under US GAAP, the same principle
applies, however this standard was effective
1 January 1999. For US GAAP, the costs associ-
ated with the acquisition or development of
internal use software that met the US GAAP soft-
ware capitalization criteria in 1999 have been
reversed from Operating expenses and amor-
tized over a life of two years from the time that
the software is ready for its intended use. From
1 January 2000, the only remaining reconcilia-
tion item is the amortization of software capital-
ized in 1999 for US GAAP purposes. This
amount will be fully amortized by 31 December
2002, and there will no longer be a difference
between IAS and US GAAP.
k. IAS 39 opening retained earnings
adjustment
With the adoption of IAS 39 on 1 January 2001,
an opening adjustment was made to reduce
Retained earnings by CHF 61 million, consisting
of CHF 19 million reflecting the impact of the
new hedge accounting rules and CHF 42 million
reflecting the impact of remeasuring assets to
either amortized cost or fair value as required
under the standard. For US GAAP purposes, the
first adjustment was not required (because all
derivatives were previously recorded in the
Income statement) and was reversed, and the
second adjustment was recorded in the Income
statement.
l. Recently issued US accounting standards
In June 2001, the Financial Accounting Stan-
dards Board (“FASB”) issued SFAS 141, “Busi-
ness Combinations” and SFAS 142, “Goodwill
and Intangible Assets”.
SFAS 141 requires, among other things, that
all business combinations initiated after 30 June
2001 be accounted for using the purchase
method. The pooling of interests method has
been eliminated. This new standard has no
impact on these financial statements.
UBS is required to adopt SFAS 142 from
1 January 2002, except for goodwill and intan-
gible assets acquired in a business combination
initiated after 30 June 2001. Any such acquisi-
tion will be subject to the rules of SFAS 142
at the acquisition date. The standard requires
that goodwill and intangible assets with indefi-
157
UBS Group Financial Statements
Notes to the Financial Statements
nite lives no longer be amortized, but be tested
annually for impairment. Identifiable intangible
assets with finite lives will continue to be
amortized.
The adoption of SFAS 142 is expected to have
a material impact on the Group’s Income state-
ment and Shareholders’ equity in accordance
with US GAAP. Upon adoption, the US GAAP
amortization charge related to the 1998 business
combination of Union Bank of Switzerland and
Swiss Bank Corporation (CHF 1.7 billion for
2001) will cease to be recorded. Under IAS, this
charge was never recorded because of a different
method of accounting for the business combi-
nation.
In addition, the introduction of SFAS 142
may result in two new reconciling items: 1)
Intangible assets on the IAS Balance sheet with a
book value of CHF 1.8 billion at 31 December
2001 may be reclassified to goodwill for US
GAAP. 2) The amortization of IAS goodwill and
the intangible assets reclassified to goodwill for
US GAAP (CHF 1.1 billion in 2001) will be
reversed. From 1 January 2002, the goodwill
balance in the US GAAP Balance sheet will be
maintained at historical amortized cost and will
be reviewed annually for impairment.
In August 2001, the FASB issued SFAS 143,
“Accounting for Asset Retirement Obligations”.
The standard requires companies to record the
fair value of a liability for an asset retirement
obligation in the period in which it is incurred.
The standard is effective for fiscal years begin-
ning after 15 June 2002. The Group does not
expect the adoption of this standard to have a
material effect on its financial statements.
In August 2001, the FASB issued SFAS
No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, which super-
sedes both SFAS 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of”, and the
accounting and reporting provisions of APB No.
30, “Reporting the Results of Operations –
Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Trans-
actions”. The statement primarily addresses
financial accounting and reporting for the
impairment or disposal of long-lived assets and
is effective for fiscal years beginning after 15 De-
cember 2001. In addition, SFAS 144 eliminated
the exception to consolidate subsidiaries for
which control is likely to be temporary, as previ-
ously contained in Accounting Research Bulletin
No. 51 “Consolidated Financial Statements” as
amended by SFAS 94, “Consolidation of All
Majority-Owned Subsidiaries”. The impact of
the adoption of SFAS 144 on the Group’s US
GAAP reconciliation may be that the unrealized
gains and losses on private equity investments
disclosed in Gains/losses not recognized in the
income statement under IAS would be recorded
in Net profit for US GAAP, should the “AICPA
Audit and Accounting Guide, Audits of Invest-
ment Companies” be adopted. The estimated
effect of such adoption would be a cumulative
catch-up adjustment which would increase US
GAAP Net profit before tax by approximately
CHF 660 million at 1 January 2002. Had the
Group applied such guidance in the US GAAP
reconciliation in 2001, the estimated effect on
Net profit before tax would have been a charge
of approximately CHF 470 million. See section f
of this note and table 40.2 for current treatment
of private equity investments under US GAAP.
The impact on the Group’s US GAAP reconcilia-
tion of SFAS 144 and Investment Company
Guide treatment of private equity investments is
under further detailed review.
158
40.2 Reconciliation of IAS Shareholders’ equity and Net profit to
US GAAP
CHF million
Amounts determined in accordance
with IAS
Adjustments in respect of
SBC purchase accounting:
Goodwill
Other purchase accounting adjustments
Harmonization of accounting policies
Restructuring provision
Derivative instruments held
or issued for hedging activities
Financial investments (prior to the
adoption of IAS 39)
Financial investments and
private equity (after the adoption of IAS 39)
Retirement benefit plans
Other employee benefits
Equity participation plans
Software capitalization
IAS 39 opening retained earnings
adjustments
Tax adjustments
Note 40.1
Reference
Shareholders’ equity
Net profit
31.12.01
31.12.00
31.12.01
31.12.00
31.12.99
43,530
44,833
4,973
7,792
6,153
a
a
b
c
d
e
f
g
h
i
j
k
16,142
(729)
0
0
17,835
(808 )
0
112
(1,693)
79
0
(112)
(1,719 )
50
0
(238 )
(1,729)
37
(20)
(1,598)
(188)
(857 )
0
379
(709)
1,714
(8)
(186)
60
19
(363)
0
1,898
(16 )
(311 )
229
0
(334 )
67
0
0
119
8
(12)
(169)
(42)
16
(1,353 )
(545)
28
0
59
8
(167 )
(160 )
0
137
36
0
(19)
2
(47)
389
0
178
Total adjustments
15,752
18,127
(1,739)
(3,355 )
(3,316)
Amounts determined in accordance
with US GAAP
59,282
62,960
3,234
4,437
2,837
40.3 Earnings per share
Under IAS and US GAAP, basic earnings per share (EPS) is computed by dividing income available to common shareholders by the
weighted-average common shares outstanding. Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to dilu-
tive potential common shares that were outstanding during the period.
The computations of basic and diluted EPS for the years ended 31 December 2001, 31 December 2000 and 31 December 1999 are
presented in the following table.
31.12.01
31.12.00
31.12.99
For the year ended
US GAAP
IAS
US GAAP
IAS
US GAAP
IAS
Net profit available for ordinary shares (CHF million)
Net profit for diluted EPS (CHF million)
Weighted average shares outstanding
Diluted weighted average shares outstanding
Basic earnings per share (CHF)
Diluted earnings per share (CHF)
3,234
3,135
1,251,180,8151
1,273,720,5601
2.58
2.46
4,973
4,874
1,266,038,193
1,288,577,938
3.93
3.78
4,437
4,423
1,198,680,1931
1,215,169,9661
3.70
3.64
7,792
7,778
1,209,087,927
1,225,577,700
6.44
6.35
2,837
2,837
1,208,614,2151
1,219,512,2251
2.35
2.33
6,153
6,153
1,214,227,446
1,225,125,456
5.07
5.02
1 The difference between the IAS and US GAAP weighted average shares outstanding and diluted weighted average shares outstanding is related to the shares for employee equity participation
plans. These shares are held in trusts which are consolidated for US GAAP only and are recorded as treasury shares. Amounts in prior years have been restated for these treasury shares.
159
UBS Group Financial Statements
Notes to the Financial Statements
Note 40.4 Presentation differences between IAS and US GAAP
In addition to the differences in valuation and
income recognition, other differences, essentially
related to presentation, exist between IAS and
US GAAP. Although there is no impact on IAS
and US GAAP reported shareholders’ equity and
net profit due to these differences, it may be use-
ful to understand them to interpret the financial
statements presented in accordance with US
GAAP. The following is a summary of presenta-
tion differences that relate to the basic IAS finan-
cial statements.
1. Settlement date vs. trade date accounting
The Group’s transactions from securities activi-
ties are recorded under IAS on the settlement
date for balance sheet and on the trade date for
income statement purposes. This results in
recording a forward transaction during the peri-
od between the trade date and the settlement
date. Forward positions relating to trading activ-
ities are revalued to fair value and any unrealized
profits and losses are recognized in Net profit.
Under US GAAP, trade date accounting is
required for spot purchases and sales of securi-
ties. Therefore, all such transactions with a trade
date on or before the balance sheet date with a
settlement date after the balance sheet date have
been recorded at trade date for US GAAP. This
has resulted in receivables and payables to bro-
ker-dealers and clearing organizations recorded
in Other assets and Other liabilities in the US
GAAP Balance sheet.
2. Financial investments
Under IAS, the Group’s private equity invest-
ments and non-marketable equity financial
investments are included in Financial invest-
ments. For US GAAP presentation, non-mar-
ketable equity financial investments are reclassi-
fied to Other assets, and private equity invest-
ments are shown separately on the Balance
sheet.
3. Securities received as proceeds in a
securities for securities lending transaction
In September 2000, the Financial Accounting
Standards Board released SFAS No. 140, “Ac-
counting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities”, a
replacement of SFAS No. 125, which revises the
standards for accounting for securitizations and
other transfers of financial assets and collateral.
The Group adopted the standard in accordance
with its transition requirements, resulting in cer-
tain of its provisions becoming effective in 2000.
Additional provisions became effective on 1 April
2001. Under the new provisions, when the Group
acts as the lender in a securities lending agree-
ment and receives securities as collateral that can
be pledged or sold, it recognizes the securities
received and a corresponding obligation to return
them. These securities are separately reflected on
the US GAAP balance sheet in the line “Securities
received as collateral” on the asset side of the
balance sheet. The offsetting liability is included
separately in the line “Obligation to return secu-
rities received as collateral”.
4. Secured financing without margining
The Group enters into certain specific secured
financing transactions that result in a reclassifica-
tion difference between IAS and US GAAP. Under
IAS, they are considered secured financing trans-
actions. Under US GAAP, however, they are con-
sidered sale/buyback transactions due to the fact
that the contracts do not require margining which
is one of the criteria to meet US GAAP secured
financing treatment. Due to the different treat-
ment of these transactions under IAS and US
GAAP, interest income and expense recorded
under IAS must be reclassified to Other income
for US GAAP. An additional reclassification on
the US GAAP balance sheet is also required which
reflects a spot purchase (Trading portfolio assets)
and a forward sale transaction (Replacement val-
ues), instead of a claim from customers (Cash col-
lateral on securities borrowed) under IAS.
160
40.5 Consolidated Income Statement
The following is a Consolidated Income Statement of the Group, for the years ended 31 December
2001, 31 December 2000 and 31 December 1999, restated to reflect the impact of valuation and
income recognition differences and presentation differences between IAS and US GAAP.
CHF million
For the year ended
Operating income
Interest income
Interest expense
Net interest income
Credit loss expense / (recovery)
Net interest income after credit loss
expense / (recovery)
31.12.01
31.12.00
31.12.99
Reference US GAAP
IAS US GAAP
IAS US GAAP
IAS
a, d ,4
a, 4
51,975
(44,178)
52,277
(44,236)
51,565
(43,584 )
51,745
(43,615 )
35,404
(29,660 )
35,604
(29,695)
7,797
(498)
8,041
(498)
7,981
130
8,130
130
5,744
(956 )
5,909
(956)
7,299
7,543
8,111
8,260
4,788
4,953
Net fee and commission income
Net trading income
Other income
d, k, 4
e, 4
20,211
8,973
534
20,211
8,802
558
16,703
8,597
1,514
16,703
9,953
1,486
12,607
7,174
3,182
12,607
7,719
3,146
Total operating income
Operating expenses
Personnel
General and administrative
Depreciation of property
and equipment
Amortization of goodwill
and other intangible assets
Restructuring costs
Total
Operating profit / (loss)
before tax and minority interests
Tax expense / (benefit)
Net profit / (loss)
before minority interests
Minority interests
Net profit
37,017
37,114
34,925
36,402
27,751
28,425
c, g, h,i, j
c, j
19,713
7,631
19,828
7,631
17,262
6,813
17,163
6,765
12,483
6,664
12,577
6,098
a, b, j
1,815
1,614
1,800
1,608
1,619
1,517
a
c
2,782
112
1,323
0
2,152
191
667
0
1,835
750
340
0
32,053
30,396
28,218
26,203
23,351
20,532
4,964
1,386
6,718
1,401
6,707
2,183
10,199
2,320
4,400
1,509
7,893
1,686
3,578
5,317
4,524
7,879
2,891
6,207
(344)
(344)
(87 )
(87 )
(54 )
(54)
3,234
4,973
4,437
7,792
2,837
6,153
Note: References above coincide with the discussions in Note 40.1 and Note 40.4. These references indicate which IAS to US GAAP adjustments
affect an individual financial statement caption.
161
UBS Group Financial Statements
Notes to the Financial Statements
40.6 Condensed Consolidated Balance Sheet
The following is a Condensed Consolidated Balance Sheet of the Group, as of 31 December 2001
and 31 December 2000, restated to reflect the impact of valuation and income recognition principles
and presentation differences between IAS and US GAAP
CHF million
Reference
US GAAP
IAS
US GAAP
IAS
31.12.01
31.12.00
Total assets
1,314,856
1,253,297
1,124,554
1,087,552
a
4
1, 4
1, 4
a, d
e, f, 2
3
4
1
3
1,4
a, d
Assets
Cash and balances with central banks
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
Securities received as collateral
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Intangible assets and goodwill
Private equity investments
Other assets
a, j
a, g
2
d, g, h, i, 1, 2
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Obligation to return securities
received as collateral
Negative replacement values
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Minority interests
Total shareholders’ equity
Total liabilities, minority interests
and shareholders’ equity
a, d, k
a, c, d, e, g, h, i, 1
20,990
27,550
162,566
269,256
399,577
73,051
226,747
20,676
20,119
7,545
697
9,276
33,765
6,069
36,972
20,990
27,526
162,938
269,256
397,886
73,447
226,545
28,803
7,554
697
8,695
19,085
9,875
2,979
29,182
177,857
193,801
318,788
57,775
245,214
10,985
7,062
880
9,692
35,726
6,658
27,955
2,979
29,147
177,857
193,801
315,588
57,875
244,842
19,583
7,062
880
8,910
19,537
9,491
106,531
30,317
368,620
108,924
20,119
71,018
333,766
17,289
156,462
38,416
106,531
30,317
368,620
105,798
71,443
333,781
17,289
156,218
15,658
82,240
23,418
295,513
87,832
75,423
310,686
21,038
129,750
32,809
82,240
23,418
295,513
82,632
75,923
310,679
21,038
129,635
18,756
1,251,462
1,205,655
1,058,709
1,039,834
4,112
59,282
4,112
43,530
2,885
62,960
2,885
44,833
1,314,856
1,253,297
1,124,554
1,087,552
Note: References above coincide with the discussions in Note 40.1 and Note 40.4. These references indicate which IAS to US GAAP adjustments
affect an individual financial statement caption.
162
40.7 Comprehensive Income
Comprehensive income is defined as the change in Shareholders’ equity excluding transaction with shareholders. Comprehensive
income has two major components: Net profit, as reported in the income statement, and Other comprehensive income. Other com-
prehensive income includes such items as foreign currency translation, unrealized gains/losses on available for sale securities, unreal-
ized gains/losses on changes in fair value of derivative instruments designated as cash flow hedges and additional minimum pension
liability. The components and accumulated other comprehensive income amounts for the years ended 31 December 2001, 31 Decem-
ber 2000 and 31 December 1999 are as follows:
CHF million
Foreign
currency
translation
Unrealized
gains / (losses)
on available for
sale securities
Unrealized
gains / (losses)
on cash flow
hedges
Additional
minimum
pension
liability
Accumulated
other
comprehensive Comprehensive
income
income
Balance, 1 January 1999
Net Profit
Other comprehensive income:
Foreign currency translation
Unrealized gains on available for sale investments
arising during the year, net of CHF 18 million tax
Reclassification adjustment for gains on available for sale
investments realized in net profit, net of CHF 40 million tax
Comprehensive income
Balance, 31 December 1999
Net profit
Other comprehensive income:
Foreign currency translation
Unrealized gains on available for sale investments
arising during the year, net of CHF 152 million tax
Reclassification adjustment for gains on available for sale
investments realized in net profit, net of CHF 40 million tax
Comprehensive income
Balance, 31 December 2000
Net profit
Other comprehensive income:
Foreign currency translation
Unrealized gains on available for sale investments
arising during the year, net of CHF 27 million tax
Reclassification adjustment for gains on available for sale
investments realized in net profit, net of CHF 26 million tax
Unrealized gains on cash flow hedges
arising during the year, net of CHF 1 million tax
Reclassification adjustment for losses on cash flow
hedges realized in net profit, net of CHF 1 million tax
Additional minimum pension liability
Comprehensive income
(456)
85
14
(442)
(245 )
(687)
(82 )
74
(143 )
16
456
(121 )
351
109
(104 )
Balance, 31 December 2001
(769)
356
(371)
14
74
(143 )
(426)
(245 )
456
(121 )
(336)
(82 )
109
(104 )
4
3
(303 )
(303 )
(303)
(709)
4
3
7
2,837
(55 )
2,782
4,437
90
4,527
3,234
(373 )
2,861
163
UBS Group Financial Statements
Notes to the Financial Statements
Note 41 Additional Disclosures Required under US GAAP and
SEC Rules
41.1 Financial investments
See Note 13 for additional information on financial investments. The following table summarizes the
Group’s financial investments at 31 December 2000:
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
31 December 2000
Money market paper
Equity securities 1
Debt securities issued by the Swiss
national government and agencies
Debt securities issued by Swiss
local governments
Debt securities issued by foreign
governments and official institutions
Corporate debt securities
Mortgage-backed securities
Other debt securities
Total
4,162
1,147
34
46
4,852
1,139
47
88
11,515
0
447
2
1
7
5
0
4
0
6
0
1
3
1
0
0
Fair
value
4,162
1,588
36
46
4,856
1,143
47
92
466
11
11,970
1 The LOCOM value of the equity securities as reported in Note 13 is adjusted to cost basis for the purpose of the fair value calculation.
Proceeds from sales and maturities of investment securities available for sale during the year ended
31 December 2000 were CHF 325 million. On those sales gross gains of CHF 162 million and gross
losses of CHF 1 million were realized in 2000 in the income statement.
Note 41.2 Sales of Financial Assets in Securitizations
During the year ended 31 December 2001, the
Group securitized (i.e., transformed owned
financial assets into securities through sales
transactions) residential mortgage loans and
securities, commercial mortgage loans and other
financial assets, acting as lead or co-manager.
The Group’s continuing involvement in these
transactions was primarily limited to the tempo-
rary retention of various security interests. Pro-
ceeds received at the time of securitization from
residential mortgage, commercial mortgage and
other financial asset securitizations were CHF
67.6 billion, CHF 4.1 billion and CHF 2.8 bil-
lion, respectively. Related pre-tax gains recog-
nized, including unrealized gains on retained
interests, at the time of securitization were CHF
112.9 million, CHF 129.7 million and CHF 20.6
million, respectively. During 2000, the Group did
not engage in significant securitization transac-
tions involving the transfer of its financial assets.
A significant portion of the securitization activi-
ties conducted in 2001 were derived from busi-
nesses acquired in the purchase of Paine Webber
Group Inc. in November 2000.
At 31 December 2001, the Group retained
CHF 6.8 billion in residential mortgage securi-
ties, backed by the Government National Mort-
gage Association (GNMA), the Federal National
Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC),
and CHF 1.6 billion in other residential mort-
gage securities. These retained interests are gen-
erally valued using observable market prices.
Retained interests in commercial mortgage and
other
securities were not material at
31 December 2001.
164
Note 41.3 Supplemental Guarantor Information
Guarantee of PaineWebber Securities
Following the acquisition of Paine Webber
Group, Inc., UBS AG made a full and uncondi-
tional guarantee of the publicly traded debt and
trust preferred securities of PaineWebber. Prior
to the acquisition, PaineWebber was an SEC
registrant. Upon the acquisition, PaineWebber
was merged into UBS Americas Inc., a wholly
owned subsidiary of UBS AG. The following
is summarized consolidating financial infor-
mation segregating UBS AG Parent Bank, UBS
Americas Inc. and UBS AG’s other non-guaran-
tor subsidiaries as required by SEC regulation
S-X Rule 3–10 “Financial statement require-
ments for guarantors”.
The information presented in this note is pre-
pared in accordance with IAS and should be read
in conjunction with the consolidated financial
statements of the Group of which this informa-
tion is a part. At the bottom of each column, Net
profit and Shareholders’ equity has been recon-
ciled to US GAAP. See Note 40 for a detailed
reconciliation of the IAS financial statements to
US GAAP for the Group on a consolidated basis.
Supplemental Guarantor Consolidating Income Statement
CHF million
For the year ended 31 December 2001
UBS AG
UBS
Parent Bank1 Americas Inc.
Subsidiaries
Consolidating
Entries
UBS Group
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
Income from subsidiaries
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Amortization of goodwill and
other intangible assets
Total operating expenses
Operating profit / (loss) before tax
and minority interests
Tax expense / (benefit)
Net profit before minority interests
Minority interests
Net profit / (loss)
Net profit / (loss) US GAAP2
33,997
(26,979 )
7,018
(471 )
6,547
7,689
5,643
(21 )
1,182
21,040
9,388
3,891
1,147
155
14,581
6,459
1,486
4,973
0
4,973
2,869
5,303
(5,724 )
(421 )
(15 )
(436 )
5,587
870
0
39
6,060
5,178
1,853
181
808
8,020
(1,960 )
(477 )
(1,483 )
0
(1,483 )
(1,519 )
23,667
(22,223 )
(10,690 )
10,690
1,444
(12 )
1,432
6,935
2,289
0
(663 )
9,993
5,262
1,887
286
360
7,795
2,198
392
1,806
(344 )
1,462
1,884
0
0
0
0
0
21
0
21
0
0
0
0
0
21
0
21
0
21
0
52,277
(44,236)
8,041
(498)
7,543
20,211
8,802
0
558
37,114
19,828
7,631
1,614
1,323
30,396
6,718
1,401
5,317
(344)
4,973
3,234
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure,
the accounts have been adjusted to IAS.
2 Refer to Note 40 for a description of the differences between IAS and US GAAP.
165
UBS Group Financial Statements
Notes to the Financial Statements
Supplemental Guarantor Consolidating Balance Sheet
CHF million
At 31 December 2001
UBS AG
UBS
Parent Bank1 Americas Inc.
Subsidiaries
Consolidating
Entries
UBS
Group
Assets
Cash and balances with central banks
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
Goodwill and other intangible assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Minority interests
Total shareholders’ equity
Total liabilities, minority interests
and shareholders’ equity
20,215
70,265
29,134
180,103
206,899
75,218
263,128
18,807
3,231
14,537
6,310
114
4,353
892,314
111,963
22,461
113,288
56,082
75,417
354,580
9,129
96,045
10,549
849,514
0
42,800
0
17,819
35,723
40,857
7,604
457
20,870
2,523
1,834
837
838
14,971
3,885
148,218
43,875
22,491
39,112
1,550
405
21,893
4,347
8,234
2,217
144,124
0
4,094
775
85,139
140,668
168,685
183,383
11,030
20,226
7,473
3,973
61
1,547
4,000
3,963
630,923
96,390
27,952
336,609
48,166
8,879
34,987
5,297
51,939
5,218
615,437
4,112
11,374
0
(145,697 )
(42,587 )
(120,389 )
0
(13,258 )
(77,679 )
0
(1,484 )
(14,738 )
0
0
(2,326 )
20,990
27,526
162,938
269,256
397,886
73,447
226,545
28,803
7,554
697
8,695
19,085
9,875
(418,158 )
1,253,297
(145,697 )
(42,587 )
(120,389 )
0
(13,258 )
(77,679 )
(1,484 )
0
(2,326 )
106,531
30,317
368,620
105,798
71,443
333,781
17,289
156,218
15,658
(403,420 )
1,205,655
0
(14,738 )
4,112
43,530
892,314
148,218
630,923
(418,158 )
1,253,297
Total shareholders’ equity – US GAAP2
59,178
3,620
11,222
(14,738 )
59,282
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure,
the accounts have been adjusted to IAS.
2 Refer to Note 40 for a description of the differences between IAS and US GAAP.
166
Supplemental Guarantor Consolidating Cash Flow Statement
CHF million
For the year ended 31 December 2001
UBS AG
UBS
Parent Bank1 Americas Inc.
Subsidiaries
UBS Group
Net cash flow from / (used in) operating activities
10,243
85
2,545
12,873
Cash flow (used in) / from 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 (used in) / from investing activities
Cash flow (used in) / from financing activities
Net money market paper issued
Net movements in treasury shares and
treasury share contract activity
Capital issuance
Capital repayment by par value reduction
Issuance of long-term debt
Repayment of long-term debt
Issuance of trust preferred securities
Dividend payments to / and purchase from minority interests
Net activity in investments in subsidiaries
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 the year
Cash and cash equivalents, end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper
Due from banks maturing in less than three months
Total
(44 )
95
(1,316 )
191
(5,514 )
(6,588 )
(54 )
0
(295 )
137
(269 )
(481 )
(369 )
0
(410 )
52
13
(714 )
(467)
95
(2,021)
380
(5,770)
(7,783)
16,263
(6 )
7,969
24,226
(6,038 )
12
(683 )
15,044
(15,861 )
0
0
(620 )
8,117
(164 )
11,608
78,248
89,856
20,215
54,387
15,254
89,856
0
0
0
208
(1,260 )
0
0
60
(998 )
(207 )
(1,601 )
5,405
3,804
0
1,521
2,283
3,804
0
0
0
2,981
(1,356 )
1,291
(461 )
560
10,984
67
12,882
9,717
22,599
775
14,030
7,794
22,599
(6,038)
12
(683)
18,233
(18,477)
1,291
(461)
0
18,103
(304)
22,889
93,370
116,259
20,990
69,938
25,331
116,259
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure,
the accounts have been adjusted to IAS.
Guarantee of other securities
In October 2000, UBS AG, acting through a
wholly-owned subsidiary, issued USD 1.5 billion
(CHF 2.6 billion at issuance) 8.622% UBS Trust
Preferred securities. In June 2001, UBS issued an
additional USD 800 million (CHF 1.3 billion at
issuance) of such securities (USD 300 million at
7.25% and USD 500 million at 7.247%). UBS
AG has fully and unconditionally guaranteed
these securities.
167
UBS Group Financial Statements
Notes to the Financial Statements
Note 41.4 Derivative instruments indexed to UBS shares
US GAAP, like IAS, requires that derivatives
indexed to a company’s own stock be recorded
as an equity instrument if settlement is required
in actual shares or the company has the choice
to settle the contract by delivery or receipt of
its own shares. If, however, the counterparty
may require cash settlement, then the derivative
must be classified as an asset or liability, with
changes in fair value being recorded in income.
Because the Group has no contracts for which
the accounting treatment under US GAAP dif-
fers from IAS, there is no reconciling item for
these derivative instruments. However, US
GAAP also requires disclosure of the amount of
income recognized from such derivative instru-
ments.
UBS Warburg acts as a liquidity provider to
the equity futures markets and as a market
maker in UBS shares and derivatives. Trading
income of CHF 261 million in 2001 and CHF
42 million in 2000 was recorded in both its IAS
and US GAAP financial statements from trading
in cash settled derivative instruments indexed to
UBS shares.
168
UBS Group Financial Statements
Report of the Group Auditors
169
170
UBS AG (Parent Bank)
171
UBS AG (Parent Bank)
Table of Contents
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
Off-Balance Sheet and Other Information
Assets Pledged or Assigned as Security for Own Obligations,
Assets Subject to Reservation of Title
Fiduciary Transactions
Due to UBS Pension Plans, Loans to
Corporate Bodies / Related Parties
Report of the Statutory Auditors
173
174
174
175
175
176
177
177
177
178
178
179
179
180
180
180
180
181
172
UBS AG (Parent Bank)
Parent Bank Review
Parent Bank Review
Income Statement
The Parent Bank UBS AG net profit decreased
CHF 3,251 million from CHF 7,906 million to
CHF 4,655 million.
Income from investments in associates in-
creased to CHF 1,532 million from CHF 896 mil-
lion in 2000 mainly due to higher distribution
received.
Sundry expense from ordinary activities was
CHF 139 million, down from CHF 614 million
in 2000. This was mainly due to lower net write-
down of financial investments.
Allowances, provisions and losses were CHF
1,140 million up from CHF 345 million in 2000
mainly caused by higher credit loss expenses.
This variance is discussed in more detail in the
Group Financial Statements.
Extraordinary income contains CHF 87 mil-
lion (2000: CHF 496 million) from the sale of
former subsidiaries.
Balance Sheet
Total assets increased by CHF 81 billion to CHF
1,016 billion by 31 December 2001. This move-
ment is impacted by increased trading related
assets where mainly trading balances in securi-
ties and precious metals and positive replace-
ment values have increased. Liquid assets have
significantly increased due to deposits with the
Bank of Japan.
173
UBS AG (Parent Bank)
Financial Statements
Financial Statements
Income Statement
CHF million
For the year ended
31.12.01
31.12.00
% change from
31.12.00
Interest and discount income
Interest and dividend income from financial investments
Interest expense
Net interest income
38,056
185
(31,444)
6,797
Credit-related fees and commissions
291
Fee and commission income from securities and investment business 8,232
524
Other fee and commission income
(1,176)
Fee and commission expense
Net fee and commission income
Net trading income
Net income from disposal of financial investments
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 expenses
General and administrative expenses
Operating expenses
Operating profit
Depreciation and write-offs on investments in
associated companies and fixed assets
Allowances, provisions and losses
Profit before extraordinary items and taxes
Extraordinary income
Extraordinary expenses
Tax expense / (benefit)
Profit for the period
7,871
5,015
15
1,532
54
1,183
(139)
2,645
22,328
9,443
4,869
14,312
8,016
1,650
1,140
5,226
95
7
659
4,655
40,375
93
(32,161 )
8,307
292
9,574
492
(1,229 )
9,129
7,378
785
896
41
380
(614 )
1,488
26,302
10,292
5,405
15,697
10,605
1,623
345
8,637
650
20
1,361
7,906
(6)
99
(2)
(18)
0
(14)
7
(4)
(14)
(32)
(98)
71
32
211
(77)
78
(15)
(8)
(10)
(9)
(24)
2
230
(39)
(85)
(65)
(52)
(41)
174
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 investments
Investments in associated companies
Tangible fixed assets
Accrued income and prepaid expenses
Positive replacement values
Other assets
Total assets
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
Total liabilities
Total subordinated liabilities
Total liabilities to Group companies
31.12.01
31.12.00
% change from
31.12.00
20,215
54,384
252,226
173,690
117,706
185,306
17,253
11,331
5,624
3,231
171,798
3,725
1,016,489
1,894
213,954
52,604
303,036
67,664
288,684
5,213
65,471
8,707
172,469
5,795
3,959
3,589
14,507
3,253
16,883
4,655
1,016,489
16,444
126,182
2,242
61,152
243,911
175,255
117,830
155,342
12,133
10,587
5,949
3,239
141,516
6,242
935,398
805
187,724
36,340
294,4401
68,069
263,459
5,408
42,731
11,230
155,059
8,0731
7,817
4,444
18,047
4,007
8,361
7
7,906
935,398
15,302
142,263
802
(11)
3
(1)
0
19
42
7
(5)
0
21
(40)
9
135
14
45
3
(1)
10
(4)
53
(22)
11
(28)
(49)
(19)
(20)
(19)
102
(100)
(41)
9
7
(11)
1 Reclassification of CHF 65,512 million trading liabilities from Other liabilities to Due to banks.
Statement of Appropriation of Retained Earnings
CHF million
The Board of Directors proposes to the Annual General Meeting the following appropriation:
Profit for the financial year 2001 as per the Parent Bank’s Income Statement
Appropriation to other reserves
4,655
4,655
Par Value Repayment
The Board of Directors proposes to repay CHF 2.00 of the par value of each CHF 2.80 share, instead
of distributing a dividend. This repayment would reduce the share capital by CHF 2,517 million,
as at 31 December 2001, and reduce the par amount per share to CHF 0.80. The repayment of
CHF 2.00 of the par value would be made on 10 July 2002 to those shareholders who hold UBS
shares on 5 July 2002.
175
UBS AG (Parent Bank)
Notes to the Financial Statements
Notes to the Financial Statements
Accounting and Valuation Principles
The Parent Bank’s accounting and valuation
policies are in compliance with Swiss banking
law. The accounting and valuation policies are
prinicipally the same as for the Group Financial
Statements outlined in Note 1: Summary of Sig-
nificant Accounting Policies. Major differences
between the Swiss banking law requirements
and International Accounting Standards are
described in Note 39 to the Group Financial
Statements.
In addition, the following principles are ap-
plied for the Parent Bank:
Treasury shares
Treasury shares is the term used to describe
when an enterprise holds its own equity instru-
ments. Under IAS, treasury shares are presented
in the balance sheet as a deduction from equity.
No gain or loss is recognized in the income state-
ment on the sale, issuance, acquisition, or can-
cellation of those shares. Consideration received
or paid is presented in the financial statement as
a change in equity.
Under Swiss law, treasury shares are classified
in the balance sheet as trading balances or as
financial assets, short positions are included in
Due to banks. Realized gains and losses on the
sale, issuance or acquisition of treasury shares,
and unrealized gains or losses from remeasure-
ment of treasury shares in the trading portfolio
to market value are included in the income state-
ment. Treasury shares included in Financial
investments are carried at the lower of cost or
market value.
Investments in associated companies
Investments in associated companies are equity
interests which are held for the purpose of the
Parent Bank’s business activities or for strategic
reasons. They are carried at cost less valuation
reserves, if needed.
Property and equipment
Bank buildings and other real estate are carried at
cost less accumulated depreciation. Depreciation
of computer and telecommunication equipment,
other office equipment, fixtures and fittings is
recognized on a straight-line basis over the esti-
mated useful lives of the related assets. The use-
ful lives of Property and equipment are summa-
rized 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
appropriate income or expense category. These
items are separately identified below.
Taxation
Deferred Tax Assets and Deferred Tax Liabilities,
except for a few immaterial exceptions, are not
recognized in the Parent Bank financial state-
ments. Swiss banking law does not require to
recognize deferred taxes.
176
Additional Income Statement Information
Net Trading Income
CHF million
For the year ended
Foreign exchange and bank notes
Bonds and other interest rate instruments
Equities
Precious metals and commodities
Total
31.12.01
31.12.00
% change from
31.12.00
1,629
805
2,435
146
5,015
1,151
88
6,117
22
7,378
42
815
(60)
564
(32)
Extraordinary Income and Expenses
Extraordinary income contains CHF 87 million
(2000: CHF 496 million) from the sale of sub-
sidiaries and CHF 8 million (2000: CHF 15 mil-
lion) from other disposals. Extraordinary expens-
es consist mainly of losses of CHF 4 million from
the liquidation of investments in subsidiaries. In
2000 losses of CHF 20 million resulted from the
sale of tangible fixed assets.
177
UBS AG (Parent Bank)
Notes to the Financial Statements
Additional Balance Sheet Information
Value Adjustments and Provisions
CHF million
Default risks (credit and country risk)
Other business risks
Capital and income taxes
Other provisions
Total allowance for general credit
losses and other provisions
Allowances deducted from assets
Balance at
31.12.00
10,389
2,933
2,054
1,573
16,949
9,132
Total provisions as per balance sheet
7,817
Provisions
applied in
accordance
with their
specified
purpose
(2,976 )
(163 )
(1,634 )
(799 )
Recoveries,
doubtful
interest,
currency
translation
differences
252
(165 )
(68 )
(212 )
New
provisions
charged
to income
367
289
549
469
(5,572)
(193)
1,674
Balance at
31.12.01
8,032
2,894
901
1,031
12,858
8,899
3,959
178
Statement of Shareholders’ Equity
CHF million
Shareholders’ equity
Share capital at beginning of the period
General statutory reserves
Reserves for own shares
Other reserves
Retained earnings
Total shareholders’ equity at beginning of the period
(before distribution of profit)
Reduction of share capital
Capital increase
Increase in General statutory reserves
Share premium
Other allocations 1
Prior-year dividend 2
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
31.12.01
31.12.00
% change from
31.12.00
4,444
18,047
4,007
8,361
7,913
42,772
(867)
12
275
(3,815)
(145)
4,655
42,887
3,589
14,507
3,253
16,883
4,655
4,309
14,528
3,462
6,356
6,791
35,446
135
215
3,304
(1,979 )
(2,255 )
7,906
42,772
4,444
18,047
4,007
8,361
7,913
3
24
16
32
17
21
(91)
28
(93)
(100)
(41)
0
(19)
(20)
(19)
102
(41)
1 The 31 December 2000 figure includes a partial dividend for the period from 1 January 2000 until 30 September 2000 distributed in the year
2000.
2 For the fourth quarter 2000 a par value repayment has been done instead of distributing a final dividend.
Share Capital
Issued and paid up
Conditional share capital
Par value
Ranking for dividends
No. of shares
Capital in CHF
No. of shares
Capital in CHF
1,281,717,499
13,017,716
3,588,808,997
36,449,605
1,258,653,143
3,524,228,800
179
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
31.12.01
31.12.00
Change in %
Book
value
29,893
1,239
5,224
36,356
Effective
liability
813
813
Book
value
28,355
1,565
40,649
70,569
Effective
liability
Book
value
Effective
liability
1,066
24,721
25,787
5
(21 )
(87 )
(48 )
(24)
(100)
(97)
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
31.12.01
31.12.00
% change from
31.12.00
38,978
532
1,042
40,552
50,274
682
403
51,359
(22)
(22)
159
(21)
Due to UBS Pension Plans, Loans to Corporate Bodies / Related Parties
CHF million
Due to UBS pension plans (including securities
borrowed) and UBS securities held by pension plans
Loans to directors, senior executives and auditors 1
31.12.01
31.12.00
% change from
31.12.00
1,605
32
4,644
36
(65)
(11)
1 Loans to directors, senior executives and auditors 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. There are no loans to the auditors.
180
UBS AG (Parent Bank)
Report of the Statutory Auditors
181
182
Additional Disclosure Required
under SEC Regulations
183
Additional Disclosure Required
under SEC Regulations
Table of Contents
Additional Disclosure Required under SEC Regulations
Table of Contents
A
B
C
D
Introduction
Selected Financial Data
Balance Sheet Data
US GAAP Income Statement Data
US GAAP Balance Sheet Data
Ratio of Earnings to Fixed Charges
Information on the Company
Property, plant and equipment
Information Required by Industry Guide 3
Selected statistical information
Average Balances and Interest Rates
Analysis of Changes in Interest Income and Expense
Deposits
Short-term Borrowings
Loans
Loan Maturities
Impaired, Non-performing and Restructured Loans
Cross-Boarder Outstandings
Summary of Movements in Allowances and
Provisions for Credit Losses
Allocation of the Allowances and
Provisions for Credit Losses
Loss History Statistics
185
185
187
188
189
189
189
189
190
190
190
192
194
195
196
197
198
199
201
203
205
184
A – Introduction
The following pages contain additional disclosure about UBS Group which is required under
SEC regulations.
B – Selected Financial Data
UBS’s Financial Statements have been prepared in accordance with International Accounting
Standards (IAS) and are denominated in Swiss francs, or CHF, the reporting currency of the Group.
Certain financial information has also been presented in accordance with United States Generally
Accepted Accounting Principles (US GAAP).
The tables below set forth, for the periods and dates indicated, information concerning the noon
buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The
noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York.
On 28 February 2002 the noon buying rate was 0.5864 USD per 1 CHF.
Year ended 31 December
1997
1998
1999
2000
2001
Month
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
High
0.7446
0.7731
0.7361
0.6441
0.6331
High
0.6331
0.6217
0.6132
0.6136
0.6081
0.5932
Average rate1
Low (USD per 1 CHF)
At period end
0.6890
0.6894
0.6605
0.5912
0.5910
0.6845
0.7281
0.6277
0.6172
0.5857
0.6510
0.6485
0.6244
0.5479
0.5495
Low
0.5859
0.6021
0.5985
0.5907
0.5814
0.5833
1 The average of the noon buying rates on the last business day of each full month during the relevant period.
185
Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
CHF million, except where indicated
For the year ended
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Income statement data
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after
credit loss (expense) / recovery
Net fee and commission income
Net trading income
Other income
Operating income
Operating expenses
Operating profit before tax
Restructuring costs
Tax expense/(benefit)
Minority interests
Net profit
Cost / income ratio (%) 1
Cost / income ratio before
goodwill (%) 1, 2
Per share data (CHF)
Basic earnings per share 3, 4
Basic earnings per share
before goodwill 2, 3, 4
Diluted earnings per share 3, 4
Diluted earnings per share
before goodwill 2, 3, 4
Cash dividends declared per share (CHF) 5
Cash dividends declared per share (USD) 5
Dividend payout ratio (%) 5
Rates of return (%)
Return on shareholders’ equity 6
Return on shareholders’ equity
before goodwill 2, 6
Return on average equity
Return on average assets
52,277
44,236
8,041
(498)
7,543
20,211
8,802
558
37,114
30,396
6,718
0
1,401
(344)
4,973
80.8
77.3
3.93
4.97
3.78
4.81
11.7
14.8
10.4
0.36
51,745
43,615
8,130
130
8,260
16,703
9,953
1,486
36,402
26,203
10,199
0
2,320
(87 )
7,792
72.2
70.4
6.44
7.00
6.35
6.89
1.50
0.86
23.28
21.5
23.4
22.0
0.7
35,604
29,695
5,909
(956 )
4,953
12,607
7,719
3,146
28,425
20,532
7,893
0
1,686
(54 )
6,153
69.9
68.7
5.07
5.35
5.02
5.30
1.83
1.10
36.18
22.4
23.6
18.6
0.65
37,442
32,424
5,018
(951 )
4,067
12,626
3,313
2,241
22,247
18,376
3,871
0
904
5
2,972
79.2
23,669
16,733
6,936
(1,278)
5,658
12,234
5,491
1,497
24,880
18,636
6,244
7,000
(105)
(16)
(667)
71.2
77.7
70.7
2.44
(0.53)
2.72
2.40
2.68
1.67
1.10
68.21
10.7
12.0
9.0
0.28
(0.53)
(2.0)
(0.07)
3 For EPS calculation, see Note 9 to the Financial Statements.
2 The amortization of goodwill and other intangible assets is excluded from
1 Operating expenses / operating income before credit loss expense.
4 The 2000, 1999, 1998 and 1997 share and earnings per share
the calculation.
5 Dividends are normally declared and paid in the year
figures have been adjusted for the 3 for 1 share split which took place on 16 July 2001.
subsequent to the reporting period. In 2000, as part of the arrangements of the acquisition of PaineWebber, a dividend of CHF 1.50 was paid
on 5 October 2000 in respect of the nine months ended 30 September 2000. Prior to the merger between Union Bank of Switzerland and Swiss
Bank Corporation, each paid dividends in accordance with its own dividend policies. In 2001 a further amount of CHF 1.60 per share was dis-
tributed to shareholders in the form of a par value reduction, in respect of 2000. No dividend will be paid out for the year 2001. A par value
reduction of CHF 2.00 per share will be paid on 10 July 2002, in respect of 2001, subject to approval by shareholders at the Annual General
Meeting.
6 Net profit / average shareholders’ equity excluding dividends.
186
Shares 1
Registered ordinary shares
Own shares to be delivered
Treasury shares
BIS capital ratios
Tier 1 (%)
Total BIS (%)
Risk-weighted assets
Invested assets (CHF billion)
B – Selected Financial Data (continued)
CHF million, except where indicated
As at
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Balance sheet data
Total assets
Shareholders’ equity
Average equity to average assets (%)
1,253,297
43,530
3.49
1,087,552
44,833
3.17
Market capitalization
105,475
112,666
896,556
30,608
3.52
92,642
861,282
28,794
3.06
90,720
1,086,414
30,927
3.40
1,281,717,499
0
41,254,951
1,333,139,187
28,447,788
55,265,349
1,292,679,486
0
110,621,142
1,289,857,836
0
73,370,094
1,286,174,100
0
38,236,224
11.6
14.8
253,735
2,457
8.3
12.6
345,904
11.7
15.7
273,290
2,4524
71,076
AAA
Aa1
AA+
10.6
14.5
273,107
1,744
49,058
AAA
Aa1
AA+
9.3
13.2
303,719
1,573
48,011
AAA
Aa1
AA+
Headcount (full time equivalents) 2
69,985
Long-term ratings 3
Fitch, London
Moody’s, New York
Standard & Poor’s, New York
AAA
AA2
AA+
1 The 2000, 1999, 1998 and 1997 share figures have been adjusted for the 3 for 1 split which took place on 16 July 2001.
count does not include the Klinik Hirslanden AG headcount.
nature of these ratings. 4 Restated to reflect the new definition.
2 The Group head-
3 See the UBS Handbook 2001/2002, page 10 to 11 for information about the
Balance Sheet Data
CHF million
As at
Assets
Total assets
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Loans, net of allowances
for credit losses
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Due to customers
Debt issued
Shareholders’ equity
31.12.01
31.12.001
31.12.991
31.12.981
31.12.971
1,253,297
27,526
162,938
269,256
397,886
73,447
1,087,552
29,147
177,857
193,801
315,588
57,875
896,556
29,907
113,162
132,391
211,932
62,957
861,282
68,495
91,695
141,285
159,179
90,511
1,086,414
66,582
82,656
216,355
210,738
149,538
226,545
244,842
234,858
247,926
270,917
106,531
30,317
368,620
105,798
71,443
333,781
156,218
43,530
82,240
23,418
295,513
82,632
75,923
310,679
129,635
44,833
76,365
12,832
196,914
54,638
95,786
279,960
120,987
30,608
85,716
19,171
137,617
47,033
125,847
274,850
102,310
28,794
159,634
14,140
191,793
68,215
170,162
302,516
109,864
30,927
1 Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies in the
Financial Statements).
187
31.12.01
31.12.00
31.12.99
31.12.98
51,565
(43,584 )
7,981
130
8,111
16,703
8,597
1,514
34,925
17,262
6,813
3,952
191
28,218
6,707
2,183
4,524
(87 )
4,437
35,404
(29,660 )
5,744
(956 )
4,788
12,607
7,174
3,182
27,751
12,483
6,664
3,454
750
23,351
4,400
1,509
2,891
(54 )
2,837
29,136
(25,773)
3,363
(787)
2,576
8,925
455
725
12,681
7,938
6,259
2,403
1,089
17,689
(5,008)
(1,339)
(3,669)
4
(3,665)
Additional Disclosure Required
under SEC Regulations
B – Selected Financial Data (continued)
US GAAP Income Statement Data
CHF million
For the year ended
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
51,975
(44,178)
7,797
(498)
Net interest income after credit loss (expense) / recovery
7,299
Net fee and commission income
Net trading income
Other income
Total operating income
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation and amortization
Restructuring costs
Total operating expenses
Operating profit / (loss)
before tax and minority interests
Tax expense / (benefit)
Net profit / (loss) before minority interests
Minority interests
Net profit / (loss)
20,211
8,973
534
37,017
19,713
7,631
4,597
112
32,053
4,964
1,386
3,578
(344)
3,234
188
B – Selected Financial Data (continued)
US GAAP Balance Sheet Data
CHF million
As at
Assets
Total assets
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values 2
Loans, net of allowances for credit losses
Intangible assets and goodwill
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values 2
Due to customers
Accrued expenses and deferred income
Debt issued
Shareholders’ equity
31.12.01
31.12.001
31.12.991
31.12.981
1,314,856
1,124,554
893,525
899,589
27,550
162,566
269,256
399,577
73,051
226,747
33,765
36,972
106,531
30,317
368,620
108,924
71,018
333,766
17,289
156,462
59,282
29,182
177,857
193,801
318,788
57,775
245,214
35,726
27,955
82,240
23,418
295,513
87,832
75,423
310,686
21,038
129,750
62,960
29,954
113,162
132,391
228,230
62,294
235,401
21,428
18,717
76,363
12,832
173,840
52,658
95,004
279,971
12,040
120,704
51,833
68,554
91,695
141,285
178,130
90,520
248,657
21,707
29,398
85,716
19,127
136,824
47,772
125,857
274,861
11,232
101,973
54,761
1 Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of significant Accounting Policies in the
Financial Statements).
2 Positive and negative replacement values represent the fair value of derivative instruments.
Ratio of Earnings to Fixed Charges
The following table sets forth UBS AG’s ratio of earnings to fixed charges, for the periods indicated.
Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not pre-
sented as there were no preferred share dividends in any of the periods indicated.
For the year ended
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
IAS
US GAAP
1.141
1.101, 2
1.231
1.151, 2
1.251
1.141, 2
1.111
0.801, 2
0.951
, 3
1 The ratio is provided using both IAS and US GAAP values, since the ratio is materially different under the two accounting standards. No US
GAAP information is provided for 31 December 1997 as a US GAAP reconciliation was not required for that period. 2 The deficiency in the
coverage of fixed charges by earnings before fixed charges at 31 December 1998 was CHF 5,319 million. 3 The deficiency in the coverage of
fixed charges by earnings before fixed charges at 31 December 1997 was CHF 851 million.
C – Information on the Company
Property, plant and equipment
At 31 December 2001, UBS operated about
2000 offices and branches worldwide, of which
about 51% were in Switzerland, 10% in the rest
of Europe, 37% in the Americas and 2% in Asia.
in
Switzerland were owned directly by UBS with
the offices and branches
28% of
the remainder, along with most of UBS’s offices
outside Switzerland, being held under commer-
cial leases.
These premises are subject to continuous
maintenance and upgrading and are considering
suitable and adequate for our current and antic-
ipated operations.
189
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3
Selected statistical information
The tables below set forth selected statistical
information regarding the Group’s banking
operations extracted
the Financial
Statements. Unless otherwise indicated, average
balances for the year ended 31 December 2001,
31 December 2000 and 31 December 1999 are
from
calculated from monthly data. Certain prior year
balances and figures have been reclassified to
conform to current year presentation. The dis-
tinction between domestic and foreign is gener-
ally based on the booking location. For loans,
this method is not significantly different from an
analysis based on the domicile of the borrower.
Average Balances and Interest Rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for
the years ended 31 December 2001, 2000 and 1999.
CHF million, except where indicated
Average
balance
Interest
Average
rate (%)
Average
balance
Interest
Average
rate (%)
Average
balance
Interest
Average
rate (%)
31.12.01
31.12.00
31.12.99
Assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and
on reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments
Domestic
Foreign
Net interest on swaps
Total interest-earning assets
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
11,753
15,528
1,055
1,823
9.0
11.7
13,366
16,994
1,273
2,280
9.5
13.4
19,451
28,999
1,757
2,739
7,868
474,295
12,940
333,576
177,404
72,176
4,598
39,252
563
17,774
307
16,225
8,017
3,090
90
363
2,970
7.2
3.7
2.4
4.9
4.5
4.3
2.0
0.9
8,383
348,395
20,800
256,605
181,646
67,528
3,440
22,529
558
18,530
244
11,598
10,985
3,813
105
297
2,062
6.7
5.3
1.2
4.5
6.0
5.6
3.1
1.3
3,265
223,962
117
11,305
38,372
159,327
200,111
58,634
2,761
17,153
72
5,526
8,750
3,485
101
143
1,609
1,149,390
52,277
4.5
939,686
51,745
5.5
752,035
35,604
153,687
13,376
46,954
1,363,407
135,762
9,660
32,925
1,118,033
146,036
8,824
34,957
941,852
9.0
9.4
3.6
5.0
0.2
3.5
4.4
5.9
3.7
0.8
4.7
190
D – Information Required by Industry Guide 3 (continued)
Average Balances and Interest Rates (continued)
CHF million, except where indicated
Liabilities and Equity
Due to banks
Domestic
Foreign
Cash collateral on securities lent and
repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Due to customers
Domestic
Foreign
Debt issued
Domestic
Foreign
Total interest-bearing liabilities
Non-interest-bearing liabilities
Negative replacement values
Other
Total liabilities
Shareholders’ equity
31.12.01
31.12.00
31.12.99
Average
balance
Interest
Average
rate (%)
Average
balance
Interest
Average
rate (%)
Average
balance
Interest
Average
rate (%)
36,260
61,642
1,424
3,506
13,147
415,121
600
13,917
2,526
94,597
139,014
187,783
12,823
139,982
1
7,814
2,420
6,738
587
7,229
1,102,895
44,236
165,220
47,676
1,315,791
47,616
3.9
5.7
4.6
3.4
0.0
8.3
1.7
3.6
4.6
5.2
4.0
31,133
57,258
2,397
3,758
12,700
284,220
478
14,437
1,078
66,597
143,809
143,432
15,569
116,095
4
5,305
2,202
7,303
778
6,953
871,891
43,615
157,668
53,049
1,082,608
35,425
1,118,033
7.7
6.6
3.8
5.1
0.4
8.0
1.5
5.1
5.0
6.0
5.0
37,581
41,583
3,254
2,261
12,830
144,837
0
48,560
155,887
122,411
16,387
95,919
106
8,340
0
2,070
1,931
6,399
952
4,382
675,995
29,695
171,800
60,946
908,741
33,111
941,852
8.7
5.4
0.8
5.8
0.0
4.3
1.2
5.2
5.8
4.6
4.4
Total average liabilities and shareholders’ equity
1,363,407
Net interest income
Net yield on interest-earning assets
8,041
8,130
5,909
0.7
0.9
0.8
The percentage of total average interest-earning assets attributable to foreign activities was 81% for 2001 (76% for 2000 and 65%
for 1999). The percentage of total average interest-bearing liabilities attributable to foreign activities was 82% for 2001 (77% for 2000
and 67% for 1999).
All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at month-
ly average rates.
Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest rates in
general, but are also affected by changes in the currency mix included in the assets and liabilities. This is especially true for foreign
assets and liabilities. Tax exempt income is not recorded on a tax-equivalent basis. For all three years presented, tax exempt income is
considered to be insignificant and therefore the impact from such income is negligible.
191
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense
The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities,
the changes in interest income and expense due to changes in volume and interest rates for the year
ended 31 December 2001 compared to the year ended 31 December 2000, and for the year ended 31
December 2000 compared to the year ended 31 December 1999. Volume and rate variances have
been calculated on movements in average balances and changes in interest rates. Changes due to a
combination of volume and rates have been allocated proportionally.
CHF million
2001 compared to 2000
2000 compared to 1999
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
Interest income from interest-earning assets
Due from banks
Domestic
Foreign
(153)
(196)
Cash collateral on securities borrowed
and reverse repurchase agreements
(65)
(261)
(218)
(457)
(550 )
(1,134 )
(35)
6,673
(94)
3,464
(255)
260
36
217
40
(7,429)
157
1,163
5
(756)
63
4,627
(2,713)
(983)
(2,968)
(723)
(51)
(151)
(15)
66
183
6,281
(33 )
3,374
(807 )
529
25
45
66
675
258
944
205
2,698
3,042
(201 )
(21 )
109
(484)
(459)
441
7,225
172
6,072
2,235
328
4
154
(501)
10,418
(2,632)
(7,661)
(3,133)
2,757
(1,182 )
9,095
3,550
4,225
2,368
13,320
9,917
(10,293)
(376)
908
532
7,913
7,775
15,688
453
16,141
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments
Domestic
Foreign
Interest income
Domestic
Foreign
Total interest income from
interest-earning assets
Net interest on swaps
Total interest income
192
D – Information Required by Industry Guide 3 (continued)
Analysis of Changes in Interest Income and Expense (continued)
CHF million
2001 compared to 2000
2000 compared to 1999
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
Interest expense on interest-bearing liabilities
Due to banks
Domestic
Foreign
395
289
(1,368)
(541)
(973)
(252)
(558 )
852
(299 )
645
(857)
1,497
Cash collateral on securities lent
and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Due to customers
Domestic
Foreign
Debt issued
Domestic
Foreign
Interest expense
Domestic
Foreign
(1 )
8,026
373
(1,929 )
17
6,676
6
2,240
(72)
2,262
(137)
1,433
105
(7,196)
(9)
269
290
(2,827)
(54)
(1,157)
122
(520)
(3)
2,509
218
(565)
(191)
276
4
769
(150 )
1,099
(48 )
922
209
12,900
(1,036)
(11,452)
(827)
1,448
(753 )
11,668
0
2,466
421
(195 )
(126 )
1,649
369
2,636
3,005
Total interest expense
13,109
(12,488)
621
10,915
372
6,097
4
3,235
271
904
(174)
2,571
(384)
14,304
13,920
193
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Deposits
The following table analyzes average deposits and the average rates on each deposit category listed
below for the years ended 31 December 2001, 2000 and 1999. The geographic allocation is based on
the location of the office or branch where the deposit is made. Deposits by foreign depositors in
domestic offices were CHF 54,095 million, CHF 45,815 million and CHF 45,285 million at 31 De-
cember 2001, 31 December 2000 and 31 December 1999, respectively.
CHF million, except where indicated
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
31.12.01
31.12.00
31.12.99
Banks
Domestic offices
Demand deposits
Time deposits
Total domestic offices
Foreign offices
Interest-bearing deposits 1
Total due to banks
Customer accounts
Domestic offices
Demand deposits
Savings deposits
Time deposits
Total domestic offices
Foreign offices
Demand deposits
Total due to customers
1 Mainly time deposits.
3,741
8,012
11,753
15,528
27,281
41,664
66,089
31,261
139,014
187,783
326,797
1.2
4.2
3.3
5.7
4.6
1.7
1.1
3.2
1.7
3.6
2.8
4,649
8,717
13,366
16,994
30,360
44,403
72,207
27,199
143,809
143,432
287,241
1.9
8.7
6.3
6.6
6.5
1.3
1.1
3.0
1.5
5.1
3.3
12,736
6,715
19,451
28,999
48,450
49,261
80,543
26,083
155,887
122,411
278,298
0.9
12.6
5.0
5.4
5.2
0.6
1.1
2.8
1.2
5.2
3.0
At 31 December 2001, the maturity of time deposits exceeding CHF 150,000, or an equivalent
amount in other currencies, was as follows:
CHF million
Within 3 months
3 to 12 months
1 to 5 years
Over 5 years
Total time deposits
Domestic
Foreign
34,240
4,103
981
56
156,183
7,783
705
896
39,380
165,567
194
D – Information Required by Industry Guide 3 (continued)
Short-term Borrowings
The following table presents our period-end, average and maximum month-end outstanding amounts for short-term borrowings, along
with the average rates and period-end rates at and for the years ended 31 December 2001, 2000 and 1999.
Money market paper issued
Due to banks
Repurchase agreements 1
CHF million, except where indicated
31.12.01 31.12.00 31.12.99 31.12.01 31.12.00 31.12.99 31.12.01 31.12.00 31.12.99
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
99,006
96,253
117,022
4.4
2.6
74,780
78,154
89,821
5.6
6.0
64,655
58,102
76,368
3.9
4.6
77,312
70,621
85,808
7.0
2.2
51,245
58,031
73,355
7.0
4.1
40,580
30,714
64,562
9.7
4.8
462,316
400,648
502,578
3.2
2.9
330,857
278,601
342,427
4.8
4.8
217,736
149,071
217,736
4.8
3.9
1 For the purpose of this disclosure, balances are presented on a gross basis.
195
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Loans
Loans are widely dispersed over customer categories both within and outside of Switzerland. With
the exceptions of private households (foreign and domestic) and banks and financial institutions out-
side Switzerland, there is no material concentration of loans. For further discussion of the loan port-
folio, see the UBS Handbook 2001/2002. The following table illustrates the diversification of the
loan portfolio among customer categories at 31 December 2001, 2000, 1999, 1998 and 1997. The
industry categories presented are consistent with the classification of loans for reporting to the Swiss
Federal Banking Commission and Swiss National Bank.
CHF million
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing 1
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services 2
Other 3
Total domestic
1,533
3,499
5,673
2,950
8,686
93,746
5,222
14,992
8,674
12,161
1,860
2,896
4,870
5,725
3,526
9,577
91,667
5,658
16,673
9,635
11,767
2,651
5,802
6,577
9,387
4,259
11,377
93,846
5,277
19,835
10,904
14,862
1,818
4,543
7,897
10,240
4,129
13,505
97,664
5,858
21,231
8,912
11,582
1,662
158,996
164,645
183,944
187,223
17,751
9,627
11,371
4,668
16,440
109,044
6,354
22,915
10,512
13,083
1,862
223,627
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing 6
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 4, 5
26,728
1,080
266
977
14,458
4,258
1,313
25,619
6,454
10,227
1,732
4,786
2,117
2,973
27,168
1,423
773
1,584
20,348
4,596
2,070
29,470
11,754
5,077
1,862
1,585
993
11,168
Total foreign
Total gross
102,988
261,984
119,871
284,516
24,983
65,000
49,559
69,087
94,070
278,014
78,741
143,741
330,964
80,054
129,613
353,240
1 Includes chemicals, food and beverages.
personal service activities.
classifications are available.
3 Includes mining and electricity, gas and water supply.
2 Includes transportation, communication, health and social work, education and other social and
4 For the years prior to the year 2000, no detailed industry
5 Includes hotels and restaurants.
6 Includes food and beverages.
196
D – Information Required by Industry Guide 3 (continued)
Loans (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the customer
and type of mortgage at 31 December 2001, 2000, 1999, 1998 and 1997. Mortgages are included in
the industry categories mentioned above.
CHF million
Mortgages
Domestic
Foreign
Total gross mortgages
Mortgages
Residential
Commercial
Total gross mortgages
Loan Maturities
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
116,628
9,583
126,211
101,969
24,242
126,211
116,348
4,206
120,554
126,677
1,310
127,987
96,181
24,373
91,408
36,579
120,554
127,987
138,306
2,479
140,785
106,093
34,692
140,785
142,919
3,883
146,802
105,926
40,876
146,802
The following table discloses loans by maturity at 31 December 2001. The determination of maturi-
ties is based on contract terms. Information on interest rate sensitivities can be found in Note 30 to
the UBS Group Financial Statements.
CHF million
Domestic
Banks
Mortgages
Other loans
Total domestic
Foreign
Banks
Mortgages
Other loans
Total foreign
Total gross loans
Within 1 year
1 to 5 years
Over 5 years
Total
1,384
63,952
31,578
96,914
26,153
8,746
63,927
98,826
149
45,246
7,671
53,066
305
664
2,110
3,079
195,740
56,145
0
7,430
1,586
9,016
270
173
640
1,083
10,099
1,533
116,628
40,835
158,996
26,728
9,583
66,677
102,988
261,984
197
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Impaired, Non-performing and Restructured Loans
A loan is classified as impaired if the book value of the claim exceeds the present value of the cash
flows actually expected in future periods – interest payments, scheduled principal repayments and
liquidation of collateral. Impaired obligations are thus obligations where losses are probable and
estimable. A provision is then made with respect to the loan in question. Impaired loans include non-
performing loans, for which the contractual payments of principal, interest or commission are over-
due by 90 days. When loans are classified as non-performing, the recognition of interest or commis-
sion income ceases to be recorded according to the original terms of the loan agreement. Allowances
are provided for non-performing loans to reflect their net estimated recoverable amount. The gross
interest income that would have been recorded on non-performing loans was CHF 336 million for
the year ended 31 December 2001, CHF 182 million for the year ended 31 December 2000 and CHF
409 million for the year ended 31 December 1999. The amount of interest income that was includ-
ed in net income for those loans was CHF 201 million for the year ended 31 December 2001. There
was no interest income recorded in net income for non performing loans in 2000 and 1999. The table
below provides an analysis of the Group’s non-performing and restructured loans. For further dis-
cussion of impaired and non-performing loans, see the UBS Handbook 2001/2002.
CHF million
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Non-performing loans:
Domestic
Foreign
Total non-performing loans
Foreign restructured loans 1
6,531
2,108
8,639
7,588
2,864
10,452
179
11,435
1,638
13,073
287
14,023
2,091
16,114
449
15,238
1,426
16,664
638
1 Amounts presented for 2001, 2000, 1999 and 1998 include only performing foreign restructured loans. Amounts presented for 1997 include
both performing and non-performing foreign restructured loans. UBS does not, as a matter of policy, typically restructure loans to accrue inter-
est at rates different from the original contractual terms or reduce the principal amount of loans. Instead, specific loan allowances are established
as necessary. Unrecognized interest related to foreign restructured loans was not material to the results of operations during these periods.
In addition to the non-performing loans shown above, the Group had CHF 5,990 million, CHF
8,042 million, CHF 9,383 million and CHF 10,333 million in “other impaired loans” for the years
ended 31 December 2001, 2000, 1999 and 1998, respectively. These are loans that are current, or less
than 90 days in arrears, with respect to payment of principal or interest however, the Group’s credit
officers have expressed doubts as to the ability of the borrowers to repay the loans.
As at 31 December 2001 specific allowances of CHF 1,920 million had been established against these
loans, which are primarily domestic.
198
D – Information Required by Industry Guide 3 (continued)
Cross-Border Outstandings
Cross-border outstandings consist of general banking products such as loans and deposits with third
parties, credit equivalents of over-the-counter (OTC) derivatives and repurchase agreements, and the
market value of the inventory of securities. Outstandings are monitored and reported on an ongoing
basis by the credit risk management and control organization with a dedicated country risk infor-
mation system. With the exception of the 27 most developed economies, these exposures are rigor-
ously limited.
Claims that are secured by third-party guarantees are recorded against the guarantor’s country of
domicile. Outstandings that are secured by collateral are recorded against the country where the
asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which
are applicable to all banks that are supervised by the Swiss Federal Banking Commission.
The following tables list those countries for which cross-border outstandings exceeded 0.75% of
total assets at 31 December 2001, 2000 and 1999. At 31 December 2001, there were no outstandings
that exceeded 0.75% of total assets in any country currently facing liquidity problems that the Group
expects would materially affect the country’s ability to service its obligations.
For more information on cross-border outstandings, see the UBS Handbook 2001/2002.
199
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
CHF million
United States
United Kingdom
Germany
Japan
Italy
France
Canada
Netherlands
CHF million
United States
Japan
United Kingdom
Germany
Italy
France
Netherlands
Australia
CHF million
United States
Japan
United Kingdom
Germany
Italy
Netherlands
France
Australia
Canada
31.12.01
Banking products
Banks Non-banks
Traded
products1
Tradable
assets2
% of total
assets
Total
2,360
2,483
3,605
640
1,086
159
114
1,834
1,284
543
6,395
770
498
2,043
950
2,414
31,129
9,128
11,962
4,442
11,628
4,114
5,220
6,126
114,615
27,754
11,755
22,995
11,180
8,052
8,038
3,110
149,388
39,908
33,717
28,847
24,392
14,368
14,322
13,484
11.9
3.2
2.7
2.3
1.9
1.1
1.1
1.1
31.12.00
Banking products
Banks Non-banks
Traded
products1
Tradable
assets2
1,826
123
1,795
2,686
1,293
1,085
910
27
958
895
1,224
3,720
931
1,900
1,480
370
21,796
6,378
9,037
13,198
3,629
3,956
6,092
3,113
64,077
58,779
22,440
5,085
9,700
5,987
3,803
7,508
31.12.99
Banking products
Banks Non-banks
Traded
products1
Tradable
assets2
3,202
1,117
3,417
4,455
2,462
1,932
1,200
2,688
866
2,508
965
3,193
3,174
762
1,149
1,395
409
492
41,970
7,153
11,273
41,422
6,803
6,648
7,324
6,342
5,233
48,012
69,194
58,300
8,181
8,708
4,993
4,379
3,735
807
Total
88,657
66,175
34,496
24,689
15,553
12,928
12,285
11,018
Total
95,692
78,429
76,183
57,232
18,735
14,722
14,298
13,174
7,398
% of total
assets
8.2
6.1
3.2
2.3
1.4
1.2
1.1
1.0
% of total
assets
10.7
8.8
8.5
6.4
2.1
1.6
1.6
1.5
0.8
1 Traded products consist of derivative instruments and repurchase agreements. In 2001 and 2000 unsecured OTC derivatives exposure is
reported based on the Potential Credit Exposure measurement methodology and is therefore not directly comparable to the exposure in the prior
2 Tradeable assets consist of equity and fixed income financial
years, which were measured based on Gross Replacement Values plus Add-on.
instruments held for trading purposes, which are marked to market on a daily basis.
200
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses
The following table provides an analysis of movements in allowances and provisions for credit losses.
As a result of Swiss bankruptcy laws, banks write-off loans against allowances only upon final
settlement of bankruptcy proceedings, the sale of the underlying assets and/or in case of the forgive-
ness of debt. Under Swiss law, a creditor can continue to collect from a debtor who has emerged from
bankruptcy, unless the debt has been forgiven through a formal agreement.
CHF million
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Balance at beginning of year
10,581
13,398
14,978
16,213
18,135
Write-offs
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing 1
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services 2
Other 3
0
(248)
(51)
(52)
(109)
(1,297)
0
(317)
(115)
(93)
(46)
0
(261 )
(178 )
(193 )
(264 )
(640 )
0
(729 )
(160 )
(227 )
(30 )
(4 )
(296 )
(92 )
(137 )
(242 )
(598 )
0
(823 )
(210 )
(315 )
(41 )
(2 )
(228 )
(66 )
(98 )
(214 )
(534 )
(2 )
(610 )
(178 )
(116 )
(15 )
Total domestic domestic write-offs
(2,328)
(2,682 )
(2,758 )
(2,063 )
(5)
(408)
(226)
(138)
(514)
(1,214)
(19)
(871)
(227)
(229)
(29)
(3,880)
Foreign 4
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing 6
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total foreign write-offs
(24)
(2)
(10)
(63)
(74)
(119)
(304)
(5)
0
(1)
0
(30)
0
(48)
(680)
(15 )
(13 )
(3 )
(33 )
(11 )
(4 )
(160 )
(8 )
(11 )
(55 )
(313 )
Total write-offs
Recoveries
Domestic
Foreign
Total recoveries
Net write-offs
(3,008)
(2,995 )
(517 )
(3,275 )
(261 )
(2,324 )
(240)
(4,120)
58
23
81
124
39
163
54
11
65
59
59
406
36
442
(2,927)
(2,832 )
(3,210 )
(2,265 )
(3,678)
Credit loss expense / (recovery)
Other adjustments 5
Balance at end of year
498
66
8,218
(130 )
145
956
674
951
79
10,581
13,398
14,978
1,432
324
16,213
1 Includes chemicals, food and beverages.
personal service activities.
are available.
5 See the following table for details. 6 Includes food and beverages.
3 Includes mining and electricity, gas and water supply.
2 Includes transportation, communication, health and social work, education and other social and
4 For years prior to 2000, no detailed industry classifications
201
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Summary of Movements in Allowances and Provisions for Credit Losses (continued)
CHF million
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Doubtful interest
Net foreign exchange
Subsidiaries sold and other
Total adjustments
0
44
22
66
182
23
(60 )
145
409
351
(86 )
674
423
(98 )
(246 )
79
450
91
(217)
324
202
D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses
The following table provide an analysis of the allocation of the allowances and provisions for cred-
it losses by industry categories and geographic location at 31 December 2001, 2000, 1999, 1998 and
1997. For a description of procedures with respect to allowances and provisions for credit losses, see
the UBS Handbook 2001/2002.
CHF million
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing 1
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services 2
Other 3
Total domestic
Foreign 8
Banks 4
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing 9
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 5
Total foreign,
net of country provisions
Country provisions
Total foreign 6
Unallocated allowances 7
Total allowances and
provisions for credit losses
34
467
262
346
722
1,082
37
1,067
395
448
165
5,025
39
5
0
88
420
653
169
103
0
9
0
414
45
242
2,187
1,006
3,193
843
328
454
863
1,570
1,635
629
419
413
7,154
32
0
11
107
262
547
586
72
0
82
41
126
2
267
2,135
1,292
3,427
41
1,247
342
690
1,223
2,350
40
2,696
779
934
141
49
1,671
668
657
1,331
2,741
107
3,333
825
766
71
10,483
12,219
34
1,449
510
512
1,036
2,264
59
2,591
723
661
52
9,891
1,539
1,376
2,915
1,309
1,450
2,759
1,399
1,175
2,574
3,748
8,218
10,581
13,398
14,978
16,213
2 Includes transportation, communication, health and social work, education and other social and
1 Includes chemicals, food and beverages.
4 Counterparty allowances and provisions only. Country
personal service activities.
5 Includes hotels and restaurants.
provisions with banking counterparties amounting to CHF 662 million are disclosed under country provisions.
6 The 2001, 2000, 1999 and 1998 amounts include CHF 305 million, CHF 54 million, CHF 149 million and CHF 435 million respectively of
7 The 1997 amount includes a provision for commitments and contingent liabilities of
provisions and commitments for contingent liabilities.
CHF 472 million.
8 For years prior to 2000, no detailed industry classifications are available. 9 Includes food and beverages.
3 Includes mining and electricity, gas and water supply.
203
Additional Disclosure Required
under SEC Regulations
D – Information Required by Industry Guide 3 (continued)
Allocation of the Allowances and Provisions for Credit Losses (continued)
The following table presents the percentage of loans in each category to total loans. This table can
be read in conjunction with the preceding table showing the breakdown of the allowances and pro-
visions for credit losses by industry categories to evaluate the credit risks in each of the categories.
in %
31.12.01
31.12.00
31.12.99
31.12.98
31.12.97
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Total domestic
Foreign
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other
Total foreign
Total gross loans
0.6
1.3
2.2
1.1
3.3
35.8
2.0
5.7
3.3
4.6
0.8
60.7
10.2
0.4
0.1
0.4
5.5
1.6
0.5
9.8
2.5
3.9
0.7
1.8
0.8
1.1
39.3
1.0
1.7
2.0
1.2
3.4
32.2
2.0
5.9
3.4
4.1
1.0
57.9
9.5
0.5
0.3
0.6
7.2
1.6
0.7
10.4
4.1
1.8
0.7
0.6
0.3
3.8
42.1
100.0
100.0
2.1
2.4
3.4
1.5
4.1
33.8
1.9
7.1
3.9
5.3
0.7
66.2
9.0
1.4
2.4
3.1
1.2
4.1
29.5
1.8
6.4
2.7
3.5
0.5
56.6
19.6
5.0
2.7
3.2
1.3
4.7
30.9
1.8
6.5
3.0
3.7
0.5
63.3
14.0
24.8
33.8
100.0
23.8
43.4
100.0
22.7
36.7
100.0
204
D – Information Required by Industry Guide 3 (continued)
Loss History Statistics
The following is a summary of the Group’s loan loss history.
CHF million, except where indicated
31.12.01
31.12.00
31.12.99
31.12.98
Gross loans
Impaired loans
Non-performing loans
Allowances and
provisions for credit losses
Net write-offs
Credit loss expense / (recovery)
261,984
14,629
8,639
8,218
2,927
498
284,516
18,494
10,452
10,581
2,832
(130 )
278,014
22,456
13,073
13,398
3,210
956
330,964
26,447
16,114
14,978
2,265
951
31.12.97
353,240
16,664
16,213
3,678
1,432
Ratios
Impaired loans as a percentage
of gross loans
Non-performing loans as a percentage
of gross loans
Allowance and provisions
for credit losses as a percentage of:
Gross loans
Impaired loans
Non-performing loans
Allocated allowances as a percentage
of impaired loans 1
Allocated allowances as a percentage
of non-performing loans 2
Net write-offs as a percentage of:
Gross loans
Allowance and provisions for credit losses
Allowance and provisions for credit losses
as multiple of net write-offs
5.6
3.3
3.1
56.2
95.1
49.9
62.2
1.1
35.6
2.81
6.5
3.7
3.7
57.2
101.2
52.4
60.63
1.0
26.8
3.74
8.1
4.7
4.8
59.7
102.5
55.5
66.3
1.2
24.0
4.17
8.0
4.9
4.5
56.6
93.0
51.4
62.1
0.7
15.1
6.61
4.7
4.6
97.3
1.0
22.7
4.41
1 Allowances relating to impaired loans only.
ed to account for an overallocation of allowances to non-performing loans.
2 Allowances relating to non-performing loans only.
3 31 December 2000 figure has been restat-
205
Cautionary statement regarding
forward-looking statements
This communication contains statements that constitute
“forward-looking statements”, including, without limita-
tion, statements relating to the implementation of strategic
initiatives, including the implementation of the new
European wealth management strategy, expansion of our
corporate finance presence in the US and worldwide, the
development of UBS Warburg’s new energy trading opera-
tions, and other statements relating to our future business
development and economic performance.
While these forward-looking statements represent our judg-
ments and future expectations concerning the development
of our business, a number of risks, uncertainties and other
important factors could cause actual developments and
results to differ materially from our expectations.
These factors include, but are not limited to, (1) general
market, macro-economic, governmental and regulatory
trends, (2) movements in local and international securities
markets, currency exchange rates and interest rates, (3)
competitive pressures, (4) technological developments, (5)
changes in the financial position or credit-worthiness of our
customers, obligors and counterparties, (6) legislative
developments, (7) the impact of the terrorist attacks on the
World Trade Center and other sites in the United States on
11 September 2001 and subsequent related developments,
(8) the impact of the management changes and changes to
our Business Group structure which took place in Decem-
ber 2001 and (9) other key factors that we have indicated
could adversely affect our business and financial perform-
ance which are contained in our past and future filings and
reports, including those with the SEC.
More detailed information about those factors is set forth in
documents furnished by UBS and filings made by UBS with
the SEC, including UBS’s Annual Report on Form 20-F for
the year ended 31 December 2001. UBS is not under any
obligation to (and expressly disclaims any such obligations
to) update or alter its forward-looking statements whether
as a result of new information, future events, or otherwise.
Imprint
Publisher / Copyright: UBS AG, Switzerland;
Photos: Thierry Martinez, Philippe Schiller (Alinghi);
Daniel Forster, Carlo Borlenghi (Nautor Challenge);
Marcel Grubenmann (Portraits).
Languages: English, German; SAP-R / 3 80531E-0201
ab
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com