annual report
2009
1 | Strategy, performance and responsibility
2 | UBS business divisions and Corporate Center
3 | Risk and treasury management
4 | Corporate governance and compensation
5 | Financial information
Contents
Letter to shareholders
2
5 UBS reporting at a glance
6 Other sources of information
7 Contacts
1. Strategy, performance
and responsibility
Financial performance
12 Strategy and structure
16 UBS corporate governance
20 The making of UBS
22 Current market climate and industry drivers
25 Risk factors
30
31 Measurement and analysis of performance
35 Accounting and reporting structure changes
37 UBS results
44 Balance sheet
47 Off-balance sheet
52 Cash flows
53 Our employees
58 Corporate responsibility
2. UBS business divisions and
Corporate Center
74 Wealth Management & Swiss Bank
80 Wealth Management Americas
86 Global Asset Management
Investment Bank
95
103 Corporate Center
3. Risk and treasury
management
112 Risk management and control
116 Credit risk
130 Market risk
137 Operational risk
139 Risk concentrations
142 Treasury management
143
150
152 Capital management
158 Shares and capital instruments
161 UBS shares in 2009
164 Basel II Pillar 3
Liquidity and funding management
Interest rate and currency management
4. Corporate governance
and compensation
186 Corporate governance
187 Group structure and shareholders
189 Capital structure
191 Board of Directors
198 Group Executive Board
203 Shareholders’ participation rights
205 Change of control and defense measures
206 Auditors
208
210 Regulation and supervision
213 Compliance with New York Stock Exchange
listing standards on corporate governance
Information policy
215 Compensation and shareholdings
216 Compensation governance
227 2009 compensation for the Board of Directors
and Group Executive Board
231 Shares and options held by the Board of Directors and
Group Executive Board (at end of 2009)
5. Financial
information
Introduction and accounting principles
244
245 Critical accounting policies
249 Consolidated financial statements
263 Notes to the consolidated financial statements
371 UBS AG (Parent Bank)
371 Parent Bank review
372 Parent Bank financial statements
374 Notes to the Parent Bank financial statements
399 Additional disclosure required
under SEC regulations
399 A – Introduction
400 B – Selected financial data
404 C – Information on the company
405 D – Information required by industry guide 3
1
Annual Report 2009
Letter to shareholders
Dear Shareholders,
At our Annual General Meeting in April 2009, we laid out
our priorities for the bank: strengthening our capital base,
reducing risk and costs and returning UBS to profitability. By
the end of 2009 we delivered on each of these objectives
and, importantly, we reported a net profit in the fourth quar-
ter. In November 2009, we set out a clear strategic direction
and redefined what UBS stands for. The achievements of
2009 and our renewed strategic focus have created a firm
basis on which to build a stronger, more profitable UBS and
to regain your trust.
The net loss attributable to UBS shareholders for 2009
was CHF 2.7 billion, a considerable reduction from the CHF
21.3 billion loss recorded in the prior year. This improvement
was due to much lower losses on residual risk positions in
the Investment Bank and reduced operating expenses for
the Group. The result for 2009 included a number of signifi-
cant items, namely an own credit loss of CHF 2.0 billion
which occurred as a result of the markets’ perception of our
improved creditworthiness, charges relating to the sale of
UBS Pactual of CHF 1.4 billion, restructuring charges of CHF
0.8 billion, and a CHF 0.3 billion gain on the mandatory con-
vertible notes converted in August 2009. Excluding these
significant items, the underlying pre-tax result for the year
was a profit of CHF 1.4 billion. The Group’s net profit attrib-
utable to shareholders for the fourth quarter was CHF 1.2
billion, including a positive contribution from each of our
business divisions.
The global economy experienced one of its most difficult
years in 2009, with the financial crisis evolving into one of
the worst post-war recessions. Governments and central
banks took further action to stabilize markets and stimulate
the economy, helping to restore investor confidence world-
wide. As the economic outlook gradually improved, stock
prices began to recover, starting at the end of the first quar-
ter of 2009 and continuing into the second half of 2009.
At the end of 2009 our invested asset base was CHF
2,233 billion, broadly in line with the figure for year-
end 2008. This result reflects the strong investment perfor-
mance we delivered to our clients across our three asset
gathering business divisions, which more than offset unac-
ceptably high outflows. However, the Group’s average invest-
ed asset base for the year was down significantly, and this
was the primary driver of reduced profits in these businesses.
In Wealth Management & Swiss Bank, average invested as-
sets were 20% below the 2008 average and together with
interest margin pressure and lower client activity, led to a
25% decline in revenues. Although this was partly offset by
over CHF 1.5 billion of cost reductions, profits for 2009 fell by
35% to CHF 3.9 billion compared with 2008. Global Asset
Management reported a profit of CHF 438 million in 2009,
67% lower than in 2008 due to lower revenues on a lower
average invested asset base and a CHF 191 million net good-
will impairment charge associated with the sale of UBS Pac-
tual. Wealth Management Americas revenues fell 12% in the
year, compared with an 11% decline in average invested as-
sets. The pre-tax profit for 2009 was CHF 32 million.
In our Investment Bank, the pre-tax result for 2009 was a
loss of CHF 6.1 billion compared with a pre-tax loss of CHF
34.3 billion for 2008. The improvement reflects a significant
reduction in losses on residual risk positions.
During 2009, we laid out the steps necessary to rebuild
the bank, and reached a number of important milestones
on the bank’s road to recovery. In April, we set headcount
and cost reduction targets for 2010. By the end of 2009, we
had largely achieved these targets. Headcount was reduced
by 12,500 to reach our 65,000 target, and fixed costs were
reduced by over CHF 3 billion compared with the prior year.
We continued to reduce our risks and balance sheet, and by
the end of 2009 both were more than 30% lower than the
year before. In June, we further strengthened our capital
base through the issuance and placement of CHF 293 mil-
lion shares from authorized capital. Combined with lower
risk weighted assets, this resulted in a BIS tier 1 ratio of
15.4% at the end of 2009 compared with 11.0% one year
earlier. Our FINMA leverage ratio also improved to 3.9%
from 2.5% one year ago. In the third quarter, we reached
two significant milestones: The Swiss government exited its
investment in UBS with a profit of CHF 1.2 billion; and we
agreed to a settlement with the US tax authorities in relation
to the John Doe summons.
During the fourth quarter we set a clear strategic
direction to rebuild the firm. At our Investor Day in
November, we outlined our new strategy and the targets
we have established for ourselves. Our goals are to strength-
en our position as a leading global wealth management
business, to be a leading client-focused investment bank
and to be economically profitable in every segment, market
and business in which we operate. We aim to improve our
operating performance substantially, building toward our
medium-term target of CHF 15 billion of annual profit be-
fore tax.
2
3
Annual Report 2009
Our efforts to reposition the firm are taking place
alongside ongoing regulatory changes. Proposed chang-
es relating to capital adequacy and liquidity requirements,
efforts to mitigate the “too big to fail” risk, financial prod-
ucts regulation, compensation guidelines, or the US “Volck-
er” proposals may have profound consequences for the in-
dustry as a whole. In preparation for dealing with a future
financial crisis, relevant financial authorities will meet and
share information to ensure that adequate contingency
plans have been put into place to prevent serious domestic
or international financial instability that would have an ad-
verse impact on the real economy. We will maintain flexibil-
ity in our business model to adjust to future regulatory
change.
We are continuing to meet our obligations under the
settlement with the US Internal Revenue Service (IRS)
relating to the John Doe summons proceeding. Based upon
our compliance with the terms of the settlement, the IRS has
withdrawn the summons with respect to all accounts other
than the approximately 4,450 accounts for which the IRS
requested information under the US/Swiss tax treaty. The
recent decision by the Swiss Federal Administrative Court,
under which certain account information cannot be provid-
ed to the IRS, is a matter to be resolved by the Swiss and US
Governments as contemplated by the terms of the settle-
ment. We will continue to comply fully with our obligations,
including providing information to the Swiss Federal Tax Ad-
ministration and completing the exit of the US cross-border
business out of non-SEC registered entities. Further, we con-
tinue to recommend to our current and former US clients, to
the extent applicable to their circumstances, the disclosure
of their offshore assets to the IRS.
Outlook – In 2010, we expect to see the full effects of the
progress we have made in improving operating efficiency,
reducing risk and rebuilding and re-focusing our businesses.
We are confident the steps we are taking to reduce client
outflows in our wealth and asset management business divi-
sions will be effective, but in the immediate future we still
expect to report net outflows with some pressure on mar-
gins. We expect that the Investment Bank’s performance for
the year as a whole will improve, in part because its residual
risk positions will have a much reduced effect on results. Our
Group results are heavily dependent on market vitality, and
more favorable market conditions in January and February
2010 have benefited most of our businesses.
15 March 2010
UBS
Kaspar Villiger
Chairman of the BoD
Oswald J. Grübel
Group Chief Executive Officer
4
UBS reporting at a glance
Annual publications
Quarterly publications
Annual report (SAP no. 80531)
Published in both German and English, this single volume
report provides a description of:
– UBS’s strategy, performance and responsibility
– the strategy and performance of the business divisions
Letter to shareholders
The letter provides a quarterly update from executive manage-
ment on our strategy and performance. The letter is published
in English, German, French and Italian.
and the Corporate Center
– risk and treasury management
– corporate governance and executive compensation
– financial information, including the financial statements
Financial report (SAP no. 80834)
This report provides a detailed description of our strategy
and performance for the respective quarter. It is published in
English.
Review (SAP no. 80530)
The booklet contains key information on UBS’s strategy
and financials. It is published in English, German, French and
Italian.
Compensation Report (SAP no. 82307)
Compensation for senior management and the Board of
Directors (executive and non-executive members) is dis-
cussed here. It is published in English and German.
How to order reports
These reports are available in PDF format on the internet
at www.ubs.com/investors/topics in the Financial informa-
tion section. Printed copies can be ordered from the same
website by accessing the order / subscribe panel on the left-
hand side of the screen. Alternatively, they can be ordered
by quoting the SAP number and the language prefer-
ence where applicable, from UBS AG, Information Center,
P.O. Box, CH-8098 Zurich, Switzerland.
5
Annual Report 2009
Other sources of information
Website
The “Analysts & Investors” section at www.ubs.com/inves-
tors provides the following information on UBS: financial in-
formation (including SEC results related filings); corporate
information; UBS share price charts and data and dividend
information; the UBS event calendar and dividend informa-
tion; and the latest presentations by management for inves-
tors and financial analysts. Information on the internet is
available in English and German, with some sections in
French and Italian.
Result presentations
Our quarterly results presen tations are webcast live. A play-
back of the most recent presentation is downloadable at
www.ubs.com/presentations.
Messaging service / UBS news alert
On the www.ubs.com/newsalerts website, it is possible to
subscribe to receive news alerts about UBS via SMS or e-mail.
Messages are sent in English, German, French or Italian and it
is possible to state theme preferences for the alerts received.
Form 20-F and other submissions to the US Securities
and Exchange Commission
We file periodic reports and submit other information about
UBS to the US Securities and Exchange Commission (SEC).
Principal among these filings is the annual report on Form
20-F, filed pursuant to the US Securities Exchange Act of
1934.
The filing of Form 20-F is structured as a “wrap-around”
document. Most sections of the filing can be satisfied by
referring to parts of the annual report. However, there is a
small amount of additional information in Form 20-F which
is not presented elsewhere, and is particularly targeted at
readers in the US. Readers are encouraged to refer to this
additional disclosure.
Any document that we file with the SEC is available to
read and copy on the SEC’s website, www.sec.gov, or at the
SEC’s public reference room at 100 F Street, N.E., Room
1580, Washington, DC, 20549. Please call the SEC by dialing
1-800-SEC-0330 for further information on the operation of its
public reference room. Much of this additional information may
also be found on the UBS website at www.ubs.com/investors,
and copies of documents filed with the SEC may be obtained
from our Investor Relations team at www.ubs.com/investors.
Corporate information
The legal and commercial name of
the company is UBS AG. The com-
pany 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 domi-
ciled in Switzerland and operates
under Swiss Company Law and Swiss
Federal Banking Law as an Aktien-
gesellschaft, a corporation that has
issued shares of common stock to
investors.
The addresses and telephone numbers
of our two registered offices are:
Bahnhofstrasse 45, CH-8001 Zurich,
Switzerland, phone +41-44-234 11 11;
and Aeschenvorstadt 1,
CH-4051 Basel, Switzerland,
phone +41-61-288 50 50.
UBS AG shares are currently listed
on the SIX Swiss Exchange, the
New York Stock Exchange and the
Tokyo Stock Exchange (TSE). We
expect to de-list our shares from the
TSE in the near future.
6
Contacts
Switchboards
For all general queries.
Investor Relations
UBS’s Investor Relations team supports
institutional, professional and retail
investors from our offices in Zurich
and New York.
www.ubs.com/investors
Zurich
London
New York
Hong Kong
Hotline
New York
Fax (Zurich)
Media Relations
UBS’s Media Relations team supports
global media and journalists from
offices in Zurich, London, New York
and Hong Kong.
www.ubs.com/media
Zurich
London
New York
Hong Kong
Shareholder Services
UBS Shareholder Services, a unit of the
Company Secretary, is responsible for
the registration of the global registered
shares.
Hotline
Fax
+41-44-234 1111
+44-20-7568 0000
+1-212-821 3000
+852-2971 8888
+41-44-234 4100
+1-212-882 5734
+41-44-234 3415
+41-44-234 8500
+44-20-7567 4714
+1-212-882 5857
+852-2971 8200
+41-44-235 6202
+41-44-235 3154
US Transfer Agent
For all global registered share-related
queries in the US.
www.melloninvestor.com
Calls from the US
Calls outside the US
Fax
+866-541 9689
+1-201-680 6578
+1-201-680 4675
UBS AG
Investor Relations
P.O. Box
CH-8098 Zurich, Switzerland
sh-investorrelations@ubs.com
mediarelations@ubs.com
ubs-media-relations@ubs.com
mediarelations-ny@ubs.com
sh-mediarelations-ap@ubs.com
UBS AG
Shareholder Services
P.O. Box
CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310, USA
sh-relations@melloninvestor.com
7
Strategy, performance and responsibility
Information assured according to the Global Reporting Initiative (GRI)
Content of the sections “Our employees” and “Corporate responsibility” has been assured by SGS Société Générale de
Surveillance SA (SGS) using the Global Reporting Initiative Sustainability Reporting Guidelines, as evidenced in the SGS
Assurance Statement on page 69. The scope of the assurance also includes text and data on the website of UBS. Both the
relevant texts in the 2009 annual report and on the website are referenced in the GRI index published on www.ubs.com/gri.
Strategy, performance and responsibility
Strategy and performance
– UBS is a client-focused financial services firm that offers a strong combina-
tion of wealth management, asset management and investment banking
services on a global and regional basis.
– We aim to generate sustainable earnings, create value for our shareholders
and be economically profitable in every segment, market and business in
which we operate.
UBS key figures
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit before tax (from continuing and discontinued operations)
Net profit attributable to UBS shareholders
Diluted earnings per share (CHF) 1
Key performance indicators, balance sheet and capital management 2
Performance
Return on equity (RoE) (%)
Return on risk-weighted assets, gross (%)
Return on assets, gross (%)
Growth
Net profit growth (%) 3
Net new money (CHF billion) 4
Efficiency
Cost / income ratio (%)
Capital strength
BIS tier 1 ratio (%) 5
FINMA leverage ratio (%) 5
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
BIS total ratio (%) 5
BIS risk-weighted assets 5
BIS tier 1 capital 5
Additional information
Invested assets (CHF billion)
Personnel (full-time equivalents)
Market capitalization 6
Long-term ratings
Fitch, London
Moody’s, New York
Standard & Poor’s, New York
As of or for the year ended
31.12.09
31.12.08
31.12.07
22,601
25,162
(2,569)
(2,736)
(0.75)
(7.8)
9.9
1.5
N/A
(147.3)
796
28,555
(27,560)
(21,292)
(7.63)
(58.7)
1.2
0.2
N/A
(226.0)
103.0
753.0
15.4
3.93
11.0
2.45
1,340,538
2,014,815
41,013
19.8
206,525
31,798
2,233
65,233
57,108
A+
Aa3
A+
32,531
15.0
302,273
33,154
2,174
77,783
43,519
A+
Aa2
A+
31,721
35,463
(3,597)
(5,247)
(2.41)
(10.5)
8.6
1.3
N/A
140.6
111.0
2,274,891
36,875
3,189
83,560
108,654
AA
Aaa
AA
1 Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report. 2 For the definitions of our key performance indicators refer to the “Measure-
ment and analysis performance” section of this report. 3 Not meaningful if either the current period or the comparison period is a loss period. 4 Excludes interest and dividend income. 5 Refer to
the “Capital management” section of this report. 6 Refer to the “UBS shares in 2009” section of this report.
10
Our strategic priorities
Measures taken in 2009
We are concentrating on:
– further strengthening our position as a leading client-
focused bank for high net worth and ultra high net
worth clients around the world;
In addition to stabilizing our financial condition, we have
already undertaken several adjustments to governance and
structures during the last few months to initiate and drive
our transformation.
– continuing to be a leading firm across all client segments
in Switzerland; and
Establishment of Investment Products & Services
– being a top tier bank in growth regions where we choose
to operate.
Re-focusing the business portfolio
We will further integrate our wealth management, asset
management and investment banking businesses to generate
more value, reflecting our commitment to comprehensively
serve our clients across all segments. The Investment Bank
will be more client focused building on its strong, less capital
intensive flow and fee businesses. We will continue to build
our onshore operations in our wealth management business,
and continue to further grow our ultra high net worth
business. Our managers within Global Asset Management are
concentrating on driving a sustained improvement in
investment performance and increasing overall efficiency.
Transforming the way we operate
Our transformation is geared towards exercising the full
potential of our strengths based on three strategic guide-
lines: reputation, integration and execution.
Our reputation is our most valuable asset and is ultimately
defined by the actions and decisions we make every
day. To restore and safeguard our reputation, we have
introduced more disciplined and effective governance
processes.
Further integration is a key factor in delivering on our
financial targets, serving our clients in a comprehensive
manner, and driving efficiencies across our businesses. This
will be achieved through a series of measures, including
new management processes, upgrading client coverage
and enhancing structures and processes for further cost and
capital efficiency.
We are committed to execution at the highest standards,
ensuring consistent high-quality delivery, and to building
a performance-oriented culture that will help to retain,
develop and attract the best talent at all levels.
On 21 January 2010, we announced the establishment of the
new Investment Products & Services (IPS) unit. IPS brings
together product specialists from various business divisions
involved in product development, coverage / sales support and
execution for Wealth Management & Swiss Bank clients under
one roof.
Formation of UBS Switzerland
We are the leading bank for retail and corporate clients and
a leading asset management business in Switzerland. In
2009, we have further adjusted the governance structure to
include a new executive committee: UBS Switzerland. The
integrated management team of UBS Switzerland comprises
all businesses active in Switzerland including retail, wealth
management, corporate and institutional, investment
banking and the asset management business.
Corporate Center
In 2009, we integrated our Group-wide shared service and
control functions into the Corporate Center. Our goal is
to improve effectiveness and efficiency on a sustainable
basis, provide simple service delivery models and strengthen
cost management by creating global and Group-wide
cost-cutting measures. These shared services are overseen by
the Group Chief Operating Officer. In parallel, the control
functions were centralized under the Group Chief Financial
Officer, Group Chief Risk Officer and Group General
Counsel. This new centralized organizational structure
provides a platform from which we can increase efficiency
and enhance shareholder value.
Risk management and control
Risk reduction remained a priority in 2009. As a result of our
risk reduction initiatives, we ended the year with risk
exposures commensurate with our risk capacity, although
legacy risks remain significant and are targeted for contin-
ued reduction. Effective risk management and control are
essential to our success and we have made further progress
in implementing the risk renewal program we initiated in
2008. In addition, the implementation of the settlement
agreement relating to the cross-border investigation remains
a focus of management attention.
11
Strategy, performance and responsibility
Strategy and structure
Strategy and structure
UBS is a client-focused financial services firm that offers a strong combination of wealth management, asset
management and investment banking services on a global and regional basis. By delivering a full range of
advice, products and services to our private, corporate and institutional clients, we aim to generate sustainable
earnings, create value for our shareholders and be economically profitable in every segment, market and
business in which we operate.
UBS business model and aspiration
UBS AG is the parent company of the UBS Group (Group).
The operational structure of the Group comprises the Cor-
porate Center and four business divisions: Wealth Manage-
ment & Swiss Bank, Wealth Management Americas, Global
Asset Management and the Investment Bank.
In aspiring to be a leading client-focused bank, we are
concentrating on:
– further strengthening our position as a leading bank for
high net worth and ultra high net worth clients around
the world;
– continuing to be a leading firm across all client segments
in Switzerland; and
– being a top tier bank in growth regions where we choose
to operate.
We aim to have a leading investment bank with a client-
centric business model that focuses on flow and advice ac-
tivities, leveraging our traditional strengths and maximizing
the creation of shareholder value by working closely in con-
junction with our wealth management and asset manage-
ment businesses.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering
comprehensive financial services to high net worth and ultra
high net worth individuals around the world – except to those
served by Wealth Management Americas – as well as private
and corporate clients in Switzerland. We provide clients in
over 40 countries, including Switzerland, with financial ad-
vice, products and tools to fit their individual needs. UBS has
a leading position across all client segments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based relation-
ships through financial advisors who deliver a fully integrated
set of products and services specifically designed to address
the needs of ultra high net worth, high net worth and core af-
fluent indivi duals and families. It includes the former Wealth
Management US business unit, as well as the domestic Cana-
dian business and the international business booked in the
United States.
Global Asset Management
Global Asset Management is a large-scale asset manager
with well diversified businesses across regions, capabilities
and distribution channels. It offers investment capabilities
and investment styles across all major traditional and alter-
native asset classes. These include equities, fixed income,
currency, hedge fund, real estate, infrastructure and private
equity investment capabilities that can also be combined in
multi-asset stra tegies.
12
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Investment Bank
The Investment Bank provides securities and other financial
products and research in equities, fixed income, rates, for-
eign exchange and precious metals. It also provides advisory
services and access to the world’s capital markets for corpo-
rate, institutional, intermediary and alternative asset man-
agement clients.
Corporate Center
The Corporate Center seeks to ensure that the business divi-
sions operate as a coherent and effective whole by providing
and managing support and control functions for the busi-
ness divisions and the Group in such areas as risk control,
finance, legal and compliance, funding, capital and balance
sheet management, management of foreign currencies,
communication and branding, human resources, informa-
tion technology, real estate, procurement, corporate devel-
opment and service centres.
➔ Refer to the “Reporting structure” and “UBS business
divisions and Corporate Center” sections of this report for
more information on our businesses
UBS competitive profile
Our business mix reflects decades of continuous develop-
ment, organic growth and acquisitions. As a leader in the
wealth management industry in terms of total invested as-
sets, we offer a combination of asset gathering (i.e. wealth
management and asset management) and investment bank-
ing services in local and regional markets. Speci fically, we are
a leading wealth manager in Switzerland, Europe, and Asia
Pacific, and also in main growth markets such as the Middle
East and Latin America. In the US, we are a leading wealth
management service provider and are the biggest foreign-
owned wealth manager. Furthermore, we have the largest
ultra high net worth business globally in terms of invested
assets. Our investment bank is a strong corporate and insti-
tutional clients business, and holds leading positions in busi-
nesses such as equities, foreign exchange and money mar-
kets and advisory, adding to the attractiveness of our overall
business portfolio.
In the Asia Pacific region, we operate leading investment
banking, wealth management and asset management busi-
nesses, with CHF 214 billion of invested assets making us the
biggest foreign asset gatherer at the end of 2009.
UBS strategy
At our Investor Day in November 2009, we outlined strategic
objectives to improve financial performance and reposition
the firm for sustainable profitability in earnings and share-
holder value. We aim to achieve this by re-focusing our busi-
ness portfolio to fully capitalize on our strengths, and by
substantially transforming the way we operate.
Re-focusing the business portfolio
We will further integrate our wealth management, asset
management and investment banking businesses to gener-
ate more value, reflecting our commitment to comprehen-
sively serve our clients across all segments. The Investment
Bank will be more client focused building on its strong, less
capital intensive flow and fee businesses (e.g. cash equities,
foreign exchange and money markets, and advisory). This
will also strengthen additional com ponents, including the
rates and credit business in fixed income, currencies and
commodities. We will continue to build our onshore opera-
13
Strategy, performance and responsibility
Strategy and structure
tions in our wealth management business, and continue to
further grow our ultra high net worth business. Our manag-
ers within Global Asset Management are concentrating on
driving a sustained improvement in investment performance
and increasing overall efficiency.
➔ Refer to the “UBS business divisions and Corporate Center”
section of this report for more information on the business
division strategies
Establishment of Investment Products & Services
On 21 January 2010, we announced the establishment of the
new Investment Products & Services (IPS) unit. IPS brings to-
gether product specialists from various business divisions in-
volved in product development, coverage / sales support and
execution for Wealth Management & Swiss Bank clients un-
der one roof. By making this change, we are making product
specialists and expertise more accessible to our clients.
Transforming the way we operate
Our transformation is geared towards exercising the full po-
tential of our strengths based on three strategic guidelines:
reputation, integration and execution.
Our reputation is our most valuable asset and is ultima-
tely defined by the actions and decisions we make every
day. To restore and safeguard our reputation, we have intro-
duced more disciplined and effective governance processes.
Further integration is a key factor in delivering on our fi-
nancial targets, serving our clients in a comprehensive man-
ner, and driving efficiencies across our businesses. This will
be achieved through a series of measures, including new
management processes, upgrading client coverage and en-
hancing structures and processes for further cost and capital
efficiency.
We are committed to execution at the highest standards,
ensuring consistent high-quality delivery externally and inter-
nally, and to building a performance-oriented culture that will
help to retain, develop and attract the best talent at all levels.
Measures taken
In addition to stabilizing our financial condition, we have al-
ready undertaken several adjustments towards improved
governance and structures during the last few months that
facilitate our transformation process.
Formation of UBS Switzerland
We are the leading bank for retail and corporate clients and
a leading asset management business in Switzerland. In
2009, we have further adjusted the governance structure to
include a new executive committee: UBS Switzerland. The
integrated management team of UBS Switzerland comprises
all businesses active in Switzerland including retail, wealth
management, corporate and institutional, investment bank-
ing and the asset management business. The integration of
these businesses defines our commitment to the Swiss mar-
ket and will help deliver comprehensive financial advice,
products and tools to our clients.
Corporate Center
In 2009, we integrated our Group-wide shared service and
control functions into the Corporate Center. Our goal is to
improve effectiveness and efficiency on a sustainable basis,
provide simple service delivery models and strengthen cost
management by creating global and Group-wide cost-cutting
measures. These shared services are overseen by the Group
Chief Operating Officer (COO). In parallel, the control func-
tions were centralized under the Group Chief Financial Officer
(CFO), Group Chief Risk Officer (CRO) and Group General
Counsel (GC). This new centralized organizational structure
provides a platform from which we can increase efficiency
and enhance shareholder value.
➔ Refer to the “Corporate Center” section of this report for
more information
14
Risk management and control
Risk reduction remained a priority in 2009. As a result of our
risk reduction initiatives, we ended the year with risk expo-
sures commensurate with our risk capacity, although legacy
risks remain significant and are targeted for continued reduc-
tion. Effective risk management and control are essential to
our success and we have made further progress in imple-
menting the risk renewal program we initiated in 2008. In
addition, the implementation of the settlement agreement
relating to the cross-border investigation remains a focus of
management attention
Performance measures and management
We manage our businesses based on our new key perfor-
mance indicators (KPI) framework introduced in 2009, which
is used to monitor our risk-adjusted performance and the
delivery of returns to shareholders. Senior management
compensation was adjusted accordingly to ensure that man-
agement accountability and consistency is in alignment with
long-term economic profitability.
➔ Refer to the “Measurement and analysis of performance”
section of this report for more information on key
performance indicators
➔ Refer to the “Compensation and shareholdings” section of
this report for more information on senior management
compensation
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15
Strategy, performance and responsibility
Strategy and structure
UBS corporate governance
As mandated by Swiss banking law, UBS operates
under a strict dual board structure comprising
the Board of Directors and the Group Executive Board.
The competencies of these two bodies and other
relevant roles have been reviewed by the Board of
Directors through out 2009, resulting in a revised
version of the “Organization Regulations of UBS AG”
which came into effect on 1 November 2009.
Board of Directors
The Board of Directors (BoD) is our most senior body. Under
the leadership of the Chairman, it decides on the strategy of
the Group upon recommendation of the Group Chief Exe
cutive Officer (CEO), exercises the ultimate supervision over
management and is responsible for the appointment and
dismissal of all Group Executive Board (GEB) members, the
Company Secretary and the Head of Group Internal Audit
as well as supervises and sets appropriate risk management
and control principles for the firm. With the exception of its
current Chairman, Kaspar Villiger, all members of the BoD
are independent.
➔ Refer to the “Corporate governance” section of this report
for more information about the BoD
From left: Rainer-Marc Frey Member Risk Committee Sally Bott Chair
man Human Resources and Compensation Committee and Member Cor
porate Responsibility Committee Ann F. Godbehere Member Audit Com
mittee and Corporate Responsibility Committee Bruno Gehrig Member
Governance and Nominating Committee and Human Resources and Com
pensation Committee Michel Demaré Member Audit Committee Helmut
Panke Member Human Resources and Compensation Committee and
Risk Committee Sergio Marchionne Senior Independent Director and
Member Governance and Nominating Committee Kaspar Villiger Chair
man of the Board of Directors, Chairman Governance and Nominating
Committee and Corporate Responsibility Committee David Sidwell
Chairman Risk Committee William G. Parrett Chairman Audit Commit
tee Axel P. Lehmann Member Risk Committee Peter R. Voser Member
Governance and Nominating Committee
16
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17
Strategy, performance and responsibility
Strategy and structure
Group Executive Board
Management of the firm is delegated by the BoD to the GEB.
Under the leadership of the Group CEO, the GEB has exe
cutive management responsibility for the Group and its busi
nesses. It assumes overall responsibility for the development
of the Group and business division strategies and the imple
mentation of approved strategies.
➔ Refer to the “Corporate governance” section of this report
for more information about the GEB
From left: Philip J. Lofts Group Chief Risk Officer Ulrich Körner Group
Chief Operat ing Officer and CEO Corporate Center John A. Fraser
Chairman and CEO Global Asset Management Markus U. Diethelm
Group General Counsel Robert Wolf Chairman and CEO, UBS Group
Americas / President Investment Bank Alexander Wilmot-Sitwell coCEO
Investment Bank Francesco Morra CEO UBS Switzerland, Wealth Manage
ment & Swiss Bank Jürg Zeltner CEO Wealth Management, Wealth
Management & Swiss Bank Chi-Won Yoon Chairman and CEO Asia Pa
cific Carsten Kengeter coCEO Investment Bank Robert J. McCann CEO
Wealth Management Americas Oswald J. Grübel Group Chief Executive
Officer John Cryan Group Chief Financial Officer
18
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19
Strategy, performance and responsibility
The making of UBS
The making of UBS
The firms that have come to make up today’s UBS look back
on a long and diverse history. Both the two Swiss predeces-
sor banks and PaineWebber Group Inc. (PaineWebber) came
into being in the second half of the 19th century, while S.G.
Warburg’s roots go back to 1934. But it was in the 1990s
when our current identity began to form.
In the early 1990s, the two Swiss banks that came to
form the current UBS, Swiss Bank Corporation (SBC) and
Union Bank of Switzerland, were commercial banks operat-
ing mainly out of Switzerland. The two banks shared a simi-
lar vision: to become a world leader in wealth management
and a global bulge-bracket investment bank with a strong
position in global asset management, while remaining an
important commercial and retail bank in Switzerland.
Union Bank of Switzerland, the largest and best-capital-
ized Swiss bank of its time, opted to pursue a strategy of
organic growth, or expansion by internal means. In contrast,
SBC, then the third-largest Swiss bank, decided to take
another route by starting a joint venture with O’Connor, a
leading US derivatives firm that was fully acquired by SBC
in 1992. O’Connor was noted for its young, dynamic and
innovative culture, meritocracy and team orientation. It
brought state-of-the-art risk management and derivatives
technology to SBC. In 1994, SBC acquired Brinson Partners,
one of the leading US-based institutional asset management
firms. Both the O’Connor and Brinson transactions repre-
sented fundamental steps in the development of the firm.
The next major move was in 1995, when SBC acquired S.G.
Warburg, the British merchant bank. The deal helped fill SBC’s
strategic gaps in corporate finance, brokerage and research
and, most importantly, brought with it an institutional client
franchise, which is still crucial to today’s equities business.
The 1998 merger of SBC and Union Bank of Switzerland
brought together these two leading Swiss financial institu-
tions, creating a leading global wealth manager and improv-
ing the new firm’s chances of becoming a global bulge
bracket investment bank and a leading global institutional
asset manager.
Still, in order to become a truly global player in invest-
ment banking and wealth management, UBS needed to es-
tablish a significant presence in the key US market. UBS ad-
vanced toward this objective when it acquired PaineWebber
in 2000.
Since the acquisition of PaineWebber, UBS’s main priority
has been to develop and grow organically. Smaller acquisi-
tions have helped to accelerate and complement the firm’s
growth. Today, UBS has significant scale in its areas of focus,
with strong positions in large, mature markets as well as a
growing presence in emerging markets.
➔ Refer to www.ubs.com/history for more information
20
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21
Strategy, performance and responsibility
Current market climate and industry drivers
Current market climate and industry drivers
The recent crisis and its aftermath will have enduring effects on the financial services industry.
Financial crisis and global recession
The global economy experienced one of its most difficult
years in 2009. The financial crisis originated with the sub-
prime crisis in 2007-2008, and evolved into one of the
worst recessions in the post-war era. For the first time in
many decades, the world’s gross domestic product (GDP)
deflated in real terms, as both developed and emerging
economies suffered from falling international trade vol-
umes and shrinking industrial production. The sharp con-
traction in growth of the global economy resulted in a fur-
ther correction in asset prices in the early part of the year as
global stock prices plummeted to historical lows. The crisis
spread from the financial sector to other industries, leading
to a rapid rise in the unemployment rate as businesses re-
duced their employment levels to adjust to the changes in
global demand.
The adverse macroeconomic scenarios triggered by the
financial crisis pushed governments and central banks
around the world to further step up their fiscal policy efforts
during 2009. In addition to maintaining interest rates at re-
cord lows, and further enlarging the scope of so-called “un-
conventional monetary measures” such as the purchase of
distressed assets from financial institutions, the policy focus
shifted to fiscal stimulus packages to provide support to the
goods and services sector. The increase in public expendi-
ture, coupled with a drop in tax revenues as a result of the
economic decline, led to greatly increased public deficits,
particularly in the US and Europe.
In the course of the second quarter, global growth reached
record lows, and only during the summer did signs of stabili-
zation in the global economy begin to emerge, particularly
within the industrial production sector. As the economic out-
look gradually began to improve there was a recovery in
stock prices, which started by the end of first quarter of 2009
and continued in the second half of 2009, taking the yearly
gains in the global stock indexes to more than 20%. Emerg-
ing markets’ stocks – particularly in Asia – experienced the
strongest rebound as they were leading the unfolding recov-
ery. The rebound in asset prices that occurred during the year
was not restricted to stocks but also extended to the credit
security markets. Overall, the recovery in asset prices provid-
ed private and institutional investors with very good returns
compared with the losses experienced in 2008.
As the global outlook improved, the financial services in-
dustry benefited from the recovery in asset prices. Improved
22
liquidity conditions in capital markets allowed financial insti-
tutions to raise capital in order to bolster funds, reinforcing
their capital positions. However, despite the overall improve-
ment observed during the year, the financial sector remained
under pressure as the lasting effects of the financial crisis
were further exacerbated by the growing impact of the
global recession on banks’ balance sheets.
Macroeconomic perspectives
The overall economic outlook of most economists for 2010 is
cautiously optimistic, as global growth returned in the second
half of 2009 and is expected to improve throughout the year.
However, caution has been expressed as this recovery appears
“abnormal” when compared with previous economic cycles.
The economic recovery seen so far remains weak when com-
pared with previous recoveries following recessions of the
magnitude experienced in 2009. In “normal” recoveries, glo-
bal growth sharply increases following the downturn, often
surpassing the pre-crisis growth rate, and then eventually falls
back to its long-term growth rate. In the current market envi-
ronment, the return to pre-crisis growth rates appears to be
taking longer to materialize, mostly as a result of deleverag-
ing in the private and corporate sectors. Secondly, the ongo-
ing economic recovery also appears to be uneven from a geo-
graphical point of view. While emerging markets are expect-
ed to show the strongest performance, growth in advanced
economies is predicted to remain low as the household and
(cid:53)(cid:86)(cid:81)(cid:69)(cid:77)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:2)(cid:7)(cid:2)(cid:10)(cid:55)(cid:53)(cid:38)(cid:11)
(cid:3) (cid:20)(cid:52)(cid:19)(cid:26)(cid:3) (cid:21)(cid:52)(cid:19)(cid:26)(cid:3) (cid:22)(cid:52)(cid:19)(cid:26)(cid:3) (cid:23)(cid:52)(cid:19)(cid:26)(cid:3) (cid:20)(cid:52)(cid:19)(cid:27)(cid:3) (cid:21)(cid:52)(cid:19)(cid:27)(cid:3) (cid:22)(cid:52)(cid:19)(cid:27)(cid:3) (cid:23)(cid:52)(cid:19)(cid:27)(cid:3) (cid:20)(cid:52)(cid:19)(cid:28)(cid:3) (cid:21)(cid:52)(cid:19)(cid:28)(cid:3) (cid:22)(cid:52)(cid:19)(cid:28)(cid:3) (cid:23)(cid:52)(cid:19)(cid:28)
(cid:20)(cid:25)(cid:19)
(cid:20)(cid:21)(cid:19)
(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:27)(cid:19)
(cid:3)(cid:3)(cid:23)(cid:19)
(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:19)
(cid:48)(cid:54)(cid:38)(cid:44)(cid:3)(cid:58)(cid:82)(cid:85)(cid:79)(cid:71)
(cid:54)(cid:9)(cid:51)(cid:3)(cid:24)(cid:19)(cid:19)
(cid:39)(cid:82)(cid:90)(cid:3)(cid:45)(cid:82)(cid:81)(cid:72)(cid:86)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:86)(cid:3)(cid:55)(cid:76)(cid:87)(cid:68)(cid:81)(cid:86)(cid:3)(cid:22)(cid:19)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:91)
(cid:53)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:28)(cid:2)(cid:36)(cid:78)(cid:81)(cid:81)(cid:79)(cid:68)(cid:71)(cid:84)(cid:73)
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Market capitalization of the components of the Dow Jones Banks Titans 30 Index, 2009 versus 2008
USD billion
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150
100
50
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31.12.08
31.12.09
UBS
1SS022_e
Source: Thomson Reuters
corporate sectors continue to repair their balance sheets. Un-
employment rates are expected to remain high and only
begin declining later during the year, as global economic re-
covery is firmly established in advanced economies.
Industry drivers
A number of drivers are expected to have a significant im-
pact on banks’ earnings and the structure of the financial
services industry in the short- to medium-term. The most rel-
evant factors are described below.
Deleveraging
The financial services industry experienced massive delever-
aging in 2009. Banks in the US and Europe continued to
decrease their balance sheets and raise capital to reinforce
their financial position. While the deleveraging process with-
in the banking sector is likely to continue for some time, and
further capital might be raised in the future as a result of
ongoing regulatory changes, it appears that financial sector
leverage level has fallen substantially from the levels reached
just before the crisis erupted. On the other hand, delever-
aging in the overall economy has only just begun. The re-
duction in household sector debt, which has already com-
menced in some countries, has been partly offset by an
increase in government debt, leaving the overall debt level
mostly unchanged. Most of the financial crises experienced
in the last few decades have typically been followed by pro-
longed deleveraging episodes involving a substantial reduc-
tion in the debt-to-GDP ratio in the private sector, the public
sector or simultaneously in both sectors.
Most past episodes of deleveraging have had a negative
impact on growth, and lower real economy returns will neg-
atively impact the profitability of the financial services indus-
try in the next few years.
Emerging markets
Emerging markets were also impacted by the global reces-
sion in 2009. Exporters of manufactured goods were hit by
falling global trade volumes and reduced imports in ad-
vanced economies. Commodity producers and exporters
were hit by falling prices as the boom in commodity prices in
the early 2000s suddenly came to an end. Economic growth
slowed markedly, and governments intervened to support
domestic demand through public expenditures and in-
creased credit supply to state-controlled and private corpo-
rations. However, due to the better shape of household and
corporation balance sheets when compared with most ad-
vanced economies as well as the fiscal and monetary policy
stimulus, emerging markets – particularly Brazil, Asia and the
Middle East – performed relatively well during the crisis.
Thanks to solid macro fundamentals, most emerging eco-
nomies were the first to emerge from the slump in the
course of the year. This performance is expected to continue
throughout 2010, with a return to sustained growth speci-
fically in Asia and other emerging markets.
Therefore, the economic crisis over the last year has been
a driving force in the economic and geographic power shift
from advanced to emerging economies which was already
well under way before the financial crisis hit the global econ-
omy. Banks that have built a significant presence in emerg-
ing markets, and serve a wide range of institutional and pri-
vate clients in those economies, may benefit if the emerging
markets’ share of global profits for the financial services in-
dustry continues to grow.
Re-regulation of the financial services industry
International organizations and national regulators have in-
creased their focus on revising the regulatory framework of
the financial services industry as conditions within the indus-
try continue to improve and short-term governmental finan-
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Strategy, performance and responsibility
Current market climate and industry drivers
cial support is gradually withdrawn. The G-20 has stipulated
broad guidelines of re-regulation which are being specified
by the Financial Stability Board, the International Monetary
Fund and the Basel Committee on Banking Supervision. As
some countries are starting to implement regulatory chang-
es, others are still debating on what is the best way forward.
For instance, the Swiss Financial Market Supervisory Author-
ity (FINMA) has already introduced increased capital require-
ments and liquidity constraints for the largest Swiss banks.
While the international organizations are trying to achieve
an international level playing field, there is a growing risk
that jurisdictions will implement regulations at different
times and levels of intensity. This could lead to fragmenta-
tion of the regulatory framework and disparities of condi-
tions between countries, with a risk of national ring-fencing
tendencies.
The expected significant tightening of regulatory require-
ments pertaining to the financial services industry, whether
globally coordinated or not, will likely reduce the profitability
of certain businesses. This will eventually lead to changes in
the competitive landscape of the financial services industry.
Financial institutions and advisory businesses with low capi-
tal intensity that will be faster and more efficient in adapting
themselves to the new regulatory environment are likely to
outperform in the medium-term.
Rising taxation as public deficits soar
One of the legacies of the global crisis is higher public debt
in most of the developed world. As a result of the financial
crisis, there has been a substantial transfer of private debt to
the public sector. Higher public debts are most likely to be-
come a dominant policy issue over the medium-term as gov-
ernments will have to deal with the fiscal structural adjust-
ments required to reduce the debt. The fiscal challenges that
have emerged from the financial crisis are further aggravat-
ed by the impact of demographic changes in public finance,
which is expected to grow in most advanced economies and
in some emerging markets.
Fiscal restructuring will likely be a long process. It may be
many years before public sector debt is brought back to pre-
crisis levels. Governments will utilize a mix of measures, in-
cluding structural reforms to pension and healthcare eligibil-
ity as well as a revision of tax rates and coverage. In the
coming years, the pre-crisis trend of falling tax rates on indi-
viduals’ income will probably reverse, reducing the dispos-
able income of individuals. If this occurs, clients can be ex-
pected to become more focused on effective tax planning in
hopes of reducing their tax burden. Banks and financial insti-
tutions capable of providing this type of expertise may be
able to retain or attract more clients.
Global capital flows and offshore centers
In the pre-crisis period, offshore centers benefited from soar-
ing cross-border capital flows as they have been the financial
platforms often used by investors for global investments. One
implication of the global crisis has been a dramatic drop in
global capital flows, as investors were more averse to taking
risks and were more domestically oriented. Financial institu-
tions reduced their exposure to foreign markets proportionally
more than to their domestic markets. In the course of 2009,
global capital flows began to recover as investors gradually
increased their risk appetite, particularly in relation to assets
located in emerging markets. However, it could take many
years for global capital flows to return to pre-crisis levels.
Offshore centers are also under increasing policy pres-
sure, as governments around the world are urging for more
transparency concerning income produced on assets held by
investors abroad. Banks with an established broad presence
in onshore markets are likely to be impacted less than other
banks relying exclusively on offshore business.
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Risk factors
Certain risks, including those described below, can impact
our ability to carry out our business strategies and directly
affect our business activities, financial condition, results of
operations and prospects. Because the business of a broad-
based international financial services firm such as UBS is in-
herently exposed to risks that only become apparent with
the benefit of hindsight, risks of which we are not presently
aware could also materially affect our business activities, fi-
nancial condition, results of operations and prospects. The
sequence in which the risk factors are presented below is not
indicative of their likelihood of occurrence or the potential
magnitude of their financial consequences.
Our reputation is key to the success of our business
Our reputation has been severely damaged by our very large
losses during the financial crisis and by the US cross-border
matter. This has resulted in client attrition in different parts of
our business and has negatively affected our financial perfor-
mance. Restoring our reputation is essential to maintaining
our relationships with clients, investors, regulators and the
general public, as well as with our employees. Accordingly, it
is critical to the success of our strategic plans. Reputational
damage is difficult to reverse. The process is slow and success
can be difficult to measure. We have taken what we believe
are very important steps to restore our reputation, but it is
possible that it will take longer to repair than we expect, par-
ticularly if further events were to occur that cause additional
damage to our reputation. Any failure to restore or further
damage to our reputation could have a material adverse ef-
fect on our operational results and financial condition. Even
if our reputation is restored, we may not progress quickly
enough to achieve our medium-term goals.
Regulatory changes may adversely affect our business
and ability to execute our strategic plans
In the wake of the recent financial crisis, regulators and leg-
islators are actively considering a wide range of measures
designed to address the perceived causes of the crisis and to
limit the systemic risks posed by major financial institutions.
Potential changes include:
– significantly higher regulatory capital requirements
– changes in the capital treatment of certain capital instru-
ments issued by UBS and other banks
– changes in the calculation of risk-weighted assets
– new or significantly enhanced liquidity requirements
– requirements to maintain liquidity and capital in multiple
jurisdictions where activities are conducted
– limitations on principal trading activities
– taxes and government fees that would effectively limit
balance sheet growth
– a variety of measures constraining, taxing or imposing ad-
ditional requirements relating to compensation
– requirements to adopt structural and other changes de-
signed to make major financial institutions easier to wind
down or disassemble
– outright size limitations
Notwithstanding attempts by regulators to coordinate
their efforts, the proposals differ by jurisdiction, and en-
hanced regulation may be imposed in a manner that makes
it more difficult to manage global institutions. Swiss author-
ities have expressed concern about the systemic risks posed
by its two largest banks, particularly in relation to the size of
the Swiss economy and governmental resources. This may
lead to more stringent regulations applicable to major banks
headquartered in Switzerland in comparison with those
based elsewhere. The potential regulatory and legislative de-
velopments in Switzerland and in other jurisdictions in which
we have operations may have a material adverse effect on
our ability to execute our strategic plans, on the profitability
or viability of certain business lines globally or in particular
locations, and on our ability to compete with other financial
institutions. They could also have an impact on our legal
structure or our business model.
We are exposed to possible further reduction in client
assets in our wealth management and asset manage-
ment businesses
In 2008 and 2009, we experienced substantial net outflows
of client assets in our wealth management and asset man-
agement businesses. This resulted from a number of differ-
ent factors, including our substantial losses, the damage to
our reputation, the loss of client advisors and developments
concerning our cross-border private banking business. As
some of these factors can only be addressed over an extend-
ed period of time, we may continue to experience net out-
flows of client assets. This may adversely affect the results of
our wealth management and asset management businesses.
We hold proprietary risk positions that may be
adversely affected by conditions in the financial
markets
UBS, like many other financial market participants, was se-
verely affected by the financial crisis that began in 2007. The
deterioration of financial markets since the beginning of the
25
Strategy, performance and responsibility
Risk factors
crisis was extremely severe by historical standards, and we
recorded substantial losses on fixed income trading posi-
tions, particularly in 2008 and to a lesser extent in 2009. We
have drastically reduced our risk exposures, in part due to
transfers to a fund controlled by the SNB. We do, however,
continue to hold sizeable legacy risk positions that are ex-
posed to the general systemic and counterparty risks that
were exacerbated by the financial crisis. The illiquidity of
most of these legacy risk positions is likely to make it increas-
ingly difficult to reduce our exposures to them.
During the market crisis, we incurred large losses (realized
and mark to market) on our holdings of securities related to
the US residential mortgage market. Although our exposure
to that market was reduced dramatically in 2008 and 2009,
we remain exposed to a smaller degree to such losses, most
notably through monoline-insured positions. Monoline in-
surers have been adversely affected by their exposure to US
residential mortgage-linked products, and we have recorded
large credit valuation adjustments on our claims against
them. If the financial condition of monoline insurers or their
perceived creditworthiness deteriorates further, we would
have to record further material credit valuation adjustments
on the CDSs bought from them.
The market dislocation also affected other asset classes.
In 2008 and 2009, we recorded markdowns on other assets
carried at fair value, including auction rate securities (ARS),
leveraged finance commitments, commercial mortgages in
the US and non-US mortgage-backed and asset-backed
securities (ABSs). We have a very large inventory of ARS,
which is likely to increase as a result of our partially satisfied
commitment to repurchase client-owned ARS. We hold posi-
tions related to real estate in countries other than the US,
including a very substantial Swiss mortgage portfolio, and
we could suffer losses on these positions. In addition, further
market dislocation or con tinued weak financial conditions
could result in further writedowns on our assets carried at
fair value or in the impairment of assets classified as or re-
classified to loans or receivables. We are also exposed to risk
in our prime brokerage, reverse repo and lombard lending
activities, as the value or liquidity of the assets against which
we provide financing may decline rapidly.
Performance in the financial services industry depends
on the economic climate
The financial services industry prospers in conditions of eco-
nomic growth, stable geopolitical conditions, capital mar-
kets that are transparent, liquid and buoyant and positive
investor sentiment. An economic downturn, inflation or a
severe financial crisis (as seen in 2008 and to a lesser extent
in 2009) can negatively affect our revenues and ultimately
our capital base.
A market downturn can be precipitated by a number of
factors, including geopolitical events, changes in monetary
or fiscal policy, trade imbalances, natural disasters, pandem-
ics, civil unrest, war or terrorism. Because financial markets
are global and highly interconnected, even local and region-
al events can have widespread impact well beyond the coun-
tries in which they occur. A crisis could develop, regionally or
globally, as a result of disruptions in emerging markets which
are susceptible to macroeconomic and geopolitical develop-
ments, or as a result of the failure of a major market partici-
pant. As our presence and business in emerging markets in-
creases, we become more exposed to these risks. Adverse
developments of this kind have affected our businesses in a
number of ways, and may continue to have further adverse
effects on our businesses as follows:
– a general reduction in business activity and market vol-
umes would affect fees, commissions and margins from
market-making and customer-driven transactions and ac-
tivities;
– a market downturn is likely to reduce the volume and
valuations of assets we manage on behalf of clients, re-
ducing our asset- and performance-based fees;
– reduced market liquidity limits trading and arbitrage op-
portunities and impedes our ability to manage risks, im-
pacting both trading income and performance-based
fees;
– assets we own and account for as investments or trading
positions could continue to fall in value;
– impairments and defaults on credit exposures and on
trading and investment positions could increase, and loss-
es may be exacerbated by falling collateral values; and
– if individual countries impose restrictions on cross-border
payments or other exchange or capital controls, we could
suffer losses from enforced default by counterparties, be
unable to access our own assets, or be impeded in – or
prevented from – managing our risks.
The developments mentioned above can affect the per-
formance of both our business units and of UBS as a whole.
There is also a risk that the carrying value of goodwill of a
business unit might suffer impairments and deferred tax as-
sets levels may need to be adjusted.
In addition, interest rate increases triggered by central
banks may adversely affect the economy and our business
and funding costs.
We are dependent upon our risk management and
control processes to avoid or limit potential losses in
our trading and counterparty credit businesses
Controlled risk-taking is a major part of the business of a fi-
nancial services firm. Credit is an integral part of many of our
retail, wealth management and Investment Bank activities.
This includes lending, underwriting and derivatives business-
es and positions. Changes in interest rates, equity prices, for-
eign exchange levels and other market fluctuations can ad-
versely affect our earnings. Some losses from risk-taking
26
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activities are inevitable, but to be successful over time, we
must balance the risks we take against the returns we gener-
ate. We must therefore diligently identify, assess, manage
and control our risks, not only in normal market conditions
but also as they might develop under more extreme
(“stressed”) conditions, when concentrations of exposures
can lead to severe losses.
As seen during the recent market crisis, we are not always
able to prevent serious losses arising from extreme or sudden
market events that are not anticipated by our risk measures
and systems. Value-at-Risk (VaR), a statistical measure for
market risk, is derived from historical market data, and thus
by definition could not have predicted the losses seen in the
stressed conditions in the past few years. Moreover, stress
loss and concentration controls and the dimensions in which
we aggregate risk to identify potentially highly correlated ex-
posures proved to be inadequate. Notwithstanding the steps
we have taken to strengthen our risk management and con-
trol framework, we could suffer further losses in the future
if, for example:
– we do not fully identify the risks in our portfolio, in par-
ticular risk concentrations and correlated risks;
– our assessment of the risks identified or our response to
negative trends proves to be inadequate or incorrect;
– markets move in ways that are unexpected – in terms of
their speed, direction, severity or correlation – and our
ability to manage risks in the resultant environment is
therefore affected;
– third parties to whom we have credit exposure or whose
securities we hold for our own account are severely af-
fected by events not anticipated by our models, and we
accordingly suffer defaults and impairments beyond the
level implied by our risk assessment; or
– collateral or other security provided by our counterparties
proves inadequate to cover their obligations at the time
of their default.
We also manage risk on behalf of our clients in our asset
and wealth management businesses. Our performance in
these activities could be harmed by the same factors. If cli-
ents suffer losses or the performance of their assets held
with us is not in line with relevant benchmarks against which
clients assess investment performance, we may suffer re-
duced fee income and a decline in assets under manage-
ment or withdrawal of mandates.
If we decide to support a fund or another investment that
we sponsor in our asset or wealth management business
(such as the property fund to which Wealth Management &
Swiss Bank has exposure) we might, depending on the facts
and circumstances, incur charges that could increase to ma-
terial levels.
Investment positions, such as equity holdings made as a
part of strategic initiatives and seed investments made at the
inception of funds we manage, may also be affected by mar-
ket risk factors. These investments are often not liquid and
are generally intended or required to be held beyond a nor-
mal trading horizon. They are subject to a distinct control
framework. Deteriorations in the fair value of these positions
would have a negative impact on our earnings.
Valuations of certain assets rely on models. For some
of the inputs to these models there is no observable
source
Where possible, we mark our trading book assets at their
quoted market price in an active market. In the current
environment, such price information is not available for
certain instruments and we apply valuation techniques
to measure such instruments. Valuation techniques use
“market observable inputs” where available, derived from
similar assets in similar and active markets, from recent
transaction prices for comparable items or from other
observable market data. For positions of which some or
all of the reference data are not observable or have lim-
ited observability, we use valuation models with non-
market observable inputs. There is no single market stan-
dard for valuation models in this area. Such models have
inherent limitations; different assumptions and inputs
would generate different results, and these differences
could have a significant impact on our financial results.
We regularly review and update our valuation models to
incorporate all factors that market participants would
consider in setting a price, including factoring in current
market conditions. Judgment is an important component
of this process. Changes in model inputs or in the models
themselves could have a material adverse effect on our
financial results.
Credit ratings and liquidity and funding management
are critical to our ongoing performance
Moody’s Investors Service, Fitch Ratings and Standard &
Poor’s lowered our long-term credit rating several times in
2008 and 2009. Further reductions in our credit rating could
increase our funding costs, in particular with regard to fund-
ing from wholesale unsecured sources. Some of these down-
grades have required us to make additional cash payments
or post additional collateral, and additional reductions in the
credit ratings could have similar effects. Our credit ratings
also have an impact on the performance of our businesses.
Along with our capital strength and reputation, our credit
ratings contribute to maintaining client and counterparty
confidence in us.
A substantial part of our liquidity and funding require-
ments is met using short-term unsecured funding sources,
including wholesale and retail deposits and the regular issu-
ance of money market securities. The volume of these
funding sources has generally been stable, but may change
in the future due, among other things, to general market
27
Strategy, performance and responsibility
Risk factors
disruptions. Any such change could occur quickly and
without notice. We may be required to maintain sub-
stantially higher levels of liquidity than has been our usual
practice due to possible changes in regulatory require-
ments. This could have an adverse impact on the attractive-
ness of certain lines of business, particularly in the Invest-
ment Bank, and may reduce our overall ability to generate
profits.
➔ Refer to the “Risk and treasury management” section of
this report for more information on our approach to
liquidity and funding management
diverse markets in different currencies, and to comply with
the requirements of the many different legal and regulatory
regimes. Our operational risk management and control sys-
tems and processes are designed to help ensure that the
risks associated with our activities, including those arising
from process error, failed execution, unauthorized trading,
fraud, systems failure and failure of security and physical
protection, are appropriately controlled. If our internal con-
trols fail or prove ineffective in identifying and remedying
such risks, we could suffer operational failures that might
result in material losses.
Our capital strength is important in supporting our
client franchise
Legal claims and regulatory risks and restrictions arise
in the conduct of our business
Our capital position, as measured by the BIS tier 1 and total
capital ratios, is determined by (i) risk-weighted assets
(RWAs) (balance sheet, off-balance sheet and other market
and operational risk positions, measured and risk-weighted
according to regulatory criteria) and (ii) eligible capital. Both
RWAs and eligible capital are subject to change. Eligible cap-
ital, for example, could experience a reduction resulting from
financial losses, acquired goodwill or as a result of foreign
exchange movements. RWAs, on the other hand, will be
driven by our business activities and by changes in the risk
profile of these assets. They could furthermore be subject to
a change in regulatory requirements or the interpretation
thereof. For instance, substantial market volatility, a widen-
ing of credit spreads (the major driver of our VaR), a change
in regulatory treatment of certain positions, stronger foreign
currencies, increased counterparty risk or a deterioration in
the economic environment could result in a rise in RWAs or
a change in capital requirements, thereby potentially reduc-
ing our capital ratios. We are subject to regulatory capital
requirements imposed by the Swiss Financial Market Super-
visory Authority (FINMA), under which we have higher RWA
than would be the case under BIS guidelines. Forthcoming
changes in the calculation of RWAs under FINMA require-
ments are expected to increase the level of our RWAs and
therefore have an adverse effect on our capital ratios. In ad-
dition, FINMA has introduced a minimum leverage ratio
which is being progressively implemented and will be fully
applicable in 2013. Changes by FINMA in the tier 1 and total
capital requirements or in the leverage ratio requirement,
whether pertaining to the minimum levels required for large
Swiss banks or to the calculation thereof (including changes
made to implement the proposed Basel III standards), could
have a material adverse effect on our business and ability to
execute our strategic plans or pay dividends in the future.
Operational risks may affect our business
All of our businesses are dependent on our ability to process
a large number of complex transactions across multiple and
In the ordinary course of our business, we are subject to
regulatory oversight and liability risk. We are involved in a
variety of claims, disputes, legal proceedings and govern-
ment investigations in jurisdictions where we are active.
These types of proceedings expose us to substantial mone-
tary damages and legal defense costs, injunctive relief and
criminal and civil penalties, in addition to potential regula-
tory restrictions on our businesses. The outcome of these
matters cannot be predicted and they could adversely affect
our future business. We continue to be subject to govern-
ment inquiries and investigations, and are involved in a num-
ber of litigations and disputes related to the financial crisis.
These matters concern, among other things, our valuations,
accounting classifications, disclosures, investment suitability,
writedowns, underwriting and contractual obligations, as
well as our role as an underwriter in securities offerings for
other issuers.
We have been in active dialogue with our regulators
concerning remedial actions that we are taking to address
deficiencies in our risk management and control, funding
and certain other processes and systems. We will for some
time be subject to increased scrutiny by FINMA and our
other major regulators, and accordingly will be subject to
regulatory measures that might affect the implementation of
our strategic plans.
In February 2009, we entered into a Deferred Prosecution
Agreement (DPA) with the US Department of Justice (DOJ)
and a Consent Order with the US Securities and Exchange
Commission in connection with our cross-border private
banking services provided to US private clients. In addition, a
petition for enforcement of a civil summons issued by the US
Internal Revenue Service (IRS), seeking information concern-
ing our cross-border business, including records located in
Switzerland, was filed by the civil division of the DOJ. In
August 2009, we entered into a settlement agreement with
the IRS and the DOJ. Pursuant to this agreement and a re-
lated agreement between the US and Switzerland, the sum-
mons enforcement proceeding will be dismissed if certain
requirements are satisfied. It is not yet clear what effect, if
28
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any, the recent Swiss court decision prohibiting the provision
of certain UBS client data to the IRS may have on our 2009
settlements with US authorities and our businesses.
Tax and regulatory authorities in a number of other juris-
dictions have also requested information relating to the
cross-border wealth management services provided by UBS
and other financial institutions. These governmental actions,
and our responses to them, could adversely affect the future
profitability of our international wealth management busi-
nesses.
➔ Refer to “Note 21 Provisions and litigation” in the
“Financial information” section of this report for more
information on legal proceedings in which UBS is involved
able compensation granted in the form of deferred shares
was much higher than in the past, and the percentage of
compensation deferred was higher than that of most of our
competitors. We continue to be subject to the risk that key
employees will be attracted by competitors and decide to
leave UBS, or that we may be less successful than our com-
petitors in attracting qualified employees. This risk also arises
in connection with the increasing legislation, regulation and
regulatory pressure relating to remuneration in general and
variable compensation in particular. Although this affects
many if not all of the major banks, the constraints are likely
to differ by jurisdiction and therefore less regulated com-
petitors may tend to have an advantage.
We might be unable to identify or capture revenue
or competitive opportunities, or retain and attract
qualified employees
Our global presence exposes us to risks arising
from being subject to different regulatory, legal and
tax regimes, as well as from currency fluctuation
The financial services industry is characterized by intense
competition, continuous innovation, detailed (and some-
times fragmented) regulation and ongoing consolidation.
We face competition at the level of local markets and indi-
vidual business lines, and from global financial institutions
that are comparable in their size and breadth. Barriers to
entry in individual markets are being eroded by new technol-
ogy. We expect these trends to continue and competition to
increase in the future.
Our competitive strength and market position could be
eroded if we are unable to identify market trends and devel-
opments, do not respond to them by devising and imple-
menting adequate business strategies or are unable to at-
tract or retain the qualified people needed to carry them out.
The changes recently introduced in our balance sheet man-
agement, funding framework and risk management and
control, as well as possible new or enhanced regulatory re-
quirements, may constrain the revenue contribution of cer-
tain lines of business. For example, parts of the Investment
Bank’s fixed income, currencies and commodities (FICC)
business may be affected as they require substantial funding
and are capital-intensive.
Following the losses incurred in 2008, we significantly re-
duced the variable compensation granted to our employees
for that year. This and other factors adversely affected our
ability to retain and attract key employees, which in turn
negatively affected our revenues in a number of business
lines in 2009. The amount of variable compensation granted
for 2009 was higher than in 2008, but the portion of vari-
We operate in more than 50 countries, earn income and
hold assets and liabilities in many different currencies and
are subject to many different legal, tax and regulatory re-
gimes.
Our ability to execute our global strategy depends on
obtaining and maintaining local regulatory approvals. This
includes the approval of acquisitions or other transactions
and the ability to obtain and maintain the necessary licenses
to operate in local markets. Changes in local tax laws or reg-
ulations and their enforcement may affect the ability or the
willingness of our clients to do business with the bank,
or the viability of our strategies and business model. In our
financial accounts we accrue taxes, but the final effect of
taxes on earnings is only determined after the completion of
tax audits (which generally takes a number of years) or the
expiration of statutes of limitations. In addition, changes in
tax laws, judicial interpretation of tax laws or policies and
practices of tax authorities could cause the amount of taxes
ultimately paid by UBS to differ materially from the amount
accrued.
Because we prepare our accounts in Swiss francs and a
substantial portion of our assets, liabilities, assets under
management, revenues and expenses are denominated in
other currencies, changes in foreign exchange rates, par-
ticularly between the Swiss franc and the US dollar and to a
much lesser extent between the Swiss franc and the Euro
and UK sterning (US dollar income represents the major part
of our non-Swiss-franc income), have an effect on our re-
ported income and shareholders’ equity.
29
Strategy, performance and responsibility
Financial performance
Financial performance
Our performance is reported in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board. This section provides a discussion and analysis of our results
for 2009, commenting on the underlying operational performance of the business, with a focus on continuing
operations.
UBS key figures
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit before tax (from continuing and discontinued operations)
Net profit attributable to UBS shareholders
Diluted earnings per share (CHF) 1
Key performance indicators, balance sheet and capital management 2
Performance
Return on equity (RoE) (%)
Return on risk-weighted assets, gross (%)
Return on assets, gross (%)
Growth
Net profit growth (%) 3
Net new money (CHF billion) 4
Efficiency
Cost / income ratio (%)
Capital strength
BIS tier 1 ratio (%) 5
FINMA leverage ratio (%) 5
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
BIS total ratio (%) 5
BIS risk-weighted assets 5
BIS tier 1 capital 5
Additional information
Invested assets (CHF billion)
Personnel (full-time equivalents)
Market capitalization 6
Long-term ratings
Fitch, London
Moody’s, New York
Standard & Poor’s, New York
As of or for the year ended
31.12.09
31.12.08
31.12.07
22,601
25,162
(2,569)
(2,736)
(0.75)
(7.8)
9.9
1.5
N/A
(147.3)
796
28,555
(27,560)
(21,292)
(7.63)
(58.7)
1.2
0.2
N/A
(226.0)
103.0
753.0
15.4
3.93
11.0
2.45
1,340,538
2,014,815
41,013
19.8
206,525
31,798
2,233
65,233
57,108
A+
Aa3
A+
32,531
15.0
302,273
33,154
2,174
77,783
43,519
A+
Aa2
A+
31,721
35,463
(3,597)
(5,247)
(2.41)
(10.5)
8.6
1.3
N/A
140.6
111.0
2,274,891
36,875
3,189
83,560
108,654
AA
Aaa
AA
1 Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report. 2 For the definitions of our key performance indicators refer to the “Measure-
ment and analysis of performance” section of this report. 3 Not meaningful if either the current period or the comparison period is a loss period. 4 Excludes interest and dividend income. 5 Refer
to the “Capital management” section of this report. 6 Refer to the “UBS shares in 2009” section of this report.
30
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Measurement and analysis of performance
Key factors affecting our financial position and results
of operations in 2009
– In 2009, the net loss attributable to UBS shareholders for
2009 was CHF 2.7 billion, a considerable reduction from
the CHF 21.3 billion loss recorded in the prior year. This
improvement was due to much lower losses on residual
risk positions in the Investment Bank and reduced operat-
ing expenses for the Group. The result for 2009 included
a number of significant items, namely an own credit loss
of CHF 2.0 billion which occurred as a result of the mar-
kets’ perception of our improved creditworthiness, charg-
es relating to the sale of UBS Pactual of CHF 1.4 billion,
restructuring charges of CHF 0.8 billion, and a CHF 0.3
billion gain on the mandatory convertible notes converted
in August 2009. Excluding these significant items, the un-
derlying pre-tax result for the year was a profit of CHF 1.4
billion. The Group’s net profit attributable to shareholders
for the fourth quarter was CHF 1.2 billion, including a
positive contribution from each of our business divisions.
– At the end of 2009 our invested asset base was CHF
2,233 billion, broadly in line with the figure for year-end
2008. However, the Group’s average invested asset base
for the year was down significantly, and this was the pri-
mary driver of reduced profits in our asset gathering busi-
ness divisions. Net new money outflows in 2009 were
CHF 89.8 billion for Wealth Management & Swiss Bank,
compared with CHF 107.1 billion in 2008; CHF 11.6 bil-
lion for Wealth Management Americas, compared with
CHF 15.9 billion; and CHF 45.8 billion for Global Asset
Management, compared with CHF 103.0 billion.
– At year-end 2009, the BIS tier 1 ratio amounted to 15.4%
and the total capital ratio to 19.8%, up from 11.0% and
15.0%, respectively, on 31 December 2008. BIS risk-
weighted assets declined from CHF 302.3 billion in De-
cember 2008 to CHF 206.5 billion in December 2009,
while eligible tier 1 capital decreased from CHF 33.2 bil-
lion to CHF 31.8 billion over the same period, reflecting
the effects of losses incurred during 2009 and further
negative impacts on equity, only partially offset by the
positive effects from issues of capital instruments.
– Our total assets stood at CHF 1,341 billion on 31 Decem-
ber 2009, down CHF 674 billion (33%) from CHF 2,015
billion on 31 December 2008. This decline was due to
significant market driven reductions in replacement val-
ues (RVs) on both sides of the balance sheet.
– Due to the significant improvement in our credit spreads
in 2009 compared with 2008, the Investment Bank in-
curred an own credit charge to income of CHF 2,023 mil-
lion compared with a gain of CHF 2,032 million recog-
nized in 2008.
– In 2009, we experienced a net credit loss expense of CHF
1,832 million, of which CHF 1,698 million related to the
Investment Bank and CHF 133 million to Wealth Manage-
ment & Swiss Bank. Impairment charges of the Invest-
ment Bank include an impairment of CHF 425 million for
reclassified securities. In comparison, we recorded a net
credit loss expense of CHF 2,996 million in 2008.
➔ Refer to the “Credit risk” section of this report for more
information
– We recognized a net income tax benefit of CHF 443 mil-
lion for 2009, which mainly related to an increase in de-
ferred tax assets for tax losses following updated forecast
profit assumptions over the five-year horizon used for rec-
ognition purposes. In 2008, the net income tax benefit
was CHF 6,837 million, which mainly reflected an in-
crease in deferred tax assets for tax losses.
– On 16 October 2008, we reached an agreement with
the Swiss National Bank (SNB) to transfer, in one or more
sales, certain illiquid and other positions from our bal-
ance sheet to a separate fund entity owned and con-
trolled by the SNB. In December 2008, USD 16.4 billion
of positions were transferred to the fund followed by
the transfer of the remaining USD 22.2 billion of posi-
tions in March and April 2009. The purchase price was
determined by the SNB based on valuations made by
independent experts and reflected the value of these po-
sitions on 30 September 2008. The purchase price for
the overall portfolio was, in the aggregate, approximate-
ly USD 1 billion lower than the market value we assigned
to these positions on 30 September 2008. Of this USD 1
billion, USD 0.7 billion was accounted for in our results
for 2008, and the remaining balance was recognized in
the income statement in first quarter 2009. The impact
of the SNB transaction on the income statement for
2009 was a charge of CHF 115 million, which comprised
a CHF 232 million charge due to the price difference
recognized in first quarter 2009, and was offset by a net
valuation gain of CHF 117 million on our option to ac-
quire the fund’s equity.
– On 18 February 2009, we announced the settlement of
the US cross-border case with the US Department of Jus-
31
Strategy, performance and responsibility
Financial performance
tice (DOJ) and the US Securities and Exchange Commis-
sion (SEC), by entering into a deferred prosecution agree-
ment with the DOJ and a consent order with the SEC. As
part of these settlement agreements, we agreed to pay
CHF 917 million (USD 780 million). This had no impact on
our 2009 results as the cost for the settlement had been
fully charged in 2008. Subsequently, on 19 August 2009,
we also announced the formal signing of a settlement
agreement with the IRS and the DOJ to resolve the “John
Doe” summons litigation. The agreement does not call
for any payment by us. Moreover, it resolves all issues re-
lating to the alleged breaches of our Qualified Intermedi-
ary Agreement with the IRS as set forth in the Notice of
Default dated 15 May 2008.
➔ Refer to “Note 21 Provisions and litigation” In the
“Financial Information” section of this report for the
principal terms of this settlement agreement and the
related agreement entered into at the same time by
the governments of Switzerland and the US
– On 15 April 2009, we announced cost-saving measures
to be executed throughout 2009. We consolidated all
Group-wide infrastructure and service operations in the
Corporate Center and centralized our finance, risk con-
trol, and legal and compliance functions. In addition, we
reduced the number of employees to 65,233 as of 31
December 2009 from approximately 76,200 as of the end
of March 2009. The total restructuring charge incurred in
2009 was CHF 791 million, including CHF 491 million in
Personnel expenses, mainly for severance payments, CHF
256 million in General and administrative expenses, pri-
marily for real-estate-related costs, and CHF 45 million of
depreciation and impairment losses on property and
equipment.
– On 20 April 2009, we announced the agreement to sell
our Brazilian financial services business, UBS Pactual, to
BTG Investments, LP. The transaction was completed on
18 September 2009. The consideration included a combi-
nation of a cash payment and a transfer of liabilities to
BTG Investments. The cash consideration amounted to
USD 620 million, of which USD 420 million was paid at
closing, and USD 200 million plus accrued interest will be
paid 12 months after the closing. The liabilities trans-
ferred to BTG Investments consisted primarily of the pres-
ent value of the residual payment obligation of USD 1.6
billion owed to former Pactual partners, which was in-
curred when we acquired Pactual in 2006 and was due in
2011. In 2009, the overall impact of the transaction on
our profit before tax was a net charge of CHF 1,403 mil-
lion, including a goodwill impairment charge of CHF
1,123 million, a CHF 498 million pre-tax loss on the com-
pletion of the sale, and was partly offset by UBS Pactual’s
pre-tax operational profits in 2009 of CHF 218 million. In
addition, a deferred tax benefit of CHF 243 million was
recognized.
– On 25 June 2009, we placed 293,258,050 newly issued
shares from authorized capital with a small number of
large institutional investors at a price of CHF 13.00 per
share. After deducting costs associated with the place-
ment, the amount of new equity capital raised was ap-
proximately CHF 3.8 billion.
– On 19 August 2009, the Swiss Confederation announced
the conversion of its CHF 6 billion mandatory convertible
notes (MCNs). Upon conversion on 25 August 2009, we
issued 332,225,913 new shares with a nominal value of
CHF 0.10 each from existing conditional capital. The lia-
bility and the negative replacement value recorded on the
balance sheet for the principal amount and the embed-
ded derivative component of the MCNs were reclassified
to equity. The conversion of the MCNs resulted in an
overall increase in equity of CHF 6,718 million for 2009.
Prior to the conversion of the MCNs, the embedded de-
rivative component was re-measured to fair value result-
ing in a gain of CHF 341 million for 2009. In addition, the
Swiss Confederation waived its right to receive future
coupon payments on the converted MCNs for a cash
amount of approximately CHF 1.8 billion. The impact on
our income statement resulting from this waiver was not
material, but the payment reduced our BIS tier 1 capital
by CHF 1.4 billion.
Seasonal characteristics
Our main businesses do not generally show significant sea-
sonal patterns, although the Investment Bank’s revenues
have been affected in some years by the seasonal character-
istics of general financial market activity and deal flows in
investment banking. Other business divisions are only slightly
impacted by seasonal components, such as asset withdraw-
als that tend to occur in the fourth quarter and by lower cli-
ent activity levels related to the end-of-year holiday season.
Performance measures
Key performance indicators
In the beginning of 2009, we implemented a new KPI frame-
work. It focuses on key drivers of total shareholder return
(TSR), which measures the total return of a UBS share, i.e.
both the dividend yield and the capital appreciation of the
share price. This performance measure also represents the
ultimate measure of performance for shareholders.
Complementary to the TSR, the economic profit (EP) is an
internal measure which is calculated broadly by subtracting
the cost of equity from the annual net profit attributable to
shareholders. EP is only realized when the return on equity
achieved is greater than our cost of equity. In order to offset
accounting entries which distort the economic perspective,
the EP calculation is adjusted for items that do not reflect
business performance.
32
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Group / business division key performance indicators
Key performance indicators
Definition
Net profit growth (%)
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on equity (%)
Return on attributed equity (%)
Return on assets, gross (%)
Change in net profit attributable to UBS shareholders from continuing operations
between current and comparison periods / net profit attributable to
UBS shareholders from continuing operations of comparison period
Change in business division performance before tax between current and comparison
periods / business division performance before tax of comparison period
Operating expenses / operating income before credit loss (expense) or recovery
Net profit attributable to UBS shareholders on a year-to-date basis (annualized as
applicable) / average equity attributable to UBS shareholders (year-to-date basis)
Business division performance before tax on a year-to-date basis (annualized as
applicable) / average attributed equity (year-to-date basis)
Operating income before credit loss (expense) or recovery on a year-to-date basis
(annualized as applicable) / average total assets (year-to-date basis)
Return on risk-weighted assets,
gross (%)
Operating income before credit loss (expense) or recovery on a year-to-date basis
(annualized as applicable) / average risk-weighted assets (year-to-date basis)
FINMA leverage ratio (%)
BIS tier 1 capital / average adjusted assets as per definition by FINMA
BIS tier 1 ratio (%)
BIS tier 1 capital / BIS risk-weighted assets
Net new money (CHF billion)
Inflow of invested assets from new and existing clients less outflows from existing
clients or due to client defection
Gross margin on invested
assets (bps)
Operating income before credit loss (expense) or recovery (annualized as
applicable) / average invested assets
Impaired lending portfolio as a %
of total lending portfolio, gross
Average management VaR
(1-day, 95% confidence, five
years of historical data)
Impaired lending portfolio, gross / total lending portfolio, gross
Value-at-Risk (VaR) expresses maximum potential loss measured to a 95% confidence
level, over a 1-day time horizon and based on five years of historical data
1 For international clients only. 2 For Swiss clients only.
p
u
o
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G
X
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X1
X2
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The Group and business divisions are now managed
based on this new KPI framework, which emphasizes risk
awareness, effective risk and capital management, sustain-
able profitability, and client focus. Both Group and business
division KPIs are used to determine variable compensation of
executives and personnel.
➔ Refer to the discussion of “Compensation and sharehold-
ings” in the “Corporate governance and compensation”
section of this report for more information
The Group and business division KPIs are explained in
the “Group and business division key performance indi cators”
table. In 2009, we disclosed for the first time the management
VaR (1-day, 95% confidence, and five years of historical data)
for the Group and the Investment Bank. This new manage-
ment VaR methodology is an enhancement compared with
the previous management VaR (10-day, 99% confidence, and
five years of historical data) as we consider that it reflects the
way that trading risks are viewed and managed by the busi-
ness, and can be more directly compared with mark to market
revenues. All changes to this new management VaR have
been approved by FINMA. The previously reported KPI regula-
tory VaR (10-day, 99% confidence, and five years of historical
data) for the Investment Bank was replaced by the new
management VaR as of fourth quarter 2009.
33
Strategy, performance and responsibility
Financial performance
Client / invested assets reporting
We report two distinct metrics for client funds:
– The measure “client assets” encompasses all client assets
managed by or deposited with us, including custody-only
assets and assets held for purely transactional purposes.
– The measure “invested assets” is a more restrictive term
and includes all client assets managed by or deposited
with us for investment purposes.
Of the two, invested assets is our central measure and
includes, for example, discretionary and advisory wealth
management portfolios, managed institutional assets, man-
aged fund assets and wealth management securities or bro-
kerage accounts. It excludes all assets held for purely trans-
actional and custody-only purposes, as we only administer
the assets and do not offer advice on how these assets
should be invested. Non-bankable assets (for example, art
collections) and deposits from third-party banks for funding
or trading purposes are excluded from both measures.
Net new money in a reported period is the net amount
of invested assets that are entrusted to us by new and ex-
isting clients, less those withdrawn by existing clients and
clients who terminated their relationship with us. Negative
net new money means that there are more outflows than
inflows. Interest and dividend income from invested assets
is not counted as net new money inflow. Market and cur-
rency movements, as well as fees, commissions and inter-
est on loans charged, are excluded from net new money as
are the effects of any acquisition or divestment of a UBS
subsidiary or business. Reclassifications between invested
assets and client assets as a result of a change in the ser-
vice level delivered are treated as net new money inflows
or outflows.
When products are managed in one business division and
sold by another, they are counted in both the investment
management unit and the distribution unit. This results in
double counting within our total invested assets, as both
units provide an independent service to their respective cli-
ent, add value and generate revenues. Most double count-
ing arises when mutual funds are managed by Global Asset
Management and sold by Wealth Management & Swiss
Bank and Wealth Management Americas. The business di-
visions involved count these funds as invested assets. This
approach is in line with both finance industry practices and
our open architecture strategy, and allows us to accurately
reflect the performance of each individual business. Overall,
CHF 254 billion of invested assets were double counted in
2009 (CHF 273 billion in 2008).
34
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Accounting and reporting structure changes
IAS 1 (revised) Presentation of Financial Statements
Effective 1 January 2009, the revised International Account-
ing Standard (IAS) 1 affected the presentation of owner
changes in equity and of comprehensive income. We contin-
ued to present owner changes in equity in the “statement of
changes in equity”, but detailed information relating to non-
owner changes in equity, such as foreign exchange trans-
lation, cash flow hedges and financial investments available-
for-sale, is presented in the “Statement of comprehensive
income”.
When implementing these amendments, we also adjust-
ed the format of our “statement of changes in equity” and
replaced the “statement of recognized income and expense”
in the financial statements of previous years with a “state-
ment of comprehensive income”. Preferred securities issued
by consolidated trusts are reported as “equity attributable to
minority interests”, as they are equity instruments held by
third parties. As these securities make up the largest part of
our equity attributable to minority interests, we disclose
movement information in a separate table.
We also re-assessed our accounting treatment of divi-
dends from trust preferred securities. In 2009, in line with
the classification of trust preferred securities as equity instru-
ments, we recognize liabilities for the full dividend payment
obligation once a coupon payment becomes mandatory, i.e.
when it is triggered by a contractually determined event. In
the income statement, the same amount is reclassified from
net profit attributable to UBS shareholders to net profit at-
tributable to minority interests.
IFRS 8 Operating Segments
Effective as of 1 January 2009, we adopted IFRS 8 Operating
Segments which replaced IAS 14 Segment Reporting. Under
the requirements of the new standard, our external segment
reporting is now based on the internal management report-
ing to the GEB (or the “chief operating decision maker”),
which makes decisions on the allocation of resources and
assesses the performance of the reportable segments.
In accordance with the new structure announced in Feb-
ruary 2009, we disclosed four reportable segments. These
Accounting changes in 2010 and later
The International Accounting Stan-
dards Board (IASB) has initiated a
comprehensive project to replace IAS
39 Financial instruments: recognition
and measurement. The first phase of
this project has been completed by
issuing IFRS 9 Financial Instruments.
Phase two and three address the
classification and measurement of
financial liabilities, impairment of
financial assets at amortized cost,
hedge accounting and derecognition
of financial instruments. The IASB
plans to complete phase two and
three during 2010, although manda-
tory application is not expected before
1 January 2013.
In November 2009, the IASB issued
IFRS 9 Financial instruments, which
includes revised guidance on the
classification and measurement of
financial assets. Under the revised
guidance, a financial asset is to be
accounted for at amortized cost only
if it is held within a business model
whose objective is to hold assets in
order to collect contractual cash flows,
and the contractual terms of the
financial asset give rise on specified
dates to contractual cash flows that
are solely payments of principal and
interest on the principal amount
outstanding.
Non-traded equity instruments may be
accounted for at fair value through
equity, but the subsequent release of
amounts booked directly to equity into
the income statement is no longer
permitted. All other financial assets
are measured at fair value through
profit or loss. We are currently
assessing the impact of the new
standard on our financial statements.
It is likely that a number of financial
assets currently accounted for at
amortized cost will be accounted for
at fair value through profit or loss
under the new standard because a)
their contractual cash flows do not
comprise solely payments of principal
and interest on the principal, and / or
b) we do not hold the assets with the
intention to collect contractual cash
flows they generate. Certain debt
securities currently classified as
available-for-sale may satisfy the
criteria for “amortized cost” account-
ing; debt securities available-for-sale
failing these criteria will be accounted
for at fair value. The effective date for
mandatory adoption is 1 January
2013, with early adoption permitted.
We did not adopt IFRS 9 for the year
ended 31 December 2009.
35
Strategy, performance and responsibility
Financial performance
segments are the business divisions – Wealth Management
& Swiss Bank, Wealth Management Americas, Global Asset
Management and the Investment Bank. While the Corporate
Center does not meet the requirements of an operating seg-
ment, it is also shown separately. Segment information from
prior periods has been restated to conform to the require-
ments of the new standard.
As our reportable segment operations are mainly fi-
nancial, the total interest income and expense for all re-
portable segments is presented on a net basis. Based on the
present arrangement of revenue-sharing agreements, our
total in tersegment revenues are immaterial. Apart from
that, the segment assets are disclosed without the inter-
company balances in line with the internal management
reporting.
➔ Refer to “Note 1 Summary of significant accounting
policies” and “Note 2a Segment reporting” in the “Financial
information” section of this report for more details on the
basis on which the segment information is prepared and
Allocation of Shared Services Costs in
Segment Disclosures
From 2009 onwards, Information Technology Infrastructure
and Group Offshoring costs managed by the Corporate Cen-
ter are allocated to the direct cost lines personnel expenses,
general and administrative expenses and depreciation in the
respective business division income statements, based on ap-
propriate internally determined allocation keys. In the Corpo-
rate Center income statement, costs allocated to the busi-
ness divisions are deducted from the respective cost lines. In
previous reports, these costs were presented as an expense
on the line Services (to) / from other business divisions within
each business division and an offsetting corresponding
amount on that line in the Corporate Center. The new pre-
sentation format provides greater transparency by allocating
costs of shared services and control functions managed by
the Corporate Center to direct cost lines in divisional income
statements. Comparative periods have been adjusted.
reconciled to the amounts presented in our income
➔ Refer to “Note 1a33 Segment reporting” in the “Financial
statement and balance sheet
information” section of this report for more information on
our general principles for allocating shared service and
control function costs managed by the Corporate Center
➔ Refer to “Note 1b Changes in accounting policies,
comparability and other adjustments” in the “Financial
information” section of this report for changes to segment
disclosures due to a different presentation of ITI and Group
offshore cost allocations
Changes to the reporting structure in 2010
Wealth Management & Swiss Bank
Commencing first quarter 2010, we
will amend our internal reporting
of Wealth Management & Swiss
Bank and present in our external
financial reports two separate
business units:
– “Wealth Management” will
encompass the domestic and
international wealth management
business conducted in Switzerland,
and all wealth manage ment
businesses of our other booking
centers in Asia and Europe.
– “Retail & Corporate” will include
services provided to Swiss retail
private clients, small businesses, as
well as corporate and institutional
clients.
Corporate Center
In 2009, we integrated our Group-
wide shared service and control
functions into the Corporate Center.
Headcount and costs of the cen-
tralized functions are re-allocated
to the business divisions for which
the respective services are performed.
Accordingly we will change the
quarterly disclosure commencing first
quarter 2010 as follows:
– We will continue to provide
Corporate Center income
statement data and additional
information on www.ubs.com/
investors.
– Significant items and treasury-relat-
ed income data will be explained in
the “Group results” section in our
quarterly reports, which will no
longer include a specific “Corpo-
rate Center” section.
36
UBS results
Income statement
CHF million
Continuing operations
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Discontinued operations
Profit from discontinued operations before tax
Tax expense
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
from continuing operations
from discontinued operations
Net profit attributable to UBS shareholders
from continuing operations
from discontinued operations
Performance by business division
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
Operating profit from continuing operations before tax
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For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
23,461
(17,016)
6,446
(1,832)
4,614
17,712
(324)
599
22,601
16,543
6,248
1,048
1,123
200
25,162
(2,561)
(443)
(2,118)
(7)
0
(7)
65,679
(59,687)
5,992
(2,996)
2,996
22,929
(25,820)
692
796
16,262
10,498
1,241
341
213
28,555
(27,758)
(6,837)
(20,922)
198
1
198
109,112
(103,775)
5,337
(238)
5,099
30,634
(8,353)
4,341
31,721
25,515
8,429
1,243
0
276
35,463
(3,742)
1,369
(5,111)
145
(258)
403
(2,125)
(20,724)
(4,708)
610
600
10
(2,736)
(2,719)
(17)
3,910
32
438
(6,081)
(860)
(2,561)
568
520
48
(21,292)
(21,442)
150
6,013
(823)
1,333
(34,300)
19
(27,758)
539
539
0
(5,247)
(5,650)
403
8,543
621
1,454
(16,669)
2,310
(3,742)
(64)
(71)
8
(39)
54
(23)
99
(13)
2
(40)
(16)
229
(6)
(12)
91
94
90
(100)
90
7
15
(79)
87
87
(35)
(67)
82
91
37
Strategy, performance and responsibility
Financial performance
2009
Results
In 2009, we reported a Group net loss attributable to share-
holders (“attributable loss”) of CHF 2,736 million – a loss
before tax of CHF 2,561 million from continuing operations
and a loss before tax of CHF 7 million from discontinued op-
erations. In 2008, we recorded an attributable loss of CHF
21,292 million.
Operating income
Total operating income was CHF 22,601 million in 2009, up
from CHF 796 million in 2008. Net interest income at CHF
6,446 million was up 8% compared with CHF 5,992 million
a year earlier. Net trading income was negative CHF 324 mil-
lion compared with negative CHF 25,820 million in 2008.
Net interest income includes income earned as a result of
trading activities (for example, coupon and dividend income)
as well as income from interest margin-based activities (loans
and deposits). The dividend income component of interest
income is volatile from period to period, depending on the
composition of the trading portfolio. In order to provide a
better explanation of the movements in net interest income
and net trading income, their total is analyzed below under
the relevant business activities.
In 2009, we reviewed our approach to calculating and
booking own credit of derivative liabilities and financial
liabilities designated at fair value. As of the transition date
1 January 2009, changes resulting from this review increased
our 2009 net trading income by CHF 143 million, made up
of a CHF 365 million credit to Net income from trading busi-
nesses and a charge of CHF 222 million to Net income from
treasury activities and other.
Net income from trading businesses
Net income from trading businesses, including lending ac-
tivities of the Investment Bank, was positive CHF 382 million
for full-year 2009. This compares with negative CHF 27,203
million in the prior year, with the improvement mainly due to
lower losses on residual risk positions in the fixed income,
currencies and commodities (FICC) area of the Investment
Bank in 2009.
Trading revenues from the FICC business improved from
the previous year, due to lower losses on residual risk posi-
tions as mentioned above.
Equities trading revenues (excluding own credit) improved
from the previous year. Equity-linked revenues increased sig-
nificantly as all regions benefitted from improvements in val-
uations and liquidity. Proprietary trading revenues improved
with a strong performance recorded across all geographical
regions.
In 2009, the Investment Bank recorded a loss on own
credit from financial liabilities designated at fair value of CHF
2,023 million as our credit spread narrowed in 2009 com-
pared with a gain of CHF 2,032 million in 2008. This change
was partially impacted by the abovementioned change in
calculating and booking of own credit. The cumulative own
credit gain on existing financial liabilities designated at fair
value still held as of 31 December 2009, amounted to ap-
proximately CHF 0.9 billion. Own credit charges in future
periods can exceed the cumulative own credit gain on exist-
ing financial liabilities designated at fair value.
➔ Refer to “Note 27 Fair value of financial instruments” in the
“Financial information” section of this report for more
information on own credit
Net interest and trading income
CHF million
Net interest income
Net trading income
Total net interest and trading income
Breakdown by businesses
Net income from trading businesses 1
Net income from interest margin businesses
Net income from treasury activities and other
Total net interest and trading income
1 Includes lending activities of the Investment Bank.
38
For the year ended
% change from
31.12.09
6,446
(324)
6,122
382
5,053
687
6,122
31.12.08
5,992
(25,820)
(19,828)
(27,203)
6,160
1,214
(19,828)
31.12.07
31.12.08
5,337
(8,353)
(3,016)
(10,658)
6,230
1,412
(3,016)
8
99
(18)
(43)
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Net income from interest margin businesses
Net income from interest margin businesses decreased 18% to
CHF 5,053 million from CHF 6,160 million. This decrease was
primarily attributable to lower margins on loans and liabilities.
➔ Refer to the “Risk management and control” section of this
report for more information on our risk management
approach, method of credit risk measurement and the
development of credit risk exposures
Net income from treasury activities and other
Net income from treasury activities and other was CHF 687
million compared with CHF 1,214 million driven by a net gain
of CHF 297 million (including interest expenses) on the valu-
ation of the MCNs issued in December 2008 and converted
in August 2009 and a gain of CHF 117 million on the revalu-
ation of our option to acquire the SNB StabFund’s equity. In
comparison, 2008 included an accounting gain of CHF 3,860
million related to the MCNs issued in March 2008, which was
offset by the CHF 3.4 billion negative impact of the transac-
tion with the Swiss National Bank and the abovementioned
MCNs issued in December 2008, resulting in a total gain of
CHF 0.4 billion.
Credit loss expenses
In 2009, we experienced net credit loss expenses of CHF
1,832 million, of which CHF 425 million were due to impair-
ment charges taken on reclassified securities in the Invest-
ment Bank. In comparison, we recorded net credit loss ex-
penses of CHF 2,996 million in 2008.
The Investment Bank recorded net credit loss expenses of
CHF 1,698 million for 2009, compared with net credit loss ex-
penses of CHF 2,575 million in 2008. Excluding the credit loss
expenses from reclassified securities of CHF 425 million, the net
credit loss expenses amounted to CHF 1,273 million in 2009.
Wealth Management & Swiss Bank reported net credit loss
expenses of CHF 133 million for 2009, compared with CHF
392 million in 2008. Releases of allowances against lombard
loans in 2009 contributed to this positive development.
Net fee and commission income
Net fee and commission income was CHF 17,712 million,
down 23% from CHF 22,929 million. Income declined in all
major fee categories except for underwriting fees, as out-
lined below:
– Underwriting fees increased 22% to CHF 2,386 million,
driven by a 40% increase in equity underwriting fees off-
set by a 3% decrease in debt underwriting fees.
– Mergers and acquisitions and corporate finance fees fell
47% to CHF 881 million due to reduced market activity
as deal appetite remained subdued.
– Net brokerage fees fell 31% to CHF 4,469 million mainly
due to a reduction in equity trading volumes.
– Investment fund fees fell 28% to CHF 4,000 million as a
result of lower asset based fees on both own and third-
party funds.
– Portfolio management and advisory fees fell 24% to CHF
5,863 million, mainly due to the decreased average asset
base, especially in the wealth management businesses.
– Insurance-related and other fees, at CHF 264 million in
2009, decreased by 17% from a year earlier. That was
mainly due to lower commission income from insurance
products.
– Commission income from other services decreased 13%
to CHF 878 million, mainly in the wealth management
businesses.
– Other commission expense fell 31% to CHF 1,368 mil-
lion, mainly due to lower commissions paid to distribution
partners.
Credit loss (expense) / recovery
CHF million
Wealth Management & Swiss Bank
Wealth Management Americas
Investment Bank 1
of which: related to reclassified securities
Corporate Center
UBS
1 Includes credit loss expense of CHF 588 million (31.12.08: CHF 1,205 million) related to reclassified leveraged finance positions.
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
(133)
3
(1,698)
(425)
(5)
(1,832)
(392)
(29)
(2,575)
(125)
30
(2)
(266)
(2,996)
(238)
(66)
(34)
240
(39)
39
Strategy, performance and responsibility
Financial performance
Net fee and commission income
CHF million
Equity underwriting fees
Debt underwriting fees
Total underwriting fees
M&A and corporate finance fees
Brokerage fees 1
Investment fund fees
Portfolio management and advisory fees 2
Insurance-related and other fees
Total securities trading and investment activity fees
Credit-related fees and commissions
Commission income from other services
Total fee and commission income
Brokerage fees paid 1
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
1,590
796
2,386
881
6,217
4,000
5,863
264
19,611
339
878
20,827
1,748
1,368
3,116
17,712
4,469
1,138
818
1,957
1,662
8,209
5,583
7,667
317
25,394
273
1,010
26,677
1,763
1,984
3,748
22,929
6,445
2,564
1,178
3,742
2,768
10,211
7,422
9,454
423
34,020
279
1,017
35,316
2,540
2,142
4,682
30,634
7,671
40
(3)
22
(47)
(24)
(28)
(24)
(17)
(23)
24
(13)
(22)
(1)
(31)
(17)
(23)
(31)
1 In 2009, we restated the amounts presented in previous periods on the lines Brokerage fees and Brokerage fees paid. Amounts previously disclosed for both lines have decreased by CHF 146 million
for the year ended 31 December 2008, and by CHF 70 million for the year ended 31 December 2007. Net fee and commission income is not affected. 2 Includes fiduciary and custodian fees, which
were presented as separate lines in previous reports.
Other income
Other income was CHF 599 million in 2009 compared with
CHF 692 million in the previous year. 2009 includes a loss of
CHF 498 million related to the sale of UBS Pactual, foreign
exchange gains of CHF 430 million on other divestments of
subsidiaries, a gain of CHF 304 million on the buyback of
subordinated debt and impairment charges of financial in-
vestments available-for-sale of CHF 349 million.
nized in the income statement in 2010 and later, subject to
the vesting conditions of the respective awards granted. It
includes a charge for performance (and retention) awards
that are to be granted, or are expected to be granted, in
2010 in relation to the 2009 performance year but which, as
of the balance sheet date, had in fact not been granted. The
2009 results do not include a provision for bank payroll tax
in the UK.
➔ Refer to “Note 5 Other income” in the “Financial informa-
➔ Refer to “Note 31 Equity participation and other compen-
tion” section of this report for more information
sation plans” in the “Financial information” section of this
Operating expenses
Total operating expenses were down 12% to CHF 25,162
million in 2009 from CHF 28,555 million in 2008.
Total restructuring charges of CHF 791 million were in-
curred in 2009, including CHF 491 million in Personnel ex-
penses, mainly for severance payments, CHF 256 million
in General and administrative expenses, primarily for real-
estate related costs, and CHF 45 million of depreciation and
impairment losses on property and equipment.
Personnel expenses
Personnel expenses were CHF 16,543 million compared with
CHF 16,262 million in the previous year. Headcount reduc-
tions were partially offset by salary increases. Variable com-
pensation recognized in the income statement in 2009 was
CHF 3.0 billion. Variable compensation of CHF 3.2 billion for
2009 and brought forward from prior years will be recog-
report for more information about deferred compensation
related to non-vested awards granted up to and including
31 December 2009
Contractors’ expenses, at CHF 275 million, were down
35% from 2008. This was due to substantial reduction of
employed contractors and a favorable foreign exchange
impact. Insurance and social security contributions in-
creased 21% to CHF 851 million in 2009, due to our equity
compensation plan. Contributions to retirement benefit
plans increased CHF 15 million to CHF 941 million, other
personnel expenses decreased 16%, mainly due to head-
count reduction and lower training, recruitment and travel-
ling costs.
General and administrative expenses
General and administrative expenses declined 40% to CHF
6,248 million. All general and administrative expense cate-
gories decreased in 2009 primarily as a result of the cost re-
duction programs. Further, 2008 included provision for auc-
40
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tion rate securities of CHF 1,464 million and provisions in
relation to the US cross-border case of CHF 917 million.
Largest reductions in absolute terms were in travel and en-
tertainment, and professional fees.
➔ Refer to “Note 21 Provisions and litigation” in the
“Financial information” section of this report for more
information about provisions
ing the US (CHF 373 million) and Japan (CHF 127 million),
taking into account updated forecast profit assumptions
over the five-year horizon used for recognition purposes. In
addition, it reflects the release of a deferred tax liability of
CHF 243 million relating to UBS Pactual prior to its sale dur-
ing the year. This deferred tax benefit is partially offset by a
current tax charge of CHF 517 million which mainly relates
to entities with taxable profits.
Depreciation, amortization and impairment of goodwill
Depreciation of property and equipment declined CHF 16%
to CHF 1,048 million. Amortization of intangible assets was
CHF 200 million compared with CHF 213 million in 2008.
During 2008, we recognized a net income tax benefit in
our income statement of CHF 6,837 million, which mainly
reflected a CHF 6,126 million impact from the increase in
deferred tax assets on tax losses.
A goodwill impairment charge of CHF 1,123 million was
recorded in 2009, relating to the sale of UBS Pactual. In 2008
a goodwill impairment charge of CHF 341 million was re-
corded relating to the Investment Bank’s exit from the mu-
nicipal securities business.
Income tax
We recognized a net income tax benefit in our income state-
ment of CHF 443 million for full-year 2009. This includes a
deferred tax benefit of CHF 960 million, which reflects the
recognition of additional deferred tax assets in respect of tax
losses and temporary differences in certain locations, includ-
Invested assets
Total invested assets stood at CHF 2,233 billion on 31 De-
cember 2009, an increase of 3% from CHF 2,174 billion on
31 December 2008. Positive market developments were
nearly offset by net new money outflows, reduction of in-
vested assets related to divestments and negative currency
translation effects. On 31 December 2009, CHF 960 billion
of invested assets were attributable to Wealth Management
& Swiss Bank, CHF 690 billion were attributable to Wealth
Management Americas and CHF 583 billion were attribut-
able to Global Asset Management.
Invested assets
CHF billion
Swiss clients
International clients
Wealth Management & Swiss Bank
Wealth Management Americas
Institutional
Wholesale intermediary
Global Asset Management
UBS
31.12.09
As of
31.12.08
% change from
31.12.07
31.12.08
337
624
960
690
346
237
583
325
631
955
644
335
240
575
2,233
2,174
455
937
1,392
906
522
369
891
3,189
4
(1)
1
7
3
(1)
1
3
41
Strategy, performance and responsibility
Financial performance
2008
Results
In 2008, we reported a Group net loss attributable to the
shareholders (“attributable loss”) of CHF 21,292 million –
a loss of CHF 21,442 million from continuing operations
and a profit of CHF 150 million from discontinued opera-
tions. In 2007, we recorded an attributable loss of CHF
5,247 million.
Operating income
Total operating income was CHF 796 million in 2008, down
from CHF 31,721 million in 2007. Net interest income at
CHF 5,992 million was up 12% compared with CHF 5,337
million a year earlier. Net trading income was negative CHF
25,820 million, sharply down from negative CHF 8,353 mil-
lion in 2007.
Net income from trading businesses
Net income from trading businesses dropped to negative
CHF 27,203 million for full-year 2008. This compares with
negative CHF 10,658 million in the prior year, with the de-
cline mainly due to losses on disclosed risk concentrations in
the FICC area of the Investment Bank.
Within FICC, trading losses were experienced in difficult
markets marked by a significant increase in volatility and an
extreme scarcity of liquidity, which negatively affected many
trades and positions. Real estate and securitization, and
credit and proprietary strategies all had a significant negative
impact on FICC trading revenues. These losses obscured
good results in select areas, notably foreign exchange and
money markets, which had a strong year with revenues up
from 2007. Rates had positive revenues but were down from
the prior year.
Trading revenues from equities were down from the pre-
vious year, mainly as a result of lower revenues in derivatives,
especially in Europe and Asia. The Equity-linked business saw
negative revenues in difficult equity and credit markets. The
exchange-traded derivatives business was up as it benefited
from significant volatility in the market. Prime brokerage ser-
vices had a solid performance but revenues were down over-
all from 2007 as clients deleveraged their positions. Proprie-
tary trading contributed a limited loss for the year.
In 2008, the Investment Bank recorded a gain on own
credit from financial liabilities designated at fair value of CHF
2,032 million, resulting from the widening of our credit
spread, which was partly offset by the effects of redemp-
tions and repurchases of such liabilities.
➔ Refer to “Note 27 Fair value of financial instruments” in the
“Financial Information” section of our 2008 annual report
for more information
42
In 2007, the Investment Bank recorded a gain of CHF 659
million on own credit.
Net income from interest margin businesses
Net income from interest margin businesses decreased 1%
to CHF 6,160 million from CHF 6,230 million. This slight de-
crease was primarily due to lower income from mortgages.
Net income from treasury activities and other
Net income from treasury activities and other was CHF 1,214
million compared with CHF 1,412 million. Gains from the
accounting treatment of the MCNs issued in March and in
December 2008 were offset by negative income from the
transaction with the Swiss National Bank.
Credit loss expenses
A credit loss expense of CHF 2,996 million was recorded in
full-year 2008, compared with a credit loss expense of CHF
238 million in full-year 2007. The difference mainly reflects
impairment charges taken on reclassified financial assets in
fourth quarter 2008 and a further deterioration of the credit
environment.
Net credit loss expense at Wealth Management & Swiss
Bank amounted to CHF 392 million in 2008 compared with a
net credit loss recovery of CHF 30 million in 2007. This result
was mainly due to provisions made for lombard loans in 2008,
particularly in the fourth quarter. The Investment Bank record-
ed a net credit loss expense of CHF 2,575 million in 2008,
compared with a net credit loss expense of CHF 266 million in
2007. This increase mainly reflects impairment charges taken
on reclassified instruments in fourth quarter 2008, of which
the majority related to leveraged finance commitments.
➔ Refer to the “Risk management and control” section of this
report for more information on our risk management
approach, method of credit risk measurement and the
development of credit risk exposures
Net fee and commission income
Net fee and commission income was CHF 22,929 million,
down 25% from CHF 30,634 million. Income declined in all
major fee categories, as outlined below:
– Underwriting fees fell 48% to CHF 1,957 million, driven
by a 56% decline in equity underwriting fees and a 31%
decline in debt underwriting fees.
– Mergers and acquisitions and corporate finance fees fell
40% to CHF 1,662 million, in an environment of reduced
market activity and lower mandated deal volumes.
– Net brokerage fees fell 16% to CHF 6,445 million, mainly
due to lower client transaction volumes in the wealth
management businesses and the Investment Bank’s cash
equities and Asian equity derivatives business.
– Investment fund fees fell 25% to CHF 5,583 million due
to lower asset-based fees from the asset management
and wealth management businesses.
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– Portfolio management and advisory fees fell 19% to CHF
7,667 million mainly due to the lower asset base in the
wealth management businesses and reduced perfor-
mance fees in the asset management business.
– Insurance-related and other fees, at CHF 317 million in
2008, decreased by 25% from a year earlier mainly due
to lower commission income from life insurance products
at Wealth Management Americas.
Other income
Other income decreased to CHF 692 million from CHF 4,341
million. The main driver was the sale of our 20.7% stake in
Julius Baer during 2007, which gave rise to the recognition
in 2007 of a CHF 1,950 million pre-tax gain, attributed to
the Corporate Center. 2008 included a gain of CHF 168 mil-
lion from the sale of our stake in Adams Street Partners and
a gain of CHF 360 million on the sale of our stake in Bank of
China, partly offset by losses of CHF 192 million due to cur-
rency translation differences on partial disposals of an invest-
ment in a consolidated investment fund.
Operating expenses
Total operating expenses were down 19% to CHF 28,555
million from CHF 35,463 million. The decline was mainly due
to significantly reduced variable compensation, partly offset
by provisions for auction rate securities and the provision
made in connection with the US cross-border case.
Personnel expenses
Personnel expenses decreased 36% to CHF 16,262 million
from CHF 25,515 million. This was primarily due to lower ac-
cruals on variable compensation, mainly in the Investment
Bank, as well as lower salary costs due to reduced personnel
levels. Full-year results for 2007 included accruals for share-
based compensation for performance during the year. These
were not reflected in full-year 2008 as they are being amor-
tized over the vesting period of these awards starting with
2009.
Contractors’ expenses, at CHF 423 million, were down
33% from 2007. This was due to a lower number of con-
tractors employed, mainly at the Investment Bank. Insurance
and social security contributions declined 45% to CHF 706
million in 2008, driven by reduced variable compensation.
Contributions to retirement benefit plans increased CHF 4
million to CHF 926 million as changes in contributions to
various plans largely offset each other. At CHF 2,000 million
in 2008, other personnel expenses increased 2%, mainly
due to severance payments relating to the reduction in per-
sonnel levels.
General and administrative expenses
At CHF 10,498 million, general and administrative expenses
increased CHF 2,069 million from CHF 8,429 million. This
increase was mainly due to provisions of CHF 1,464 million
related to auction rate securities, the provision of CHF 917
million made in connection with the US cross-border case
and restructuring charges. These offset cost reductions in all
other categories during 2008. In absolute terms, the largest
reductions came from lower travel and entertainment ex-
penses, reduced costs from outsourcing of IT and other ser-
vices and lower marketing and public relations expenses.
Depreciation, amortization and impairment of goodwill
Depreciation of property and equipment declined CHF 2 mil-
lion to CHF 1,241 million. Amortization of intangible assets
declined to CHF 213 million from CHF 276 million.
A goodwill impairment charge of CHF 341 million was
recorded in 2008 relating to the Investment Bank’s exit from
the municipal securities business. There was no goodwill im-
pairment charge for full-year 2007.
Income tax
We recognized an income tax benefit in the income state-
ment of CHF 6,837 million for 2008, which mainly reflects
the CHF 6,126 million impact from the recognition of incre-
mental deferred tax assets on available tax losses.
The incremental deferred tax assets mainly relate to Swiss
tax losses incurred during 2008, primarily due to the write-
down of investments in US subsidiaries, but was reduced by
a decrease in the deferred tax assets recognized for US tax
losses.
The Swiss tax losses can be utilized to offset taxable in-
come in Switzerland arising in the seven years following the
year in which the losses are incurred.
We recognized a net income tax expense of CHF 1,369
million for full-year 2007.
43
Strategy, performance and responsibility
Financial performance
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Net income recognized directly in equity, net of tax
Revaluation reserve from step acquisitions, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Treasury shares
Equity attributable to UBS shareholders
Equity attributable to minority interests
Total equity
Total liabilities and equity
44
31.12.09
31.12.08
31.12.08
% change from
20,899
46,574
63,507
116,689
188,037
44,221
421,694
10,223
306,828
81,757
5,816
870
6,212
11,008
8,868
7,336
32,744
64,451
122,897
224,648
271,838
40,216
854,100
12,882
340,308
5,248
6,141
892
6,706
12,935
8,880
9,931
1,340,538
2,014,815
65,166
7,995
64,175
47,469
409,943
112,653
410,475
8,689
131,352
33,986
125,628
14,063
102,561
62,431
851,864
101,546
465,741
10,196
197,254
42,998
1,291,905
1,974,282
356
34,786
(4,875)
38
11,751
(2)
(1,040)
41,013
7,620
48,633
293
25,250
(4,335)
38
14,487
(46)
(3,156)
32,531
8,002
40,533
1,340,538
2,014,815
(36)
(28)
(48)
(48)
(31)
10
(51)
(21)
(10)
(5)
(2)
(7)
(15)
0
(26)
(33)
(48)
(43)
(37)
(24)
(52)
11
(12)
(15)
(33)
(21)
(35)
22
38
(12)
0
(19)
96
67
26
(5)
20
(33)
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(cid:59)(cid:71)(cid:67)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)
(cid:20)(cid:20)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:27)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:10)(cid:24)(cid:24)(cid:11)
(cid:25)(cid:19)
(cid:10)(cid:19)(cid:24)(cid:25)(cid:11)
(cid:10)(cid:26)(cid:18)(cid:11)
(cid:19)(cid:14)(cid:21)(cid:22)(cid:19)
(cid:10)(cid:22)(cid:21)(cid:20)(cid:11)
(cid:20)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:20)(cid:18)(cid:18)(cid:26)
(cid:46)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)
(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)
(cid:40)(cid:75)(cid:80)(cid:16)(cid:2)(cid:43)(cid:80)(cid:88)(cid:16)(cid:2)(cid:67)(cid:72)(cid:85)(cid:17)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:20)(cid:18)(cid:18)(cid:27)
(cid:50)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)
(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
31.12.09 vs. 31.12.08:
Our total assets stood at CHF 1,341 billion on 31 December
2009, down CHF 674 billion (33%) from CHF 2,015 billion
on 31 December 2008. These shifts were due to significant
reductions in replacement values (RVs) on both sides of the
balance sheet, as market movements drove down positive
replacement values by CHF 432 billion to CHF 422 billion
and negative replacement values by CHF 442 billion to CHF
410 billion. Excluding positive replacement values, our total
assets dropped CHF 242 billion in 2009. Collateral trading
assets fell by CHF 167 billion to CHF 180 billion, trading
port folio assets fell by CHF 80 billion to CHF 232 billion, and
lending assets fell by CHF 66 billion to CHF 385 billion. These
declines were partly offset by an increase in financial invest-
ments available-for-sale, which grew by CHF 77 billion to
CHF 82 billion.
Currency effects for 2009 included a strengthening of the
Swiss franc against the Japanese yen, US dollar and euro
while the Swiss franc weakened against UK sterling. These
effects deflated the balance sheet, excluding positive re-
placement values, by CHF 10 billion, implying an underlying
assets reduction of effectively CHF 231 billion.
Excluding positive replacement values, the Investment
Bank significantly reduced its balance sheet assets by CHF
258 billion during 2009 to CHF 992 billion. Global Asset
Management’s balance sheet decreased by CHF 4 billion to
CHF 20 billion. Wealth Management Americas’ balance sheet
increased by CHF 14 billion to CHF 53 billion and the Corpo-
rate Center’s balance sheet increased by CHF 8 billion to CHF
27 billion. The balance sheet size of Wealth Management &
Swiss Bank remained relatively stable at CHF 248 billion.
Lending and borrowing
CHF 47 billion, related to lower variation margins deposited
for derivative instruments. Loans to customers decreased
CHF 33 billion to CHF 307 billion. The CHF 21 billion de-
crease in loans in the Investment Bank was spread across all
major products, including fixed-term loans, which were part-
ly reduced due to the final transfer under the SNB transac-
tion in early April, and lower variation margins deposited for
derivative instruments. The loan book of Wealth Manage-
ment & Swiss Bank declined by CHF 9 billion, with the major-
ity of the decline in lombard lending.
(cid:20)(cid:22)(cid:16)(cid:23)
Borrowing
The reduction of the Investment Bank’s assets led to lower
funding needs. Overall, unsecured borrowing declined by
CHF 171 billion to CHF 720 billion. Interbank borrowing
(Due to banks) was CHF 65 billion on 31 December 2009,
down CHF 60 billion from 31 December 2008 due to asset
reductions and decreased variation margins for derivative
instruments. Money market paper issuance was CHF 52 bil-
lion in 2009, a reduction of CHF 60 billion from the prior
year, as we decreased our reliance on these funding sources
in line with our overall lower funding needs. Customer de-
posits (Due to customers) amounted to CHF 410 billion, a
decrease of CHF 55 billion for the year, or CHF 51 billion, on
a currency-adjusted basis. Wealth Management & Swiss
Bank client deposits declined CHF 11 billion with reductions
in fixed deposits and fiduciary investments and was partially
offset by inflows / shifts into current accounts, savings and
personal accounts and call deposits. Investment Bank depos-
its declined CHF 47 billion, and were mainly driven by lower
business funding needs, a decline in the prime brokerage
business and lower variation margins received for derivative
instruments. Long-term debt declined by CHF 6 billion to
CHF 80 billion, mainly related to the conversion by the Swiss
Confederation of the MCN issued in December 2008, which
resulted in a shift of long-term debt to equity attributable to
UBS shareholders. Financial liabilities designated at fair value
stood at CHF 113 billion on 31 December 2009, an increase
of CHF 11 billion from 31 December 2008.
➔ Refer to “Note 26 Capital increases and mandatory
convertible notes” in the “Financial information” section
of this report for more information
➔ Refer to “Liquidity and funding management” section
of this report for more information on long-term debt
issuance
Repurchase / reverse repurchase agreements and
securities borrowing / lending
Lending
Cash and balances with central banks was CHF 21 billion on
31 December 2009, a decrease of CHF 12 billion from the
prior year-end, due to a decline in overnight deposits with
central banks. Due from banks decreased CHF 18 billion to
The secured lending on the asset side of the balance sheet
consisting of the sums of cash collateral on securities bor-
rowed and reverse repurchase agreements declined to CHF
180 billion on 31 December 2009. The CHF 167 billion de-
cline occurred almost entirely in the Investment Bank, partly
45
Strategy, performance and responsibility
Financial performance
due to a strategic shift in the composition of our liquidity
reserve into debt instruments (see “Financial investments
available-for-sale” below) and the matched book was re-
duced as part of its overall balance sheet reduction. The
matched book is a repurchase agreement portfolio com-
prised of assets and liabilities with equal maturities and
equal value so that the market risks substantially cancel each
other out. Furthermore, as part of the Investment Bank’s bal-
ance sheet reduction measures, its trading short positions
were reduced CHF 15 billion, which resulted in lower short-
coverings via reverse repurchase agreements and securities
borrowing transactions.
A significant amount of trading assets are funded via re-
purchase agreements, so, in addition to the matched book
reduction, the yearly decrease in trading assets also contrib-
uted to the drop in repurchase agreements. These reduc-
tions are reflected on the liability side of the balance sheet,
where repurchase agreements and securities lent against
cash collateral declined CHF 44 billion, standing at CHF 72
billion on 31 December 2009.
Trading portfolio
Further reductions were achieved in the trading portfolio,
which declined CHF 80 billion during 2009. At the end of
2009, the trading portfolio stood at CHF 232 billion. The
majority of the decrease related to the Investment Bank’s
overall balance sheet reductions, including USD 6.6 billion of
illiquid assets transferred to the SNB StabFund. Money mar-
ket paper was reduced by CHF 46 billion, partly related to
the rebalancing of our liquidity reserve. Other debt instru-
ments decreased by CHF 33 billion and traded loans de-
creased by CHF 6 billion. These decreases were partially off-
set by precious metals which increased by CHF 7 billion.
Replacement values
The positive and the negative replacement values (RVs) of
derivative instruments decreased by CHF 432 billion (51%)
and CHF 442 billion (52%), respectively, ending the year at
CHF 422 billion and CHF 410 billion, mainly due to move-
ments in interest rates, credit spreads and currencies.
Decreases in positive and negative RVs occurred in inter-
est rate contracts, which dropped by CHF 160 billon and
CHF 165 billion, mainly due to upward shifts in interest rate
curves across all major currencies, specifically the US dollar,
and a slight reduction in underlying contract volumes.
Foreign exchange contracts declined by CHF 124 billion
(positive RVs) and CHF 126 billion (negative RVs) mainly due
to currency movements, which outweighed the slight in-
crease in notional values of the underlying contract volumes.
Positive and negative RVs of credit derivative contracts
declined by CHF 119 billion and CHF 114 billion respectively,
due to a tightening of credit spreads and a reduction of no-
tional values by approximately one third, largely related to
trade compression and “tear-up” initiatives in 2009.
Lastly, positive and negative RVs of commodity, including
precious metals contracts, declined by CHF 19 billion and
CHF 18 billion, and equity / index contracts by CHF 10 billion
and CHF 19 billion, respectively.
Financial investments available-for-sale
Financial investments available-for-sale grew by CHF 77 bil-
lion to CHF 82 billion in 2009. The increase is mainly due to
our strategic decision to rebalance our liquidity reserve which
led to a shift from reverse repurchase agreements and trad-
ing portfolio (see above) into debt instruments available-
for-sale. These instruments include high-quality liquid short-
term securities issued by governments and government-con-
trolled institutions in various currencies, mainly the US dollar
and euro.
Shareholders’ equity
On 31 December 2009, Equity attributable to UBS share-
holders was CHF 41.0 billion, representing an increase of
CHF 8.5 billion compared with 31 December 2008. The in-
crease in 2009 reflects the CHF 3.8 billion of shareholders’
equity the firm generated through our share placement in
the second quarter and CHF 6.7 billion from the conversion
by the Swiss Confederation in August 2009 of the MCNs
issued in December 2008, and was offset by the Group’s
full-year loss of CHF 2.7 billion.
➔ Refer to the “Shares and capital instruments” section of
this report for more information
46
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Off-balance sheet
Off-balance sheet arrangements
Off-balance sheet arrangements include purchased and re-
tained interests and derivatives as well as other involvements
in non-consolidated entities and structures originated by us
or set up by third parties.
In the normal course of business, we also enter into ar-
rangements that, under IFRS, lead to either de-recognition of
financial assets and liabilities for which we have transferred
substantially all risks and rewards (financial assets), or for
which the financial liabilities are extinguished, or the non-rec-
ognition of financial assets (and liabilities) received for which
we have not assumed the related risks and rewards (financial
assets) and / or did not become party to the contractual provi-
sions of the financial instruments. We recognize these types
of arrangements on the balance sheet to the extent of its in-
volvement, which, for example, may be in the form of deriva-
tives, guarantees, financing commitments or servicing rights.
When we, through these arrangements, incur an obliga-
tion or become entitled to an asset, we recognize them on
the balance sheet, with the resulting loss or gain recorded in
the income statement or equity (other comprehensive in-
come). It should be noted that in many instances the amount
recognized on the balance sheet does not represent the full
gain or loss potential inherent in such arrangements. Gener-
ally, these arrangements either meet the financial needs of
customers or offer investment opportunities through entities
that are not controlled by us.
The following paragraphs discuss several distinct areas of
off-balance sheet arrangements. Additional disclosure on
certain areas of off-balance sheet arrangements can be
found in other sections of this report as indicated in the
“Disclosure overview” table.
Risk positions
Our risk concentrations and other relevant risk positions are
disclosed in detail in the audited parts of the “Risk manage-
ment and control” section of this report. These positions in-
clude monoline insurers and student loan auction rate secu-
rities. The quantitative summary about each of these risk
positions includes exposures of on- and off-balance sheet
arrangements.
The importance and the potential impact of such posi-
tions (with respect to liquidity, capital resources or market
and credit risk support), including off-balance sheet struc-
tures, are also described in the “Risk and treasury manage-
ment” section of this report.
Liquidity facilities and similar obligations
On 31 December 2009 and 31 December 2008, we had no
significant exposure through liquidity facilities and guaran-
tees to structured investment vehicles, conduits and other
types of special purpose entities (SPEs). Losses resulting from
such obligations were not significant in 2009 and 2008.
Non-consolidated securitization vehicles and collateralized
debt obligations
Up to and including 2008, we sponsored the creation of
SPEs that facilitate the securitization of acquired residential
and commercial mortgage loans, other financial assets and
Off-balance sheet arrangements, risks,
consolidation and fair value measurements
Contractual obligations
Credit guarantees, performance guarantees, undrawn irrevocable
credit facilities, and similar instruments
Derivative financial instruments
Credit derivatives
Leases
Disclosure in the annual report
Strategy, performance and responsibility, section “Off-balance sheet”
Strategy, performance and responsibility, section “Off-balance sheet”
Financial information, “Note 23 Derivative instruments and hedge accounting”
Risk and treasury management, section “Basel II Pillar 3 disclosures”
Financial information, “Note 23 Derivative instruments and hedge accounting”
Risk and treasury management, section “Basel II Pillar 3 disclosures”
Financial information, “Note 25 Operating lease commitments”
Non-consolidated securitization vehicles – non-agency transactions
Strategy, performance and responsibility, section “Off-balance sheet”
Support to non-consolidated investment funds
Securitizations (banking book only)
Risk concentrations
Credit risk information
Market risk information
Liquidity risk information
Consolidation
Fair value measurements
Strategy, performance and responsibility, section “Off-balance sheet”
Risk and treasury management, section “Basel II Pillar 3 disclosures”
Risk and treasury management, section “Risk concentrations”
Risk and treasury management, section “Credit risk”
Risk and treasury management, section “Market risk”
Risk and treasury management, section “Liquidity and funding management”
Financial information, “Note 1 Summary of significant accounting policies”
Financial information, “Note 27 Fair value of financial instruments”
47
Strategy, performance and responsibility
Financial performance
related securities. We also securitized customers’ debt obli-
gations (a collateralized debt obligation (CDO) typically re-
fers to a security that is collateralized by a pool of bonds,
loans, equity, derivatives or other assets) in transactions in-
volving SPEs which issued CDOs. A securitization transaction
of this kind generally involves the transfer of assets into a
trust or corporation in return for beneficial interests in the
form of securities. Financial assets held by such trusts and
corporations are no longer reported in our consolidated
financial statements once their risks and rewards are trans-
ferred to a third-party, e.g. in a sales transaction.
➔ Refer to “Note 1 Summary of significant accounting
policies” in the “Financial information” section of this
report for more information about our accounting policies
regarding securitization activities
In 2009, we did not sponsor the creation of SPEs that fa-
cilitated the securitization of acquired residential and com-
mercial mortgage loans, and did not securitize CDOs in
transactions involving SPEs. In 2008, only few of such secu-
ritization structures were originated. Certain retained inter-
ests relating to 2007 and earlier issuances (mainly instru-
ments linked to the US mortgage market) could not be sold
in 2008 and 2007 and continue to be retained in 2009
due to illiquid markets. However, the volume and size of re-
tained interests are significantly reduced at 31 December
2009, mainly due to the following actions:
– sale of positions to the SNB StabFund owned and con-
trolled by the Swiss National Bank in 2009 and in 2008
(total volume of USD 38.7 billion; 2009: USD 22.2 billion;
2008: USD 16.4 billion);
– sale of a portfolio of US residential mortgage-backed
securities for proceeds of USD 15 billion to the RMBS
Opportunities Master Fund, LP, an entity managed by
BlackRock Financial Management, Inc.;
– substantial downsizing of our residual risk positions
within our FICC business in 2009 and 2008, which in-
cluded a significant reduction of real estate and securiti-
zation activities.
Our involvements in non-consolidated securitization vehi-
cles and CDOs disclosed in this section are typically managed
on a portfolio basis alongside hedges and other offsetting
financial instruments. The “Non-consolidated securitization
Non-consolidated securitization vehicles and collateralized debt obligations – non-agency transactions 1
CHF billion
Total SPE assets
Involvements in non-consolidated SPEs held by UBS
As of 31 December 2009
Originated by UBS 3
CDOs and CLOs
Residential mortgage
Commercial mortgage
Other ABS
Securitizations
Residential mortgage
Commercial mortgage
Other ABS
Total
Not originated by UBS
CDOs and CLOs
Residential mortgage
Commercial mortgage
Other ABS
Securitizations
Residential mortgage
Commercial mortgage
Other ABS
Total
Original
principal
outstanding
Current
principal
outstanding
Delinquency
amounts
Purchased and
retained interests
held by UBS 2
Derivatives held by UBS
Carrying value
Fair value
Nominal value
6.3
0.0
0.0
5.7
21.3
1.8
35.1
130.0
7.6
78.6
872.5
656.9
692.8
4.1
0.0
0.0
2.3
21.1
0.4
27.9
59.4
3.3
38.8
338.8
552.6
521.2
2,438.4
1,514.1
0.0
0.0
0.0
0.2
0.9
0.1
1.2
9.7
0.0
0.1
69.7
21.7
19.8
121.0
0.9
0.0
0.0
0.0
0.0
0.0
0.9
2.8
0.7
3.9
1.8
3.8
3.5
16.5
0.8
(0.6)
0.0
0.0
0.0
0.0
0.2
0.1
0.2
0.6
(1.8)
0.0
0.0
(0.9)
2.6
0.7
0.1
3.9
0.0
3.2
10.5
0.1
0.9
2.7
7.6
0.0
0.0
11.3
1 Includes all purchased and retained interests and derivatives held by UBS which are considered involvements in non-consolidated securitization vehicles and CDOs. This implies, for example, that UBS
would include an insignificant involvement in such a vehicle into the table (under “Involvements in non-consolidated SPEs held by UBS”), whereas the pool assets held by such vehicle would be included
under “Total SPE assets”. The size of the pool assets of such vehicle can be very high, but relates to third parties, if UBS’s involvement is insignificant. The “Total SPE assets” include information which UBS
could gather after making exhaustive efforts but excludes data which UBS was unable to receive (in sufficient quality), especially for structures originated by third parties. 2 Includes loans and receivables
measured at amortized cost in the amount of CHF 0.9 billion originated by UBS and CHF 11.9 billion for structures not originated by UBS and trading assets measured at fair value in the amount of CHF
4.6 billion for structures not originated by UBS. 3 Structures originated by UBS include transactions within the scope of US GAAP, Financial Accounting Standard 140, paragraph 17.
48
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vehicles and collateralized debt obligations – non-agency
transactions” table does not include these offsetting factors
and does not represent a measure of risk.
➔ Refer to the “Risk management and control” section of this
report for information on our risk positions as well as the
BlackRock transaction
Our involvement in vehicles whose residential and com-
mercial mortgage securities are backed by an agency of the
US government – the Government National Mortgage As-
sociation, the Federal National Mortgage Association, or the
Federal Home Loan Mortgage Corporation – is not included
in the abovementioned table, due to the comprehensive in-
volvement of the US government in these organizations and
their significantly lower risk profile.
The numbers in the table are different from the numbers
disclosed on securitizations in the “Basel II Pillar 3” section of
this report, predominantly due to different scopes (for ex-
ample Pillar 3 disclosures are on banking book positions only,
and the consolidation status is different for several vehicles),
and to some extent due to a different measurement basis.
Consolidation of securitization vehicles and CDOs
We continually evaluate whether triggering events require
the reconsideration of the consolidation conclusions made
at the inception of our involvement with securitization vehi-
cles and CDOs.
During 2009 and 2008, due to adverse market condi-
tions, various non-consolidated vehicles in which we held a
majority stake in super senior securities were declared to
have breached default provisions pursuant to the entities’
governing documents. In these instances, various contingent
decision-making rights became immediately vested in the
super-senior class holders. As a consequence, we deter-
mined that in certain instances, the rights arising from such
events caused us to be in control of these entities, and af-
fected needed to be consolidated. The consolidation had no
material incremental impact on our income statement and
balance sheet.
➔ Refer to “Note 1 Summary of significant accounting
policies” in the “Financial information” section of this
report for further information on consolidation of
securitization vehicles and CDO
Risks resulting from non-consolidated securitization
vehicles and CDOs
The “Risk management and control” section of this report
provides detailed disclosure of our main risk concentrations,
as well as risks associated with our involvement in consoli-
dated and non-consolidated US mortgage securitization ve-
hicles and CDOs.
Support to non-consolidated investment funds
In the ordinary course of business, we issue investment
certificates to third parties that are linked to the perfor-
mance of non-consolidated investment funds. Such invest-
ment funds are originated either by us or by third parties. For
hedging purposes, we generally invest in the funds to which
our obligations from the certificates are linked. Risks result-
ing from these contracts are considered minimal, as the full
performance of the funds is passed onto third parties.
In 2009 and 2008, as a result of the financial markets
crisis which caused declining asset values, market illiquidity
and de-leveraging by investors, we supported several non-
consolidated investment funds that we manage in our
wealth and asset management businesses. We provided this
support primarily to facilitate redemption requests of fund
investments by clients. Material support was provided in the
form of collateralized financing, direct acquisition of fund
units and purchases of assets from the funds. The support
we provided to these investment funds was made where
there were regulatory or other legal requirements or other
exceptional considerations.
In 2009, we acquired units from non-consolidated funds
that we manage in the amount of CHF 0.2 billion. Guaran-
tees granted to third parties in the context of such non-con-
solidated funds and collateralized financing provided to such
funds were immaterial as of 31 December 2009. Impair-
ments on fund units held accounted as financial investments
available-for-sale amounted to CHF 0.2 billion in 2009; other
losses incurred as a result of fund support were immaterial in
2009.
During 2008, material support was provided as follows:
fund units were acquired in the amount of CHF 0.8 billion;
assets purchased from such funds amounted to CHF 0.7 bil-
lion; and fully collateralized financing provided to the funds
was CHF 2.4 billion as of 31 December 2008. Guarantees
granted to third-parties in the context of these non-consoli-
dated funds were immaterial as of 31 December 2008. Loss-
es incurred in 2008 as a result of such fund support were
immaterial.
Acquired fund units and fund assets are generally ac-
counted for as financial investments available-for-sale, and
are included in the respective risk disclosures in the “Risk
management and control” section of this report. Financing
we provided as of 31 December 2008 was included in the
credit risk disclosures.
In addition, in the ordinary course of business, our wealth
and asset management businesses provide short-term fund-
ing facilities to investment funds that we manage. This
bridges time lags in fund unit redemptions and subscrip-
tions. These bridge financings did not incur and are not ex-
pected to incur material losses.
Depending on market developments in 2010 and be-
yond, it is possible that we may decide to provide financial
support to one or more of our investment funds. Such deci-
sions will be taken on a case-by-case basis depending upon
market and other circumstances at the time. The risks in-
curred by providing such support will depend on the type of
49
Strategy, performance and responsibility
Financial performance
support and the riskiness of the assets held by the fund(s) in
question. If we were to provide extensive financial support
to some of our investment funds, losses incurred as a result
of such support could become material.
Guarantees and similar obligations
In the normal course of business we issue: various forms of
guarantees; commitments to extend credit; standby and
other letters of credit to support our customers; commit-
ments to enter into repurchase agreements; note issuance
facilities; and revolving underwriting facilities. With the ex-
ception of related premiums, these guarantees and similar
obligations are kept as off-balance sheet unless a provision
to cover probable losses is required.
On 31 December 2009, the exposure to credit risk (gross
values less sub-participations) for credit guarantees and sim-
ilar instruments was CHF 16.0 billion compared with CHF
18.5 billion one year earlier. Fee income from issuing guaran-
tees is not material to total revenues.
Guarantees represent irrevocable assurances, subject to
the satisfaction of certain conditions, that we will make pay-
ment in the event that customers fail to fulfill their obliga-
tions to third parties. We also enter into commitments to ex-
tend credit in the form of credit lines that are available to
secure the liquidity needs of customers but have not yet been
drawn on by them, the majority of which range in maturity
from one month to five years. If customers fail to meet their
obligations, our maximum amount at risk is the contractual
amount of these instruments. The risk is similar to the risk
involved in extending loan facilities and is subject to the same
risk management and control framework. For the year ended
31 December 2009, we recognized net credit losses of CHF 4
million; and for the years ended 31 December 2008 and
2007, we recognized net credit loss re coveries of CHF 18 mil-
lion and CHF 3 million, respectively, related to obligations in-
curred for contingencies and commitments. Provisions recog-
nized for guarantees, documentary credits and similar
instruments were CHF 90 million as of 31 December 2009
and CHF 31 million as of 31 December 2008.
We enter into partial sub-participations to mitigate the
risks from commitments and contingencies. A sub-participa-
tion is an agreement by another party to take a share of the
loss in the event that the obligation is not fulfilled by the
obligor and, where applicable, to fund a part of the credit
facility. We retain the contractual relationship with the obli-
gor, and the sub-participant has only an indirect relationship.
We will only enter into sub-participation agreements with
banks to which we ascribe a credit rating equal to or better
than that of the obligor.
Furthermore, we provide representations, warranties and
indemnifications to third parties in connection with numer-
ous transactions, such as asset securitizations.
Clearinghouse and future exchange memberships
We are a member of numerous securities and futures ex-
changes and clearinghouses. In connection with some of
those memberships, we may be required to pay a share of
the financial obligations of another member who defaults,
Commitments
The table below shows the maximum committed amount of commitments.
CHF million
Credit guarantees and similar instruments
Performance guarantees and similar instruments
Documentary credits
Total commitments
Undrawn irrevocable credit facilities
50
31.12.09
Sub-
participations
(222)
(582)
(288)
(1,092)
(1,793)
Gross
11,180
3,484
2,406
17,070
59,328
Net
10,958
2,902
2,117
15,977
57,534
Gross
13,124
3,596
2,979
19,699
60,316
31.12.08
Sub-
participations
(344)
(446)
(415)
(1,205)
(1,920)
Net
12,780
3,150
2,564
18,494
58,396
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or otherwise be exposed to additional financial obligations
as a result. While the membership rules vary, obligations
generally would arise only if the exchange or clearinghouse
had exhausted its resources. We consider the probability of a
material loss due to such obligations to be remote.
31 December 2008 was CHF 0.3 billion and CHF 0.5 billion,
respectively. Equity underwriting commitments in the Invest-
ment Bank at 31 December 2009 and 31 December 2008
amounted to CHF 1.7 billion and CHF 0.4 billion, respectively.
Swiss deposit insurance
Swiss banking law and the deposit insurance system require
Swiss banks and securities dealers to jointly guarantee an
amount of up to CHF 6 billion for privileged client deposits
in the event that a Swiss bank or securities dealer becomes
insolvent. For the period from 1 July 2009 to 30 June 2010,
FINMA estimates our share in the deposit insurance system
to be CHF 1.0 billion. The deposit insurance is a guarantee
and exposes us to additional risk which is not reflected in the
“Maximum exposure to credit risk” table in “Note 29c Mea-
surement categories of financial assets and financial liabili-
ties” in the “Financial information” section of this report. At
31 December 2009, we consider the probability of a mate-
rial loss from our obligation to be remote.
Private equity funding commitments and equity
underwriting commitments
We enter into commitments to fund external private equity
funds and investments, which typically expire within five to
ten years. The commitments generally require us to fund ex-
ternal private equity funds and investments at market value
at the time the commitments are drawn. The amount com-
mitted to fund these investments at 31 December 2009 and
Contractual obligations
The table below includes contractual obligations as of 31 De-
cember 2009.
All contracts included in this table, with the exception of
purchase obligations (those where we are committed to
purchasing determined volumes of goods and services), are
either recognized as liabilities on our balance sheet or, in
the case of operating leases, disclosed in “Note 25 Operat-
ing lease commitments” in the “Financial information” sec-
tion of this report.
The following liabilities are recognized on the balance
sheet and excluded from the table: provisions (as disclosed
in “Note 21 Provisions and litigation” in the “Financial infor-
mation” section of this report), current and deferred tax
liabilities (refer to “Note 22 Income taxes” in the “Financial
information” section of this report for more information),
liabilities to employees for equity participation plans, settle-
ment and clearing accounts and amounts due to banks and
customers.
Within purchase obligations, the obligation to employees
under the mandatory notice period is excluded (this is the
period in which we must pay employees leaving the firm
contractually-agreed salaries).
Contractual obligations
CHF million
Long-term debt
Capital lease obligations
Operating leases
Purchase obligations
Other liabilities
Total
< 1 year
42,759
57
989
302
538
44,645
Payment due by period
1–3 years
3 –5 years
46,796
83
1,655
113
5
48,652
31,515
0
1,214
39
0
> 5 years
71,357
0
2,113
23
0
32,768
73,493
51
Strategy, performance and responsibility
Financial performance
Cash flows
2009
2008
On 31 December 2009, the level of cash and cash equiva-
lents declined to CHF 165.0 billion, down CHF 14.7 billion
from CHF 179.7 billion at the end of 2008.
On 31 December 2008, the level of cash and cash equiva-
lents rose to CHF 179.7 billion, up CHF 30.6 billion from CHF
149.1 billion at the end of 2007.
Operating activities
Operating activities generated a cash inflow of CHF 54.5 bil-
lion in 2009 compared with a cash inflow of CHF 77.0 billion
in 2008. Operating cash inflows (before changes in operat-
ing assets and liabilities and income taxes paid) totaled CHF
9.9 billion in 2009, an increase of CHF 81.5 billion from
2008. Net profit improved by CHF 18.6 billion compared
with 2008.
Cash inflow of CHF 95.1 billion was generated by the net
decrease in operating assets, while a cash outflow of CHF
50.0 billion was reflected in the operating liabilities. Net Pay-
ments to tax authorities were CHF 0.5 billion in 2009, down
CHF 0.4 billion from a year earlier.
Operating activities
Operating activities generated a cash inflow of CHF 77.0 bil-
lion in 2008 compared with a cash outflow of CHF 52.1 billion
in 2007. Operating cash outflows (before changes in operat-
ing assets and liabilities and income taxes paid) totaled CHF
71.7 billion in 2008, a decrease of CHF 67.9 billion from 2007.
Net profit decreased CHF 16.0 billion compared with 2007.
Cash inflow of CHF 394.1 billion was generated by the
net decrease in operating assets, while a cash outflow of
CHF 244.5 billion was reflected in the operating liabilities.
The increase in cash was used to fund the operating liabili-
ties. Net payments to tax authorities were CHF 0.9 billion in
2008, down CHF 2.8 billion from a year earlier.
Investing activities
Net cash flow used in investing activities was CHF 20.6 bil-
lion compared with an overall cash outflow of CHF 1.7 bil-
lion in 2008.
The net cash outflow for the purchase of property and
equipment was CHF 0.7 billion. The net investment of fi-
nancial investments available-for-sale was CHF 20.1 billion,
an increase due to our strategic decision to rebalance our
liquidity reserve which led to a shift from reverse re purchase
agreements and trading portfolio. Disposals of subsidiaries
and associates in 2009 generated a cash inflow of CHF 0.3
billion mainly related to the sale of UBS Pactual.
➔ Refer to “Note 36 Business combinations” and “Note 38
Reorganizations and disposals” in the “Financial infor-
mation” section of this report for more information about
our investing activities
Financing activities
In 2009, financing activities generated cash outflows of
CHF 54.2 billion. This reflected the net repayment of money
market paper of CHF 60.0 billion, the issuance of CHF 67.1
billion in long-term debt and long-term debt repayments
which totaled CHF 65.0 billion. That outflow was partly off-
set by inflows attributable to capital issuances of CHF 3.7
billion. In 2008, we had a net cash outflow of CHF 5.6 billion
from financing activities.
Investing activities
Net cash flow used in investing activities was CHF 1.7 billion
compared with an overall cash inflow of CHF 2.8 billion in
2007. The net cash outflow for investments in subsidiaries
and associates was CHF 1.5 billion, compared with CHF 2.3
billion in 2007, due to the acquisitions of Caisse Centrale de
Réescompte Group and Vermogens Groep and a net in-
crease in the purchase of property and equipment of CHF
1.1 billion. The net investment of financial investments avail-
able-for-sale was CHF 0.7 billion, whereas in 2007 divest-
ments generated cash inflows of CHF 6.0 billion. Disposals
of subsidiaries and associates in 2008 generated a cash in-
flow of CHF 1.7 billion.
Financing activities
In 2008, financing activities generated cash outflows of CHF
5.6 billion. This reflected the net repayment of money mar-
ket paper of CHF 40.6 billion and the issuance of CHF 103.1
billion in long-term debt – the latter significantly outpacing
long-term debt repayments, which totaled CHF 92.9 billion.
That outflow was partly offset by inflows attributable to cap-
ital issuances of CHF 23.1 billion, including CHF 15.6 billion
from rights issues and CHF 7.6 billion from MCNs. In 2007,
UBS had a net cash inflow of CHF 74.6 billion from financing
activities. The difference between the two years was mainly
due to the fact that net long-term debt repayments and
money market papers repaid increased by CHF 111.6 billion
and were only partially compensated by the cash increase
due to the capital issuances.
52
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Strategy, performance and responsibility
Our employees
Our employees
We rely on the excellence, inspiration, client focus and commitment of our employees to meet clients’ needs
and build our businesses. For employees, the breadth of our businesses, global career opportunities and a col-
laborative, performance-oriented culture offer a platform for individual success.
Investing in our employees
Competitive strength in the financial services industry de-
pends, more than anything else, on the expertise, talent
and commitment of a firm’s employees. Therefore, engag-
ing, developing and retaining a high-impact workforce is a
priority for UBS. In 2009, we began to rebuild our leader-
ship ranks in every business division. We also continued to
invest in our workforce to help ensure we have the range of
skills and experience necessary to meet client needs now,
and to grow our businesses when market conditions im-
prove.
Our largely decentralized Human Resources (HR) function
was restructured in 2009 to be simpler, leaner and more
concretely focused on business priorities. We also imple-
mented several human capital-related initiatives in 2009 to
support the firm’s transformation, including measures to
more closely align compensation with sustainable perfor-
mance and support appropriate and controlled risk taking. In
addition, the UBS Business University, a corporate learning
and education platform, was launched in January 2010.
Our workforce
Personnel levels decreased in most businesses over the
course of the year, with the number of people employed
on 31 December 2009 at 65,233, down 12,550 or 16%
from year-end 2008. This was the result of personnel reduc-
tions in the various business divisions, as well as reductions
from the sale of UBS Pactual, UBS’s India Service Centre and
56 branches in Wealth Management Americas. Consistent
with the announcement made on 15 April 2009, we expect
personnel numbers to be reduced to approximately 65,000
in 2010. In 2009, our personnel worked in 57 countries,
with approximately 37% of our staff employed in Switzer-
land, 36% in the Americas, 16% in Europe, the Middle East
and Africa and 11% in Asia Pacific.
Internal job mobility encourages integration, collabora-
tion and business innovation, as well as individual career de-
velopment. We continued to support employee transfers
across regions and business divisions in 2009 where business
needs justified the transfers. In 2009, 910 employees moved
to roles in a different region, versus 1,285 in 2008. During
the course of the year, 993 employees transferred between
business divisions, versus 784 in 2008. Additionally, during
2009, we worked to redeploy employees who were dis-
placed in the firm’s restructuring process. Of all the new roles
in 2009, approximately 12% were sourced through internal
job postings, while another 39% were filled by employees
who found new roles within the firm through their own net-
works. To further support career development and mobility,
Individual Development Plans are encouraged for all staff. A
global career management site was relaunched in early 2010
to integrate all of the firm’s career assessment, development
and planning elements.
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(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)
(cid:58)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)
(cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:38)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)
(cid:19)(cid:2)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:16)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
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53
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(cid:19)(cid:17)(cid:21)(cid:24)
(cid:19)(cid:17)(cid:19)(cid:19)
Strategy, performance and responsibility
Our employees
Recruiting personnel
In 2009, we selectively recruited personnel in our key mar-
kets while also working to reduce costs, increase efficiency
and improve the ratio of front-office to back-office per-
sonnel. Several strategic hires were made in 2009 to acceler-
ate and support our turnaround, including the Group CEO,
Group COO, Head of Corporate Development, Head of
Wealth Management Americas and senior-level hires in
growth areas within the Investment Bank and risk manage-
ment functions.
In 2009, 433 university graduates joined UBS as part of our
undergraduate and MBA training programs. The apprentice-
ship program in Switzerland hired 300 apprentices in 2009.
Developing and sustaining a diverse workforce
A workforce of individuals from widely different back-
grounds, cultures and life experiences is indispensable in to-
day’s global business environment. In 2009, our workforce
was comprised of citizens from 150 countries. Diversity in
gender, ethnicity, age and other factors support first-hand
understanding of regional markets and segments and sen-
sitivity to local customs. Competitive advantage is also
achieved from more subtle differences in background, expe-
rience and thought. These elements provide the perspective
from which our employees can anticipate needs and gener-
ate unique solutions for our increasingly diverse client base
worldwide. Additionally, our long-term recovery will be
supported by having the best people in the right roles, and
diversity efforts help ensure that characteristics unrelated to
performance do not get in the way.
Achieving a world-class workforce of high-talent individ-
uals demands an open-minded and respectful working cul-
ture, merit-based career advancement, and a sense of indi-
vidual contribution. The scope of our diversity initiatives is
global, with regional teams translating this commitment into
action by working with local business and HR leaders. In ad-
dition, more than 20 employee networks help to build cross-
business relationships and strengthen our inclusive culture.
Over the past number of years, we have promoted diver-
sity in three stages: raising basic awareness; integrating di-
versity into the employee lifecycle through recruiting, perfor-
mance management and retention; and working to ensure
that diversity ultimately becomes a self-sustaining part of the
workplace culture. While we have made significant progress
in recent years, our efforts to further strengthen our diversity
in 2009 were sometimes impacted by the firm’s restructur-
ing, particularly when entire business or support areas were
restructured or sold. In 2009, initiatives were launched in
Europe, the US and several other regions to help create a
culture in which men and women thrive equally in their ca-
reers, where gender differences are a strength, and where
different working styles and practices allow us to improve
our service to clients. We received a 100% rating in the Hu-
man Rights Campaign Foundation’s 2010 Corporate Equality
Index (US), the Equal Opportunity for Women in the Work-
place Agency (EOWA) Employer of Choice For Women
award (Australia), and the Tokyo Labor Bureau award for
supporting the growth of future generations. We also were
shortlisted for the Disability Champion Award 2009 by the
Employers’ Forum on Disability (UK).
Gender distribution by geographical region1
On 31.12.09
Total: 24,414
6,988
4,576
25,157
6,383
28,000
21,000
14,000
9,363
7,000
15,051
3,189
3,799
0
The Americas Asia Pacific
8,966
16,191
1,905
2,671
Europe,
Middle East
and Africa
Switzerland
2,001
4,382
United
Kingdom
1HR006_e
Male
Female
1 Calculated on the basis that a person (working full-time or part-time) is considered one
headcount in this graph only. This accounts for the total UBS year-end 2009 employee number
of 67,518 in this graph, which excludes staff from UBS card center, Hotel Seepark Thun,
Wolfsberg and Widder Hotel.
Gender distribution by employee category 1
As of 31.12.09
Male
Female
Total
Officers
Non-officers
Total
Number
31,557
11,817
43,374
%
72.8
27.2
100.0
Number
10,537
13,607
24,144
%
43.6
56.4
100.0
42,094
25,424
67,518
62.3
37.7
100.0
1 Calculated on the basis that a person (working full-time or part-time) is considered one headcount in this table only. This accounts for our total year-end 2009 employee number of 67,518 in this table.
Normally, we express employee numbers in terms of full-time equivalents (FTEs), which is measured as a percentage of the standard hours normally worked by permanent full-time staff. When calculated
according to FTEs, the year-end 2009 total is 65,233.
54
28000
21000
14000
7000
0
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Performance management
Effective performance management supports and enables
the drive, commitment and consistent execution by our em-
ployees that is essential to achieving results for clients and
UBS alike. We believe that the foundation for this is an on-
going employee-manager dialogue, with demonstrable per-
formance as the basis for meritocracy. All employees there-
fore participate in a year-round performance management
process that assesses individual achievements against spe-
cific objectives. This process supports staff development,
links behavior to busi ness goals and helps ensure employees
have the skills required to meet their clients’ needs and im-
plement our strategic objectives. Assessments focus both on
achievements and on behavioral expectations that are linked
to corporate strategy and values, respectively. For example,
evaluations for all employees include an assessment of “cli-
ent focus,” but the specific behaviors required vary signifi-
cantly according to func tion, rank or role. The performance
management process for our most senior executives is es-
sentially the same as for all other employees. Achieving spe-
cific financial targets plays a significant role; leadership is
also explicitly reviewed. In 2009, we enhanced our perfor-
mance monitoring at all levels, and further strengthened our
focus on effective risk management within the overall per-
formance management framework.
➔ Refer to the “Compensation and shareholdings” section of
this report for more information on compensation and
incentives and employee share ownership
Leadership development and learning
We take a structured approach to both leadership devel-
opment and business education, understanding that these
capabilities are important factors in ensuring high-quality
client service and long-term business success. In August
2009, the GEB approved the formation of the UBS Business
University, a global corporate university that brings all educa-
tional opportunities under one virtual umbrella. Creating a
corporate university will significantly increase the efficiency
of our learning activities and processes while eliminating
duplication. It should also help to further reduce training
costs, combine and exploit the existing knowledge within
our learning organizations and leverage best practices. The
launch of the university in January 2010 marked an impor-
tant step in aligning our leadership development and learn-
ing efforts across the firm.
Leadership and business faculties are at the core of the
new learning structure. The leadership faculty focuses on
building leadership and managerial skills and on implement-
ing a common leadership strategy and culture across the
firm. The business faculty focuses on initiatives that are de-
signed to grow employees’ business skills and competencies
to best serve clients and manage risk. All learning pathways
for business-critical functions include components from le-
gal, risk and compliance, sales and advisory, and products
and finance. A single global learning platform simplifies ad-
ministration while allowing employees to plan their training
and complete e-learning modules.
We also invest in talent development and succession
planning for the most critical roles across the company. An
annual firm-wide talent review helps to identify and then
build the skills and competencies of key talent who are rec-
ognized to have leadership potential. In addition, potential
successors for senior leadership roles are identified and
tracked on a firm-wide basis.
55
Strategy, performance and responsibility
Our employees
Commitment
Meeting the needs of clients is a core objective. Our corpo-
rate values are the foundation that enables us to be a good
corporate citizen and responsible employer in addition to re-
alizing long-term profitability and business growth. These
values are integrated into corporate decision making and
people management processes as well as daily interactions
among employees.
Employee assistance
We are dedicated to assisting employees with professional
and personal matters, and to being a conscientious employ-
er. Examples of this commitment can be found in the firm’s
Employee Assistance Programs (EAPs), and in the COACH
and Social Partnership Agreement for Employees in Switzer-
land (SOVIA CH) programs in Switzerland.
EAPs are available in a number of locations globally. In
the UK, the EAP program is a confidential 24 / 7 service that
gives access to specialist support, including telephone and
face-to-face counseling. The overall UK health and wellbe-
ing program provides an on-site General Practitioner as well
as occupational health services, an on-site physiotherapist,
on-site dentist and an emergency back-up childcare and el-
dercare facility. In Switzerland, we offer professional assis-
tance for current and retired employees, as well as family
members, through our HR Social Counseling and HR Retiree
Services functions. Services include counseling for personal
issues, difficulties in the workplace, sickness, financial diffi-
culties and retirement. The EAP program in the US provides
information, referrals and confidential counseling for adop-
tion, child care, academic services, elder care and issues re-
garding work performance and personal conflicts.
The COACH transfer and severance process helps em-
ployees in Switzerland who are displaced by restructuring.
COACH advisors provide support and assistance in find-
ing new jobs, by working closely with our internal recruit-
ment center and outside employment services. During the
COACH process, employees retain full salary and benefits
and financial assistance is available for job-related training,
if needed.
Personnel below the level of director are eligible to par-
ticipate in the SOVIA CH program. SOVIA CH lays out the
terms and conditions for implementing redundancies among
employees whose jobs are subject to the Agreement on
Conditions of Employment for Bank Staff. SOVIA CH gov-
erns the requirements and procedures for internal hiring, job
transfers, and, when needed, severance. The aim is to imple-
ment necessary job cuts and operational changes in a re-
sponsible manner, making full use of our internal labor mar-
ket, and to offer targeted, relevant support and career advice
to these employees.
Employee representation
The UBS Employee Forum facilitates the open exchange of
views and information between employees and manage-
ment on pan-European issues that have the potential to
impact our performance, prospects or operations in Eu-
rope. It fulfills EU Directive 94 / 45 on the establishment of
a European Works Council. Local forums also exist in a
number of locations across Europe to address local issues
such as health and safety, changes to workplace condi-
tions, pension arrangements and consultation on collec-
tive redundancies and business transfers. The UK Employ-
ee Forum (UKEF), for example, focuses on our economic,
financial and social activities in the UK which are of con-
UBS values
Truth
Accuracy | Authenticity | Certainty
We behave with respect and
integrity | We are accurate, realistic
and accountable | We always act
fairly and abide by the law
Clarity
Ease | Simplicity | Directness
We make it easy to do business with
UBS | We are concise, precise and to
the point | We are reliable and
consistent
Performance
Achievement | Execution | Attainment
We will always give our best | We will
perform to the highest professional
standards | We will lead the market
through superior service and execution
56
cern to UK employees. The UKEF may also be used for
defining any workforce agreements affecting UK employ-
ees. It is made up of elected UK permanent employee rep-
resentatives for each business area and division that has
employees in the UK and appointed management repre-
sentatives.
In Switzerland, Employee Representation Committee
(ERC) representatives partner with management in the an-
nual salary negotiations and they are involved in employee
matters, including health and safety, social security and
pension issues. ERC employee representatives are elected to
represent the interests of employees whose work contracts
are governed by Swiss law and the Agreement on Condi-
tions of Employment for Bank Staff. The ERC also fosters
an open dialogue between management and employees
through a variety of channels and activities.
Select 2009 awards
Excellence and Innovation in Corporate Learning: Measurement
(Corporate University Xchange Awards 2009)
Top 100 Graduate Employers
(The Times High Fliers 2007–2009)
Ranked No. 8 for “Best Places to Intern: 2009”
(Bloomberg BusinessWeek 2009)
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1HR010_e
57
Strategy, performance and responsibility
Corporate responsibility
Corporate responsibility
Responsibility and sustainability were our key themes in 2009, as we continued to contend with the effects
of the major financial crisis we experienced in 2007 and 2008. We have, as detailed elsewhere in this report,
assumed responsibility to resolve key issues arising from the crisis.
In response to the lessons learned from the financial crisis and
the latest international regulatory provisions that followed
from the crisis, we have reviewed and revised important
processes, pertaining to, in particular, corporate governance,
risk management, compliance, personnel management (in-
cluding compensation and performance measurement) and
the centralization of responsibilities and competencies. These
changes are highlighted by the revision of constitutional doc-
uments such as the Code of Business Conduct & Ethics and
the UBS Values, which accentuate the crucial significance of
responsible behavior, a key driver of sustainable value for the
company and our stake holders.
As a leading financial services firm, we are interested in
the concerns and expectations of a diverse group of stake-
holders, ranging from clients, investors and employees, to
the communities in which we have a presence as well as our
regulators. With regard to corporate responsibility, in 2009,
we continued to address key stakeholder expectations and
concerns by contributing to the fight against money laun-
dering, corruption and terrorist financing (AML), executing
our environmental management program, implementing
our human rights statement and by undertaking community
investment activities. Under the guidance of the UBS Cor-
porate Responsibility Committee (CRC), a BoD committee,
various initiatives were instigated (including the drafting
of the new Code of Business Conduct & Ethics), with their
implementation continuing into 2010.
➔ Refer to www.ubs.com/responsibility for more information
on the contents of this section
Governance, strategy, and commitments
Corporate responsibility governance
The CRC is mandated to review and assess how we should
meet the existing and evolving corporate responsibility ex-
pectations of our stakeholders. The CRC thus supports the
BoD’s efforts to ensure and advance our reputation for re-
sponsible corporate conduct. Headed by the Chairman of
the BoD, the committee includes two other BoD members. It
is advised by a panel consisting of members of the GEB and
other senior managers. The members of the advisory panel
participate in committee meetings and implement its recom-
mendations.
The financial crisis has emphasized that success depends
upon behaving responsibly towards and interacting honestly
and transparently with our stakeholders. In recent meetings,
the CRC focused on lessons drawn from the crisis and rec-
ommended actions on a range of topics accordingly.
In addition to the mandate pertaining to the expectations
of our stakeholders, the CRC also monitors and reviews our
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corporate responsibility policies and regulations as well as
the implementation of our corporate responsibility activities
and commitments. The GEB is responsible for the develop-
ment of our Group and business division strategies as well as
implementing approved new strategies, including those per-
taining to corporate responsibility, while various committees
or boards are concerned with tasks and activities pertaining
to particular aspects of corporate responsibility.
One example is the Environmental & Human Rights Com-
mittee, which is made up of, among others, both Group
and divisional environmental representatives. They are re-
sponsible for overseeing the adoption of our environmental
policy and for providing guidance to the different business
divisions in their adoption of the “UBS Statement on Hu-
man Rights”. In 2009, this committee reviewed a number of
significant environmental and social issues and also initiated
the revision of our environmental policy. Endorsed by the
GEB, the revised policy was brought in line with the new
Code of Business Conduct & Ethics of UBS and continues to
embody our commitment to the environment. It seeks to
ensure that we provide clients with a range of financial
products and services that address environmental challeng-
es, identify and manage environmental risks, and are con-
tinuing to improve our environmental performance and re-
source efficiency. The policy is implemented through a
global environmental management system certified accord-
ing to ISO 14001, the international environmental manage-
ment standard.
➔ Refer to www.ubs.com/environment for more information
on our environmental and human rights governance
Led by the Head of Global AML Compliance, our efforts
to fight money laundering, corruption and the financing of
terrorism are supported by a network of expert global busi-
ness teams. We are streamlining our policies and processes
to enhance consistency between business divisions as well as
The five principles of our environmental policy
Environmental policy
Risk management
Business opportunities
In-house ecology
Certified environmental management system
Training and communication
1CR003_e
to assess threats and risks within the business. We have de-
veloped extensive policies intended to prevent, detect and
report money laundering, corruption and terrorist financing.
These policies seek to protect the firm and our reputation
from those who may intend to legitimize their ill-gotten
gains through UBS.
➔ Refer to the discussion on combating financial crime below
for more information on our AML activities
Regional diversity heads, along with senior business
managers, consider and decide on diversity / business-aligned
plans linked to regional and divisional business and talent
strategies. They are also responsible for advising and sup-
porting regional diversity boards, or their regional equiva-
lent, in assessing progress made on relevant issues. The glob-
al diversity team coordinates regional efforts and integration
into the HR process.
➔ Refer to the “Our employees” section of this report for
more information on labor standards and diversity
programs
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59
Strategy, performance and responsibility
Corporate responsibility
External commitments and initiatives
In implementing environmental and social standards and
conventions into our business practices, we benefit from
participating in various external initiatives, including the UN
Global Compact and its local network in Switzerland, the
Wolfsberg Group, the UNEP Finance Initiative, and the UN
Principles for Responsible Investment (UNPRI). In relation to
the UN Global Compact, we publicly acknowledged the sig-
nificance of the looming climate crisis by supporting the
Compact’s “Seal the Deal!” campaign calling for a fair, bal-
anced and effective post-Kyoto climate agreement. In his
testimonial for “Seal the Deal!”, UBS’s Chairman of the BoD
confirmed a cornerstone of our climate change strategy in
that we seek to help clients address risks and take advantage
of opportunities presented by climate change and the transi-
tion to a low carbon economy.
We also recently joined the Global Corporate Volunteer
Council (G-CVC), an initiative of the International Associa-
tion for Volunteer Efforts (IAVE). G-CVC is a network for
companies with leading international employee volunteer
programs, which aims to showcase best practices in corpo-
rate volunteering, and raise awareness of the impact of em-
ployee engagement in communities around the world.
External ratings, assurance and awards
Our performance and efforts were reflected in key external
ratings and rankings, which take account of sustainability is-
sues. We were named an index component for the Dow
Jones Sustainability Index (DJSI) World, and are a member of
the FTSE4Good index series. We have been a continuous
member of both indices since their inception. With regard to
the three dimensions rated for the DJSI – economic, environ-
mental, and social - we scored well in the social dimension
and are one of the financial sector’s leaders in the environ-
mental dimension. A lower score in the economic dimension
– a reflection of a challenging period for us during 2008 and
2009 – meant, however, that we dropped out of the DJSI
STOXX, a second Dow Jones Sustainability Index.
We ranked among the leaders in a benchmark report on
climate strategies within banks, as published by Sustainable
Asset Management (SAM). The report shows that we are
among the top 5% of banks, which have, compared with
many of our peers, comprehensively integrated the issue of
climate change into core business processes.
In 1999, we were the first bank to obtain ISO 14001 cer-
tification for our worldwide environmental management
system. The management system covers the entire scope of
our products, services and in-house operations which may
give rise to an environmental impact. It is audited annually
and re-certified every three years by SGS. These comprehen-
sive audits (24 audit days and 163 employees in the 2008
re-certification) verify that appropriate policies and processes
are in place to manage environmental issues, and that they
are executed in day-to-day practice. In 2009, SGS confirmed
that a well-performing environmental management system,
integrated in the organization and suitable for managing
environmental risks and improving environmental perfor-
mance on a continual basis, was put into place. We took
second place in the rankings for “Leading Brokerage Firm for
Socially Responsible Investment (SRI) Research” in the 2009
Thomson Reuters Extel and UKSIF Socially Responsible In-
vesting & Sustainability Survey.
In May 2009, the US Environmental Protection Agency
(EPA) awarded UBS Tower at One North Wacker Drive, Chi-
cago, with the Energy Star Award for superior energy effi-
ciency and environmental protection. In June 2009, our
office building on 1285 Avenue of the Americas, New York,
received the Leadership in Energy and Environmental Design
(LEED) for Existing Buildings Silver Certification.
Finally, in late 2009, we received two awards for our use
of the web as a strategic tool for corporate responsibility
communications. We came second in the first global survey
of “online CSR communications” and first in the national
survey for Switzerland. The surveys confirmed the signifi-
cance of our website for communicating with stakeholders
who wish to gain a comprehensive understanding of our
corporate responsibility efforts.
➔ Refer to the “Our employees” section of this report for
information on diversity awards
Stakeholder dialogue and capacity building
Dialogue with external parties is an important contributor to
our understanding and approach to corporate responsibility.
In 2009, communications with experts and stakeholders cov-
ered a series of topics ranging from general (e.g. individual
vs. corporate responsibility) to specific (e.g. environmental
and social issues pertaining to particular industries).
Input on the corporate responsibility strategy and activi-
ties we pursue are also regularly sought from employees. An
internal, cross-divisional network of experts plays a parti-
cularly important role with our members providing critical
input on stakeholder expectations and concerns. These con-
tributions are provided to the CRC and add valuable features
to the information gathered through other established mon-
itoring channels.
Training and awareness raising
Equally, to advance employees’ awareness of our corporate
responsibility processes, activities, commitments and rele-
vant topics, these are integrated into internal education
offerings and broader awareness raising activities. General
information is published on our intranet and on the corpo-
rate responsibility website. In 2009, nearly 10,000 employ-
ees participated in training and awareness-raising activities
dealing with corporate responsibility. Furthermore, 4,140
employees participated in training on environmental issues,
with 3,047 receiving general education on our environmen-
tal policy and programs, and 1,093 employees receiving spe-
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cialist training targeted at their area of expertise and impact.
Awareness of corporate responsibility was also raised in in-
duction programs via an intranet-based presentation. Em-
ployees are also required to undergo regular training in AML-
related issues; this may include online training, awareness
campaigns or seminars.
Responsible banking
The financial crisis has shown that an overly dominant focus
on short-term thinking resulted in too many compromises on
quality and sustainability. A fundamental lesson has there fore
been to re-focus on long-term thinking. While actions cen-
tered on the short-term undoubtedly have their place, the
overall focus must be on sustainable banking.
We have set our focus on earning the trust of our stake-
holders, aiming for more sustainable earnings and creating
long-term shareholder value. In ensuring that banking ac-
tivities are undertaken in a responsible manner, and that
products and services are suited to the needs and require-
ments of clients, we aim to fulfill the heightened expecta-
tions of clients and stakeholders.
Combating financial crime
We believe it is of utmost importance to actively prevent po-
tentially irresponsible or harmful actions. First and foremost,
this means that our employees must uphold the law, adhere
to relevant regulations, and behave in a responsible and
principled manner.
In 2009, we made forceful strides to ensure that all em-
ployees are conscious of their responsibilities and of the im-
portance of abiding by the law in all of their actions. We
have clearly laid out a solid foundation for this via new risk
and compliance processes and the publication of a new
Code of Business Conduct & Ethics in January 2010, and
have also instigated an in-depth process of communicating
to and with employees about their responsibilities.
We continued to strengthen our efforts to both prevent
and combat financial crime. Taking responsibility to pre-
serve the integrity of the financial system, and our own
operations, we are committed to assisting in the fight
against money laundering, corruption and terrorist financ-
ing. We employ a rigorous risk-based approach to ensure
our policies and procedures correspond with those risks,
and that relationships that are classified as higher risk are
dealt with appropriately. We adhere to strict know-your-
clients regulations, which do not, however, seek to under-
mine clients’ legitimate right to privacy. Ongoing due
diligence and monitoring is undertaken to assist in the iden-
tification of suspicious activities, including the utilization of
advanced technology to assist in the identification of trans-
action patterns or unusual dealings which, if discovered,
are promptly escalated to management or control func-
tions.
As part of our extensive and ongoing efforts to pre-
vent money laundering, corruption and terrorist financing,
the internal global AML policies were reviewed in 2009, and
enhancements to address more specific risks in relation to
corruption and terrorist financing will be implemented glob-
ally in 2010. As part of our review of trade financing prohi-
bitions regarding certain war materials, these were expand-
ed from nuclear, biological and chemical weapons and
anti-personnel land mines to include cluster bombs, deplet-
ed uranium for military purposes as well as components of
all such weapons.
We are a founding member of the Wolfsberg Group, an
association of 11 global banks established in 2000, which
aim to develop financial services industry standards and
related products for Know Your Customer, Anti-Money
Laundering and Counter Terrorist Financing policies. Togeth-
er with the other members of the Group, we have actively
engaged with the Financial Action Task Force (FATF), which
is an inter-governmental body that develops and promotes
national and international policies to combat money laun-
dering and terrorist financing in the context of its consul-
tation processes with the private sector. Special attention
has been placed on developing a risk-based approach to
money laundering, implementing guidelines around Weap-
ons of Mass Destruction Proliferation Finance, and actively
contributing to the revision of FATF Recommendation 9
(“Customer due diligence and record-keeping”), which
states that financial institutions, intermediaries or other third
parties must perform certain aspects of the customer due
diligence process.
Managing environmental and social risks
Environmental and social risk is broadly defined as the pos-
sibility that we encounter reputational or financial damage
as the result of transactions, products, services or invest-
ments that involve a party associated with environmentally
or socially sensitive activities, or that we are exposed to risks
such as environmental liabilities, human rights infringe-
ments, or changes in regulations.
We seek to identify, manage and control these environ-
mental and social risks in our business transactions. Howev-
er, not all products and services we provide have the same
risk potential: we therefore take a risk-based ap proach to
environmental and social risk management and regularly an-
alyze our portfolio of products and services to assess their
respective environmental and social risk potential. With our
current business profile and operating environment, our po-
tential for material risk is greater within the context of our
lending and capital markets businesses, as well as our direct
real estate and infrastructure investments. For these prod-
ucts and services, we have designed procedures and tools
for the identification, assessment and management of envi-
ronmental and social risks. These procedures and tools are
integrated into standard risk management processes, such
61
Strategy, performance and responsibility
Corporate responsibility
as due diligence on transactions or investments, helping to
ensure that material environmental and social risks are iden-
tified, assessed and escalated in a timely fashion.
For example, Wealth Management & Swiss Bank and
Wealth Management Americas have introduced a standard-
ized check to identify material environmental risk in their
lending to all relevant clients. Transactions with significant
environmental risk undergo a detailed environmental assess-
ment. In 2009, nearly 100,000 lending transactions in Swit-
zerland were subject to an environmental risk check, of
which 24 were referred to the business division’s environ-
mental risk competence center for detailed assessment. In
the Investment Bank, the environmental risk framework cov-
ers all banking activities including debt and equity under-
writing, financial advisory services and lending. Investment
Bank personnel identify potential environmental risks in the
initial due diligence phase and alert the Investment Bank’s
Environmental Advisory Group (EAG) in case of significant
potential risks. Assessments by lawyers and / or external con-
sultants are routinely sought for certain sectors and prod-
ucts. The EAG works with the relevant business and control
functions to assess the risks, determine any mitigating mea-
sures and direct further due diligence as required (69 trans-
actions in 2009). In this way, the relevant senior business
committee may fully consider the potential environmental
risk in the course of its review of the transaction and / or cli-
ent. Global Asset Management has put environmental due
diligence processes in place for their real estate and infra-
structure funds. In 2009, all properties acquired or devel-
oped by Global Real Estate for their direct investment vehi-
cles were subject to a thorough environmental due diligence
process, in accordance with local regulations and internal
best practice guidance. Similar processes are in operation in
Infrastructure Asset Management.
Some of our clients operate in sectors that are considered
to be particularly environmentally and socially sensitive. To
support the consistent identification and assessment of envi-
ronmental and social risks (including human rights) across
the Group, we have developed internal industry sector
guidelines. The sector guidelines currently cover chemicals,
oil and gas, utilities, infrastructure, forestry products and
biofuels and metals and mining. These guidelines are being
adopted by each of our business divisions in transactional
and client due diligence processes. These guidelines provide
an overview of key environmental and social issues that arise
in the various life cycles of the sector, and summarize indus-
try standards in dealing with them. We believe that our com-
mitment to our clients and to society requires us to search
for solutions whenever possible. We seek to help clients to
move towards more environmentally and socially responsible
practices by engaging with them. This can benefit their busi-
ness and decrease financial and reputational risk. However,
where engagement is not possible or successful, we may de-
cline the transaction altogether.
Products and services
Equally important to the management of environmental and
social issues is the provision of financial products and ser-
vices, which help clients manage their environmentally and
socially-related business opportunities and risks. We seek to
help investors benefit from related market opportunities and
by integrating environmental and social considerations,
where relevant, in research and investment analysis. This of-
fering currently stretches across our businesses in wealth
management, investment banking, asset manage ment, re-
tail, and commercial banking. It includes SRI funds, research
and advisory services provided to private and institutional cli-
ents, access to the world’s capital mar kets for renewable en-
ergy firms and, in Switzerland, “eco” mortgages.
Taking environmental, social and governance (ESG) issues
into account in investment processes is of increasing interest
to clients and consultants across all of our investment areas.
In 2009, Global Asset Management took another step in
demonstrating commitment to ESG by becoming a signatory
to the UN Principles for Responsible Investment (UNPRI).
UNPRI is a global investor initiative that is designed to pro-
vide a framework for better integration of ESG issues into
mainstream investment practice.
Also in 2009, we decided to establish a new competence
center within our Wealth Management & Swiss Bank busi-
ness division, which draws and expands on our resources
and expertise in the areas of philanthropy and SRI. In a “one-
stop” approach, the competence center will provide clients
with a unique opportunity to access a comprehensive range
of philanthropic, SRI and values-based wealth management
services.
Finally, our senior scientific advisor, Sir David King, contin-
ued to advise on all scientific matters with particular empha-
sis on global climate change and the challenges it poses to
sustainable economic growth. Our clients benefit from Sir
David’s expertise and can get further insight into a variety of
timely scientific topics through a quarterly series of science-
focused bulletins. In 2009, these bulletins included briefs on
climate change, biofuels and mobility. Sir David also dis-
cussed energy efficiency and low carbon technologies in the
November issue of the UBS Investor’s Guide.
Investment products and advisory
In 2009, we continued to expand our SRI offering in re-
sponse to growing demand from a number of markets, in-
cluding the launch of two new SRI products, the UBS (Lux)
Equity SICAV – Sustainable Global Leaders and the UBS (Lux)
Equity SICAV – Climate Change. Our offering is diverse and
includes products managed according to ESG criteria and
theme-based approaches. The ESG offering includes an all
cap SRI Global Equity strategy, which was among the first of
its kind. The theme-based approach focuses on innovative
companies providing solutions to the challenges of climate
change, water scarcity and demographic change. We offer a
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range of products focusing on each individual theme and
the flagship UBS (Lux) Equity Fund Global Innovators, which
spans all three themes.
Additionally, we offer customized client portfolios in the
form of segregated mandates / institutional accounts based
on “negative” screening, which exclude certain controver-
sial stocks or sectors based on their negative social or envi-
ronmental impact, as perceived by the client. Our global
platform and investment research enable us to offer such
tailor-made solutions. In addition to fund management ser-
vices, we provide stock-broking and account management
services to alternative energy and SRI fund managers.
Finally, we also offer SRI portfolio management solu tions
to selected private client segments. This offering combines
internal and external SRI expertise and includes SRI-focused
portfolios in Switzerland and SRI-managed accounts in the
US, where ESG criteria are embedded into the fundamental
investment process, or where clients have the ability to iden-
tify and exclude securities from ownership based on issue-
oriented screens. This allows private clients to customize
mandates to their particular social policy criteria. Our open
architecture approach also allows clients to invest in SRI
bond, equity and microfinance products from leading third-
party providers.
In past years, we experienced increasing client de mand
for SRI and expanded our SRI product offering. As per 31 De-
cember 2009, SRI invested assets had gone up to CHF 26.85
billion, representing 1.2% of our total invested assets.
Engagement and voting rights
The SRI team in Switzerland engages in dialogue with com-
panies represented in the SRI funds they manage. The ana-
lysts and portfolio managers provide positive and negative
feedback on relevant ESG issues that may impact investment
performance, as part of regular communication with corpo-
rate management teams. When controversial information
on the company’s environmental and social performance is
received, the SRI analysts contact the company and provide
management with a chance to demonstrate what measures
have been taken to solve the issues. If the company can
demonstrate how it is dealing with the problem and what
progress has already been achieved, an investment is possi-
ble. These engagement activities are, in addition to the posi-
tive screening processes, applied to the SRI funds.
We believe that voting rights have economic value and
should be treated accordingly. In the UK, the asset manage-
ment business seeks to influence the corporate responsibility
and corporate governance practices of the companies it in-
vests in. Where we have been given the discretion to vote on
behalf of our clients, we will exercise our delegated fiduciary
responsibility by voting in a manner we believe will most fa-
vorably impact the value of their investments. Good corpo-
rate governance should, in the long term, lead towards both
better corporate performance and improved shareholder
value. As such, we expect board members of companies in
which we have invested to act in the service of their share-
holders, view themselves as stewards of the company, exer-
cise appropriate judgment and practice diligent oversight of
the management of the company.
Research
Our SRI research teams analyze emerging socio-economic
and environmental trends and assess their potential impact
on investment markets and companies’ share prices. Identi-
fying material SRI issues is challenging. As such, three things
help determine which environmental and social issues are
critical: society’s perception of what is important; the nature
of the competitive pressures facing firms in an industry; and
how costs and benefits are (or will be) distributed between
stakeholders.
Our SRI research teams were established in each of our
business divisions to serve their respective clients. In the In-
vestment Bank, the equity research team writes recommen-
dations and reports for institutional investment clients on
renewable energy, the carbon markets and the impact of
climate change on companies in a wide range of sectors. SRI
Socially responsible investments invested assets 1
For the year ended
% change
from
31.12.08
31.12.07
31.12.08
2,174
3,189
CHF billion, except where indicated
UBS
UBS SRI products and mandates
GRI 2 31.12.09
2,233
positive criteria
exclusion criteria
Third-party
Total SRI invested assets
Proportion of total invested assets (%) 4
FS11
FS11
FS11
FS11
2.72
22.44
1.69
26.85 3
1.20%
2.12
14.05
1.85
18.03
5.20
33.33
1.08
39.61
0.83%
1.24%
3
28
60
(9)
49
1 All figures are based on the level of knowledge as of January 2010. 2 Global Reporting Initiative (see also www.global-
reporting.org). FS stands for the performance indicators defined in the GRI Financial Services Sector Supplement. 3 5.5% of
reported assets have newly been included in 2009 due to adjustments in the reporting process and boundaries. 4 Total
SRI / UBS’s invested assets.
Positive criteria: apply to the active selection of
companies, focusing on how a company’s strategies,
processes and products impact its financial success, the
environment and society. This includes best-in-class or
thematic investments.
Exclusion criteria: companies or sectors are excluded
based on environmental, social or ethical criteria,
for example, companies involved in weapons, tobacco,
gambling, or companies with high negative environmen-
tal impacts. This also includes faith – based investing
consistent with principles and values of a particular
religion.
Third-party: Our open product platform gives clients
access to socially responsible investment products from
third-party providers. This includes both positive and
exclusion critieria, and microfinance investments.
63
Strategy, performance and responsibility
Corporate responsibility
and sustainability research is provided by a dedicated team.
In 2008, the SRI and sustainability research team initiated
dedicated coverage of corporate governance issues and cor-
porate governance was the theme of our 2009 SRI confer-
ence. In addition to publishing regular research reports on
the topic, we have incorporated selected governance data
within some of our research tools. In the asset management
business, an internal SRI research team manages portfolios
around themes such as climate change / energy efficiency,
water and demographics. The SRI research team in our
wealth management business conducts SRI research and
provides advice to private clients on SRI investment solu-
tions.
Client interest in some aspects of SRI – for instance cli-
mate change, demographics and water – has grown, and so
has research coverage. The SRI teams regularly collaborate
with analysts in other teams to write about emerging SRI
themes, and relevant research content is regularly published
by a growing number of specialists within the mainstream
research effort.
Financing and advisory services
Our renewable energy investment banking business arrang-
es financing and provides strategic and financial advi sory
services for companies in the solar, wind, wave and oth er
renewable energy sectors. Since 2006, we have led over
35 financing transactions in these sectors, raising over USD
24 billion for renewable energy companies worldwide. In
2009, we acted as the joint lead underwriter and joint
lead manager for the USD 2.6 billion initial public offering of
the wind power developer and operator, China Longyuan
Power Group. With over 3,300 mega-watts of installed
wind capacity as of September 2009, and targeting 6,500
mega-watts by the end of 2010, Longyuan Power is the
largest wind power company in Asia and the fifth largest in
the world.
Carbon trading
In cap and trade emissions markets, such as the EU Emissions
Trading Scheme (EU ETS), companies have annual caps on
the amount of emissions their facilities are allowed to pro-
duce. Companies who are able to reduce their emissions be-
low their cap have the ability to sell their unused quota to
other entities, thereby creating an emissions market. Through
the use of financial instruments, we are able to help clients
manage their exposure to the emissions markets. UBS Ex-
change Traded Derivatives (ETD) is an active member of the
major emission exchanges in Europe and North America,
and offers execution and full service clearing for con tracts on
EU ETS allowances (EUA), UN Certified Emissions Reductions
(CER), Regional Greenhouse Gas Initiative allow ances, Chi-
cago Carbon Exchange (CCX) carbon financial instruments
and nitrogen oxide and sulfur dioxide.
64
Corporate responsibility in operations
We have long taken a very keen and active interest in lower-
ing the environmental footprint of our operations and in our
supply chain. Following the establishment of our first energy
functional unit in the late 1970s, we were also the first Swiss
bank to establish the position of an environmental officer in
the 1980s. Years later, we persist to improve the environ-
mental efficiency of our operations.
Environmental and CO2 footprints
We directly impact the environment in a number of ways:
our businesses consume electricity; employees travel for
busi ness purposes and use paper and generate waste in the
course of their work; and offices require heating and cooling
systems. Improving the use of these resources can reduce
costs and enhance environmental performance; therefore,
we have a series of measures to efficiently manage our envi-
ronmental impact.
CO2 strategy and emission reduction
In February 2006, the GEB decided to set a Group-wide CO2
emission reduction target of 40% below 2004 levels by
2012. We seek to achieve this target by:
– adopting in-house energy efficiency measures that re-
duce energy consumption in buildings we operate;
– increasing the proportion of renewable energy used to
avoid emissions at source; and
– offsetting and neutralizing emissions that cannot be re-
duced by other means.
These measures allowed us to further increase the share
of renewable energy we purchase, and reduce our 2009 CO2
emissions by 31% compared with 2004, another step to-
ward achieving the 40% reduction target by 2012.
(cid:49)(cid:87)(cid:84)(cid:2)(cid:73)(cid:84)(cid:71)(cid:71)(cid:80)(cid:74)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:73)(cid:67)(cid:85)(cid:2)(cid:10)(cid:41)(cid:42)(cid:41)(cid:11)(cid:2)(cid:72)(cid:81)(cid:81)(cid:86)(cid:82)(cid:84)(cid:75)(cid:80)(cid:86)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:86)(cid:81)(cid:80)(cid:85)(cid:2)(cid:37)(cid:49)(cid:20)(cid:71)(cid:2)
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(cid:23)(cid:19)
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(cid:20)(cid:21)
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(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:42)(cid:43)(cid:42)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:82)(cid:76)(cid:79)(cid:15)(cid:3)(cid:74)(cid:68)(cid:86)(cid:15)(cid:3)(cid:73)(cid:88)(cid:72)(cid:79)(cid:86)(cid:12)
(cid:44)(cid:81)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:42)(cid:43)(cid:42)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:76)(cid:70)(cid:76)(cid:87)(cid:92)(cid:12)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:42)(cid:43)(cid:42)(cid:3)(cid:72)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:87)(cid:85)(cid:68)(cid:89)(cid:72)(cid:79)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:17)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:83)(cid:68)(cid:83)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:68)(cid:86)(cid:87)(cid:72)(cid:12)
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500000
437500
375000
312500
250000
187500
125000
62500
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Energy consumption and efficiency
Energy consumption represents an important environmental
impact area and is the biggest contributor to our overall
greenhouse gas emissions. In line with our wider business
strategy, improvements in energy efficiency have helped to
reduce both emissions and costs. Energy consumption is
down 6% (59 gigawatt hours) through a combination of
tighter building controls, data center and work station effi-
ciency, and reduced occupancy. Our IT-driven initiatives con-
tributed significantly to these energy savings, most notably
through the server efficiency program.
Renewable energy
In addition to our energy efficiency programs, we seek to
improve the energy mix purchased by including a higher pro-
portion of renewable energy. The percentage of renew able
energy and district heating purchases increased from 24%
in 2004 to 51% in 2009. In Switzerland, for example, the
percentage of electricity sourced from renewable sources in-
creased to almost 100%. We also purchase renewable en-
ergy credits (RECs) in the US electricity mar kets, which ac-
counted for 18% of our electricity consumption in the US in
2009.
Business travel and offsetting
We experienced a significant reduction (approximately 40%)
in business related travel in 2009 due to difficult market con-
ditions and a focus on reducing costs. Although travel is es-
sential for a global financial services firm that strongly be-
lieves in personalized client relationships, our previous
investments in video conferencing infrastructure have en-
abled employees to substantially reduce travel for internal
meetings.
We have also seen a shift to high speed rail to replace
short haul air travel in Europe. Guidelines have also been
developed to help us reduce the environmental impact when
running client events and conferences.
Carbon emissions resulting from business travel have
been offset as in previous years, and we partner with a num-
ber of specialists to carefully select global projects that match
our criteria for delivering carbon offsets and contributing to
the local community. In 2009, we selected projects in Brazil,
India, Turkey and China.
Paper and waste
In 2006, we set firm-wide targets to reduce our paper and
waste consumption. The goal of reducing paper consump-
tion per employee by 5% for 2009 was exceeded signifi-
cantly with the average amount of paper used per employee
down 31% since 2006. This reduction was particularly
strong in 2009, due to a combination of significantly lower
publication volumes and the success of e-documents and
double-sided printing initiatives.
The share of paper from recycled sources is slightly under
our goal of 20%, though our overall environmental foot-
print from paper use has been improved by increasing the
share of Forest Stewardship Council (FSC) certified paper
from 0% in 2006 to 17% in 2009.
The waste recycling ratio remained at a low level of
around 54%, partially due to the consequence of reduced
paper consumption.
Supply chain management
Maintaining our infrastructure, ranging from offices across
IT infrastructure to more mundane components such as
stationery, would not be possible without the products and
services from a substantial range of suppliers and vendors
around the world. In 2009, we spent over CHF 6.3 billion
purchasing a wide range of products and services from
s uppliers and contractors. We are committed to responsible
supply management, and for many years have established
processes to manage environmental and human rights issues
in relevant areas of our supply chain. In line with our ambi-
tion to achieve continuous improvement in our supply chain,
we have developed a guideline which provides Group-wide
assistance on identifying, assessing and monitoring supplier
practices in the areas of human and labor rights, the envi-
ronment and corruption. Examples of human rights issues
that have been included are avoidance of child and forced
labor, non-discrimination, remuneration, hours of work,
freedom of association, humane treatment, and health and
safety. In 2008, we started implementing this guideline and
have gradually broadened its application to new contracts
and contract renewals with suppliers over the course of
2009. Since its introduction, approximately 400 suppliers
have been screened according to the guideline’s social and
environmental criteria, and responsible supply chain require-
Environmental indicators per full-time employee
Direct and intermediate energy
Business travel
Paper consumption
Waste
Water consumption
CO2 footprint
Unit
kWh / FTE
Pkm / FTE
kg / FTE
kg / FTE
m3 / FTE
t / FTE
2009
11,986
7,016
130
265
31.9
3.12
Trend
➙
➙
2008
11,792
10,281
167
298
28.1
3.07
Legend: FTE = full-time employee; kWh = kilowatt-hour; Pkm = person kilometer; kg = kilogram; m3 = cubic meter; t = ton
2007
11,942
12,685
190
299
26.7
3.43
65
2009 2
Absolute
normalized 4 Data quality 5
***
957 GWh
Strategy, performance and responsibility
Corporate responsibility
Environmental indicators 1
Total direct and intermediate energy consumption 7
Total direct energy consumption 8
GRI 3
EN3
natural gas
heating oil
fuels (petrol, diesel, gas)
renewable energy (solar power, etc.)
Total intermediate energy purchased 9
electricity from gas-fired power stations
electricity from oil-fired power stations
electricity from coal-fired power stations
electricity from nuclear power stations
electricity from hydroelectric power stations
electricity from other renewable resources
district heating
Share of renewable energy and district heating
132 GWh
84.6%
10.9%
4.5%
0.05%
EN4
825 GWh
10.6%
2.9%
17.5%
9.5%
28.0%
23.6%
7.8%
51%
Total business travel
EN29
560 m Pkm
rail travel 10
road travel 10
air travel
Number of flights (segments)
Total paper consumption
post-consumer recycled
new fibers FSC 11
new fibers ECF + TCF 11
new fibers chlorine bleached
Total waste
valuable materials separated and recycled
incinerated
landfilled
Total water consumption
Greenhouse Gas (GHG) Emissions in CO2e
Direct GHG emissions (Scope 1) 12
Gross indirect GHG emissions (Gross Scope 2) 12
Gross other indirect GHG emissions (Gross Scope 3) 12
Total Gross GHG Emissions
GHG reductions from renewable energy 13
CO2e offsets (business air travel) 14
EN1
EN2
EN22
EN8
EN16
EN16
EN17
3.7%
1.0%
95.3%
258,396
10,349 t
16.7%
17.1%
65.9%
0.4%
21,183 t
54.4%
12.5%
33.1%
2.55 m m3
25,723 t
298,338 t
87,867 t
411,928 t
99,248 t
63,579 t
2008 2
Absolute
normalized 4
1,016 GWh
127 GWh
83.3%
12.2%
4.5%
0.03%
2007 2
Absolute
normalized 4
981 GWh
130 GWh
83.3%
12.1%
4.6%
0.03%
890 GWh
851 GWh
11.7%
3.7%
18.4%
11.1%
25.8%
23.1%
6.2%
48%
12.3%
4.2%
18.6%
13.6%
25.5%
22.0%
3.8%
45%
886 m Pkm
1,042 m Pkm
3.5%
0.6%
96.0%
398,369
14,403 t
16.2%
16.6%
66.8%
0.4%
3.3%
0.5%
96.2%
446,274
15,593 t
10.5%
10.7%
78.6%
0.2%
25,644 t
24,589 t
54.6%
14.3%
31.1%
2.42 m m3
26,490 t
313,582 t
129,364 t
469,436 t
109,238 t
96,000 t
264,197 t
56.3%
15.8%
27.9%
2.19 m m3
26,701 t
311,808 t
149,323 t
487,832 t
93,127 t
113,000
281,705 t
Trend 6
➘
➙
➙
➙
➘
➙
➙
➘
➚
➙
➚
➙
➙
➙
➙
➙
➚
➙
➙
➙
➙
➙
➘
➘
**
**
***
***
***
***
**
***
**
**
***
***
***
***
***
**
**
***
***
***
***
***
***
**
***
***
***
**
**
***
**
***
***
***
***
Total Net GHG Emissions (GHG Footprint) 15
***
Legend: GWh = giga watt hour; Pkm = person kilometer; t = ton; m3 = cubic meter; m = million; CO2e = CO2 equivalents
249,101 t
1 All figures are based on the level of knowledge as of January 2010. 2 Reporting period: 2009 (1 July 2008–30 June 2009), 2008 (1 July 2007–30 June 2008), 2007 (1 July 2006–30 June
2007) 3 Global Reporting Initiative (see also www.globalreporting.org). EN stands for the Environmental Performance Indicators as defined in the GRI. 4 Non-significant discrepancies from 100%
are possible due to roundings. 5 Specifies the estimated reliability of the aggregated data and corresponds approximately to the following uncertainty (confidence level 95%): up to 5%–***, up to
15%–**, up to 30%–*. Uncertainty is the likely difference between a reported value and a real value. 6 Trend: at a *** / ** / * data quality, the respective trend is stable (➙) if the variance equals
5 / 10 / 15%, low decreasing / increasing (➘,➚) if it equals 10 / 20 / 30% and decreasing / increasing if the variance is bigger than 10 / 20 / 30% ( , ). 7 Refers to energy consumed within the opera-
tional boundaries of UBS. 8 Refers to primary energy purchased which is consumed within the operational boundaries of UBS (oil, gas, fuels). 9 Refers to energy purchased that is produced by convert-
ing primary energy and consumed within the operational boundaries of UBS (electricity and district heating). 10 Rail and road travel: Switzerland only. 11 Paper produced from new fibers. FSC stands
for Forest Stewardship Council, ECF for Elementary Chlorine Free and TCF for Totally Chlorine Free. 12 Refers to ISO 14064 and the “GHG (greenhouse gas) protocol initiative” (www.ghgprotocol.org),
the international standards for GHG reporting: scope 1 accounts for direct GHG emissions by UBS; gross scope 2 accounts for indirect GHG emissions associated with the generation of imported / pur-
chased electricity (grid average emission factor), heat or steam; gross scope 3 accounts for other indirect GHG emissions associated with business travel, paper consumption and waste disposal. 13 GHG
savings by consuming electricity from renewable sources. 14 Offsets from third-party GHG reduction projects measured in CO2 equivalents (CO2e). These offsets neutralize GHG emission from our busi-
ness air travel. 15 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and CO2e offsets.
66
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ments were included in the arrangement with relevant sup-
pliers who were awarded contracts. Also since 2008, ap-
proximately 260 procurement and sourcing officers have
been trained on the relevance and application of the new
guideline. The centralization of all units performing supply
management activities within Supply & Demand Manage-
ment (SDM) in the Corporate Center in 2009 further contrib-
uted to a stringent implementation of the guideline when
interacting with our suppliers.
Community investment
In 2009, we continued the well-established tradition of
supporting the advancement and empowerment of orga-
nizations and individuals within the communities we do
business in. From an early focus on direct cash donations, we
have progressed to a position where our community in-
vestment program encompasses employee volunteering,
matched-giving schemes, in-kind donations, disaster relief
efforts and / or partnerships with community groups, edu-
cational institutions and cultural organizations in all of our
business regions.
ment through Education” and “Building Stronger Commu-
nities”, with some contributions to other activities, including
disaster relief. These donations combined with other signifi-
cant activities, notably the volunteering activities of employ-
ees, have continued to provide substantial benefit to proj-
ects and people around the world (as highlighted in the
examples given on the next page).
Across all business regions, our employees continue to
play a very active role in our community investment efforts,
in particular, through their volunteering activities. In 2009,
more than 9,200 employees spent almost 78,800 hours vol-
unteering. We support their commitment by offering up to
two working days a year for volunteering efforts, and also
match employee donations to selected charities.
In Switzerland, our community investment efforts are also
advanced by the UBS Culture Foundation, the UBS Founda-
tion for Social Issues and Education and the association A
Helping Hand from UBS Employees. In 2009, these organiza-
tions have again made valuable contributions to important
societal causes, including fostering humanities and the cre-
ative arts, supporting communities in need, and helping dis-
abled and disadvantaged people.
Community affairs
Community affairs at UBS are founded on a global strategy
defined by the GEB, and are based on a global community
affairs guideline. Activities are governed in a decentralized
fashion. Every region has a dedicated community affairs
team which reports directly to senior management. With re-
gional guidelines in place, the teams coordinate charitable
commitments by our firm and our employees. The Corporate
Center ensures global coordination of these activities and
also provides a central reporting structure to collate commu-
nity investment data from across UBS as a whole.
In 2009, we set clear savings goals across the firm; these
also had an impact on the activities of the regional commu-
nity affairs functions. Direct cash donations by UBS and our
affiliated foundations to carefully selected non-profit partner
organizations and charities were lower than in previous
years totaling nearly CHF 27 million, assigned, primarily, to
our continuing community affairs key themes, “Empower-
Client foundation
Charitable organizations and projects across the globe –
usually in regions without a UBS business presence – also
benefit from the dynamic activities of our client foundation,
the UBS Optimus Foundation, which invests donations into
a number of programs and organizations. The foundation
focuses on the key themes of “Education and Child Pro-
tection” and “Global Health Research”. The UBS Optimus
foundation celebrated its tenth anniversary at the end of
2009, and proudly looked back at a successful year in
which it donated CHF 22 million in support of 93 projects
and two major initiatives in Africa, Asia Pacific, Europe and
North and South America. Over the past ten years, the UBS
Optimus Foundation has supported 146 projects in 63
countries with a total of more than CHF 79 million. For its
anniversary year, it has set itself ambitious targets to further
expand the benefits it extends to charitable projects around
the globe.
67
Strategy, performance and responsibility
Corporate responsibility
Examples of UBS community investment activities across the globe
Americas (I): The Power Lunch
literacy mentorship program cel-
ebrates a decade long partnership.
Over the past ten years over 1,400
employees from UBS Americas have
volunteered from sixty to ninety
minutes each week to read aloud to
at-risk public elementary school
students. Studies have shown that
student-reading skills are enhanced
through the use of mentor relation-
ships. The program began with
Everybody Wins, a non-profit organi-
zation based in New York City, and
has served children in Chicago, IL,
Jersey City, NJ, Los Angeles, CA, New
York, NY, Stamford, CT and Wee-
hawken, NJ. Over 1,600 students have
participated in the reading program
over the last decade; they have been
the recipients of approximately 50,000
volunteer hours. “The fact that UBS
supports these programs means a lot
to me, and helps connect me to the
firm and to the UBS culture”, says
Maryellen Frank, a UBS employee who
has participated in Power Lunch
since its inception. “I have been here
almost 20 years, and the constant
connection between the firm and the
community is something to be very
proud of.”
Americas (II): In October 2009,
Wealth Management Americas orga-
nized an Employee Giving Campaign,
a new addition to its Building Brighter
Futures program, which aims to
make schools and other education-
based community organizations into
dynamic learning centers. The primary
goal of the Campaign was to raise
funds for educational organizations
with the firm matching employee
donations dollar for dollar, and 29
charities were nominated by our
employees. By making a significant
monetary contribution (nearly USD
600,000) towards the enhancement
of school buildings, and the gathering
of various resources to offer students
the chance to achieve success, we
have made a difference in the lives of
the children and families involved.
October 2009 was also Building
Brighter Futures’ Community Engage-
ment Month. Its goal is to cultivate
school and civic collaboration to help
transform schools or education-
focused organizations into dynamic
learning centers. Through our
partnership with the Hands On
Network, a non-profit organization
focusing on community service, over
1,100 UBS employees participated
in locally-driven volunteer activities.
Since the launch of Community
Engage ment Month in 2007, over
5,700 employees, their friends and
their families have volunteered
across the country.
Asia Pacific: In order to maximize
the impact of our grants in Singapore
and Tokyo, we are now working
with the Community Foundation of
Singapore and Social Venture Partners
Tokyo. With both partners, we are
able to strengthen the capacity of
community organizations to meet
local needs and provide corporate
philanthropic leadership. Through the
creation of a donor-advised fund in
Singapore in 2009, we will continue
to support our existing community
partners. “UBS’s leadership in
corporate responsibility in Singapore
is a great example for other corpo-
rations”, says Stanley Tan, Chairman
of the Community Foundation of
Singapore. “Their strategic approach
to the commitment of funds and
employee skills are a tremendous
investment in our community.” In
Tokyo, promising social entrepreneurs
have the opportunity to apply for
funding through a competitive
process, with the successful projects
receiving strategic business counseling
as well as funding.
Europe, Middle East and Africa:
Throughout the region, we continue
to support regeneration efforts,
particularly in areas close to where we
conduct our business. In Milan and
Paris, employees are involved in
projects supporting the development
and education of young adults from
disadvantaged communities. In
London, our efforts were recognized
by the Business in the Community
Example of Excellence Award for
Project Shoreditch, a targeted and
collaborative regeneration partnership
involving UBS, Deutsche Bank, Link-
laters, and community partners East
London Business Alliance and Shore-
ditch Trust. Project Shoreditch has
placed over 5,000 employee volunteers
with organizations in the Shoreditch
area, and leveraged over GBP 450,000
in in-kind support. Carsten Kengeter,
co-CEO of the Investment Bank, joined
a group of 30 colleagues to take part
in an employee volunteering project in
Shoreditch, working with students
at The Bridge Academy, Hackney, our
flagship EMEA Community Affairs
partnership, raising student aspirations
by taking part in practical and group
work.
Switzerland: Young Enterprise
Switzerland (YES) develops and
supervises practice-oriented economic
education programs for students, with
the aim of connecting the economy
with schools. The non-profit organiza-
tion focuses on young people who are
empowered to network in economic
relations, act entrepreneurially, and be
responsible and successful in finding
their way within the global economy.
Thanks to a quadrennial partnership,
YES and UBS jointly enhance the
power of innovation and competitive-
ness of young Swiss students.
➔ Refer to www.ubs.com/community
for more information on our
community investment activities
68
y
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69
UBS business divisions and
Corporate Center
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Wealth Management Americas
Wealth Management & Swiss Bank is headquartered in
Switzerland and employs more than 27,500 personnel
in 44 countries. We deliver comprehensive financial services
to wealthy private clients around the world – except to
those served by Wealth Management Americas – as well
as to retail and corporate clients in Switzerland. Clients
are provided with advice and financial products and services
to fit their individual needs.
New reporting structure
Commencing in first quarter 2010, we will change the
internal reporting of Wealth Management & Swiss Bank
and present in our external financial reports two separate
business units: “Wealth Management” and “Retail &
Corporate”.
Performance in 2009
Wealth Management Americas is among the leading
wealth managers in the region based on invested assets
and includes the former Wealth Management US business
unit, the domestic Canadian business and the international
business booked in the United States. Formed from
the reorganization of the Global Wealth Management
& Business Banking business division in 2009, Wealth
Management Americas is headquartered in Weehawken,
New Jersey, where most corporate and operational
functions are located. The client-facing organization
consists of the branch network in the US, Puerto Rico
and Canada, with 7,084 financial advisors.
Wealth Management Americas provides advice-based
relationships through its financial advisors, who deliver a
fully-integrated set of wealth management solutions
designed to address the needs of core affluent, high net
worth and ultra high net worth individuals and families.
Wealth Management & Swiss Bank pre-tax profit fell 35%
to CHF 3,910 million, compared with CHF 6,013 million
in 2008. The decline in profit was driven by a drop in
operating income, resulting from lower asset-based fees,
reduced interest income due to margin pressure and
decreased transaction income, partly offset by a 17%
decline in operating expenses from our cost-saving
measures.
Net new money outflows were CHF 89.8 billion compared
with CHF 107.1 billion in the previous year. The outflows
in 2009 reflect clients withdrawing assets from UBS, due to
the effects of the financial market turbulence on our
operating performance and reputation.
Invested assets were CHF 960 billion on 31 December
2009, an increase of CHF 5 billion from 31 December 2008,
as higher equity markets were partially offset by net new
money outflows.
Performance in 2009
Wealth Management Americas reported a pre-tax profit of
CHF 32 million in 2009 compared with a pre-tax loss of
CHF 823 million in 2008. The 2009 results were negatively
impacted by restructuring charges of CHF 152 million.
In 2009, net new money outflows were CHF 11.6 billion
compared with CHF 15.9 billion in the prior year. Following
strong net new money inflows in first quarter 2009 due to
recruitment of experienced financial advisors, we experienced
net new money outflows during the remainder of the year.
Wealth Management Americas had CHF 690 billion in
invested assets on 31 December 2009, up 7% from
CHF 644 billion on 31 December 2008. This increase was
principally driven by positive market performance. The
gross margin on invested assets was 81 basis points in
2009, down from 82 basis points in 2008.
Performance from continuing operations before tax
CHF million
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
UBS
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
3,910
32
438
(6,081)
(860)
(2,561)
6,013
(823)
1,333
(34,300)
19
(27,758)
8,543
621
1,454
(16,669)
2,310
(3,742)
(35)
(67)
82
91
Global Asset Management
Investment Bank
Global Asset Management offers a diverse range of
investment capabilities and services from a boutique-like
structure encompassing all major asset classes including
equities, fixed income, asset allocation, currency, risk
management, hedge funds, real estate, infrastructure,
private equity and fund administration.
Invested assets totaled CHF 583 billion on 31 December
2009, making Global Asset Management one of the larger
institutional asset managers and hedge fund of funds
managers in the world. It is also one of the largest mutual
fund managers in Europe and the largest in Switzerland.
Performance in 2009
Pre-tax profit for full year 2009 was CHF 438 million
compared with CHF 1,333 million in 2008. Excluding a net
goodwill impairment charge in 2009 of CHF 191 million
related to the sale of UBS Pactual, restructuring costs in
2009 of CHF 48 million and a gain of CHF 168 million from
the sale of our minority stake in Adams Street Partners in
third quarter 2008, pre-tax profit would have decreased
42% to CHF 677 million.
Net new money outflows were CHF 45.8 billion for full
year 2009 compared with outflows of CHF 103.0 billion for
full year 2008. Excluding money market flows, net new
money outflows were CHF 33.6 billion in 2009 compared
with CHF 124.2 billion in 2008. Net outflows from clients
of our wealth management businesses were CHF 40.7
billion (around 90% of total net outflows) in 2009 com-
pared with CHF 47.1 billion in 2008.
The Investment Bank has three distinct but aligned business
areas:
– Equities
– Fixed income, currencies and commodities (FICC)
– the Investment banking department (IBD)
Equities and FICC comprise the securities business, offering
primary and secondary access to the securities and foreign
exchange markets, prime brokerage services as well as
securities, economic, strategic and quantitative research.
IBD provides advice on mergers and acquisitions and
restructurings, and raises capital mainly for corporate and
sovereign clients in the debt and equity markets. Addition-
ally, as part of a number of broader alignment initiatives
across our business divisions, IBD plays a lead role in
marketing the Group to corporates, leveraging their senior
client relationships.
Performance in 2009
In 2009, we recorded a pre-tax loss of CHF 6,081 million
compared with a pre-tax loss of CHF 34,300 million in
2008, primarily due to a reduction in losses on residual risk
positions. During this period: equities revenues decreased
5% to CHF 4,937 million; FICC revenues increased to
negative CHF 547 million from negative CHF 31,895
million; investment banking revenues were down 14% to
CHF 2,466 million; and operating expenses decreased 7%
to CHF 9,216 million.
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank
Business description
Wealth Management & Swiss Bank is a leading global provider of financial services for wealthy private clients,
and is the leading bank for retail and corporate clients in Switzerland.
Business
Wealth Management & Swiss Bank is headquartered in Swit-
zerland and employs more than 27,500 personnel in 44 coun-
tries. We deliver comprehensive financial services to wealthy
private clients around the world – except to those served by
Wealth Management Americas – as well as to retail and cor-
porate clients in Switzerland. Clients are provided with advice
and financial products and services to fit their individual
needs. Our Wealth Management & Swiss Bank business divi-
sion comprises three businesses: Wealth Management, Swiss
Retail and Swiss Corporate & Institutional Clients.
Strategy and clients
Through our Wealth Management business, we offer sophis-
ticated products and services in three client segments: ultra
high net worth clients with investable assets of more than
CHF 50 million; high net worth clients with investable assets
of CHF 2 million to CHF 50 million; and core affluent clients
with investable assets of CHF 250,000 to CHF 2 million. In
addition to servicing wealthy private clients directly, we also
provide wealth management solutions, products and servic-
es to financial intermediaries.
We are one of the largest banks for high net worth and
ultra high net worth clients around the world. The industry
is facing increased regulation and is in the focus of tax au-
thorities. This particularly influences the way we conduct
cross-border business and puts pressure on margins, profit-
ability and net new money flows. By managing all markets
for sustainable profitability we are consolidating our strong
global presence.
In our cross-border businesses, we are focusing on areas
with the greatest market potential while continuing to en-
sure the highest levels of compliance. In Asia, we are direct-
ing our cross-border business on leading financial centers
within the region, specifically Hong Kong and Singapore.
Furthermore, we are building on our strengths in emerging
markets, and are focusing on key markets in the Middle
East, Latin America and Central and Eastern Europe.
We will continue to build our onshore business in markets
which offer attractive growth prospects with a more differ-
entiated approach, as in the current legal and regulatory cli-
mate the domestic wealth management business steadily
gains importance. We will place particular emphasis on the
attractive markets in Asia and Europe where we already have
a strong local presence. To strengthen our leading position in
Switzerland we will further enhance the way we deliver our
products and services to high net worth and ultra high net
worth clients.
We want to be the best bank for retail clients in Switzer-
land. Serving one out of three households in Switzerland
with more than 300 branches has set us on the right path
towards achieving this goal. To best serve our clients, we
have developed a life-cycle based offering where with each
life-cycle stage, our clients receive dedicated products and
services to meet their specific needs. In order to maximize
the quality of service and level of convenience we offer our
clients, we will continue to upgrade our multi-channel offer-
ings including local branches, e-banking capabilities and au-
tomated teller machines. To fully leverage our presence in
the marketplace, we will continue investing in our branch
network.
In Corporate & Institutional Clients (CIC), our goal is to
differentiate ourselves by leveraging our capabilities as an
integrated bank. We serve almost one out of every two
Swiss companies by offering strategic advisory and execu-
tion services for multinationals, corporations, institutional
clients and financial institutions, which makes us a leading
CIC business. In addition, we are able to provide our clients
with local and international banking services across all busi-
ness divisions. Within CIC, we also serve the small and
medium-sized enterprises (SMEs) with local market exper-
tise across all regions by delivering tailored products and
services.
Competitors
Our major global competitors within wealth management
include Credit Suisse, Julius Baer, HSBC, BNP / Fortis, Barclays
and Citigroup. In domestic markets, we compete with the
private banking operations of large local banks such as
Coutts in the UK, Deutsche Bank AG in Germany and Uni-
credit in Italy.
In the Swiss retail banking business our major competi-
tors are Credit Suisse, Raiffeisen, the cantonal banks, and
Postfinance as well as other regional or local Swiss banks.
In the Swiss corporate and institutional business our main
competitors are Credit Suisse, the cantonal banks, and for-
eign banks in Switzerland.
74
Invested assets by asset class
In %, except where indicated
Invested assets by client domicile
In %, except where indicated
On
100
75
50
25
0
31.12.07
31.12.08
31.12.09
On 31.12.09
Total: CHF 960 billion
Total:
CHF 1,392 billion
CHF 955 billion
CHF 960 billion
6
22
17
19
11
25
6
19
14
17
16
28
8
16
19
17
17
23
17
8
Europe, Middle East and Africa
Switzerland
The Americas
Asia Pacific
46
29
2BD004_e
Accounts, money markets , fiduciary investments
Bonds
UBS mutual funds
Equities
Other 1
External mutual funds
1 Including structured products and alternative investments.
Products and services
Wealth Management leverages knowledge and product
and service offerings from Global Asset Management and
the Investment Bank, to provide expert financial advice in
supporting clients throughout the different stages of their
lives.
By aggregating private investment flows into institution-
al-size flows, we are in a position to offer our Wealth Man-
agement clients access to investments that would other-
wise only be available to institutional clients. Expertise is
sourced either from within UBS or from the external mar-
ket. Both discretionary and non-discretionary mandates are
offered. Clients who opt for a discretionary mandate dele-
gate the management of their assets, including investment
decisions, to a team of professional portfolio managers
who work according to an agreed investment strategy. Cli-
ents who prefer to be actively involved in the management
of their assets can choose a non-discretionary mandate,
where investment professionals provide analysis and moni-
toring of portfolios, together with tailor-made proposals to
support investment decisions. Clients can also trade a full
range of financial instruments from single securities, such
as equities and bonds, to structured products and alterna-
tive investments. We offer wealth planning advice on topics
such as funding for education, gift giving, inheritance and
succession, and also offer corporate finance advice to
support clients in the process of disposing of their corpo-
rate assets.
As a next step of integration across the business divisions,
we implemented a new organizational unit within Wealth
Management called Investment Products and Services. Prod-
uct specialists in Wealth Management, Global Asset Man-
agement and the Investment Bank are combined to further
align product innovation, distribution and after-sales service.
Our retail clients can access services such as a compre-
hensive selection of cash accounts, savings and retirement
products, investment funds and solutions, residential mort-
gages, life insurance and advisory services through our multi-
channel offering in Switzerland. Our clients also receive
these services in tailored life-cycle solutions in combination
with individual financial advice.
We offer our Swiss Corporate & Institutional Clients a com-
prehensive set of products and services. By providing access to
our global sector specialists from our Investment Bank, we can
provide strategic advice in the field of mergers and acquisi-
tions. Additionally, we advise company owners with regard to
succession planning and provide professional support in liquid-
ity and cash management. For clients with a high share of
euro-denominated transactions, we are the only bank in Swit-
zerland to offer so called Eurogateway accounts, which con-
centrate euro payment streams in Switzerland, thereby opti-
mizing costs. In Switzerland, we are a leading provider for
financing solutions as we offer access to capital markets (eq-
uity and debt capital), syndicated and structured credits, private
placements, factoring, leasing and traditional financing solu-
tions. Finally, we offer global custody services for institutional
clients who want to consolidate multiple-agent bank custodies
into a single, cost-efficient global custodial relationship.
Organizational structure
During 2009, the Global Wealth Management & Business
Banking business division was reorganized into two new
business divisions: Wealth Management Americas and
Wealth Management & Swiss Bank, which comprises all
wealth management business booked outside the Americas
and the Swiss retail and corporate client business.
In 2009, the governance structure of Wealth Management
& Swiss Bank was further adjusted to include two new execu-
75
2BD006_e
d
n
a
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B
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C
100
75
50
25
0
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Current reporting structure (on 31 December 2009)
2BD001_e
Wealth Management & Swiss Bank
Swiss clients
International clients
New reporting structure (from first quarter 2010 onwards)
Wealth Management & Swiss Bank
Wealth Management
Retail & Corporate
International Wealth Management
Swiss Wealth Management
Full profit and loss disclosure
Supplementary disclosure of revenues and selected key performance indicators
tive committees, Wealth Management and UBS Switzerland,
which are led by one divisional Executive Committee.
Wealth Management is present in 44 countries with ap-
proximately 200 wealth management and representative
offices, half of which are outside Switzerland. We are largely
active in Asia Pacific, Switzerland, Europe and in internation-
al cross-border business. Our Wealth Management clients
are served by approximately 4,200 client advisors, of which
about 900 are working for Swiss Wealth Management.
The integrated management team of UBS Switzerland
comprises all businesses active in Switzerland including
retail, wealth management, corporate & institutional, invest-
ment banking and the asset management business. We are
committed to our Swiss home market and this integrated
approach allows us to drive efficiency across all businesses.
With our regional approach, we are able to extend the
knowledge of the entire bank to local clients and markets.
This allows cross-divisional client coverage, client referrals
across all businesses and systematic client development.
Commencing in first quarter 2010, we will change the
internal reporting of Wealth Management & Swiss Bank and
present in our external financial reports two separate busi-
ness units:
– “Wealth Management” encompasses the domestic and
international wealth management business conducted
out of Switzerland, and all wealth management business-
es in our Asian and European booking centers.
– “Retail & Corporate” includes services provided to Swiss
retail private clients, small businesses, as well as corporate
and institutional clients.
➔ Prior to publication of first quarter 2010 results, UBS
will publish restated business division results on
www.ubs.com/investors showing quarterly and annual
results for 2008 and 2009 under the new reporting
structure
76
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U
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Business performance
Business division reporting
CHF million, except where indicated
Swiss clients income
International clients income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
of which: impact from US cross-border case
Services (to) / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets
Total operating expenses
Business division performance before tax
of which: impact from US cross-border case
of which: business division performance before tax excluding US cross-border case
Key performance indicators 1
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money (CHF billion) 2
Impaired lending portfolio as a % of total lending portfolio, gross (Swiss clients)
Gross margin on invested assets (bps) (international clients) 3
Additional information
Average attributed equity (CHF billion)
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 4
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Recurring income
Invested assets (CHF billion)
Client assets (CHF billion)
Personnel (full-time equivalents)
Swiss clients
Net new money (CHF billion) 2
Invested assets (CHF billion)
International clients
Net new money (CHF billion) 2
Invested assets (CHF billion)
Client advisors (full-time equivalents)
As of or for the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
6,228
5,295
11,523
(133)
11,390
5,197
2,017
(90)
289
67
7,480
3,910
3,910
(35.0)
64.9
(89.8)
1.0
86
9.0
43.4
48.6
21.7
1.6
8,830
960
1,844
27,548
(20.1)
337
(69.7)
624
3,182
7,714
7,698
15,413
(392)
15,021
5,430
3,295
917
(73)
323
33
9,008
6,013
(917)
6,930
(29.6)
58.4
(107.1)
1.0
96
9.5
63.3
62.3
22.3
1.7
11,613
955
1,711
31,016
(41.9)
325
(65.2)
631
4,236
8,493
9,195
17,689
30
17,718
6,356
2,514
(43)
334
15
9,176
8,543
8,543
15.7
51.9
120.4
1.0
103
1.8
13,194
1,392
2,535
32,378
15.2
455
105.2
937
4,253
(19)
(31)
(25)
(66)
(24)
(4)
(39)
(23)
(11)
103
(17)
(35)
(44)
(10)
(5)
(22)
(6)
(24)
1
8
(11)
4
(1)
(25)
1 For the definitions of UBS’s key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 2 Excludes interest and dividend income. 3 Excludes valuation
adjustments on a property fund (2009: CHF 155 million, 2008: CHF 9 million). 4 BIS risk-weighted assets (RWA) are according to Basel II.
77
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
2009
Results
In 2009, pre-tax profit fell 35% to CHF 3,910 million, com-
pared with CHF 6,013 million in 2008. The decline in profit
was driven by a 24% drop in operating income, resulting
from lower asset-based fees, reduced interest income due to
margin pressure and decreased transaction income, partly
offset by a 17% decline in operating expenses from our
cost-saving measures. A provision of CHF 917 million in con-
nection with the US cross-border case was included in the
results of the previous year.
Operating income
Total operating income in 2009 was CHF 11,390 million,
down 24% from CHF 15,021 million a year earlier. Recurring
income decreased 24% on lower asset-based fees reflecting
a 20% lower average asset base, as well as a lower interest
income due to margin pressure. Non-recurring income fell by
29% due to lower brokerage fees, reflecting reduced client
transaction activity levels. Moreover, the decrease was due to
higher internal funding-related interest charges and revalua-
tion adjustments of CHF 155 million for a property fund.
Credit loss expenses decreased significantly to CHF 133 mil-
lion from CHF 392 million in the previous year, as 2008 was
especially impacted by provisions made for lombard loans.
Operating expenses
At CHF 7,480 million, operating expenses in 2009 declined
17% from CHF 9,008 million one-year earlier, as a result of
cost-saving measures. Excluding the restructuring charges of
CHF 322 million booked in 2009, and the abovementioned
provision in 2008 relating to the US cross-border case, oper-
ating expenses declined 12%. Personnel expenses decreased
9% excluding restructuring charges due to an 11% reduc-
tion in personnel levels, which mostly took place towards the
end of the year. General and administrative expenses, at CHF
2,017 million, were down 39% from CHF 3,295 million a
year earlier, mainly due to the abovementioned provision re-
lated to the US cross-border case as well as a result of cost-
saving measures. Net charges to other business divisions, at
CHF 90 million in 2009, were up 23% from CHF 73 million
the previous year, mainly reflecting lower charges for IT infra-
structure. Depreciation was CHF 289 million in 2009, com-
pared with CHF 323 million a year earlier. Amortization of
intangible assets was CHF 67 million, up from CHF 33 million
in 2008, mainly reflecting the impairment of intangible assets
related to invested asset outflows in UBS (Bahamas) Ltd.
Development of invested assets
Net new money
Net new money outflows were CHF 89.8 billion compared
with CHF 107.1 billion in the previous year. Total net new mon-
ey outflows comprised CHF 20.1 billion from Swiss clients and
CHF 69.7 billion from international clients, compared with
2008 outflows of CHF 41.9 billion and CHF 65.2 billion, re-
spectively. The outflows in 2009 reflect clients withdrawing as-
sets from UBS, due to the effects of the financial market turbu-
lence on our operating performance and reputation. Net new
money levels were also negatively affected by client advisor at-
trition, as well as by the discussions regarding Switzerland’s
banking secrecy and proposed tax treaties. In addition, invest-
ed assets of CHF 22.8 billion were affected by the Italian tax
amnesty, of which we were able to retain CHF 14.3 billion.
Invested assets
Invested assets were CHF 960 billion on 31 December 2009,
an increase of CHF 5 billion from 31 December 2008, as
higher equity markets were partially offset by net new mon-
ey outflows and a 3% decrease of the US dollar against the
Swiss franc in the course of 2009.
Gross margin on invested assets (international clients only)
The gross margin on invested assets declined 10 basis points
to a total of 86 basis points. This excludes the abovemen-
tioned valuation adjustments on a property fund. The recur-
ring income margin was down 9 basis points to a total of 63
basis points, as clients increased their allocation to lower-
margin cash products. In addition, margins and volumes de-
creased and the lombard loan volume went down. The non-
recurring income margin was also down, decreasing 1 basis
point to 23 basis points, mainly due to lower brokerage fees
reflecting decreased client transaction activity levels.
78
2008
Results
In 2008, pre-tax profit fell 30% to CHF 6,013 million, com-
pared with CHF 8,543 million in 2007. This was partially due to
the abovementioned provision related to the US cross-border
case. Excluding the impact of this provision, the pre-tax result
would have fallen 19%, mainly reflecting the lower asset base
and client transaction activity as well as higher credit loss ex-
penses in line with the turbulence of the financial market.
Operating income
Total operating income in 2008 was CHF 15,021 million,
down 15% from CHF 17,718 million a year earlier. Recurring
income decreased 12% on lower asset-based fees reflecting
an 11% decrease in average invested assets. Non-recurring
income fell by 15% due to lower brokerage fees, reflecting
decreased client transaction activity levels. Credit loss ex-
penses were impacted by provisions made for lombard loans,
increasing significantly to CHF 392 million from net credit
loss recoveries of CHF 30 million in the previous year. The
deterioration in financial markets seen especially in fourth
quarter 2008, resulted in a decrease in the value of collateral
supporting some loans.
Operating expenses
At CHF 9,008 million, operating expenses in 2008 were
down 2% from CHF 9,176 million one-year earlier, despite
the abovementioned provision relating to the US cross-bor-
der case. Excluding the impact of this provision, the operat-
ing expenses would have decreased 12%, mainly due to low-
er variable compensation. This resulted in lower personnel
expenses, which fell 15% to CHF 5,430 million in 2008, com-
pared with CHF 6,356 million one-year earlier. General and
administrative expenses, at CHF 3,295 million, were up 31%
from CHF 2,514 million in 2007 due to the abovementioned
provisions related to the US cross-border case. Net charges to
other business divisions, at CHF 73 million in 2008, were up
70% from CHF 43 million the previous year, mainly reflecting
lower charges for IT infrastructure. Depreciation was CHF
323 million in 2008, slightly down from CHF 334 million one-
year earlier. Amortization of intangible assets was CHF 33
million, up CHF 18 million from 2007.
Development of invested assets
Net new money
Net new money outflows were CHF 107.1 billion in contrast
to inflows of CHF 120.4 billion in the previous year, partly
due to the effect of deleveraging by clients. Total net new
money outflows comprised CHF 41.9 billion from Swiss cli-
ents and CHF 65.2 billion from international clients, com-
pared with inflows a year earlier of CHF 15.2 billion and CHF
105.2 billion, respectively. This reflected slower wealth cre-
ation in a tougher economic climate, a near absence of cor-
porate events creating large one-time increases in entrepre-
neurial wealth, the impact of deleveraging of private client
portfolios and clients with drawing assets from UBS, due to
the effects of the financial market turbulence on our operat-
ing performance and reputation.
Invested assets
Invested assets were CHF 955 billion on 31 December 2008,
a decrease of CHF 437 billion from 31 December 2007. This
was a result of lower equity markets and net new money
outflows. Moreover, major currencies declined considerably
against the Swiss franc in the course of 2008.
Gross margin on invested assets (international clients only)
The gross margin on invested assets declined 7 basis points
to a total of 96 basis points. This excludes the abovemen-
tioned valuation adjustments on a property fund. The re-
curring income margin was down 5 basis points to a total
of 72 basis points as clients increased their allocation to
lower-margin cash products. In addition, margins for mort-
gages and savings products were down and the lombard
loan volume decreased. The non-recurring income margin
was also down, decreasing 2 basis points to 24 basis points,
mainly due to lower brokerage fees reflecting decreased cli-
ent transaction activity levels.
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79
UBS business divisions and Corporate Center
Wealth Management Americas
Wealth Management Americas
Business description
Wealth Management Americas provides advice-based relationships through its financial advisors, who deliver a
fully-integrated set of wealth management solutions designed to address the needs of core affluent, high net
worth and ultra high net worth individuals and families. It includes the former Wealth Management US business
unit, as well as the domestic Canadian business and the international business booked in the United States.
Business
Wealth Management Americas is among the leading wealth
managers in the region based on invested assets and in-
cludes the former Wealth Management US business unit,
the domestic Canadian business and the international busi-
ness booked in the United States. On 31 December 2009,
the business division had CHF 690 billion in invested assets.
Strategy
Wealth Management Americas focuses on delivering a fully-
integrated set of wealth management solutions and advice-
based wealth management services through our financial
advisors to meet the needs of our target client segments:
ultra high net worth (more than USD 10 million in investable
assets), high net worth (USD 1 million to USD 10 million in
investable assets) and the core affluent (USD 250,000 to
USD 1 million in investable assets). We are committed to
providing advice to our clients by employing the best profes-
sionals in the industry, delivering the highest standard of ex-
ecution and running a streamlined and efficient business.
In 2009, we continued to develop our high net worth
segment-specific offerings. With dedicated advisor teams
focusing on the ultra high net worth segment, our Private
Wealth Management unit now provides a targeted, advice-
based and process-driven platform. With a foundation of
nine dedicated offices and nine satellite offices across the
Geographical presence in key markets
Calgary (CDN): 1 office
Vancouver (CDN): 1 office
ALASKA
WASHINGTON
MONTANA
NORTH DAKOTA
MINNESOTA
Montreal (CDN): 1 office
VERMONT
MAINE
OREGON
IDAHO
WYOMING
MICHIGAN
NEW YORK
SOUTH DAKOTA
WISCONSIN
Toronto (CDN): 1 office
NEBRASKA
IOWA
NEVADA
UTAH
COLORADO
KANSAS
ILLINOIS
OHIO
INDIANA
PENNSYLVANIA
WEST
VIRGINIA
KENTUCKY
VIRGINIA
MISSOURI
NEW HAMPSHIRE
MASSACHUSETTS
RHODE ISLAND
CONNECTICUT
NEW JERSEY
DELAWARE
MARYLAND
WASHINGTON D.C.
CALIFORNIA
ARIZONA
NEW MEXICO
OKLAHOMA
ARKANSAS
TENNESSEE
NORTH CAROLINA
SOUTH
CAROLINA
MISSISSIPPI
ALABAMA
GEORGIA
TEXAS
LOUISIANA
HAWAII
Wealth Management Americas offices:
<5
5–15
>15
80
FLORIDA
PUERTO RICO
2BD010_e
Invested assets by asset class
In %, except where indicated
Invested assets by client wealth
In %, except where indicated
On
100
75
50
25
0
31.12.07
31.12.08
31.12.09
On 31.12.09
Total: CHF 690 billion
Total:
CHF 906 billion
CHF 644 billion
CHF 690 billion
8
33
17
6
28
8
9
26
19
13
28
5
8
29
23
9
26
5
30
11
< CHF 1 million
CHF 1–5 million
CHF 5–10 million
> CHF 10 million
27
32
Accounts/money markets
External mutual funds
Bonds
Equities
UBS mutual funds
Other1
1 Includes structured products and alternative investments.
2BD011_e
2BD012_e
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US, Private Wealth advisors who have access to an exclusive
set of tools and capabilities through Private Wealth Man-
agement, support our goals of ultra high net worth
segment growth, productivity, and consistent client experi-
ence.
Organizational structure
Formed from the reorganization of the Global Wealth Man-
agement & Business Banking business division in 2009,
Wealth Management Americas is headquartered in Wee-
hawken, New Jersey, where most corporate and operational
functions are located. The client-facing organization consists
of the branch network in the US, Puerto Rico and Canada,
with 7,084 financial advisors as of 31 December 2009.
On 27 October 2009, Robert J. McCann was appointed
as Chief Executive Officer of Wealth Management Americas
and Member of the Group Executive Board of UBS AG.
Significant recent acquisitions and business transfers in-
clude:
– February 2007, acquisition of McDonald Investments’s
private client branch network.
Legal structure
In the US and Puerto Rico, the business division operates
through direct and indirect subsidiaries of UBS AG. Securities
and operations activities are conducted primarily through
registered broker-dealers, which during 2009 consisted of
UBS Financial Services Inc., UBS Financial Services Incorpo-
rated of Puerto Rico, UBS International Inc. and UBS Services
USA LLC. On 31 December 2009, UBS International Inc. and
UBS Services USA LLC were merged into UBS Financial Ser-
vices Inc., reducing the number of registered broker-dealers
to two. Our banking services in the US include those con-
ducted through the UBS AG branches and UBS Bank USA, a
federally regulated Utah bank, which provides Federal De-
posit Insurance Corporation (FDIC)-insured deposit accounts
and enhanced collateralized lending services.
The business division’s Canadian wealth management
and banking operations are conducted through UBS Bank
(Canada).
Competitors
– October 2008, transfer of the Investment Bank’s munici-
pal securities operations serving private clients to the for-
mer Wealth Management US business unit (following the
decision in June 2008 that the Investment Bank would
exit the institutional municipal securities business).
– March 2009, entered into an agreement to sell 56
branches to Stifel, Nicolaus & Company, Incorporated.
The sale was completed in four separate closings in the
second half of 2009.
– September 2009, completed the sale of UBS’s Brazilian
financial services business, UBS Pactual, to BTG invest-
ments, LP.
Wealth Management Americas competes with national full-
service brokerage firms, domestic and global private banks,
regional broker-dealers, independent broker-dealers, regis-
tered investment advisors, trust companies and other finan-
cial services firms offering wealth management services to
US and Canadian private clients, as well as foreign non-resi-
dent clients seeking wealth management services within the
US. In 2008 and 2009, the financial crisis triggered consoli-
dation within the industry that directly impacted our major
competitors including Citi Global Wealth Management,
Merrill Lynch Global Wealth Management, Morgan Stanley
Global Wealth Management Group and Wachovia Securi-
81
100
75
50
25
0
UBS business divisions and Corporate Center
Wealth Management Americas
ties. Specifically, Merrill Lynch was acquired by Bank of
America, effective 1 January 2009, and Wachovia Corpora-
tion was acquired by Wells Fargo, effective 31 December
2008. In June 2009, Morgan Stanley and Citi formed Mor-
gan Stanley Smith Barney, a joint venture combining Morgan
Stanley’s Global Wealth Management Group and Citi’s Smith
Barney in the US, Quilter in the UK, and Smith Barney Aus-
tralia.
Products and services
Wealth Management Americas offers clients a full array of
wealth management services that focus on the individual in-
vestment needs of each client. Comprehensive planning
supports clients through the various stages of their lives, in-
cluding education funding, charitable giving, tax manage-
ment strategies, estate strategies, insurance, retirement, and
trusts and foundations with corresponding product offerings
for each stage. Our advisors work closely with internal con-
sultants in areas such as wealth planning, portfolio strategy,
retirement and annuities, alternative investments, structured
products, banking and lending, equities and fixed income.
Clients also benefit from our dedicated Wealth Manage-
ment Research team who support investment decisions.
Our offerings are designed to meet a wide variety of in-
vestment objectives, including capital appreciation, income
generation and diversification of portfolio concentration. To
address the full range of our clients’ investment needs, we
offer competitive lending and cash management services, in-
cluding the Resource Management Account (RMA) product,
credit cards, FDIC-insured deposits, securities-backed lend-
ing and mortgages. Additionally, Corporate Employee Finan-
cial Services provides stock option and other related services
to many of the largest US corporations and their executives.
Our clients have the option of asset-based or transaction-
based pricing for their relationships. Clients who choose as-
set-based pricing have access to both discretionary and non-
discretionary investment advisory programs. Non-discretionary
advisory programs enable the client to maintain control over
all transactions in the account, and clients with discretionary
advisory programs direct investment professionals to manage
a portfolio on their behalf. Depending on the type of discre-
tionary program, the client can give investment discretion to
a qualified financial advisor, a team of our investment profes-
sionals or a third-party investment manager. Separately, mu-
tual fund advisory programs are also offered, in which a fi-
nancial advisor works with the client to create a diversified
portfolio of mutual funds guided by a research-driven asset
allocation framework.
Transaction-based pricing offers access to a broad range
of transaction products, including individual securities such
as equities and fixed income instruments. To complement
portfolio strategies, qualified clients may take advantage of
structured products and alternative investment offerings.
82
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Business performance
Business division reporting
CHF million, except where indicated
Income
of which: ARS settlement impact
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
of which: ARS settlement impact
Services (to) / from other business divisions
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Business division performance before tax
of which: ARS settlement impact
of which: business division performance before tax excluding ARS settlement impact
Key performance indicators 1
Pre-tax profit growth (%) 2
Cost / income ratio (%)
Net new money (CHF billion) 3
Gross margin on invested assets (bps)
Additional information
Average attributed equity (CHF billion)
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 4
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Recurring income
Invested assets (CHF billion)
Client assets (CHF billion)
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
Additional information (only Wealth Management US)
Net new money (CHF billion) 3
Net new money including interest and dividend income (CHF billion) 5
Business division reporting excluding PaineWebber acquisition costs 6
Business division performance before tax
Cost / income ratio (%)
Average attributed equity (CHF billion)
As of or for the year ended
% change from
31.12.09
5,546
3
5,550
4,231
1,017
4
170
34
62
5,518
32
32
N/A
99.5
(11.6)
81
8.8
0.4
22.8
23.5
4.2
3,256
690
737
16,925
7,084
(7.6)
11.5
155
97.3
5.2
31.12.08
6,278
(172)
(29)
6,249
4,271
2,558
1,464
16
162
0
65
7,072
(823)
(1,636)
813
N/A
112.6
(15.9)
82
7.8
(10.6)
26.9
28.9
4.5
4,076
644
682
20,623
8,607
(10.6)
11.7
(689)
110.4
4.2
31.12.07
7,153
31.12.08
(12)
(2)
7,151
5,060
1,209
28
163
0
70
6,530
621
621
12.1
91.3
35.9
77
4.8
4,455
906
1,018
21,180
8,693
26.6
51.5
841
88.5
(11)
(1)
(60)
(75)
5
(5)
(22)
(96)
(1)
13
(15)
(7)
(20)
7
8
(18)
(18)
24
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 2 Not meaningful if either the current period or the comparison
period is a loss period. 3 Excludes interest and dividend income. 4 BIS risk-weighted assets (RWA) are according to Basel II. 5 For purposes of comparison with US peers. 6 Acquisition costs
represent goodwill and intangible assets funding costs and intangible assets amortization costs related to the acquisition of the PaineWebber retail brokerage business in 2000.
83
UBS business divisions and Corporate Center
Wealth Management Americas
2009
Results
Wealth Management Americas reported a pre-tax profit of
CHF 32 million in 2009 compared with a pre-tax loss of CHF
823 million in 2008. The 2009 results were negatively im-
pacted by restructuring charges of CHF 152 million and a net
goodwill impairment charge of CHF 19 million related to the
sale of UBS Pactual. Our performance in 2008 was nega-
tively impacted by CHF 1,636 million in charges and trading
losses related to auction rate securities (ARS). Excluding
these items, pre-tax performance would have been a profit
of CHF 203 million in 2009 compared with a profit of CHF
813 million in 2008.
Operating income
In 2009, operating income decreased 11% to CHF 5,550
million from CHF 6,249 million in 2008. Excluding ARS-re-
lated trading losses of CHF 172 million in 2008, operating
income would have declined 14%. Recurring income was
CHF 3,256 million, 20% lower than the previous year due
to lower managed accounts fees related to an 11% de-
crease in average invested assets and lower interest income
due to lower interest spreads. Recurring income declined to
59% of operating income from 65% in 2008. Non-recur-
ring income increased 4% due to a CHF 35 million interest
credit from the Investment Bank, resulting from a change in
the UBS Bank USA investment portfolio strategy and higher
municipal trading income, partly offset by lower commis-
sion revenue related to lower transactional activity. In addi-
tion, 2008 was negatively impacted by the abovemen-
tioned trading losses related to ARS.
Operating expenses
Operating expenses decreased 22% to CHF 5,518 million
from CHF 7,072 million. In 2009, operating expenses included
CHF 152 million in restructuring charges and CHF 34 million
in goodwill impairment charges related to the sale of UBS Pac-
tual (of which CHF 15 million was charged to the Corporate
Center as this was related to foreign exchange exposures
managed by Group Treasury), while 2008 expenses included
CHF 1,464 million in charges related to the ARS settlement.
Excluding these charges, operating expenses would have de-
creased 5%. Personnel expenses were CHF 4,231 million in
2009, down 1% from CHF 4,271 million in the previous year.
Excluding CHF 71 million in restructuring charges in 2009,
personnel expenses would have decreased 3% from the pre-
vious year. This was a result of lower salaries related to a de-
crease in headcount, and lower revenue-based financial advi-
sor compensation and was partly offset by higher incentive
compensation as well as higher recruiting related costs. Non-
personnel expenses declined 54% to CHF 1,287 million from
CHF 2,801 million in 2008, but would have decreased 11%
excluding CHF 82 million in restructuring costs that were
mainly related to real estate writedowns, the abovementioned
goodwill impairment charges and ARS-related charges in
2008. The decline was also due to cost–cutting measures in
general, including reduced general and administrative ex-
penses.
Development of invested assets
Net new money
In 2009, net new money outflows were CHF 11.6 billion
compared with CHF 15.9 billion in the prior year. The former
Wealth Management US business unit’s net new money out-
flows were CHF 7.6 billion in 2009, compared with CHF 10.6
billion in 2008. Following strong net new money inflows in
first quarter 2009 due to recruitment of experienced finan-
cial advisors, we experienced net new money outflows dur-
ing the remainder of the year due to financial advisor attri-
tion and limited recruiting of experienced financial advisors
as a result of reputational issues. Including interest and divi-
dends, net new money inflows for the former Wealth Man-
agement US business unit in 2009 were CHF 11.5 billion
compared with CHF 11.7 billion in 2008.
Invested assets
Wealth Management Americas had CHF 690 billion in in-
vested assets on 31 December 2009, up 7% from CHF 644
billion on 31 December 2008. This increase was principally
driven by positive market performance, and was partly offset
by a reduction of CHF 24 billion related to the sale of branch-
es to Stifel, Nicolaus & Company, Incorporated and the sale
of UBS Pactual, as well as net new money outflows. In addi-
tion, invested assets were impacted by negative currency
translation effects due to a 3% depreciation of the US dollar
versus the Swiss franc.
Gross margin on invested assets
The gross margin on invested assets was 81 basis points in
2009, down from 82 basis points in 2008. The decrease is a
result of a 12% decline in income compared with an 11%
decrease in average invested assets. The recurring income
margin declined 5 basis points to 48 basis points, corre-
sponding to a 20% decrease in recurring income. The non-
recurring margin increased 4 basis points to 33 basis points,
driven by an increase in municipal trading income and a CHF
35 million interest credit from the Investment Bank, which
was attributed to a change in the UBS Bank USA investment
portfolio strategy, while 2008 included abovementioned
trading losses related to ARS.
84
2008
Results
In 2008, we recorded a pre-tax loss of CHF 823 million com-
pared with a pre-tax profit of CHF 621 million in 2007. Driv-
ing the decline were total ARS-related charges of CHF 1,636
million in 2008. Excluding these charges, the pre-tax result
would have increased 31%. In US dollar terms and excluding
ARS-related charges, the pre-tax performance would have
increased 51%, driven by resilient operating income growth
during a challenging environment coupled with a decline in
expenses, including lower accruals for variable compensa-
tion.
Operating income
In 2008, total operating income was CHF 6,249 million,
down 13% from CHF 7,151 million in 2007. Excluding cur-
rency effects and ARS-related trading losses, operating in-
come increased 3% from 2007. The increase in operating
income reflected stronger net interest income related to an
increase in deposit balances, and a positive impact of the
new equity attribution framework introduced in first quarter
2008, and was partly offset by lower transactional revenue
and an increase in credit loss expense.
Operating expenses
Total operating expenses rose 8% to CHF 7,072 million in
2008 from CHF 6,530 million in 2007. Excluding ARS-related
charges, operating expenses declined 14%. In US dollar
terms and excluding ARS-related expenses, operating ex-
penses declined 1%. In US dollar terms, personnel expenses
decreased 3%, driven primarily by lower accruals for variable
compensation, and were partly offset by higher costs related
to financial advisor recruitment and higher severance costs
related to non-financial advisor staff reductions. Excluding
ARS-related expenses, non-personnel costs (including gen-
eral and administrative expenses, depreciation and amortiza-
tion expenses and services provided to and received from
other business divisions), in US dollar terms, increased 5%
due to increases in insurance costs, occupancy, legal fees,
and depreciation costs, and were partly offset by lower pro-
visions (non-ARS-related), lower service charges from other
business divisions and reduced discretionary spending on
travel, marketing, and consulting fees.
Development of invested assets
Net new money
In 2008, net new money outflows were CHF 15.9 billion
compared with inflows of CHF 35.9 billion in 2007, with net
new money outflows concentrated in the second and third
quarters. Net new money at the former Wealth Manage-
ment US business unit reflected an outflow of CHF 10.6 bil-
lion compared with an inflow of CHF 26.6 billion in 2007.
The outflows reflected the financial market turbulence and
its impact on our operating performance as well as reputa-
tional issues which led to an increase in financial advisor
attrition and clients diversifying assets away from the firm.
Including interest and dividends, the former Wealth Man-
agement US business unit had net new money inflows in
2008 of CHF 11.7 billion, compared with outflows of CHF
51.5 billion in 2007.
Invested assets
Wealth Management Americas had CHF 644 billion in in-
vested assets on 31 December 2008, down 29% from CHF
906 billion on 31 December 2007. This was a result of de-
clining markets over the year, net new money outflows and
the negative impact of currency translation.
Gross margin on invested assets
The gross margin on invested assets was 82 basis points in
2008, up from 77 basis points in 2007. The increase was
mainly a result of a 5 basis point increase in the recurring
income margin to 53 basis points, while the non-recurring
margin was unchanged at 29 basis points.
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85
UBS business divisions and Corporate Center
Global Asset Management
Global Asset Management
Business description
Global Asset Management is a large-scale asset manager with well diversified businesses across regions,
capabilities and distribution channels. It offers investment capabilities and investment styles across all major
traditional and alternative asset classes. These include equities, fixed income, currency, hedge fund, real estate,
infrastructure and private equity investment capabilities that can also be combined in multi-asset strategies.
Business
Strategy
Global Asset Management offers a diverse range of invest-
ment capabilities and services from a boutique-like structure
encompassing all major asset classes including equities, fixed
income, asset allocation, currency, risk management, hedge
funds, real estate, infrastructure, private equity and fund ad-
ministration. Invested assets totaled CHF 583 billion on
31 December 2009, making Global Asset Management one
of the larger institutional asset managers and hedge fund of
funds managers in the world. It is also one of the largest
mutual fund managers in Europe and the largest in Switzer-
land. The “Key focus areas” chart shows the investment,
distribution and support structure of the business division.
Revenues and key performance indicators are reported ac-
cording to two principal asset management client segments:
institutional (for example, corporate and public pension
plans, governments and their central banks) and wholesale
intermediary (financial intermediaries, including UBS’s wealth
management businesses, and third parties). The bar charts on
the following pages show the breakdown of invested assets
and revenues across these segments and by regions and asset
classes.
As the financial crisis recedes, significant renewed growth
in the asset management industry is anticipated. The fun-
damental drivers of growth in the industry, such as the need
to save for retirement and the increase in savings in emerg-
ing economies, remain in place and appear to be reacceler-
ating.
Global Asset Management is focused on seizing the op-
portunities that growth within the industry will bring. The
diversification of the business across geographies, capabili-
ties and distribution channels in recent years, and an im-
provement in investment performance in a number of capa-
bilities, provide a solid foundation for future growth.
Our key strategic objective is to monetize our improved
investment performance through both gaining new client
assets and improving our retention of existing client assets.
In pursuit of our strategic objective, we are working to
expand our third-party institutional and wholesale distribu-
tion, to increase our cooperation with the wealth manage-
ment businesses and to leverage our existing strong posi-
tions in emerging markets, notably in China, Korea and the
Middle East.
Key focus areas
Investment capabilities are globally coordinated
but with boutique-like discretion wherever possible …
Equities
Fixed income
Alternative and
quantitative
investments
Global real estate
Global investment
solutions
Infrastructure and
private equity
Fund services
The Americas
Switzerland
Europe, Middle East and Africa
Asia Pacific
… distribution is regionally organized …
IT1
Operations and
fund treasury
Human resources1
Legal, compliance
and risk control1
Financial control1
Strategic planning
Consultant relation-
ships and marketing
… and supported by global functions
1 Reports to UBS Group functional head.
86
2BD020_e
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Organizational structure
Competitors
Our business division has main offices in London, Chicago,
Frankfurt, Hartford, Hong Kong, New York, Paris, Singapore,
Sydney, Tokyo, Toronto and Zurich, and employs around
3,500 personnel in 25 countries.
Significant recent acquisitions and business transfers
– In May 2007, UBS announced the closure of Dillon
Read Capital Management (DRCM). The business was
formed in June 2005 and officially launched in June
2006. The business had two arms – one managing
existing proprietary assets transferred from the Invest-
ment Bank, the other managing outside investor assets.
As the development of the business did not meet origi-
nal expectations, it was closed in May 2007.
– In July 2007, UBS purchased a 51% stake in Daehan In-
vestment Trust Management Company Ltd. (DIMCO)
from Hana Daetoo Securities (formerly Daehan Invest-
ment & Securities Company Ltd.), a wholly-owned sub-
sidiary of Hana Financial Group. DIMCO was renamed
UBS Hana Asset Management Company Ltd. interna-
tionally, and Hana UBS Asset Management in Korea.
– In February 2008, UBS acquired 100% of the Caisse
Centrale de Réescompte (CCR) Group in France from
Commerzbank. The asset management business of CCR
currently operates as CCR Asset Management.
– In August 2008, UBS sold its 24.9% stake in Adams
Street Partners to its remaining shareholders. The trans-
action closed on 6 August 2008 resulting in a net gain of
CHF 168 million.
– In September 2009, UBS completed the sale of its Brazil-
ian financial services business, UBS Pactual, including its
asset management business, UBS Pactual Asset Man-
agement. Global Asset Management continues to serve
Brazil and other Latin American markets through its
Americas distribution team.
Our competitors range from global firms with wide-ranging
capabilities (such as Fidelity Investments, AllianceBernstein
Investments, BlackRock, JP Morgan Asset Management,
Deutsche Asset Management and Goldman Sachs Asset
Management), to regional or local firms specializing in par-
ticular asset classes. Many of our competitors are specialist
niche players who focus mainly on one asset class, particu-
larly in the real estate, hedge fund, infrastructure and re-
gional private equity investment areas.
The asset management industry is undergoing a period of
consolidation and polarization into either large-scale firms or
niche specialists. Large-scale firms, like our Global Asset
Management business division, offer well-diversified invest-
ment capabilities across all asset classes and have a broad
global distribution network.
Products and services
The “Investment capabilities and services” chart illustrates
our offering which can be delivered in the form of segregated,
pooled and advisory mandates along with a range of more
than 500 registered investment funds, exchange-traded funds
and other investment vehicles across all major asset classes.
– Equities offers a full spectrum of investment styles with
varying risk and return objectives. It has three investment
pillars with distinct strategies including core / value (port-
folios managed according to a price to intrinsic value phi-
losophy), growth investors (a quality global growth man-
ager) and structured equities (strategies that employ
proprietary analytics and quantitative methods).
– Fixed income offers a diverse range of global, regional
and local market-based investment strategies that cover a
wide range of benchmarks. Its capabilities include “core”
government and corporate bond strategies, complement-
ed by extended strategies such as high-yield and emerg-
ing market debt.
Invested assets by region¹
In %, except where indicated
Institutional /wholesale intermediary revenues
In %, except where indicated
On
100
75
50
25
0
31.12.07
31.12.08
31.12.09
Total:
CHF 891 billion
CHF 575 billion
CHF 583 billion
33
21
13
33
33
19
10
38
35
20
12
33
On
100
75
50
25
31.12.07
31.12.08
31.12.09
Total:
CHF 4,094 million
CHF 2,904 million
CHF 2,137 million
42
58
43
57
40
60
The Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
1 Assets represented are totals for the Global Asset Management business division worldwide.
The regional split is primarily based on the client servicing location.
0
2BD023_e
Institutional
Wholesale intermediary
2BD022_e_GAM
87
100
75
50
25
0
100
75
50
25
0
UBS business divisions and Corporate Center
Global Asset Management
– Alternative and quantitative investments has two primary
business lines – multi-manager (or fund of funds) and sin-
gle manager. The former constructs portfolios of hedge
funds and other alternative investments operated by
third-party managers, allowing clients to have diversified
exposure to a range of hedge funds, private equity and
infrastructure strategies. O’Connor is a key provider of
single-manager global hedge funds.
– Global real estate actively manages real estate invest-
ments in Asia, Europe and the US and across the major
real estate sectors. Its capabilities are focused on core and
value-added strategies, but also include other strategies
across the risk / return spectrum. These are offered on a
global, regional and country basis and through open- and
closed-end private funds, customized investment struc-
tures, funds of funds, individually managed accounts and
publicly traded real estate securities.
– Global investment solutions offers asset allocation, cur-
rency, manager research and risk management services. It
manages a wide array of domestic, regional and global
balanced portfolios, currency mandates, structured port-
folios, multi-manager and absolute return strategies.
Through its strategic investment advisory services, it sup-
ports clients in a wide range of investment-related func-
tions including investment policy setting, integrated asset
liability solutions, multi-manager approaches and invest-
ment outsourcing.
– Infrastructure and private equity is involved in the origina-
tion and management of specialist funds that invest in
infrastructure and other private assets globally.
– Fund services, the global fund administration business,
provides professional services, including legal set-up, re-
porting and accounting for retail and institutional invest-
ment funds, hedge funds and other alternative funds.
Investment performance 2009
From March onwards, 2009 was largely characterized by
varying degrees of recovery in most financial markets, with
some volatility along the way. Many of our strategies were
well positioned to benefit from the recovery, and the initial
performance improvement of 2008 grew into a substantial
and sustained improvement in 2009 across many strate-
gies.
Among core / value equity strategies, a high proportion
delivered returns that equaled or exceeded their benchmarks
for 2009 and, in most cases, by significantly more than nor-
mal expectations for actively managed strategies. This built
on the generally improved performance in 2008, and most
strategies continued to improve their relative standings com-
pared with our peers. Global, US, European, Australian and
Asian emerging markets strategies saw improved perfor-
mance versus benchmarks as a result of broad-based stock
selection gains, which in many cases, were reported on a
consistent quarter-by-quarter basis throughout the year. In
addition to these core large cap traditional strategies, most
global and regional small cap, concentrated and long-short
strategies, and global sustainable and responsible invest-
ment strategies performed especially well. UK strategies per-
formed at benchmark or better for the year. Canadian strat-
egies delivered disappointing returns during the year, but
their medium- and long-term records remain solid.
The majority of growth equities strategies exceeded their
benchmarks during the year. Notable leaders were the US
large cap growth and Global (ex US) small cap growth strat-
egies, both of which greatly exceeded both their bench-
marks and peers. Longer-term performance across the entire
growth equities platform remained strong, with all strategies
outpacing their respective benchmarks since inception.
Institutional invested assets by asset class
In %, except where indicated
Wholesale intermediary invested assets by asset class
In %, except where indicated
31.12.07
31.12.08
31.12.09
Total:
CHF 522 billion
CHF 335 billion
CHF 346 billion
22
23
30
19
6
23
20
22
22
13
21
18
27
21
13
Money market
Fixed income
Equity
Multi-asset
Alternatives
On
100
75
50
25
0
88
On
100
75
50
25
0
31.12.07
31.12.08
31.12.09
Total:
CHF 369 billion
CHF 240 billion
CHF 237 billion
4
31
27
19
19
5
24
18
20
33
7
23
22
20
28
2BD025_e
Money market
Fixed income
Equity
Multi-asset
Alternatives
2BD024_e
100
75
50
25
0
1.00
0.75
0.50
0.25
0.00
Investment capabilities and services
Alternative and
quantitative
investments
Single manager
hedge funds
Multi-manager
hedge funds
Quantitative
Infrastructure
fund of funds
Private equity
fund of funds
Active commodities,
multi-manager
Equities
Core/value
Global
Fixed income
Global
Country and regional
Country and regional
Sector specific
Emerging markets
Emerging markets
Specialist
Long /short
HALO
High yield
Structured credit
Liquidity /short duration
Growth investors
Indexed
Global
Country and regional
Structured equities
Systematic alpha
Quantitative equities
Index and
portfolio construction
solutions
(including passive)
Global
real estate
Global
Global investment
solutions
Infrastructure and
private equity
Global
Direct infrastructure
investment
Country and regional
Country and regional
Private strategies
Asset allocation
Global and regional
Real estate securities
Currency management
Agriculture
Return and risk targeted
Structured portfolios
Risk management and
advisory services
Fund services
Alternative funds
Investment funds
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Among structured equities strategies, all key systematic
alpha strategies exceeded performance objectives for the
year. Particularly strong results were achieved in global, UK
and Swiss small and midcap strategies. The US fundamental
equity market neutral strategy generated positive absolute
returns, as did quantitative equities’ global equity market
neutral strategy. Among long-only strategies, quantitative
equities’ global and US active strategies were ahead of
benchmark, while the Japan and European strategies trailed
their benchmarks. Enhanced index strategies mostly lagged
benchmarks with the exception of Japan. Passive strategies
continued to add value in line with their risk objectives.
Global bond markets had another dramatic year in 2009,
most notably the corporate bond markets where yield
spreads (the difference in yield versus government bonds)
peaked in March at record levels. From the first quarter on-
wards, investment grade, high yield and emerging market
bond yield spreads reduced dramatically, resulting in record
high total returns from these fixed income asset classes. A
combination of this market environment and portfolio posi-
89
UBS business divisions and Corporate Center
Global Asset Management
tioning led to significant outperformance of UK, US, global
sovereign, Australian, Canadian, Euro, Swiss and emerging
market bond strategies, and modest outperformance of Jap-
anese bond strategies. The performance of many key strate-
gies was substantially stronger than in the previous year.
High yield strategies underperformed their benchmarks but
achieved positive total returns for the year. Money market
funds continued to achieve their capital preservation objec-
tives.
The performance of multi-asset strategies, including the
global securities composite and dynamic alpha strategies,
was strongly positive during the year. Asset allocation, cur-
rency management and security selection all contributed to
this result. Multi-asset strategies had been positioned for a
recovery in risky assets such as equities, and thus benefited
from the upswing in equity markets that started in early
March and continued throughout the year. As in 2008, the
active currency strategy performed strongly during 2009.
Global and regional convertible bonds strategies ended the
year well ahead of benchmark, delivering a very strong per-
formance. The majority of multi-manager investment solu-
tions also delivered positive returns relative to benchmark
over the year. Strategic investment advisory services, includ-
ing investment outsourcing, asset liability investment solu-
tions and strategic alternatives advisory gained further trac-
tion and brought in new clients during the year.
In alternative and quantitative investments, hedge funds
rebounded strongly in 2009. The O’Connor single manag-
er business posted positive returns across all core funds,
with the exception of currency and rates, with the key
O’Connor multi-strategy fund materially outperforming its
peers and relevant benchmarks. At year end, most funds
were above pre-existing high water marks. In the multi-
manager business, positive returns were posted across all
core strategies.
Investment performance of the direct real estate flagship
funds generally picked up during the year. The flagship UK
strategy improved in absolute terms but underperformed
versus benchmark. All Germany-based Eurozone strategies
produced positive absolute returns (consisting of the four
UBS Swiss listed real estate funds) and also outperformed
their benchmark. Although absolute performance of the US
fund was negative, it substantially outperformed its bench-
mark. Performance of the flagship J-REIT (managed in part-
nership with Mitsubishi Corporation) was positive both in
absolute and relative terms. Performance for real estate se-
curities strategies was mixed versus benchmarks, however,
they all posted positive absolute returns for the year. The
fund of funds strategy gathered momentum over the second
half of the year when positive returns were delivered.
The last year was challenging for the infrastructure and
private equity sector as a whole. The flagship UBS Interna-
tional Infrastructure Fund’s portfolio performed well despite
unprecedented market challenges, although at the end of
the period a regulatory decision for the UK water sector ad-
versely impacted one investment in the portfolio. The Middle
East fund, managed in partnership with Invest AD, formerly
Abu Dhabi Investment Company, reached first close in May
2009 with up to USD 250 million in commitments, with final
close expected in 2010.
90
Business performance
Business division reporting
CHF million, except where indicated
Institutional fees
Wholesale intermediary fees
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Business division performance before tax
Key performance indicators 2
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money (CHF billion) 3
Gross margin on invested assets (bps) (institutional)
Gross margin on invested assets (bps) (wholesale intermediary)
Additional information
Average attributed equity (CHF billion)
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 4
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Personnel (full-time equivalents)
Institutional
Net new money (CHF billion) 3
of which: money market funds
Invested assets (CHF billion)
of which: money market funds
Wholesale intermediary
Net new money (CHF billion) 3
of which: money market funds
Invested assets (CHF billion)
of which: money market funds
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As of or for the year ended
% change from
31.12.09
1,273
863
2,137
996
387
(74)
36
340
13
1,698
438
(67.1)
79.5
(45.8)
37
36
2.8
15.9
4.1
37.7
1.7
583
3,471
(12.7)
2.1
346
45
(33.1)
(14.3)
237
67
31.12.08
1,659 1
1,246
2,904
946
462
88
44
0
33
1,572
1,333
(8.3)
54.1
(103.0)
38
41
3.0
44.4
8.5
41.2
2.2
575
3,914
(55.6)
6.0
335
42
(47.4)
15.2
240
80
31.12.07
31.12.08
2,370
1,724
4,094
1,883
593
73
72
0
19
2,640
1,454
10.2
64.5
(15.7)
44
47
2.3
891
3,785
(16.3)
6.7
522
32
0.6
4.8
369
70
(23)
(31)
(26)
5
(16)
(18)
(61)
8
(67)
(3)
(12)
(7)
(52)
(23)
1
(11)
3
7
(1)
(16)
1 Includes a gain of CHF 168 million on the sale of a minority stake in Adams Street Partners. 2 For the definitions of our key performance indicators, refer to the “Measurement and analysis of perfor-
mance” section of this report. 3 Excludes interest and dividend income. 4 BIS risk-weighted assets (RWA) are according to Basel II.
91
UBS business divisions and Corporate Center
Global Asset Management
2009
Results
Pre-tax profit for full year 2009 was CHF 438 million com-
pared with CHF 1,333 million in 2008. Excluding a net good-
will impairment charge in 2009 of CHF 191 million related to
the sale of UBS Pactual, restructuring costs in 2009 of CHF
48 million and a gain of CHF 168 million from the sale of our
minority stake in Adams Street Partners in 2008, pre-tax
profit would have decreased 42% to CHF 677 million.
Operating income
Total operating income was CHF 2,137 million in 2009 com-
pared with CHF 2,904 million in 2008. Institutional revenues
were CHF 1,273 million in 2009 compared with CHF 1,659
million in 2008, due to lower management fees associated
with a 21% decrease of the average invested assets base
and reduced income following the sale of UBS Pactual in
2009, which was partly offset by higher performance fees in
alternative and quantitative investments as well as lower
operational losses. Additionally, 2008 institutional revenues
included a gain of CHF 168 million from the sale of UBS’s
minority stake in Adams Street Partners. Wholesale inter-
mediary revenues were CHF 863 million in 2009 compared
with CHF 1,246 million in 2008, due to lower management
fees associated with a lower average invested assets base,
lower performance fees from some funds and reduced in-
come following the sale of UBS Pactual in 2009.
Operating expenses
Total operating expenses were CHF 1,698 million in 2009
compared with CHF 1,572 million in 2008. Excluding a net
goodwill impairment charge in 2009, and restructuring
charges during the whole period, operating expenses would
have declined 7% to CHF 1,459 million. This resulted from
lower general and administrative expenses, and was partly
offset by higher accruals of variable compensation driven by
higher performance fees in alternative and quantitative in-
vestments. In 2009, operating expenses included CHF 340
million in goodwill impairment charges related to the sale of
UBS Pactual (of which CHF 149 million was charged to the
Corporate Center as this was related to foreign exchange
exposures managed by Group Treasury).
General and administrative expenses were CHF 387 million
in 2009 compared with CHF 462 million in 2008, mainly due
to lower entertainment expenses, marketing costs, IT costs
and professional fees as a result of ongoing cost-saving mea-
sures and reduced expenses following the sale of UBS Pactual.
Net charges to other business divisions were CHF 74
million in 2009, compared with a net charge from other
business divisions of CHF 88 million in 2008. Excluding the
abovementioned charge to the Corporate Center of CHF
92
149 million, allocated costs were down by CHF 13 million, or
15%, from 2008 mainly due to lower allocated costs from
service providers as a result of ongoing cost-saving measures
and reduced charges following the sale of UBS Pactual.
Depreciation of property and equipment at CHF 36 mil-
lion in 2009 was down by CHF 8 million as a result of lower
depreciation charges on premises, IT and software.
Development of invested assets
Net new money
Net new money outflows were CHF 45.8 billion for full year
2009 compared with outflows of CHF 103.0 billion for full
year 2008. Excluding money market flows, net new money
outflows were CHF 33.6 billion in 2009 compared with CHF
124.2 billion in 2008. Net outflows from clients of our
wealth management businesses were CHF 40.7 billion
(around 90% of total net outflows) in 2009 compared with
CHF 47.1 billion in 2008. Some of the inflows and outflows
relating to clients of our wealth management businesses are
also reported as net new money in- and outflows for the
Wealth Management & Swiss Bank and Wealth Manage-
ment Americas business divisions.
Institutional net new money outflows were CHF 12.7 bil-
lion in 2009 compared with CHF 55.6 billion in 2008. Ex-
cluding money market flows, outflows were CHF 14.8 billion
in 2009 compared with CHF 61.6 billion in 2008. Net out-
flows were reported in alternative and quantitative invest-
ments, multi-asset, equities, fixed income and real estate.
Wholesale intermediary net new money outflows were
CHF 33.1 billion in 2009 compared with CHF 47.4 billion in
2008. Excluding money market flows, outflows of net new
money were CHF 18.8 billion in 2009 compared with CHF
62.6 billion in 2008. Outflows were mainly reported in multi-
asset, equities and fixed income, and were partly offset by
inflows in real estate.
Invested assets
Total invested assets were CHF 583 billion on 31 December
2009 compared with CHF 575 billion on 31 December 2008.
Institutional invested assets were CHF 346 billion on 31 De-
cember 2009 compared with CHF 335 billion on 31 Decem-
ber 2008. The net increase reflects the positive impact of fi-
nancial market developments and positive currency
fluctuations, and was partly offset by the exclusion of UBS
Pactual assets and net new money outflows. Wholesale in-
termediary invested assets were CHF 237 billion on 31 De-
cember 2009 compared with CHF 240 billion on 31 Decem-
ber 2008. The net decrease reflects net new money outflows
and the exclusion of UBS Pactual assets, and was partly off-
set by the positive impact of financial market developments
and CHF 4.2 billion related to the transfer of the real estate
investment management business from Wealth Manage-
ment & Swiss Bank.
Gross margin on invested assets
The gross margin on institutional invested assets was 37 ba-
sis points in 2009, compared with 38 basis points in 2008.
The calculation of 2008 gross margin included a CHF 168
million gain from the sale of our minority stake in Adams
Street Partners in 2008. The 2009 gross margin was sup-
ported by higher performance fees, primarily in alternative
and quantitative investments, and lower operational losses.
The gross margin on wholesale intermediary invested as-
sets was 36 basis points in 2009 compared with 41 basis
points in 2008. This was mainly due to lower performance
fees and reduced income following the sale of UBS Pactual.
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93
UBS business divisions and Corporate Center
Global Asset Management
2008
Results
Pre-tax profit for full year 2008 was CHF 1,333 million com-
pared with CHF 1,454 million in 2007. Excluding costs re-
lated to the closure of Dillon Read Capital Management
(DRCM) in 2007, and a gain from the sale of the minority
stake in Adams Street Partners in 2008, full-year pre-tax
profit would have decreased by CHF 501 million.
Operating income
Total operating income was CHF 2,904 million in 2008 com-
pared with CHF 4,094 million in 2007, mainly due to a signifi-
cant decline in equity market valuations and relative strength-
ening of the Swiss franc against major currencies, especially
the US dollar. Institutional revenues were CHF 1,659 million in
2008 compared with CHF 2,370 million in 2007. Excluding
the gain from the sale of the minority stake in Adams Street
Partners, institutional revenues would have declined by CHF
879 million due to lower performance fees from alternative
and quantitative investments and the Brazilian asset manage-
ment business and lower management fees from the lower
average invested assets base. Wholesale intermediary reve-
nues were CHF 1,246 million in 2008 compared with CHF
1,724 million in 2007 due to lower management fees from
the lower average invested assets base, and lower perfor-
mance fees from the Brazilian asset management business.
Operating expenses
Total operating expenses were CHF 1,572 million in 2008
compared with CHF 2,640 million in 2007. Excluding CHF
212 million in DRCM restructuring costs in 2007, total oper-
ating expenses would have declined 35% or CHF 856 mil-
lion. This decline mainly reflects lower accruals for variable
compensation resulting from lower revenues, changes in the
forfeiture provisions of future share-based awards and cost-
saving measures. The expenses were partly offset by the first-
time inclusion of the acquisition in France of the CCR Group,
and the full-year impact of the acquisition in Korea of 51%
of Daehan Investment Trust Management Company Ltd.
General and administrative expenses were CHF 462 mil-
lion in 2008 compared with CHF 593 million in 2007. The
22% decrease was due to lower provisions and lower travel
and entertainment expenses, and was partly offset by higher
IT costs, the inclusion of the acquisition in France and the
full-year impact of the acquisition in Korea.
Services (to) / from other business divisions increased by
CHF 15 million to CHF 88 million in 2008.
Depreciation of property and equipment was CHF 44 mil-
lion in 2008 compared with CHF 72 million in 2007. Exclud-
ing the impact of the DRCM restructuring costs in 2007, de-
preciation of property and equipment would have been
94
virtually flat despite the inclusion of the acquisition in France
and the full-year impact of the acquisition in Korea.
Development of invested assets
Net new money
Net new money outflows were CHF 103.0 billion for full year
2008 compared with outflows of CHF 15.7 billion for full
year 2007. Net outflows from clients of our wealth manage-
ment businesses accounted CHF 47.1 billion of these full
year 2008 outflows. Some of the inflows and outflows re-
lated to clients of our wealth management businesses are
also reported as net new money in- and outflows for the
Wealth Management & Swiss Bank and Wealth Manage-
ment Americas business divisions. We also experienced rep-
utational damage which impacted flows other than from the
wealth management businesses.
Institutional net new money outflows were CHF 55.6 bil-
lion in 2008 compared with CHF 16.3 billion in 2007. Ex-
cluding money market flows, outflows were CHF 61.6 billion
in 2008 compared with CHF 23.0 billion in 2007. Net out-
flows were reported in multi-asset, fixed income, equities
and alternative and quantitative investments.
Wholesale intermediary net new money outflows were
CHF 47.4 billion in 2008, compared with inflows of CHF
0.6 billion in 2007. Excluding money market flows, net new
money outflows were CHF 62.6 billion in 2008 compared
with outflows of CHF 4.2 billion in 2007, and were mainly
reported in multi-asset, equities and fixed income.
Invested assets
Total invested assets were CHF 575 billion on 31 December
2008 compared with CHF 891 billion on 31 December 2007.
Institutional invested assets were CHF 335 billion on 31 De-
cember 2008 compared with CHF 522 billion on 31 December
2007, reflecting the negative impact of financial market devel-
opments, net new money outflows and currency fluctuations.
Wholesale intermediary invested assets were CHF 240 bil-
lion on 31 December 2008 compared with CHF 369 billion
on 31 December 2007, reflecting the negative impact of fi-
nancial market developments, net new money outflows and,
to a lesser extent, currency fluctuations.
Gross margin on invested assets
The gross margin on institutional invested assets was 38 basis
points in 2008 compared with 44 basis points in 2007. This
was mainly due to lower performance fees from both alter-
native and quantitative investments and UBS Pactual, and a
change in asset-mix to lower-margin money market funds.
The gross margin on wholesale intermediary invested as-
sets was 41 basis points in 2008 compared with 47 basis
points in 2007. This was mainly due to lower performance
fees from UBS Pactual and a change in asset mix to lower-
margin products.
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UBS business divisions and Corporate Center
Investment Bank
Investment Bank
Business description
The Investment Bank provides a broad range of products and services to corporate and institutional clients,
governments, financial intermediaries, alternative asset managers and private investors. The products and
services include advice, research, market access and execution across all major capital markets.
Business
The Investment Bank has three distinct but aligned business
areas:
– Equities
– Fixed income, currencies and commodities (FICC)
– the Investment banking department (IBD)
Co-operation and alignment between the FICC and eq-
uities business areas has recently been strengthened in or-
der to optimize our infrastructure and services offered to
clients. Together they now comprise the securities business,
offering primary and secondary access to the securities and
foreign exchange markets, prime brokerage services as well
as securities, economic, strategic and quantitative research.
IBD provides advice on mergers and acquisitions and re-
structurings, and raises capital mainly for corporate and
sovereign clients in the debt and equity markets. Addition-
ally, as part of a number of broader alignment initiatives
across our business divisions, IBD plays a lead role in mar-
keting the Group to corporates, leveraging their senior cli-
ent relationships.
Strategy
As a result of the losses suffered in 2007 and 2008, we have
taken significant steps to reposition and rebuild the busi-
ness. As part of this process, the balance sheet, risk-weight-
ed assets, operating expenses and headcount have all been
reduced. In addition we have established new leadership
roles in some key areas to implement the new client-centric
strategy, which focuses on flow trading and advice. Client
service and operational excellence are key to its success, and
a flexible and scalable infrastructure is being developed in
order to deliver this. Trading strategies are now focused on
high volume client flow businesses, and are subject to tight
balance sheet and risk limits.
We are focused on enhancing and protecting our tradi-
tional strengths; growing our business in selected products
and regions; and expanding our cooperation with, and deliv-
ery to, partner divisions.
In FICC, we are rebuilding and growing our credit, rates
and emerging markets businesses, while maintaining a mar-
ket-leading position in foreign exchange and money mar-
kets. In equities, we are targeting growth in equity deriva-
tives, exchange-traded derivatives
(ETD) and prime
brokerage, while enhancing our strengths in cash equities.
IBD is focused on maintaining a leading position in Europe,
the Middle East and Africa, and the Asia Pacific regions,
while rebuilding our market position in the Americas.
Organizational structure
The Investment Bank is headquartered in London and em-
ploys approximately 15,700 personnel in over 30 countries.
It is comprised of three business areas which are functionally
run on a global basis: equities, FICC and IBD. IBD’s global
capital markets business consists of two separate joint ven-
tures: equity capital markets with equities, and debt capital
markets with FICC. Global leveraged finance is another joint
venture between IBD and FICC, which includes the global
syndicated finance business.
Significant recent acquisitions and business transfers
Key acquisitions and business transfers over the past three
years include:
– the April 2007 acquisition of a 20% stake in UBS Securi-
ties, China; and
– the September 2009 sale of our Brazilian financial servic-
es business, UBS Pactual.
Legal structure
We operate through branches and subsidiaries of UBS AG.
Securities activities in the US are conducted through UBS Se-
curities LLC, a registered broker-dealer.
Competitors
The industry has seen significant global consolidation as a
result of the financial crisis, with firms such as Lehman Broth-
ers filing for bankruptcy and others, like Bear Stearns, being
sold. At the same time, there has been an emergence of
smaller boutique investment banking advisory and securities
firms. Our main competitors continue to be the major global
investment banks including Bank of America / Merrill Lynch,
Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank,
Goldman Sachs, JP Morgan Chase and Morgan Stanley.
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UBS business divisions and Corporate Center
Investment Bank
Products and services
Equities
Our equities business area is a leading participant in the
global primary and secondary markets for equity, equity-
linked and equity derivative products. It distributes, trades,
finances and clears cash equity and equity-linked products. It
also distributes new equity and equity-linked issues and pro-
vides research on companies, industry sectors, geographical
markets and macroeconomic trends. Equities has made sig-
nificant investments in technology for direct market access,
prime brokerage and client relationship management to im-
prove client service and business efficiency. The business
area also has global and multi-regional operations as well as
a strong local presence in all major markets.
The main business lines of the equities business area are:
– Cash equities provides clients with trade execution offer-
ings and related advice, and comprehensive access to
corporate management. We provide full-service trade
execution for single stock and portfolios, capital commit-
ment, block trading, electronic trading strategies and
platforms, and analytics and commission management
services.
– Equity research provides in-depth analysis on more than
3,000 companies worldwide, or over 80% of the global
markets capitalization. In addition, we have a specialist
research offering in economics, macro asset allocation,
equity strategy, quantitative analysis, socially responsible
investing, commodities, alternative research and valua-
tion and accounting.
– Derivatives provides standardized products and custom-
ized solutions to our clients. In addition to products with
returns linked to equities or equity indices, we also offer
derivative products linked to hedge funds, mutual funds,
real estate and commodity indices in a variety of formats
such as over-the-counter, securitized, fund-wrapped and
exchange-traded.
– Prime brokerage provides integrated global services, in-
cluding multi-asset class clearing and custody, capital
consultancy, securities lending and equity swaps execu-
tion. These services are provided through a client-centric
service model to hedge funds, banks, asset management
and other financial services clients.
– Exchange-traded derivatives provides execution and
clearing services with access to approximately 70 global
exchanges to hedge funds, banks, asset managers, cor-
porations, commodity trading and wealth management
clients as well as to aggregators.
Fixed income, currencies and commodities
The FICC business area delivers products and solutions to
corporate, institutional and public sector clients in all major
markets, as well as to private clients via targeted intermedi-
aries. In response to changes in global markets and client
demand, FICC was significantly restructured in 2009 to im-
prove client service, simplify its operating model, strengthen
risk management and leverage competitive advantages. The
main business lines of the FICC business area are:
– Macro consists of foreign exchange, money market and
interest rate sales and trading businesses. We provide a
range of foreign exchange, precious metals, treasury, and
liquidity management solutions to institutional and pri-
vate clients via targeted intermediaries. Interest rate ac-
tivities include standardized rate-driven products and ser-
vices such as interest rate derivatives trading, underwriting
and trading of government and agency securities.
– Credit sales and trading encompasses the origination, un-
derwriting, and distribution of primary cash and synthetic
credit transactions. We are also active in corporate lend-
ing, secondary trading and market-making in high yield
and investment grade bonds, and loans in both cash and
derivative products.
– Emerging markets business offers local investors access
to international markets, and offers international inves-
tors an opportunity to add exposure via our onshore
presence in key locations. We also provide liquidity in the
local markets across foreign exchange, rates and struc-
tured products. We have a local market presence in Cen-
tral and Eastern Europe and Asia, and access to Latin
American markets through our emerging markets hub in
Stamford.
In early 2010, we began the process of re-integrating re-
sidual risk positions into the FICC business. The positions will
be managed on separate books to be unwound or exited as
needed. As part of this process, and following a thorough
front-to-back review process, certain businesses will be re-
entered. The focus will be on products that are liquid, price-
observable and hedgeable. The businesses approved for
re-entry include the secondary trading of Asian emerging
market convertible bond strips, asset-backed securities,
commercial mortgage-backed securities and collateralized
loan obligations and structured credit / correlation trading;
other proposals are also being considered.
Investment banking department
IBD provides strategic advice and a range of capital markets
execution services to corporate clients, financial institutions,
financial sponsors, sovereign clients, wealth funds and
hedge funds.
– The advisory group assists in acquisitions and sale pro-
cesses, and also advises on strategic reviews and corpo-
rate restructuring solutions.
– Global capital markets offers financing and advisory ser-
vices that cover capital raising including debt and equity
capital, and risk management solutions. It comprises the
equity capital markets business, whose products include
initial public offerings, secondary offerings and equity
linked transactions; and the debt capital markets business
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products include commercial paper, medium-term notes,
senior debt, high yield debt, subordinated debt and hy-
brid capital. The aforementioned financing products are
provided alongside risk management solutions, which in-
clude derivatives, structured finance, ratings advisory ser-
vices and liability management.
– Global leveraged finance provides event-driven (acquisition,
leveraged buy-out) loans, bond and mezzanine leveraged
finance to corporate customers and financial sponsors.
With a presence in all major financial markets, investment
banking coverage is based on a comprehensive matrix of
country, sector and product banking professionals.
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UBS business divisions and Corporate Center
Investment Bank
Business performance
Business division reporting
CHF million, except where indicated
Investment banking
Advisory
Capital market revenues
Equities
Fixed income, currencies and commodities
Other fee income and risk management
Sales and trading
Equities
Fixed income, currencies and commodities
Total Investment Bank income
Credit loss (expense) / recovery 1
Total Investment Bank operating income excluding own credit
Own credit 2
Total Investment Bank operating income as reported
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Business division performance before tax
Key performance indicators 3
Pre-tax profit growth (%) 4
Cost / income ratio (%) 5
Return on attributed equity (RoaE) (%)
Return on assets, gross (%)
Average VaR (1-day, 95% confidence, 5 years of historical data) 6
Additional information
Total assets (CHF billion)
Average attributed equity (CHF billion)
BIS risk-weighted assets, gross (CHF billion) 7
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Compensation ratio (%) 5
Impaired lending portfolio as a % of total lending portfolio, gross
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
2,466
858
2,514
1,609
904
(906)
4,390
4,937
(547)
6,856
(1,698)
5,158
(2,023)
3,135
5,568
2,628
(147)
360
749
59
9,216
(6,081)
N/A
190.7
(24.1)
0.4
55
992.0
25.3
122.4
3.1
3.5
115.2
3.8
15,666
2,880
1,609
1,844
977
866
(573)
(26,712)
5,184
(31,895)
(23,832)
(2,575)
(26,407)
2,032
(24,375)
5,182
3,830
41
447
341
83
9,925
(34,300)
N/A
N/A
(128.2)
(1.2)
79
6,637
2,696
4,262
2,784
1,478
(321)
(7,833)
9,002
(16,835)
(1,197)
(266)
(1,463)
659
(804)
11,633
3,800
(171)
431
0
172
15,865
(16,669)
N/A
N/A
(0.2)
1,680.3
1,922.8
26.8
195.8
(10.0)
4.6
N/A
2.6
5.6
N/A
0.4
19,132
23,739
(14)
(47)
36
65
4
(58)
(5)
98
(34)
7
(31)
(19)
120
(29)
(7)
82
(30)
(41)
(6)
(37)
(24)
(18)
1 Includes CHF 1,013 million in credit losses from impairment charges on reclassified financial instruments for 2009. 2 Represents own credit changes of financial liabilities designated at fair value
through profit or loss. The cumulative own credit gain for such debt held at 31 December 2009 amounts to CHF 0.9 billion. This gain has reduced the fair value of financial liabilities designated at fair
value through profit or loss recognized on our balance sheet. Refer to “Note 27 Fair value of financial instruments” in the “Financial information” section of this report for more information. 3 For the
definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 4 Not meaningful if either the current period or the comparison period
is a loss period. 5 Neither the cost / income nor the compensation ratio are meaningful if revenues in the Investment Bank are negative. 6 As announced in our third quarter 2009 report, we received
approval from the Swiss Financial Market Supervisory Authority (FINMA) to change the calibration of our management VaR from a 10-day 99% measure to a 1-day 95% measure. This measure is re-
ported as a key performance indicator with comparatives provided as at 31.12.2008. 7 BIS risk-weighted assets (RWA) are according to Basel II.
98
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2009
Results
In 2009, we recorded a pre-tax loss of CHF 6,081 million
compared with a pre-tax loss of CHF 34,300 million in 2008,
primarily due to a reduction in losses on residual risk posi-
tions. The 2009 result was also affected by a loss of CHF
2,023 million on own credit from financial liabilities desig-
nated at fair value as our credit spreads narrowed in 2009,
compared with a CHF 2,032 million gain in 2008. For full-year
2009, equities and IBD revenues were down from 2008 as
the businesses suffered losses of key personnel in the early
part of the year. We recorded net credit loss expenses of CHF
1,698 million for 2009, compared with net credit loss expens-
es of CHF 2,575 million in 2008. Excluding the credit loss ex-
penses from reclassified securities of CHF 425 million, our net
credit loss expenses amounted to CHF 1,273 million in 2009.
➔ Refer to “Note 27 Fair value of financial instruments” in
the “Financial information” section of this report for more
information on own credit
Our operating expenses decreased by CHF 709 million
compared with 2008, mainly reflecting lower non-personnel
costs.
Operating income
Total operating income in 2009 was positive CHF 3,135 mil-
lion, up from negative CHF 24,375 million in 2008, mainly
due to substantially reduced losses on risk positions within
the FICC area.
Equities
Revenues in equities were CHF 4,937 million in 2009, down
5% from CHF 5,184 million in 2008. Equity market conditions
continued to be difficult in 2009, impacting our overall busi-
ness performance, as did the loss of some key personnel in
the first part of the year. We have made a number of strategic
hires since then. Cash equity revenues were impacted by low-
er market volumes and a loss in market share. Deri vatives rev-
enues were down. Prime brokerage revenues declined due to
a weaker dividend season and lower client balances in the first
half of 2009. A decline in exchange-traded derivatives reve-
nues was driven by weaker volumes and less favorable inter-
est and margin balances. Equity-linked revenues improved
significantly after a weak 2008 as all regions benefited from
improvements in valuations and liquidity. Proprietary trading
revenues also substantially improved with a strong perfor-
mance recorded across all geographical regions.
Fixed income, currencies and commodities
Revenues were negative CHF 547 million in 2009, up from
negative CHF 31,895 million a year earlier. The FICC result
continued to be affected by losses on residual risk positions
which had a material impact particularly in the first and sec-
ond quarters, but decreased significantly in the second half
of the year. Despite the overall loss, all core FICC businesses
contributed positive revenues as the businesses were rebuilt,
funding costs were normalized, and liquidity improved.
Credit revenues improved in 2009 as key hires were en-
gaged and residual risk positions were steadily reduced. The
macro rates business was negatively impacted by move-
ments in our credit spreads on the valuation of our derivative
positions. Foreign exchange and money markets revenues
were in line with the previous year. Emerging markets reve-
nues increased despite the sale of UBS Pactual, as all regions
continued to perform well, most notably in Eastern Europe,
Middle East and Africa.
As we continued to reduce our residual risk positions, we
incurred losses related to the liquidation of these positions.
Losses on credit valuation adjustments for exposure to mono-
line insurers arising from purchased credit default protection
totaled CHF 0.8 billion for the year. Losses from credit valuation
adjustments incurred in the first quarter of 2009 were only
partially offset by gains in the rest of the year, resulting from
commutation of a number of trades in the second and third
quarter. Other areas which incurred losses in the first quarter
had a less material impact on the remainder of the year.
Investment banking
Revenues of the investment banking department were CHF
2,466 million in 2009, down 14% from CHF 2,880 million in
the previous year. Merger and acquisitions activity remained
subdued during the year with global mergers and acquisi-
tions volumes reaching their lowest annual total since 2004,
according to Thomson Reuters. This resulted in reduced advi-
sory revenues across all regions, down 47% to CHF 858 mil-
lion. The decline was only partially offset by a 36% improve-
ment in capital markets revenues. Equity capital markets
revenues were up 65% to CHF 1,609 million with Europe,
the Middle East, Africa and the Asia Pacific region performing
well, as investors turned to the equity market for financing,
increasing total market volumes by 42% compared with
2008, according to Dealogic. Fixed income capital markets
revenues increased 4% to CHF 904 million as global issuance
levels rose in 2009 by 38% compared with 2008, based on
Dealogic’s debt capital markets classification.
Operating expenses
Operating expenses declined to CHF 9,216 million in 2009,
a 7% decrease from CHF 9,925 million the previous year.
Personnel expenses, at CHF 5,568 million in 2009, increased
7% from one year earlier, and were driven by increased variable
compensation. Salary increases were partly offset by headcount
reductions and reduced restructuring costs.
General and administrative expenses decreased to CHF
2,628 million in 2009 from CHF 3,830 million in 2008. This
is largely due to reduced legal provisions and real estate re-
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UBS business divisions and Corporate Center
Investment Bank
structuring provisions, along with continuing reductions in
professional fees, travel and entertaining and market data
services resulting from headcount reductions and cost-cut-
ting measures.
Net charges to other business divisions were CHF 147 mil-
lion in 2009, compared with a net charge from other busi-
ness divisions in 2008 of CHF 41 million.
lion a year earlier. A goodwill impairment charge of CHF 749
million related to the sale of UBS Pactual was incurred in
2009 (of which CHF 328 million was charged to the Corpo-
rate Center as this was related to foreign exchange expo-
sures managed by Group Treasury), compared with a CHF
341 million goodwill impairment charge relating to the exit
of the municipal securities business in 2008.
Depreciation reduced 19% to CHF 360 million in 2009
from CHF 447 million in 2008, as real-estate restructuring
charges were lower in 2009. Amortization of intangible as-
sets, at CHF 59 million in 2009, was down from CHF 83 mil-
Included in the 2009 operating expenses is a restructur-
ing charge of CHF 226 million, consisting of CHF 102 million
of personnel expenses and CHF 123 million of costs related
to real estate.
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2008
Results
In 2008, we recorded a pre-tax loss of CHF 34,300 million
compared with a pre-tax loss of CHF 16,669 million in 2007,
primarily due to the losses on risk positions within the FICC
area. For full-year 2008, equities and investment banking
revenues were down from a record year in 2007. A credit
loss expense of CHF 2,575 million was recorded in 2008,
mainly due to impairment charges taken on reclassified fi-
nancial assets compared with CHF 266 million in 2007. In
2008, we recorded a gain on own credit from financial liabil-
ities designated at fair value of CHF 2,032 million, resulting
from the widening of our credit spread, which was partly
offset by the effects of redemptions and repurchases of such
liabilities.
Operating expenses for 2008 decreased significantly from
2007, mainly reflecting lower variable compensation.
Operating income
Total operating income in 2008 was negative CHF 24,375
million, down from negative CHF 804 million a year earlier.
Equities
Revenues, at CHF 5,184 million in 2008, were down 42%
from CHF 9,002 million in 2007. The overall business perfor-
mance was impacted in 2008 as equities continued to expe-
rience difficult market conditions. Cash equity revenues
were marginally lower as declines in revenues across Asia
Pacific and Europe were only partially offset by growth in the
US. Derivatives revenues were down as market volatility, de-
pressed client volumes, lack of liquidity and highly correlated
markets impacted performance across all regions, particu-
larly in the fourth quarter. Equity-linked revenues were
down, with most regions impacted by declines in valuations,
falling equity markets and reduced liquidity. Prime brokerage
services had a solid performance, but revenues were down
overall as a strong first half-year performance was offset by
deterioration in the second half of the year. Exchange-traded
derivatives revenues increased, as the business benefited
from strong first and fourth quarters that were driven by
significant volatility in the market. Proprietary trading reve-
nues were negative for the year, reflecting the significant
change in market conditions.
Fixed income, currencies and commodities
Revenues were negative CHF 31,895 million, down from
negative CHF 16,835 million a year earlier. Consequences of
the global financial crisis, including forced liquidations, gov-
ernment bail-outs and consolidation in the banking sector,
negatively affected the majority of the FICC businesses.
Credit recorded losses in both client and proprietary trading
as a result of the significant turbulence in the markets and
subsequent severe lack of liquidity. The negative emerging
markets result was due to losses in Asia Pacific.
These negative effects were only partially offset by posi-
tive results in certain areas. Rates experienced a solid year,
driven by derivatives and government bonds in Europe and
rates derivatives in both Asia Pacific and the US. Foreign ex-
change and money markets produced a strong year as it
capitalized on volatile markets and strong client flows. The
short-term interest rate business benefited from market
movements to generate an exceptional result. The foreign
exchange distribution business posted very good results
across all regions, benefiting from strong client flows seek-
ing to access liquidity in the market. Structured products
posted positive revenues due to strong client interest in
structured funding solutions.
Investment banking
Revenues of the investment banking department at CHF
2,880 million in 2008, decreased 57% from CHF 6,637 mil-
lion in the previous year. Market activity slowed significantly
during the year, resulting in reduced advisory revenues across
the regions, down 40% to CHF 1,609 million. Market volatil-
ity in both equity and debt capital markets led to lower cap-
ital markets revenues, down 65% to CHF 977 million and
41% to CHF 866 million respectively.
Operating expenses
Operating expenses declined by CHF 5,940 million to CHF
9,925 million in 2008, a 37% decrease from CHF 15,865
million the previous year.
Personnel expenses, at CHF 5,182 million in 2008, de-
creased 55% from a year earlier, due to significantly lower
variable compensation and lower salary costs, and were
partly offset by restructuring charges. Share-based compen-
sation was down significantly from 2007, mainly due to re-
duced variable compensation. Full-year results for 2007 in-
cluded accruals for share-based compensation during the
year. These are not reflected in full-year 2008 as, starting in
2009, they are being amortized over the vesting period of
these awards.
General and administrative expenses increased slightly to
CHF 3,830 million in 2008 from CHF 3,800 million in 2007.
Reductions in travel and entertainment, IT and other out-
sourcing costs were more than offset by increases in occu-
pancy costs due to real estate restructuring, and by legal
provisions.
Net charges from other business divisions were CHF 41
million in 2008, compared with a net charge to other busi-
ness divisions in 2007 of CHF 171 million. This increase re-
flects the end of a private equity performance fee received in
2007, an IT data center restructuring fee and increased al-
locations from Wealth Management & Swiss Bank reflecting
higher operating volumes.
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UBS business divisions and Corporate Center
Investment Bank
Depreciation rose 4%, to CHF 447 million in 2008 from
CHF 431 million in 2007, as the real-estate restructuring
charges mentioned above resulted in additional deprecia-
tion costs. Amortization of intangible assets, at CHF 83 mil-
lion in 2008, was down from CHF 172 million a year earlier.
A goodwill impairment charge of CHF 341 million relating
to the exiting of the municipal securities business by the
Investment Bank was recognized in second quarter 2008.
There was no goodwill impairment charge for full-year
2007.
Included in the operating expenses is a restructuring
charge of CHF 737 million recorded in fourth quarter 2008,
consisting of CHF 435 million of personnel expenses and
CHF 302 million of costs related to real estate.
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UBS business divisions and Corporate Center
Corporate Center
Corporate Center
Description
The Corporate Center seeks to ensure that we operate as a coherent and effective whole, by providing
and managing support and control functions for the business divisions and the Group in such areas as risk,
finance (including funding, capital and balance sheet management, management of foreign currencies),
legal and compliance, communication and branding, human resources, information technology, real estate,
procurement and service centres.
Aims and objectives
The Corporate Center assists our business divisions and re-
gions through provision of Group-level control in the areas
of finance, risk, legal and compliance as well as through a
global corporate shared services organization comprising
support and logistics functions. We strive to maintain an ap-
propriate balance between risk and return in our businesses,
while establishing and controlling our corporate governance
processes including compliance with relevant regulations.
Each functional head in the Corporate Center has authority
across all businesses for their area of responsibility, including
the authority to issue Group-wide policies for that area.
On 1 April 2009, we announced that we would be
integrating our Group-wide shared service functions (infor-
mation technology, supply management, real estate, human
resources, communication and branding, corporate develop-
ment and offshoring) as well as the control functions (finance,
risk and legal and compliance) into the Corporate Center. The
objectives of this integration were to improve effectiveness
and efficiency of the control and shared services functions on
a sustainable basis, to strengthen cost management by creat-
ing global and Group-wide cost responsibilities and to pro-
vide simple service delivery models with clear responsibilities.
A new Corporate Center governance model was implement-
ed, and corresponding organizational structures were put in
place including respective management nominations. Within
six months, the transformation was successfully completed
and a new global corporate shared services organization sup-
porting the business divisions and regions was created under
the leadership of the Group Chief Operating Officer (COO).
In parallel, the control functions were centralized under the
Group Chief Financial Officer (CFO), Group Chief Risk Officer
(CRO) and Group General Counsel (Group GC). In total, ap-
proximately 15,000 employees were transferred and inte-
grated into the Corporate Center. As part of this integration,
significant efficiency improvement and cost-saving potentials
have been identified, and initial cost-cutting measures were
implemented in the course of 2009. Headcount and costs of
the centralized functions are re-allocated to the business divi-
sions for which the respective services are performed. A glob-
al service level agreement framework provides governance,
and ensures cost transparency and consistency across service
providers and consumers.
The integration of the control and support functions cre-
ates a foundation to enhance the effectiveness and efficien-
cy of the new Corporate Center, as the operating models of
individual functions and cross-functional synergies will be
optimized. Overall, the integrated structure provides a strong
platform from which we can increase efficiency, create syn-
ergies for revenue growth and enhance shareholder value.
➔ Refer to the “UBS reporting structure and accounting
changes” section of this report for more information
on changes to the quarterly disclosure of the Corporate
Center in 2010
Organizational structure
The Corporate Center consists of the control functions
Group Finance, Group Risk, and Group General Counsel and
the shared services functions human resources, information
technology, premises, supply and demand management,
communication and branding, corporate development and
Group offshoring.
Group Chief Financial Officer
The Group CFO is responsible for transparency in, and ap-
praisal of, the financial performance of the UBS Group and
business divisions, the Group’s financial reporting, forecasting,
planning and controlling processes and for providing advice
on financial aspects of strategic projects and transactions. The
Group CFO has management responsibility over the divisional
and Group financial control functions. The Group CFO is re-
sponsible for the management and control of our tax affairs
and for treasury and capital management, including manage-
ment and control of funding and liquidity risk and our regula-
tory capital ratios. After consultation with the audit commit-
tee, the Group CFO makes proposals to the Board of Directors
(BoD) regarding the standards for accounting we have adopt-
ed and defines the standards for financial reporting and dis-
closure. Together with the Group CEO, the Group CFO pro-
vides external certifications under sections 302 and 404 of the
Sarbanes-Oxley Act 2002, and in coordination with the Group
CEO manages relations with analysts and investors.
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UBS business divisions and Corporate Center
Corporate Center
Group Chief Operating Officer
The Group COO is responsible for the management and
performance of the infrastructure and service functions of
the UBS Group, and is responsible for the management
and control of Group-wide information technology, supply
and demand management, real estate and corporate ad-
ministrative services, human resources, corporate develop-
ment and communications and branding as well as for
physical and information security and offshoring services of
UBS. The Group COO supports the Group CEO in strategy
development and key strategic issues, and assumes respon-
sibility for managing the operations in ways consistent with
the strategic goals and performance targets of the UBS
Group.
Group Chief Risk Officer
The Group CRO is responsible for the development and im-
plementation of principles and appropriate independent
control frameworks for credit, market, country and opera-
tional risks within the UBS Group. In particular, the Group
CRO is responsible for the formulation and implementation
of the frameworks for risk capacity / appetite, risk measure-
ment, portfolio controls and risk reporting; and has manage-
ment responsibility over the divisional and Group risk control
functions. The Group CRO is responsible for the implemen-
tation of the risk control mechanisms as determined by our
BoD, the risk committee or the Group CEO. In addition, the
Group CRO approves transactions, positions, exposures,
portfolio limits and provisions in accordance with the risk
control authorities that are delegated, and monitors and
challenges the bank’s risk-taking activities.
Group General Counsel
The Group GC has Group-wide responsibility for legal and
compliance matters, policies and processes and for manag-
ing the legal and compliance function. The Group GC has
responsibility for establishing a Group-wide management
and control process for our relationship with regulators, in
close cooperation with the Group CRO and the Group CFO
where relevant, and for maintaining the relationships with
our key regulators with respect to legal and compliance mat-
ters. The Group GC is further responsible for reporting legal
and compliance risks and material litigation, for managing
litigation and special and regulatory investigations, and for
ensuring that we meet relevant regulatory and professional
standards in the conduct of our business.
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Results
Corporate Center reporting
CHF million, except where indicated
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets
Total operating expenses 1
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax
Additional information
BIS risk-weighted assets (CHF billion) 2
Personnel (full-time equivalents) 3
As of or for the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
394
(5)
389
551
199
306
193
0
1,250
(860)
(7)
(867)
8.5
1,624
998
0
998
433
353
(73)
265
0
979
19
198
217
8.8
3,097
3,562
0
3,562
583
312
114
243
0
1,252
2,310
145
2,455
2,479
(61)
(61)
27
(44)
(27)
28
(3)
(48)
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1 Includes expenses for the Company Secretary, Board of Directors and Group Internal Audit. 2 BIS risk-weighted assets (RWA) are according to Basel II. 3 Personnel numbers exclude full-time
equivalents from private equity (part of Corporate Center): 0 for 2009, 1 for 2008, 3,843 for 2007.
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UBS business divisions and Corporate Center
Corporate Center
2009
Results
Pre-tax profit from continuing operations declined to nega-
tive CHF 860 million from positive CHF 19 million.
nated debt. In comparison, 2008 included an accounting
gain of CHF 3,860 million related to the MCNs issued in
March 2008, which was offset by the CHF 3.4 billion nega-
tive impact of the transaction between UBS and the Swiss
National Bank and the placement of the abovementioned
MCNs with the Swiss Confederation resulting in a total gain
of CHF 0.4 billion.
Operating income
Total operating income decreased by CHF 609 million to CHF
389 million, mainly due to own credit related allocations of
negative revenues to the Corporate Center, of which CHF
222 million were related to 2008. In addition, the Corporate
Center reported a CHF 498 million loss on the closing of the
UBS Pactual sale in 2009, which was largely related to for-
eign exchange losses. These losses were partly offset by a
net gain of CHF 297 million on the valuation of the manda-
tory convertible notes (MCNs) issued in December 2008 and
converted in August 2009, a gain of CHF 117 million on the
revaluation of our option to acquire the SNB StabFund’s eq-
uity, an additional foreign exchange gain of CHF 430 million
due to the deconsolidation and liquidation of subsidiaries
and a gain of CHF 304 million on the buyback of subordi-
Operating expenses
Total operating expenses increased to CHF 1,250 million
from CHF 979 million, mainly due to a goodwill impairment
charge of CHF 492 million relating to the sale of UBS Pac-
tual, which was reallocated to the Corporate Center from
the business divisions. Excluding this charge, operating ex-
penses would have decreased by CHF 221 million, mainly
due to the credit related to the UBS Pactual operating result
which was transferred to the Corporate Center from the
business divisions; the release of a provision related to a re-
solved tax claim in connection with the acquisition of
PaineWebber, as well as reduced advertising and sponsoring
expenditures. These items were partly offset by higher re-
structuring costs and accruals for variable compensation in
2009.
106
2008
Results
The Corporate Center recorded a result from continuing op-
erations of positive CHF 19 million in full-year 2008, down
from a gain of CHF 2,310 million in 2007. This decline related
mainly to a charge of CHF 3.4 billion following a transaction
between UBS and the Swiss National Bank (SNB) in fourth
quarter 2008. This charge reflected a net loss arising from the
acquisition of the equity purchase option, and the impact of
the contingent issuance of UBS shares in connection with the
transaction. The total charge also included the fair valuation
impact of the MCNs placed with the Swiss Confederation.
The quarterly revaluation of the call component of the MCNs
was reflected in a corresponding fluctuation in the results of
the Corporate Center. This fluctuation was subject to the vol-
atility of our share price and continued until the conversion of
the MCNs into UBS shares. The loss from the SNB transaction
was reported in the Corporate Center as it benefited the
whole bank and not just the Investment Bank. For this pur-
pose, at the 27 November 2008 Extraordinary General Meet-
ing, shareholders approved the creation of conditional capital
in the maximum amount of 365 million shares. Furthermore,
2008 was impacted by losses resulting from cash flow hedge
ineffectiveness, due to the accelerated amortization of gains
recorded until November 2007.
On the positive side, a gain of CHF 3,860 million due to
the accounting treatment of the MCNs issued in first quarter
2008, and a gain of CHF 174 million on the sale of our stake
in Bank of China in the fourth quarter assisted the 2008 re-
sult.
Operating income
Total operating income decreased to CHF 998 million in
2008 from CHF 3,562 million in 2007, largely due to the
abovementioned SNB transaction and fair valuation of the
MCNs in fourth quarter 2008, losses on swaps not fully eli-
gible for hedge accounting, losses of CHF 192 million due to
currency translation differences on partial disposals of an in-
vestment in a consolidated investment fund, and a gain from
the sale of our stake in Bank of China. The 2007 result was
due to the CHF 1,950 million gain from the sale of our
20.7% stake in Julius Baer. In addition, the contribution from
the former Industrial Holdings decreased to CHF 22 million
in 2008, compared with CHF 689 million in 2007.
Operating expenses
Total operating expenses were CHF 979 million in 2008, down
CHF 273 million from CHF 1,252 million in 2007, predominant-
ly due to a sharp reduction of accruals for variable compensa-
tion, declined advertising and sponsoring costs, lower project
costs as well as decreased travel activities in 2008. These were
partly offset by higher real estate restructuring provisions and a
fair value adjustment in corporate real estate in 2008.
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Risk and treasury management
Audited information according to IFRS 7 and IAS 1
Risk disclosures provided in line with the requirements of the International Financial Reporting Standard 7 (IFRS 7) Financial
Instruments: Disclosures, and disclosures on capital required by the International Accounting Standard 1 (IAS 1) Financial
Statements: Presentation form part of the financial statements audited by UBS’s independent registered public accounting
firm Ernst & Young Ltd., Basel. This information (the audited texts, tables and graphs) is marked by a bar on the left-hand
side throughout this report and is incorporated by cross-reference into the financial statements of this report.
Risk management
– Risk reduction remained a priority in 2009. As a result of our risk reduction
initiatives, we ended the year with risk exposures commensurate with our risk
capacity, although legacy risks remain significant and are targeted for contin-
ued reduction. Effective risk management and control are essential to our
success and we have made further progress in implementing the risk renewal
program we initiated in 2008. In addition, the implementation of the settle-
ment agreements relating to the US cross-border investigation remains a focus
of management attention. Regulatory and tax authorities in a number of
countries are focusing on cross-border banking activities, and we have
launched a number of initiatives to improve the effectiveness of the policy and
control framework of our cross-border wealth management business globally.
We further reduced our risk exposure, which was
reflected in declines in our stress loss measures as well as
decreases in our credit and market risk portfolios. We also
reduced our exposures to residual risk positions. Our
reduction in risk exposures contributed to significant
decreases in the size of our balance sheet and risk-weight-
ed assets.
We made further progress in implementing our risk
renewal program. This has resulted in enhanced risk
governance (including changes in risk management and
control personnel), improved risk infrastructure and
processes and the associated capabilities to capture,
represent and monitor risks. We have also changed the
firm’s capital optimization model and enhanced our
funding and balance sheet management.
110
Treasury management
– We continued to further strengthen and safeguard our liquidity position and
adjusted funding targets while our focus was maintained on continuing asset
reductions. Combined with the broad diversity of our funding sources, our
contingency planning processes and our global scope, these measures have
enabled us to maintain a balanced asset / liability profile throughout the recent
market dislocation. Additionally, signs of our return towards financial stability
included the successful tender for certain subordinated notes in March and, in
August, the exit of the Swiss Confederation’s stake in UBS through conversion
of the mandatory convertible notes and immediate placement of shares in the
market.
At year-end 2009, our BIS tier 1 ratio amounted to 15.4%
and the BIS total capital ratio to 19.8%. We achieved this
by continued de-risking of our assets, which is reflected in
our 32% BIS risk-weighted assets reduction. Eligible tier 1
capital decreased from CHF 33.2 billion to CHF 31.8 billion.
We were able to almost compensate the effects of losses
incurred during 2009 and further negative impacts on
equity, by the issuance of newly created shares in June.
In 2009 we experienced a decline in customer deposits and
net new money outflows in our asset gathering divisions.
The effects of client deposit outflows, as well as the
temporary reduction in access to wholesale term debt
markets during the first few months of 2009, were readily
compensated by funding from alternative sources and
ongoing balance sheet reductions.
Our total assets declined by 33% to CHF 1,341 billion on
31 December 2009, which led to a further improvement of
our FINMA leverage ratio from 2.45% to 3.93%.
Our funding sources were broadened by accessing an
important new investor base through our inaugural
European covered bond program.
Risk and treasury management
Risk management and control
Risk management and control
Risk reduction remained a priority in 2009. We further reduced our risk exposures, which was reflected in de-
clines in our stress loss measures as well as decreases in our credit and market risk portfolios. We also reduced
our exposures to residual risk positions such as monoline insurers, student loan auction rate securities and
some leveraged finance commitments. Our reduction in risk exposures contributed to significant decreases in
the size of our balance sheet and risk-weighted assets. As a result of our risk reduction initiatives, we ended
the year with risk exposures commensurate with our risk capacity, although legacy risks remain significant and
are targeted for continued reduction. Effective risk management and control are essential to our success and
we have made further progress in implementing the risk renewal program we initiated in 2008. In addition,
the implementation of the settlement agreements relating to the US cross-border investigations remains a
focus of management attention. Regulatory and tax authorities in a number of countries are focusing on cross-
border banking activities, and we have launched a number of initiatives to improve the effectiveness of the
policy and control framework of our cross-border wealth management business globally.
Summary of key developments in 2009
The important developments that took place in 2009 with
regard to risk management and control include:
– A significant reduction in our risk exposures during the
year was reflected in our stress loss measures as well as
reductions in our average and period-end Value-at-Risk
(VaR), a decrease in our credit risk portfolios and lower
exposures to residual risk positions. We commuted trades
with a notional value of approximately USD 7 billion with
several monoline insurers which contributed to a reduc-
tion in our net exposures to monoline insurers after cred-
it valuation adjustments to USD 2.3 billion (excluding
hedges). Approximately USD 1.6 billion at par of our ag-
gregate exposures to student loan auction rate securities
were either redeemed by issuers or sold in the secondary
market. Our legacy leveraged finance positions were also
reduced through sales and writedowns.
– The decrease in our risk exposures contributed to signifi-
cant reductions in our balance sheet by 33% to CHF
1,341 billion and our risk-weighted assets by 32% to CHF
206.5 billion at 31 December 2009 compared with the
end of the prior year.
– Our credit loss expenses were approximately 40% lower
at CHF 1.8 billion for 2009 compared with CHF 3.0 billion
for the prior year.
– We significantly enhanced our stress testing framework
which comprises portfolio-specific stress tests as well as
combined firm-wide stress tests. Our firm-wide stress
testing captures all major risks across our business divi-
sions and is one of the most critical inputs for discussions
between management, our Board of Directors (BoD) and
our regulators on the risk profile of our firm. We carried
out a stress test specified by the Swiss Financial Market
Supervisory Authority (FINMA) which was designed to as-
sess the resilience of the large Swiss banks in the event of
a severe economic downturn, and FINMA reported on
2 October 2009, “that even after the effect of a severe
stress event they (the two large systemically relevant
banking groups in Switzerland which includes UBS) would
still maintain a stable capital base with a Tier 1 capital
ratio over 8%.”
– We changed the calibration of our management VaR
from a 10-day 99% measure to a 1-day 95% measure.
We consider that a 1-day 95% VaR reflects the way that
trading risks are viewed and managed by the business
and can be more directly compared with mark-to-market
revenues.
– As a result of management’s investigation into the losses
we experienced in 2007 and 2008, we launched a com-
prehensive remediation program in the Investment Bank.
We made further progress in implementing this program
and developing sustainable solutions. Our remediation
activity has resulted in enhanced risk governance includ-
ing changes in risk management and control personnel,
and we have improved our risk infrastructure and pro-
cesses and the associated capabilities to capture, repre-
sent and monitor risks. We have also changed the firm’s
capital optimization model and enhanced our funding
and balance sheet management.
– In connection with the settlements relating to the US
cross-border matter, we established a governance and
control framework designed to ensure that we perform
the obligations assumed in those settlements and to
manage related matters including the exit from the af-
fected US cross-border business activities. We have also
112
established new standards, controls and training pro-
grams for conducting cross-border business globally in
compliance with applicable laws and regulations. Addi-
tional measures to address operational risks related to
that business are being developed and put into effect
under our Risk Effectiveness Project, including the com-
munication of clear compliance expectations by senior
management and the implementation of new disciplin-
ary processes.
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Our risk management and control principles are imple-
mented via a risk management and control framework. The
framework comprises qualitative elements such as policies
and authorities, and quantitative components including risk
measurement and limits.
The framework is dynamic and is adapted as the firm’s
businesses and the market environment evolve. It includes
clearly defined processes to deal with new business initia-
tives and complex or unusual transactions.
– Our emphasis on risk awareness has been actively
strengthened through the greater empowerment of our
Control functions by our BoD and Group Chief Executive
Officer (CEO).
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The risk assessment and management oversight per-
formed by the BoD considers evolving best practices and is
intended to conform to statutory requirements as is the re-
lated disclosure in this section.
– Our Total Reward Principles, which summarize the com-
pensation structure for our employees, include a focus on
sustainable profitability as well as effective risk and capital
management. Risk Control is actively involved in our com-
pensation processes which are designed to support ap-
propriate and controlled risk taking by our businesses.
➔ Refer to the “Credit risk“, “Market risk“, “Operational risk“,
“Risk concentration” and “Liquidity and funding manage-
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ment“ sections of this report for more information
➔ Refer to the “Compensation and shareholdings” section
of this report for more information on our compensation
practices
➔ Refer to “Note 21 Provisions and litigation” in the
“Financial information” section of this report for more
information in connection with the US cross-border matter
Risk management and control principles
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We have five key principles which are intended to support
the firm in achieving an appropriate balance between risk
and return. These principles are:
– Protection of financial strength by controlling our overall
risk exposures and assessing potential risk concentrations
at the position and portfolio levels, and in combination
across all risk types and business divisions.
– Reputation protection which depends, among other
things, on the effective management and control of risks.
Our risk culture demands that all employees make the
protection of our reputation an overriding concern.
– Business management is accountable for all risks and is
responsible for the continuous and active management of
risk exposure to ensure that risk and return are balanced.
– Independent control of risk through risk control functions
which monitor the effectiveness of business risk manage-
ment and oversee risk-taking activities.
– Disclosure of risk to provide comprehensive, transparent
and periodic reporting to senior management, the BoD,
shareholders, regulators, rating agencies and other stake-
holders.
Risk management and control responsibilities
Key roles and responsibilities related to risk management
and control are:
– The BoD is responsible for determining the firm’s risk prin-
ciples, risk appetite and major portfolio limits, including
the allocation of certain of these limits to the business
divisions. The BoD is supported by a BoD Risk Committee
which monitors and oversees the firm’s risk profile and
the implementation of the risk framework established by
the BoD. The BoD Risk Committee also assesses and ap-
proves the firm’s key risk measurement methodologies
and control principles.
– The Group Executive Board (GEB) is responsible for the
implementation of the risk framework, controls the firm’s
risk profile and approves major risk policies.
– The Group CEO is responsible for the results of the firm,
has risk control authority over transactions, positions and
exposures, and is also responsible for the allocation of
portfolio limits to the business divisions.
– The business division CEOs are accountable for the re-
sults of their respective business divisions, which in-
cludes responsibility for the active and continuous man-
agement of risk exposures to ensure that risks and
returns are balanced.
– The Group Chief Risk Officer (CRO) reports directly to
the Group CEO and has functional and management au-
thority over risk control throughout the firm. Risk Con-
trol provides independent oversight of risk and is re-
sponsible for implementing the risk control processes for
credit, country, market, investment and operational
risks. This includes establishing methodologies to mea-
sure and assess risk, setting risk limits and developing
and operating an appropriate risk control infrastructure.
The risk control process is supported by a framework of
policies and authorities which are delegated to Risk Con-
trol Officers corresponding with their experience and
scope of responsibilities.
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Risk and treasury management
Risk management and control
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– The Group Chief Financial Officer (CFO) is responsible for
ensuring that disclosure of our financial performance is
clear and transparent and meets regulatory requirements
and corporate governance standards. The Group CFO is
also responsible for implementing the risk management
and control frameworks for capital management, liquidi-
ty, funding and tax.
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– The Group General Counsel (GC) is responsible for im-
plementing the firm’s risk management and control
principles for legal matters and for ensuring compliance
with all laws and regulations in each of the jurisdictions
in which we operate.
Risk categories
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The risks faced by our businesses can be broken down into
three different categories: primary risks, consequential risks
and business risks.
Primary and consequential risks result from our business
activities and are subject to independent risk control. Primary
risks consist of credit risk, country risk, market risk (including
issuer risk) and investment risk. Consequential risks consist
of operational risk, liquidity and funding risks, legal and
compliance risks and tax risks. Further details on primary and
consequential risks are provided below:
– Credit risk – the risk of loss resulting from the failure of a
client or counterparty to meet its contractual obligations.
– Country risk – the risk of loss resulting from country-
specific events. It includes transfer risk, whereby a
country’s authorities prevent or restrict the payment of
an obligation, as well as systemic risk events arising
from country-specific political or macroeconomic devel-
opments.
– Market risk and investment risks – the risk of loss result-
ing from changes in market variables, whether to our
trading positions or financial investments.
– Operational risk – the risk of loss resulting from inade-
quate or failed internal processes, people and systems, or
from external causes, whether deliberate, accidental or
natural. This includes risks related to legal and compli-
ance and tax matters.
– Liquidity and funding risks – the risk that we might be un-
able to either meet our payment obligations when due or
borrow funds in the market at an acceptable price to
fund actual or proposed commitments.
Business risks arise from the commercial and economic
risks inherent in our business activities and it is manage-
ment’s responsibility to manage these risks.
➔ Refer to the “Credit risk”, “Market risk”, “Operational risk”
and “Liquidity and funding management” sections of this
report for a description of the control frameworks for
these risk categories
Risk measurement
A variety of methodologies and measures are applied to
quantify the risks of our portfolios and risk concentrations.
Risks that are not well reflected by standard measures are
subject to additional controls, which may include pre-ap-
proval of transactions and specific restrictions. Models to
quantify risk are generally developed by dedicated units
within the firm-wide and business division-facing control
functions. We require that valuation and risk models which
could impact the firm’s books and records be independently
verified and subjected to ongoing monitoring and control by
the Group CRO and Group CFO Organizations.
Statistical loss and stress loss
We assess potential future losses using two complementary
types of risk measures: statistical loss and stress loss.
Statistical loss
Statistical loss measures include VaR, Expected Loss (EL) and
Earnings-at-Risk (EaR). VaR estimates the losses which could
potentially be realized over a set time period at an estab-
lished level of confidence. EL is used to measure the average
annual costs that are expected to arise from our credit port-
folios and from operational risks. EaR comprises a core of
statistical measures overlaid with management judgment
and measures the potential shortfall in our earnings which
could potentially be realized over a set time period at an es-
tablished level of confidence.
➔ Refer to the “Credit risk”, “Market risk” and “Operational
risk” sections of this report for a description of the firm's
key statistical loss measures
Stress loss
As a complement to our statistical loss measures, we per-
form stress testing. Stress loss is the loss that could result
from extreme events under specified scenarios. We use stress
testing to quantify our exposures to extreme and unusual
market movements and to enable us to identify, understand
and manage our potential vulnerabilities and risk concentra-
tions. During 2009 we significantly enhanced our stress test-
ing framework, which incorporates a comprehensive range
of portfolio-specific stress tests as well as combined firm-
wide stress tests.
Portfolio-specific stress tests are measures that focus on
risks of specific portfolios within the business divisions. Our
portfolio stress loss measures are characterized by past events
but also include forward-looking elements. Our stress scenari-
os for trading risks were enhanced in 2009 to more accurately
capture the liquidity characteristics of different markets and
positions. Our stress frameworks include a scenario which re-
114
flects the extreme market conditions that were experienced at
the height of the financial crisis in fourth quarter 2008.
Combined firm-wide stress tests were further developed
in 2009 to capture the firm’s exposure to global systemic
events, including a severe global recession. These stress tests
are based on forward-looking macro-economic and market
event scenarios calibrated to different levels of severity. The
evolution of economic variables and market indicators under
these scenarios is defined and applied to our entire risk port-
folio. The impact of primary, consequential and business
risks is assessed with the aim of calculating the loss and cap-
ital implications were these stress scenarios to be realized.
Stress test results are included in risk reporting and are fully
integrated into the risk control, risk appetite and business
planning processes of the firm. Our firm-wide stress testing,
which captures all major risks across our business divisions, is
one of the key inputs for discussions between management,
our BoD and our regulators on the risk profile of our firm. In
2009 we carried out a FINMA specified stress test which was
designed to assess the resilience of the two large Swiss banks
in the event of a severe economic downturn, encompassing a
deep worldwide recession, accompanied by a significant dete-
rioration in the financial and property markets. FINMA report-
ed on 2 October 2009 “that even after the effect of a severe
stress event they [the two large systemically relevant banking
groups in Switzerland which includes UBS] would still maintain
a stable capital base with a Tier 1 capital ratio over 8%.” We
continue to provide detailed stress analyses to FINMA in accor-
dance with their requirements.
Our stress scenarios are reviewed, updated and expanded
regularly in the context of the macro-economic and geopo-
litical environment by a committee comprised of representa-
tives from the business divisions, Risk Control and Economic
Research. Our stress testing therefore attempts to provide a
control framework that is forward-looking and responsive to
changing market conditions. However, the market moves
experienced in actual stress events may differ from moves
envisaged in our scenario specifications.
Most major financial firms employ stress tests, but their
approaches vary significantly, and there are no industry
standards defining stress scenarios or the way they are ap-
plied to a firm’s positions. Consequently, comparisons of
stress results between firms can be misleading and there-
fore we, like most of our peers, do not publish quantitative
stress test results.
Group risk appetite framework
Our risk appetite framework was enhanced in 2009. We have
established risk appetite objectives in respect of earnings and
capital levels that we seek to maintain even after experiencing
severe losses over a defined time horizon. In order to monitor
our risk profile against our risk appetite, we use our two com-
plementary firm-wide risk measurement frameworks; EaR (to-
gether with its extension Capital-at–Risk or CaR) and Com-
bined Stress Testing (CST). Both frameworks capture risks
across all of our business divisions and from all major risk cat-
egories – primary risks, consequential risks and business risks.
These measures are significant components of our risk con-
trol, capital management and business planning processes
and are described in more detail as follows:
– EaR is measured as the potential shortfall in earnings at a
95% confidence level and is evaluated over both 3-month
and 1-year periods.
– CaR extends EaR to consider the impact on BIS tier 1 cap-
ital of a more severe earnings shortfall and is measured at
confidence levels higher than 95%.
– CST was incorporated into the risk appetite framework in
2009 to supplement EaR and CaR. As described under
“Stress loss” above, our firm-wide stress tests evaluate
the impact across our risk portfolios (and thereby on our
earnings and capital) based on specified macro-economic
stress scenarios.
Our risk appetite is established by the BoD. Risk appetite is
based on our risk capacity, which is in turn based on our capital
and budgeted earnings resources. Our overall risk appetite is
set as an upper limit covering the aggregate risk exposure for
each risk appetite objective (taking into account inherent limi-
tations in the precision of risk exposure measures that focus on
extreme market and economic events). Comparison of the
firm’s risk exposure with our risk capacity under prevailing op-
erating conditions as well as prospective business plans serves
as an input to the risk limit framework. This comparison is also
a key tool to support management decisions on potential ad-
justments to the risk profile of our firm.
Risk reduction remained a priority for the firm in 2009,
and we further reduced our risk exposure which was reflect-
ed in our stress measures and decreases in our market and
credit risk portfolios, including reductions in our residual risk
positions. As a result, we ended the year with risk exposures
commensurate with our operating risk capacity.
➔ Refer to the “Credit risk”, “Market risk” and “Risk
concentration” sections of this report for more information
on our risk exposures
Risk disclosures
The measures of risk exposure that we use may differ de-
pending on the purposes for which exposures are calculated:
financial accounting under IFRS, determination of our regu-
latory capital, or our internal management of the firm. The
exposures detailed in the “Credit risk” and “Market risk”
sections below are typically based on our internal manage-
ment view of risk exposure.
➔ Refer to the “Basel II Pillar 3” section of this report for
further information on the exposures we use in the
determination of our required regulatory capital
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Risk and treasury management
Risk management and control
Credit risk
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Credit risk is the risk of loss resulting from the failure of a client
or counterparty to meet its contractual obligations to UBS. This
can be caused by factors directly related to the counterparty,
such as business or management problems, or from failures in
the settlement process, for example in foreign exchange trans-
actions where we have honored our obligation but the counter-
party fails to deliver the counter-value (“settlement risk”). Alter-
natively, it can be triggered by economic or political difficulties
in the country in which a counterparty or issuer of a security is
based or where it has substantial assets (“country risk”).
Sources of credit risk
Credit risk arises from traditional banking products such as
loans, commitments to lend and contingent liabilities (for ex-
ample, letters of credit) as well as from “traded products”:
OTC derivative contracts; exchange-traded derivatives; and
securities financing transactions such as repurchase agree-
ments (repos and reverse repos) and securities borrowing
and lending transactions. The risk control processes applied
to these products are generally the same, although the ac-
counting treatment may vary as products can be carried at
amortized cost or fair value depending on the product type
and the nature of the exposure. A form of credit risk also
arises on securities and other obligations in tradable form, as
their fair values are affected by changing expectations re-
garding the probability of issuers failing to meet these obli-
gations or when actual failures occur. Where these securities
and obligations are held in connection with a trading activity,
we view the risk as a market risk.
Many of the business activities of Wealth Management &
Swiss Bank and the Investment Bank expose us to credit risk,
while credit risk exposures from Wealth Management Amer-
icas and Global Asset Management are less material. Wealth
Management & Swiss Bank offers private and corporate
clients in Switzerland and wealth management clients inter-
nationally (except those served by Wealth Management
Americas) a variety of credit products. The Investment Bank
provides corporate, institutional, intermediary and alterna-
tive asset management clients access to a full range of cred-
it and capital markets instruments across many product
classes, and engages with other professional counterparties
in trading and risk management activities.
Credit risk control
Limits and controls
Limits are established for individual counterparties and coun-
terparty groups covering banking and traded products, as
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well as settlement amounts. These limits put constraints not
only on the current outstanding amount but also on contin-
gent commitments and the potential future exposure of trad-
ed products. Credit engagements may not be entered into
without the appropriate approvals and adherence to limits.
In the Investment Bank, a distinction is made between
exposures intended to be held to maturity (“take and hold
exposures”) and those which are intended to be held for a
short term, pending distribution or risk transfer (“temporary
exposures”).
Credit risk concentrations can arise if clients are engaged in
similar activities, are located in the same geographical region
or have comparable economic characteristics such that their
ability to meet contractual obligations would be similarly af-
fected by changes in economic, political or other conditions.
To avoid credit risk concentrations, we seek to establish limits
and operational controls to constrain risk concentrations at
portfolio and sub-portfolio levels, for example with regard to
sector exposures, country risk or specific product exposures.
Risk mitigation
We actively manage the credit risk in our portfolios by taking
collateral against exposures and utilizing credit hedging. In
Wealth Management & Swiss Bank, the majority of loans are
extended on a secured basis. For real estate financing, a
mortgage over the property is taken to secure the claim.
Commercial loans may also be secured by mortgages on
business premises or other real estate. We apply measures to
evaluate collateral and determine maximum loan-to-value
ratios including an assessment of income cover.
“Lombard loans” are made against the pledge of eligible
marketable securities or cash. The Investment Bank also
takes collateral in the form of marketable securities and cash
in its OTC derivatives and securities financing businesses.
Discounts (“haircuts”) are generally applied to reflect the
quality, liquidity and volatility of the underlying collateral. Ex-
posure and collateral values are continuously monitored and
margin calls or close-out procedures are enforced when the
market value of collateral falls below a predefined trigger
level. Concentrations within individual collateral portfolios
and across clients are also monitored where relevant and
may affect the haircut applied to a specific collateral pool.
Our OTC derivatives trading is generally conducted under
bilateral International Swaps and Derivatives Association
(ISDA) or ISDA-equivalent master trading agreements, which
allow for the close-out and netting of all transactions in the
event of default. We also have two-way collateral agree-
ments with major market participants under which either
party can be required to provide collateral in the form of
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cash or marketable securities when exposure exceeds a pre-
defined level. Our OTC derivatives activity with lower-rated
counterparties is typically conducted under one-way collat-
eral agreements where only the counterparty is required to
provide us with collateral. For certain counterparties, like
hedge funds, we may also use two-way collateral agree-
ments. We have clearly defined processes for netting and
collateral agreements, including the requirement to have a
legal opinion regarding the enforceability of contracts in rel-
evant jurisdictions in the case of insolvency.
We actively manage the credit risk of our portfolios using
credit hedging, primarily in the Investment Bank, with the aim
of reducing concentrations to specific counterparties, sectors
or portfolios. Hedging measures include single name credit
default swaps (CDS), index CDS, credit linked notes and total
return swaps. Single name CDS are generally executed under
bilateral netting and collateral agreements, with high-grade
market counterparties. We observe strict standards for recog-
nizing credit hedges; for example, we do not typically recog-
nize credit risk mitigants such as proxy hedges (credit protec-
tion on a correlated but different name) or index CDS for the
purposes of monitoring exposures against limits. Buying cred-
it protection creates credit exposure against the hedge pro-
vider. We monitor our exposures to credit protection providers
and the effectiveness of credit hedges as part of our overall
credit exposures to the relevant counterparties. Where there is
significant correlation between a counterparty and the hedge
provider (so-called “wrong-way risk”), our policy is to discour-
age such activity, but in any event not to recognize any hedge
benefit in credit risk measures.
➔ Refer to the “Basel II Pillar 3” section of this report for
more information on credit derivatives
Credit risk measurement
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We have developed tools and models to measure credit risk.
Exposures to individual counterparties are measured based on
three generally accepted parameters: probability of default,
exposure at default and loss given default. These parameters
are the basis for the majority of our internal measures of cred-
it risk and are key inputs to the regulatory capital calculation
under the Advanced Internal Rating-Based approach of Basel
II. We also use models to derive the portfolio credit risk mea-
sures of expected loss, statistical loss and stress loss.
Probability of default
The probability of default (PD) is an estimate of the likeli-
hood of a counterparty defaulting on its contractual obliga-
tions. This probability is assessed using rating tools tailored
to the various categories of counterparties. These categories
are also calibrated to our proprietary credit rating scale
(“Masterscale”) designed to ensure a consistent assessment
of default probabilities across counterparties. We regularly
assess the performance of our rating tools and adjust our
model parameters as necessary. In addition to using ratings
for credit risk measurement, we use them as an important
input to determine credit risk approval authorities.
In the Investment Bank, rating tools are applied by broad
segments including banks, sovereigns, corporates, funds,
hedge funds and commercial real estate. We determine our
choice of the relevant assessment criteria (for example, fi-
nancial ratios and qualitative factors) for the rating tools on
the basis of various statistical analyses, externally available
information and expert judgment.
Within our retail and corporate banking business in Swit-
zerland, we rate our business and corporate clients in the
small-to-medium enterprise segment (SMEs) using statisti-
cally developed scorecards. The underlying data used in our
scorecards is predominantly based on a combination of fi-
nancial information relating to clients, qualitative criteria and
our credit loss history over several years. In order to rate our
large corporate clients domiciled in Switzerland, Wealth
Management & Swiss Bank uses templates established for
this segment by our Investment Bank. We assess the proba-
bility of default from loans secured on owner-occupied or
investment properties with a model that takes loan-to-value
ratios and debt service capacity of the obligor into account.
We rate lombard loan exposures by means of a model simu-
lating potential changes in the value of the collateral and the
probability that it may be lower than the loan amount.
Our Masterscale expresses default probabilities that we de-
termine through our various rating tools by means of distinct
classes whereby each class incorporates a range of default
probabilities. Counterparties migrate between rating classes as
our assessment of their probability of default changes.
The ratings of the major credit rating agencies and their
equivalent on our Masterscale are shown in the “UBS inter-
nal rating scale and mapping of external ratings” table. The
mapping is based on the long-term average one-year default
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of external ratings
UBS
Rating Description
Moody’s Investor
Services equivalent
Standard & Poor’s
equivalent
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0 and 1 Investment grade
Aaa
2
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4
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8
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10
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14
Sub-investment grade
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
Baa3
Ba1
Ba2
Ba2
Ba3
B1
B2
B3
AAA
AA+ to AA–
A+ to A –
BBB+ to BBB
BBB –
BB+
BB
BB
BB –
B+
B
B –
Defaulted
Caa to C
D
CCC to C
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Risk and treasury management
Risk management and control
rates that we observed for each external rating grade. Ob-
served defaults by rating agency may vary through econom-
ic cycles, and we do not necessarily expect the actual num-
ber of defaults in our equivalent rating band to equal the
rating agency average in any given period. We periodically
assess the long-term average default rates of credit rating
agencies’ grades and we adjust their mapping to our Mas-
terscale as necessary to reflect any material changes.
Exposure at default
Exposure at default (EaD) represents the amount that we ex-
pect to be owed by a counterparty at the time of default. We
derive EaD from our current exposure to the counterparty
and the possible future development of that exposure.
The EaD of a loan is the drawn or face value of the loan.
For loan commitments and contingent liabilities, the EaD
includes the amount drawn as well as potential future
amounts that may be drawn, which are estimated based on
historical observations.
For traded products, we derive the EaD by modeling the
range of possible exposure outcomes at the time the coun-
terparty defaults. For securities financing transactions, we
assess the net amount that may be owed to us or that we
may owe to others taking into account the impact of market
moves over the potential time it takes to close out all our
positions. For exchange-traded derivatives, our calculation of
EaD takes into account daily cash margining. We derive the
EaD for OTC derivatives by modeling the potential develop-
ment of replacement values of the portfolio of trades by
counterparty (“potential credit exposure”), after taking into
account legally enforceable netting agreements. For collater-
alized OTCs, our potential credit exposure takes into account
the development of collateral values and models the price
correlation between the various instruments.
When measuring individual counterparty exposure against
credit limits, we consider the maximum likely exposure mea-
sured to a high confidence level over the full life of outstand-
ing obligations. However, when aggregating exposures to dif-
ferent counterparties for portfolio risk measurement purposes,
we use the expected exposure to each counterparty at a given
time period (usually one year) generated by the same model.
We monitor the performance of our exposure models by
backtesting and benchmarking them, whereby model out-
comes are compared against actual results based on our in-
ternal experience as well as externally observed results.
We assess our exposures where there is a material correla-
tion between the factors driving the credit quality of the
counterparty and those driving the potential future value of
our traded product exposure (“wrong-way risk”) and we
have established specific controls to address these risks.
Loss given default
We determine loss given default (LGD) based on the likely
recovery rate of claims against defaulted counterparties,
which is a function of the type of counterparty and any cred-
it mitigation or support by way of security interest or guaran-
tee. LGD estimates include loss of principal and interest and
other amounts, such as workout costs, including the cost of
carrying an impaired position during the workout process. In
our Investment Bank, LGD estimates are based on an assess-
ment of key risk drivers such as industry segment, collateral
and seniority of a claim, and a country’s legal environment
and bankruptcy procedures, supported by our internal loss
data and external information where available. In our Swiss
portfolio, the LGD differs by counterparty and collateral type
and is statistically estimated based on our internal loss data.
Where we hold collateral, such as marketable securities or a
mortgage over a property, loan-to-value ratios are a key fac-
tor in determining LGD.
Expected loss
Credit losses are an inherent cost of doing business, but the
occurrence and amount of credit losses can be erratic. In or-
der to quantify future credit losses that may be implicit in our
current portfolio, we use the concept of expected loss (EL).
EL is a statistical measure which we use to estimate the
annual costs that we expect to experience on average from
positions in our current credit portfolio that become im-
paired. The EL for a given credit facility is a function of the
three components described above: PD, EaD and LGD. We
aggregate the ELs for individual counterparties to derive our
expected portfolio credit losses.
EL is a basis for quantifying credit risk in all our portfolios.
It is also the starting point for the measurement of our port-
folio statistical loss and stress loss, and may be used as an
input to value certain products.
➔ Refer to the discussion on “Impairment and default
– distressed claims” below for more information
Statistical and stress loss
We use a statistical modeling approach to estimate the
loss profile of our credit portfolios over a one-year period
to a specified level of confidence. The mean value of this
loss distribution is the expected loss and the variation
around it is driven by systematic default relationships
amongst counterparties within and between segments
and is sensitive to concentration risks on individual coun-
terparties and groups. The results of this analysis provide
an indication of the level of risk in our portfolio and the
way it may develop over time.
Stress loss is a scenario-based measure which comple-
ments our statistical modeling approach. We use it to assess
our potential loss in various stress scenarios in which we as-
sume that one or more of the three key credit risk parame-
ters will deteriorate substantially. We run stress tests on a
regular basis and use them to monitor our portfolios and
identify potential risk concentrations. For certain of our port-
folios and segments, stress loss may also be subject to limits.
118
Composition of credit risk – UBS Group
The exposures detailed in the tables in this section are based
on our management view of credit risk.
➔ Refer to the “Basel II Pillar 3” section of this report for
more information on the credit exposures used in the
determination of our required regulatory capital and
additional information on credit derivatives
➔ Refer to “Note 23 Derivative instruments and hedge
accounting“ and “Note 29c Measurement categories of
financial assets and liabilities“ in the “Financial infor-
mation” section of this report for further information on
IFRS required disclosures on derivatives and credit risk
The table “Credit exposure by business division” shows a
breakdown of our banking and traded product exposures
before and after impairments, credit valuation adjustments
and specific hedges. Portfolio hedges such as index CDS are
not included for this analysis. Exposures to OTC derivatives
are shown in the table as net positive replacement values
after the application of legally enforceable netting agree-
ments and the deduction of cash collateral. ETD exposures
take into account initial and variation margin, and securities
financing exposures are shown net of the collateral we re-
ceived. Comparatives for 2008 are also shown on this basis.
Our total credit exposure before deductions amounted to
CHF 451 billion on 31 December 2009, a significant de-
crease of CHF 123 billion since the end of 2008. This de-
crease reflects the measures we took in 2009 to actively re-
duce our risk exposures in addition to market movements
which drove down the positive replacement values of our
derivatives. Our banking product exposures decreased by
CHF 40 billion to CHF 355 billion at 31 December 2009
mainly driven by reductions in loans and balances with cen-
tral banks. Our traded products exposures, which arise large-
ly in our Investment Bank, reduced by CHF 82 billion to CHF
96 billion at 31 December 2009 due to the significant de-
crease of CHF 68 billion in the replacement values of OTC
derivatives. The largest component of our credit exposure
before deductions at 31 December 2009 was our lending
portfolio (due from banks and loans) at CHF 262 billion or
58% of our total credit exposure. Of this, CHF 200 billion
was attributable to Wealth Management & Swiss Bank.
Further information on the composition and credit quality
of Wealth Management & Swiss Bank’s lending portfolio and
the Investment Bank’s lending and OTC derivatives portfolios is
provided in this section. Analysis of our Wealth Management &
Swiss Bank’s portfolios is typically based on gross exposure (i.e.
before deduction of hedges) as the majority of our exposure is
secured by collateral or mortgages against property. Analysis of
our Investment Bank’s portfolios is generally based on net ex-
posure (i.e. after deduction of hedges) because we actively uti-
lize credit hedging to manage our risks in this portfolio.
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Credit exposure by business division
CHF million
Balances with central banks
Due from banks
Loans
Contingent claims
Undrawn irrevocable credit facilities
Banking products
OTC Derivatives
Exchange traded derivatives
Securities financing transactions
Traded products
Total credit exposure
Total credit exposure, net 4
Wealth Management &
Swiss Bank
Wealth Management
Americas
Investment Bank
Other 1
UBS
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
8,589
2,683
17,629
5,510
197,178
206,704
11,908
7,236
14,282
2,775
0
1,074
21,496
385
498
0
1,096
19,479
405
13
227,594
246,899
23,453
20,994
3,583
1,059
0
4,642
5,637
1,281
2,942
9,860
44
611
185
840
232,236
256,759
230,173
255,565
24,293
24,289
9,525
13,959
25,351
4,881
49,356
103,072 2
58,121
14,933
16,939
11,528
12,044
43,806
4,056
54,201
125,636 2
124,393
21,560
20,203
0
282
101
141
0
524
947
0
0
63
948
91
1,102
22,096
22,071
89,993
166,157
193,065
291,793
141,838
229,597
947
1,471
1,466
0
382
730
149
0
1,261 3
817
0
844
1,661
2,922
2,922
18,114
17,998
29,157
19,032
244,126
270,719
17,315
57,090
354,643
62,695
16,603
17,124
18,892
56,990
394,789 3
130,910
23,789
24,080
96,422
178,780
451,065
573,569
397,766
510,155
1 Includes Global Asset Management and Corporate Center. 2 IB banking products excluding money market and nostro accounts amount to CHF 82,084 million (31.12.2008: CHF 105,595 million).
3 Does not include financial assets designated at fair value for an amount of CHF 961 million. 4 Net of allowances, provisions, credit valuation adjustments, hedges.
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Composition of credit risk – business divisions
Wealth Management & Swiss Bank
The total gross banking products exposure of Wealth Man-
agement & Swiss Bank was CHF 228 billion on 31 December
2009 down by CHF 19 billion since the end of 2008. The
high quality of this portfolio is illustrated by the rating and
LGD distributions shown in the “Wealth Management &
Swiss Bank: distribution of gross banking products exposure
across UBS internal rating and loss given default buckets”
table. Approximately 60% of Wealth Management & Swiss
Bank’s banking product portfolio is rated investment grade
and over 80% of it is categorized in the lowest LGD bucket
of 0 – 25%. The reduction in exposures rated 0 related large-
ly to a reduction in our balances with central banks.
At 31 December 2009, Wealth Management & Swiss
Bank’s gross lending portfolio (comprised of due from banks
and loans) decreased to CHF 200 billion compared with CHF
212 billion at 31 December 2008. The decrease resulted
largely from lower lombard lending due to continued dele-
veraging by our clients. Over 90% of Wealth Management
& Swiss Bank’s lending portfolio was secured by collateral, of
which CHF 142 billion was secured by real estate and CHF
39 billion by marketable securities. The majority of the real
estate exposure is secured by a diversified portfolio of resi-
dential property (single and multi-family homes), which have
typically exhibited a low risk profile.
Wealth Management & Swiss Bank’s gross unsecured
loan portfolio amounted to CHF 15.6 billion at 31 December
2009 down by CHF 2.7 billion since the end of 2008, and
Wealth Management & Swiss Bank:
distribution of gross banking products exposure across UBS internal rating and loss given default (LGD) buckets
CHF million
UBS internal rating
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Total non-defaulted
Investment grade
Sub-investment grade
Defaulted 1
Gross banking products exposure
Net banking products exposure 2
31.12.09
Loss given default (LGD) buckets
0–25%
26–50%
51–75%
76–100%
31.12.08
Weighted
average
LGD (%)
Gross
exposure
Weighted
average LGD
(%)
5
28
25,523
18,503
21,502
43,013
38,265
15,577
12,738
7,652
1,478
897
167
48
185,398
108,575
76,823
185,398
N/A
3,708
5,987
3,432
4,367
3,261
5,017
2,540
2,348
2,078
1,993
613
281
56
28
35,710
25,773
9,937
35,710
N/A
9
129
481
214
460
991
233
439
7
2,965
1,294
1,671
2,965
N/A
1
1
1
999
1
1,003
1,003
1,003
N/A
38
39
22
22
12
12
13
15
16
22
21
20
21
21
17
13,625
5,232
27,750
29,938
24,830
50,657
44,346
18,735
14,810
9,447
1,875
1,990
155
93
243,483
152,032
91,451
3,416
246,899
245,705
39
39
21
22
14
13
13
15
17
23
20
19
19
30
18
Gross
exposure
3,713
6,024
29,084
23,351
24,978
48,491
41,797
18,160
15,256
10,651
2,092
1,179
224
76
225,076
135,641
89,434
2,518
227,594
225,531
1 Includes CHF 24 million of off-balance sheet items. 2 Net of allowances and provisions for credit losses amounting to CHF 1,053 million and credit hedges notional amount of CHF 1,010 million.
120
half of this portfolio is rated investment grade. Approximate-
ly 60% of the unsecured portfolio related to cash-flow based
lending to corporate counterparties and 20% of the unse-
cured loans related to loans to central or local governments
at 31 December 2009.
Wealth Management Americas
The total gross banking products exposure of Wealth Man-
agement Americas increased to CHF 23 billion on 31 Decem-
ber 2009 compared with CHF 21 billion on 31 December
2008. This portfolio consists mainly of loans secured by mar-
ketable securities. These loans are of high quality with 88%
rated investment grade.
Wealth Management & Swiss Bank: composition of lending portfolio, gross
CHF million
Secured by residential property
Secured by commercial / industrial property
Secured by securities
Lending to banks
Unsecured loans
Total lending portfolio, gross
Total lending portfolio, net 1
1 Net of allowances and credit hedges.
t
n
e
m
e
g
a
n
a
m
y
r
u
s
a
e
r
t
d
n
a
k
s
i
R
31.12.09
122,106
20,378
39,136
2,683
15,558
199,861
198,714
31.12.08
121,551
20,181
46,743
5,510
18,228
212,214
211,044
Wealth Management & Swiss Bank: unsecured loans (excluding mortgages) by industry sector
CHF million
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Total
31.12.09
31.12.08
263
895
74
2,599
1,984
4,176
778
1,778
2,768
243
302
2,045
61
2,700
2,941
4,533
878
2,249
2,287
232
15,558
18,228
121
Risk and treasury management
Risk management and control
Investment Bank
The “Investment Bank: credit exposure by industry segment
and rating” table shows the Investment Bank’s credit expo-
sures to banking products and OTC derivatives before and
after allowances, credit valuation adjustments and specific
hedges. Portfolio hedges such as index CDS are not included
for this analysis. The gross banking product exposures shown
in this table exclude nostro accounts and money market bal-
ances which are included in the “Credit exposure by busi-
ness division” table.
Almost 90% of the Investment Bank’s net OTC derivative
portfolio was traded with counterparties rated investment
grade, the majority of which were banks and regulated fi-
nancial institutions where trading was conducted on a col-
lateralized basis. 64% of the Investment Bank’s net banking
products portfolio was rated investment grade, with the ma-
jority of exposures related to its lending activities with corpo-
rates and other non-banks.
The “Net banking products exposure to corporates and
other non-banks” table provides additional information on
this portfolio, and provides a bridge from the Investment
Bank’s total banking products (loans, contingent claims and
undrawn irrevocable credit facilities) according to IFRS to
our internal management view of this exposure. The subse-
quent tables provide additional analysis of the portfolio by
our internal rating and LGD, industry sector and geograph-
ical region.
The Investment Bank’s net banking products exposure to
corporates and other non-banks decreased by CHF 17.7 bil-
lion to CHF 41.3 billion at 31 December 2009 as a result of
reduced lending activity, sales and writedowns of residual lev-
eraged finance positions. The Investment Bank continued to
actively manage the credit risk on this portfolio and at 31 De-
cember 2009 it held CHF 39 billion of single name CDS hedg-
es against its exposures to corporates and other non-banks.
Investment Bank: credit exposure by industry segment and rating
CHF million
Total exposure 1
less: allowances / credit valuations adjustment (CVA)
less: credit protection bought (credit default swaps, notional)
Net exposure after allowances and after application of credit hedges
of which: banks and regulated financial institutions
of which: sovereigns and supranationals
of which: corporates
of which: monoline insurers
of which: others
of which: investment grade
of which: sub-investment grade
Banking products
31.12.09
82,084
(1,520)
(39,314)
41,250
4,283
1,053
20,825
15,088
26,273
14,977
31.12.08
105,595
(1,526)
(45,106)
58,963
4,447
1,043
28,727
24,746
39,659
19,304
OTC derivatives
31.12.09
58,121
(4,475)
(5,741)
47,905
20,373
7,435
3,119
2,730
14,248
42,883
5,022
31.12.08
124,393
(9,907)
(5,506)
108,980
45,131
16,820
9,554
6,153
31,322
100,345
8,635
1 Banking products: risk view; OTC derivatives: net replacement value, includes the impact of netting agreements (including cash collateral) in accordance with Swiss Federal Banking law, based on the
IFRS scope of consolidation.
Investment Bank: net banking products exposure to corporates and other non-banks
CHF million
Loans
Contingent claims and undrawn irrevocable credit facilities
Total (IFRS view)
less: internal risk adjustments margin accounts, cash collateral posted, other 1
less: internal risk adjustments reclassified securities 2
less: internal risk adjustments acquired auction rate securities
less: internal risk adjustments traded loan commitments and funded risk participations
Gross banking products exposure 3
less: specific allowances for credit losses and loan loss provisions 4
Net banking products exposure
less: credit protection bought (credit default swaps)
Net banking products exposure to corporates and other non-banks, after application of credit hedges
31.12.09
90,700
56,228
146,928
(36,455)
(19,255)
(7,982)
(1,152)
82,084
(1,520)
80,564
(39,314)
41,250
31.12.08
111,798
62,391
174,189
(40,129)
(21,840)
(4,500)
(2,125)
105,595
(1,526)
104,069
(45,106)
58,963
1 Includes margin accounts for ETD transactions, cash collateral posted by us against negative replacement values for OTC derivatives, cash / current accounts from prime brokerage (cash legs) and valu-
ation differences caused by a different exposure treatment in Risk Control than in IFRS. 2 Includes reclassified auction rate securities in the amount of CHF 8.2 billion (31.12.08: CHF 8.4 billion).
3 IB banking products including money market and nostro accounts amount to CHF 103,072 million (31.12.2008: CHF 125,636 million). 4 Does not include other allowances for credit losses for an
amount of CHF 188 million (31.12.08: CHF 226 million).
122
The Investment Bank’s net banking products exposure to
corporates and other non-banks continued to be diversified
across industry sectors and based on our assessment, the vast
majority of the sub-investment grade exposures in this portfo-
lio had a loss given default of 0–50% on 31 December 2009.
➔ Refer to “Note 29b Reclassification of financial assets” in
the “Financial information” section of this report for more
information on reclassified securities including carrying
values of student loan auction rate securities, monoline
protected assets and US commercial real estate positions
Investment Bank: distribution of net banking products exposure to corporates and other non-banks,
across UBS internal rating and loss given default buckets
CHF million
UBS internal rating
Investment grade
Sub-investment grade
of which: 6
of which: 7
of which: 8
of which: 9
of which: 10
of which: 11
of which: 12
of which: 13
of which: defaulted
Net banking products exposure to
corporates and other non-banks,
after application of credit hedges
31.12.09
31.12.08
Loss given default (LGD) buckets
Exposure
0–25%
26–50%
51–75%
76–100%
Weighted
average
LGD (%)
26,273
14,977
1,407
2,044
1,293
2,151
1,486
2,168
1,684
357
2,386
9,850
6,492
102
1,210
342
896
525
1,104
1,287
158
870
10,689
5,571
3,107
2,330
942
339
705
965
720
661
277
133
830
302
338
228
265
139
396
65
63
535
2,628
583
62
157
18
26
102
7
55
3
151
41,250
16,342
16,260
5,437
3,211
39
34
47
33
37
31
32
30
18
31
44
37
Weighted
average
LGD (%)
36
31
32
43
45
19
36
28
23
21
33
35
Exposure
39,659
19,304
2,199
2,307
1,370
3,811
1,674
4,422
687
221
2,612
58,963
Investment Bank: banking products exposure 1 by industry sector
t
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s
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CHF million
Chemicals
Electricity, gas, water supply
Financial institutions
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Total
1 Net banking products exposure to corporates and other non-banks, after application of credit hedges.
Investment Bank: banking products exposure 1 by geographical region
CHF million
Switzerland
Other Europe
North America
Latin America
Asia / Pacific
Africa / Middle East
Total
1 Net banking products exposure to corporates and other non-banks, after application of credit hedges.
31.12.09
31.12.08
1,347
2,120
16,316
6,695
2,284
2,657
1,530
4,057
4,243
3,072
3,685
25,716
7,978
2,588
3,246
1,855
5,794
5,030
41,250
58,963
31.12.09
31.12.08
543
6,759
29,222
152
4,014
559
41,250
1,437
9,354
42,100
1,550
3,833
689
58,963
123
Risk and treasury management
Risk management and control
Loan to BlackRock fund
In second quarter 2008, we sold a
portfolio of US residential mortgage
backed securities (RMBSs) for proceeds
of USD 15 billion to the RMBS
Opportunities Master Fund, LP (the
“RMBS fund”), a special purpose
entity managed by BlackRock Financial
Management, Inc. The RMBS fund
was capitalized with approximately
USD 3.75 billion in equity raised by
BlackRock from third-party investors
and an eight-year amortizing USD
11.25 billion senior secured loan
provided by UBS.
The RMBS fund amortizes the loan
through monthly payments drawn
from amounts collected in respect of
the underlying assets. These collec-
tions are allocated to the payment of
interest and principal of the loan and
to the holders of equity interests in the
RMBS fund in accordance with the
terms of the loan agreement. Alloca-
tions to equity holders may be
reduced or suspended in the event of
specified declines in the aggregate
notional balance of the portfolio, and
we may assume control of the
underlying assets in the event of a
specified further decline in the
notional balance.
As of 31 December 2009, the loan
had a balance outstanding of USD 7.1
billion (USD 9.2 billion at 31 Decem-
ber 2008), taking into account
amounts held in escrow. This loan
balance is also reflected in the
Investment Bank’s credit exposures
shown in the tables on previous
pages. Collections have been slower in
2009 than in 2008, primarily due to
lower levels of voluntary prepayments
and reductions in floating rate interest
payments, in addition to the fact that
the portfolio has amortized over time.
The aggregate notional balance of the
RMBS fund’s assets collateralizing the
loan on 31 December 2009 was USD
16.0 billion. By notional balance, the
portfolio was comprised primarily of
Alt-A (52%) and sub-prime (32%)
credit grades. In terms of priority, the
portfolio was dominated by senior
positions (92%).
The RMBS fund is not consolidated
in our financial statements. We
continue to monitor the RMBS fund
and its performance and will reassess
the consolidation status if events
warrant and deterioration of the
underlying RMBS mortgage pools
indicates that the equity investors in
the fund no longer receive the
majority of the risks and rewards. We
also continue to assess the loan to
the RMBS fund to determine whether
it has been impaired. Developments
through the year ended 31 December
2009 have not altered our conclusion
that consolidation is not required,
and the loan is not considered
impaired.
124
Credit loss expenses
Under IFRS our credit loss expenses charged to the income
statement represent the total credit losses actually experi-
enced in the period from banking products and securities
financing transactions.
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In 2009, we experienced net credit loss expenses of CHF
1,832 million, of which CHF 425 million was due to impair-
ment charges taken on reclassified securities in the Invest-
ment Bank. In comparison, we recorded net credit loss ex-
penses of CHF 2,996 million in 2008.
The Investment Bank recorded net credit loss expenses of
CHF 1,698 million for 2009, compared with net credit loss
expenses of CHF 2,575 million in 2008. Excluding the credit
loss expenses from reclassified securities of CHF 425 million,
the Investment Bank’s net credit loss expenses amounted to
CHF 1,273 million in 2009.
Wealth Management & Swiss Bank reported net credit loss
expenses of CHF 133 million for 2009, compared with CHF
392 million in 2008. Releases of allowances made against lom-
bard loans in 2009 contributed to this positive development.
➔ Refer to “Note 1 Summary of significant accounting
policies” in the “Financial information” section of this
report for more information on “incurred loss” concept
Impairment and default – distressed claims
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With respect to distressed claims resulting from banking
products, we distinguish between loans that are “past due”
and “impaired”. We consider a loan to be past due when a
contractual payment has been missed. We consider a loan as
impaired if it is probable that we will not fully recover all con-
tractual payments due under the loan as a result of the bor-
rower’s inability to meet its obligations after realization of
available collateral. Past due but not impaired loans have
suffered missed payments but are not considered impaired
because we expect to collect all amounts due under the con-
tractual terms of the loans or the equivalent value.
We also assess derivative counterparties and claims from
securities financing transactions for default and impairment
using generally the same principles and processes that we
use for banking products.
We have processes to ensure that the carrying values of
impaired claims are determined in compliance with IFRS re-
quirements. Our credit controls applied to valuation and
workout are the same for both amortized cost and fair-val-
ued credit products. We assess each case and our workout
strategy and estimation of recoverable amounts are inde-
pendently approved.
We also assess our portfolios of claims carried at amor-
tized cost with similar credit risk characteristics for collective
impairment to consider if these portfolios contain impaired
obligations where the individual impaired items cannot yet
be identified.
Our portfolios considered impaired on a collective basis
are not included in the totals of impaired loans in the tables
shown in the discussion of the composition of credit risk for
business divisions in the “Credit risk” section of this report.
Our assessment of collective impairment differs depend-
ing on the nature of the underlying obligations. In our retail
and corporate banking business in Switzerland where de-
layed payments are routinely observed, we typically review
individual positions for impairment only after they have been
in arrears for a certain time. To cover the time lag between
the occurrence of an impairment event and its identification,
we establish collective loan loss allowances based on the ex-
pected loss for the portfolio over the average period between
trigger events and the identification of individual impair-
ment. Collective loan loss allowances of this kind are typically
not required for our investment banking businesses because
we continuously monitor individual counterparties and expo-
sures to identify impairment events at an early stage.
Additionally, for all our portfolios we assess whether there
have been any unforeseen developments which might result in
impairments that cannot be immediately identified. These
events could be stress situations such as a natural disaster or a
country crisis, or they could result from structural changes in
the legal or regulatory environment. To determine whether an
event-driven collective impairment exists, we use a set of global
economic drivers to regularly assess the most vulnerable coun-
tries and review the impact of any potential impairment event.
The recognition of impairment in our financial statements
depends on the accounting treatment of the claim. For prod-
ucts carried at amortized cost, impairment is recognized
through the creation of an allowance or provision, which is
charged to the income statement as credit loss expense. For
products recorded at fair value such as derivatives, impair-
ment is recognized through a credit valuation adjustment,
which is charged to the income statement through the Net
trading income line.
➔ Refer to “Note 27a Valuation principles” in the “Financial
information” section of this report for more information on
credit valuation adjustments
Impaired loans, allowances and provisions
The credit risk exposures reported in the “Allowances and
provisions for credit losses” table represent the IFRS balance
sheet view of our gross lending portfolio comprising the bal-
ance sheet line items Due from banks and Loans. The table
also shows the IFRS reported allowances for credit losses and
impairments as well as our impaired lending portfolio.
The table shows that our allowances and provisions for
credit losses decreased by 8.4% to CHF 2,680 million at 31 De-
cember 2009 from CHF 2,927 million at the end of 2008.
As reported in second quarter 2009, we implemented a
threshold for designating a reclassified security as an im-
paired loan. Under this policy a reclassified security is consid-
ered impaired if the carrying value at balance sheet date is
125
t
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s
i
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Risk and treasury management
Risk management and control
Allowances and provisions for credit losses
CHF million
As of
Due from banks
Loans
Wealth Management &
Swiss Bank
Wealth Management
Americas
Investment Bank
Others 1
UBS
31.12.09
31.12.08 31.12.09
31.12.08 31.12.09
31.12.08 31.12.09
31.12.08 31.12.09
31.12.08
2,683
5,510
1,074
1,096
42,568
57,485
197,178
206,704
21,496
23,981
90,700
111,798
of which: related to reclassified securities 2
19,255
21,840
Total lending portfolio, gross 3
Allowances for credit losses
199,861
212,214
22,569
25,077
133,268
169,282
(1,034)
(1,169)
(4)
(25)
(1,642)
(1,733)
(162)
(130)
282
101
383
0
382
730
46,606
64,473
309,475
343,213
19,255
21,840
1,113
356,081
407,685
0
(2,680)
(2,927)
(162)
(130)
of which: related to reclassified securities
Total lending portfolio, net 4
Impaired lending portfolio, gross 5
of which: related to reclassified securities
Estimated liquidation proceeds of collateral for
impaired loans
of which: related to reclassified securities
Impaired lending portfolio,
net of collateral
Allocated allowances for impaired
lending portfolio
Other allowances and provisions
Total allowances and provisions for
credit losses in lending portfolio
Allowances and provisions for
credit losses outside of lending
portfolio
Ratios
Allowances and provisions as a % of
total lending portfolio, gross
Impaired lending portfolio as a % of
total lending portfolio, gross
Impaired lending portfolio excluding
reclassified securities as a % of
total lending portfolio, gross excluding
reclassified securities
Allocated allowances as a % of impaired
lending portfolio, gross
Allocated allowances as a % of impaired
lending portfolio, net of collateral
198,827
211,044
22,566
25,052
131,625
167,550
383
1,113
353,402
404,758
1,805
2,959
(530)
(1,576)
1,275
1,383
984
49
1,146
24
1,034
1,169
19
24
4
0
4
4
0
4
0
39
5,056
1,090
(18)
(1,670)
(958)
4,436
200
(945)
(94)
21
25
0
25
3,386
3,491
1,642
1,733
0
0
1,642
1,733
0
117
119
0.5
0.9
0.6
1.4
0.0
0.0
0.1
0.2
1.2
3.8
3.5
54.5
38.7
100.0
64.1
32.5
77.2
82.9
100.0
119.0
48.5
1.0
2.6
2.9
39.1
49.6
0
0
0
0
0
0
5
0.0
0.0
0.0
0.0
0
0
0
0
0
0
0
0.0
0.0
0.0
0.0
6,865
1,090
7,434
200
(2,200)
(2,539)
(958)
(94)
4,665
4,895
2,630
49
2,904
24
2,680
2,927
141
143
0.8
1.9
1.7
38.3
56.3
0.7
1.8
1.9
39.1
59.3
1 Includes Global Asset Management and the Corporate Center. 2 This excludes reclassified loan underwriting positions with a value of CHF 1,789 million as of 31.12.09 (31.12.08: CHF 3,713 million),
which are included in the risk view of loan exposures. 3 Excludes loans designated at fair value, but includes margin accounts for exchange-traded derivatives transactions, cash collateral delivered for
OTC derivatives and cash current accounts from prime brokerage (cash leg) of total CHF 70,121 million (of which Due from banks: CHF 29,770 million, of which Loans: CHF 40,351 million) (31.12.08:
CHF 95,610 million of which due from banks: CHF 46,757 million, of which loans: CHF 48,853 million). 4 Reconciles to the balance sheet carrying values of Due from banks and Loans, which are re-
ported net of allowances for credit losses. 5 Excludes reclassified securities with adverse cash flow estimate revisions cumulatively below 5% of the carrying value at reclassification date, adjusted for
redemptions. 31.12.08 numbers have been adjusted to reflect this change.
Impaired assets by type of financial instrument
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CHF million
Impaired loans
Impaired contingent claims
Defaulted derivatives contracts
Defaulted securities financing transactions
Total 31.12.09
Total 31.12.08 1
Impaired exposure
6,865
350
4,607
98
11,920
13,947
Estimated liquidation
proceeds of collateral
(2,200)
(47)
(2,247)
(2,539)
Specific allowances,
provisions and credit
valuation adjustments
Net impaired exposure
(2,630)
(90)
(3,061)
(51)
(5,831)
(7,252)
2,035
260
1,546
0
3,841
4,156
1 Impaired exposure was restated from CHF 15,658 million originally reported in our Annual Report for 2008, estimated liquidation proceeds of collateral was restated from CHF 3,930 million. In 2009,
we implemented a threshold for designating a reclassified security as an “impaired loan”. Under this policy, a reclassified security is considered impaired if the carrying value at balance sheet date is on
a cumulative basis 5% or more below the carrying value at reclassification date adjusted for redemptions.
126
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on a cumulative basis 5% or more below the carrying value
at reclassification date adjusted for redemptions. In order
to ensure year-on-year comparability, we have restated our
31 December 2008 Investment Bank and the Group gross
impaired lending portfolio accordingly.
Our gross impaired lending portfolio decreased to CHF
6,865 million on 31 December 2009 from CHF 7,434 million
on 31 December 2008.
The ratio of the impaired lending portfolio to the total
lending portfolio (both measured gross) was 1.9% on 31 De-
cember 2009 compared with 1.8% on 31 December 2008.
We reclassified loans and receivables with a carrying
amount of CHF 58 million and CHF 224 million from im-
paired to performing during 2009 and 2008, respectively.
This reclassification occurred because the loans had either
been renegotiated and the new terms and conditions met
normal market criteria for the quality of the obligor and type
of loan, or because the financial position of the obligor im-
proved, enabling it to repay any past due amounts such that
we deemed future principal and interest to be fully collect-
ible in accordance with the original contractual terms.
Collateral held against our impaired loans portfolio
mainly consisted of real estate and multi-asset-backed secu-
rities. It is our policy to dispose of foreclosed real estate as
soon as practicable. The carrying amount of foreclosed prop-
erty recorded in our balance sheet under Other assets at the
end of 2009 and 2008 amounted to CHF 245 million and
CHF 280 million, respectively.
We seek to liquidate collateral held in the form of finan-
cial assets expeditiously and at prices considered fair. This
may require us to purchase assets for our own account,
where permitted by law, pending orderly liquidation.
The table “Impaired assets by type of financial instru-
ment” includes impaired loans, impaired off-balance sheet
claims and defaulted derivatives and repurchase / reverse
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repo contracts, which are subject to the same workout and
recovery processes. Our impaired assets decreased by CHF
2.0 billion to CHF 11.9 billion at 31 December 2009.
After deducting allocated specific allowances, provisions
and credit valuation adjustments of CHF 5.8 billion and the
estimated liquidation proceeds of collateral of CHF 2.2 bil-
lion, net impaired assets amounted to CHF 3.8 billion in
2009.
➔ Refer to “Note 9b Due from banks and loans” in the
“Financial information” section of this report for more
information on the changes in allowances and provisions
for credit losses
Past due but not impaired loans
The table below shows a breakdown of our total loan bal-
ances on loans where payments have been missed but
which we do not consider impaired because we expect to
collect the amounts due. The loan balances in the table re-
late to our Wealth Management & Swiss Bank, where de-
layed payments are routinely observed. The past due but
not impaired categorization is not typically applicable to
our Investment Bank lending businesses because we con-
tinuously monitor individual counterparties and exposures
to identify impairment events at an early stage, including
missed payments.
Compared with 31 December 2008, our past due but not
impaired loan exposures decreased by 47% to CHF 0.9 bil-
lion on 31 December 2009. This decrease resulted primarily
from recoveries in lombard lending exposures and lower lev-
els of excesses experienced by Wealth Management & Swiss
Bank in 2009. Our past due but not impaired loans in the
greater-than-90-day category related primarily to mortgage
loans. However, our overall past due but not impaired levels
on mortgage loans were not significant in the context of the
size of the mortgage portfolio.
Past due but not impaired loans
CHF million
1–10 days
11–30 days
31–60 days
61–90 days
> 90 days
of which: past due but not impaired mortgage loans > 90 days
Total
Past due but not impaired mortgage loans
CHF million
Total
31.12.09
31.12.08
138
62
78
17
635
511
930
522
89
272
331
547
425
1’761
31.12.09
31.12.08
Total mortgage
exposure
130,348
of which: past due
but not impaired
> 90 days
511
Total mortgage
exposure
128,441
of which: past due
but not impaired
> 90 days
425
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Risk and treasury management
Risk management and control
Settlement risk
Settlement risk arises in transactions involving exchange of
value when we must honor our obligation to deliver without
first being able to determine with certainty that we will re-
ceive the counter-value. We use multilateral and bilateral
agreements with counterparties to reduce our actual settle-
ment volumes.
Our most significant source of settlement risk is foreign
exchange transactions. UBS is a member of Continuous
Linked Settlement (CLS), a foreign exchange clearing house
which allows transactions to be settled on a delivery versus
payment basis, thereby significantly reducing foreign ex-
change-related settlement risk relative to the volume of
business.
The avoidance of settlement risk through CLS and other
means, such as payment netting, does not eliminate our
credit risk on foreign exchange transactions resulting from
changes in exchange rates prior to settlement. We measure
and control such counterparty risk on forward foreign ex-
change transactions as part of our overall credit risk on OTC
derivatives.
Country risk
Country risk is the risk of loss arising from country-specific
events. We have an established country risk control frame-
work to actively manage and limit, as necessary, our trading
risk, lending risk, issuer risk and investment risk in a coun-
try. This framework is intended to ensure that our exposure
to a country is commensurate with the credit rating we as-
sign to it and is not disproportionate to our overall country
risk profile.
We assign ratings to all countries where we have expo-
sure. Sovereign ratings express the probability of a country
risk event that would lead to impairment of our claims. The
default probabilities that we use and our mapping of exter-
nal ratings of the major rating agencies are based on our
counterparty rating classes as described in Probability of de-
fault above. With respect to our country ratings, the rating
classes 10 to 13 are designated “very high risk” while the
lowest rating class contains countries in default.
For all countries rated three and below, we set country
risk ceilings approved either by the BoD or under delegated
authority. A country risk ceiling applies to all our exposures
to counterparties or issuers of securities and financial invest-
ments in the respective country. Our country risk measures
cover cross-border transactions and investments as well as
our local operations, branches and subsidiaries in countries
where the risk is material. We may limit the extension of
credit, transactions in traded products or positions in securi-
ties based on a country ceiling, even if our exposure to a
counterparty is otherwise acceptable.
Losses due to counterparty or issuer defaults resulting from
multiple insolvencies (systemic risk) or general prevention or
restriction of payments by authorities (transfer risk) are the
most significant effects of a country crisis. For internal mea-
surement and control of country risk, we also consider the fi-
nancial impact of market disruptions arising prior to, during
and following a country crisis. These may take the form of a
severe deterioration in a country’s debt and equity markets
and asset prices or a sharp depreciation of the currency.
Emerging markets exposure by UBS internal country rating category
CHF million
Investment grade
Sub-investment grade
Distressed
Total
31.12.09
31.12.08
18,847
3,568
3
22,418
24,616
8,095
4
32,715
Emerging markets exposure by major geographical area and product type
CHF million
As of
Emerging Europe
Emerging Asia
Emerging America
Middle East / Africa
Total
Temporary exposures 1
Total
Banking products
Traded products
Financial investments
Tradable assets
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
2,117
13,725
3,077
3,499
22,418
340
3,706
16,460
6,802
5,747
32,715
738
664
4,299
309
1,131
6,403
1,454
3,594
1,491
1,338
7,877
542
4,949
485
1,894
7,870
1,177
7,059
2,157
3,980
14,373
136
652
100
23
911
211
879
167
1,257
775
3,825
2,183
451
7,234
864
4,928
2,987
429
9,208
1 Temporary exposures are loan underwritings which are held short-term, pending syndication, sale or hedging. They are not included in the regional subtotals or overall total.
128
Additional information on our exposures to countries
that we categorize as emerging markets is provided in the
“Emerging markets exposure by UBS internal country rating
category” and “Emerging markets exposure by major geo-
graphical area and product type” tables.
temporary exposures arising from loan underwriting in these
markets are shown separately in the table.
Debt investments
We use stress testing to assess the potential financial im-
pact of a severe emerging markets crisis. This involves iden-
tifying countries that may potentially be subject to a crisis
event, determining potential losses and making assumptions
about recovery rates depending on the types of transactions
involved and their economic importance to the affected
countries.
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Debt investments classified for IFRS as Financial investments
available-for-sale can be broadly categorized as money
market instruments and debt securities which are mainly
held for statutory, regulatory or liquidity reasons. Debt in-
vestments may also include non-performing loans which
were purchased in the secondary market by the Investment
Bank.
Country risk exposure
Our exposures to emerging market countries amounted to
CHF 22.4 billion on 31 December 2009, compared with CHF
32.7 billion on 31 December 2008. The reduction of CHF
10.3 billion in our total emerging markets exposure occurred
across all markets.
Based on the main country rating categories, 84% of our
emerging market country exposures (excluding those which
are temporary exposures) on 31 December 2009 were rated
investment grade, compared with 75% on 31 December
2008. The change in our risk profile in these markets was
due to the fact that a large proportion of the exposure re-
duction was related to sub-investment grade countries, in
particular Brazil, following the sale of UBS Pactual. The table
“Emerging markets exposure by major geographical area
and product type” analyzes our emerging market country
exposures by major geographical area and product type on
31 December 2009 compared with 31 December 2008. Our
The risk control framework that we apply to debt instru-
ments classified as Financial investments available-for-sale
varies depending on the nature of the instruments and the
purpose for which we hold them. Our exposures may be in-
cluded in market risk limits or subject to specific monitoring,
which may include interest rate sensitivity analysis, and firm-
wide earnings-at-risk, capital-at-risk and combined stress
test metrics.
Composition of debt investments
Debt financial instruments classified as Financial investments
available-for-sale increased significantly to CHF 80.4 billion
at 31 December 2009 compared with CHF 3.6 billion at
31 December 2008. This increase resulted from the strategic
decision to rebalance our liquidity reserve, which led to a
shift from repurchase agreements and trading portfolios into
debt instruments available-for-sale. These instruments pri-
marily comprised highly liquid short-term securities issued by
governments and government-controlled institutions.
➔ Refer to “Note 13 Financial investments available-for-sale”
in the “Financial information” section of this report for
more information
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Risk and treasury management
Risk management and control
Market risk
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Market risk is the risk of loss from changes in market vari-
ables. There are two broad categories of market variables:
general market risk factors and specific components. Gen-
eral market risk factors include interest rates, equity index
levels, exchange rates, commodity prices and general credit
spreads. The volatility of these risk factors and the correla-
tions between them are also general market risk factors.
Specific components relate to the prices of debt and equity
instruments which result from factors and events particular
to individual companies or entities.
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ditional risks as the hedge instrument and the position being
hedged may not always move in parallel (often referred to as
“basis risk”). We also actively manage such basis risks. Man-
agement and Risk Control may also give instructions for risk
to be reduced, even when limits are not exceeded.
The asset management and wealth management busi-
nesses carry small trading positions, principally to support
client activity. The market risk from these positions is not
material to UBS as a whole.
Sources of market risk
We take general and specific market risks both in our trading
activities and in some non-trading businesses.
Trading
Most of our market risk arises from our trading activities in
the Investment Bank, which include market-making, facilita-
tion of client business and associated position taking in cash
and derivative markets for equities, fixed income, interest
rates, foreign exchange and commodities.
Our trading businesses are subject to multiple market risk
limits. Traders are required to manage their risks within these
limits, which may involve utilizing hedging and risk mitiga-
tion strategies. These strategies can expose the firm to ad-
Non-trading
Market risk exposures – primarily general interest rate and
foreign exchange risks – may arise from non-trading ac-
tivities such as retail banking and lending in our wealth
management businesses and retail and corporate banking
business in Switzerland, the Investment Bank’s lending busi-
nesses and our treasury activities (primarily from funding,
balance sheet, liquidity and capital management needs). Eq-
uity and certain debt investments can also give rise to spe-
cific market risks.
In the Investment Bank, non-trading foreign exchange
risks are managed under market risk limits and non-trading
interest rate risk is either managed under market risk limits
or subject to specific monitoring. For example, the market
risks associated with the portfolio of assets that were reclas-
sified to Loans and receivables from Held-for-trading in
130
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fourth quarter 2008 and first quarter 2009 are subject to
specific monitoring, which includes interest rate and credit
spread sensitivity analysis, as well as being reported in firm-
wide earnings-at-risk, capital-at-risk and combined stress
test metrics.
In our other business divisions, exposures to market risks
also arise from non-trading activities, the largest being the
interest rate risks arising from customer deposits and mort-
gage business in Wealth Management & Swiss Bank. These
market risks are generally transferred to the Investment Bank
or Group Treasury, which manage the positions as part of
their trading risk portfolios within their allocated market risk
limits. Market risks that are retained by our other business
divisions are not significant relative to the firm’s overall risk,
and exposures are either subject to market risk measures and
controls or specific monitoring.
In addition to managing market risks transferred from
other business divisions, Group Treasury also assumes mar-
ket risk from its funding, balance sheet, liquidity and capital
management responsibilities. The risks resulting from these
activities are either covered by market risk limits allocated to
Group Treasury or subject to specific monitoring.
➔ Refer to the “Treasury management” section of this report
for more information on Group Treasury’s risk manage-
ment activities
Market risk limits
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We have a limit framework to control our market risks.
We have two major portfolio measures of market risk –
VaR and stress loss – which are common to all our busi-
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ness divisions and subject to limits that are approved by
the BoD.
In the Investment Bank, these portfolio measures are
complemented by concentration and other supplementary
limits on portfolios, asset classes and products, and also cov-
er exposures to general market risk factors and single name
risk. Single name risk (or issuer risk) is a measure of our ex-
posure to the tradable instruments (debt, equity and deriva-
tives) of a single issuer (or issuer group) were that issuer sub-
ject to a credit event including default. Our concentration
and other supplementary limits take a variety of forms in-
cluding values (market or notional) and risk sensitivities,
which are measures of exposure to a given risk factor such as
interest rates, credit spreads, equity indices, foreign ex-
change rates or volatilities. These limits take into account the
extent of market liquidity and volatility, available operational
capacity, valuation uncertainty, and for our single name ex-
posures the credit quality of issuers.
Our exposures from security underwriting commitments
are subject to the same measures and controls as secondary
market positions. Underwriting commitments are also gen-
erally reviewed by our Commitment Committee, which in-
cludes representation from both business and control func-
tions. Underwriting commitments are approved under
specific delegated risk management and risk control au-
thorities.
Market risk limits are set for each of the business divi-
sions and Group Treasury. The limit framework in the Invest-
ment Bank is more detailed than in the other business divi-
sions, reflecting the nature and magnitude of the risks it
takes.
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Risk and treasury management
Risk management and control
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Value-at-risk definition and limitations
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directly to our current positions – a method known as his-
torical simulation.
VaR is a statistical measure of market risk, representing the
market risk losses that potentially could be realized over a
set time horizon at an established level of confidence. This
assumes no change in our trading positions over the rele-
vant time horizon. We use a single VaR model for both in-
ternal management purposes and for determining market
risk regulatory capital requirements, although the confi-
dence levels and time horizons differ.
Our VaR model is approved by FINMA and ongoing sig-
nificant revisions to our VaR methodology and model are
also subject to regulatory approval.
The firm’s VaR model makes use of five years of historical
data and is calibrated to a 1-day 95% measure for our inter-
nal management purposes. However, in accordance with Ba-
sel II and FINMA requirements, we use a 1-day 99% VaR for
backtesting and a 10-day 99% VaR for determining market
risk regulatory capital. We calculate VaR on a daily basis on
our end-of-day positions. Our VaR calculation is based on
the application of historical changes in market risk factors
Actual realized losses may differ from those implied by
our VaR. All VaR measures are subject to limitations and
must be interpreted accordingly. The limitations of VaR in-
clude the following:
– The five-year historical period used in creating our VaR
measure will include fluctuations in market rates and pric-
es that differ from those observed in future periods. In
particular, the use of a five-year window means that sud-
den increases in market volatility will not tend to increase
VaR as quickly as the use of shorter historical observation
periods, but the impact of the increase will impact our
VaR for a longer period of time.
– The VaR measure is calibrated to a specified level of con-
fidence and may not indicate potential losses beyond this
confidence level.
– The 1-day time horizon in the VaR measure (or 10-day in
the case of regulatory VaR) may not fully capture the mar-
ket risk of positions that cannot be closed out or hedged
within the specified period.
UBS: Value-at-Risk (1-day, 95% confidence, 5 years of historical data)
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank 1
Wealth Management Americas 1
Global Asset Management
Corporate Center
Diversification effect
Total management VaR 3
Diversification effect (%)
Year ended 31.12.09
Year ended 31.12.08
Min.
Max.
Average
31.12.09
Min.
Max.
Average
31.12.08
43
0
2
0
2
2
44
75
0
3
1
16
2
78
55
0
3
0
5
(8)
55
(13)
54
0
3
0
4
(7)
54
(11)
57
0
0
3
2
59
105
3
2
25
2
106
79
1
1
9
(11)
79
(12)
74
3
1
6
(6)
78
(7)
1 Split of former Global Wealth Management & Business Banking into Wealth Management & Swiss Bank and WM Americas not available for 2008, therefore all 2008 Global Wealth Management &
Business Banking figures are shown under WM Americas. 2 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification
effect. 3 Includes all positions subject to internal management VaR limits.
Investment Bank: Value-at-Risk (1-day, 95% confidence, 5 years of historical data)
CHF million
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals & commodities
Diversification effect
Total management VaR2
Diversification effect (%)
Year ended 31.12.09
Year ended 31.12.08
Min.
Max.
Average
31.12.09
Min.
Max.
Average
31.12.08
13
16
33
2
2
1
43
36
38
65
12
5
1
75
22
24
46
6
4
(47)
55
(46)
21
23
50
4
3
(47)
54
(47)
18
27
35
5
3
1
57
63
85
88
15
13
1
105
38
46
56
8
6
(75)
79
(49)
19
31
61
9
5
(51)
74
(41)
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect. 2 Includes all positions subject to internal management VaR limits.
132
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– In certain cases, VaR calculations approximate the impact
of changes in risk factors on the values of positions and
portfolios. This may happen because the number of risk
factors included in the VaR model is necessarily limited –
for example, yield curve risk factors do not exist for all
future dates.
– The effect of extreme market moves is subject to estima-
tion errors which may result from non-linear interaction
effects and the potential for actual volatility and correla-
tion levels to differ from assumptions implicit in the VaR
calculations.
We continue to review the performance of our VaR imple-
mentation which includes a review of risks not included in VaR.
We will continue to enhance our VaR model in order to more
accurately capture the relationships between the market risks
associated with our risk positions, as well as the revenue impact
of large market movements for particular trading positions.
Value at risk developments in 2009
We made a number of changes to our VaR model and meth-
odology in 2009, while also changing the scope of the regu-
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latory and internal management VaR to better reflect our
underlying risks.
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These changes were approved by FINMA and are summa-
rized below.
– In third quarter 2009, we changed the calibration of our
management VaR from a 10-day 99% measure to a 1-day
95% measure. We consider that a 1-day 95% measure
reflects the way that trading risks are viewed and man-
aged by the business and can be more directly compared
with daily mark-to-market revenues. We continue to use
a 10-day 99% VaR to determine regulatory capital and a
1-day 99% measure to backtest our VaR model in accor-
dance with Basel II and FINMA requirements.
– We increased the scope of regulatory VaR in third quarter
2009 to incorporate a significant proportion of our mar-
ket risk exposures to credit valuation adjustments (CVA).
CVA is the mark-to-market cost of protection required to
hedge credit risk from counterparties in our over-the-
counter derivatives portfolio. This change more accurate-
ly represents the underlying risk exposures alongside their
related hedges in our regulatory VaR. The same enhance-
UBS: Value-at-Risk (10-day, 99% confidence, 5 years of historical data)
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank 1
Wealth Management Americas 1
Global Asset Management
Corporate Center
Diversification effect
Total regulatory VaR
Diversification effect (%)
Year ended 31.12.09
Year ended 31.12.08
Min.
Max.
Average
31.12.09
179
0
15
0
2
2
541
1
32
7
67
2
187
545
315
0
21
2
14
(37)
315
(11)
286
0
30
1
7
(23)
301
(7)
Min.
240
1
1
3
2
246
Max.
Average
31.12.08
601
17
7
93
2
609
374
4
2
26
(34)
373
(8)
485
16
6
10
(25)
492
(5)
1 Split of former Global Wealth Management & Business Banking into Wealth Management & Swiss Bank and WM Americas not available for 2008, therefore all 2008 Global Wealth Management & Busi-
ness Banking figures shown under WM Americas. 2 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
Investment Bank: Value-at-Risk (10-day, 99% confidence, 5 years of historical data)
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Year ended 31.12.08
Min.
Max.
Average
31.12.09
Min.
Max.
Average
31.12.08
CHF million
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals & commodities
Diversification effect
Total regulatory VaR
Diversification effect (%)
55
64
216
4
9
1
179
115
149
489
55
25
1
541
71
98
332
27
16
(229)
315
(42)
57
116
322
27
12
(248)
286
(46)
82
112
151
12
14
1
240
185
364
613
58
60
1
601
131
198
322
28
30
(335)
374
(47)
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
117
131
412
30
22
(226)
485
(32)
133
Risk and treasury management
Risk management and control
UBS: Value-at-Risk (1-day, 99% confidence, 5 years of historical data) 1
Year ended 31.12.09
Year ended 31.12.08
CHF million
Investment Bank
UBS
Regulatory VaR 2
Regulatory VaR 2
Min.
63
64
Max.
Average
31.12.09
167
170
103
104
78
79
Min.
96
97
Max.
210
207
Average
31.12.08
132
133
162
163
1 10-day 99% regulatory VaR and 1-day 99% regulatory VaR results are calculated separately from underlying positions and historical market moves. They cannot be inferred from each other. 2 Backtesting
is based on 1-day 99% regulatory VaR.
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ment was implemented for our management VaR during
third quarter 2008. Monoline CVA and related exposures
were not included as part of this implementation and also
remain outside the scope of management VaR.
– Concurrently with the abovementioned changes, we
changed our VaR methodology to an equivalent expected
tail loss (ETL) measure. The ETL measure considers the
overall distribution of losses in the VaR tail to determine
the VaR loss at any given confidence level. We therefore
consider the ETL measure to be more stable and to better
identify losses around the VaR tail than a pure quantile
measure based on a single observation in the VaR distri-
bution.
The tables in this section show our 1-day 95% manage-
ment VaR, 10-day 99% management VaR and 1-day 99%
backtesting VaR for the Group and the Investment Bank. We
have provided additional granularity in the tables related to
the Investment Bank by splitting out VaR for interest rate risk
and credit spread risk. As at 31 December 2008 we disclosed
an aggregate VaR for our interest rate and credit spread risk.
The Investment Bank’s average management VaR (1-day
95%) decreased to CHF 55 million in 2009 compared with
CHF 79 million in 2008. Period-end VaR was also lower at
CHF 54 million at 31 December 2009 compared with CHF 74
million at 31 December 2008.
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This decrease was driven by our active risk reduction
across all risk types in 2009. Credit spread VaR remained the
dominant component of the Investment Bank’s VaR.
VaR for the Group as a whole followed a similar pattern
to Investment Bank VaR.
➔ Refer to “Note 27c Fair value of financial instruments” in
the “Financial information” section of this report for
valuation sensitivities on certain portfolios and positions
Backtesting
Backtesting compares 1-day 99% regulatory VaR calculated
for positions at the close of each business day with the
revenues which actually arise on those positions on the
following business day. Our backtesting revenues exclude
non-trading revenues, such as fees and commissions, and
estimated revenues from intraday trading. A backtesting ex-
ception occurs when backtesting revenues are negative and
the absolute value of those revenues is greater than the pre-
vious day’s VaR.
We experienced four backtesting exceptions in 2009
compared with 50 backtesting exceptions in 2008. This sig-
nificant reduction resulted among other reasons from im-
provements made in the granularity of risk representation in
our VaR model (particularly related to credit spread risk) and
more frequent update of VaR parameters as well as lower
market volatility experienced in 2009.
134
Investment Bank: backtesting revenue¹ distribution
Frequency in number of days
1 January 2009–31 December 2009
Investment Bank: analysis of negative
backtesting revenues1
CHF million
Source: management accounts
1 January 2009–31 December 2009
120
90
60
30
0
> 180
150–180
120–150
90–120
60–90
30–60
0–30
(30)–0
(60)–(30)
(90)–(60)
(120)–(90)
(150) –(120)
)
0
0
3
(
<
)
0
5
2
(
–
)
0
0
3
(
)
0
0
2
(
–
)
0
5
2
(
)
0
5
1
(
–
)
0
0
2
(
)
0
0
1
(
–
)
0
5
1
(
)
0
5
(
–
)
0
0
1
(
0
–
)
0
5
(
0
5
–
0
0
0
1
–
0
5
0
5
1
–
0
0
1
0
0
2
–
0
5
1
0
5
2
–
0
0
2
0
0
3
–
0
5
2
0
0
3
>
Revenues in CHF million
1 Backtesting revenues exclude non-trading revenues, such as commissions and fees, and
revenues from intraday trading.
(180)–(150)
3RM125_e
Source: revenues management accounts
(210)–(180)
(240)–(210)
(270)–(240)
(300)–(270)
< (300)
The first histogram above shows daily backtesting reve-
nues in the Investment Bank for the whole of 2009. In the
second histogram, the daily backtesting revenues are com-
pared with the corresponding VaR over the same 12-month
period for days when backtesting revenues were negative. A
positive result in this histogram represents a loss less than
VaR while a negative result represents a loss greater than
VaR and therefore a backtesting exception.
We investigate all backtesting exceptions and any ex-
ceptional revenues on the profit side of the VaR distribu-
tion. In addition, we report all backtesting results to senior
business management, the Group CRO and business divi-
sion CROs.
Backtesting exceptions are also reported to internal and
external auditors and relevant regulators.
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30
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50
60
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Frequency in number of days
Negative backtesting revenue less than VaR
Negative backtesting revenue greater than VaR
1 Backtesting revenues exclude non-trading revenues, such as commissions and
fees, and revenues from intraday trading. Analysis for loss days only.
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90
3RM125_e
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Risk and treasury management
Risk management and control
Stress loss
As a complement to VaR, we run macro stress scenarios com-
bining various market moves to reflect the most common
types of potential stress events, and more targeted stress
tests for our concentrated exposures and vulnerable portfo-
lios. We enhanced our market risk stress framework in 2009
to increase the scope and granularity of our analysis. This in-
cluded updating stress scenarios to more accurately capture
the liquidity characteristics of different markets, asset classes
and positions, and implementing a stress scenario to reflect
the extreme market conditions that were experienced at the
height of the financial crisis in fourth quarter 2008.
Our market risk stress testing framework attempts to pro-
vide a control framework that is forward-looking and re-
sponsive to changing market conditions. Our stress scenarios
are therefore reviewed regularly in the context of the macro-
economic and geopolitical environment by a committee
comprised of representatives from the business divisions,
Risk Control and Economic Research.
➔ Refer to the discussion on stress loss in the “Risk manage-
ment and control” section of this report
Equity investments
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We make investments for a variety of purposes, including
revenue generation or as part of strategic initiatives. Other
investments, such as exchange and clearing house member-
ships, are held in support of our business activities. We may
also make investments in funds that we manage to fund or
“seed” them at inception or to demonstrate alignment of
our interests with those of investors. We have also bought
and may be required to buy securities and units from funds
that we have sold to clients. These include purchases of il-
liquid assets such as interests in hedge funds.
We may make direct investments in a variety of entities or
buy equity holdings in both listed and unlisted companies,
where such investments tend to be illiquid. The fair value of
equity investments tends to be dominated by factors specific
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to the individual stocks, and our equity investments are gen-
erally intended to be held for the medium- or long-term and
may be subject to lock-up agreements. For these reasons,
we do not generally control these exposures using the mar-
ket risk measures applied to trading activities. Such equity
investments are, however, subject to controls, including pre-
approval of new investments by business management and
risk control, and regular monitoring and reporting. They are
also included in our firm-wide earnings-at-risk and capital-
at-risk, and combined stress test metrics.
Investments made as part of an ongoing business are also
subject to our standard controls, including portfolio and
concentration limits. Seed money and co-investments in
UBS-managed funds made by Global Asset Management
are, for example, subject to a portfolio limit. All investments
must be approved according to delegated authorities, and
are monitored and reported to senior management.
Under IFRS, equity investments may be classified as Finan-
cial investments available-for-sale, Financial assets designat-
ed at fair value through profit or loss or Investments in as-
sociates.
Composition of equity investments
At 31 December 2009, we held equity investments totaling
CHF 3.1 billion, of which CHF 1.4 billion were classified as
Financial investments available-for-sale, CHF 0.8 billion as
Financial assets designated at fair value and CHF 0.9 billion
as Investments in associates.
As of 31 December 2008, we held equity investments
totaling CHF 3.7 billion, of which CHF 1.7 billion were clas-
sified as Financial investments available-for-sale, CHF 1.1 bil-
lion as Financial assets designated at fair value and CHF 0.9
billion as Investments in associates.
The vast majority of the CHF 0.8 billion of Financial assets
designated at fair value represented the assets of trust enti-
ties associated with employee compensation schemes. They
are broadly offset by liabilities to plan participants included
in Other liabilities. The equivalent positions at 31 December
2008 amounted to CHF 1.1 billion.
➔ Refer to “Note 12 Financial assets designated at fair value”
in the “Financial information” section of this report for
further information
➔ Refer to “Note 13 Financial investments available-for-sale”
in the “Financial information” section of this report for
further information
➔ Refer to “Note 14 Investment in associates” in the
“Financial information” section of this report for further
information
136
Operational risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, people and systems (for exam-
ple, failed IT systems or fraud perpetrated by an employee),
or from external causes, whether deliberate, accidental or
natural. We monitor our operational risks and, to the extent
possible, control and mitigate them to levels considered ac-
ceptable by senior management. The Group Head of Opera-
tional Risk Control is responsible for the effective design of
the operational risk framework.
All this information is reviewed by functional managers to
assess the operational risk exposure of their function and to
determine the actions needed to address any specific issues.
These issues are captured in a risk inventory, which forms the
basis of operational risk reporting to senior management.
Operational risk control units, reporting functionally to
the Group Head of Operational Risk Control, confirm the ef-
fectiveness of the implementation of the operational risk
framework, and perform independent oversight of the con-
clusions reached by functional management.
Operational risk framework
All the firm’s functions (whether business, control or logistics
functions) must manage the operational risks that arise from
their activities. The basis of our operational risk framework is
that all functions adequately define their roles and responsi-
bilities to ensure they have adequate segregation of duties,
complete coverage of risks and clear accountability. From
this analysis, the functions develop control objectives and
standards based on the types of operational risk events that
might arise from their activities ranging, for example, from
daily reconciliation problems to potentially severe events
such as fraud. We recognize that we cannot eliminate all our
operational risks because errors and accidents will happen,
and that even where it is possible to eliminate certain risks, it
is not always cost effective to do so.
Our functions apply controls to monitor compliance and
assess the operating effectiveness of their control frame-
works in a number of ways. These include self-certification
by staff, monitoring a wide range of metrics (for example,
the number and characteristics of client complaints, deal
cancellations and corrections, un-reconciled items on cash
and customer accounts and systems failures) and analysis of
internal and external audit findings. As major financial and
non-financial operational risk events occur, we evaluate their
causes and the implications for our control framework. This
includes an assessment of events affecting third parties that
may be relevant to our businesses, provided that sufficient
information is publicly available.
Operational risk measurement
We have developed a model for the quantification of our
operational risk which meets the regulatory capital standard
specified by the Basel II Advanced Measurement Approach
(AMA). Our model has two main components:
– The expected loss component is a statistical measure
based on our own historical loss experiences (which have
been collected since 2002) and is used primarily to deter-
mine the expected loss portion of our capital requirement.
– The unexpected loss component is based on a set of ge-
neric scenarios that represent categories of operational
risks that are relevant to our firm. The scenarios used are
based on analysis of internal and external event informa-
tion, the prevailing business environment and our own
internal control environment. This component is used to
determine the unexpected loss portion of our capital re-
quirement.
We calculate our operational risk regulatory capital re-
quirement using the AMA model for the consolidated Group
and the parent bank in accordance with the requirements of
FINMA. For regulated subsidiaries, the basic indicator or
standardized approaches are adopted as agreed with local
regulators. Currently, we do not reflect mitigation through
insurance in our AMA model.
➔ Refer to “Capital management” section of this report for
more information on the development of RWA for
operational risk
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137
Risk and treasury management
Risk management and control
Risk management and control renewal program
In third quarter 2008, FINMA conclud-
ed its investigation into the causes of
the significant writedowns that we
incurred in 2007 and 2008. It
confirmed our own conclusions in all
material respects and we developed a
comprehensive and detailed plan to
eliminate the weakness we identified.
We have made further progress in
completing remediation activities and
developing sustainable solutions in
2009. This includes strategic planning
and business reviews (including
enhancements to our new business
approval process); integrated executive
reporting combining risk, treasury and
financial information; changes to
the risk governance framework and
the Risk Management and Control
organization; enhancements to our
risk measurement and methodologies;
changes to our capital optimization
model; improvements in front office
controls around trade capture and
valuation; and enhancements to our
funding and balance sheet manage-
ment.
Remediation activities will continue in
certain areas requiring more significant
or strategic changes to processes,
systems and infrastructure.
138
Risk concentrations
Risk concentrations
Previously disclosed risk concentrations
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A risk concentration exists where: (i) a position in financial
instruments is affected by changes in a group of correlated
factors, or a group of positions is affected by changes in the
same risk factor or a group of correlated factors; and (ii) the
exposure could, in the event of large but plausible adverse
developments, result in significant losses.
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The identification of risk concentrations requires judgment
as potential future developments cannot be predicted and may
vary from period to period. In determining whether we have a
risk concentration, we consider a number of elements, both
individually and collectively. These elements include: the shared
characteristics of the instruments and counterparties; the size
of the position or group of positions; the sensitivity of the posi-
tion or group of positions to changes in risk factors; and the
volatility and correlations of those factors. Also important in
our assessment is the liquidity of the markets in which the in-
struments are traded, and the availability and effectiveness of
hedges or other potential risk mitigants. The value of a hedge
instrument may not always move in line with the position be-
ing hedged, and this mismatch is referred to as basis risk.
If we identify a risk concentration, we assess it to deter-
mine whether it should be reduced or mitigated, and we
also evaluate the available means to do so. Our identified
risk concentrations are subject to increased monitoring.
Identified risk concentrations
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Based on our assessment of our portfolios and asset classes
with potential for material loss in a stress scenario relevant to
the current environment, we believe that our exposures to
monoline insurers and student loan auction rate securities
shown below can be considered risk concentrations on 31 De-
cember 2009, according to the abovementioned definition.
It is possible that material losses could occur on asset class-
es, positions and hedges other than those disclosed in this sec-
tion of the report, particularly if the correlations that emerge in
a stressed environment differ markedly from those we antici-
pated. We are exposed to price risk, basis risk, credit spread risk
and default risk, and other idiosyncratic and correlation risks on
both our equities and fixed income inventories. We also have
price risk on our option to acquire the SNB StabFund’s equity.
In addition, we have lending, counterparty and country
risk exposures that could sustain significant losses if eco-
nomic conditions were to worsen.
➔ Refer to the discussion of credit risk, market risk and
operational risk above for more information on the risks
to which we are exposed
In 2009, we significantly reduced exposures to our residual
leveraged finance commitments, which were defined as loan
commitments entered into with the intent to syndicate or
distribute that we assigned an internal credit rating corre-
sponding with external corporate credit ratings of BB– or
worse at the time of reporting. We achieved these reductions
through both sales and writedowns, and as a result our re-
maining positions in leveraged finance commitments are no
longer considered as a risk concentration. We previously re-
ported exposures on 31 December 2008 to leveraged finance
commitments of USD 4.0 billion, net of cumulative gross
writedowns, impairment charges and effective hedges.
Exposure to monoline insurers
The vast majority of our direct exposures to monoline in-
surers arise from OTC derivative contracts, mainly CDSs
purchased to hedge specific positions. The “Exposure to
monoline insurers, by rating” table shows the CDS protec-
tion we bought from monoline insurers to hedge specific
positions. It illustrates the notional amounts of the protec-
tion held, the fair value of the underlying instruments and
the fair value of the CDSs both prior to and after the CVA
taken on these contracts. As a result of trade commuta-
tions and because a significant portion of the underlying
assets are classified as Loans and receivables for account-
ing purposes, the change in CVA reported in the table
does not equal the profit and loss associated with this
portfolio during the year to 31 December 2009.
Our exposure under CDS contracts with monoline insur-
ers is calculated as the sum of the fair values of individual
CDSs after credit valuation adjustments. This, in turn, de-
pends on the valuation of the instruments against which
protection has been bought. A positive fair value, or a valu-
ation gain, on the CDS is recognized if the fair value of the
instrument it is intended to hedge decreases. Changes in
CVA are driven by changes in CDS fair value and also by
movements in monoline credit spreads.
We actively reduced our exposures to monoline insurers
in 2009 by commuting trades with several monoline insur-
ers. The trade commutations related primarily to US RMBS
collateralized debt obligations (CDOs) that we had substan-
tially written down on a fair value basis. Combined with the
improved performance and composition of the portfolio, the
fair values of our remaining assets hedged with monoline
insurers increased over the period with a corresponding de-
crease in the fair values of the related CDSs. As at 31 Decem-
ber 2009, approximately 75% of the remaining assets were
139
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Risk and treasury management
Risk management and control
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collateralized loan obligations (CLOs), 20% were collateral-
ized mortgage-backed securities and other asset-backed se-
curities, and 5% related to US RMBS CDOs. The vast major-
ity of our CLO positions were rated AA and above.
As at 31 December 2009, the total fair value of CDS pro-
tection purchased from monoline insurers decreased signifi-
cantly to USD 2.3 billion (USD 5.3 billion at 31 December
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2008) after cumulative CVAs of USD 2.8 billion (USD 7.0 bil-
lion at 31 December 2008). These exposures do not take
into account any hedging benefits.
In addition to credit protection bought on the positions
detailed in the table above, we held direct derivative expo-
sure to monolines of USD 329 million after CVAs of 199 mil-
lion on 31 December 2009.
➔ Refer to “Note 27c Fair value of financial instruments“ in the
“Financial information” section of this report for more informa-
tion on CVA valuation and sensitivities
Exposure to auction rate securities
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Auction rate securities held by
the Investment Bank
Approximately USD 1.6 billion at par
value of student loan auction rate
securities (ARS) were redeemed by
issuers, or sold by us in the secondary
market in 2009.
We repurchased USD 3.7 billion at
par value of student loan ARS in
2009, including approximately USD
0.5 billion of student loan ARS where
we accelerated the repurchase from
our clients to facilitate redemptions
with issuers or resales. Combined
with other redemptions directly with
clients and amortizations, this
resulted in an overall decrease of
USD 3,958 million to USD 7,817
million as of 31 December 2009
compared with 31 December 2008,
in our commitment to repurchase
student loan ARS from clients as
described below.
Our inventory of student loan ARS
increased by USD 1,985 million to USD
10,347 million in 2009 as a result of
student loan ARS repurchased in the
period which were partially offset by
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the abovementioned redemptions,
resales and amortizations.
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At 31 December 2009 approximately
69% of the collateral underlying our
inventory of student loan ARS was
backed by Federal Family Education
Loan Program (FFELP) collateral, which
was reinsured by the US Department
of Education for not less than 97% of
principal and interest. All of our
student loan ARS positions are held as
Loans and receivables and are subject
to an impairment test that includes a
detailed review of the quality of the
underlying collateral. Impairment
charges incurred on our inventory of
student loan ARS in 2009 were not
significant.
Approximately 90% of the USD 7,817
million student loan ARS that we
committed to purchase from clients
were backed by FFELP-guaranteed
collateral.
As at 31 December 2009, we also
held inventory with a carrying value of
USD 1,423 million in US municipal
ARS, USD 1,097 million in US taxable
auction preferred securities (APS) and
USD 2,729 million in US tax-exempt
APS. The vast majority of our inventory
of municipal ARS were rated invest-
ment grade with approximately 85%
rated A or higher. The vast majority of
our inventory of taxable and tax-
exempt APS were rated AAA. On
31 December 2009, we had not
incurred any impairment charges on
our inventory of municipal ARS or
taxable and tax-exempt APS. As at
31 December 2008, we held USD 451
million in US municipal ARS, USD 782
million in US taxable APS and USD
3,167 million in US tax-exempt APS.
Commitment to repurchase client
auction rate securities
We have committed to restore liquidity
to certain client holdings of ARS. This
commitment is in line with previously
announced agreements in principle
with various US state agencies, and the
final settlements entered into with the
Massachusetts Securities Division, the
US Securities and Exchange Commis-
sion and the New York State Attorney
General. The table on the next page
shows the maximum repurchase
Exposure to auction rate securities
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Exposure to monoline insurers, by rating 1
USD million
31.12.09
Fair value of
underlying CDOs 4
Fair value of
CDSs prior to
credit valuation
adjustment 5
Column 2 Column 3 (=1–2)
Credit valuation
adjustment as of
31.12.09
Fair value of
CDSs after
credit valuation
adjustment
Column 4 Column 5 (=3–4)
Notional amount 3
Column 1
Credit protection on US sub-prime residential mortgage-
backed securities (RMBS) CDOs high grade 2
of which: from monolines rated investment grade (BBB and above)
of which: from monolines rated sub-investment grade (BB and below)
Credit protection on other assets 2
of which: from monolines rated investment grade (BBB and above)
of which: from monolines rated sub-investment grade (BB and below)
Total 31.12.09
Total 31.12.08
2,352
0
2,352
11,835
2,345
9,490
14,187
21,535
457
0
457
8,626 6
1,911
6,715
9,083
9,204
1,895
0
1,895
3,208
433
2,775
5,103
12,329
1,463
0
1,463
1,332
72
1,260
2,795
6,994
432
0
432
1,876
361
1,514
2,308
5,335
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies.
3 Represents gross notional amount of credit default swaps (CDSs) purchased as credit protection. 4 CDOs: collateralized debt obligations. 5 CDSs: credit default swaps. 6 Includes USD 5.6 billion
(CHF 5.8 billion) at fair value / USD 6.0 billion (CHF 6.2 billion) at carrying value of assets that were reclassified to Loans and receivables from Held-for-trading in fourth quarter 2008 and first quarter
2009. Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information.
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amount at par of student loan ARS
required by the regulatory settlements,
which would occur over various time
periods according to client type, but
not later than 2 July 2012.
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had committed to repurchase from
clients up to a maximum of USD
2,041 million of municipal ARS and
USD 1,723 million of taxable and
tax-exempt APS.
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In future periods, we will no longer
disclose our inventory of and commit-
ments to repurchase municipal ARS
and taxable and tax-exempt APS, as
we do not consider that they involve
material risk exposure.
Over the same time periods, we also
committed to repurchase from clients
up to a maximum amount of USD 374
million of municipal ARS, and USD
212 million of taxable and tax-exempt
APS at par value on 31 December
2009. As at 31 December 2008, we
We anticipate that the maximum
required repurchase amount of ARS is
likely to decline over time, as issuers refi-
nance their debt obligations and we
work with issuers, industry peers and US
government officials on restructuring
initiatives and redemption opportunities.
We will continue to disclose our
inventory of and commitment to
repurchase student loan ARS as our
assessment of this exposure indicates
that we consider it a risk concentra-
tion.
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Student loan auction rate securities inventory
USD million
US student loan auction rate securities
Carrying value as of
31.12.09
10,347 1
Carrying value as of
31.12.08
8,362
1 Includes USD 7.5 billion (CHF 7.7 billion) at carrying value of student loan auction rate securities that were reclassified to Loans and receivables from Held-for-trading in fourth quarter 2008 and first
quarter 2009. Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information.
Client holdings: student loan auction rate securities
USD million
Buy-back period
Par value of maximum
required purchase as of
31.12.09
Remaining unpurchased
holdings of private clients
Holdings of Institutional
clients
period ends 4.1.11
30.6.10–2.7.12
Par value of maximum
required purchase as of
31.12.08
US student loan auction rate securities
7,817
93
7,724
11,775
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Risk and treasury management
Treasury management
Treasury management
Group treasury is responsible for overseeing the usage of our critical financial resources including liquidity and
funding, capital and balance sheet. Treasury manages key portions of these resources including the interest
rate and currency risks arising from balance sheet and capital management activities.
Liquidity management
Capital ratios, risk-weighted assets and
eligible capital
Stressed market conditions experienced in the latter half of
2008, continued in the first few months of 2009 but then
began to ease noticeably in the second half of the year as
the effects of central bank support and government assis-
tance were felt in the market. High credit spreads contracted
and the general tone of the money markets improved as
flows in longer- term tenors increased.
We continued to further strengthen and safeguard our li-
quidity position and adjusted funding targets while our focus
was maintained on continuing asset reductions. Combined
with the broad diversity of our funding sources, our contin-
gency planning processes and our global scope, these mea-
sures have enabled us to maintain a balanced asset / liability
profile throughout the recent market dislocation. Addition-
ally, signs of our return towards financial stability included
the successful tender for certain subordinated notes in March
and, in August, the exit of the Swiss Confederation’s stake in
UBS through conversion of the mandatory convertible notes
(MCNs) and immediate placement of shares in the market.
Funding management
Despite challenging conditions throughout 2009, we main-
tained our access to funding primarily as a result of our
broadly diversified funding base. In addition, we accessed an
important new investor base through our inaugural Europe-
an covered bond program.
At year-end 2009, the BIS tier 1 ratio amounted to 15.4%
and the total capital ratio to 19.8%, up from 11.0% and
15.0%, respectively, on 31 December 2008. BIS risk-weight-
ed assets declined from CHF 302.3 billion in December 2008
to CHF 206.5 billion in December 2009, while eligible tier 1
capital decreased from CHF 33.2 billion to CHF 31.8 billion
over the same period, reflecting the effects of losses incurred
during 2009 and further negative impacts on equity, only
partially offset by the positive effects from issues of capital
instruments.
Shares
As of 31 December 2009, we had a total of 3,558,112,753
shares issued. In 2009, the issued shares were increased by a
total of 625,532,204 due to the issuance of newly created
shares for a share placement with institutional investors in
June (293,258,050 shares placed at CHF 13 each), the early
conversion of MCNs by the Swiss Confederation in August
(332,225,913 shares) plus a small number of exercises of em-
ployee options (48,241 shares). The remaining CHF 13 bil lion
MCNs will expire on 5 March 2010 leading to an expected
issuance of 272,651,005 shares from conditional capital.
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Liquidity and funding management
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We define liquidity risk as the risk of being unable to raise
funds to meet payment obligations when they fall due.
Funding risk is the risk of being unable, on an ongoing basis,
to borrow funds in the market at an acceptable price to fund
actual or proposed commitments and thereby support our
current business and desired strategy. Liquidity and funding
are not the same, but they are closely related and both are
critical for a financial institution.
Liquidity and funding must be continuously managed to
ensure that we can successfully adjust to sudden adverse
changes in market conditions or our operating environment,
whether it is a general market crisis, a localized difficulty af-
fecting a smaller number of institutions, or a problem unique
to an individual firm. An institution that is unable to meet its
liabilities when they fall due may collapse, even though it is
not insolvent, because it is unable to borrow sufficient funds
on an unsecured basis, or does not have sufficient high qual-
ity assets to borrow against or liquid assets to sell to raise
immediate cash.
Market liquidity overview: 2009
The first few months of 2009 saw a continuation of the
stressed financial market conditions that had prevailed
throughout the latter part of 2008. Economic fundamentals
continued to deteriorate, developing into the worst eco-
nomic recession in the post-war era; average credit spreads
for high-quality corporate bonds reached historically high
levels; most markets remained fragile and suffered from very
limited liquidity and the banking and wider financial sector
remained under considerable pressure. For the financial sec-
tor, access to financing from the public term-debt markets
was mostly limited to government-guaranteed bonds. On
the back of large amounts of additional special central bank
support and government assistance, signs of improvement
emerged during the second quarter and high credit spreads
for financial institutions contracted. The general tone of the
money markets began to improve noticeably during the sec-
ond quarter, with flows no longer being effectively limited to
very short tenors. Public term-debt markets became broadly
accessible to banks for unsecured bond issuances for the
first time since late third quarter 2008, across various curren-
cies and a range of tenors. More signs of stabilization
emerged in the third quarter on improved earnings in the
financial sector, leading to further declines in financial insti-
tutions’ credit spreads and improved access to public debt
markets. Volumes of new long-term debt issuance increased,
particularly in senior unsecured debt and covered bonds,
while government-guaranteed bond issuances contracted.
The policy responses by governments and central banks
mirrored market developments during the year. The focus
had initially remained on maintaining the extraordinary mea-
sures designed to reinforce country-specific financial systems
and support their economies. As the year progressed, de-
clines were registered in utilization levels of these facilities.
With the intensity of the financial crisis beginning to abate
during the first half of the year, and as signs of stabilization
gradually emerged, policymakers around the world began to
shift their attention toward tightening their regulatory capi-
tal and liquidity frameworks with a view to reducing the sys-
temic risks posed by the largest financial institutions. There
are many new regulatory and legislative initiatives applicable
to large financial firms that have been proposed in Switzer-
land, the US, UK, European Union and other jurisdictions
where we operate. These proposals and their interactions
may significantly impact our future liquidity and funding
management processes, if and when they are enacted.
Our measures taken in managing out of the crisis
Despite challenging conditions throughout 2009, we main-
tained our access to funding with a broadly diversified fund-
ing base, and continued with measures to further strengthen
and safeguard our liquidity position. Throughout this period,
funding targets were adjusted and focus was maintained on
continuing asset reductions. Combined with the broad di-
versity of funding sources, global scope and contingency
planning processes, these measures enabled us to maintain
a balanced asset and liability profile. We also maintain a sub-
stantial multi-currency portfolio of unencumbered high-
quality short-term assets, and also have unutilized secured
liquidity facilities available with several major central banks.
In addition to these centralized Group resources, like many
other internationally active banks, we maintain several ad-
ditional dedicated liquidity reserves where these are required
by local regulation. Additionally, we have taken significant
steps during 2009 including further de-risking and reducing
the balance sheet, including the completion of the remain-
ing transfers of assets to the SNB StabFund announced in
2008, and the sale of UBS Pactual, as well as additional me-
dium- and long-term debt issuance, including accessing an
important new investor base through our inaugural Europe-
an covered bond program. The successful tender for certain
subordinated notes in March and, in August, the exit of the
Swiss Confederation’s stake in UBS through conversion of
the MCNs and immediate placement of shares in the market
were widely regarded as additional signs of our return to fi-
nancial stability.
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Risk and treasury management
Treasury management
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While further signs of stabilization in the market emerged
throughout 2009, and although access to wholesale term
funding improved, we continued to experience a decline in
customer deposits and net new money outflows in our cli-
ent-asset-gathering divisions. Regarding the net outflows of
client assets, only the cash deposit component of these con-
stitutes a direct loss of funding for us. We were able to read-
ily compensate for the effects of these outflows, as well as
for the periodic reductions in access to wholesale term debt
markets, through ample funding from alternative sources
within our diversified funding base and our ongoing bal-
ance sheet asset reductions. As part of these asset reduc-
tions, the funded balance sheet mainly in the Investment
Bank was reduced by CHF 242 billion compared with year-
end 2008.
➔ Refer to the “Balance Sheet“ section of this report for
more information
Implementation of the new liquidity and funding risk
management framework
We made progress in implementing the new liquidity and
funding risk management framework which was approved
by the BoD in late 2008. Significant enhancements to our
existing systems and tools used for liquidity and funding
management were implemented, allowing us to forecast
more accurately potential liquidity and funding demands un-
der both going concern and stressed conditions. The Group
Asset and Liability Management Committee (Group ALCO)
was established as the primary body for managing our finan-
cial resources. Furthermore, governance over the liquidity
and funding management process was improved and docu-
mented in a complete overhaul of our policies. In addition to
balance sheet targets, new supply side limits were intro-
duced to control the funding of the balance sheet, and ad-
ditional limits on the off-balance sheet exposures were im-
plemented. Our liquidity reserve, a pool of highly liquid cash
and cash equivalent assets, was put under the direct man-
agement of Group Treasury.
Further strategic work is underway to improve the opera-
tional setup of the liquidity and funding management pro-
cess and to refine the funds transfer pricing mechanism. We
are also reviewing the technical landscape of our liquidity
and funding risk management tools, and have projects un-
derway to upgrade our systems infrastructure.
Liquidity approach
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Our approach to liquidity management, which covers all
branches and subsidiaries, aims to ensure that we will always
have sufficient liquidity to meet liabilities when due, under
both normal and stressed conditions, without incurring un-
acceptable losses or risking sustained damage to our various
businesses.
Central to the integrated framework is an assessment
and regular testing of all material, known and expected cash
flows and the level of high-grade collateral that could be
used to raise additional funding. Limits are set at Group and
Division level by the BoD and the Group ALCO. These limits
are monitored by Group Treasury, which reports the results
and trends on a regular basis to the BoD Risk Committee and
the Group ALCO. Contingency plans for a liquidity crisis are
incorporated into our wider crisis management process.
Our major sources of liquidity are channeled through en-
tities that are fully consolidated. The liquidity position and
asset and liability profile are continuously tracked. This in-
volves monitoring the balance sheet contractual and behav-
ioral maturity profiles and projecting and modeling the li-
quidity exposures of the firm under a variety of potential
scenarios – encompassing both normal and stressed market
conditions. We consider the possibility that our access to
markets could be impacted by a stress event affecting some,
or all, parts of our business. The results are factored into our
overall contingency plans.
Liquidity management
We manage our liquidity position in order to be able to sur-
vive a UBS-specific liquidity crisis combined with a generally
stressed market environment. This is complemented by our
funding risk management, which aims to achieve the opti-
mal liability structure to finance our businesses cost-efficient-
ly and reliably.
Our business activities generate asset and liability port-
folios which are intrinsically highly diversified with respect
to market, product and currency. This reduces our exposure
to individual funding sources, and also provides a broad
range of investment opportunities, which in turn reduces
liquidity risk.
Our funding diversification and global scope in turn help
protect our liquidity position in the event of a crisis. We
adopt a centralized approach to liquidity and funding man-
agement to exploit these advantages in full. The liquidity and
funding process is undertaken jointly by Group Treasury and
the foreign exchange and money market (FXMM) unit within
the Investment Bank’s fixed income, currencies and com-
modities (FICC) business area. Group Treasury establishes a
comprehensive control framework, while FICC undertakes
operational cash and collateral management within the es-
tablished limits.
This centralization permits close control of both our glob-
al cash position and its stock of high-quality liquid securities.
Our treasury processes also ensure that the firm’s general ac-
cess to wholesale cash markets is concentrated in FICC.
Funds raised externally are largely channeled into FICC, in-
cluding the proceeds of debt securities issued by UBS, an
activity for which Group Treasury is responsible. FICC in turn
meets all internal demands for funding by channeling funds
from units generating surplus cash to those requiring fi-
144
nance. In this way, we reduce our external borrowing and
use of available credit capacity, and present a consistent and
coordinated face to the market.
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Liquidity modeling and contingency planning
For the purpose of monitoring our liquidity situation, we em-
ploy the following main measures:
– A cash ladder which is used to manage our funding re-
quirements on a daily basis within limits that are set by the
Group CFO and Group Treasurer. This cumulative cash lad-
der shows the daily liquidity position – the net cumulative
funding requirement for a specific day – projected for each
business day from the current day forward three months.
– A stressed version of the cash ladder which is overlaid
with behavioral assumptions that model a severe UBS-
specific liquidity crisis combined with a generally stressed
market environment. This stress scenario is updated daily
and used to monitor potential outflows out to a one-
month time horizon.
– A contractual maturity gap analysis of our assets and lia-
bilities out to a one-year time horizon.
– A behavioral maturity gap analysis under an assumed UBS-
specific liquidity crisis combined with a generally stressed
market environment out to a one-year time horizon.
– A cash capital model which measures the amount of sta-
ble funding in relation to the amount and composition of
our assets.
The breakdown of the contractual maturity of our assets
and liabilities serves as a starting point for stress testing anal-
yses. A partial breakdown as of year-end is shown in the
“Maturity analysis” table at the end of this section. This ma-
turity analysis is an accounting view. It does not fully repre-
sent a liquidity risk management perspective, which would
also include behavioral stress analyses and a more detailed
breakdown of asset and liability types.
The liquidity crisis scenario combines a firm-specific crisis
with market disruption and focuses on a time horizon ex-
tending up to one year. This UBS-specific scenario envisages
large drawdowns on otherwise stable client deposits, an in-
ability to renew or replace maturing unsecured wholesale
funding and limited capacity to generate liquidity from trad-
ing assets. Liquidity crisis scenario analysis and contingency
planning supports the liquidity management process so that
immediate corrective measures, such as the use of a liquidity
buffer to absorb potential sudden liquidity shortfalls, can be
put into effect.
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Since a liquidity crisis could have a myriad of causes, we
focus on a scenario that encompasses potential stress effects
across all markets, currencies and products.
The assessment includes the likelihood of maturing assets
and liabilities being rolled over in a UBS-specific crisis within
an otherwise stressed market environment, and gauges the
extent to which the potential crisis-induced shortfall could
be covered by available funding. This would be raised on a
secured basis against available collateral, which includes se-
curities eligible for pledging at the major central banks, or by
selling inventory. In both cases we apply crisis-level discounts
to the value of assets. We assume that we would generally
be unable to renew any of our wholesale unsecured debt,
including all our maturing money market paper (CHF 52 bil-
lion outstanding on 31 December 2009). Since liquidity
needs may also result from commitments and contingencies,
including credit lines extended to secure the liquidity needs
of customers, we regularly monitor undrawn committed
credit facilities and other latent liquidity risks and factor
these into the scenario analysis. Particular emphasis is placed
on potential drawdowns of committed credit lines.
If our credit rating were to be downgraded, “rating trig-
ger” clauses, especially in derivative contracts, could result in
an immediate cash outflow due to the unwinding of deriva-
tive positions or the need to deliver additional collateral.
We also take into account the potential impact on our net
liquidity position of adverse movements in the replacement
value of our OTC derivative transactions, which are subject
to collateral arrangements. Given the diversity of our deriva-
tives business and that of our counterparties, there is not
necessarily a direct correlation between the factors influenc-
ing net replacement values with each counterparty and a
UBS-specific crisis scenario.
➔ Refer to the “Note 23 Derivative instruments and hedge
accounting” in the “Financial information” section of this
report for more information
Liquidity limits and controls
Liquidity and funding limits and targets are set by the BoD,
the Group ALCO, the Group CFO and the Group Treasurer,
taking into consideration our business model and strategy,
the prevailing market conditions and our tolerance for risk.
The principles underlying our limit and target framework aim
to maximize and sustain the value of our business franchise
and appropriately balance the asset / liability structure in light
of prevailing market conditions. Structural limits and targets
focus on the composition and profile of the balance sheet,
while supplementary limits and targets are designed to drive
the utilization and allocation of funding resources. Together
the limits and targets focus on structural liquidity risk for
terms from intra-day out to one year, including stress testing,
and on the liability mix, including diversification by source,
currency and tenor. Group Treasury is responsible for the
oversight of the liquidity and funding limits and targets. Per-
formance versus limits and targets is monitored and regu-
larly communicated to senior management.
To complement and support the limit framework, mem-
bers of our regional and divisional treasuries monitor the
markets in which we operate for potential threats and regu-
larly report significant findings to Group Treasury.
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We have contingency plans for liquidity crisis manage-
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145
Risk and treasury management
Treasury management
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reserves, including a large multi-currency portfolio of unen-
cumbered high-quality short-term assets and available and
unutilized liquidity facilities at several major central banks.
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pendence on any particular source. A maturity breakdown
of our long-term straight debt portfolio of CHF 64 billion is
shown at the end of this section.
The liquidity contingency plan is an integral part of the
global crisis management concept, which covers all types of
crisis events. Its implementation falls under the responsibility
of a core crisis team with representatives from Group Trea-
sury, FICC, and related areas including the functions respon-
sible for payments and settlements, market and credit risk
control, collateral and margin management, and informa-
tion technology and infrastructure. Our centralized global
management model lends itself naturally to efficient liquidity
crisis management. Should a crisis require contingency fund-
ing measures to be invoked, Group Treasury takes responsi-
bility for coordinating liquidity generation together with rep-
resentatives from FICC and the relevant business areas.
Funding
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Our wealth management businesses continue to represent
valuable and cost-efficient sources of funding. These busi-
nesses contributed CHF 323 billion, or 79%, of the CHF 410
billion total customer deposits shown in the “UBS asset
funding” graph. Compared with the CHF 307 billion of net
loans as of 31 December 2009, customer deposits provided
134% coverage compared with 140% on 31 December
2008. In terms of secured funding (i.e. repurchase agree-
ments and securities lent against cash collateral received),
we borrow less cash on a collateralized basis than we lend,
leading to a surplus of net securities sourced – shown as the
CHF 108 billion cash-equivalent surplus in the “UBS asset
funding” graph. Furthermore, funding is provided through
numerous short-, medium- and long-term funding pro-
grams, which provide specialized investments to institutional
and private clients in Europe, the US and Asia. These pro-
grams can efficiently raise funds globally, reducing our de-
Verküpung
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UBS asset funding
As of 31.12.09
67
82
180
Cash, balances with central
banks and due from banks
Financial investments
available-for-sale
Cash collateral on securities
borrowed and
reverse repurchase agreements
232
Trading portfolio assets
CHF
108 billion
surplus
Due to Banks
Money market paper issued
Cash collateral on securities lent
and repurchase agreements
Trading portfolio liabilities
Financial liabilities designated
at fair value
Demand deposits
307
Loans
62
Other assets (incl. net RVs)
Time deposits
Fiduciary deposits
Retail savings/deposits
134%
coverage
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Long-term debt
Other liabilities
Total Equity
Assets
Liabilities and equity
65
52
72
47
113
187
79
43
102
80
43
48
146
Through broad diversification of our funding sources (by
market, product and currency), we maintain a well-balanced
portfolio of liabilities, which provide protection in the event
of market disruptions. This, together with our centralized
funding management, enables us to efficiently fund our
business activities.
Funding approach
Medium- and long-term funding activities are planned by as-
sessing the overall funding profile of the balance sheet. The
ability to continue to fund ongoing business activities through
periods of difficult market conditions is also factored in. Since
the beginning of 2007, prior to the outbreak of the recent
financial crisis, we have maintained our funding profile
through public issuance of senior, straight, and long-term
debt. As part of these continuing diversification efforts, in
third quarter 2009, we launched our inaugural covered bond
program, from which we issued euro-denominated bonds
that are indirectly covered by a pool of prime, Swiss franc-
denominated Swiss residential mortgages originated and ser-
viced by UBS AG through our branch network in Switzerland.
In addition to continuing to raise medium- and long-term
funds through medium-term notes and private placements,
during 2009 we raised over CHF 11 billion through bench-
mark public senior debt issuance, following the CHF 24 bil-
lion raised from these sources during 2008. This included
two covered bonds totaling around the equivalent of CHF
4.5 billion under the aforementioned new covered bond
program. We raised a further CHF 6 billion through Swiss
covered bond (Pfandbrief) issuances via the Swiss Mortgage
Bond Bank during 2009. Additionally, the placement of new
shares from authorized capital in June 2009 generated ap-
proximately CHF 3.8 billion of long-term funds.
To ensure that a well-balanced and diversified liability
structure is preserved, Group Treasury routinely monitors our
funding status and reports its findings on a monthly basis to
the Group ALCO. A key measure employed among our main
analysis tools is the assessment of our “cash capital“ posi-
tion, this concept is designed to ensure that illiquid assets
can be financed by long-term sources of funding.
The cash capital supply consists of long-term sources of
funds: unsecured funding with remaining time to maturity
of at least one year; shareholders’ equity; and core deposits
– the portion of customer deposits deemed to have a “be-
havioral“ maturity of at least one year. Cash capital con-
sumption reflects the illiquid portion of the assets which
could not be transformed into cash by secured funding. For
a given asset, the illiquid portion is the difference (the “hair-
cut“) between the carrying value of an asset on the balance
sheet, and its effective cash value when used as collateral in
a secured funding transaction.
3CM014a_e
UBS: funding by product and currency
In %
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
31.12.09
31.12.08
All currencies
CHF
EUR
USD
Others
Securities lending
Repurchase agreements
Interbank
Money market paper
Retail savings / deposits
Demand deposits
Fiduciary
Time deposits
Long-term debt 1
Total
1.0
8.1
8.2
6.5
12.8
23.7
5.4
9.9
24.3
100.0
1 Including financial liabilities designated at fair value.
1.4
10.2
12.5
11.1
9.1
14.8
6.1
16.3
18.6
0.0
1.0
0.8
0.2
8.4
4.8
0.3
0.8
3.2
0.0
0.9
0.8
0.3
6.0
2.8
0.3
1.6
2.7
0.2
1.4
2.6
0.6
0.8
5.1
1.5
1.3
9.7
0.4
1.6
4.9
1.0
0.1
3.1
2.0
2.7
6.0
100.0
19.4
15.4
23.4
21.7
0.5
4.5
2.4
5.0
3.6
10.5
2.9
4.8
7.8
42.0
0.6
6.7
4.9
8.6
3.0
6.8
3.0
8.9
5.1
47.6
0.3
1.2
2.4
0.7
0.0
3.3
0.6
3.0
3.6
15.2
0.4
1.1
1.8
1.2
0.0
2.1
0.7
3.1
4.8
15.3
We also regularly monitor our main funding portfolios for
any concentration risks.
Funding position and diversification
We continue to maintain a balanced portfolio of liabilities
that is broadly diversified by market, product and currency.
The vast product offerings and global scope of our business
activities are the primary reasons for funding stability. Fund-
ing is provided through numerous short-, medium- and
long-term funding programs in Europe, the US and Asia,
which provide specialized investments to institutional and
private clients. Our domestic retail and global wealth man-
agement businesses are also a valuable source of funding.
The overall composition of our funding sources at the end
of 2009 is shown in the table above and the pie-charts be-
low. These funding sources amounted to CHF 792 billion on
the balance sheet, down from CHF 1,007 billion a year be-
fore, and comprise repurchase agreements, securities lend-
ing against cash collateral received, due to banks, money
market paper issued, due to customers and long-term debt
including financial liabilities at fair value. While the composi-
tion was broadly similar to the prior year-end, there was a
discernible shift away from time deposits, short-term money
market paper and interbank debt towards higher propor-
tions of demand deposits, long-term debt and savings de-
posits. Money market paper issuance accounted for 7% of
our funding sources on 31 December 2009, compared with
11% a year before, and at the same time the relative share
of short-term interbank borrowing dropped to 8% from
13%. Customer time and demand deposits (excluding fidu-
ciary deposits) accounted for 34%, up from 31% on 31 De-
cember 2008, and savings deposits for 13%, up from 9% on
31 December 2008, of these funding sources. Compared
with the prior year-end, the proportion of funding from fidu-
ciary deposits was down slightly to 5% from 6%. The pro-
portion of our funding from long-term debt including finan-
cial liabilities designated at fair value was up to 24% from
19% a year earlier, reflecting our continued increased focus
on medium- to long-term debt issuances. During 2009, we
decreased our secured funding, with the proportion declin-
ing to 9% from 11% at prior year-end, primarily through
decreased repurchase agreements.
Credit Ratings
Credit ratings generally affect the cost and availability of
funding, in particular with regard to funding from wholesale
UBS: funding by product type¹
In %
As of 31.12.09
UBS: funding by currency¹
In %
As of 31.12.09
5
10
24
13
7
8
1
8
Fiduciary
Time deposits
Long-term debt
Securities lending
Repurchase agreements
Interbank
24
Money market paper
Retail savings/deposits
Demand deposits
1 Excluding trading portfolio liabilities, negative replacement values, other liabilities and equity.
15
19
CHF
EUR
USD
Other
23
43
3CM003_e
1 Excluding trading portfolio liabilities, negative replacement values, other liabilities and equity.
3CM004_e
147
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Treasury management
Credit ratings
As of 31.12.09
Short-term debt rating
Long-term senior debt rating
Standard & Poor’s
Moody’s
Rating
Outlook
Rating
A–1
A+
stable
stable
P–1
Aa3
Outlook
negative
negative
Fitch Ratings
Rating
Outlook
F1+
A+
stable
stable
Service downgraded our long-term senior unsecured debt
rating from Aa2 to Aa3 in November 2009, while Fitch Rat-
ings and Standard & Poor’s long-term senior unsecured debt
ratings remained unchanged during 2009 at A+. The table
above summarizes our short- and long-term debt ratings as
of 31 December 2009.
Maturity breakdown of long-term straight debt portfolio
The graph on the left-hand side shows a contractual maturity
breakdown of our long-term straight debt portfolio, and
therefore excludes all structured debt, which is predominantly
booked as Financial liabilities designated at fair value. The
long-term straight debt portfolio amounted to CHF 64 billion
on 31 December 2009, and is part of the CHF 131 billion
shown on the Debt issued line on the balance sheet (which in
addition includes money market paper issued). It is composed
of CHF 53 billion of senior debt including both publicly and
privately placed notes and bonds as well as Swiss cash bonds,
and CHF 11 billion of subordinated debt. Of the positions
shown in the graph, CHF 11 billion, or 17%, will mature dur-
ing 2010.
23.0
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Maturity analysis of financial liabilities
Contractual maturity information of our assets and liabilities
serves as a starting point for the stress testing analyses which
are described above. Following IFRS guidance, the disclosure
of contractual maturities includes financial liabilities only.
Our liquidity risk management framework includes, beside
many other measures, a behavioral stress analysis, a more
3CM004c_e
unsecured sources. Our credit ratings can also influence the
performance of some of our businesses and contribute to
maintaining client and counterparty confidence. Important
factors used by rating agencies to assess a firm’s creditwor-
thiness and determine its credit ratings include stability and
quality of earnings, capital adequacy, risk profile and man-
agement, liquidity management, diversification of funding
sources, asset quality and corporate governance. Credit rat-
ings reflect opinions of the rating agencies and can be
changed at any time.
Our short-term credit ratings from all three major rating
agencies (Standard & Poor’s, Moody’s and Fitch Ratings)
were unchanged and affirmed in 2009. Moody’s Investors
Long-term straight debt – contractual maturities
CHF billion
As of 31.12.09
2010
2011
2012
2013–14
2015–19
2020–29
after 2029
Year of maturity
Senior debt
Subordinated debt
24
18
12
6
0
148
19.200001
14.400001
9.600000
4.800000
0.000000
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detailed breakdown and assessment of asset and liability po-
sitions, and it also considers cash inflows from assets as well
as outflows from various off-balance sheet exposures.
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The contractual maturities of our non-derivative and non-
trading financial liabilities as of 31 December 2009 present-
ed in the table below are based on the earliest date on which
we are required to pay. The total amounts contractually ma-
turing in each time-band are also shown for 31 December
2008. Derivative positions and trading liabilities, which pre-
dominantly include short sale transactions, are assigned to
the column On demand as management believes that such
presentation most accurately reflects the short-term nature
of trading activities. The contractual maturity may extend
over significantly longer periods.
Maturity analysis of financial liabilities 1
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CHF billion
On demand 2
Financial liabilities recognized on balance sheet
Due
within
1 month 2
Due
between
1 and 3
months 2
Due
between
3 and 12
months 2
Due
between
1 and 5
years 3
Due after
5 years 3
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities 4, 5
Negative replacement values 4
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total 31.12.09
Total 31.12.08
Financial liabilities not recognized on balance sheet
Irrevocable loan commitments
Guarantees
Underwriting commitments
Total 31.12.09
Total 31.12.08
50.3
8.0
7.2
47.5
409.9
0.0
261.6
0.0
0.0
21.7
806.3
1,212.3
57.2
16.1
0.0
73.3
59.9
7.1
0.0
46.6
0.0
0.0
2.3
119.8
8.5
21.9
7.4
213.5
449.4
1.1
0.3
1.8
3.2
0.2
1.9
0.0
6.6
0.0
0.0
4.7
14.5
0.0
15.8
0.0
43.4
80.6
0.3
0.2
0.2
0.8
0.0
3.2
0.0
3.8
0.0
0.0
22.3
13.6
0.0
26.5
0.0
69.4
60.7
0.5
0.2
0.2
0.9
0.1
1.3
0.0
0.0
0.0
0.0
44.7
0.9
0.0
36.9
0.0
83.8
75.9
0.2
0.1
0.0
0.3
0.1
1.4
0.0
0.0
0.0
0.0
38.7
0.1
0.0
30.4
0.0
70.6
87.0
0.0
0.1
0.0
0.1
0.0
Total
65.2
8.0
64.2
47.5
409.9
112.7
410.5
8.5
131.4
29.1
1,286.9
1,965.9
59.3
17.1
2.3
78.6
60.3
1 Only financial instruments (as disclosed in note 29a) are required to be disclosed in the maturity analysis, therefore, not all numbers in the table reconcile to the line items in the balance sheet. The
differences relate to accrued expenses, deferred income and other liabilities and also comprise, deferred tax liabilities, provisions and liabilities from employee compensation plans. 2 Our liquidity risk
management focus is on short and mid-term cash flows. In these time periods, the carrying values of non-derivative financial liabilities largely approximate the undiscounted cash flows. 3 Represents
carrying values. 4 Carrying value is fair value. Management believes that this best represents the cash flows that would have to be paid if these positions had to be settled or closed out. Refer to
“Note 23 Derivative instruments and hedge accounting” in the “Financial information” section of this report for undiscounted cash flows of derivatives designated in hedge accounting relation-
ships. 5 Contractual maturities of trading portfolio liabilities are: CHF 45.9 billion due within one month; and CHF 1.6 billion due between one month and one year.
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149
Risk and treasury management
Treasury management
Interest rate and currency management
Management of non-trading interest rate risk
Market risk arising from management of
consolidated capital
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Our largest non-trading interest rate exposures arise within
our wealth management business divisions. These exposures
are transferred from the originating business into one of two
centralized interest rate risk management units: Group Trea-
sury or the Investment Bank’s FICC unit. These units manage
the risks on an integrated basis, exploiting the full netting
potential across risks from different sources.
Risks from fixed-maturity, short-term Swiss franc and all
non-Swiss franc transactions are generally transferred to FICC.
Risks from Swiss franc transactions with fixed maturities great-
er than one year are transferred to Group Treasury by individu-
al back-to-back transactions. These fixed-rate products do not
contain embedded options, such as early prepayment, which
would allow clients to prepay at par. All prepayments are
therefore subject to market-based unwinding costs.
Current and savings accounts and many other retail prod-
ucts of Wealth Management & Swiss Bank have no contrac-
tual maturity date or direct market-linked rate, and therefore
their interest rate risk cannot be transferred by simple back-
to-back transactions. Instead, they are transferred on a
pooled basis via “replicating” portfolios. A replicating port-
folio is a series of loans or deposits at market rates and fixed
terms between the originating business unit and Group Trea-
sury, structured to approximate, on average, the interest rate
cash flow and repricing behavior of the pooled client trans-
actions. The portfolios are rebalanced monthly. Their struc-
ture and parameters are based on long-term market obser-
vations and client behavior, and are regularly reviewed and
adjusted as necessary. The originating business units are thus
immunized as far as possible against market interest rate
movements, but retain and manage their product margin.
A significant amount of interest rate risk also arises from
the financing of non-monetary-related balance sheet items,
such as the financing of bank property and equity invest-
ments in associated companies. These risks are generally
transferred to Group Treasury through replicating portfolios
which, in this case, are designed to approximate the tenor
profile mandated by senior management.
Group Treasury manages its residual open interest rate
exposures, taking advantage of any offsets that arise be-
tween positions from different sources, within its approved
market risk limits which include VaR and stress loss. The pre-
ferred risk management instrument is interest rate swaps,
for which there is a liquid and flexible market. All transac-
tions are executed via the Investment Bank. Group Treasury
does not directly access the external market.
➔ Refer to the “Market risk“ section of this report for further
details on our market risk measures and controls
150
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The relationship between our capital and RWA, BIS tier 1
ratio, is monitored by regulators and analysts and is a key
indicator of our financial strength.
The majority of our capital and many of our assets are
denominated in Swiss francs, but we also hold RWA and
some eligible capital in other currencies, primarily US dollar,
euro and UK sterling. Any significant depreciation of the
Swiss franc against these currencies would adversely impact
our BIS tier 1 ratio. Group Treasury’s mandate is to minimize
adverse currency impacts on this ratio.
On an overall Group basis, Group Treasury’s target profile
is based on a currency mix which broadly reflects the cur-
rency distribution of the consolidated RWA. As the Swiss
franc depreciates or appreciates against these currencies, the
consolidated RWA increase or decrease relative to our capi-
tal. These currency fluctuations also lead to translation gains
or losses on consolidation, which are recorded through eq-
uity. Thus, our consolidated equity rises or falls in line with
the fluctuations in the RWA, stabilizing the BIS tier 1 ratio.
The capital of the parent bank itself is held predominantly in
Swiss francs in order to avoid any significant effects of cur-
rency fluctuations on its standalone financial results.
Furthermore, Group Treasury has the mandate to gener-
ate a stable interest income flow from the capital. The cap-
ital of the parent bank and its subsidiaries is placed via in-
terest-bearing cash deposits internally within our network.
Group Treasury further maintains a portfolio of interest rate
swaps to achieve a target tenor profile and return on in-
vested equity.
To provide a benchmark for investments of equity, Group
Treasury defines a replicating portfolio of target tenors and
currencies. The effective investment position created by both
internal cash deposits and interest rate swaps are then mea-
sured against this benchmark tenor replication portfolio.
Mismatches between the two are measured, together with
other non-trading interest rate risk positions, against Group
Treasury’s market risk limits (VaR and stress loss).
The structural foreign currency exposures (to hedge our
BIS tier 1 ratio) are controlled by senior management but are
not subject to internal market risk limits and are not included
in Group Treasury’s reported VaR.
On 31 December 2009, our consolidated equity was de-
ployed as follows: in Swiss francs (including most of the cap-
ital of the parent bank) with an average duration of approx-
imately three years and an interest rate sensitivity of CHF 8.0
Group Treasury: Value-at-Risk (1-day, 95% confidence, 5 years of historical data)
CHF million
Interest rates
Foreign exchange
Diversification effect
Total management VaR
Year ended 31.12.09
Year ended 31.12.08
Min.
Max.
Average
31.12.09
Min.
Max.
Average
31.12.08
1
0
1
2
7
15
1
16
3
3
(1)
5
3
2
(1)
4
2
1
1
3
9
24
1
25
5
7
(3)
9
5
3
(2)
6
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
million per basis point; in US dollars with an average dura-
tion of approximately four years and a sensitivity of CHF 7.1
million per basis point; in euros with an average duration of
approximately three years and a sensitivity of CHF 1.0 million
per basis point; and in UK sterling with a duration of ap-
proximately three years and a sensitivity of CHF 0.4 million
per basis point. The interest rate sensitivity of these positions
is directly related to the chosen duration – targeting signifi-
cantly shorter tenors would reduce the apparent interest rate
sensitivity but would lead to greater fluctuations in interest
income.
Corporate currency management
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Our corporate currency management activities are designed
to reduce the impact of adverse currency fluctuations on our
reported financial results, given regulatory constraints. We
specifically focus on three principal areas of currency risk
management: match funding and investment of non-Swiss
franc assets and liabilities; sell-down of non-Swiss franc prof-
its and losses; and selective hedging of anticipated non-
Swiss franc profits and losses.
Match funding and investment of non-Swiss franc assets
and liabilities
For monetary balance sheet items and non-core investments,
we follow the principle of matching the currency of our as-
sets with the same currency of the liabilities which fund
them, as far as it is practical and efficient to do so. A US dol-
lar asset thus is typically funded in US dollars, while a euro
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liability is typically offset by an asset in euros. This avoids
profits and losses arising from the retranslation of foreign
currency assets and liabilities at the prevailing exchange
rates to the Swiss franc at quarter ends.
Sell-down of reported profits and losses
For accounting purposes, reported profit and losses are
translated each month from their original transaction cur-
rencies into Swiss francs at exchange rates fixed at the pre-
vailing month end. In order to eliminate earnings volatility on
the retranslation of previously recognized earnings in foreign
currencies, Group Treasury centralizes the profits and losses
arising in the parent bank and sells or buys them for Swiss
francs. Our other operating entities follow a similar monthly
sell-down process into their own reporting currencies. Re-
tained earnings in operating entities with a reporting cur-
rency other than the Swiss franc are integrated and managed
as part of our consolidated equity.
Hedging of anticipated future reported profits and losses
Our corporate currency management executes a dynamic
and cost-efficient hedging strategy to protect anticipated fu-
ture profit and losses in foreign currencies against a negative
impact of adverse trends of foreign exchange rates from one
reporting period to the next. At any point in time Group
Treasury may hedge according to market perception part or
all of the anticipated next three months’ earnings.
Although intended to hedge future earnings, these transac-
tions are accounted as open currency positions and are sub-
ject to internal market risk VaR and stress loss limits.
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151
Risk and treasury management
Treasury management
Capital management
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Sufficient capital must be available to support business ac-
tivities, in accordance with both our own internal assess-
ment and the requirements of our regulators, in particular
our lead regulator FINMA.
We aim to maintain sound capital ratios at all times, and
we therefore consider not only the current situation but also
projected developments in both our capital base and capital
requirements. The main tools by which we manage our cap-
ital ratios are active management of own shares, capital in-
struments, dividends, and risk-weighted assets (RWAs).
Capital adequacy management
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Ensuring compliance with minimum regulatory capital re-
quirements and target capital ratios is central to capital ad-
equacy management. In this ongoing process, we manage
towards tier 1 and total capital target ratios. In the target
setting process we take into account the regulatory mini-
mum capital requirements, regulators’ expectations that we
hold additional capital above minimum requirements, our in-
ternal assessment of aggregate risk exposure in terms of
capital-at-risk, the views of rating agencies and comparisons
with peer institutions considering our business mix and mar-
ket presence.
➔ Refer to the “Risk management and control“ section of this
report for more information on earnings-at-risk and
capital-at-risk
Regulatory requirements
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We are subject to FINMA regulatory capital requirements,
which result in higher RWA than under BIS guidelines.
➔Refer to the additional capital management disclosure in
the “Basel II Pillar 3” section of this report
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To allow for comparability, published RWA are deter-
mined in accordance with the BIS guidelines. For the deter-
mination of the eligible capital, there are no differences be-
tween the BIS guidelines and FINMA regulations.
In 2009, we complied with all externally imposed capital
requirements.
Regulatory developments
In July 2009, the Basel Committee on Banking Supervision
(the Committee) published the revised Basel II market risk
framework and issued enhancements to the Basel II frame-
work. Swiss banks are expected to comply with the revised
requirements by 1 January 2011.
The revisions to the Basel II market risk framework aim to
address perceived shortcomings in the current VaR frame-
work, most notably by introducing new capital requirements
to incorporate effects of “stressed markets”. This is achieved
by introducing a new incremental risk charge that accounts
for default and migration risk of trading book positions and
a stressed VaR requirement taking into account a one-year
observation period relating to significant losses, which must
be calculated in addition to the VaR based on the most re-
cent one-year observation period. Furthermore, securitiza-
tion positions, even though held for trading, will attract
banking book capital charges.
The enhanced Basel II framework introduces higher risk
weights for resecuritization exposures, to better reflect
the inherent risk in these products, and requires banks to
conduct more rigorous credit analyses of externally rated
securitization exposures. The Committee also issued valu-
ation guidance for all illiquid positions accounted for at
fair value.
Additionally, the Group of Central Bank Governors and
Heads of Supervision (the oversight body of the Committee)
met in September 2009 to review a comprehensive set of
measures to strengthen the regulation, supervision and risk
management of the banking sector. In December 2009, the
Committee issued a package of proposals to strengthen
global capital and liquidity regulations to promote a more
resilient banking sector. Based on the above, the Committee
initiated a comprehensive impact assessment of the capital
and liquidity standards, which will be carried out in the first
half of 2010. The Committee will also consider appropriate
transition and grandfathering arrangements. Together, these
measures are intended to promote a better balance between
financial innovation, economic efficiency, and sustainable
growth in the long run.
As disclosed in our 2008 financial report, FINMA intro-
duced a minimum leverage ratio and higher target capital
ratios for the two largest Swiss banks. Public statements by
FINMA officials and by the Swiss National Bank suggest that
Swiss authorities are actively considering what further mea-
sures should be taken to reduce the systemic risk associated
with Switzerland’s two largest banks, including measures re-
lating to capital, liquidity and structure. It would be prema-
ture to conclude whether these considerations will lead to
further changes, and what effect such changes might have
on our business and strategic direction. We continue to
monitor all regulatory developments and will take necessary
steps as required.
152
BIS Capital ratios
UBS: BIS capital ratios¹
In %
Basel I
Basel II
The BIS capital ratios compare eligible capital (tier 1 and total
capital) with total RWA.
At year-end 2009, the tier 1 ratio amounted to 15.4% and
the total capital ratio to 19.8%, up from 11.0% and 15.0%,
respectively, on 31 December 2008. In this period, RWA de-
clined to CHF 206.5 billion from CHF 302.3 billion, while tier
1 capital decreased to CHF 31.8 billion from CHF 33.2 billion.
➔ Refer to the discussion on “Capital adequacy” and “Eligible
capital” in this section for more information
Capital requirements
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Our capital requirements are based on our consolidated fi-
nancial statements in accordance with IFRS, adjusted for reg-
ulatory differences. Under IFRS, subsidiaries and special pur-
pose entities that are directly or indirectly controlled by UBS
must be consolidated, whereas for regulatory capital pur-
poses, different consolidation principles apply. For example,
subsidiaries that are not active in the banking and finance
business are not consolidated.
➔ Refer to the additional capital management disclosure in
the “Basel II Pillar 3” section of this report
On 31 December 2009 BIS RWA were CHF 206.5 billion,
compared with CHF 302.3 billion at year-end 2008. The
analysis by component is as follows:
Credit risk
RWA for credit risk amounted to CHF 140.5 billion on 31 De-
cember 2009, compared with CHF 222.6 billion on 31 De-
cember 2008. The reduction was primarily related to lower
derivatives RWA of CHF 42.1 billion and reduced loan book
RWA of CHF 25.8 billion. The loan book decrease occurred
mainly in the Investment Bank and Wealth Management &
Swiss Bank. Further, RWA declined for security finance trans-
actions, committed credit lines and guarantees as well as
seed money exposures. In addition, a CHF 2.0 billion RWA
reduction stemmed from the UBS Pactual sale.
➔ Refer to the “Credit risk” section of this report for more
4
0
Q
1
4
0
Q
2
4
0
Q
3
4
0
Q
4
5
0
Q
1
5
0
Q
2
5
0
Q
3
5
0
Q
4
6
0
Q
1
6
0
Q
2
6
0
Q
3
6
0
Q
4
7
0
Q
1
7
0
Q
2
7
0
Q
3
7
0
Q
4
8
0
Q
1
8
0
Q
2
8
0
Q
3
8
0
Q
4
9
0
Q
1
9
0
Q
2
9
0
Q
3
9
0
Q
4
14.2
13.9
13.9
14.1
14.2
13.4
12
12.8
12.5
12.1
12.3
12.6
11.9
12.8
11.6
19.4
19.8
17.7
15.5
14.8
14.5 14.5
15.8
16.2
15.0 15.0
13.9
15.0 15.0 14.7
15.4
15.0
13.3
13.3
12.6
12.7
12.7
12.2 12.0
12.2
12.2
13.2
11.0
11.1
11.0
11.0
10.5
9.1
7.4
20
16
8
4
BIS tier 1 capital ratio
BIS total capital ratio
1 Prior to and including 4Q07 the capital ratios above are based on Basel I capital
regulations, thereafter on Basel II rules.
3CM010_e
Non-counterparty related assets
RWA for non-counterparty related assets amounted to CHF
7.0 billion on 31 December 2009, compared with CHF 7.4
billion on 31 December 2008.
Market risk
In 2009, RWA for market risk decreased by CHF 14.8 billion
to CHF 12.9 billion on 31 December 2009. This was due to
the inclusion of credit valuation adjustments in regulatory
VaR, reduced risk positions in the trading book as well as
lower regulatory VaR multipliers.
➔ Refer to the “Market risk” section of this report for
further information
Operational risk
RWA for operational risk increased to CHF 46.1 billion on 31
December 2009 from CHF 44.7 billion on 31 December 2008.
This was related to the recognition of the US cross-border
case and the regular scenario recalibration of operational risk
events during 2009, which were partly offset by comparably
low other operational risk losses experienced during 2009.
➔ Refer to the “Operational risk” section of this report
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information
for further information
153
Risk and treasury management
Treasury management
Eligible capital
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Eligible capital, the capital available to support RWA, consists
of tier 1 and tier 2 capital. To determine eligible tier 1 and total
capital, specific adjustments must be made to equity attribut-
able to our shareholders as defined by IFRS and as shown on
our balance sheet. The most notable adjustments are the de-
ductions for goodwill, intangible assets, investments in uncon-
solidated entities engaged in banking and financial activities
and own credit effects on liabilities designated at fair value.
Tier 1 capital
BIS tier 1 capital amounted to CHF 31.8 billion on 31 Decem-
ber 2009, down from CHF 33.2 billion on 31 December
2008. The decrease in BIS tier 1 capital of CHF 1.4 billion is
attributable to the CHF 2.7 billion loss recognized under
IFRS, CHF 1.8 billion of own shares related components, CHF
2.8 billion capital impact related to coupon payments in con-
nection with the mandatory convertible notes (MCNs) issued
in March 2008 and the MCNs issued in December 2008, of
which the latter was redeemed in August 2009. Further CHF
1.0 billion was due to changes in tier 1 deduction items and
CHF 0.2 billion from other effects including FX. These nega-
tive impacts were partly offset by the CHF 3.8 billion share
issuance in June 2009, an adjustment for capital purposes of
CHF 2.1 billion for losses on own credit and the positive ef-
fect of CHF 1.2 billion from the sale of UBS Pactual.
Hybrid tier 1 capital
These instruments are perpetual and can only be redeemed
if they are called by the issuer after having received regula-
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tory approval. The payment of interest is subject to compli-
ance with minimum capital ratios and other requirements.
Any missed payment is non-cumulative. As of 31 December
2009, our hybrid tier 1 instruments amounted to CHF 7.2
billion. Under IFRS, these instruments are accounted for as
equity attributable to minority interests.
Tier 2 capital
These instruments consist mainly of our subordinated long-
term debt that ranks senior to both our shares and hybrid
tier 1 instruments but is subordinated to all our senior obli-
gations. Tier 2 capital net of tier 2 deductions accounted for
CHF 9.1 billion in total capital as of year-end 2009.
➔ Refer to the “Shares and capital instruments“ section of
this report for details about our issuance of capital
securities during 2009, including hybrid tier 1 instruments
and tier 1 instruments
Transfer of capital within UBS Group
Under Swiss company law, UBS is organized as a limited
company, a corporation that has issued shares of common
stock to investors. UBS AG is the parent company of UBS
Group. The legal entity structure of the Group is designed to
support our businesses within an efficient legal, tax, regula-
tory and funding framework. We enter into intragroup
transactions in order to provide funding and capital to indi-
vidual UBS entities. As of 31 December 2009, we were not
aware of any material restrictions, or other major impedi-
ments, concerning the transfer of funds or regulatory capital
within the Group apart from those which apply to these en-
tities by way of local laws and regulations.
Capital adequacy
CHF million, except where indicated
BIS tier 1 capital
of which: hybrid tier 1 capital
BIS total capital
BIS tier 1 capital ratio (%)
BIS total capital ratio (%)
BIS risk-weighted assets
of which: credit risk 1
of which: non-counterparty related risk
of which: market risk
of which: operational risk
1 Includes securitization exposures and equity exposures not part of the trading book and capital requirements for settlement risk (failed trades).
31.12.09
31.12.08
31,798
7,224
40,941
15.4
19.8
206,525
140,494
7,026
12,861
46,144
33,154
7,393
45,367
11.0
15.0
302,273
222,563
7,411
27,614
44,685
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Capital components
CHF million
BIS tier 1 capital prior to deductions
of which: paid-in share capital
of which: share premium, retained earnings, currency translation differences and other elements
of which: non-innovative hybrid tier 1 capital instruments
of which: innovative hybrid tier 1 capital instruments
Less: treasury shares / deduction for own shares 1
Less: goodwill & intangible assets
Less: other deduction items 2
BIS tier 1 capital
Upper tier 2 capital
Lower tier 2 capital
Less: other deduction items 2
BIS total capital
31.12.09
47,367
356
39,788
1,785
5,438
(2,424)
(11,008)
(2,138)
31,798
50
11,231
(2,138)
40,941
31.12.08
48,758
293
41,072
1,810
5,583
(1,488)
(12,950)
(1,167)
33,154
1,090
12,290
(1,167)
45,367
1 Consists of: i) net long position in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards and iii) accrual build for upcoming share awards. 2 Positions
to be deducted as 50% from tier 1 and 50% from total capital mainly consist of: net long position of non-consolidated participations in the finance sector; expected loss on advanced internal rating- based
portfolio less general provisions (if difference is positive); expected loss for equities (simple risk weight method); first loss positions from securitization exposures.
IFRS equity to BIS tier 1 capital
The main differences between IFRS equity attributable to
shareholders and tier 1 capital result from:
– An increase in BIS share premium of which CHF 3.7 billion
stems from the MCNs issued in March 2008 and the out-
standing accrual related to the MCN coupon of CHF 0.2
billion.
– The difference of CHF 1.2 billion in Net income recognized
directly in equity, net of tax is due to fair value changes
recorded directly in equity under IFRS from Financial in-
vestments available-for-sale and cash flow hedges (reduc-
tion of CHF 1.6 billion). This was partly offset by CHF 0.4
billion of foreign currency translation differences due to a
different regulatory scope of consolidation.
– The increase of BIS share premium of CHF 3.7 billion re-
sulted in an equivalent reduction of the IFRS retained
earnings which were reduced for gains on own credit net
of tax of CHF 0.8 billion related to the application of the
fair value option under IAS 39 and CHF 0.2 billion related
to different regulatory scope of consolidation.
– Removing minority interests of CHF 0.3 billion for regula-
tory purposes not eligible as tier 1 capital.
– A negative adjustment in Treasury shares / deduction for
own shares of CHF 1.4 billion mainly due to accruals for
upcoming share awards.
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Reconciliation of International Financial Reporting Standards equity to BIS tier 1 capital
CHF million
Share capital
Share premium
Net income recognized directly in equity, net of tax
Revaluation reserve from step acquisitions, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Equity attributable to minority interests
Treasury shares / deduction for own shares 2
Total equity / gross tier 1 including MCNs and hybrid tier 1 instruments
Less: goodwill, intangible assets and other deduction items
Less: accrual for expected future dividend payments
Eligible BIS tier 1 capital
31.12.09
IFRS view 1 Reconciliation items
0
356
34,786
(4,875)
38
11,751
(2)
7,620
(1,040)
48,633
3,888
(1,214)
0
(4,687)
2
(295)
(1,384)
(3,690)
BIS view
356
38,674
(6,089)
38
7,064
0
7,325
(2,424)
44,944
(13,146) 3
0
31,798
1 International Financial Reporting Standards (IFRS). 2 Generally, treasury shares are fully deducted from equity under IFRS, whereas for capital adequacy purposes this position covers the following:
i) net long position in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards; and iii) accrual build for upcoming share awards. 3 “Other deduction items”
include primarily 50% of the deductions for net long position of non-consolidated participations in the finance sector, expected loss on advanced internal rating-based approach portfolio less general
provisions (if difference is positive); expected loss for equities (simple risk weight method); first loss positions from securitization exposures.
155
Risk and treasury management
Treasury management
FINMA leverage ratio
As disclosed in our 2008 financial report, FINMA introduced
a minimum leverage ratio of 3% on Group level and expects
that, in normal times, the ratio will be well above this. The
FINMA leverage ratio is being progressively implemented un-
til it is fully applicable on 1 January 2013.
On 31 December 2009, our Group FINMA leverage ratio
improved to 3.93%, compared with the 31 December 2008
ratio of 2.45%. During the year, average total assets prior to
deductions decreased by CHF 785.5 billion, or 36%, to CHF
1,426.2 billion as a result of our continued efforts to reduce the
balance sheet size. The reduction in average total adjusted as-
sets was even more pronounced, falling by 40% to CHF 809.4
billion, more than compensating for the 4% decrease in BIS tier
1 capital (as discussed earlier within this section). The table be-
low shows the FINMA leverage ratio calculation for the Group.
Equity attribution framework
In first quarter 2008, we implemented a new framework for
attributing equity capital to our businesses. This reflects our
overarching objectives of maintaining a strong capital base
and guiding businesses towards activities with the best bal-
ance among profit potential, risk and capital usage. Within
this framework, the Group Asset and Liability Management
Committee (Group ALCO) attributes equity to the businesses
after considering their risk exposure, asset size, goodwill and
intangible assets.
The design of the equity attribution framework enables
us to:
– Calculate and assess return on attributed equity (RoaE) in
each of our businesses. RoaE and return on BIS RWA are
disclosed for all business groups and units.
– Integrate Group-wide capital management activities with
those at business group and business unit levels.
– Measure performance in a consistent manner across busi-
ness divisions and business units.
– Make better comparisons between our businesses and
those of competitors.
The framework operates as follows: First, each business is
attributed an amount of equity equal to the average book
value of goodwill and intangible assets, as reported for that
business division or business unit according to IFRS. Next, the
Group ALCO considers a number of factors that drive re-
quired capital, including:
– Equity requirements based on aggregated risk exposure,
including the potential for losses exceeding our earnings
capacity as defined by the firm’s risk-based capital. At cer-
tain other institutions, this factor is referred to as “Eco-
nomic Capital”.
– Regulatory capital requirements which are based on RWA
usage of the businesses.
– The asset size of the businesses is capitalized with a spe-
cific leverage ratio.
After reviewing the results of this formulaic approach, the
Group ALCO makes adjustments to the final tangible equity
FINMA leverage ratio calculation
CHF billion, except where indicated
Total assets (IFRS) prior to deductions 1
Less: netting of replacement values 2
Less: loans to Swiss clients (excluding banks) 3
Less: cash and balances with central banks
Less: other 4
Total adjusted assets
BIS tier 1 capital (at year-end)
FINMA leverage ratio (%)
Average 4Q09
Average 4Q08
1,426.2
(420.9)
(161.4)
(22.1)
(12.4)
809.4
31.8
3.93
2,211.7
(653.5)
(165.5)
(26.0)
(14.6)
1,352.1
33.2
2.45
1 Total assets are calculated as the average of the month-end values for the three months in the calculation period. 2 Includes the impact of netting agreements (including cash collateral) in accordance
with Swiss Federal Banking law, based on the IFRS scope of consolidation. 3 Includes mortgage loans to international clients for properties located in Switzerland. 4 Refer to the “Capital components”
table in this section for more information on deductions of assets from BIS tier 1 capital.
156
attribution to reflect the amount of equity it believes is ap-
propriate for each business. This assessment is based on the
expectations of the business’s clients and the business envi-
ronment, including allowing for sufficient capital to support
the business’s underlying risks and sustain extreme stress sce-
narios. The amount of equity attributed to all the businesses
corresponds to the amount that we believe is required to
maintain a strong capital base and support our businesses
adequately. If the total equity attributed to the businesses dif-
fers from the Group’s actual equity during a particular period,
the surplus or deficit is reflected in the Corporate Center.
The amount of equity attributed to each division is an im-
portant input into the calculation of economic profit for that
division. That is, broadly speaking, economic profit equals
profits minus attributed equity multiplied by cost of equity.
As outlined in the table “Average attributed equity”, the
amount of average equity attributed to the Investment Bank
was reduced by CHF 2.0 billion due to lower risk exposures
from fourth quarter 2008 to fourth quarter 2009. During the
same period, the average equity attributed to Wealth Man-
agement Americas decreased by CHF 1 billion, while Global
Asset Management’s average attributed equity was reduced
by CHF 0.5 billion.
If equity attributable to minority interests (which primarily
consists of tier 1 capital instruments issued by us) were in-
cluded, then our total equity would roughly equal the equity
attributed to the business divisions, as shown in the table
below.
Average attributed equity
CHF billion
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
Surplus / (Deficit)
Average equity attributable to UBS shareholders
Average excess total equity
CHF billion
Average equity attributable to UBS shareholders
Average equity attributable to minority interests
Pro forma average total equity
Average equity attributed to business divisions and CC
Average excess total equity
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4Q09
4Q08
9.0
8.0
2.5
24.0
1.0
(4.2)
40.3
4Q09
40.3
7.7
47.9
44.5
3.4
9.0
9.0
3.0
26.0
1.0
(8.5)
39.5
4Q08
39.5
8.2
47.7
48.0
(0.3)
157
Risk and treasury management
Treasury management
Shares and capital instruments
Shares
UBS shares and tier 1 capital
The majority of our tier 1 capital comprises share premium
and retained earnings attributed to UBS shareholders. As of
31 December 2009, total IFRS equity attributable to our
shareholders amounted to CHF 41,013 million, and was rep-
resented by a total of 3,558,112,753 issued UBS shares, of
which 37,553,872 (1.1%) were held by us. Each share has a
par value of CHF 0.10, and entitles the holder to one vote at
the shareholders’ meeting and to a proportionate share of
the dividend that is distributed. There are no preferential
rights for shareholders and no other classes of shares are is-
sued by the Parent Bank directly.
In 2009, the shares issued were increased by a total of
625,532,204. This increase was due to the issuance of new-
ly created shares for a share placement with institutional in-
vestors in June (293,258,050 shares placed at CHF 13 each),
the early conversion of MCNs by the Swiss Confederation in
August (332,225,913 shares) plus a small number of exer-
cises of employee options (48,241 shares). Under Swiss com-
pany law, shareholders must approve in a shareholders’
meeting any increase in the total number of issued shares,
which may arise from an ordinary share capital increase or
the creation of conditional or authorized capital. The table
below lists all shareholder-approved issuance of shares in ex-
istence as per year end 2009. We have as an objective to
source growth and dividends from retained earnings and not
to dilute shares by the issuance of additional shares unless it
is warranted by stressed financial market conditions or from
regulators.
Holding of UBS shares
We hold own shares for two main purposes: in Group Trea-
sury to cover employee share and option programs and in
the Investment Bank, to a limited extent, for trading pur-
poses where it engages in market-making activities in UBS
shares and related derivative products.
The holding of treasury shares on 31 December 2009 de-
creased to 37,553,872 or 1.1% of shares issued, from
61,903,121 or 2.1% on the same date one year prior.
In 2009, a limited number of employee options were ex-
ercised and an additional 88.7 million new options were
granted. As of 31 December 2009, 27.7 million shares were
available to cover employee share delivery obligations and
an additional 150 million unissued shares in conditional
share capital are assigned to cover future employee option
exercises. At year-end 2009, the shares available covered all
exercisable in-the-money employee obligations.
Shares issued
Number of shares
Balance at the beginning of the year
Issue of shares for capital increase (conversion December 2008 MCN)
Issue of shares for capital increase (share placement)
Issue of shares for employee options
Balance at the end of the year
Shareholder-approved issuance of shares
Authorized capital
Capital increase
Conditional capital
March 2008 mandatory convertible notes
SNB warrants
Employee equity participation plans of UBS AG
Employee stock ownership plan of former PaineWebber
158
For the year ended
31.12.09
2,932,580,549
332,225,913
293,258,050
48,241
3,558,112,753
Maximum number of
shares to be issued
Year approved by
shareholder general
meeting
% of shares issued
31.12.09
5,001,246
277,750,000
100,000,000
149,994,296
29,350
2008
2008
2009
2006
2000
0.14
7.81
2.81
4.22
0.00
The presentation in the table below shows the purchase
of our shares by treasury and does not include activities of
the Investment Bank.
notes will expire on 5 March 2010, leading to the expected
issuance of 272,651,005 shares from conditional capital to
the holders of the mandatory convertible notes.
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the eq-
uity index futures market and as a market maker in our
shares and derivatives, has issued derivatives linked to our
stock. Most of these instruments are classified as cash-set-
tled derivatives and are primarily issued to meet client de-
mand and for trading purposes. To hedge the economic ex-
posure, a limited number of our shares are held by the
Investment Bank.
Capital instruments
Mandatory convertible notes
As part of the measures taken to strengthen our capital base
in 2008, we issued two MCNs, with principal amounts of
CHF 13 billion in private placements with two financial inves-
tors and CHF 6 billion to the Swiss Confederation.
The CHF 6 billion issued to the Swiss Confederation was
converted early into 332,225,913 UBS shares on 25 August
2009, whereas the remaining CHF 13 billion convertible
Hybrid tier 1 capital
Hybrid tier 1 instruments represent innovative and non-in-
novative perpetual instruments. They are accounted for
under minority interests in the IFRS equity. We did not issue
hybrid tier 1 instruments in 2009. As of 31 December
2009, we have CHF 7,224 million of such instruments in
various currencies outstanding. Hybrid tier 1 instruments
are perpetual instruments which can only be redeemed if
they are called by the issuer. If such a call is not exercised at
the respective call date, the terms might include a change
from fixed to floating coupon payments and, in the case of
innovative instruments only, a limited step-up of the inter-
est rate. Non-innovative instruments do not have a step-up
of the interest rate and are therefore viewed as having a
higher equity characteristic for regulatory capital purposes.
The instruments are issued either through trusts or our
subsidiaries and rank senior to our shares in dissolution.
Payments under the instruments are subject to adherence
to our minimum capital ratios. Any missed payment is non-
cumulative.
Treasury share activities
Month of purchase
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
Treasury shares purchased for employee share
and option participation plans and acquisitions 1
Number of shares
Average price in CHF
Total number of shares
Number of shares
(cumulative)
Average price in CHF
0
4,982,914
15,000,000
0
0
0
0
672,876
2,661,037
0
0
1,050,000
0.00
10.93
12.00
0.00
0.00
0.00
0.00
16.02
18.85
0.00
0.00
16.03
0
4,982,914
19,982,914
19,982,914
19,982,914
19,982,914
19,982,914
20,655,790
23,316,827
23,316,827
23,316,827
24,366,827
0.00
10.93
11.73
11.73
11.73
11.73
11.73
11.87
12.67
12.67
12.67
12.81
1 This table excludes market-making and related hedging purchases by UBS. The table also excludes UBS shares purchased by investment funds managed by us for clients in accordance with specified
investment strategies that are established by each fund manager acting independently of UBS; and also excludes UBS shares purchased by pension and retirement benefit plans for our employees, which
are managed by a board of UBS management and employee representatives in accordance with Swiss law guidelines. UBS’s pension and retirement benefit plans purchased 1,391,350 UBS shares dur-
ing the year and held 4,095,850 UBS shares as at 31 December 2009.
Conversion price and number of shares
MCNs
Coupon
9%
Amount
(CHF billion)
Issuance date
Conversion period / maturity
13
5 March 2008
6 September 2008
5 March 2010
Conversion price per
UBS share (CHF)
47.68 1
Conversion into
number of UBS shares
272,651,005
1 Adjusted for dilution effects on the capital increase in June 2009.
159
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Risk and treasury management
Treasury management
Tier 2 capital
The major element in tier 2 capital consists of subordinat-
ed long-term debt. Tier 2 instruments have been issued in
various currencies and with a range of maturities across
capital markets globally. They accounted for CHF 11,231
million in total capital as of year-end 2009. Tier 2 instru-
ments rank senior to both our shares and to hybrid tier 1
instruments but are subordinated to all our senior obliga-
tions.
Distributions to shareholders
The decision whether to pay a dividend, and the level of the
dividend, are dependent on our targeted capital ratios and
its cash flow generation. In line with Swiss law, a dividend
may only be paid out of an annual profit. The decision on
dividend payments is proposed by the BoD to the share-
holders and is subject to their approval at the Annual Gen-
eral Meeting. The BoD has decided not to propose any div-
idend for the financial year 2009.
160
UBS shares in 2009
UBS share price chart vs DJ Banks Titans 30 Index
in %
1 January 2007 – 31 December 2009
125
100
75
50
25
0
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
UBS registered share CHF
DJ Banks Titans 30 Index CHF
For current share price refer to: www.ubs.com/quotes
UBS shares are listed on the SIX Swiss Exchange, the New
York Stock Exchange (NYSE) and the Tokyo Stock Exchange
(TSE). Only a small volume of UBS shares has been traded on
the TSE in recent years. On 4 February 2010 UBS AG’s Board
of Directors decided to delist the firm’s shares from the TSE.
Pending the TSE’s approval of the delisting application, we
expect de-listing to take place in the second quarter of 2010.
➔ Refer to the “Capital structure“ section of this report for
more information on UBS shares including par value, type
and rights of security
Over the course of 2009, UBS shares rose 8% on the SIX
Swiss Exchange and 11% in US dollar terms on the NYSE,
underperforming the global banking sector as measured by
the Dow Jones Banks Titans Index which increased 35%.
The MSCI World and the S&P 500 were up 28% and 26%,
respectively.
Share liquidity
During 2009, the daily average volume in UBS shares on the
SIX Swiss Exchange was 20.3 million shares. On the NYSE, it
was 0.9 million shares. The SIX Swiss Exchange trades a high-
er volume of UBS shares, and as such, it is expected to remain
the main factor determining the movement in our share price.
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(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:71)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)
(cid:21)(cid:19)(cid:19)(cid:27)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:56)(cid:37)(cid:54)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:85)(cid:72)(cid:387)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:22)(cid:22)(cid:21)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:71)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:36)(cid:88)(cid:74)(cid:88)(cid:86)(cid:87)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)(cid:17)(cid:3)(cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:340)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:27)(cid:3)(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:40)(cid:51)(cid:54)(cid:12)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:341)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:340)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:341)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
Ticker symbols
Trading exchange
SIX Swiss Exchange
New York Stock Exchange
Tokyo Stock Exchange
Bloomberg
Reuters
UBSN VX
UBS US
8657 JP
UBSN.VX
UBS.N
8657.T
Security identification codes
ISIN
Valoren
Cusip
(cid:21)(cid:37)(cid:47)(cid:18)(cid:20)(cid:21)(cid:65)(cid:71)
CH0024899483
2.489.948
CINS H89231 33 8
161
(cid:16)(cid:21)(cid:15)
(cid:16)(cid:17)(cid:15)
(cid:23)(cid:15)
(cid:19)(cid:15)
(cid:15)
125.00
93.75
62.50
31.25
0.00
Risk and treasury management
Treasury management
During the hours in which both the SIX Swiss Exchange
and NYSE are simultaneously open for trading (currently
3:30 p.m. to 5:30 p.m. Central European Time), price dif-
ferences are likely to be arbitraged away by professional
market-makers. The NYSE price will therefore typically be
expected to depend on both the SIX Swiss Exchange price
and the prevailing US dollar / Swiss franc exchange rate.
When the SIX Swiss Exchange is closed for trading, traded
volumes will typically be lower. However, the specialist firm
making a market in UBS shares on the NYSE is required to
facilitate sufficient liquidity and maintain an orderly market
in UBS shares.
UBS share data
Registered shares
Total ordinary shares issued
Treasury shares
Weighted average shares (for basic EPS calculations)
Weighted average shares (for diluted EPS calculations)
CHF
Earnings per share (EPS)
Basic EPS
Basic EPS from continuing operations
Diluted EPS
Diluted EPS from continuing operations
UBS shares and market capitalization
Share price (CHF)
Market capitalization (CHF million) 1
31.12.09
As of
31.12.08
31.12.07
3,558,112,753
2,932,580,549
2,073,547,344
37,553,872
61,903,121
158,105,524
3,661,086,266
2,792,023,098
2,182,836,078
3,661,841,214
2,793,174,654
2,184,303,404
For the year ended
31.12.09
31.12.08
31.12.07
(0.75)
(0.74)
(0.75)
(0.74)
(7.63)
(7.68)
(7.63)
(7.69)
(2.40)
(2.59)
(2.41)
(2.59)
31.12.09
16.05
57,108
As of
31.12.08
14.84
43,519
31.12.07
46.60
108,654
% change from
31.12.08
8
31
1 Market capitalization is calculated based on the total UBS ordinary shares issued multiplied by the UBS share price at period end. The total UBS ordinary shares issued as of 31 December 2009 and as
of 31 December 2008 do not reflect the 272.7 million UBS shares to be issued through the conversion of mandatory convertible notes placed with two investors in March 2008. In addition, the total
UBS ordinary shares as of 31 December 2008 do not reflect the 332.2 million shares issued through the conversion of mandatory convertible notes issued in December 2008 and converted in August
2009. Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report for more information.
31.12.09
5,105,358
20,340
222,052
881
For the year ended
31.12.08
7,174,486
28,584
539,856
2,134
31.12.07
4,079,863
16,451
304,446
1,213
Source: Thomson Reuters
Trading volumes
1000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
NYSE total
NYSE daily average
162
Stock exchange prices 1
SIX Swiss Exchange
New York Stock Exchange
High (CHF)
Low (CHF)
Period end (CHF)
High (USD)
Low (USD)
Period end (USD)
2009
Fourth quarter 2009
December
November
October
Third quarter 2009
September
August
July
Second quarter 2009
June
May
April
First quarter 2009
March
February
January
2008
Fourth quarter 2008
Third quarter 2008
Second quarter 2008
First quarter 2008
2007
Fourth quarter 2007
Third quarter 2007
Second quarter 2007
First quarter 2007
2006
Fourth quarter 2006
Third quarter 2006
Second quarter 2006
First quarter 2006
2005
Fourth quarter 2005
Third quarter 2005
Second quarter 2005
First quarter 2005
19.65
19.34
16.67
17.86
19.34
19.65
19.64
19.65
15.94
17.51
16.40
17.51
16.27
17.00
13.69
14.33
17.00
45.98
24.00
25.76
35.11
45.98
71.95
61.05
66.88
71.55
71.95
71.06
71.06
66.52
66.97
64.05
56.39
56.39
49.84
45.68
46.70
8.20
14.76
15.56
14.76
16.90
12.50
17.66
14.95
12.50
10.56
12.95
14.12
10.56
8.20
8.20
9.35
11.22
10.67
10.67
15.18
20.96
21.52
42.69
42.69
53.67
63.72
59.76
53.23
62.88
53.23
54.31
55.60
41.19
46.52
43.60
41.37
41.19
16.05
16.05
16.05
15.58
17.30
18.97
18.97
19.54
15.61
13.29
13.29
15.93
15.95
10.70
10.70
11.06
14.64
14.84
14.84
18.46
21.44
25.67
46.60
46.60
55.67
65.46
64.21
65.86
65.86
66.52
59.32
63.39
55.38
55.38
48.69
44.27
44.71
19.31
19.18
16.49
17.60
19.18
19.31
19.31
18.55
14.80
15.82
15.82
15.82
14.25
15.31
12.35
12.37
15.31
46.40
21.30
23.07
36.02
46.40
66.26
58.01
62.34
66.26
64.30
63.39
63.39
59.77
61.70
55.55
49.30
49.30
43.49
43.06
45.10
7.06
15.03
15.03
15.36
16.47
11.25
16.64
14.10
11.25
9.40
12.17
12.92
9.40
7.06
7.06
8.08
10.00
8.33
8.33
12.22
20.41
22.33
43.50
43.50
49.84
58.73
55.40
48.34
58.50
48.34
49.36
48.66
38.47
40.73
38.55
38.47
39.61
1 Historical share price adjusted for the rights issue and stock dividend 2008.
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15.51
15.51
15.51
15.69
16.59
18.31
18.31
18.32
14.74
12.21
12.21
15.03
13.64
9.43
9.43
9.05
12.45
14.30
14.30
17.54
20.66
28.80
46.00
46.00
53.25
60.01
59.43
60.33
60.33
59.31
54.85
54.99
47.58
47.58
42.75
38.93
42.20
163
Risk and treasury management
Basel II Pillar 3
Basel II Pillar 3
Introduction
We operate under the Basel II capital adequacy framework.
This framework consists of three pillars, each of which fo-
cuses on a different aspect of capital adequacy. Pillar 1 pro-
vides a framework for measuring minimum capital require-
ments for the credit, market and operational risks faced by
banks. Pillar 2 addresses the principles of the supervisory re-
view process, emphasizing the need for a qualitative ap-
proach to supervising banks. The aim of Basel II Pillar 3 is to
encourage market discipline by requiring banks to publish a
range of disclosures on risk and capital.
The Swiss Financial Market Supervisory Authority (FINMA)
requires us to publish comprehensive quantitative and quali-
tative Pillar 3 disclosures at least annually, as well as an up-
date of quantitative disclosures and any significant changes
to qualitative information at least semi-annually.
This section presents our Basel II Pillar 3 disclosures as of
31 December 2009 and consists mainly of quantitative disclo-
sures complemented with explanatory texts where needed.
➔ Qualitative disclosures related to our risk management and
control, definitions and risk exposures as well as to capital
management can be found in the “Risk management and
control” and “Treasury management” sections of this report
Overview of disclosures
The following table provides an overview of our Basel II Pillar 3 disclosures:
Basel II Pillar 3 requirement
Capital structure
Capital adequacy
Disclosure in the annual report
“Capital management” section of this report
“Capital management” and “Basel II Pillar 3” sections of this report
Risk management objectives, policies and methodologies (qualitative disclosures)
“Risk management and control” section of this report
Credit risk
Investment positions
Market risk
Securitization
Operational risk
Interest rate risk in the banking book
“Basel II Pillar 3” section of this report
“Basel II Pillar 3” section of this report
“Risk management and control” section of this report
“Basel II Pillar 3” section of this report
“Risk management and control” section of this report
“Basel II Pillar 3” section of this report
Description of risk exposure measures and
capital requirements
Additional capital management disclosures
In certain cases, our Pillar 3 disclosures may differ from the
way we manage our risks and how these risks are disclosed in
our quarterly reports and in other sections of this annual re-
port. The naming conventions for the “Exposure segments”
used in the following tables are based on the Bank for Inter-
national Settlements (BIS) rules and differ from those under
Swiss and EU regulations. For example, “Sovereigns” under
the BIS naming convention equate to “Central governments
and central banks” as used under the Swiss and EU regula-
tions. Similarly, “Banks” equate to “Institutions” and “Resi-
dential mortgages” equate to “Claims secured on residential
real estate.” The table on the next page provides a more de-
tailed summary of the approaches we use for the main risk
categories for the determination of regulatory capital.
Although we determine published risk-weighted assets
(RWA) according to the Basel II Capital Accord (BIS guide-
lines), our calculation of the regulatory capital requirement is
based on the regulations of FINMA, which are more conser-
vative and therefore resulting in higher RWA.
Generally, the scope of consolidation for purposes of cal-
culating these regulatory capital requirements follows the
IFRS consolidation rules for subsidiaries directly or indirectly
controlled by UBS AG which are active in the banking and
finance business, but excludes subsidiaries in other sectors.
The significant operating subsidiary companies in the Group
consolidated for IFRS purposes are listed in “Note 34 Signifi-
cant subsidiaries and associates” in the “Financial informa-
tion” section of this report. More specifically, the main differ-
ences in the basis of consolidation for IFRS and regulatory
164
Category
Credit risk
UBS approach
Under the Advanced Internal Ratings Based (Advanced IRB) approach applied for the majority of our businesses, credit risk
weights are determined by reference to internal counterparty ratings and loss given default estimates. We use internal
models, approved by FINMA, to measure the credit risk exposures to third parties on over-the-counter derivatives and
repurchase-style (repo-style) transactions. For a subset of our credit portfolio, we apply the Standardized approach, based on
external ratings.
Non-counterparty related risk
Non-counterparty related assets such as our premises, other properties and equipment require capital underpinning according
to prescribed regulatory risk weights.
Settlement risk
Capital requirements for failed transactions are determined according to the rules for failed trades and non-delivery-versus-
payment transactions under the BIS Basel II framework.
Equity exposures outside trading book
Simple risk weight method under the IRB approach.
Market risk
Operational risk
Securitization exposures
Regulatory capital requirement is derived from our Value at Risk (VaR) model, which is approved by FINMA.
We developed a model to quantify operational risk, which meets the regulatory capital standard under the Basel II Advanced
Measurement Approach (AMA).
Securitization exposures in the banking book are assessed using the Ratings Based approach under the IRB, applying risk
weights based on external ratings.
capital purposes relate to the following entity types and ap-
ply regardless of our level of control:
– Real estate and commercial companies as well as collec-
tive investment schemes are not consolidated for regula-
tory capital purposes but are risk-weighted.
– Insurance companies are not consolidated for regulatory
The “Detailed segmentation of BIS risk-weighted assets”
table below provides a granular breakdown of our risk-
weighted assets. The table also shows the Net Exposure at
Default (“Net EAD”) per category for the current disclosure
period, which forms the basis for the calculation of the risk-
weighted assets.
capital purposes but are deducted from capital.
➔ For further information on risk-weighted assets or the
– Securitization vehicles are not consolidated for regulatory
capital purposes but are treated under the securitization
framework.
– Joint ventures that are controlled by two ventures are ful-
ly consolidated for regulatory capital purposes, whereas
they are valued under equity method accounting for IFRS.
Detailed segmentation of BIS risk-weighted assets
determination of the eligible capital, please refer to the
“Capital management” section of this report
CHF million
Credit risk
Sovereigns
Banks
Corporates
Retail
Residential mortgages
Lombard lending
Other retail
Securitization exposures
Non-counterparty related risk
Settlement risk (failed trades)
Equity exposures outside trading book
Market risk
Operational risk
Total BIS risk-weighted assets
Additional risk-weighted assets according to FINMA regulations 6
Total FINMA risk-weighted assets
Net EAD
585,549
128,957
109,049
165,246
119,859
58,723
3,714
31,277
19,499
128
1,303
637,756
31.12.09
Advanced 1
95,161
Basel II RWA
Standardized 2
32,057
6,680
16,651
56,377
12,332
2,682
441
8,515
30
4,657 3
12,861 4
46,144 5
167,369
380
1,654
26,802
1,166
0
2,055
7,026
73
39,156
31.12.08
Total
208,459
10,196
28,209
148,062
Total
127,218
7,060
18,305
83,179
13,498
14,650
2,682
2,496
8,515
7,026
103
4,657
12,861
46,144
206,525
19,103 6
225,628 7
4,502
2,840
6,202
7,411
256
7,646
27,614
44,685
302,273
32,620
334,893
1 Internal ratings-based. 2 BIS defined standardized approach. 3 Simple risk weight method. 4 Value-at-Risk approach. 5 Advanced measurement approach (AMA). 6 Reflects an additional
charge of 10% on credit risk RWA for exposures treated under the standardized approach, a FINMA surcharge of 200% for RWA of non-counterparty related assets and additional FINMA capital require-
ments for market risk. 7 As of 31 December 2009, the FINMA tier 1 ratio amounts to 14.1% and the FINMA total capital ratio to 18.1%. Taking into account the effects from the transitional provisions
of the capital floor, which require that during the year 2009 Basel II capital requirements have to amount to at least 80% of Basel I capital requirements, FINMA RWA would increase by CHF 3.3 billion,
resulting in a FINMA tier 1 ratio of 13.9% and a FINMA total capital ratio of 17.9%.
165
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Risk and treasury management
Basel II Pillar 3
Credit risk
The tables in this section provide details on the exposures used
to determine the firm’s credit risk regulatory capital. The pa-
rameters applied under the advanced IRB approach are gener-
ally based on the same methodologies, data and systems used
by the firm for internal credit risk quantification, except where
certain treatments are specified by regulatory requirements.
These include, for example, the application of regulatory pre-
scribed floors and multipliers, and differences with respect to
eligibility criteria and exposure definitions. The exposure infor-
mation presented in this section differs therefore from that dis-
closed in the “Risk management and control” section of this
report. Similarly the regulatory capital prescribed measure of
credit risk exposure also differs to that required under IFRS.
With respect to the calculation of derivative exposures for
determining our required regulatory capital, we have re-
ceived approval from FINMA to apply the Effective Expected
Positive Exposure (EPE) as defined in Annex 4 to the Basel II
framework. For a minor part of the derivatives portfolio, we
also apply the Current Exposure Method (based on the re-
placement value of derivatives in combination with a regula-
tory-prescribed add-on).
The regulatory net credit exposure detailed in the tables
in this section is shown as the Basel II EAD after applying
collateral, netting and other eligible risk mitigants permit-
ted by the relevant regulations. This section also presents
information on impaired and defaulted assets in a seg-
mentation which is consistent with the regulatory capital
calculation.
Credit risk exposures and risk-weighted assets
This table shows the average exposure and the derivation of risk-weighted assets from the regulatory gross credit exposure.
Exposure
Average regulatory
risk-weighting 2
Risk-weighted
assets
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet 3
Banking products
Derivatives
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 4
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.09
Total 31.12.08
Average
regulatory gross
credit exposure
Regulatory gross
credit exposure
28,634
27,789
272,384
10,613
43,961
383,382
118,749
52,327
171,076
27,172
35,623
5,855
7,454
76,104
630,562
18,114
26,842
259,131
9,386
42,407
355,880
96,063
40,756
136,819
25,803
79,680
5,369
6,485
117,336
610,036
715,064
Less: regulatory
credit risk offsets
and adjustments 1
(98)
(8,948)
(10,183)
(4,829)
(344)
(24,402)
(69)
(14)
(83)
(24,487)
(33,116)
Regulatory net
credit exposure
18,016
17,893
248,948
4,557
42,064
331,478
96,063
40,756
136,819
25,803
79,680
5,299
6,472
117,253
585,549
681,947
4%
20%
19%
33%
27%
20%
39%
10%
30%
28%
2%
88%
98%
17%
22%
31%
662
3,490
48,363
1,481
11,417
65,413
37,454
4,147
41,601
7,257
1,957
4,663
6,326
20,204
127,218
208,459
1 Regulatory credit risk offsets and adjustments mainly include margin accounts for derivatives. 2 The derivation of risk-weighted assets is based on the various credit risk parameters of the Advanced
Internal Ratings Based (Advanced IRB) approach and the Standardized approach respectively. 3 Includes contingent claims and undrawn irrevocable credit facilities. 4 Financial investments available-
for-sale exclude equity positions. Includes high-quality liquid short-term securities issued by governments and government-controlled institutions following our strategic decision to rebalance our liquid-
ity reserve, which led to a shift from repurchase agreements and trading positions into debt instruments available-for-sale.
166
Regulatory gross credit exposure by geographical region
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instru-
ments and also by geographical regions. The latter distribution is based on the legal domicile of the customer.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Switzer-
land
2,974
642
158,684
6,850
Other
Europe
7,525
17,392
22,420
1,760
8,914
169,151
58,012
6,192
7,176
44,131
14,266
North
America 1
4,195
4,384
58,381
7,255
24,014
98,229
33,694
12,282
13,368
58,396
45,976
11,601
24,765
718
1,108
4,947
50,175
4,087
1,295
38,193
60,504
655
365
3,744
4,765
Total regulatory gross credit exposure 31.12.09
187,283
154,601
204,709
Total regulatory gross credit exposure 31.12.08
208,777
184,294
257,654
1 North America includes the Caribbean. 2 Financial investments available-for-sale exclude equity positions.
Regulatory gross credit exposure by counterparty type
Latin
America
169
3,741
638
4,549
488
37
525
245
3
21
2
270
5,344
8,887
Asia /
Pacific
3,420
3,889
12,662
345
1,630
21,947
10,467
6,786
17,253
8,932
3,950
159
309
13,350
52,550
48,037
Africa /
Middle
East
Total regulatory
gross credit
exposure
Total regulatory
net exposure
365
3,242
25
361
3,993
1,091
210
1,301
77
132
19
27
255
5,548
7,415
18,114
26,842
259,131
9,386
42,407
355,880
96,063
40,756
136,819
25,803
79,680
5,369
6,485
117,336
610,036
715,064
18,016
17,893
248,948
4,557
42,064
331,478
96,063
40,756
136,819
25,803
79,680
5,299
6,472
117,253
585,549
681,947
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instru-
ments and also by counterparty type. The classification of counterparty type applied here is also used for the grouping of the
balance sheet.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Private
individuals
Corporates 1
Public entities
(including
sovereigns and
central banks)
154,793
3,259
158,052
1,363
172
1,535
2
4,043
1,380
5,425
17,931
96
7,544
27
1,045
26,644
18,338
7,691
26,030
16,760
69,120
40
123
86,043
138,717
89,627
96,793
4,982
36,882
138,658
45,418
21,615
67,033
8,652
7,638
1,118
4,231
21,639
227,330
344,012
Banks and
multilateral
institutions
183
26,745
4,376
1,221
32,526
30,943
11,279
42,222
391
2,920
168
751
4,230
78,977
116,408
Total
regulatory
gross credit
exposure
Total regulatory
net exposure
18,114
26,842
259,131
9,386
42,407
355,880
96,063
40,756
136,819
25,803
79,680
5,369
6,485
117,336
610,036
715,064
18,016
17,893
248,948
4,557
42,064
331,478
96,063
40,756
136,819
25,803
79,680
5,299
6,472
117,253
585,549
681,947
Total regulatory gross credit exposure 31.12.09
Total regulatory gross credit exposure 31.12.08
165,012
165,016
1 Includes corporates and non-banks financial institutions. 2 Financial investments available-for-sale exclude equity positions.
➔ Refer to the “Financial information” section of this report for more information. The counterparty type is different from the
Basel II defined exposure segments used in certain other tables in this section
167
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Risk and treasury management
Basel II Pillar 3
Regulatory gross credit exposure by residual contractual maturity
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instru-
ments and also by maturity. The latter distribution is based on the residual contractual tenor.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Total regulatory gross credit exposure 31.12.09
Total regulatory gross credit exposure 31.12.08
Due in
1 year or less
Due over
1 year to 5 years
Due over
5 years
3,008
101,202
1,059
10,127
115,395
34,959
9,338
44,297
17,466
71,888
89,355
249,047
247,904
299
77,379
6,040
29,934
113,651
24,551
2
24,553
6,476
6,971
13,447
151,651
171,558
130
40,942
1,339
1,605
44,016
36,553
116
36,669
1,846
819
2,665
83,350
125,600
Total
regulatory
gross credit
exposure
Total regulatory
net credit
exposure
18,114
26,842
259,131
9,386
42,407
355,880
96,063
40,756
136,819
25,803
79,680
5,369
6,485
117,336
610,036
715,064
18,016
17,893
248,948
4,557
42,064
331,478
96,063
40,756
136,819
25,803
79,680
5,299
6,472
117,253
585,549
681,947
Other 1
18,114
23,405
39,607
949
741
82,817
31,300
31,301
15
1
5,369
6,485
11,870
125,988
170,001
1 Includes positions without an agreed residual contractual maturity, for example loans without a fixed term, on which notice of termination has not been given. 2 Financial investments available-for-
sale exclude equity positions.
Derivation of regulatory net credit exposure
This table provides a derivation of the regulatory net credit exposure from the regulatory gross credit exposure according to
the advanced IRB approach and the Standardized approach. The table also provides a breakdown according to Basel II de-
fined exposure segments.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments 2
Total regulatory net credit exposure
Total 31.12.08
Advanced IRB
approach 1
463,836
(18,310)
445,526
592,107
Standardized
approach
146,200
(6,176)
140,024
89,841
Breakdown of the regulatory net credit exposure by exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total regulatory net credit exposure
Total 31.12.08
128,146
36,163
103,280
118,213
58,723
1,000
445,526
592,107
37,100
92,794
5,769
1,646
2,715
140,024
89,841
1 Internal rating-based. 2 Regulatory credit risk offsets and adjustments mainly include margin accounts for derivatives.
Total
31.12.09
610,036
(24,487)
585,549
165,246
128,957
109,049
119,859
58,723
3,714
585,549
Total
31.12.08
715,064
(33,116)
681,947
286,321
70,089
142,473
118,540
60,099
4,426
681,947
168
Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of collateral information,
showing exposures covered by guarantees and those covered
by credit derivatives, according to Basel II defined exposure
segments. These are defined as follows:
– Corporates: consists of all exposures that do not fit into
any of the other exposure segments below. It includes
private commercial entities such as corporations, partner-
ships or proprietorships, insurance companies, funds, ex-
changes and clearing houses.
– Sovereigns (“Central governments and central banks”
under Swiss and EU regulations): consists of exposures
relating to sovereign states and their central banks, the
Bank for International Settlement (BIS), the International
Monetary Fund (IMF), the European Union including the
European Central Bank and eligible multilateral develop-
ment banks (MDB).
ing to the Basel II Revised Framework, including, in par-
ticular, risk-based capital requirements. Basel II also defines
this regulatory exposure segment such that it contains ex-
posures to public sector entities with tax raising power or
whose liabilities are fully guaranteed by a public entity.
– Residential mortgages (“Claims secured on residential
real estate” under Swiss and EU regulations): consists of
residential mortgages, regardless of exposure size, if the
obligor owns and occupies or rents out the mortgaged
property.
– Lombard lending: loans which are made against the
pledge of eligible marketable securities or cash.
– Other retail: consists of exposures to small businesses, pri-
vate clients and other retail customers without mortgage
financing.
– Banks (“Institutions” under Swiss and EU regulations):
consists of exposures towards banks, i.e. legal entities
holding a banking license. It also includes those securities
firms that are subject to supervisory and regulatory ar-
rangements comparable to those applied to banks accord-
The collateral amounts in the table reflect the values used for
determining regulatory capital. However, we utilize credit
hedging to reduce concentrated exposure to individual
names or sectors or in specific portfolios, which is not fully
reflected in the regulatory numbers in this section.
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total regulatory gross credit exposure 31.12.09
Total regulatory gross credit exposure 31.12.08
1 Includes guarantees and stand-by-letters of credit provided by third parties, mainly banks.
Exposure covered by
guarantees 1
Exposure covered by
credit derivatives
3,359
334
380
11
611
50
4,746
4,302
23,991
47
940
0
0
0
24,978
28,368
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Risk and treasury management
Basel II Pillar 3
Advanced IRB approach
Advanced IRB 1 approach: regulatory net credit exposure by UBS-internal rating
This table provides a breakdown of the regulatory net credit exposure of our credit portfolio using the advanced IRB ap-
proach according to our internal rating classes.
UBS-internal rating
Investment grade
Sub-investment grade
Defaulted 2
CHF million
0 / 1
2 / 3
4 / 5
6 – 8
9 – 13
Total
regulatory
net credit
exposure
31.12.09
Total
regulatory
net credit
exposure
31.12.08
Regulatory net credit exposure-
weighted average PD
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.09
Total 31.12.08
0.009%
0.057%
0.279%
0.955%
5.742%
0.548%
0.484%
4,187
18,491
5,069
1
27,748
61,691
45,381
17,103
86,579
5,425
50,462
135
205,085
261,108
31,940
465
10,036
53,979
4,630
70
101,119
134,083
26,991
26
1,330
52,732
2,812
768
84,659
102,651
14,306
5,341
71
231
5,477
703
18
20,805
24,929
8
35
599
116
9
6,109
7,644
128,146
36,163
103,280
118,213
58,723
1,000
445,526
237,704
45,270
130,493
116,539
60,099
2,002
592,107
1 Internal rating-based. 2 Values of defaulted derivative contracts are based on replacement values including “add-ons” used in the calculation of regulatory capital.
Advanced IRB 1 approach: exposure-weighted average loss given default (LGD) by UBS-internal rating
This table provides a breakdown of the net exposure-weighted average loss given default for our credit portfolio exposures
calculated using the advanced IRB approach, according to our internal rating classes. Undrawn commitments included in the
advanced IRB approach are CHF 57.8 billion with an EAD of CHF 30.2 billion and an average regulatory risk-weighting of
27%.
UBS-internal rating
Investment grade
Sub-investment grade
CHF million
0 / 1
2 / 3
4 / 5
6 – 8
9 – 13
Regulatory net credit exposure-weighted average LGD (%)
Regulatory
net credit
exposure-
weighted average
LGD (%)
31.12.09
Regulatory
net credit
exposure-
weighted average
LGD (%)
31.12.08
39
38
23
10
35
25
34
50
28
10
20
20
29
28
32
64
38
10
20
12
20
26
32
37
41
10
20
40
18
21
25
30
47
11
20
16
21
26
31
44
29
10
20
35
25
35
37
26
11
20
40
26
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.09
Average 31.12.08
1 Internal rating-based.
170
Advanced IRB 1 approach: exposure-weighted average risk weight by UBS-internal rating
This table provides a breakdown of the net exposure-weighted average risk-weight for our credit portfolio exposures calcu-
lated using the advanced IRB approach according to our internal rating classes.
UBS-internal rating
Investment grade
Sub-investment grade
CHF million
0 / 1
2 / 3
4 / 5
6 – 8
9 – 13
Regulatory net credit exposure-weighted average risk weight (%)
Regulatory net
credit exposure-
weighted average
risk weight (%)
31.12.09
Regulatory net
credit exposure-
weighted average
risk weight (%)
31.12.08
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.09
Average 31.12.08
1 Internal rating-based.
15
3
8
1
5
8
17
32
11
2
3
3
12
13
36
60
40
5
11
6
19
28
59
65
79
12
6
51
28
35
83
106
154
29
30
24
68
87
42
17
15
10
4
42
20
39
19
17
10
6
43
24
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Risk and treasury management
Basel II Pillar 3
Standardized approach
The standardized approach is generally applied where it is
not possible to use the advanced IRB approach and / or
where an exemption from the advanced IRB has been grant-
ed by FINMA. The standardized approach requires banks to
use risk assessments prepared by External Credit Assessment
Institutions (ECAI) or Export Credit Agencies to determine
the risk weightings applied to rated counterparties.
ECAI risk assessments we use to determine the risk
weightings for the following classes of exposure:
– Central governments and central banks;
– Regional governments and local authorities;
– Multilateral development banks;
– Institutions; and
– Corporates.
We selected three FINMA-recognized external credit assess-
ment institutions for this purpose – Moody’s Investors Service,
Standard and Poor’s Ratings Group and Fitch Group. The map-
ping of external ratings to the standardized approach risk
weights is determined by FINMA and published on its website.
Regulatory gross and net credit exposure by risk weight under the standardized approach 1
This table provides a breakdown of the regulatory gross and net credit exposure by risk-weight for our credit portfolio expo-
sures treated under the standardized approach, according to Basel II defined exposure segments.
CHF million
0%
>0 – 35%
36 – 75%
76 – 100%
150%
31.12.09
31.12.08
Total exposure
Total exposure
Regulatory gross credit exposure
Corporates
Sovereigns 2
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.09
Total 31.12.08
Regulatory net credit exposure 3
Corporates
Sovereigns 2
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.09
Total 31.12.08
1
92,174
1
12,988
300
4,156
92,176
23,884
17,444
14,773
1
92,174
1
12,988
300
4,140
92,176
23,884
17,428
14,165
904
27,179
1,087
2,640
961
2,704
7,209
8,732
369
23
685
28,256
47,731
27
1,115
1,612
904
22,120
1,087
1,605
961
2,688
6,157
7,550
320
23
685
23,148
42,630
27
1,115
1,611
42,159
92,843
6,821
1,646
2,731
146,200
37,100
92,794
5,769
1,646
2,715
140,024
53,651
24,885
13,654
2,065
2,476
96,731
48,618
24,818
11,979
2,001
2,424
89,841
1 The risk weights are based on regulatory values or external ratings. 2 Includes high-quality liquid short-term securities issued by governments and government-controlled institutions following our
strategic decision to rebalance our liquidity reserve, which led to a shift from repurchase agreements and trading positions into debt instruments available-for-sale. 3 For traded products, the regula-
tory gross credit exposure is equal to the regulatory net credit exposure.
172
Eligible financial collateral recognized under standardized approach
This table provides a breakdown of the financial collateral, which is eligible for recognition in the regulatory capital calcula-
tion under the standardized approach, according to Basel II defined exposure segments.
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total
31.12.09
31.12.08
Regulatory net credit
exposure under
standardized approach
Eligible financial
collateral recognized in
capital calculation 1
Regulatory net credit
exposure under
standardized approach
Eligible financial collateral
recognized in capital
calculation 1
37,100
92,794
5,769
1,646
2,715
140,024
20,852
60
4,916
18
25,847
48,618
24,818
11,979
2,001
2,424
89,841
8,911
1,148
5,942
64
648
16,713
1 The eligible financial collateral reflects the impact of the application of regulatory haircuts. For traded products it is the difference between the IFRS reported values and the regulatory net credit exposure.
Impairment, default and credit loss
Impaired assets by region
This table provides a breakdown of credit exposures arising from impaired assets and allowances / provisions by geographical
region, based on the legal domicile of the customer. Impaired asset exposures include loans, off-balance sheet claims, secu-
rities financing transactions and derivative contracts.
Regulatory gross
credit exposure
187,283
154,601
204,709
5,344
52,550
5,548
610,036
715,064
Impaired assets 1
1,480
2,364
7,375
37
575
90
11,920
13,947 3
Specific
allowances,
provisions and
credit valuation
adjustments
Exposure net
of specific
allowances,
provisions and
credit valuation
adjustments
(836)
(1,185)
(3,584)
(25)
(121)
(80)
(5,831)
(7,252)
644
1,179
3,791
12
454
10
6,090
6,695
Collective
allowances and
provisions
(49)
(49)
(23)
Total allowances,
provisions and
specific credit
valuation
adjustments
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.08
(885)
(1,185)
(3,584)
(25)
(121)
(80)
(5,881)
(873)
(1,138)
(4,808)
(56)
(361)
(41)
(7,275)
CHF million
Switzerland
Other Europe
North America 2
Latin America
Asia / Pacific
Africa / Middle East
Total 31.12.09
Total 31.12.08
1 Values of defaulted derivative contracts (CHF 4,607 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 North America includes the
Caribbean. 3 Restated from CHF 15,658 million originally reported in Annual Report 2008. In 2009, we implemented a threshold for designating a reclassified security as an “impaired loan”. Under
this policy, a reclassified security is considered impaired if the carrying value at balance sheet date is on a cumulative basis 5% or more below the carrying value at reclassification date adjusted for
redemptions.
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173
Risk and treasury management
Basel II Pillar 3
Impaired assets by exposure segment
This table shows a breakdown of credit exposures arising from impaired assets and allowances / provisions according to Basel
II defined exposure segments. Impaired asset exposures include loans, off-balance sheet claims, securities financing transac-
tions, and derivative contracts.
CHF million
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 4
Total 31.12.09
Total 31.12.08
Regulatory gross
credit exposure
200,573
130,060
96,851
119,980
58,798
3,774
610,036
715,064
of which
impaired assets 1
11,201
14
53
320
262
71
11,920
13,947 5
Specific
allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 2
(5,470)
(10)
(42)
(92)
(147)
(71)
(5,831)
(7,252)
(49)
(49)
(23)
Total
allowances,
provisions and
specific credit
valuation
adjustments 2
(5,470)
(10)
(42)
(92)
(147)
(71)
(49)
(5,881)
(7,275)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.08
(6,777)
(12)
(20)
(103)
(340)
(23)
(7,275)
Write-offs 3
(1,990)
(2)
(7)
(42)
(5)
(2,046)
(868)
1 Values of defaulted derivative contracts (CHF 4,607 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 Collective credit valuation
adjustments of CHF 1.3 billion are partially included in the upper tier 2 capital and therefore not included in this table. 3 The write-offs refer to the period from 1 January 2009 to 31 December 2009.
4 Collective loan loss allowances and provisions are not allocated to individual counterparties and thus also not to exposure segments. 5 Restated from CHF 15,658 million originally reported in
Annual Report 2008. Effective 1 April 2009, we implemented a threshold for designating a reclassified security as an “impaired loan”. Under this policy, a reclassified security is considered impaired if
the carrying value at balance sheet date is on a cumulative basis 5% or more below the carrying value at reclassification date adjusted for redemptions.
Changes in allowances, provisions and specific credit valuation adjustments
This table provides a breakdown of movements in the specific and collective allowances and provisions for impaired assets,
including changes in the credit valuation allowance for derivatives.
Specific
allowances and
provisions for
banking products
and securities
financing
3,047
(2,046)
52
1,806
(37)
(51)
Specific credit
valuation
adjustments for
derivatives
4,205
(722)
(423)
CHF million
Opening balance as at 1.1.09
Write-offs
Recoveries
(on written-off positions)
Increase / (decrease) in allowances,
provisions and specific credit valua-
tion adjustments 2
Foreign currency translations and
other adjustments
Transfers
Closing balance as at 31.12.09
2,771
3,060
Total specific
allowances,
provisions and
credit valuation
adjustments
7,252
(2,046)
52
1,084
(460)
(51)
5,831
Collective
allowances and
provisions 1
23
For the
twelve-month
period ended
31.12.09
For the
twelve-month
period ended
31.12.08
7,275
Opening balance as at 1.1.08
1,981
(2,046)
52
26
1,110
(460)
(51)
(868)
44
7,545
(867)
(561)
49
5,881
Closing balance as at 31.12.08
7,275
1 Collective credit valuation adjustments of CHF 1.3 billion are partially included in the upper tier 2 capital and therefore not included in this table. 2 Total actual credit loss (credit loss expense and
changes in specific credit valuation adjustments recognized in net trading income).
174
Total expected loss and actual credit loss
This table provides a breakdown of the one-year expected
loss estimate on our credit portfolios (including lending, de-
rivative and securities financing portfolios) calculated at
31 December 2008 and the actual IFRS credit loss amount
(including credit valuation adjustments on derivatives)
charged against our income statement in 2009, according to
Basel II defined exposure segments of the advanced IRB ap-
proach. Comparison between our expected and actual loss-
es has certain limitations as the two measures are not di-
rectly comparable. In particular our expected loss estimate is
an annualized average expected loss measure which takes
into account our historical loss experience whereas actual
loss represents our credit loss expense charged to the in-
come statement incurred in the financial year.
The difference in our expected and actual loss amounts
resulted primarily from credit losses incurred on the portfolio
of multi-asset-backed securities held by the Investment Bank
that were reclassified from Held-for-trading to Loans and re-
ceivables in fourth quarter 2008 and first quarter 2009. The
related actual credit losses on these assets are reported un-
der “Corporate” exposures in the table below and are not
considered part of our core lending portfolio for the purpose
of our expected loss estimation. Excluding the credit losses
related to the reclassified securities portfolio, our expected
and actual losses were more closely aligned. We regularly
assess the performance of our expected loss estimate and do
not consider it necessary to materially alter our estimation
process for expected loss for 2010.
CHF million
Corporates 1
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not specified 2
Total
Expected loss
31.12.08
Total expected loss
Actual credit loss
Actual credit loss and credit valuation adjustments
31.12.09
Specific credit
valuation adjustments
for defaulted
derivatives
Total actual
credit loss and
credit valuation
adjustments
610
13
57
87
34
11
1,815
(722)
1,093
(1)
22
1
(52)
30
17
(1)
22
1
(52)
30
17
31.12.08
Total actual
credit loss and
credit valuation
adjustments
6,681
547
(1)
308
34
(24)
812 3
1,832
(722)
1,110
7,545
1 Includes credit losses from reclassified securities, which amounted to CHF 425 million. 2 Includes changes in collective loan loss allowances and provisions. 3 Does not include CHF 43 million IRB
equity EL treated under the simple risk-weight method.
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Other credit risk tables
Credit exposure of derivative instruments
This table provides an overview of our credit exposures arising from derivatives. Exposures are provided based on the balance
sheet carrying values of derivatives as well as regulatory net credit exposures. The net balance sheet credit exposure differs
from the regulatory net credit exposures because of differences in valuation methods and the netting and collateral deduc-
tions used for accounting and regulatory capital purposes. Specifically, net current credit exposure is derived from gross
positive replacement values, whereas regulatory net credit exposure is calculated using our internal credit valuation models.
CHF million
Gross positive replacement values
Netting benefits recognized 1
Collateral held
Net current credit exposure
Regulatory net credit exposure (total counterparty credit risk) 2
of which treated with internal models (effective expected positive exposure (EPE)) 2
of which treated with supervisory approaches (current exposure method) 2
Breakdown of the collateral held
Cash collateral
Securities collateral and debt instruments collateral (excluding equity)
Equity instruments collateral
Other collateral
Total collateral held
31.12.09
424,548
(313,172)
(38,012)
73,364
96,063
79,111
16,952
34,049
3,243
95
625
38,012
31.12.08
860,943
(651,756)
(51,765)
157,422
190,047
164,707
25,340
46,967
4,246
121
430
51,765
1 Derivatives exposure based on accounting definition (consolidation scope for capital) measured as gross positive replacement values with netting benefits from negative replacement values with the
same counterparty. 2 Derivatives exposure is defined as regulatory net credit risk exposure.
Credit derivatives 1
This table provides an overview of our credit derivative portfolio by product group using notional values. The table also pro-
vides a breakdown of credit derivative positions used to manage our own credit portfolio (banking book for regulatory pur-
poses) risks and those arising through intermediation activities (trading book for regulatory capital purposes).
Notional amounts, CHF million
Credit Default Swaps
Total Return Swaps
Total 31.12.09
Regulatory banking book
Regulatory trading book
Total
Protection
bought
22,043
22,043
Protection
sold
Total
Protection
bought
Protection
sold
Total
31.12.09
31.12.08
527
62
589
22,571
1,262,541
1,181,843
2,444,383
2,466,954
3,617,457
62
6,354
4,707
11,061
11,123
24,044
22,633
1,268,895
1,186,550
2,455,445
2,478,077
3,641,502
1 Notional amounts of credit derivatives are based on accounting definitions and do not include any netting benefits. For capital underpinning of the counterparty credit risk of derivative positions, the
effective expected positive exposure (or current exposure method) is taken.
176
Our credit derivative trading is predominately on a collat-
eralized basis. This means that our credit exposures arising
from our derivatives activities with collateralized counterpar-
ties are typically closed out in full or reduced to nominal lev-
els on a regular basis by the use of collateral.
Derivatives trading with counterparties with higher credit
ratings (for example a large bank or broker-dealer) is typi-
cally under an ISDA master trading agreement (MTA) and
credit exposures to those counterparties from CDS, together
with exposures from other OTC derivatives, are netted and
included in the calculation of the collateral required to be
posted. Trading with lower rated counterparties (for exam-
ple, hedge funds) would also generally require an initial mar-
gin to be posted by the counterparty.
We therefore receive collateral from or post collateral to
our counterparties based on our open net receivable or net
payable from OTC derivative activities. Under the terms of
the ISDA MTA and like forms, that collateral (which gener-
ally takes the form of cash or highly liquid fixed income se-
curities) is available to cover any amounts due under those
derivative contracts.
Settlement risk (including payment risk) of CDS has been
mitigated to some extent by the development of a market
wide credit event auction process which has resulted in a
widespread shift to the cash settlement of CDS following a
credit event on a reference entity. During 2009 and 2008, we
participated in various industry-wide compression and “tear
up” initiatives which reduced notional values and operational
risks by terminating existing transactions and in certain cases
replacing them with a smaller number of new transactions.
We have not experienced any significant losses from
failed settlements on CDS contracts in 2009 and 2008.
The vast majority of our CDS trading activity is conducted
by the Investment Bank. The “CDS Portfolio (split by coun-
terparty)” table provides further analysis of the Investment
Bank’s CDS counterparties based on notional amount of
CDS protection purchased and sold. The analysis shows that
the vast majority of the Investment Bank’s CDS counterpar-
ties are market professionals. Based on the same notional
measure, approximately 98% of these counterparties were
rated investment grade and approximately 98% of the CDS
activity was traded on a collateralized basis.
CDS portfolio (split by counterparty) 1
Portfolio segment
Developed markets commercial banks
Broker-dealers, investment and merchant banks
Hedge funds
All other
1 Counterparty analysis based on notional CDS exposures of Investment Bank sourced from credit risk systems.
% of total notional % of buy notional % of sell notional
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28
1
7
63
28
1
8
66
28
2
4
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Investment positions
Equities disclosure for banking book positions
This table provides an overview of our equity investments held in the banking book for regulatory capital purposes. The cal-
culation of equity investment exposure for financial accounting under IFRS differs from that required for regulatory capital
purposes. The table illustrates these two measures of exposure as well as the key differences between them.
CHF million
Equity investments
Financial investments available-for-sale
Financial assets designated at fair value
Investments in associates
Total equity investments under IFRS
Realized gains and (losses), net
Unrealized gains and (losses), net
Consolidation scope adjustment
Other positions designated equity exposures under BIS
Total equity exposure under BIS
of which: to be risk weighted
publicly traded
privately held
of which: deducted from equity
Capital requirement according to simple risk weight method
Total capital charge
Unrealized gains included in tier 2
Book value
31.12.09
31.12.08
1,351
841
870
3,062
77
466
(30)
743
3,774
1,452
1,110
1,212
373
1,585
50
1,681
1,079
892
3,653
815
421
(80)
405
3,978
1,423
1,681
874
612
1,486
69
The IFRS view differs from the regulatory capital view primar-
ily due to: (i) differences in the basis of valuation in that IFRS
is based on “fair value accounting” whereas “lower of cost
or market value” (LOCOM) or “cost less impairment” are
used for regulatory capital purposes; (ii) positions may be
treated under a different framework to determine regulatory
capital (for example tradable assets treated under Market
Risk VaR); and (iii) differences in the scope of consolidation
for IFRS, for example, special purpose entities consolidated
for IFRS but not for regulatory capital purposes.
Also shown in the table are realized and unrealized
gains and losses. The firm had no unrealized gains and
losses that were not recognized either on the balance
sheet or in the statement of income relating to available-
for-sale investments designated at fair value. In addition,
there was no significant disparity between the share prices
of investment positions held in publicly quoted entities and
their fair value.
178
Securitization
Sources and control of risks resulting from
securitization structures
The majority of our exposures that are categorized as securiti-
zations (according to the regulatory definition of such expo-
sures) were held by the Investment Bank in the portfolio of
assets reclassified to Loans and receivables from Held-for-
trading in fourth quarter 2008 and first quarter 2009. As at
31 December 2009, this portfolio included CDOs and CLOs
with CDS protection purchased from monoline insurers, US
commercial mortgage-backed securities, the US reference-
linked note program and student loan ARS. We also contin-
ued to repurchase student loan ARS from its clients in 2009 as
a result of the firm’s commitment to restore liquidity to client
holdings of these securities. Repurchased student loan ARS
were also categorized as securitization exposures. From a risk
control perspective these portfolios are subject to specific
monitoring which may include interest rate and credit spread
sensitivity analysis, as well as inclusion in firm-wide earnings-
at-risk, capital-at-risk and combined stress test metrics.
➔ Refer to the “Exposure to auction rate securities” sidebar
in the “Risk management and control” section of this
report for more information
➔ Refer to “Note 29b Reclassification of financial assets” in
the “Financial information” section of this report for more
information
We also held certain securitization positions (according to
the regulatory definition of securitizations) that were man-
aged under the market risk framework at 31 December
2009. A market risk treatment was applied to these posi-
tions for determining regulatory capital.
Regulatory treatment of securitization structures
The disclosures in this section include exposures related to
student loan ARS, CDOs and CLOs with CDS protection pur-
chased from monoline insurers, US commercial mortgage-
backed securities and the global reference-linked note
programs, as these exposures were treated under the secu-
ritization approach for determining regulatory capital at
31 December 2009.
We generally applied the Ratings Based Approach to se-
curitization exposures in the banking book using Moody’s,
Standard & Poor’s and Fitch’s Ratings. Under the Ratings
Based Approach, the amount of capital is capped at the cap-
ital requirement that would be assessed against the underly-
ing assets had they not been securitized. This treatment has
been applied mainly to the US reference-linked note pro-
gram and for the purposes of determining regulatory capital
and Pillar 3 disclosure they are reported under the standard-
ized approach. The related exposures are therefore not in-
cluded in the tables below.
The counterparty risk of interest rate or foreign currency
derivatives with securitization vehicles are treated under the
advanced Internal Ratings Based approach and are therefore
not part of this disclosure.
Accounting Policies
For IFRS purposes, we treat originated securitized exposures
as sales, i.e. they are derecognized from our balance sheet
provided that specific de-recognition criteria are met and we
do not consolidate the transferee (as described in “Note 1
Summary of significant accounting policies” in the “Finan-
cial information” section of this report). A gain or loss on
sale is recognized when exposures are derecognized. Deriva-
tives used for synthetic securitizations are accounted for in
line with the abovementioned note.
Securitization positions that are classified as trading as-
sets for IFRS purposes are valued at fair value as described in
“Note 27 Fair value of financial instruments” in the “Finan-
cial information” section of this report. Securitization posi-
tions that have been redesignated from trading assets to
loans and receivables are valued at amortized cost less im-
pairment as described in “Note 1 Summary of significant ac-
counting policies” in the “Financial information” section of
this report.
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Risk and treasury management
Basel II Pillar 3
Securitization exposures retained or purchased
This table provides a breakdown of securitization exposures purchased or retained, split by asset type and risk weighting band,
irrespective of our role (i.e. originator or investor) in the securitization transaction. The table shows securitization exposures used
to determine regulatory capital, which generally equates to the IFRS book value. Additional granularity by asset type has been
provided for securitization exposures at 31 December 2009. Where available, exposures at 31 December 2008 are shown on a
similar basis. The increase in capital charges in 2009 compared to 2008 resulted mainly from downgrades.
Exposure Type
CHF million
Commercial mortgages
CDOs and CLOs
Student Loans
Other
Total
1 Also contains commercial mortgages, CDOs and CLOs.
Capital charge for securitization exposures retained or purchased
Exposure amount
31.12.09
31.12.08
3,316
9,565
18,010
2,182
33,074
N/A
N/A
21,543
13,592 1
35,135
CHF million
over 0–10%
over 10–15%
over 15–20%
over 20–35%
over 35–50%
over 50–75%
over 75–100%
over 100–250%
over 250–1,250%
deducted from capital
Total
Exposure amount
Capital charge
Exposure amount
Capital charge
31.12.09
31.12.09
9,047
13,236
4,511
2,560
222
295
504
289
613
1,797
33,074
57
139
75
71
9
17
43
61
209
1,797
2,478
31.12.08
10,492
16,551
5,533
464
253
321
1,181
24
10
306
35,135
31.12.08
62
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94
13
11
19
100
5
17
306
803
Securitization activity during the period
We did not securitize any exposures during 2009. In 2008
we securitized exposures totaling CHF 1.5 billion. These
were part of traditional securitization structures which com-
prised residential and commercial mortgages. Exposure val-
ues are based on the transaction date and were accounted
for at fair value pre-securitization, hence the resulting gain
or loss was not significant. At the point of securitization, we
retained certain securitization exposures (typically senior
tranches) for all traditional and synthetic securitizations we
transacted.
Total outstanding exposures securitized via synthetic
securitizations
Prior to 2008 we securitized exposures via synthetic se-
curitizations as part of our global reference linked note
program. The global reference linked note program mainly
consisted of multi-asset securitization structures which refer-
enced residential mortgages, credit card receivables, corpo-
rate debt and other asset backed securities. Total outstand-
ing exposures (based on exposures used to determine
regulatory capital) that were part of synthetic securitizations
decreased to CHF 3.2 billion at 31 December 2009 com-
pared with CHF 10.7 billion at 31 December 2008. This de-
crease mainly related to a reduction of the underlying secu-
ritization pools from asset sales.
Amount of impaired / past due assets securitized – synthetic
securitizations
CHF 102 million of outstanding impaired or past due expo-
sures had been securitized by UBS via a synthetic securitiza-
tion as of 31 December 2009 compared with CHF 212 mil-
lion as of 31 December 2008. The exposure values are based
on the amounts referenced in the transaction and are in-
cluded when a credit event has occurred.
Losses recognized on originated transactions during
the period
Losses of CHF 34 million as of 31 December 2009 (CHF 1.2
billion as of 31 December 2008) had been recognized by
UBS on securitization tranches purchased or retained that
result from a securitization originated by us, after taking into
180
account the offsetting effects of any credit protection that is
an eligible risk mitigation instrument for the retained or re-
purchased tranche. We partially report such exposures on a
fair value and partially on an amortized cost less impairment
basis. These losses mainly include losses related to the global
reference-linked note program.
Interest rate risk in the banking book
Sources and control of interest rate risk in the
banking book
Our largest non-trading interest rate risk exposures arise pri-
marily from activities such as retail banking and lending in
our Wealth Management & Swiss Bank division, as well as
our treasury activities. The Investment Bank’s portfolio of as-
sets that were reclassified to Loans and receivables from
Held-for-trading in fourth quarter 2008 and first quarter
2009, and certain other debt securities held as Loans and
receivables also give rise to non-trading interest rate risk.
The interest rate risks arising from the Wealth Manage-
ment & Swiss Bank are transferred either by means of back-
to-back transactions or a replicating portfolio from the origi-
nating business into one of two centralized interest rate risk
management units: Group Treasury or the Investment Bank’s
FICC unit. These units manage the risks on an integrated
basis, exploiting the full netting potential across interest rate
risks from different sources.
All interest rate risk is subject to independent risk control.
When not included in our VaR measure, interest rate risk is
subject to specific monitoring, which may include interest
rate sensitivity analysis, earnings-at-risk, capital-at-risk and
combined stress test metrics.
Risk profile
Interest rate risk sensitivity figures are provided for the im-
pact of a one basis point change in interest rates, which is
one of the ways in which non-trading interest rate risks are
assessed for internal risk management purposes. In addition,
the impacts of an adverse parallel shift in interest rates of
200 basis points on our non-trading interest rate risk expo-
sures is significantly below the threshold of 20% of eligible
regulatory capital specified by regulators to identify banks
that may be required to hold additional regulatory capital
against this risk.
Impact of one basis point parallel increase of the yield curves
This table shows the impact of a one basis point parallel increase of the yield curves on our interest-rate-sensitive banking
book positions as at 31 December 2009.
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest-rate-sensitive banking book positions
31.12.09
(0.3)
(0.2)
(0.3)
(0.8)
(0.1)
(1.8)
181
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Corporate governance and compensation
Information according to articles 663b bis and 663c (paragraph three)
of the Swiss Code of Obligations
Disclosures provided in line with the requirements of articles 663b bis and 663c (paragraph three) of the Swiss Code of
Obligations’ “Supplementary disclosures for companies whose shares are listed on a stock exchange: compensations and
participations” are also included in the audited financial statements of this report. This information is marked by a bar on
the left-hand side throughout this section.
Corporate governance
– Our corporate governance principles are designed to support UBS towards
sustainable profitability and protect the interests of our shareholders, as well
as to create value for shareholders and stakeholders
Dual-board structure
UBS operates under a strict dual board structure: the Board
of Directors (BoD) and the Group Executive Board (GEB).
This results in a clear separation of duties and responsibili-
ties. The BoD is responsible for the Group’s direction as well
as monitoring and supervising the business. All members of
the BoD are independent with the exception of the full-time
Chairman. Shareholders elect each member of the BoD,
which in turn appoints the Chairman.
The GEB is responsible for the executive management and
is accountable to the BoD for the overall financial results of
the Group. The GEB is led by the Group Chief Executive
Officer (Group CEO).
Developments in 2009 that strengthened our
leadership capacity
The “Organization Regulations of UBS AG and its annexes”
were revised to enhance the authority of the executive
management and simultaneously accentuate the super-
visory role of the BoD and its committees.
The BoD is ultimately responsible for the financial success
of the Group, and thus decides on the business strategy of
the Group upon recommendation of the Group CEO and
the GEB. The BoD is responsible for approving the annual
report and quarterly financial statements of UBS and the
Group, reviewed and proposed by the Audit Committee
together with management, external auditors and Group
Internal Audit. Furthermore, the BoD is responsible for
approving the firm’s risk capacities and appetite, taking into
account the proposals and alternatives suggested by the
Risk Committee.
Operational Group structure
The operational structure of the Group is comprised of the
Corporate Center and four business divisions: Wealth
Management & Swiss Bank, Wealth Management Americas,
Global Asset Management and the Investment Bank.
Shareholder participation
At the Extraordinary General Meeting held on 27 February
2008, our shareholders approved the creation of condition-
al capital through the issuance of a maximum of
277,750,000 shares to satisfy the settlement in shares of
CHF 13 billion in mandatory convertible notes, with a
maturity date of 5 March 2010. To satisfy the conversion,
we expect to deliver 272,651,005 shares on 5 March 2010
to two financial investors.
At the Annual General Meeting (AGM) held on 15 April
2009, our shareholders approved the creation of condition-
al capital through the issuance of 100,000,000 shares for
the potential exercise of warrants granted to the Swiss
National Bank (SNB), in connection with the loan granted
by the SNB to the SNB StabFund.
In addition, at the AGM held on 15 April 2009, our
shareholders approved the creation of authorized capital,
out of which 293,258,050 new shares where issued on
25 June 2009 and were placed with a small number of
institutional investors.
According to International Financial Reporting Standards
(IFRS), equity attributable to UBS shareholders amounted to
CHF 41.0 billion on 31 December 2009.
184
Compensation and shareholdings
– Revised Total Reward Principles were approved by the Board of Directors
and implemented during 2009
– New compensation guidelines were implemented to focus on risk awareness,
deferred pay, variable compensation and forfeiture conditions
Total Reward Principles
The Total Reward Principles summarize the compensation
structure for all UBS employees, building on our strategy of
enhancing reputation, integration and execution. They
are designed to align employees’ interests with those of
shareholders – the creation of long-term value and
sustainable shareholder returns.
They reflect recent regulatory developments but also focus
on long-standing drivers including reward for performance,
sustainable profitability, effective risk and capital manage-
ment, outstanding client focus and teamwork and sound
governance practices.
Compensation for 2009
New compensation guidelines were implemented for
the Group Executive Board (GEB) including awards granted
under the Cash Balance Plan, Performance Equity Plan and
Incentive Performance Plan.
Following the announcement of our financial results for
2009, the first tranche of the Conditional Variable
Compensation Plan has been forfeited as the critical
performance condition – a net profit for 2009 – was
not met.
Key talent, risk and performance management
We are focusing on attracting and retaining key talent
throughout the business divisions using a “pay for perfor-
mance” guiding principle. Our new compensation guide-
lines also take into account a range of performance factors
including delivering sustainable profitability, effective risk
and capital management, client focus and teamwork. The
guidelines will align compensation with the creation of
sustainable shareholder returns through sound risk taking
and promote a performance-driven culture.
The 2010 non-binding vote on the compensation report
We value the opinions of our shareholders and, at the
AGM to be held in April 2010, we will provide shareholders
with an opportunity to express their views through a
non-binding vote on this compensation report. We believe
that this vote presents a meaningful way of involving our
shareholders in compensation matters.
Compensation authorities
Recipients
Compensation recommendations
developed by
Approved by
Communicated by
Chairman of the BoD
Chairman of the HRCC 1
Group CEO
Chairman of the BoD / HRCC
Members of the GEB
Group CEO
Independent BoD members
(remuneration system and fees)
Chairman of the BoD / HRCC
HRCC
BoD
HRCC
BoD
HRCC
HRCC
Group CEO
Chairman of the BoD
Recipients
Variable compensation recommendations
developed by
Approved by
Communicated by
Employees (excl. GEB)
Respective member of the GEB together
with functional management team
Divisional pools: HRCC
Overall: Board of Directors
Line Manager
1 The Human Resources and Compensation Committee.
185
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C
Corporate governance and compensation
Corporate governance
Corporate governance
Our corporate governance principles are designed to support UBS towards sustainable profitability and protect
the interests of our shareholders, as well as to create value for shareholders and stakeholders. We use the
term “corporate governance” when referring to the organizational structure and operational practices of our
management.
We are subject to, and fully comply with, the following regu-
latory requirements regarding corporate governance: the
Swiss Code of Obligations (CO) articles 663bbis and 663c
(paragraph three) regarding transparency of compensation
paid to members of the BoD and senior management; the
SIX Swiss Exchange’s (SIX) “Directive on Information Relating
to Corporate Governance”, and the standards established in
the Swiss Code of Best Practice for Corporate Governance,
including the appendix on executive compensation.
In addition, as a foreign company with shares listed on
the New York Stock Exchange (NYSE), we comply with all
corporate governance standards applicable to foreign listed
companies.
This section of our annual report provides the information
required by the following regulatory requirements:
– The SIX “Directive on Information Relating to Corporate
Governance”, with regard to: Group structure and share-
holders; capital structure; Board of Directors (BoD); Group
Executive Board (GEB); compensation, shareholdings and
loans; shareholders’ participation rights; change of control
and defense measures; auditors and information policy.
– Articles 663bbis and 663c (paragraph three) of the CO,
“Supplementary disclosures for companies whose shares
are listed on a stock exchange: compensations and par-
ticipations”, with regard to share and option ownership
and loans.
– The NYSE “Corporate Governance Listing Standards”
with regard to foreign listed companies: independence of
directors, BoD committees and differences from the NYSE
standards applicable to US domestic issuers.
In addition to the regulatory requirements mentioned
above, this section of the report summarizes the regulatory
and supervisory environment of UBS in our principal loca-
tions, and provides a list of all members of our BoD and
Group Executive Board (GEB). Updates have been made to
the sections discussing the BoD, GEB, compensation and
shareholdings. These updates follow a revision of the “Or-
ganization Regulations of UBS AG and its annexes” (Orga-
nization Regulations), which was conducted by the BoD
throughout the summer and autumn of 2009. On 1 No-
vember 2009, the revised Organization Regulations came
into effect. The Organization Regulations enhance the au-
thority of the executive management and simultaneously
accentuate the supervisory role of the BoD. The BoD’s Strat-
egy Committee, always intended to be a temporary com-
mittee, has been dissolved with its responsibilities distrib-
uted to the full BoD. In addition, the Executive Committee
(EC) of the GEB was disbanded in October 2009 at which
time the full GEB assumed its responsibilities. The Organiza-
tion Regulations additionally specify which powers of the
GEB are delegated to the new Group Asset and Liability
Management Committee (Group ALCO). The Group ALCO
is responsible for setting strategies to maximize the finan-
cial performance of the Group, and is subject to the guide-
lines, constraints and risk tolerances set by the BoD. It is
also responsible for managing the balance sheet of the
business divisions through allocation and for the monitor-
ing of limits as well as managing liquidity, funding and cap-
ital; and is responsible for promoting a one-firm financial
management culture. The Group Chief Operating Officer
(Group COO) role has been added to the GEB level, inte-
grating the Group-wide infrastructure and service functions
into the Corporate Center, and the roles and responsibilities
of the Group functional heads have been adapted to reflect
the integration of control function management (finance,
risk, legal & compliance) across the Group.
➔ Refer to www.ubs.com/governance for more details
on the Organization Regulations
186
Group structure and shareholders
UBS Group legal entity structure
Under Swiss company law, UBS AG is organized as a limited
company, a corporation that has issued shares of common
stock to investors. UBS AG is the Parent Bank of the UBS
Group (Group).
Our legal entity structure is designed to support our busi-
nesses within an efficient legal, regulatory, tax and funding
framework. Neither the business divisions of UBS nor the
Corporate Center are separate legal entities: they primarily
operate out of the Parent Bank, UBS AG, through its branch-
es worldwide. This structure is designed to capitalize on the
increased business opportunities and cost efficiencies offered
by the use of a single legal platform and to enable the flexible
and efficient use of capital. Where it is neither possible nor
efficient to operate out of the Parent Bank, businesses oper-
ate through local subsidiaries. This can be the case when le-
gal, tax or regulatory rules require it or as a result of addi-
tional legal entities joining the Group through acquisition.
Operational Group structure
On 31 December 2009, the operational structure of the
Group comprised the Corporate Center and the four busi-
ness divisions: Wealth Management & Swiss Bank, Wealth
Management Americas, Global Asset Management and the
Investment Bank. In this report, performance is reported ac-
cording to this structure.
Listed and non-listed companies belonging to the
Group (consolidated entities)
The Group includes a number of subsidiaries, none of which,
however, are listed companies.
➔ Refer to “Note 34 Significant subsidiaries and associates”
in the “Financial information” section of this report for details
of significant operating subsidiary companies of the Group
Significant shareholders
On 1 January 2010, The Capital Group Companies, Inc., Los
Angeles, disclosed according to the Swiss Stock Exchange
Act a holding of 5.09% of the total share capital of UBS AG.
On 1 December 2009, BlackRock Inc., New York, disclosed
according to the Swiss Stock Exchange Act, a holding of
3.45% of the total share capital of UBS AG.
The “Significant shareholders” table on the next page
provides information about shareholders who, acting in
their capacity as nominees for other investors or beneficial
owners, were registered in our share register with 3% or
more of the total share capital on 31 December 2009, 2008
and 2007.
According to our “Regulation on the Registration of
Shares”, voting rights of nominees are restricted to 5%, but
clearing and settlement organizations are exempt from this
restriction. Ownership of UBS shares is widely spread. The
additional tables on the following page provide information
about the distribution of our shareholders by category and
geographical location. This information relates only to regis-
tered shareholders and cannot be assumed to be representa-
tive of our entire investor base. Only shareholders registered
in the share register as “shareholders with voting rights” are
entitled to exercise voting rights.
Under the Swiss Stock Exchange Act, anyone holding shares
in a company listed in Switzerland, or holding derivative rights
related to shares of such a company, has to notify the company
and the stock exchange if the holding attains, falls below or
exceeds one of the following thresholds: 3, 5, 10, 15, 20, 25,
33 1⁄3, 50, or 66 2⁄3% of the voting rights, whether they are exer-
cisable or not. The detailed disclosure requirements and the
methodology for calculating the thresholds are defined in the
“Ordinance of the Swiss Financial Market Supervisory Authority
on Stock Exchanges and Securities Trading”. In particular, the
ordinance prohibits the netting of so-called acquisition posi-
tions (in particular shares, conversion rights and acquisition
rights or obligations) with disposal positions (i.e. rights or obli-
gations to sell). It further requires that each such position be
calculated separately and be reported as soon as it reaches a
threshold.
At year-end 2009, we owned UBS registered shares cor-
responding to less than 3% of the total share capital of UBS
AG. At the same time, we had disposal positions relating to
643,788,775 voting rights of UBS AG, corresponding to
18.09% of the total voting rights of UBS AG. They consisted
mainly of 8.84% of voting rights attached to employee op-
tions and 7.66% of voting rights arising from the mandatory
convertible notes issued by UBS in March 2008.
Cross shareholdings
We have no cross shareholdings in excess of a reciprocal 5%
of capital or voting rights with any other company.
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Significant shareholders 1
In % of shares issued
Chase Nominees Ltd, London
DTC (Cede & Co.), New York 2
Mellon Bank N.A., Everett
Nortrust Nominees Ltd, London
31.12.09
11.63
8.42
3.21
3.07
31.12.08
31.12.07
7.19
9.89
less than 3
less than 3
7.99
14.15
less than 3
less than 3
1 Lists shareholders registered in our share register with 3% or more of the total share capital at the relevant reference dates. 2 DTC (Cede & Co.), New York, “The Depository Trust Company” is a US
securities clearing organization.
Distribution of UBS shares
On 31 December 2009
Number of shares registered
1–100
101–1,000
1,001–10,000
10,001–100,000
100,001–1,000,000
1,000,001–5,000,000
5,000,001–35,581,127 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered 2
Total shares issued
Shareholders registered
Shares registered
Number % of shares issued
Number
42,351
208,118
103,827
8,025
608
94
32
1
0
2
0
2 1
363,060
%
11.7
57.3
28.6
2.2
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2,497,703
94,609,316
278,983,450
191,103,931
169,169,180
202,775,659
313,629,304
54,622,566
0
223,676,913
0
713,346,857
100.0
2,244,414,879
1,313,697,874
3,558,112,753 3
0.1
2.7
7.8
5.4
4.8
5.7
8.8
1.5
0.0
6.3
0.0
20.0
63.1
36.9
100.0
1 On 31 December 2009, Chase Nominees Ltd., London, was entered as a trustee / nominee holding 11.63% of all shares issued. DTC (Cede & Co.), New York, the US securities clearing organization,
was registered with 8.42% of all shares issued. 2 Shares not entered in the share register at 31 December 2009. 3 400,665,834 registered shares do not carry voting rights.
Shareholders: type and geographical distribution
On 31 December 2009
Individual shareholders
Legal entities
Nominees, fiduciaries
Unregistered
Total
Switzerland
Europe
North America
Other countries
Unregistered
Total
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Shareholders
Shares
Number
353,827
8,682
551
%
97.5
2.4
0.1
Number
562,329,116
469,388,746
1,212,697,017
1,313,697,874
%
15.8
13.2
34.1
36.9
363,060
100.0
3,558,112,753
100.0
327,674
20,436
7,316
7,634
90.3
5.6
2.0
2.1
836,731,688
831,206,788
499,420,433
77,055,970
1,313,697,874
23.5
23.4
14.0
2.2
36.9
363,060
100.0
3,558,112,753
100.0
Capital structure
Capital
Under Swiss company law, shareholders must approve in a
shareholders’ meeting any increase in the total number of
issued shares which may arise from an ordinary share capital
increase, or the creation of conditional or authorized capital.
At year-end 2009, 3,558,112,753 shares were issued with a
par value of CHF 0.10 each, leading to ordinary share capital
of CHF 355,811,275.30. This includes 293,258,050 shares
issued for a capital increase out of authorized capital,
332,225,913 shares issued to the Swiss Confederation upon
conversion of the MCNs and 48,241 shares issued for em-
ployee option exercises out of conditional capital, all of
which took effect in 2009.
Conditional share capital
At year-end 2009, conditional share capital of CHF
15,002,364.60 was available to settle employee option exer-
cises, corresponding to a maximum of 150,023,646 shares.
In 2000, conditional capital was created in connection
with the acquisition of PaineWebber Group Inc. (PaineWeb-
ber), to cover option rights previously granted by PaineWeb-
ber to its employees. Additionally, at the Annual General
Meeting (AGM) held in 2006, shareholders approved condi-
tional capital in the amount of 150 million UBS shares to be
used for employee option grants. Options under both plans
are exercisable at any time between their vesting and expi-
ration date. Shareholders have no pre-emptive rights. In
2009, options on 48,241 shares were exercised under the
PaineWebber option plans, and 22,824 options expired un-
der the PaineWebber option plans without being exercised.
No options were settled with conditional capital shares in
2009 under our employee stock option plans.
At the Extraordinary General Meeting (EGM) held on
27 February 2008, our shareholders approved the creation of
conditional capital through the issuance of a maximum of
277,750,000 shares to satisfy the settlement in shares of CHF
13 billion in MCNs, with a maturity date of 5 March 2010. To
satisfy the conversion, we expect to deliver 272,651,005
shares on 5 March 2010 to two financial investors.
At the AGM held on 15 April 2009, our shareholders ap-
proved the creation of conditional capital through the issu-
ance of 100,000,000 shares for the potential exercise of war-
rants granted to the Swiss National Bank (SNB), in connection
with the loan granted by the SNB to the SNB StabFund.
➔ Refer to “Note 38 Reorganizations and disposals” in the
“Financial information” section of this report for more
information
Authorized share capital
At the 27 February 2008 EGM, our shareholders authorized
the creation of 103,700,000 shares, and of that, 98,698,754
shares were issued in 2008 as stock dividends for 2007 to
UBS shareholders, with a remaining authorization to issue
5,001,246 shares until 27 February 2010.
Changes of shareholders’ equity
According to International Financial Reporting Standards
(IFRS), equity attributable to UBS shareholders amounted to
CHF 41.0 billion on 31 December 2009.
➔ Refer to the “Statement of changes in equity” in the
“Financial information” section of this report for more
information on changes in shareholders’ equity over
the last three years
Shares, participation certificates and capital securities
Our shares are issued in registered form, and are traded and
settled as global registered shares. Each registered share has
a par value of CHF 0.10 and carries one vote. Voting rights
may, however, only be exercised if the holder expressly de-
clares that he or she acquired these shares in his or her own
name and for his or her own account. Global registered
shares provide direct and equal ownership for all sharehold-
ers, irrespective of the country and stock exchange on which
they are traded.
➔ Refer to the “Shareholders’ participation rights” section
of this report for more information
On 31 December 2009, 1,843,749,045 shares carried
voting rights, 400,665,834 shares were entered in the share
Ordinary share capital
On 31 December 2007
On 31 December 2008
Issue of shares for capital increase (MCNs conversion)
Issue of shares for capital increase (private placement)
Issue of shares out of employee options exercised from conditional capital
On 31 December 2009
Share capital in CHF
Number of shares
Par value in CHF
207,354,734
293,258,055
33,222,591
29,325,805
4,824
2,073,547,344
2,932,580,549
332,225,913
293,258,050
48,241
355,811,275
3,558,112,753
0.10
0.10
0.10
0.10
0.10
0.10
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register without voting rights, and 1,313,697,874 shares
were not registered. All 3,558,112,753 shares were fully
paid up and eligible for dividends. There are no preferential
rights for shareholders, and no other classes of shares are
issued by the Parent Bank directly.
We did not issue any participation certificates or capital
instruments in 2009.
At year-end 2009, we had CHF 7,224 million in preferred
securities outstanding, which count as hybrid tier 1 capital
under Swiss regulatory rules. Outstanding tier 2 capital secu-
rities accounted for CHF 11,231 million in total capital on 31
December 2009.
Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the trans-
ferability of shares. Voting rights may be exercised without
any restrictions by shareholders entered into the share regis-
ter, if they expressly render a declaration of beneficial owner-
ship according to the provisions of the “Articles of Associa-
tion of UBS AG” (Articles of Association).
We have special provisions for the registration of fiducia-
ries and nominees. Fiduciaries and nominees are entered in
the share register with voting rights up to a total of 5% of all
shares issued if they agree to disclose upon our request ben-
eficial owners holding 0.3% or more of all UBS shares. An
exception to the 5% voting limit rule exists for securities
clearing organizations such as The Depository Trust Compa-
ny in New York.
Convertible bonds and options
On 31 December 2009, there were employee options and
stock appreciation rights outstanding to purchase 290 mil-
lion shares, of which options to purchase 142 million shares
were exercisable. We satisfy share delivery obligations under
our option-based participation plans either by purchasing
UBS shares in the market, or through the issuance of new
shares, out of conditional capital. Shares held in treasury or
newly issued shares are delivered to the employee at exer-
cise. On 31 December 2009, 27.7 million shares were avail-
able to cover 27.2 million employee share delivery obliga-
tions, and an additional 150 million unissued shares in
conditional share capital were assigned to cover future em-
ployee option exercises. At year-end 2009, the shares avail-
able covered all exercisable employee obligations.
The Investment Bank, acting as liquidity provider to the
equity futures market and as a market-maker in UBS shares
and derivatives, issues derivatives linked to UBS stock. Most
of these instruments are classified as cash-settled derivatives
and are held for trading purposes only. To hedge the eco-
nomic exposure, a limited number of UBS shares are held by
the Investment Bank.
On 5 March 2008, we issued CHF 13 billion of MCNs as
approved at the 27 February 2008 EGM. The notes were
placed with two financial investors (Government of Singa-
pore Investment Corporation and one other investor), and
pay interest of 9% per annum until conversion into UBS
shares, which must take place on or before 5 March 2010.
The conversion of the MCNs is expected to increase the
number of shares issued on 5 March 2010 by 272,651,005,
reflecting adjustments due to the ordinary capital increase
approved by our shareholders at the 23 April 2008 AGM,
assuming no further dilutive events occur until conversion.
The terms of the MCNs contain standard market provisions
for the adjustment of the conversion price if any dilutive
events occur between issuance and maturity, such as capital
increases at a discount, an excess amount of dividends in
cash or in specie, and similar events.
➔ Refer to the discussion on shares and capital instruments
in the “Treasury management” section of the 2008 annual
report for more information on the MCNs
190
Board of Directors
The BoD, under the leadership of the Chairman, decides on
the strategy of the Group upon recommendation of the
Group Chief Executive Officer (Group CEO), exercises the ul-
timate supervision over the management and elects all
members of the GEB. The BoD also approves the financial
statements for issue. Shareholders elect each member of the
BoD, which in turn appoints its Chairman, at least one Vice
Chairman and the members of its various committees.
Members of the Board of Directors
This section provides information on the composition of the
BoD on 31 December 2009. It shows each member’s func-
tions in UBS, nationality, year of initial appointment to the
BoD, professional history, education, and date of birth. Also
included are other activities and functions, such as mandates
on boards of important corporations, organizations and
foundations, permanent functions for important interest
groups and official functions and political mandates.
At the AGM held on 15 April 2009, Peter R. Voser, David
Sidwell, Sally Bott, Rainer-Marc Frey, Bruno Gehrig and Wil-
liam G. Parrett were reelected as their terms of office ex-
pired. Peter Kurer did not stand for reelection. Ernesto Ber-
tarelli, Gabrielle Kaufmann-Kohler and Joerg Wolle tendered
their resignation. Kaspar Villiger, Michel Demaré, Ann F.
Godbehere and Axel P. Lehmann were elected to their first
term on the BoD, and Kaspar Villiger replaced Peter Kurer
as full-time Chairman of the BoD. On 29 September 2009,
Sergio Marchionne, Vice Chairman and Senior Independent
Director, and Peter R. Voser announced that they will not
stand for reelection at the AGM on 14 April 2010. On 7 De-
cember 2009 UBS nominated Wolfgang Mayrhuber, Chief
Executive Officer of Deutsche Lufthansa AG, for election to
its Board of Directors at its 2010 Annual General Meeting.
On 31 December 2009, with the exception of the non-inde-
pendent Chairman, Kaspar Villiger, all members of the BoD
were considered independent by the BoD.
Kaspar Villiger
Swiss, born 5 February 1941
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman of the Board of Directors / chair of the
Governance and Nominating Committee /
chair of the Corporate Responsibility Committee
Year of initial appointment: 2009
Sergio Marchionne
Canadian and Italian, born 17 June 1952
Fiat S.p.A., Via Nizza 250, I-10126 Turin
Functions in UBS
Independent Vice Chairman and Senior Independent
Director / member of the Governance and Nominating
Committee
Year of initial appointment: 2007
Professional history and education
Kaspar Villiger was elected to the BoD at the 2009 AGM and was thereafter appointed Chairman of the BoD.
He chairs the Governance and Nominating Committee and the Corporate Responsibility Committee. Mr.
Villiger was elected Federal Councilor in 1989, and served as the Minister of Defense and Head of the Federal
Military Department. He served as Finance Minister and Head of the Federal Department of Finance from
1995 until he stepped down at the end of 2003. Simultaneously, he served as President of the Swiss
Confederation in 1995 and 2002. In 2004, he was elected to the boards of Nestlé, Swiss Re and the Neue
Zürcher Zeitung, all of which he resigned from in 2009, when he took on the position of Chairman of UBS.
As co-owner of the Villiger Group, Mr. Villiger managed the Swiss parent firm, Villiger Söhne AG, from 1966
until 1989. In addition, Mr. Villiger held several political positions, first in the parliament of the canton of
Lucerne and, from 1982, in the Swiss Parliament. He graduated from the Swiss Federal Institute of Technology
(ETH) in Zurich with a degree in mechanical engineering in 1966.
Professional history and education
Sergio Marchionne was elected to the BoD at the 2007 AGM, and was appointed independent Vice Chairman
and Senior Independent Director in 2008. He is a member of the Governance and Nominating Committee. Mr.
Marchionne is the Chief Executive Officer (CEO) of Fiat S.p.A., where he has been a member of the board since
2003. He is the CEO of Fiat Group Automobiles as well as of Chrysler Group LLC. He is also the Chairman of
CNH Case New Holland, a Fiat Group company. From 1983 to 1985, he worked as a chartered accountant and
tax specialist for Deloitte & Touche in Canada. From 1985 to 1988, he was Group Controller and then became
Director of Corporate Development at Lawson Mardon Group of Toronto. In 1989 and 1990, he served as the
Executive Vice President of Glenex Industries. In the following two years, Mr. Marchionne acted as Vice
President of Finance and Chief Financial Officer (CFO) of Acklands Ltd. He returned to Lawson Mardon Group
in 1992 as the Vice President of Legal and Corporate Development and CFO. The company was acquired by
Alusuisse Lonza in 1994. Following the acquisition, he became CEO in 1996. Upon the completion of the
merger of Alusuisse with Alcan Inc., he acted as CEO and Chairman of the spin-off, Lonza Group, until 2002.
In 2002, Mr. Marchionne was appointed CEO of the Société Générale de Surveillance (SGS) Group of Geneva.
Mr. Marchionne studied philosophy at the University of Toronto, business at the University of Windsor, and law
at Osgoode Hall Law School in Toronto. He is a lawyer and a chartered accountant.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Marchionne is the Chairman of SGS and a member of the BoD of Philip Morris International Inc. He is also
a member of the European Automobile Manufacturers’ Association (ACEA).
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Sally Bott was elected to the BoD at the October 2008 EGM. She chairs the Human Resources and
Compensation Committee and is a member of the Corporate Responsibility Committee. Sally Bott serves as
the Group Human Resources (HR) Director of BP plc, which she joined in early 2005, and is a member of BP’s
Group Executive Committee. Ms. Bott has spent most of her career in financial services. Between 2000 and
2005, she was a Managing Director at Marsh & McLennan Companies, a US-based global risk and insurance
services business, and Head of Global HR for Marsh Inc. She was at Barclays Bank from 1994 to 2000, first
as Barclays de Zoete Wedd HR Director and then as Group HR Director from 1997 to 2000. In 1970 she joined
Citibank out of college as a research analyst in the economics department. She was credit trained and worked
in the finance function. She moved into HR in 1978 and worked as an HR Director in most of Citibank’s
wholesale bank and investment banking businesses for the next 15 years. She was the Global HR Director of
the wholesale bank from 1990 to 1993. Ms. Bott studied at Manhattanville College in the US and graduated
with a bachelor’s degree in economics.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Ms. Bott is a member of the board of the Royal College of Music in London and the Carter Burden Center for
the Aging in New York City.
Professional history and education
Michel Demaré was elected to the BoD at the 2009 AGM and is a member of the Audit Committee. Mr.
Demaré joined ABB in 2005 as CFO and as a member of the Group Executive Committee. In addition, he
became President of Global Markets in November 2008. Between February and September 2008, he acted
as the interim CEO of ABB. Mr. Demaré joined ABB from Baxter International Inc., a global healthcare com-
pany, where he was CFO Europe from 2002 to 2005. Prior to this role, he spent 18 years at the Dow Chemical
Company holding various treasury and risk management positions in Belgium, France, the US and Switzerland.
Between 1997 and 2002 he was the CFO of the Global Polyolefins and Elastomers division. Mr. Demaré be-
gan his career as an officer in the multinational banking division of Continental Illinois National Bank of
Chicago, based in Antwerp. He graduated with an MBA from the Katholieke Universiteit Leuven, Belgium, and
holds a degree in applied economics from the Université Catholique de Louvain, Belgium.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Demaré is a member of the IMD Foundation Board, Lausanne.
Professional history and education
Rainer-Marc Frey was elected to the BoD at the October 2008 EGM and is a member of the Risk Committee.
Mr. Frey is the founder and Chairman of the investment management company Horizon21. In 1992, he
founded RMF Investment Group, one of the first hedge fund groups in Europe, and was appointed CEO. RMF
was acquired by Man Group plc in 2002. Between 2002 and 2004, he held a number of senior roles within
Man Group and was the largest individual shareholder. From 1989 to 1992, Mr. Frey served as a director at
Salomon Brothers in Zurich, Frankfurt and London, where he was primarily involved with equity derivatives.
Between 1987 and 1989, he worked for Merrill Lynch covering equity, fixed income and swaps markets. He
holds a degree in economics from the University of St. Gallen.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Frey is a member of the BoD of DKSH Group, Zurich, and a member of the Advisory Board of Invision
Private Equity AG, Zug. He is a member of the BoD of the Frey Charitable Foundation, Freienbach.
Sally Bott
American (US), born 11 November 1949
BP plc, 1 St. James’s Square, GB-London SW1Y 4PD
Functions in UBS
Chair of the Human Resources and Compensation
Committee / member of the Corporate Responsibility
Committee
Year of initial appointment: 2008
Michel Demaré
Belgian, born 31 August 1956
ABB Ltd., Affolternstrasse 44, P.O. Box 5009,
CH-8050 Zurich
Function in UBS
Member of the Audit Committee
Year of initial appointment: 2009
Rainer-Marc Frey
Swiss, born 10 January 1963
Horizon21, Poststrasse 4, CH-8808 Pfäffikon
Function in UBS
Member of the Risk Committee
Year of initial appointment: 2008
192
Bruno Gehrig
Swiss, born 26 December 1946
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Member of the Governance and Nominating
Committee / member of the Human Resources and
Compensation Committee
Year of initial appointment: 2008
Ann F. Godbehere
Canadian and British, born 14 April 1955
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Member of the Audit Committee / member of the
Corporate Responsibility Committee
Year of initial appointment: 2009
Axel P. Lehmann
Swiss, born 23 March 1959
Zurich Financial Services, Mythenquai 2,
CH-8002 Zurich
Function in UBS
Member of the Risk Committee
Year of initial appointment: 2009
Professional history and education
Bruno Gehrig was elected to the BoD at the October 2008 EGM and is a member of the Governance and
Nominating Committee and the Human Resources and Compensation Committee. From 2003 to 2009, Mr.
Gehrig was Chairman of Swiss Life Holding. Between 1996 and 2003, he worked at the Swiss National Bank,
starting as a member of the Governing Board and becoming Vice Chairman in 2000. From 1992 to 1996, he
was a professor of banking and finance at the University of St. Gallen and concurrently served as a member
of the Swiss Federal Banking Commission. Between 1989 and 1991, he held the position of CEO at Cantrade
Private Banking Group. Mr. Gehrig worked for the former Union Bank of Switzerland (UBS) between 1981
and 1989, where he started as a chief economist before assuming responsibility for securities sales and trad-
ing. He studied economics at the University of Bern, where he completed his PhD studies, and then continued
on to postgraduate studies at the University of Rochester, New York. He was an assistant professor at the
University of Bern and received an honorary doctorate from the University of Rochester.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Gehrig is the Vice Chairman of the BoD of Roche Holding Ltd., Basel, and the Chairman of the Swiss Air
Transport Foundation, Zug.
Professional history and education
Ann F. Godbehere was elected to the BoD at the 2009 AGM and is a member of the Audit Committee and the
Corporate Responsibility Committee. Ms. Godbehere was appointed CFO and Executive Director of Northern
Rock in February 2008, serving in these roles during the initial phase of the business’ public ownership – she
left at the end of January 2009. Prior to this role, she served as CFO of Swiss Re Group from 2003 to 2007.
Ms. Godbehere was CFO of the Property and Casualty division in Zurich for two years, before this she served
as CFO of the Life & Health division in London for three years. From 1997 to 1998, Ms. Godbehere was CEO
of Swiss Re Life & Health in Canada. In 1996 and 1997, she was CFO of Swiss Re Life & Health North
America. She is a certified general accountant and was made a fellow of the Certified General Accountants
Association of Canada in 2003.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Ms. Godbehere is a board member of Prudential plc, Rio Tinto plc and Rio Tinto Limited. She is on the board
of Lloyd’s managing agency, Atrium Underwriters Ltd. and Atrium Underwriting Group Ltd., which were ac-
quired in 2007 by Ariel Holdings Ltd. She is also a member of the board of Ariel Holdings, an insurance and
reinsurance company.
Professional history and education
Axel P. Lehmann was elected to the BoD at the 2009 AGM and is a member of the Risk Committee. He has
been the Group Chief Risk Officer of Zurich Financial Services (Zurich) since January 2008. In addition, he is
responsible for Group IT. In September 2004, Mr. Lehmann was appointed CEO of Zurich North America
Commercial in Schaumburg, Illinois. He became a member of Zurich’s Group Executive Committee and CEO
of its Continental Europe business division in 2002. He was subsequently put in charge of integrating
Continental Europe, the UK and Ireland to create, in 2004, the Europe General Insurance business division, of
which he was the CEO. Mr. Lehmann became a member of the Group Management Board, responsible for
Group-wide business development functions in 2000. A year later, he took over the responsibility for
Northern, Central and Eastern Europe and was appointed CEO of the Zurich Group Germany. Before he joined
Zurich in 1996, he was Head of Corporate Planning and Controlling for Swiss Life in Zurich. Mr. Lehmann was
a lecturer at several universities and institutes. In 1990, he became Vice President of the Institute of Insurance
Economics and the European Center at the University of St. Gallen, responsible for consulting and manage-
ment development. He holds a PhD and a master’s degree in business administration and economics from the
University of St. Gallen. He is a graduate of the Wharton Advanced Management Program and an honorary
professor of business administration and service management at the University of St. Gallen.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Lehmann is Chairman of the Board of the Institute of Insurance Economics at the University of St. Gallen
and Vice Chairman of the Chief Risk Officer Forum.
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Corporate governance and compensation
Corporate governance
Helmut Panke
German, born 31 August 1946
BMW AG, Petuelring 130, D-80788 Munich
Functions in UBS
Member of the Human Resources and Compensation
Committee / member of the Risk Committee
Year of initial appointment: 2004
William G. Parrett
American (US), born 4 June 1945
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Chair of the Audit Committee
Year of initial appointment: 2008
David Sidwell
American (US) and British, born 28 March 1953
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Chair of the Risk Committee
Year of initial appointment: 2008
Peter R. Voser
Swiss, born 29 August 1958
Royal Dutch Shell plc, 2501 AN, NL-The Hague
Function in UBS
Member of the Governance and Nominating Committee
Year of initial appointment: 2005
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Professional history and education
Helmut Panke was elected to the BoD at the 2004 AGM and is a member of the Human Resources and
Compensation Committee and the Risk Committee. Between 2002 and 2006, Mr. Panke was Chairman of the
Board of Management at BMW, Munich. In 1982, he joined BMW’s Research and Development division as
Head of Planning and Controlling. He subsequently assumed management functions in corporate planning,
organization and corporate strategy. Before his appointment as Chairman, he was a member of BMW’s Board
of Management from 1996. Between 1993 and 1996, he was Chairman and CEO of BMW Holding
Corporation in the US. Mr. Panke graduated from the University of Munich with a PhD in physics and was on
special research assignment at the University of Munich and the Swiss Institute for Nuclear Research before
joining McKinsey & Company in Dusseldorf and Munich as a consultant.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Panke is a member of the BoD of Microsoft Corporation and Singapore Airlines Ltd. He is a member of the
Supervisory Board of Bayer AG, Germany.
Professional history and education
William G. Parrett was elected to the BoD at the October 2008 EGM and chairs the Audit Committee. Mr.
Parrett served his entire career with Deloitte Touche Tohmatsu, a global organization of member firms that
employs 160,000 people in nearly 140 countries. He was CEO from 2003 until his retirement in 2007.
Between 1999 and 2003, he was a Managing Partner of Deloitte & Touche USA LLP and served on Deloitte’s
Global Executive Committee. Mr. Parrett founded Deloitte’s US National Financial Services Industry Group in
1995 and its Global Financial Services Industry Group in 1997, both of which he led as Chairman. In his 40
years of experience in professional services, Mr. Parrett served public, private, governmental, and state-owned
clients worldwide, in order to help Deloitte achieve superior financial performance and growth. Mr. Parrett
has a bachelor’s degree in accounting from St. Francis College, New York, and is a certified public accountant.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Parrett is an independent Director of the Eastman Kodak Company, the Blackstone Group LP, and Thermo
Fisher Scientific Inc. He is also the Chairman of the BoD of the United States Council for International
Business and United Way Worldwide. He is a Carnegie Hall Board of Trustees member and is also a member
of the International Chamber of Commerce Executive Committee.
Professional history and education
David Sidwell was elected to the BoD at the 2008 AGM and chairs the Risk Committee. Mr. Sidwell was
Executive Vice President and CFO of Morgan Stanley in New York between March 2004 and October 2007.
Before joining Morgan Stanley, he was with JPMorgan Chase & Co., New York, where in his 20 years of ser-
vice, he held a number of different positions including Controller and CFO of the Investment Bank. Prior to
this, he was with Price Waterhouse in both London and New York. Mr. Sidwell graduated from Cambridge
University and is a chartered accountant qualifying in the Institute of Chartered Accountants in England and
Wales.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Sidwell is a Director of the Federal National Mortgage Association (Fannie Mae) and a Senior Advisor at
Oliver Wyman. He is a trustee of the International Accounting Standards Committee Foundation, London, the
Chairman of the BoD of Village Care of New York, a not-for-profit organization, and a Director of the National
Council on Aging.
Professional history and education
Peter R. Voser was elected to the BoD at the 2005 AGM and is a member of the Governance and Nominating
Committee. As of July 2009, Mr. Voser has been serving as the CEO and an executive BoD member of Royal
Dutch Shell plc, where he also acted as CFO from 2004 to 2009. Between 2002 and 2004, he was CFO of
ABB in Switzerland. Between 1982 and 2002, he worked for the Royal Dutch / Shell Group, holding various
assignments in Switzerland, the UK, Argentina and Chile. Mr. Voser graduated in business administration from
the University of Applied Sciences in Zurich.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Voser is a member of the BoD of the Swiss Federal Audit Oversight Authority.
Elections and terms of office
In accordance with article 19 (paragraph one) of the “Arti-
cles of Association of UBS AG” (Articles of Association), all
BoD members are to be elected on an individual basis for a
one-year term of office. As a result, shareholders must con-
firm the entire membership of the BoD on a yearly basis be-
ginning with the AGM on 14 April 2010.
BoD members are normally expected to serve for a mini-
mum of three years. No BoD member should continue to
serve beyond the AGM held in the calendar year following
his or her sixty-fifth birthday; however, the BoD can extend
this age limit.
Organizational principles and structure
The competencies of executive management have been
increased and simultaneously, the supervisory role of the
BoD has been accentuated, due to the revised Organization
Regulations. The BoD’s ultimate responsibility for strategic
and financial success includes deciding on the business
strategy of the Group upon recommendation of the Group
CEO, and taking into account the proposals and alterna-
tives presented by the GEB. Furthermore, the BoD is re-
sponsible for appointing and dismissing all GEB members,
the Company Secretary and the Head of Group Internal Au-
dit, and approving the firm’s risk capacities and appetite,
taking into account the proposals and alternatives suggest-
ed by the Risk Committee (RC).
The following committees assist the BoD in the perfor-
mance of its responsibilities. These committees and their
charters are described in the Organization Regulations
which are published on www.ubs.com/governance.
Audit Committee
The Audit Committee (AC) comprises at least three indepen-
dent BoD members, with all members having been deter-
mined by the BoD to be fully independent and financially
literate. On 31 December 2009, the AC consisted of William
G. Parrett, the chairperson, as well as Michel Demaré and
Ann F. Godbehere. All members have accounting and finan-
cial management expertise and are considered to be “finan-
cial experts” according to the rules established by the US
Sarbanes-Oxley Act of 2002.
The committee does not itself perform audits, but moni-
tors the work of the auditors who in turn, are responsible for
auditing UBS’s and the Group’s financial statements and for
reviewing the quarterly financial statements. The function of
the AC is to serve as an independent and objective body
with oversight of: (i) the Group’s accounting policies, finan-
cial reporting and disclosure controls and procedures, (ii) the
quality, adequacy and scope of external audit, (iii) UBS’s
compliance with financial reporting requirements, (iv) man-
agement’s approach to internal controls with respect to the
production and integrity of the financial statements and
disclosure of the financial performance, and (v) the perfor-
mance of Group Internal Audit in conjunction with the
Chairman and the RC.
Following each AGM, the BoD meets to appoint its Chair-
man, one or more Vice Chairmen, the Senior Independent
Director and the members and chairs of its committees. The
BoD appoints a Company Secretary who acts as secretary to
the BoD and its committees.
The AC reviews the annual report and quarterly financial
statements of UBS and the Group as proposed by the manage-
ment with external auditors, management and Group Internal
Audit in order to recommend their approval, including any ad-
justments the committee considers appropriate, to the BoD.
According to the Articles of Association, the BoD meets
as often as business requires, but must meet at least six
times a year. A total of 23 meetings were held in 2009, of
which seven included GEB members and 16 were without
GEB participation. On average, 93% of BoD members were
present at BoD meetings without GEB participation and
95% at meetings with GEB participation. The duration of
these meetings was 3½ hours on average. In addition, the
BoD met for a one-day BoD seminar.
Each committee chair provides the BoD with regular up-
dates on the current activities of his or her committee and on
important committee issues.
At least once per year, the BoD reviews its own perfor-
mance as well as the performance of each of its committees.
This review is based on an assessment of the BoD conducted
by the Governance and Nominating Committee (GNC) as
well as a self-assessment of the BoD committees, and seeks
to determine whether the BoD and its committees are func-
tioning effectively and efficiently.
Periodically and at least annually, the AC assesses the
qualifications, expertise, effectiveness, independence and
performance of the external auditors and their lead audit
partner, in order to support the BoD in reaching a decision in
relation to the appointment or removal of the external audi-
tors and the rotation of the lead audit partner. The BoD then
submits these proposals at the AGM.
The AC met 14 times in 2009 for an average duration of
2½ hours, in the presence of the Group Chief Financial Of-
ficer (CFO) each time, and with the Head of Group Internal
Audit, the representatives of the external auditors and other
GEB members participating in most of the meetings. Partici-
pation at the meetings averaged 98%.
The committee reports back to the BoD about its discus-
sions with our external auditors. Once per year, the lead
represen tatives of the external auditors take part in a BoD
meeting, presenting the long-form report of our external
auditors, as required by the Swiss Financial Market Super-
visory Authority (FINMA).
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Corporate governance and compensation
Corporate governance
Corporate Responsibility Committee
The Corporate Responsibility Committee supports the BoD
in fulfilling its duty to safeguard and advance the Group’s
reputation for responsible corporate conduct, and to assess
developments in stakeholder expectations and their possible
consequences for UBS. The committee comprises at least
three BoD members and, on 31 December 2009, Kaspar Vil-
liger chaired the committee with Sally Bott and Ann F. God-
behere as its additional members. The committee is advised
and supported by a number of senior business representa-
tives. It met twice for 90 minutes in 2009, and all committee
members were present.
➔ Refer to the “Corporate responsibility” section of this
report for more information on corporate responsibility
Governance and Nominating Committee
The GNC supports the BoD in fulfilling its duty to establish
best practices in corporate governance across the Group;
to conduct an annual assessment of the Chairman and the
BoD as a whole; to establish and maintain a process for
appointing new BoD members; and to manage the succession
of the Group CEO. The committee comprises at least three
independent BoD members and, on 31 December 2009, Kas-
par Villiger chaired the committee with Bruno Gehrig, Sergio
Marchionne and Peter R. Voser as its additional members. In
2009, 11 meetings were held with an average participation of
86% and a duration averaging over one hour. Of these 11
meetings, one was held with external advisors.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee
(HRCC) is responsible for the following functions: (i) to sup-
port the BoD in its duties to set guidelines on compensation
and benefits, (ii) to approve the total individual compensa-
tion for the Chairman and the GEB members as well as the
Company Secretary and Head of Group Internal Audit, (iii)
together with the Chairman, to provide the BoD with a pro-
posal for total individual compensation for the independent
BoD members, and (iv) to scrutinize executive performance
and to supervise succession planning for all GEB members
(other than the Group CEO). The HRCC also reviews the
compensation disclosure included in this report.
The committee comprises at least three independent BoD
members and, on 31 December 2009, Sally Bott chaired the
committee with Bruno Gehrig and Helmut Panke as its ad-
ditional members. In 2009, 14 meetings were held with an
average participation of 98% and a duration of over one
hour. Of those meetings, nine were held with external advi-
sors and one was held as a seminar with the participation of
the Chairman and the Group Head HR.
➔ Refer to the “Compensation and shareholdings” section of
this report for more information on the Human Resources
and Compensation Committee’s decision-making proce-
dures
Risk Committee
The RC is responsible for assisting the BoD in reviewing the
bank’s risk management and control framework, including
(i) credit, market, country and operational risks (ii) treasury
and capital management, including funding and liquidity,
and (iii) balance sheet management, including in each case
any consequent reputational risk. The RC assists the BoD in
establishing the bank’s risk capacity and risk appetite, and in
overseeing the bank’s risk profile. For these purposes, the RC
receives relevant information from the GEB and other mem-
bers of management.
The committee comprises four independent BoD mem-
bers and, on 31 December 2009, David Sidwell chaired the
committee with Rainer-Marc Frey, Axel P. Lehmann and
Helmut Panke as its additional members. The committee met
14 times with an average participation of 98%, averaging
over four hours in duration. The Group CEO, Group CFO and
Group CRO were present at all meetings. Other regular at-
tendees included the CEO or co-CEOs of the Investment
Bank, and CEO of Wealth Management & Business Banking
or co-CEOs of Wealth Management & Swiss Bank. Eight of
these meetings were held with representatives of the exter-
nal auditors also in attendance. Two special sessions were
held with the Governing Board of the SNB, and at least one
session will continue to be held on an annual basis. In addi-
tion, one special session was held with FINMA, and at least
one meeting will continue to be held on an annual basis.
Strategy Committee
The Strategy Committee was constituted on 1 July 2008,
taking over the strategic responsibilities of the former Chair-
man’s Office. While it met extensively in 2008, no meetings
took place in 2009. As it was always intended to be a tem-
porary committee, it was disbanded on 25 June 2009 and its
responsibilities were transferred to the full BoD.
Roles and responsibilities of the Chairman of
the Board of Directors
Kaspar Villiger, the Chairman, has entered into a full-time
employment contract with UBS in connection with his ser-
vice on the BoD.
The Chairman coordinates the tasks within the BoD, calls
BoD meetings and sets their agendas. Under the leadership
of the Chairman, the BoD decides on the strategy of the
196
Group upon recommendation of the Group CEO, exercises
the ultimate supervision over the executives and elects all
GEB members.
The Chairman presides over the AGMs and EGMs and
works with the committee chairs to coordinate the work of
all committees. Together with the Group CEO, the Chairman
is responsible for ensuring effective communication with
shareholders and other stakeholders, including government
officials and regulators. This is in addition to establishing and
maintaining a close working relationship with the Group
CEO and the other GEB members, providing advice and sup-
port while respecting the fact that day-to-day management
responsibility is delegated to the GEB.
Roles and responsibilities of the Senior
Independent Director
At least once per year, the Senior Independent Director orga-
nizes and leads a meeting of the independent BoD members
without the presence of the Chairman. In 2009, six indepen-
dent BoD meetings were held averaging 90 minutes. The
Senior Independent Director reports to the Chairman on the
evaluation of the Chairman’s performance, and acts as a
contact point for shareholders wishing to engage in discus-
sions with an independent BoD member.
Important business connections of independent
members of the Board of Directors with UBS
As a global financial services provider and a major bank in
Switzerland, we have business relationships with many large
companies, including those in which our BoD members as-
sume management or independent board responsibilities.
The nature of the relationships between UBS and com panies
whose chair, chief executive or other officer is a member of
our BoD is not considered to compromise the BoD members’
capacity for independent judgment. Furthermore, no inde-
pendent BoD member has personal business relationships
with UBS that could compromise his or her independence.
All relationships and transactions with UBS BoD members
and their affiliated companies are conducted in the ordinary
course of business, and are on the same terms as those pre-
vailing at the time for comparable transactions with non-
affiliated persons.
Checks and balances: Board of Directors and
Group Executive Board
We operate under a strict dual board structure, as mandated
by Swiss banking law. The separation of responsibilities be-
tween the BoD and executive management is clearly defined
in the Organization Regulations. The BoD decides on the
strategy of the Group upon recommendation of the Group
CEO, and supervises and monitors the business, whereas the
GEB, headed by the Group CEO, has executive management
responsibility. The functions of Chairman of the BoD and
Group CEO are assigned to two different people, thus ensur-
ing a separation of power. This structure establishes checks
and balances and preserves the institutional independence
of the BoD from the day-to-day management of the firm, for
which responsibility is delegated to the GEB under the lead-
ership of the Group CEO. No member of one board may be
a member of the other.
Supervision and control of executive management re-
mains with the BoD. The authorities and responsibilities of
the two bodies are governed by the Articles of Association
and the Organization Regulations, including the latter docu-
ment’s “Annex B – Responsibilities and authorities”.
➔ Refer to www.ubs.com/governance for more details on
checks and balances for the BoD and GEB
Information and control instruments vis-à-vis
the Group Executive Board
The BoD is kept informed of the activities of the GEB in vari-
ous ways. The minutes of the GEB meetings are made avail-
able to the BoD members. At BoD meetings, the Group CEO
and GEB members regularly update the BoD on important
issues.
At BoD meetings, BoD members may request from BoD
or GEB members any information about matters concerning
UBS that they require to fulfill their duties. Outside meetings,
BoD members may request information from other BoD and
GEB members, in which case such requests must be ap-
proved by the Chairman.
Group Internal Audit independently, objectively and sys-
tematically assesses the adherence to our strategy, effective-
ness of governance, risk management and control processes
at Group, divisional and regional levels, and monitors com-
pliance with legal, regulatory and statutory requirements, as
well as with internal policies and contracts. This internal au-
dit organization, which is independent from management,
reports significant findings to the Chairman and the RC. The
AC must be informed of the results of the internal audit.
In February 2009, our internal compliance function pro-
vided an annual compliance report to the BoD. This report is
required by sections 109 and 112 of Circular 08 / 24 of FIN-
MA on the supervision and internal controls at banks.
➔ Refer to the “Risk management and control” section of this
report for more information
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Corporate governance and compensation
Corporate governance
Group Executive Board
UBS operates under a strict dual board structure, as required
by Swiss banking law. The management of the business is
delegated by the BoD to the GEB.
Members of the Group Executive Board
The information in the boxes below provides details on the
composition of the GEB on 31 December 2009. It shows each
member’s functions within UBS, nationality, year of initial ap-
pointment to the GEB, professional history, education, and
date of birth. It also includes other activities and functions,
such as mandates on boards of important corporations, orga-
nizations and foundations, permanent functions for important
interest groups as well as official functions and political man-
dates.
Changes to the Group Executive Board in 2009
Oswald J. Grübel was named Group CEO on 26 February
2009, replacing Marcel Rohner who stepped down as Group
CEO on that date.
On 1 April 2009, Ulrich Körner was appointed Group
COO and Walter H. Stürzinger stepped down from the GEB
on that date. In this newly created role, Ulrich Körner is re-
sponsible for the management and performance of the in-
frastructure as well as service functions for the Group and
leads the Corporate Center. The Group control functions
(finance, risk, and legal and compliance) were centralized as
part of the integration of the Group-wide infrastructure, ser-
vices and control functions. This transformation took place
in several steps and was finalized in October 2009.
On 27 April 2009, Jerker Johansson resigned as CEO of
the Investment Bank. Carsten Kengeter and Alexander
Wilmot-Sitwell became co-CEOs of the Investment Bank. On
25 June 2009, Chi-Won Yoon became Chairman and CEO
Asia Pacific, replacing Rory Tapner. On 27 October 2009,
Marten Hoekstra stepped down as CEO of Wealth Manage-
ment Americas and was replaced by Robert J. McCann.
Professional history and education
Oswald J. Grübel was named UBS Group CEO in February 2009. Before joining UBS he was the CEO of Credit
Suisse Group and Credit Suisse. He stepped down from this role in May 2007. From 2002 to 2004, he was
CEO of Credit Suisse Financial Services and co-CEO of Credit Suisse Group from 2003 until 2004. Mr. Grübel
was a member of the Credit Suisse Group Executive Board from 1997 to 2001 and again from 2002 to 2007.
From 1991 until 1997 he was a member of the Group Executive Board of Credit Suisse, responsible for equi-
ties, fixed income, global foreign exchange, money markets and asset / liability management in Zurich. Before
that he was a member of the Financière Credit Suisse First Boston Group Executive Board in Zug. In 1970,
Mr. Grübel joined White Weld Securities and became its CEO in 1978. From 1961 to 1970 he worked for
Deutsche Bank, where he completed his training as a banker.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Grübel is a board member of the Spanish residential estate La Zagaleta, of the Swiss American Chamber
of Commerce, the Institute of International Finance and the Financial Services Forum. He is a member of the
Shanghai International Financial Advisory Council, the Institut International d’Etudes Bancaires and the
International Monetary Conference.
Professional history and education
John Cryan was appointed Group CFO and became a member of the Group Executive Board (GEB) in
September 2008. In 2002 he became the European Head of the Financial Institutions Group of the UBS
Investment Bank and three years later he was made its Global Head. A former employee of Arthur Andersen
LLP, Mr. Cryan joined S.G. Warburg & Co. in London in 1987. Since 1992, he has specialized in providing
strategic and financial advice to a wide range of companies in the financial services sector globally. Mr. Cryan
graduated in 1981 with an MA with honors from the University of Cambridge.
Oswald J. Grübel
German, born 23 November 1943
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group CEO
Year of initial appointment: 2009
John Cryan
British, born 16 December 1960
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group CFO
Year of initial appointment: 2008
198
Markus U. Diethelm
Swiss, born 22 October 1957
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group General Counsel
Year of initial appointment: 2008
John A. Fraser
Australian, born 8 August 1951
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and CEO Global Asset Management
Year of initial appointment: 2002
Carsten Kengeter
German, born 31 March 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Co-CEO Investment Bank
Year of initial appointment: 2009
Ulrich Körner
German and Swiss, born 25 October 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Group Chief Operating Officer
CEO Corporate Center
Year of initial appointment: 2009
Professional history and education
Markus U. Diethelm was appointed Group General Counsel of UBS in September 2008. From 1998 until
2008, he served as Swiss Re’s Group Chief Legal Officer and was appointed to its Group Executive Board in
2007. Prior to that, he was at the Los Angeles-based law firm Gibson, Dunn & Crutcher, focusing on corporate
matters, securities transactions, litigation and regulatory investigations while working out of the firm’s
Brussels and Paris offices. From 1989 until 1992, he practiced at New York’s Shearman & Sterling law firm,
specializing in mergers and acquisitions, and in 1988, he worked at Paul, Weiss, Rifkind, Wharton & Garrison
in New York as a foreign associate. He started his career in 1983 with Bär & Karrer. Mr. Diethelm holds a law
degree from the University of Zurich and a master’s degree and PhD from Stanford Law School. He is a
qualified attorney-at-law in Switzerland and admitted to the Zurich and New York Bar.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Diethelm is the Chairman of the Legal Committee of the Swiss American Chamber of Commerce.
Professional history and education
John A. Fraser was appointed Chairman and CEO of the Global Asset Management business division in late
2001. Prior to that, he was President and Chief Operating Officer (COO) of UBS Asset Management and Head
of Asia Pacific. In 2008, he became Chairman of UBS Saudi Arabia. From 1994 to 1998, he was the Executive
Chairman and CEO of the Australia funds management business. Before joining UBS, Mr. Fraser spent over 20
years in various positions at the Australian Treasury, including two international postings in Washington DC,
first, at the International Monetary Fund and second, as a minister (economic) at the Australian Embassy. He
was the Deputy Secretary (economic) of the Australian Treasury from 1990 to 1993. Mr. Fraser graduated from
Monash University in Australia in 1972 and holds a first-class honors degree in economics.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Fraser is a non-executive Chairperson of the Victorian Funds Management Corporation, Melbourne, and
is a member of the Board of Governors of the Marymount International School at Kingston-upon-Thames in
the UK.
Professional history and education
Carsten Kengeter was appointed co-CEO of the UBS Investment Bank and became a member of the GEB in
April 2009. He joined UBS in December 2008 and served as the joint Global Head of Fixed Income, Currencies
& Commodities (FICC) of the UBS Investment Bank until January 2010. Previously, Mr. Kengeter worked for
Goldman Sachs as the co-Head of Asia (ex-Japan) Securities division in Hong Kong. In 2003, he co-headed
the European FICC and Structured Equities Distribution in London, and in 2002 he became partner and Head
of the FICC German Region in Frankfurt. In 2000 he was made Head of the European and Asian CDO business
in London, and before that he was in derivatives marketing in Frankfurt. From 1992 to 1997, Mr. Kengeter
worked for Barclays de Zoete Wedd, setting up its credit derivatives trading desk. He graduated as Diplom-
Betriebswirt from FH Reutlingen, holds a bachelor’s in business administration from Middlesex University and
a finance and accounting MS from the London School of Economics and Political Science.
Professional history and education
Ulrich Körner was appointed Group Chief Operating Officer (COO) and CEO Corporate Center and was made
a member of the GEB in April 2009. In this function, he leads the Corporate Center. Mr. Körner was previ-
ously with Credit Suisse from 1998 and served as a member of the Credit Suisse Group executive manage-
ment in his last six years where he held various management positions, including CFO and COO. Most re-
cently, he was responsible for the entire Swiss client business as CEO of the Switzerland region. Mr. Körner
received a PhD from the University of St. Gallen in business administration and served several years as an
auditor for Price Waterhouse and management consultant for McKinsey & Company.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Körner is the Chairman of the Widder Hotel, Vice President of the BoD of Lyceum Alpinum Zuoz, member
of the Foundation Board of the UBS Pension Fund, member of the Financial Service Chapter Board of the
Swiss-American Chamber of Commerce and member of the board of the Swiss Banking Institute of the
University of Zurich.
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Philip J. Lofts
British, born 9 April 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group Chief Risk Officer
Year of initial appointment: 2008
Robert J. McCann
American (US), born 15 March 1958
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO Wealth Management Americas
Year of initial appointment: 2009
Francesco Morra
Swiss and Italian, born 31 August 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO UBS Switzerland, Wealth Management &
Swiss Bank
Year of initial appointment: 2009
Alexander Wilmot-Sitwell
British, born 16 March 1961
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Co-CEO Investment Bank
Year of initial appointment: 2008
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Professional history and education
Philip J. Lofts was appointed Group Chief Risk Officer (CRO) in November 2008. He has been with UBS for
over 20 years. In 2008, he became the Group Risk COO, after having previously been the Group Chief Credit
Officer for three years. Before this, Mr. Lofts worked for the Investment Bank in a number of business and risk
control positions in Europe, Asia Pacific and the US. He successfully completed his A-levels at Cranbrook
School. From 1981 to 1984 he was a trainee at Charterhouse Japhet plc, a merchant bank acquired by the
Royal Bank of Scotland in 1985.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Lofts is a board member of the University of Connecticut Foundation.
Professional history and education
Robert J. McCann was appointed CEO of Wealth Management Americas and became a member of the GEB
in October 2009. Before joining UBS, he worked for Merrill Lynch & Company as Vice Chairman and President
of the Global Wealth Management Group. In 2003 he served as Vice Chairman of Distribution and Marketing
for AXA Financial. He started his career with Merrill Lynch in 1982, working in various positions in capital
markets and research. From 1998 to 2000, he was the Global Head of Global Institutional Debt and Equity
Sales. In 2000 he became the COO of Global Markets and Investment Banking, and from 2001 to 2003, he
was the Head of Global Securities Research and Economics. Mr. McCann graduated with a bachelor’s in
economics from Bethany College, West Virginia. He holds an MBA from Texas Christian University, Fort Worth,
and completed the Advanced Management Program at Harvard Business School.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. McCann is a board member of the American Ireland Fund and is Vice Chairman of the Bethany College
Board of Trustees. He is a member of the No Greater Sacrifice Advisory Board and is Chairman of the Executive
Advisory Board of Sponsors for Educational Opportunity.
Professional history and education
Francesco Morra was appointed CEO of UBS Switzerland, Wealth Management & Swiss Bank, and became a
member of the GEB in 2009. In November 2007 he was appointed Head of Wealth Management Western
Europe, Mediterranean, Middle East and Africa. In addition, as of September 2008, he was responsible for the
business unit Latin America, Caribbean & Canada. Mr. Morra joined UBS in 2005 as the Head of Wealth
Management Italy and as a member of the former Group Managing Board (GMB). Before joining UBS, he held
various management positions at the Boston Consulting Group between 1992 and 2005. He holds a master’s
and PhD in economics from the University of St. Gallen.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Morra is Vice Chairman of the Swiss Bankers Association and Swiss Finance Institute. He is on the
Committee of the Zurich Chamber of Commerce.
Professional history and education
Alexander Wilmot-Sitwell was appointed co-CEO of the UBS Investment Bank in April 2009. He became a
member of the GEB in February 2008 and served as the joint Global Head of Investment Banking and
Chairman and CEO of UBS Group Europe, Middle East & Africa. In 2006, Mr. Wilmot-Sitwell became a mem-
ber of the former GMB. He joined the firm in 1996 as the Head of Corporate Finance in South Africa and
moved to London in 1998 as Head of UK Investment Banking. Mr. Wilmot-Sitwell previously worked for
Warburg Dillon Read and served as the Head of Corporate Finance at SBC Warburg in South Africa. Mr.
Wilmot-Sitwell graduated from Bristol University with a degree in modern history.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Wilmot-Sitwell is Vice President of the Save the Children Fund, London.
Professional history and education
Robert Wolf was appointed President of the UBS Investment Bank in 2007 and was COO of the UBS
Investment Bank from 2004 to 2008. Since 2007, he has also served as Chairman and CEO of UBS Group
Americas. Prior to that, Mr. Wolf served as the Global Head of Fixed Income from 2002 to 2004 and previ-
ously as Global Head of Credit Trading, Research and Distribution. He joined Union Bank of Switzerland (UBS)
in 1994, after spending approximately 10 years at Salomon Brothers in fixed income. In 1984, Mr. Wolf
graduated from the Wharton School of the University of Pennsylvania with a degree in economics.
Robert Wolf
American (US), born 8 March 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and CEO, UBS Group Americas / President
Investment Bank
Year of initial appointment: 2008
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Wolf is a member of President Obama’s Economic Recovery Advisory Board. He is a member of the
Undergraduate Executive Board of the Wharton School, the University of Pennsylvania Athletics Board of
Overseers and the Financial Services Round Table. Mr. Wolf is also a member of the Council on Foreign
Relations and the Committee Encouraging Corporate Philanthropy. He is in the Leadership Council of the
Multiple Myeloma Research Foundation, Norwalk, on the Board of Trustees of the Children’s Aid Society, New
York, and the Partnership New York City. He is a member of the Robert F. Kennedy Center for Justice & Human
Rights Leadership Council.
Professional history and education
Chi-Won Yoon became Chairman and CEO of UBS, Asia Pacific (APAC) and a member of the GEB in June
2009. He continues to serve APAC’s securities businesses such as Equities, which he headed from 2004 to
2009 and FICC, which he was brought in to lead in February 2009. Mr. Yoon, who joined UBS in 1997, began
his career in financial services eleven years earlier. He worked first at Merrill Lynch in New York and then at
Lehman Brothers in New York and Hong Kong. Before embarking on a Wall Street career, Mr. Yoon worked as
an electrical engineer in satellite communications. In 1982, Mr. Yoon earned a bachelor’s degree in electrical
engineering from the Massachusetts Institute of Technology (MIT) and in 1986, a master’s degree in manage-
ment from MIT’s Sloan School of Management. He was born in Korea.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Yoon is on the Asian Executive Board of MIT’s Sloan School of Management.
Professional history and education
Jürg Zeltner was appointed CEO Wealth Management, Wealth Management & Swiss Bank, and became a
member of the GEB in February 2009. In November 2007, he was appointed Head of Wealth Management
North, East & Central Europe and became a member of the former GMB in the same year. From 2005 to 2007,
he was CEO of UBS Deutschland, Frankfurt. Prior to that, he held various management positions in the Wealth
Management division of UBS. Between 1987 and 1998, Mr. Zeltner was with SBC in various roles within the
Private and Corporate Client division in Berne, New York and Zurich. He graduated from the School of
Economics and Business Administration in Berne and completed the Advanced Management Program at
Harvard Business School.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Zeltner is a board member of the German Swiss Chamber of Commerce and the UBS Optimus Foundation.
Chi-Won Yoon
American (US), born 2 June 1959
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and CEO Asia Pacific
Year of initial appointment: 2009
Jürg Zeltner
Swiss, born 4 May 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO Wealth Management, Wealth Management &
Swiss Bank
Year of initial appointment: 2009
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Corporate governance and compensation
Corporate governance
Responsibilities, authorities and organizational
principles of the Group Executive Board
Responsibilities and authorities of the former
Executive Committee and the new Group Asset and
Liability Management Committee
Under the leadership of the Group CEO, the GEB has ex-
ecutive management responsibility for the Group and its
business. It assumes overall responsibility for the develop-
ment of the Group and business division strategies and the
implementation of approved strategies. The GEB consti-
tutes itself as the risk council of the Group. In this function,
the GEB has overall responsibility for establishing and su-
pervising the implementation of risk management and con-
trol principles, for approving the core risk policies as pro-
posed by the Group Chief Risk Officer (Group CRO), the
Group CFO and the Group General Counsel (Group GC) as
well as for controlling the risk profile of the Group as a
whole as determined by the BoD and the RC. The GEB plays
a key role in proposing the human resources policy and the
compensation principles of the Group. In 2009, the GEB
held in total 21 meetings of which 11 were jointly with the
Executive Committee and 4 were jointly with the EC and
the Group ALCO.
➔ Refer to the Organization Regulations,
which are available at www.ubs.com/governance, for
more information on the authorities of the GEB
The EC, established in January 2009, was disbanded in Octo-
ber 2009. The EC consisted of the Group CEO, the Group
CFO, the Group COO, the Group CRO and the Group GC.
Under the leadership of the Group CEO, the EC was respon-
sible for allocating the Group’s financial resources to the
business divisions – i.e. capital, terms and availability of
funding, risk capacity and parameters – in each case within
the limits set by the BoD. Additionally, the EC set the perfor-
mance targets of the business divisions, monitored and eval-
uated them. Under the guidance of the Group CEO, the EC
prepared proposals for approval by the BoD and supported
the BoD in its decision-making process. The EC had overall
responsibility for implementing our risk management and
control principles, allocating risk capacity to the business di-
visions and controlling our overall risk profile. In 2009, the
EC held eight meetings on its own; 11 jointly with the GEB
and four with the GEB and the Group ALCO.
The GEB has delegated certain duties and responsibilities
to the new Group ALCO, as specified in the Organization
Regulations. The Group ALCO promotes the usage of our
assets and liabilities in line with our strategy, regulatory com-
mitments and interests of shareholders and other stakehold-
ers. In 2009, the Group ALCO held one meeting on its own
and four jointly with the GEB and the EC.
Management contracts
We have not entered into management contracts with any
third parties.
202
Shareholders’ participation rights
We are committed to shareholder participation in our deci-
sion-making process and aim to make such participation as
easy as possible. More than 300,000 directly registered
shareholders, as well as some 90,000 US shareholders regis-
tered via nominee companies, regularly receive written infor-
mation about our activities and performance and are per-
sonally invited to shareholder meetings.
➔ Refer to the “Information policy” section of this report for
further information on these documents
Relationships with shareholders
We fully subscribe to the principle of equal treatment of all
shareholders, who range from large investment institu-
tions to individual investors, and regularly inform them
about the development of the company of which they are
co-owners.
The AGM offers shareholders the opportunity to raise any
questions regarding our development and the events of the
year that are under review. Members of the BoD and GEB, as
well as the internal and external auditors, are present to an-
swer these questions.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting
rights. Nominee companies and trustees, who normally rep-
resent a large number of individual shareholders, may hold
an unlimited number of shares, but voting rights are limited
to a maximum of 5% of outstanding UBS shares in order to
avoid the risk of unknown shareholders with large stakes be-
ing entered in the share register. Securities clearing organiza-
tions, such as The Depository Trust Company in New York,
are not subject to the 5% voting limit.
In order to be recorded in the share register with voting
rights, shareholders must confirm that they acquired UBS
shares in their own name and for their own account. Nomi-
nee companies and trustees are required to sign an agree-
ment confirming their willingness to disclose, upon our re-
quest, individual beneficial owners holding more than 0.3%
of all issued shares.
All shareholders registered with voting rights are entitled
to participate in shareholder meetings. If they do not wish to
attend in person, they can issue instructions to accept, reject
or abstain on each individual item on the meeting agenda
either by giving instructions to an independent proxy desig-
nated by UBS, as required under Swiss company law, or by
appointing UBS, another bank or another registered share-
holder of their choice to vote on their behalf. Nominee com-
panies normally submit the proxy material to the beneficial
owners and transmit the collected votes to UBS.
Statutory quorums
Shareholder resolutions, the election and reelection of
members of the BoD and the appointment of the Group
and statutory auditors are decided at the AGM by an abso-
lute majority of the votes cast, excluding blank and invalid
ballots. Swiss company law requires that, for certain specific
issues, a majority of two-thirds of the votes represented at
the meeting must vote in favor of the resolution. These is-
sues include, among others, the creation of shares with priv-
ileged voting right, the introduction of restrictions on the
transferability of registered shares, conditional and autho-
rized capital increases, and restrictions or exclusion of share-
holders’ pre-emptive rights.
The Articles of Association also requires a two-thirds ma-
jority of votes represented for any change to its provisions
regarding the number of BoD members, and any decision to
remove one-fourth or more of the members of the BoD.
Votes and elections are normally conducted electronically
to clearly ascertain the exact number of votes cast. Voting
by a show of hands remains possible if a clear majority is
predictable. Shareholders representing at least 3% of the
votes represented may still request that a vote or election
take place electronically or by written ballot. In order to al-
low shareholders to clearly express their views on all indi-
vidual topics, each item on the agenda is put to vote sepa-
rately and BoD elections are made on a person-by-person
basis.
Convocation of general meetings of shareholders
The AGM normally takes place each year in April, but in any
case within six months of the close of the financial year. A
personal invitation including a detailed agenda and explana-
tion of each motion is sent to every registered shareholder at
least 20 days ahead of the scheduled meeting. The meeting
agenda is also published in various Swiss newspapers and on
the internet at www.ubs.com/agm.
EGMs may be convened whenever the BoD or the statu-
tory auditors consider it necessary. Shareholders individually
or jointly representing at least 10% of the share capital may,
at any time, ask in writing that an EGM be convened to deal
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Corporate governance and compensation
Corporate governance
with a specific issue put forward by them. Such a request
may also be brought forward during the AGM.
together with a short explanation, if necessary. The BoD for-
mulates opinions on the proposals, which are published to-
gether with the motions.
Placing of items on the agenda
Registrations in the share register
Shareholders individually or jointly representing shares with
an aggregate par value of CHF 62,500 may submit proposals
for matters to be placed on the agenda for consideration at
the shareholders’ meeting.
We publish the deadline for submitting such proposals in
the Swiss Official Gazette of Commerce and on our website
www.ubs.com/agm. Requests for items to be placed on the
agenda must include the actual motions to be put forward,
The general rules for being entered with voting rights in our
Swiss or US share registers also apply before general meet-
ings of shareholders. There is no “closing of the share regis-
ter” in the days before the meeting. Registrations, including
the transfer of voting rights, are processed for as long as
technically possible, normally until two days before the
meeting.
204
Change of control and defense measures
We refrain from restrictions that would hinder developments
initiated in or supported by the financial markets. We also do
not have any specific defenses in place to prevent hostile
takeovers.
Duty to make an offer
An investor who acquires more than 33 1⁄3% of all voting
rights (directly, indirectly or in concert with third parties),
whether they are exercisable or not, is required to submit a
takeover offer for all shares outstanding, according to Swiss
stock exchange law. We have not elected to change or opt
out of this rule.
Clauses on change of control
The service agreements and employment contracts with the
Chairman of the BoD and with the GEB members do not
contain change of control clauses, except for two agree-
ments with GEB members. In one clause, a change of control
would reduce the employment notice of termination period
from six to two months, and in the other clause, which was
applicable only until 1 March 2010, compensation plan
awards would be treated as if employment had ceased due
to “mutually agreed termination”.
All new employment agreements with GEB members
contain a notice of termination period of six months and no
existing GEB member has a notice of termination period lon-
ger than 12 months. During the notice of termination peri-
od, GEB members are entitled to their salary and continua-
tion of existing employment benefits.
In case of a change of control, the HRCC may, how-
ever, accelerate the vesting of restricted shares and
amend the vesting date or lapse date of options for all
employees.
According to the agreement we have entered into
with the Swiss National Bank (SNB) in connection with
the transfer of certain illiquid and other positions to a
fund owned and controlled by the SNB, in the event of a
change in control of UBS the SNB has the right but not
the obligation to require that we purchase the loan the
SNB provided to the fund at its outstanding principal
amount plus accrued interest, and that we purchase the
fund’s equity at 50% of its value at the time.
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Corporate governance and compensation
Corporate governance
Auditors
Audit is an integral part of corporate governance. While
safeguarding their independence, the external auditors
closely coordinate their work with Group Internal Audit. The
AC, and ultimately the BoD, supervises the effectiveness of
audit work.
External, independent auditors
At the 2009 AGM, Ernst & Young Ltd., Basel, (Ernst &
Young) were reelected as principal auditors for the Group
for a further one-year term of office. Ernst & Young assume
virtually all auditing functions according to laws, regulatory
requests and the “Articles of Association of UBS AG”. The
Ernst & Young lead partner in charge of the UBS audit has
been Andrew McIntyre since 2005, who will be replaced in
2010 by Jonathan Bourne due to a five-year rotation re-
quirement; Andreas Blumer has acted as the global en-
gagement partner since 2004, and his incumbency is lim-
ited to seven years. Ernst & Young will be proposed for
reelection at the AGM in 2010.
At the 2009 AGM, the former BDO Visura, Zurich, now
BDO AG, was appointed as special auditor for a three-year
term of office. The special auditors provide audit opinions
independently from the principal auditors in connection with
capital increases.
Fees paid to external independent auditors
The fees (including expenses) paid to our principal auditors
Ernst & Young, are set forth in the table below. In addition,
Ernst & Young received CHF 37,030,000 in 2009 (CHF
31,561,000 in 2008) for services performed on behalf of our
investment funds, many of which have independent fund
boards or trustees.
Audit work includes all services necessary to perform the
audit in accordance with applicable laws and generally ac-
cepted auditing standards, as well as other assurance ser-
vices that conventionally only the principal auditor can pro-
vide. These include statutory and regulatory audits, attest
services, and the review of documents to be filed with regu-
latory bodies.
Audit-related work comprises assurance and related ser-
vices that traditionally are performed by the principal audi-
tor, such as attest services related to financial reporting,
internal control reviews, performance standard reviews, con-
sultation concerning financial accounting and reporting
standards and due diligence investigations on transactions in
which we propose to engage.
Tax work involves services performed by professional
staff in Ernst & Young’s tax division, and includes tax com-
pliance, tax consultation and tax planning in respect to our
own affairs.
Fees paid to external auditors
UBS paid the following fees (including expenses) to its external auditors Ernst & Young Ltd.:
in CHF thousand
Audit
Global audit fees
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by
regulators)
Total audit
Non-audit
Audit-related fees
of which assurance and attest services
of which control and performance reports
of which advisory on accounting standards, transaction consulting including due diligence, other
Tax advisory
Other
Total non-audit
206
For the year ended
31.12.09
31.12.08
45,276
8,856
54,132
7,405
3,142
4,023
240
509
279
8,193
45,848
9,918
55,766
8,430
3,143
4,622
665
504
1,246
10,180
“Other” services are approved on an exceptional basis
only. In 2008 and 2009, they mainly comprised on-call advi-
sory services.
Pre-approval procedures and policies
To ensure Ernst & Young’s independence, all services provid-
ed by them have to be pre-approved by the AC. A pre-ap-
proval may be granted either for a specific mandate, or in
the form of a bucket pre-approval authorizing a limited and
well-defined type and amount of services.
The AC has delegated pre-approval authority to its Chair-
man; hence the Group CFO submits all proposals for services
by Ernst & Young to the Chairman of the AC for approval,
unless there is a bucket pre-approval in place. At each quar-
terly meeting, the AC is informed of the approvals granted
by its Chairman and of services authorized under bucket pre-
approvals.
Group Internal Audit
Group Internal Audit, with 313 personnel worldwide on
31 December 2009, performs the internal auditing func-
tion for the entire Group. Group Internal Audit supports
the BoD and its committees in discharging their gover-
nance responsibilities by independently assessing the ef-
fectiveness of our system of internal controls and our com-
pliance with statutory, legal and regulatory requirements.
All reports with key issues are provided to the Group CEO,
the members of the GEB responsible for the business divi-
sions and other responsible management. In addition, the
Chairman of the BoD, the RC and the AC are regularly in-
formed about important issues. Group Internal Audit
closely cooperates with internal and external legal advisors
and risk control units on investigations into major control
issues.
To maximize its independence from management, the
Head of Group Internal Audit reports directly to the Chair-
man of the BoD and to the RC. Group Internal Audit has
unrestricted access to all accounts, books, records, systems,
property and personnel, and must be provided with all infor-
mation and data needed to fulfill its auditing duties. The RC
may order special audits to be conducted. BoD members,
BoD committees or the Group CEO may submit requests for
such audits to the RC.
Coordination and close cooperation with the auditors en-
hance the efficiency of Group Internal Audit’s work.
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Corporate governance and compensation
Corporate governance
Information policy
We provide regular information to our shareholders and to
the financial community.
Financial results will be published as follows
First quarter 2010
Second quarter 2010
Third quarter 2010
4 May 2010
27 July 2010
26 October 2010
The Annual General Meeting of shareholders will
take place as follows
2010
2011
14 April 2010
20 April 2011
We meet with institutional investors worldwide throughout
the year and regularly hold results presentations, special in-
vestor seminars, road shows, individual and group meet-
ings. Where possible, meetings involve senior management
as well as members of the investor relations team. We
make use of diverse technologies such as webcasting, au-
dio links and cross-location video-conferencing to widen
our audience and maintain contact with shareholders
around the world.
Once a year, unless they explicitly choose not to, regis-
tered shareholders receive a summary of our annual report in
the form of an annual review. It provides an overview of the
firm and our activities during the year as well as key financial
information. Each quarter, shareholders are mailed a brief
update on our quarterly financial performance. Shareholders
can also request our complete financial reports, produced on
a quarterly and annual basis, free of charge.
To ensure fair access to and dissemination of our financial
information, we make our publications available to all share-
holders at the same time.
➔ Refer to www.ubs.com/investors for a complete set of
published reporting documents, the corporate calendar,
access to recent webcasts and a selection of senior
management industry conference presentations
Financial disclosure principles
Based on discussions with analysts and investors, we believe
that the market rewards companies that provide clear, con-
sistent and informative disclosure about their business.
Therefore, we aim to communicate our strategy and results
in a manner that allows shareholders and investors to gain
an understanding of how our company works, what our
growth prospects are and what risks our strategy and results
might entail. Feedback from analysts and investors is con-
tinually assessed and, where relevant, reflected in our quar-
terly and annual reports. To continue to achieve these goals,
we apply the following principles in our financial reporting
and disclosure:
– Transparency in disclosure enhances understanding of the
economic drivers and builds trust and credibility.
– Consistency in disclosure within each reporting period
and between reporting periods.
– Simplicity in disclosure allows readers to gain an under-
standing of the performance of our businesses.
– Relevance in disclosure avoids information overload by
focusing on what is required by regulation or statute and
is relevant to our stakeholders.
– Best practice in line with industry norms, leading the way
to improved standards where possible.
Financial reporting policies
We report our results after the end of every quarter, includ-
ing a breakdown of results by business division and extensive
disclosures relating to credit and market risk.
Our financial statements are prepared according to IFRS
as issued by the International Accounting Standards Board.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of this report for a
detailed explanation of the basis of UBS’s accounting
We are committed to maintaining the transparency of our
reported results and to ensuring that analysts and investors
can make meaningful comparisons with previous periods. If
there is a major reorganization of our business divisions, or if
changes to accounting standards or interpretations lead to a
material change in the Group’s reported results, our results
are restated for previous periods when required by applica-
ble accounting standards, to show how they would have
been reported according to the new basis and provide clear
explanations of all relevant changes.
US regulatory disclosure requirements
As a “foreign private issuer”, we must file reports and other
information, including certain financial reports, with the US
Securities and Exchange Commission (SEC) under the US
federal securities laws. We file an annual report on Form 20-
F, and submit our quarterly financial reports under cover of
Form 6-K to the SEC. These reports, as well as materials sent
to shareholders in connection with AGMs and EGMs, are all
available at www.ubs.com/investors.
208
On 31 December 2009, an evaluation was carried out un-
der the supervision of management including the Group CEO
and Group CFO, of the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a–15e) under the US
Securities Exchange Act of 1934. Based upon that evaluation,
the Group CEO and Group CFO concluded that our disclosure
controls and procedures were effective as of that date. No
significant changes have been made in our internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
In accordance with Section 404 of the US Sarbanes-Oxley
Act of 2002, our management is responsible for establishing
and maintaining adequate internal control over financial re-
porting. The financial statements of this report contain man-
agement’s assessment of the effectiveness of internal control
over financial reporting, as per 31 December 2009. The ex-
ternal auditors’ report on this assessment is also included in
this report.
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Corporate governance and compensation
Corporate governance
Regulation and supervision
As a Swiss-registered company, our home country regulator
and consolidated supervisor is FINMA. However, our opera-
tions are global and are therefore regulated and supervised
by the relevant authorities in each of the jurisdictions in
which we conduct business. The next sections describe the
regulation and supervision of our business in Switzerland,
our home market, and the regulatory and supervisory envi-
ronments in the US and the UK, our next two largest areas
of operations.
Regulation and supervision in Switzerland
Swiss Federal Legislation
We are regulated by the Swiss Federal Law relating to Banks
and Savings Banks of 8 November 1934, as amended, and
the related Implementing Ordinance of 17 May 1972, as
amended, which are together known as the Federal Bank-
ing Law. Depending on the license obtained under this law,
banks in Switzerland may engage in a full range of financial
services activities, including commercial banking, invest-
ment banking and asset management. Banking groups
may also engage in insurance activities, but these must
be undertaken through a separate subsidiary. The Federal
Banking Law establishes a framework for supervision by
FINMA.
Switzerland implemented the internationally agreed
capital adequacy rules of the Basel Capital Accord (Basel II)
by means of the Capital Adequacy Ordinance of 29 Sep-
tember 2006, and subsequent FINMA circulars. Switzerland
imposes a more differentiated and tighter regime than the
internationally agreed rules, including more stringent risk
weights. Capital requirements for the two large banks, UBS
and Credit Suisse, exceed the Swiss minimum due to a
mandatory capital buffer under Basel II. The revised decree
on capital requirements issued at the end of 2008 increased
the risk-based buffer and complemented it with a leverage
ratio requirement, i.e. a minimum ratio of capital and bal-
ance sheet assets.
Regulation by the Swiss Financial Market Supervisory
Authority
FINMA is strongly involved in the shaping of the legislative
framework for banks, especially through the following
mechanisms:
– FINMA has substantial influence on the drafting of Swiss
federal acts and ordinances from the Federal Council or
the parliament (e.g. the Ordinance on the Money Launder-
ing Reporting Office dated 25 August 2004, as amended).
– On a more technical level, FINMA is empowered to issue
its own ordinances and circulars, 55 of which are pres-
ently effective. These include, for example, FINMA-Circu-
lar 08 / 38 on Market Behavior, FINMA-Circular 08 / 24 on
Supervision and Internal Controls at Banks, and FINMA-
Circular 09 / 1 on Guidelines on Asset Management.
Self-regulation by the SIX Swiss Exchange and the
Swiss Bankers Association
Certain aspects of securities brokering, such as the organi-
zation of trading, are subject to self-regulation through the
SIX Swiss Exchange, under the overall supervision of FINMA.
Examples are:
– the Listing Regulations of 24 January 1996, as amended
on 1 July 2009, and the General Conditions dated 31
March 2009; and
– the Directive on the Disclosure of Management Transac-
tions of 29 October 2008.
FINMA also officially endorses self-regulatory guidelines is-
sued by the banking industry (through the Swiss Bankers As-
sociation), making them an integral part of banking regula-
tion. Examples are:
– Directives on Fiduciary Investments, 2009;
– Agreement on the Swiss banks’ Code of Conduct with
regard to the Exercise of Due Diligence, 2008;
– Directives on the Independence of Financial Research,
2008;
– Guidelines on the Simplified Prospectus for Structured
➔ Refer to the “Capital management” section of this report
Products, 2007;
for more details about capital requirements
– Agreement of Swiss Banks on Deposit Insurance, 2005;
The Federal Act of 10 October 1997 on the Prevention of
Money Laundering in the Financial Sector (Anti-Money Laun-
dering Act, AMLA) lays down a common standard for due
diligence obligations for the whole financial sector which
must be met to prevent money laundering.
and
– Guidelines on the Handling of Dormant Accounts, Cus-
tody Accounts and Safe-Deposit Boxes Held in Swiss
Banks, 2000.
In our capacity as a securities broker, we are governed by
the Swiss Federal Law on Stock Exchanges and Securities
Trading of 24 March 1995, as amended. FINMA is the com-
petent supervisory authority.
Two-tier system of supervision and direct supervision of
UBS and Credit Suisse
Generally, supervision in Switzerland is based on a division
of tasks between FINMA and a number of authorized audit
210
firms. Under this two-tier supervisory system, FINMA has
the responsibility for overall supervision and enforcement
measures while the authorized audit firms carry out official
duties on behalf of, and subject to, sanctions imposed by
FINMA. The responsibility of external auditors encompasses
the audit of financial statements, the reviewing of banks’
compliance with all prudential requirements and on-site
audits.
Because of their importance to the Swiss financial system,
UBS and Credit Suisse are directly supervised by dedicated
teams at FINMA. The regime of direct supervision is regulat-
ed by the FINMA-Circular 08 / 9 on the Supervision of Large
Banking Groups. Supervisory tools include schedules of
meetings with management and information exchange en-
compassing all control and business areas, independent as-
sessments through review activities, and a regular exchange
of views with internal audit functions, external auditors and
important host supervisors.
Direct supervision is performed by FINMA’s Supervision of
Large Banks section, which assigns a dedicated supervisory
team to each of the two large banking groups. These firm-
specific teams are supported by teams specifically monitor-
ing the investment banking, wealth management and asset
management businesses across the large banking groups,
and the Risk Management, and Solvency and Capital sec-
tions.
Disclosures to the Swiss National Bank
While Switzerland’s banks are primarily supervised by FIN-
MA, compliance with liquidity rules is monitored by the SNB.
The SNB also takes a direct interest in the stress testing prac-
tice of both large banks. Liquidity regulation is currently be-
ing reformed.
➔ Refer to the “Liquidity and funding management” section
of this report for more details about liquidity requirements
Regulation and supervision in the US
Banking regulation
Our operations in the US are subject to a variety of regula-
tory regimes. We maintain branches of UBS AG in California,
Connecticut, Florida, Illinois and New York. The branches lo-
cated in California, Florida and New York are federally li-
censed by the Office of the Comptroller of the Currency.
Branches located in Connecticut and Illinois are licensed by
the state banking authority of the state in which the branch
is located. Each US branch is subject to regulation and ex-
amination by its licensing authority. We also maintain state
and federally chartered trust companies and other limited
purpose banks, which are regulated by state regulators or
the Office of the Comptroller of the Currency. In addition,
the Board of Governors of the Federal Reserve System exer-
cises examination and regulatory authority over our state-
licensed US branches. Only the deposits of our subsidiary
bank located in the state of Utah are insured by the Federal
Deposit Insurance Corporation. The regulation of our US
branches and subsidiaries imposes restrictions on the activi-
ties of those branches and subsidiaries, as well as prudential
restrictions, such as limits on extensions of credit to a single
borrower, including UBS subsidiaries and affiliates.
The licensing authority of each US branch has the author-
ity, in certain circumstances, to take possession of the busi-
ness and property of UBS located in the state of the office it
licenses. Such circumstances generally include violations of
law, unsafe business practices and insolvency. As long as we
maintain one or more federal branches, the Office of the
Comptroller of the Currency also has the authority to take
possession of the US operations of UBS AG under similar
circumstances, and this federal power may pre-empt the
state insolvency regimes that would otherwise be applicable
to our state-licensed branches. As a result, if the Office of
the Comptroller of the Currency exercised its authority over
the US branches of UBS AG, pursuant to federal law in the
event of a UBS insolvency, all assets of the US branches of
UBS AG would most likely be applied first to satisfy creditors
of these US branches as a group, and then made available
for application pursuant to any Swiss insolvency proceeding.
In addition to the direct regulation of our US banking
offices, because we operate US branches, we are subject
to oversight regulation by the Board of Governors of the
Federal Reserve System under various laws (including the
International Banking Act of 1978 and the Bank Holding
Company Act of 1956). On 10 April 2000, UBS AG was
designated a “financial holding company” under the Bank
Holding Company Act of 1956. Financial holding companies
may engage in a broader spectrum of activities than bank
holding companies or foreign banking organizations that are
not financial holding companies, including underwriting and
dealing in securities. To maintain our financial holding com-
pany status, (i) UBS, our US subsidiary federally chartered
trust company and our US subsidiary bank located in Utah
are required to meet certain capital ratios, (ii) our US branch-
es, our US subsidiary federally chartered trust company, and
our US subsidiary bank located in Utah are required to meet
certain examination ratings, and (iii) our subsidiary bank in
Utah is required to maintain a rating of at least “satisfacto-
ry” under the Community Reinvestment Act of 1997. A ma-
jor focus of US governmental policy relating to financial in-
stitutions in recent years has been aimed at fighting money
laundering and terrorist financing. Regulations applicable to
UBS and our subsidiaries impose obligations to maintain ef-
fective policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing and to
verify the identity of their clients. Failure of a financial institu-
tion to maintain and implement adequate programs to com-
bat money laundering and terrorist financing could have se-
rious consequences for the firm, both in legal terms and in
terms of our reputation.
211
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Corporate governance and compensation
Corporate governance
US regulation of other US operations
In the US, UBS Securities LLC and UBS Financial Services Inc.,
as well as our other US-registered broker-dealer entities, are
subject to regulations that cover all aspects of the securities
business, including: sales methods; trade practices among
broker-dealers; use and safekeeping of clients’ funds and
securities; capital structure; record-keeping; the financing of
clients’ purchases; and the conduct of directors, officers and
employees.
These entities are regulated by a number of different gov-
ernment agencies and self-regulatory organizations, includ-
ing the SEC and the Financial Industry Regulatory Authority
(FINRA). Depending on the specific nature of a broker-deal-
er’s business, it may also be regulated by some or all of the
NYSE, the Municipal Securities Rulemaking Board, the US
Department of the Treasury, the Commodities Futures Trad-
ing Commission and other exchanges of which it may be a
member. In addition, the US states, provinces and territories
have local securities commissions that regulate and monitor
activities in the interest of investor protection. These regula-
tors have a variety of sanctions available, including the au-
thority to conduct administrative proceedings that can result
in censure, fines, the issuance of cease-and-desist orders or
the suspension or expulsion of the broker-dealer or its direc-
tors, officers or employees.
Created in July 2007 through the consolidation of the
National Association of Securities Dealers and the member
regulation, enforcement and arbitration functions of the
NYSE, FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and com-
plementary compliance and technology-based services.
FINRA covers a broad spectrum of securities businesses,
including: registering and educating industry participants;
examining securities firms; writing rules; enforcing those
rules and the federal securities laws; informing and educat-
ing the investing public; providing trade reporting and other
industry utilities; and administering a dispute resolution fo-
rum for investors and registered firms. It also performs mar-
ket regulation under contract for the NASDAQ Stock Mar-
ket, the American Stock Exchange and the Chicago Climate
Exchange.
Regulation and supervision in the UK
Our operations in the UK are regulated by the Financial Ser-
vices Authority (FSA), which establishes a regime of rules and
guidance governing all relevant aspects of financial services
businesses.
The FSA has established a risk-based approach to supervi-
sion and has a wide variety of supervisory tools available to
it, including regular risk assessments, on-site inspections
(which may relate to an industry-wide theme or be firm-spe-
cific) and the ability to commission reports by skilled persons
(who may be the firm’s auditors, IT specialists, lawyers or
other consultants as appropriate). The FSA also has an ex-
tremely wide set of sanctions which it may impose under the
Financial Services and Markets Act 2000, broadly similar to
those available to US regulators.
Some of our subsidiaries and affiliates are also regulated
by the London Stock Exchange and other UK securities and
commodities exchanges of which we are a member. We are
also subject to the requirements of the UK Panel on Take-
overs and Mergers, where relevant.
Financial services regulation in the UK is conducted in ac-
cordance with European Union directives which require,
among other things, compliance with certain capital ade-
quacy standards, client protection requirements and conduct
of business rules (such as Markets in Financial Instruments
Directive). These directives apply throughout the European
Union and are reflected in the regulatory regimes of the var-
ious member states. The standards, rules and requirements
established under these directives are broadly comparable in
scope and purpose to the regulatory capital and client pro-
tection requirements imposed under applicable US law.
212
Compliance with NYSE listing standards on
corporate governance
As a Swiss company listed on the NYSE, we comply with the
NYSE corporate governance standards for foreign private
issuers.
➔ Refer to the “Board of Directors” section of this report for
further information on these committees – including their
mandates, responsibilities and authorities – as well as their
Independence of directors
Based on the listing standards of the NYSE, our BoD has es-
tablished specific criteria for defining the independence of
our external members. Each external director has to person-
ally confirm his or her compliance with the criteria, which are
published on our website under www.ubs.com/governance.
All current external members have been confirmed by the
BoD as having no material relationship with UBS, either directly
or as a partner, controlling shareholder or executive officer of
a company that has a relationship with UBS. Currently all
members of the BoD are external, with the exception of the
Chairman. Each of the external members has also met all the
BoD and NYSE requirements with respect to independence.
The NYSE has more stringent independence requirements
for members of audit committees. All three members of our
AC are external BoD members who, in addition to satisfying
the above criteria, do not: receive, directly or indirectly, any
consulting, advisory or other compensatory fees from UBS
other than in their capacity as directors; hold, directly or in-
directly, UBS shares in excess of 5% of the outstanding ca-
pital; or (except as noted below) serve on the audit com-
mittees of more than two other public companies. These
members are William G. Parrett, Ann F. Godbehere and Mi-
chel Demaré. The NYSE guidelines allow for an exemption
for AC members to sit on more than three audit committees
of public companies, provided that all members of the BoD
determine that the candidate has the time and the availabil-
ity to fulfill his or her obligations. Considering the credentials
of William G. Parrett, and the fact that he has retired from
his executive functions, the BoD has granted this exemption
in his case.
Board of Directors and its committees
We operate under a strict dual board structure mandated by
Swiss banking law. No member of the GEB may also be a
member of the BoD and vice versa. This structure ensures
the institutional independence of the entire BoD from the
day-to-day management. UBS has established committees
for the following BoD mandates: audit; human resources
and compensation; governance and nominating; risk and
corporate responsibility.
activities during 2009
In addition, the BoD elects at least one Vice Chairman who
must be independent and who acts as the Senior Indepen-
dent Director. Sergio Marchionne assumed these roles in
2009. Mr. Marchionne will not stand for reelection to the
BoD at the AGM in April 2010. The BoD may elect another
Vice Chairman who does not need to be independent, but
has not done so this time. More details about the Vice Chair-
man function can be found in the Organization Regulations,
which are published on www.ubs.com/governance.
The BoD has adopted Organization Regulations that con-
stitute our corporate governance guidelines, which include
all matters required by the NYSE rules. The BoD has also ad-
opted a “Code of Business Conduct and Ethics”. Both the
Organization Regulations and the “Code of Business Con-
duct and Ethics” are available on our website at www.ubs.
com/governance. In addition, the AC has established rules
for the handling of complaints related to accounting and
auditing matters, the internal policies on “Whistleblowing
Protection for Employees” and “Compliance with Attorney
Standards of Professional Conduct”.
Differences from corporate governance standards
relevant to US listed companies
According to the NYSE listing standards on corporate gover-
nance, foreign private issuers have to disclose any significant
ways in which their corporate governance practices differ
from those to be followed by domestic companies.
Responsibility of the Audit Committee for appointment,
compensation, retention and oversight of the independent
auditors
Our AC has been assigned all the abovementioned respon-
sibilities, except for appointment of the independent audi-
tors, which are elected by the shareholders as per Swiss
company law. The AC assesses the performance and qua-
lification of the external auditors and submits its proposal
for appointment, re-appointment or removal to the full
BoD, which brings its proposal to the shareholders for vote
at the AGM.
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Corporate governance and compensation
Corporate governance
Discussion of risk assessment and risk management policies
by the Risk Committee
In accordance with our Organization Regulations, the RC
has the authority to define our risk principles and risk capac-
ity. The RC is responsible for monitoring our adherence to
those risk principles and for monitoring whether business
and control units run appropriate systems for the manage-
ment and control of risks.
Assistance by Risk Committee of the internal audit function
Both the Chairman and the RC have the responsibility for
and authority to supervise the internal audit function.
Responsibility of the Human Resources and Compensation
Committee for oversight of management and evaluation
by the Board of Directors
Performance evaluations of our senior management, com-
prising the Group CEO and the members of the GEB, are
completed by the Chairman of the BoD and the HRCC and
reported to the full BoD. All BoD committees perform a self-
assessment of their activities and report back to the full BoD.
The BoD has direct responsibility and authority to evaluate its
own performance, without preparation by a BoD committee.
Proxy statement reports of the Audit and Human Resources
and Compensation Committees
Under Swiss company law, all reports addressed to share-
holders are provided and signed by the full BoD, which has
ultimate responsibility vis-à-vis shareholders. The commit-
tees submit their reports to the full BoD.
Shareholders’ votes on Equity Compensation Plans
Swiss company law authorizes the BoD to approve compen-
sation plans. Though Swiss law does not allocate such au-
thority to the AGM, it requires that Swiss companies deter-
mine capital in their articles of association and each increase
of capital is required to be submitted for shareholders’ ap-
proval. This means that, if equity-based compensation plans
result in a need for a capital increase, AGM approval is man-
datory. If, however, shares for such plans are purchased in
the market, shareholders do not have the authority to vote
on their approval.
214
Advisory vote
Compensation and shareholdings
The UBS Total Reward Principles are designed to align employees’ interests with those of shareholders – the
creation of long-term value and sustainable shareholder returns. These principles, reproduced in full at
the end of the report, are established by the Human Resources and Compensation Committee of the Board of
Directors, and provide the basis for 2009 compensation practices.
Letter from the Human Resources and Compensation Committee
of the Board of Directors
Dear Shareholders
Throughout 2009, the new UBS has
faced the crucial challenge of rebuild-
ing its key businesses, regaining the
trust of shareholders and clients and
establishing and developing the pursuit
of its longer term strategy to bring
about sustained profitability. All these
factors taken together have under-
scored the need to attract and retain
key talent, which is critical to attaining
our strategic goals. At the same time,
the increased competitive market
pressures, extensive regulatory
oversight and a rapidly changing
commercial environment have also
continued. Our approach to providing
both a robust and impactful compen-
sation and talent framework has
certainly been affected by these often
competing pressures.
At the start of 2009, in response to
lessons learned from the financial
crisis, UBS acted as a forerunner in
implementing a new executive
compensation framework. The
framework, which is now in place,
incorporates significant deferral for
senior management and places more
emphasis on compensation at risk.
We also integrated the focus on
“economic profit” as a key driver of
compensation accruals. During the
year, and building on work already
started in 2008, we revised the Total
Reward Principles, which summarize
the compensation principles for all
UBS employees. These principles focus
on a number of long-standing drivers
including risk awareness, effective risk
and capital management, sustainable
profitability, and client focus. They
also highlight the importance of
deferred pay, and include additional
forfeiture clauses in order to better
align employee compensation with
medium and longer-term shareholder
value.
Rewards based on longer-term risk-
adjusted performance, especially for key
senior management, has increased in
importance. Thus for 2009 perfor-
mance year, the first awards have
recently been granted to GEB members
under the Performance Equity Plan
and the Cash Balance Plan introduced
at last year’s AGM. In addition the
Incentive Performance Plan has been
introduced as a key long-term perfor-
mance and retention tool in 2010. The
IPP is specifically designed to reward
participants whose performance can be
linked to adding sustainable value to
UBS over the next five years.
We will again hold an advisory vote on
compensation at the AGM in April
2010. Shareholder participation in
compensation matters remains crucial
and, as such, shareholders will be
asked to vote on the 2009 compensa-
tion report.
long-term performance. We continu-
ally assess the alignment of our
compensation framework with
shareholder interests, the ability of
that framework to withstand a
fluctuating market and its effective-
ness at supporting the execution of
the firm’s people strategy. We have
closely followed international develop-
ments in compensation, and are
compliant with the frameworks
defined by the Financial Stability Board
and FINMA, as well as those in other
jurisdictions where we have a substan-
tial presence. In 2009, we extended
our HRCC charter to reflect a greater
scope of responsibility, particularly in
relation to business risks.
While developments in this area
continue, we are confident that our
compensation framework for 2009,
and the resultant overall compensa-
tion program achieved the appropriate
balance between the demands of our
strategic goals, our economic position-
ing, general market conditions and
the need to effectively reward and
incent our talent – the most important
resource to achieving our long-term
goals.
The HRCC and the full BoD are
committed to reinforcing the relation-
ship between compensation and
Sally Bott
Chairman of the HRCC
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Advisory vote
Corporate governance and compensation
Compensation and shareholdings
Compensation governance
Human Resources and Compensation Committee
The HRCC is composed of three independent members of
the BoD. On 31 December 2009, the members were Sally
Bott (committee chair), Bruno Gehrig and Helmut Panke.
Hostettler & Partner AG provided independent external ad-
vice to the committee and Towers Perrin supported the com-
mittee with market data during the year.
Authorities and responsibilities
The HRCC is responsible for reviewing the Total Reward Prin-
ciples and for submitting them to the BoD. Additionally, on
behalf of the BoD, the committee has the following key
areas of responsibility:
– reviewing and approving the design of the total compen-
sation framework, including compensation strategy, pro-
grams and plans, and proposing significant changes to
plans and new plans to the BoD for approval;
– defining the relationship between compensation and per-
formance;
– reviewing variable incentive funding throughout the year
and proposing the final outcome to the BoD for approval;
– approving base salaries and annual incentive awards for
GEB members, excluding the Group CEO whose compen-
sation needs to be approved by the BoD upon recommen-
dation by the HRCC;
– proposing individual GEB appointments to the BoD and
approving the associated employment agreements; and
– working with the Governance and Nominating Commit-
tee and the full BoD on reviewing succession plans for
GEB members including the Group CEO.
In addition, the HRCC charter was amended in 2009 to
reflect the changing regulatory environment, in particular
the need to review compensation structures with human re-
sources (HR) and the risk management function to ensure
they do not encourage excessive or unnecessary risk-taking.
Authorities for compensation-related decisions are gov-
erned by the “Organization Regulations of UBS AG” (Organi-
zation Regulations), “Annex B – Responsibilities and authori-
ties”, and “Annex C – Charter for the committees of the
Board of Directors of UBS AG”. The structure is shown below.
Compensation authorities
Recipients
Compensation recommendations
developed by
Approved by
Communicated by
Chairman of the BoD
Chairman of the HRCC 1
Group CEO
Chairman of the BoD / HRCC
Members of the GEB
Group CEO
Independent BoD members
(remuneration system and fees)
Chairman of the BoD / HRCC
HRCC
BoD
HRCC
BoD
HRCC
HRCC
Group CEO
Chairman of the BoD
Recipients
Variable compensation recommendations
developed by
Approved by
Communicated by
Employees (excl. GEB)
Respective member of the GEB together
with functional management team
Divisional pools: HRCC
Overall: Board of Directors
Line Manager
1 The Human Resources and Compensation Committee.
216
Advisory vote
The 2010 non-binding vote on the compensation report
We value the opinions of our shareholders and, at the AGM
to be held in April 2010, we will provide shareholders with
an opportunity to express their views through a vote on this
compensation report. As the ultimate decision on compen-
sation is legally within the powers of the BoD, such a vote is
non-binding and advisory in nature. We believe that this
vote presents a meaningful way of involving our sharehold-
ers in compensation matters. We also encourage sharehold-
ers to share their views regarding our compensation pro-
grams and related matters directly with BoD members by
contacting the Company Secretary.
Decision-making process for Group Executive Board Member
Total Compensation
One of the most important responsibilities of the HRCC is
to decide and approve the actual amount of variable cash
and equity compensation to be awarded to each GEB
member for performance during 2009. This relies on a
detailed and balanced review of not only Group per-
formance, but also that of the relevant business division
and also the impact of specific individuals. It considers
Group and divisional performance information (economic
profit, other financial and non-financial factors such as
leadership effectiveness, strategy execution, reputation
impact, etc.) performance assessments from the Board, ini-
tial compensation recommendations from the Group CEO,
contractual and related commitments and relevant market
data.
Final decisions regarding compensation for each of the
members reflected both management and the HRCC’s desire
to appropriately recognize performance in this difficult year
but also to be necessarily constrained in light of absolute and
relative overall performance.
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Corporate governance and compensation
Compensation and shareholdings
Total Reward Principles
In September 2009, revised Group-wide Total Reward Prin-
ciples were approved by the BoD following a review by the
GEB and a proposal by the HRCC. The Total Reward Princi-
ples summarize the compensation structure for all UBS em-
ployees. While the principles reflect recent regulatory devel-
opments, they also focus on long-standing drivers including
reward for performance, sustainable profitability, effective
risk and capital management, outstanding client focus and
teamwork as well as sound governance practices. They also
build on our strategy of enhancing reputation, integration
and execution.
The reward structure aims to:
– align reward with sustainable performance;
– support appropriate and controlled risk taking;
– foster effective individual performance management and
communication; and
– attract and engage a diverse, talented workforce.
Align reward with sustainable performance
Within the context of UBS as a whole and the markets in
which we operate, the sustainable performance of an em-
ployee’s business division is a key component of reward. In
considering the Group and business division performance, a
range of factors will be taken into account including finan-
cial results, risk, capital usage, market positioning and the
views of shareholders and other stakeholders. Assessment
will focus on both current key performance indicators, and
the long-term actions that preserve and improve our ability
to deliver value in the future.
Business division reward recommendations are deter-
mined in consultation between the Group CEO and the
CEO(s) of each division, as advised by the Group CFO, Group
Head HR and, where appropriate, Group Risk. Proposals rec-
ommended by the Group CEO are reviewed by the HRCC
and final approval is provided by the BoD.
Support appropriate and controlled risk taking
Rewards are consistent with our risk framework and toler-
ance. Performance reviews recognize the different risk pro-
file and nature of each business, including additional fac-
tors such as the quality and time-horizon of earnings, the
nature of the relevant industry segment and competitive
trends.
Employees are rewarded for achievement against a range
of financial and non-financial objectives, and not only on
the basis of individual revenues. Extraordinary profits, as
well as losses, are examined in the context of the track re-
cord of an employee’s performance, risk management and
market conditions, and measurement of performance will
be adjusted for activities and future risks that are not ade-
quately reflected in annual profits. Rewards determined for
risk, compliance and control functions are determined inde-
pendently from the revenue producers they supervise and
support.
Foster effective individual performance management and
communication
Beyond contribution to business results and achievement of
individual performance objectives, rewards also take into ac-
count:
– observing our corporate values and principles;
– implementing our strategy of enhancing reputation, inte-
gration and execution;
– demonstrating leadership of clients, business, people and
change;
– leading and supporting effective collaboration and team-
work;
– actively managing risk and professional behavior;
and
– finding the appropriate balance between risk and re-
ward.
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Attract and engage a diverse, talented workforce
Our reward structure is designed to provide talented em-
ployees with rewards that are appropriately balanced be-
tween fixed and variable elements, that are competitive
within the market and are paid out over an appropriate pe-
riod of time.
Given the importance of these principles, they are repro-
duced in their entirety at the end of this report. As previ-
ously mentioned, these principles form the foundation for
our overall compensation framework and program in 2009.
Components of compensation
In general, total compensation comprises an annual base sal-
ary, reflecting the individual’s role, skills and knowledge, local
market-based benefits and, where applicable, a discretionary
incentive award. Base salary levels are sufficient to allow for
a flexible discretionary incentive policy. Discretionary annual
incentives may vary from year to year, particularly for senior
revenue producers and more highly paid employees. Discre-
tionary incentive awards may be split between immediate
cash and long-term awards to be granted in the form of ei-
ther deferred UBS equity or deferred cash. The proportion of
deferred incentive awards generally vest over three years,
and increase with total compensation in order to maintain
focus on our long-term profitability and continued responsi-
ble behavior of the employee. Stock options and / or appre-
ciation rights may be awarded as part of total reward to rec-
ognize the capabilities of key employees who are expected to
carry out our strategic objectives. For employees in senior po-
sitions, reward focus is founded on sustainable long-term
profitability that may require the application of multi-year
performance conditions to recognize outstanding perfor-
mance. Guaranteed incentive awards are used only excep-
tionally and are generally limited to a one-year duration.
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Corporate governance and compensation
Compensation and shareholdings
Cash and equity incentives
Compensation plan awards
This section describes key features of the deferred compen-
sation plans that are used to deliver variable incentive awards
to members of the GEB and other employees.
Cash Balance Plan
The CBP applies to GEB members only and is designed as one
of several tools to ensure that GEB compensation is directly
and tightly linked to performance over the longer term. This
ensures that the effect of risk events which occur after grant
are fully captured “over the life of the instrument”. As such,
the CBP relies on a cash deferral system. Generally, 50% of a
GEB member’s variable incentive is delivered via the CBP.
Of that amount, the plan allows for a maximum payout
of only 60% in March 2010, and is subject to an additional
cash-cap. A minimum of 40% of a cash incentive award is
deferred and paid out during the two following years subject
to forfeiture, i.e. the entire cash incentive is only paid out
over a three-year period.
The forfeiture provisions allow for unvested awards to be
reduced (including to nil) in certain events including termina-
tion for cause, certain financial losses, behavior that contrib-
utes substantially to a material restatement of financial results
or to harm to UBS’s reputation, breaches of legal or regulatory
requirements or of risk and compliance policies, and a number
of other events such as solicitation of staff or clients and dis-
closure of proprietary information. Therefore, if an executive
leaves UBS, any remaining balance in the plan will be kept at
risk until the time called for by the plan.
Performance Equity Plan
The PEP applies to GEB members and is one of two deferred
equity components that comprise the remaining 50% of their
variable incentive award. This plan focuses on creating mid- to
long-term added value over a three-year period. At the start of
the performance period, executives are granted a certain num-
ber of restricted performance shares that, subject to the
achievement of predefined economic profit and total share-
holder return targets at a Group level cliff vest after three years.
The number of vested shares can be between zero and two
times the number of the initially granted shares, and depends
on achievement against two referenced performance targets:
– Economic profit (EP) is a market-recognized standard for
measuring risk-adjusted profit. It is an internal measure
which is broadly calculated by subtracting the cost of eq-
uity from the annual net profit attributable to UBS share-
holders. EP is only realized when the return on capital
achieved is greater than the firm’s cost of capital.
– Total shareholder return (TSR) measures the total return of
a UBS share, i.e. both the dividend yield and the capital
appreciation of the share price. TSR is measured over a
three-year period relative to the Dow Jones Banks Titans
30 Index©, a global index comprising the top 30 compa-
nies in the banking sector as defined by Dow Jones. The
Dow Jones Banks Titans 30 Index© has been chosen as a
TSR measure because of its relevance to UBS (banking), its
transparency (known listed companies), and its sector cov-
erage (30 leading global banks assessed by market capi-
talization, revenues, and net profit), as well as for its ob-
jectivity and independence (managed by Dow Jones).
The three-year target performance levels were set after
consideration of our strategic business plan.
Vesting is subject to continued employment with UBS.
The awards are also subject to forfeiture in certain circum-
stances, including in the event of certain harmful acts, such
as breaches of legal, regulatory and compliance standards or
behavior that contributes substantially to a material financial
loss, restatement or reputational risk.
Incentive Performance Plan
The IPP, which applies to GEB members and certain other
senior employees, is designed to be aligned with the long-
term performance and value of UBS shares. The award is
granted to senior key talent who are actively leading the
drive to achieve sustained profitability at UBS and who are
expected to contribute most significantly to our long-term
future and economic success. The IPP acknowledges the
strategic importance of retaining our key talents, returning
to leading performance levels in all of our businesses and
growing the UBS share price.
Participants are granted a certain number of restricted
performance shares that cliff vest after five years. The num-
ber of vested shares can be between one and three times the
number of initially granted performance shares, depending
on the achievement of the share price target (i.e. share price
at the end of the five-year performance period adjusted for
dividends). Vesting is subject to continued employment with
UBS. The awards are subject to the same forfeiture provi-
sions outlined above in relation to PEP awards.
Equity Ownership Plan / Senior Executive Equity
Ownership Plan
Eligible employees receive a portion of their annual variable
compensation above a certain threshold in the form of a
mandatory Equity Ownership Plan (EOP) award. This award
can be in actual UBS shares or in notional UBS shares. For
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certain employees in the Global Asset Management business
only, a percentage of their variable incentive award that
would have been delivered in UBS shares was instead grant-
ed over a specifically created Alternative Investment Vehicle.
The vesting and forfeiture provisions of these awards mirror
those of EOP.
EOP awards vest in one-third increments over a three-year
vesting period, subject to certain conditions. In early 2009,
and again in 2010, a small number of senior employees
received a portion of their variable compensation in UBS
shares or notional UBS shares under the related Senior Ex-
ecutive Equity Ownership Plan (SEEOP). These shares vest in
one-fifth increments over a five-year vesting period, subject
to certain conditions.
For awards granted in 2010 for the 2009 performance
year, we decided to raise the deferral level in keeping with
industry trends and regulatory considerations and our desire
to enhance further the link between pay and longer term
performance and alignment with shareholder interests. Par-
ticipation in the deferral program affected all employees
with total compensation over a threshold. Further a “cash-
cap” on variable cash payments was also introduced for this
year. In addition, the forfeiture provisions of EOP and SEEOP
have been broadened to include forfeiture in the event of
certain harmful acts, such as breach of legal, regulatory and
compliance standards or individual behavior that contributes
substantially to a material financial loss, restatement or repu-
tational risk.
Conditional Variable Compensation Plan
As part of the constrained 2008 compensation program, the
firm implemented CVCP as a one-time forward looking com-
pensation plan. Under this program awards were granted to
certain employees (excluding GEB members) in second quar-
ter 2009. These awards constituted a contingent right to re-
ceive cash at vesting, subject to the satisfaction of predefined
performance conditions, and were scheduled to vest in three
equal tranches over a three-year period.
Under the CVCP, a tranche is forfeited if either the Group
or the relevant business division has no profit in the financial
year preceding the year of vesting (or if there is any govern-
ment recapitalization during the vesting period). Following
the announcement of the UBS financial results for 2009, the
first tranche of the CVCP award has been forfeited as the
critical performance condition – a net profit for 2009 defined
according to IFRS – was not met. For 2009, 9,500 employees
forfeited CVCP awards amounting to approximately CHF 300
million. The remaining two tranches will continue to vest,
subject generally to continued employment with UBS and to
the defined requirements being met in subsequent years.
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Corporate governance and compensation
Compensation and shareholdings
Variable compensation funding framework
Overview
Following approval of the revised Total Reward Principles, we
also reviewed the framework used to fund variable compen-
sation. This year, we amended our variable compensation
funding framework to explicitly further take into consider-
ation factors such as profitability after deducting cost of cap-
ital and also the underlying business risk.
The variable compensation pool for each division is based
on the fully costed economic profit performance together
with relevant key performance indicators and other qualita-
tive measures. This includes market-driven needs mainly
evaluated by competitive benchmarking. These adjustments
are necessary in certain business areas where the economic
contribution is currently insufficient, but where we decide,
based on our long-term strategy, to remain and build our
business. The use of performance-driven pool funding,
based on risk-adjusted profit, is in line with our view of how
to set the most effective compensation strategies and also
with new regulatory requirements.
Market driven pool funding
Within UBS, not all units achieved a satisfactory level of eco-
nomic contribution in 2009. However, achievement of our
strategic goals including offering a greater integrated firm to
our clients calls for us to continue investment in these lines
of business. Different businesses are at different stages of
development and different places on a profitability spec-
trum. Further, competitors are emerging from the global
economic crisis at differing paces which is creating signifi-
cant compensation tension. Our compensation system needs
to be able to anticipate and respond to these pressures in
order to maintain our ability to attract and retain key talent.
We need to be able to react decisively by maintaining the
flexibility to pay top-performing individuals adequately and
appropriately by taking into account predefined personal
objectives, and achievements against other relevant key
performance indicators, as set out in the Total Reward Prin-
ciples.
Benchmarking against peers
Compensation and benefit levels are primarily result-driven
and further benchmarked against appropriate peers. These
companies are selected for the similarity of their core business
to that of UBS, as well as for comparable size, geographic
distribution, business strategy and performance. Typically,
these are also the companies from which we are most likely to
hire and to which we are most likely to lose employees. When
benchmarking GEB members, generally ten peers are consid-
ered to represent the most relevant labor market for compen-
sation namely Bank of America Merrill Lynch, Barclays, Citi-
group, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC,
JPMorgan Chase, Morgan Stanley and RBS. In the view of the
HRCC, our executive compensation structure is positioned ap-
propriately relative to these peers. For certain positions, in par-
ticular those below the GEB, additional competitors may be
taken into account including other major international banks,
the large Swiss private banks, private equity firms and hedge
funds, which are increasingly becoming attractive alternatives
for our employees.
However, market data is only one of several factors in the
compensation decision-making process. Market data in-
forms but does not directly drive any individual decision on
compensation.
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Compensation framework
Compensation structure
Chairman of the Board of Directors
Since 2009, the Chairman of the BoD has, in principle, re-
ceived a fixed base salary comprising cash and the right to
receive a pre-determined number of UBS shares that vest
after four years. This compensation package does not in-
clude any variable or performance-dependent component,
but does keep the Chairman’s pay aligned with sustainable
added value through its share component. However, al-
though the initial quantity of shares is pre-determined, those
shares nevertheless remain subject to forfeiture if there is a
loss-making year during the vesting period.
➔ Refer to the “2009 compensation for the Board of Directors
and Group Executive Board” section of this report for
details of the Chairman’s compensation for 2009
The process to determine the overall compensation for
the Chairman of the BoD starts with an annual performance
assessment by the full BoD (excluding the Chairman) and is
then based on a recommendation to the full Board from the
HRCC. Pay levels for comparable roles outside of UBS are
also taken into account.
Independent members of the Board of Directors
Reflecting their independent status, the remuneration of inde-
pendent members of the BoD includes no variable compo-
nent, and is therefore not dependent on the financial perfor-
mance of the Group. Fees for independent members are
reviewed annually. The HRCC reviews a proposal by the Chair-
man of the BoD, and then submits a recommendation to the
full BoD. Fees are paid 50% in cash and 50% in blocked UBS
shares. However, members can elect to have 100% of their
remuneration paid in blocked UBS shares. These shares are at-
tributed with a price discount of 15% and restricted from sale
for four years from the date they are granted. None of the in-
dependent members of the BoD have a contract with UBS that
provides benefits upon the termination of their term of office.
Group Executive Board
Members of the GEB are entitled to a fixed salary. In addi-
tion, they may receive variable compensation under the CBP,
the PEP and / or the IPP to be granted in 2010.
The table below gives an overview of the compensation
structure, including details of awards granted in February
2010, with regard to the 2009 performance year.
All UBS employees
Base salary
Base salaries reflect each individual’s role, skills and knowl-
edge, as well as our need to remain competitive in the rele-
vant labor market. Base salaries comprise a fixed amount of
cash, and any adjustments are limited to significant changes
in job responsibility or market conditions.
Compensation structure
Elements of compensation
Chairman of the Board
Independent members
of the Board
Members of the GEB
Other senior employees
Fixed pay
Base salary in cash
Fixed quantity of UBS shares
Fixed fee (min. 50%; max.
100% in restricted share
awards)
Base salary in cash
Base salary in cash
Variable cash compensation
No
Variable equity compensation
No
No
No
Yes, subject to the Cash
Balance Plan (CBP)
Yes
Performance Equity Plan (PEP)
Incentive Performance Plan
(IPP)
Equity Ownership Plan (EOP)
Incentive Performance Plan (IPP)
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Corporate governance and compensation
Compensation and shareholdings
During 2009, the banking industry faced increasing regu-
latory pressure to ensure that salaries comprise a sufficient
proportion of total remuneration, while still allowing a firm
to operate a flexible incentive policy. We recognized this risk-
based requirement and increased employee base salary lev-
els in certain parts of the business where this was deemed
both necessary and appropriate. While we need to pay com-
petitively in relation to the market, nevertheless, we believe
that a policy which encourages a general increase in fixed
remuneration simply in order to reduce the proportion of
variable remuneration would only increase fixed costs, and is
not in the long-term interest of shareholders.
Benefits
In order to help attract and retain the best employees in each
local market where we operate, we provide employee ben-
efits that are competitive within each of these markets.
Changes, terminations and the introduction of new benefits
are governed by the procedures contained in the Organiza-
tion Regulations. We consider benefits to be a supplemental
element of total compensation and those offered may vary
substantially from location to location.
Generally there are no special benefits for GEB members;
they receive the same benefits as all other employees in the
location and business where they work.
Pensions
In Switzerland, our general pension plan is made up of two
defined contribution elements: one plan covering base salary
and the other covering variable compensation. Management
shares the same retirement plan benefits as all other employ-
ees.
Outside Switzerland, we provide appropriately-designed
local pension plans in which employees and executives par-
ticipate on an equal basis. In the US, employees and man-
agement can choose to participate in a 401(k)-defined con-
tribution plan which is open to all employees. In addition,
some employees and management participate in legacy de-
fined benefit plans that are no longer available to new hires.
In the UK, employees and executives either participate in a
pension plan operated on a defined contribution basis or
participate in a legacy defined benefit plan which was open
to all employees but is now unavailable for new hires.
➔ Refer to “Note 30 Pension and other post-retirement
benefit plans” in the “Financial information” section of this
report for details on the various retirement benefit plans
established in Switzerland and other major markets
Cash and equity incentives
“Pay for performance” is the guiding principle of the UBS
reward policy. In accordance with the Total Reward Prin-
ciples, variable compensation awards take into account
a range of performance factors including delivering sus-
tainable profitability, effective risk and capital management,
client focus, teamwork and sound governance. Since perfor-
mance can vary, the amount of variable compensation an
individual receives can also vary considerably from year to
year.
For many years, we have awarded a portion of variable
remuneration in the form of UBS shares that are deferred
over three (and, in case of senior management, five) years.
This approach applies to all employees earning above a cer-
tain threshold, not only to executives and other senior em-
ployees. These awards align employees’ interests with those
of shareholders by fully exposing employees to fluctuations
in the UBS share price. In 2008, we announced the develop-
ment of the CBP and PEP for management, and the first
awards under these plans were granted in 2010 with regard
to the 2009 performance year.
During 2009, a further review was carried out and as a
result, the following changes are being introduced in spring
2010 (for the 2009 performance year):
– an increase in the amount to be deferred into UBS shares
for higher-paid staff above a fixed threshold;
– a reduction in the fixed threshold;
– a limit on the amount of the incentive that may be paid
out immediately in cash;
– the inclusion of additional forfeiture provisions applying
to unvested shares in the event of material financial loss-
es, restatement, breach of risk or compliance parameters,
and reputational risk; and
– the introduction of the IPP with a five-year performance
period for senior employees (including GEB members).
Employment contracts
Employment contracts are determined locally within each ju-
risdiction, and do not contain any extended notice periods or
special severance terms. Provisions are regularly reviewed in
accordance with changing legislation and market conditions.
During 2009, notice periods in employment contracts for
new GEB members were reduced from twelve to six months
in line with international trends. Under the new contracts,
any variable incentive paid up to the date of termination is
fully discretionary and based on Group, business division and
personal performance during the executive’s period of em-
ployment. Any variable cash incentive will generally be deliv-
ered via the CBP. Equity awards delivered in prior years are
not accelerated at termination, except in case of death or
disability, but continue to vest on a pro-rata basis and are
subject to a range of forfeiture provisions after the period of
employment has ended. We do not include “golden para-
chutes” – ex gratia payments due to termination of employ-
ment – in contracts with GEB members.
Regulatory framework
Emerging and increasingly complex regulations in a number
of jurisdictions now impact the way in which UBS and our
peers are able to pay employees. We believe that our com-
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pensation practices for 2009 already materially comply with
the relevant rules and guidelines issued by the G-20, as well
as by FINMA, the US Federal Reserve, the UK FSA and other
jurisdictions in which we have a substantial presence. These
rules require that material portions of compensation, in par-
ticular for senior management and risk-takers, are principally
deferred into UBS shares over at least a three-year period.
These awards are also required to be subject to forfeiture
linked to conduct that contributes to substantial future un-
derperformance or restatement of financial results.
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Corporate governance and compensation
Compensation and shareholdings
2009 performance
Besides total UBS and market performance, business division
and individual performance are key criteria in our employee
reward process.
Business division performance
When considering compensation funding for 2009, the
HRCC took into account a thorough assessment of business
divisional performance as well as the improvement in the
stability, security and risk position of the firm and overall im-
provement in underlying Group profitability throughout the
year.
In December 2009, each divisional CEO met individually
with the Group CEO, Group CFO and Group Head HR for a
detailed assessment of their incentive accruals in light of the
above data, expected business results and other factors such
as market positioning and business protection.
Based on the outcomes of these discussions as well as the
results and trends evidenced by the Group and divisional fi-
nancial results, the HRCC proposed to the BoD the final an-
nual variable compensation pool for 2009 and approved the
individual divisional pools.
➔ Refer to the “UBS business divisions and Corporate Center”
section of this report for more information on the
performance of UBS’s business divisions
Individual performance
Individual performance is formally assessed each year by
measuring achievement against personal objectives. These
objectives are focused on a range of financial and non-finan-
cial areas such as:
– contribution to Group and business division results;
– exceptional contribution in cooperating across all busi-
nesses;
– strategic leadership skills and potential;
– outstanding professional and technical expertise;
– a commitment to UBS;
– adherence to corporate values and principles;
– active risk management; and
– the creation of shareholder value.
For employees in senior or key positions, performance
against each objective and key performance indicators is rig-
orously evaluated, not only by an individual’s immediate su-
perior but also by peers and subordinates. This 360-degree
assessment is qualitative and quantitative – comprising fi-
nancial and operational results for the year, as well as indica-
tors of future performance.
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2009 compensation for the Board of Directors and
Group Executive Board
Board of Directors remuneration
Chairman of the Board of Directors
The total compensation awarded to the Chairman of the BoD,
Kaspar Villiger, who was elected at the mid-April AGM 2009,
for the 2009 financial year was CHF 676,571.
Although the compensation framework provides for the
Chairman of the BoD to receive a pre-determined fixed num-
ber of UBS shares in addition to his base salary, Kaspar Vil-
liger has elected not to receive a share award and he has
decided to voluntarily reduce his annual base salary from
CHF 2 million to CHF 850,000.
Highest paid member of the Board of Directors
Due to the voluntary reduction by the Chairman of the
Board, the highest paid member of the BoD is David Sidwell,
Chairman of the RC, with total fees of CHF 725,000 (base
fee of CHF 325,000 and RC retainer of CHF 400,000).
Remuneration for the former Chairman of the
Board of Directors
Peter Kurer, former Chairman of the BoD, did not stand for
reelection at the AGM on 15 April 2009, and retired from UBS
as of April 2009. He received his base salary until the termina-
tion date of 30 April 2009. For ongoing advisory requirements
and assistance in the handover to his successor, Peter Kurer
received a flat salary of CHF 1,000,000. For 2009, as was the
case for 2007 and 2008, he did not receive any discretionary
incentive or fixed share awards. After assessing his tenure as
Chairman and the specific organizational transition require-
ments, the HRCC deemed it appropriate to approve a one-
time contribution of CHF 3,332,000 into the UBS pension
fund on his behalf to cover the deficit in his pension fund.
Independent members of the Board of Directors
The table “Remuneration details and additional information
for independent members of the BoD” shows remuneration
for independent members of the BoD between the 2009
and 2010 AGMs. Fees for 2009 to 2010 remained un-
changed except for the chair of the HRCC, whose remunera-
tion was increased due to the additional workload associat-
ed with the extensive plan, policy and regulatory changes
introduced during 2009.
Group Executive Board compensation
In 2009, total compensation for members of the GEB in their
capacity as such, reflected not only the individual performance
of each executive, but also the improved operating perfor-
mance of each business division and the overall UBS Group. The
HRCC also considered the relevant external competitive mar-
ket and the steps required to ensure that the firm makes fur-
ther significant strives in 2010 towards its strategic objectives.
The total compensation for the highest-paid member of
the GEB this year, Carsten Kengeter, amounted to CHF 13
million for the financial year 2009. The majority of this was
granted in the form of notional shares that vest over 3–5
years.
After Carsten Kengeter was hired in September 2008,
he joined in December 2008 as a member of the former
Group Managing Board and Global co-Head of Fixed In-
come, Currencies and Commodities (FICC). He was further
promoted to the GEB as co-CEO of the Investment Bank,
together with Alexander Wilmot-Sitwell, on 27 April 2009,
and maintained his FICC role in parallel until early 2010. He
was previously a Partner and Co-Head of Goldman Sachs’
Securities division for Asia (ex-Japan), and represented a
d
e
t
i
d
u
A
Compensation details and additional information for executive members of the BoD
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Peter Kurer, former Chairman
Marcel Ospel, former Chairman
Stephan Haeringer,
former Executive Vice Chairman
For the
year ended
2009
2008
2009
2008
2009
2008
2009
2008
Base salary
602,083
666,667
1,333,333
666,667
1,125,000
Annual incentive
award (cash)
0
0
0
0
0
Annual incentive
award (shares
– fair value) c
0
Discretionary
award (options
– fair value) d
0
Benefits
in kind e
74,488
Contributions to
retirement
benefits plans f
0
Total
676,571
0
0
0
0
0
0
0
0
37,561
58,267
89,780
794,008
174,047
1,565,647
80,755
87,023
834,445
108,846
195,802
1,429,648
1 2009: Kaspar Villiger was the only non-independent member in office on 31 December 2009; Peter Kurer did not stand for reelection at the AGM on 15 April 2009. 2008: Peter Kurer was the only
executive member in office on 31 December 2008; Marcel Ospel did not stand for reelection at the AGM on 23 April 2008 and Stephan Haeringer stepped down during the year as a member of the BoD,
and both of these payments are pro-rata for the four and nine months, respectively, in their functions.
227
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C
Advisory vote
Corporate governance and compensation
Compensation and shareholdings
very strong strategic hire for the Investment Bank. Carsten
Kengeter’s drive, leadership and impact have materially
contributed to the turnaround in the FICC business, to the
effective unwinding of a large portion of the legacy posi-
tions and to the overall effort to transform the Investment
Bank as a whole. The resulting compensation is fully sup-
ported by the HRCC in light of the skills and experience
that he possesses, the commitments made at his hiring in
December 2008, and the accomplishments achieved dur-
ing 2009.
The Group CEO, Oswald J. Grübel, would have been en-
titled contractually to an incentive award. However, in light
of UBS’s performance, he decided not to accept any incen-
tive awards for 2009, a decision which was endorsed by the
HRCC.
Remuneration for members of the Group Executive Board
who stepped down during 2009
During 2009, Marcel Rohner, Jerker Johansson, Raoul Weil,
Walter H. Stürzinger, Rory Tapner and Marten Hoekstra
stepped down from the GEB. Their total awards of approxi-
mately CHF 39 million are heavily influenced by contractual
obligations.
Marcel Rohner stepped down as Group CEO on 26 Febru-
ary 2009. In honoring the twelve-month notice period of his
contract, he received his annual salary of CHF 1,500,000. For
2009, as also for 2008, he did not receive any discretionary
incentive awards. After assessing his tenure as Group CEO
and the specific organizational transition requirements, the
HRCC deemed it appropriate to approve a one-time contri-
bution of CHF 1,200,000 into the UBS pension fund on his
behalf to cover the deficit in his pension fund.
Base salary
Base salaries are fixed for all GEB members and reviewed an-
nually by the HRCC. Any adjustments are limited to significant
changes in market rates or to movements in the foreign ex-
change (FX) rate relative to the Swiss franc. Following its re-
view in 2009, the committee decided not to change the Swiss
franc amount, but adjusted the salary for GEB members who
are paid in other currencies due to movements in the FX rates.
Benefits
There were no material changes to GEB benefits during
2009.
➔ Refer to “Note 30 Pension and other post-retirement
benefit plans“ in the “Financial information” section
of this report for details on the various retirement
benefit plans established in Switzerland and other major
markets
➔ Refer to the “2009 performance” and “Variable compensa-
tion funding framework” sections for information
concerning the committee’s determination of variable
incentive awards for 2009, and to the “Cash and equity
incentives” section for details of the compensation plans
awarded to GEB members
Compensation to former members of the Board of
Directors and Group Executive Board
Compensation and benefits in kind paid to former members
of the BoD and the GEB reflect legacy agreements still
honored by UBS. These benefits have been discontinued for
any member of the BoD and the GEB who stepped down
after 1 January 2008.
d
e
t
i
d
u
A
Explanation of the tables outlining compensation details of executive members of
the BoD and members of the GEB:
a. Local currencies are converted into CHF using the exchange rates as detailed in “Note 39 Currency translation rates” in the “Financial informa-
tion” section of this report.
b. The entire cash incentive is only paid out over a three-year period and is subject to forfeiture.
c. Values per performance share at grant: CHF 16.30 for PEP awards and CHF 22.20 for IPP awards granted in 2010 related to the performance year
2009. These are based on the performance share valuation which will be used for accounting purposes under IFRS 2. The valuation was carried out
by PricewaterhouseCoopers and takes into account the relevant performance conditions, targets set, and the range of possible outcomes for these.
d. No options were granted in 2010 for the performance year 2009.
e. Benefits in kind – car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits and gen-
eral expense allowances – are all valued at market price.
f. Swiss executives participate in the same pension plan as all other employees. Under this plan, employees receive a company contribution to
the plan which covers compensation up to CHF 820,800. The retirement benefits consist of a pension, a bridging pension and a one-off
payout of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security
contributions (AHV, ALV) but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribu-
tion is included in the base salary and annual incentive award components.
In both the US and the UK, executives participate in the same plans as all other employees. In the US the plans differ between the two business
divisions. For each business division there are two different plans. The grandfathered plans, which are no longer open to new hires, operate, de-
pending on the business division, either on a cash balance basis or a career average salary basis and participants accrue a pension based on their
annual compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). In the defined contribution plan,
participants receive company contributions to the plan based on compensation limited to USD 245,000. US management may also participate in
a 401(k) defined contribution plan (open to all employees), which provides a company matching contribution for employee contributions. In the
UK, management participates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap
of GBP 100,000, or a grandfathered defined benefit plan which provides a pension on retirement based on career average base salary (uncapped).
228
Advisory vote
d
e
t
i
d
u
A
Remuneration details and additional information for independent members of the BoD
CHF, except where indicated a
n
o
i
t
a
s
n
e
p
m
o
C
e
e
t
t
i
m
m
o
C
&
e
c
n
a
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r
e
v
o
G
g
n
i
t
a
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m
o
N
i
e
e
t
t
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m
o
C
e
t
a
r
o
p
r
o
C
y
t
i
l
i
b
i
s
n
o
p
s
e
R
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
t
i
d
u
A
&
R
H
e
e
t
t
i
m
m
o
C
k
s
i
R
y
g
e
t
a
r
t
S
e
t
t
i
e For the
period
AGM to
AGM
m
m
o
C
Base fee
Committee
retainer(s)
Benefits
in kind
M
M
M
M
C
M
M
M
M
M
M
C
M
M
M
M
M
M
2009/2010 325,000
M 2008/2009 325,000
100,000
200,000
2009/2010
2008/2009 325,000
2009/2010 325,000
2008/2009 162,500
200,000
350,000
75,000
2009/2010 325,000
200,000
2008/2009
M
M
2009/2010 325,000
M 2008/2009 162,500
2009/2010 325,000
2008/2009 162,500
2009/2010 325,000
2008/2009
2009/2010
200,000
150,000
200,000
100,000
250,000
2008/2009 325,000
M
2009/2010 325,000
250,000
200,000
M
M
C
C
2008/2009
2009/2010
2008/2009 162,500
2009/2010 325,000
2008/2009 325,000
2009/2010 325,000
2008/2009 162,500
2009/2010 325,000
2008/2009 325,000
2009/2010
2008/2009 162,500
2009/2010 325,000
M 2008/2009 325,000
2009/2010
150,000
300,000
300,000
300,000
100,000
400,000
450,000
0
100,000
400,000
C
M
2008/2009 325,000
300,000
2008/2009 162,500
100,000
2009/2010
M
M
M
M
C
M
C
M
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Additional
payments
250,000 6
250,000 6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Share
percen-
tage 3
100
Number of
shares 4,5
51,845
100
76,228
100
50
50
50
100
50
50
50
50
51,596
27,261
12,280
21,203
40,301
16,158
21,203
13,572
23,222
Total
675,000
775,000
525,000
675,000
237,500
525,000
525,000
312,500
525,000
262,500
575,000
575,000
525,000
50
100
29,731
40,301
312,500
625,000
625,000
625,000
262,500
725,000
775,000
162,500
425,000
725,000
50
50
50
50
50
50
50
100
50
50
16,158
25,242
32,316
25,242
13,572
29,281
40,072
15,945
17,164
37,487
262,500
50
13,572
50
32,316
625,000
6,425,000
6,437,500
Name, function 1
Sergio Marchionne,
Senior Independent
Director, Vice Chairman
Ernesto Bertarelli,
former member
Sally Bott,
member2
Michel Demaré,
member
Rainer-Marc Frey,
member2
Bruno Gehrig,
member2
Ann F. Godbehere,
member
Gabrielle Kaufmann-
Kohler, former member
Axel P. Lehmann,
member
Rolf A. Meyer,
former member2
Helmut Panke,
member
William G. Parrett,
member2
David Sidwell,
member
Peter Spuhler,
former member2
Peter R. Voser,
member
Lawrence A. Weinbach,
former member2
Joerg Wolle,
former member
Total 2009
Total 2008
Legend: C = Chairperson of the respective committee; M = Member of the respective committee
1 There were 11 independent BoD members in office on 31 December 2009. Michel Demaré, Ann F. Godbehere and Axel P. Lehmann were appointed at the AGM on 15 April 2009 and Ernesto Berta relli,
Gabrielle Kaufmann-Kohler and Joerg Wolle stepped down from the BoD at the AGM on 15 April 2009. There were 11 independent BoD members in office on 31 December 2008. David Sidwell was
appointed at the AGM on 23 April 2008, and Rolf A. Meyer, Peter Spuhler and Lawrence A. Weinbach stepped down from the BoD at the EGM on 2 October 2008. Sally Bott, Rainer-Marc Frey, Bruno
Gehrig and William G. Parrett were appointed at the EGM on 2 October 2008. 2 Remuneration for 2008 / 2009 is for six months only, as such members either stepped down or were appointed on 2
October 2008. 3 Fees are paid 50% in cash and 50% in restricted UBS shares. However, independent BoD members can elect to have 100% of their remuneration paid in restricted UBS shares. 4 For
2009, shares valued at CHF 14.57 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2010) included a price discount of 15%, for a new value of discount price
CHF 12.38. These shares are blocked for four years. For 2008, shares valued at CHF 11.38 (average price of UBS shares at virt-x, now SIX Swiss Exchange, over the last 10 trading days of February 2009)
included a price discount of 15%, discount price for a new value of CHF 9.67. These shares are blocked for four years. 5 Number of shares is reduced in case of the 100% election to deduct social
security contribution. All remuneration payments are submitted to social security contribution / withholding tax. 6 This payment is associated with the Senior Independent Director function.
In addition, for 2008 / 2009 only, one-off cash payments were made to the Chairmen of the RC (CHF 500,000), the GNC (CHF 300,000) and the HRCC (CHF 200,000). These payments reflect the sub-
stantial workload of setting up the new RC, and expanding the mandate of the GNC and the HRCC.
229
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C
Advisory vote
Corporate governance and compensation
Compensation and shareholdings
d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Total payments to all members of the BoD
CHF, except where indicated a
Aggregate of all members of the BoD
Aggregate of all members of the BoD
For the
year ended
2009
2008
Total
7,895,579
10,267,240
Total compensation for all members of the GEB
CHF, except where indicated a
Name, function
For the
year ended
Base salary
Annual
incentive
award CBP
and cash b
Annual
incentive
award PEP c
Annual
incentive
award IPP c
Contributions
to retirement
benefits
plans f
Benefits
in kind e
Total
Carsten Kengeter, co-CEO Investment Bank
(highest-paid)
Marcel Rohner, Group Chief Executive Officer
(highest-paid)
Aggregate of all members of the GEB who
were in office on 31 December 2009 1
Aggregate of all members of the GEB who
were in office on 31 December 2008 1
Aggregate of all members of the GEB who
stepped down during 2009 2
Aggregate of all members of the GEB who
stepped down during 2008 2
2009
2008
2009
2008
2009
2008
669,092
5,003,470
6,155,869
1,349,336
0
12,545
13,190,312
1,500,000
0
0
0
161,768
152,934
1,814,702
12,000,055
25,734,711
13,453,424 3
15,696,333
270,971
1,551,068
68,706,562
7,815,943
0
2,447,544
38,443,097
1,614,871
0
0
0
0
0
0
0
457,652
817,315
9,090,911
215,151
171,122
41,276,914
234,838
258,423
2,108,132
1 Numbers and distribution of GEB members in 2009: 13 GEB members in office on 31 December. 2008: 12 GEB members in office on 31 December. 2 Number and distribution of GEB members in
2009: includes two months in office as a GEB member for Marcel Rohner, three months in office for Walter H. Stürzinger and Raoul Weil, four months in office for Jerker Johansson, six months in office
for Rory Tapner and ten for Marten Hoekstra. 2008: includes four months in office as a GEB member for Peter Kurer, eight months in office for Marco Suter and ten months for Joe Scoby. 3 Included in
the share awards are SEEOP awards at a fair value of GBP 4,655,950 and EOP awards at a fair value of GBP 1,594,250.
Compensation paid to former members of the BoD and GEB1
CHF, except where indicated a
Name, function
Georges Blum, former member of the BoD
(Swiss Bank Corporation)
Franz Galliker, former member of the BoD
(Swiss Bank Corporation)
Walter G. Frehner, former member of the BoD
(Swiss Bank Corporation)
Hans (Liliane) Strasser, former member of the BoD
(Swiss Bank Corporation)
Robert Studer, former member of the BoD
(Union Bank of Switzerland)
Alberto Togni, former member of the BoD
(UBS)
Philippe (Alix) de Weck, former member of the BoD
(Union Bank of Switzerland)
Aggregate of all former members of the GEB 2
Aggregate of all former members of the BoD and GEB
For the
year ended
Compensation
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
320,136
318,461
0
0
320,136
318,461
Benefits
in kind
92,399
101,579
10,659
69,596
25,371
74,663
9,758
32,673
18,751
126,208
355,983
427,949
93,135
109,703
18,293
171,180
624,349
Total
92,399
101,579
10,659
69,596
25,371
74,663
9,758
32,673
18,751
126,208
676,119
746,410
93,135
109,703
18,293
171,180
944,485
1,113,551
1,432,012
1 Compensation or remuneration that is connected with the former members’ activity on the BoD or GEB, or that is not at market conditions. 2 Includes two former GEB members.
230
Advisory vote
d
e
t
i
d
u
A
Shares and options held by the Board of Directors and Group
Executive Board (at end of 2009)
Share and option ownership of members of the BoD on 31 December 2008 / 2009
Name, function 1
Kaspar Villiger, Chairman
Sergio Marchionne,
Senior Independent Director, Vice Chairman
Ernesto Bertarelli, former member 4
Sally Bott, member
Michel Demaré, member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Gabrielle Kaufmann-Kohler, former member 4
Peter Kurer, former Chairman 4
Axel P. Lehmann, member
Helmut Panke, member
William G. Parrett, member
David Sidwell, member
Peter R. Voser, member
Joerg Wolle, former member 4
For the
year ended
Number of
shares held
Voting rights
in %
Number of
options held
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
22,500
–
164,154
87,926
–
89,434
12,281
1
2,500
–
16,158
0
16,572
3,000
0
–
–
18,713
–
416,088
18,151
–
64,287
31,971
17,573
4,000
40,073
1
68,310
30,823
–
41,509
0.001
0.009
0.005
0.005
0.001
0.000
0.000
0.001
0.000
0.001
0.000
0.000
0.001
0
–
0
0
–
0
0
0
0
–
0
0
0
0
0
–
–
0
–
0.025
372,995
0.001
0.003
0.002
0.001
0.000
0.002
0.000
0.004
0.002
0.002
0
–
0
0
0
0
0
0
0
0
–
0
Potentially conferred
voting rights in % 2
0.000
Type and quantity
of options 3
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.022
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
xli:
xlvii:
lvi:
lxiv:
85,256
95,913
95,913
95,913
1 This table includes vested, unvested, blocked and unblocked shares and options held by members of the BoD including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity
participation and other compensation plans” in the “Financial information” section of this report for more information on stock option plans. 4 Members of the BoD who stepped down at the AGM 2009.
n
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C
231
Advisory vote
Corporate governance and compensation
Compensation and shareholdings
Share and option ownership of members of the GEB on 31 December 2008 / 2009
d
e
t
i
d
u
A
Name, function 1
Oswald J. Grübel,
Group Chief Executive Officer
Marcel Rohner,
former Group Chief Executive Officer 4
2009
2008
2009
2008
For the
year ended
Number of
shares held
Voting rights
in %
Number of
options held
Potentially conferred
voting rights in % 2
0.217
Type and
quantity of
options 3
lxx: 4,000,000
0
–
–
0.000
4,000,000
–
–
711,366
0.042
1,055,043
0.063
John Cryan,
Group Chief Financial Officer
2009
235,929
0.013
382,673
0.021
2008
235,929
0.014
382,673
0.023
Markus U. Diethelm,
Group General Counsel
John A. Fraser,
Chairman and CEO Global Asset Management
2009
2008
2009
112,245
112,245
480,464
0.006
0.007
0.027
0
0
1,088,795
0.000
0.000
0.059
232
31,971
xxxii:
xli:
213,140
xlvii: 277,082
lvi:
319,710
lxiv: 213,140
21,362
iii:
20,731
iv:
20,725
vii:
5,454
xii:
5,294
xiii:
5,292
xvi:
23,626
xxi:
23,620
xxiii:
23,612
xxvi:
5,526
xxviii:
5,524
xxix:
xxx:
5,524
xxxviii: 17,072
17,068
xl:
17,063
xlii:
14,210
xliv:
14,210
xlv:
14,207
xlvi:
5,330
liii:
5,328
liv:
5,326
lv:
17,762
lxi:
17,762
lxii:
17,760
lxiii:
53,285
lxvi:
iii:
21,362
iv:
20,731
vii:
20,725
xii:
5,454
xiii:
5,294
xvi:
5,292
xxi:
23,626
xxiii:
23,620
xxvi:
23,612
xxviii:
5,526
xxix:
5,524
5,524
xxx:
xxxviii: 17,072
17,068
xl:
17,063
xlii:
14,210
xliv:
14,210
xlv:
14,207
xlvi:
5,330
liii:
5,328
liv:
5,326
lv:
17,762
lxi:
17,762
lxii:
17,760
lxiii:
53,285
lxvi:
viii:
76,380
127,884
xix:
xxv: 127,884
xliii: 170,512
xlviii: 202,483
lvi:
213,140
lxiv: 170,512
Advisory vote
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
d
e
t
i
d
u
A
Name, function 1
John A. Fraser,
Chairman and CEO Global Asset Management
For the
year ended
2008
Number of
shares held
561,216
Voting rights
in %
Number of
options held
0.035
1,144,808
Potentially conferred
voting rights in % 2
0.068
Marten Hoekstra,
former CEO Wealth Management US 4
2009
2008
–
245,397
–
0.015
684,168
0.041
Type and
quantity of
options 3
56,013
i:
76,380
viii:
xix:
127,884
xxv: 127,884
xliii: 170,512
xlviii: 202,483
lvi:
213,140
lxiv: 170,512
ii:
8,679
vi:
8,421
ix:
8,421
xi:
8,823
xiv:
4,262
xv:
8,563
8,561
xviii:
xxxiii: 42,628
53,285
xliii:
53,285
xlviii:
lvi:
85,256
lxiv: 154,931
lxvii: 239,053
Jerker Johansson,
former Chairman and CEO Investment Bank 4
Carsten Kengeter,
co-CEO Investment Bank
Ulrich Körner,
Group Chief Operating Officer
Philip J. Lofts,
Group Chief Risk Officer
2009
2008
2009
2008
2009
2008
2009
–
521,544
516,909
–
0
–
0.031
0.028
0.000
–
753,410
905,000
–
0
–
179,234
0.010
577,723
0.045
lxviii: 745,990
7,420
lxix:
0.049
lxxi: 905,000
0.000
0.031
2008
186,434
0.011
577,723
0.034
n
o
i
t
a
s
n
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p
m
o
c
d
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a
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c
n
a
n
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v
o
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o
p
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C
11,445
iii:
11,104
iv:
11,098
vii:
1,240
xii:
5,464
xiii:
1,199
xvi:
9,985
xxi:
9,980
xxiii:
9,974
xxvi:
1,833
xxviii:
1,830
xxix:
xxx:
1,830
xxxviii: 35,524
35,524
xl:
xlii:
35,521
xlvii: 117,090
117,227
lvi:
85,256
lxiv:
74,599
lxvii:
11,445
iii:
11,104
iv:
11,098
vii:
1,240
xii:
5,464
xiii:
1,199
xvi:
9,985
xxi:
9,980
xxiii:
9,974
xxvi:
1,833
xxviii:
1,830
xxix:
xxx:
1,830
xxxviii: 35,524
35,524
xl:
xlii:
35,521
xlvii: 117,090
117,227
lvi:
85,256
lxiv:
74,599
lxvii:
233
Advisory vote
Corporate governance and compensation
Compensation and shareholdings
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
d
e
t
i
d
u
A
Name, function 1
Robert J. McCann,
CEO Wealth Management Americas
Franco Morra,
CEO UBS Switzerland
Walter H. Stürzinger,
former Chief Operating Officer, Corporate Center 4
Rory Tapner,
former Chairman and CEO Asia Pacific 4
Raoul Weil,
former Chairman and CEO Global Wealth
Management & Business Banking 4
Alexander Wilmot-Sitwell,
co-CEO Investment Bank
For the
year ended
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
Number of
shares held
602,481
–
153,860
Voting rights
in %
Number of
options held
0.033
0
–
Potentially conferred
voting rights in % 2
0.000
0.008
325,086
0.018
–
–
–
–
296,886
0.018
372,995
0.022
–
827,809
–
315,698
–
0.049
1,379,533
0.082
–
0.019
432,409
0.026
2009
286,767
0.016
353,807
0.019
2008
304,655
0.018
353,807
0.021
Robert Wolf,
Chairman and CEO, UBS Group Americas /
President Investment Bank
2009
785,631
0.043
948,473
0.051
2008
827,307
0.049
948,473
0.056
Type and
quantity of
options 3
43,911
lvi:
lxiv:
66,866
lxvii: 114,309
lxxii: 100,000
xx:
xli:
xlvii:
lvi:
lxiv:
31,971
63,942
85,256
95,913
95,913
281,862
vii:
xix:
213,140
xxxi: 213,140
xli:
170,512
xlvii: 159,855
170,512
lvi:
lxiv: 170,512
xix:
53,285
xlvii: 102,281
127,884
lvi:
lxiv: 148,959
xlvi:
53,282
xlix:
2,130
liii:
35,524
liv:
35,524
35,521
lv:
lxiv: 106,570
85,256
lxvii:
53,282
xlvi:
2,130
xlix:
35,524
liii:
35,524
liv:
lv:
35,521
lxiv: 106,570
85,256
lxvii:
xxv: 287,739
xliii: 213,140
xlviii: 127,884
lvi:
106,570
lxiv: 106,570
lxvii: 106,570
xxv: 287,739
xliii: 213,140
xlviii: 127,884
lvi:
106,570
lxiv: 106,570
lxvii: 106,570
234
Advisory vote
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
d
e
t
i
d
u
A
Name, function 1
Chi-Won Yoon,
Chairman and CEO Asia Pacific
For the
year ended
2009
Number of
shares held
367,573
Voting rights
in %
Number of
options held
0.020
623,253
Potentially conferred
voting rights in % 2
0.034
Jürg Zeltner,
CEO Wealth Management
2008
2009
–
16,502
–
0.001
205,470
0.011
Type and
quantity of
options 3
11,577
i:
11,229
v:
11,227
viii:
2,252
x:
6,446
xiv:
2,184
xvii:
8,648
xxii:
8,642
xxiv:
8,635
xxvii:
4,262
xxxiv:
3,374
xxxv:
3,371
xxxvi:
xxxvii:
3,371
xxxviii: 6,200
4,262
xxxix:
6,198
xl:
6,195
xlii:
10,659
xliv:
10,657
xlv:
10,654
xlvi:
21,316
liii:
21,314
liv:
21,311
lv:
8,881
lxi:
8,880
lxii:
8,880
lxiii:
lxvi:
42,628
lxxii: 350,000
iii:
iv:
vii:
xlii:
xliv:
xlv:
xlvi:
xlix:
l:
li:
lii:
liii:
liv:
lv:
lvii:
lviii:
lix:
lx:
lxi:
lxii:
lxiii:
lxv:
lxvii:
lxxii:
809
784
784
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
223
42,628
90,000
1 This table includes vested and unvested shares and options held by members of the GEB, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation
and other compensation plans“ in the “Financial information” section of this report for more information. 4 GEB members who stepped down during 2009.
2008
–
–
235
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p
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Advisory vote
Corporate governance and compensation
Compensation and shareholdings
d
e
t
i
d
u
A
Vested and unvested options held by independent members of the BoD and
by members of the GEB on 31 December 2008 / 2009
Type
Number of options
Year of grant
Vesting date
Expiry date
Subscription ratio
i
ii
iii
iv
v
vi
vii
viii
ix
x
xi
xii
xiii
xiv
xv
xvi
xvii
xviii
xix
xx
xxi
xxii
xxiii
xxiv
xxv
xxvi
xxvii
xxviii
xxix
xxx
xxxi
xxxii
xxxiii
xxxiv
xxxv
xxxvi
xxxvii
xxxviii
xxxix
xl
xli
xlii
xliii
xliv
xlv
xlvi
xlvii
xlviii
xlix
l
li
236
11,577
8,679
33,616
32,619
11,229
8,421
314,469
87,607
8,421
2,252
8,823
6,694
10,758
10,708
8,563
6,491
2,184
8,561
394,309
31,971
33,611
8,648
33,600
8,642
415,623
33,586
8,635
7,359
7,354
7,354
213,140
31,971
42,628
4,262
3,374
3,371
3,371
58,796
4,262
58,790
532,850
63,751
436,937
31,975
31,970
85,246
837,477
383,652
2,223
161
149
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2004
2004
2004
2004
2004
2004
2005
2005
2005
2005
2005
2005
2005
2005
31.01.2002
31.01.2002
31.01.2003
31.01.2004
31.01.2004
31.01.2004
31.01.2005
31.01.2005
31.01.2005
28.02.2002
28.02.2002
28.02.2003
28.02.2004
29.02.2004
29.02.2004
28.02.2005
28.02.2005
28.02.2005
28.06.2005
28.06.2005
01.03.2004
01.03.2004
01.03.2005
01.03.2005
31.01.2006
01.03.2006
01.03.2006
01.03.2004
01.03.2005
01.03.2006
31.01.2006
31.01.2006
31.01.2006
28.02.2005
01.03.2004
01.03.2005
01.03.2006
01.03.2005
27.02.2006
01.03.2006
28.02.2007
01.03.2007
01.03.2007
01.03.2006
01.03.2007
01.03.2008
01.03.2008
01.03.2008
04.03.2007
06.06.2007
09.09.2007
31.01.2012
31.07.2012
31.01.2012
31.01.2012
31.01.2012
31.07.2012
31.01.2012
31.01.2012
31.07.2012
28.02.2012
28.08.2012
28.02.2012
28.02.2012
28.02.2012
28.08.2012
28.02.2012
28.02.2012
28.08.2012
28.06.2012
28.12.2012
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
28.02.2013
28.02.2013
28.02.2013
31.01.2013
31.07.2013
31.07.2013
28.02.2013
28.02.2013
28.02.2013
28.02.2013
27.02.2014
27.02.2014
27.02.2014
27.02.2014
27.02.2014
27.02.2014
28.02.2015
28.02.2015
28.02.2015
28.02.2015
28.02.2015
04.03.2015
06.06.2015
09.09.2015
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
Strike price
USD 21.24
USD 21.24
CHF 36.49
CHF 36.49
USD 21.24
USD 21.24
CHF 36.49
USD 21.24
USD 21.24
USD 21.70
USD 21.70
CHF 36.65
CHF 36.65
USD 21.70
USD 21.70
CHF 36.65
USD 21.70
USD 21.70
CHF 37.90
CHF 37.90
CHF 27.81
USD 20.49
CHF 27.81
USD 20.49
USD 22.53
CHF 27.81
USD 20.49
CHF 26.39
CHF 26.39
CHF 26.39
CHF 30.50
CHF 30.50
USD 22.53
USD 19.53
USD 19.53
USD 19.53
USD 19.53
CHF 44.32
CHF 44.32
CHF 44.32
CHF 48.69
CHF 44.32
USD 38.13
CHF 47.58
CHF 47.58
CHF 47.58
CHF 52.32
USD 44.81
CHF 47.89
CHF 45.97
CHF 50.47
Advisory vote
d
e
t
i
d
u
A
Vested and unvested options held by independent members of the BoD and
by members of the GEB on 31 December 2008 / 2009 (continued)
Type
lii
liii
liv
lv
lvi
lvii
lviii
lix
lx
lxi
lxii
lxiii
lxiv
lxv
lxvi
lxvii
lxviii
lxix
lxx
lxxi
lxxii
Number of options
Year of grant
Vesting date
Expiry date
Subscription ratio
Strike price
127
69,276
69,269
69,261
1,376,036
110
242
230
221
33,748
33,747
33,743
1,415,142
223
95,913
662,415
745,990
7,420
4,000,000
905,000
540,000
2005
2006
2006
2006
2006
2006
2006
2006
2006
2007
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
05.12.2007
01.03.2007
01.03.2008
01.03.2009
01.03.2009
03.03.2008
09.06.2008
08.09.2008
08.12.2008
01.03.2008
01.03.2009
01.03.2010
01.03.2010
02.03.2009
01.03.2011
01.03.2011
01.03.2011
01.03.2011
26.02.2009
01.03.2012
01.03.2012
05.12.2015
28.02.2016
28.02.2016
28.02.2016
28.02.2016
03.03.2016
09.06.2016
08.09.2016
08.12.2016
28.02.2017
28.02.2017
28.02.2017
28.02.2017
02.03.2017
28.02.2018
28.02.2018
07.04.2018
06.06.2018
25.02.2014
27.12.2019
27.02.2019
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
CHF 59.03
CHF 65.97
CHF 65.97
CHF 65.97
CHF 72.57
CHF 65.91
CHF 61.84
CHF 65.76
CHF 67.63
CHF 67.00
CHF 67.00
CHF 67.00
CHF 73.67
CHF 67.08
CHF 32.45
CHF 35.66
CHF 36.46
CHF 28.10
CHF 10.10
CHF 40.00
CHF 11.35
d
e
t
i
d
u
A
Total of all blocked and unblocked shares held by independent members of the BoD 1
Total
Of which unblocked
Of which blocked until
Shares held on 31 December 2009
420,059
123,053
Shares held on 31 December 2008
307,378
177,027
1 Includes related parties.
No individual BoD member holds 1% or more of all shares issued.
2010
6,232
2009
12,126
2011
13,352
2010
13,592
2012
35,737
2011
30,193
2013
241,685
2012
74,440
d
e
t
i
d
u
A
Total of all vested and unvested shares held by the non-independent members of the BoD
and members of the GEB 1
Shares held on 31 December 2009
3,760,095
1,971,557
1,078,664
2010
2011
397,046
2012
222,601
2013
90,227
2014
0
Total
Of which vested
Of which vesting
Shares held on 31 December 2008
5,562,574
2,955,211
1,058,881
1 Includes related parties.
2009
2010
595,638
2011
461,376
2012
319,776
2013
171,692
Total
Of which vested
Of which vesting
No individual BoD or GEB member holds 1% or more of all shares issued.
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237
Advisory vote
Corporate governance and compensation
Compensation and shareholdings
Group Executive Board
Replacement of forfeited awards for former employer
compensation
Oswald J. Grübel and Robert J. McCann joined UBS during
2009. Oswald J. Grübel voluntarily waived his deferred PIP
awards from Credit Suisse upon joining UBS in order to avoid
any possible conflicts of interest in his new role. The HRCC
decided to grant new awards of a similar value at the time in
recognition of his commitment to UBS. In order to partly re-
flect the highly leveraged Credit Suisse PIP units, he received
4 million UBS stock appreciation rights, with a strike price of
CHF 10.10 and fair value of CHF 13,120,000 at grant date
of 26 February 2009.
Robert J. McCann was granted 602,481 shares with a
grant date fair market value of USD 10 million. In line with
market practice, the award for Robert J. McCann was grant-
ed as a replacement for compensation and benefits forfeited
from his previous employment, as a result of joining UBS.
Transactions in 2009
In accordance with applicable rules and regulations, man-
agement transactions in UBS shares by members of the BoD
and the GEB are publicly disclosed. Transactions which re-
quire reporting are those involving all types of financial in-
struments whose price is primarily influenced by UBS shares.
As the SIX Swiss Exchange repatriated the share trading of
the SWX Europe from London to Zurich as of 4 May 2009, the
Swiss reporting regime for management transactions became
applicable, while up to that date the EU requirements (para-
graph 15a of the German Securities Trading Act) regarding the
reporting of management transactions, were applicable.
From 1 January to 3 May 2009, no share purchases or
sales were reported by either BoD or GEB members or closely
associated persons.
From 4 May until 31 December 2009, two share purchas-
es were disclosed with a total value of CHF 401,219 as well
as one share sale with a total value of CHF 1,200,800. Indi-
viduals’ names and transactions made by persons closely as-
sociated with the BoD or GEB are not required to be dis-
closed anymore under the Swiss reporting regime.
UBS executives generally receive a substantial portion of
their compensation in UBS equity-based awards. For this rea-
son, management transactions generally see sales outweigh-
ing purchases. Blackout periods and synchronized dates for
unblocking or vesting of shares or options granted as com-
pensation may lead to transactions being concentrated in
short time periods.
In addition, three members of the BoD chose to receive
their full remuneration in UBS shares. These shares, represent-
ing a value of CHF 1,929,753, will be allocated in March 2010.
Loans
The members of the BoD and GEB are granted loans, fixed
advances and mortgages at arm’s length market terms.
➔ Refer to “Note 32 Related parties” in the “Financial
information” section of this report for information
concerning loans granted to current and former executives
238
Advisory vote
Corporate governance and compensation
Total Reward Principles
Total Reward Principles
The Total Reward Principles summarize the compensation structure for
all UBS employees. While they reflect recent regulatory developments,
they also focus on long-standing drivers including reward for performance,
sustainable profitability, strong management of risk and capital, outstand-
ing client focus and teamwork, and sound governance. They also build
on the UBS strategy of enhancing reputation, integration and execution.
These Principles have been reviewed by the Group Executive Board and by
the Board of Directors’ Human Resources and Compensation Committee
and were approved by the UBS Board of Directors on 28 September 2009.
Overview
Align reward with sustainable performance
Reward is a key driver of behavior, motivation and culture,
and can materially impact both reputation and financial
results.
Within the context of UBS as a whole and the markets in
which we operate, the sustainable performance of an
employee’s business division is a key component of reward.
Within UBS our reward structure is aligned with our
strategic priorities which bind the interests of employees
with those of our shareholders. Employees are encouraged
to identify and create sustainable value and profitability,
and to build a strong client franchise both for their
business and for UBS as a whole.
In considering UBS and business division performance, a
range of factors will be taken into account including risk,
capital usage, and market positioning. Assessment will
focus on both current key performance indicators and the
long-term actions that preserve and improve UBS’s ability
to deliver future value.
Reward funding is not purely formulaic; discretion and
judgment will be applied to ensure all relevant factors
including market conditions are taken into account.
– Business division reward recommendations are deter-
mined in consultation between the UBS Group CEO and
the CEO(s) of each division as advised by the Group CFO,
Group Head HR and, where appropriate, Group Risk.
– Proposals recommended by the Group CEO are reviewed
by the independent Human Resources and Compensa-
tion Committee of the Board of Directors.
– Final approval is provided by the UBS Board of Directors.
– The UBS Group CEO and Board of Directors take into
account the Group and business division financial results
as well as the views of shareholders and other stake-
holders.
At UBS we reward behavior that helps to build and protect
the firm’s reputation by focusing on sound risk and
management practices. We believe in strong integration
and excellence of execution, within an environment where
all employees are able to achieve the highest standards of
performance.
All UBS employees will be rewarded on the basis of their
individual and team performance, and that of their
business division, within the context of UBS as a whole and
the markets in which we operate. UBS’s reward structure
aims to:
Align reward with sustainable performance by
encouraging a culture of integration and collaboration, a
sense of engagement and long-term alignment with clients
and shareholders, and quality execution of their orders.
Support appropriate and controlled risk taking
consistent with UBS’s risk tolerance thereby protecting our
capital, investors and reputation, and enhancing the quality
of our financial results.
Foster effective individual performance management
and communication by rigorously evaluating performance
and ensuring the appropriate use of reward.
Attract and engage a diverse, talented workforce by
providing attractive career opportunities underpinned by
reward that is competitive in the market.
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239
Advisory vote
Corporate governance and compensation
Total Reward Principles
Support appropriate and controlled risk taking
Attract and engage a diverse, talented workforce
Reward will be consistent with UBS’s risk framework
and tolerance.
Performance reviews recognize the different risk profile
and nature of each business including additional factors
such as the quality and time horizon of earnings, the nature
of the relevant industry segment, and competitive trends.
– Employees are rewarded for achievement against a
range of financial and non-financial objectives and not
only on the basis of individual revenues.
– Extraordinary profits, as well as losses, are examined in
the context of the track record of an employee’s
performance, risk management and market conditions.
– Measurement of performance will be adjusted for
activities and future risks that are not adequately
reflected in annual profits.
– Reward for risk, compliance and control functions is
determined independently from the revenue producers
they supervise and support.
Foster effective individual performance management
and communication
Rigorous evaluation of individual performance combined
with effective communication ensures a link between
achievement of business objectives and reward across UBS.
Beyond contribution to business results and achievement
of individual performance objectives, rewards will also take
into account:
– observing UBS’s corporate values and principles;
– implementing UBS’s strategy of enhancing reputation,
integration and execution;
– demonstrating leadership of our clients, business, people
and change;
– leading or supporting effective collaboration and
teamwork;
– operating with strong integrity and complying with
UBS policies;
– actively managing risk and professional behavior; and
– finding the appropriate balance between risk
and reward.
The UBS reward structure is designed to provide talented
employees with reward that is appropriately balanced
between fixed and variable elements, competitive in the
market, and paid out over an appropriate period.
In general, total compensation comprises an annual base
salary, reflecting the individual’s role, skills and knowledge,
local market-based benefits and, where applicable, a
discretionary incentive award.
– Base salary levels should be sufficient to allow a flexible
discretionary incentive policy.
– Discretionary annual incentives can be highly variable
from year to year particularly for senior revenue
producers and more highly paid employees.
Discretionary incentive awards may be split between
immediate cash and long-term awards that can be granted
in the form of either deferred UBS equity or deferred cash.
– The proportion of deferred incentive generally increases
with total compensation in order to maintain focus on
long-term profitability of the firm and continued
responsible behavior.
– Deferred awards generally vest over at least three years.
– Deferred awards are subject to forfeiture under certain
circumstances, including if an employee’s conduct or
judgment results in material financial loss or restatement
of results, breach of risk or compliance policies, or
significant harm to the firm’s business or reputation.
Stock options and / or stock appreciation rights may be
awarded as part of total reward, to recognize the potential
of key employees who are expected to drive the achieve-
ment of our strategic objectives.
Other reward programs may also be considered to further
support the needs of our diverse global business, subject
to considerations such as cost, risk and prevailing market
and regulatory requirements. As such:
– For senior leaders, our reward focus is founded on
sustainable long-term profitability that may require the
application of multi-year performance conditions to
recognize outstanding performance.
– Guaranteed incentive awards are used only exceptionally
and are generally limited to one-year duration.
This document provides a summary only and may be supplemented by more detailed global or local
policies. At UBS we are committed to full and proper disclosure of our remuneration policies, of which
these Principles form a part, and we provide an annual advisory vote to shareholders at our AGM.
UBS AG
P.O. Box
CH-8098 Zurich
www.ubs.com
240
Financial information
Financial information
Table of contents
244
245
Introduction and accounting principles
Critical accounting policies
249
Consolidated financial statements
249
250
252
255
256
257
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261
263
263
283
287
288
288
289
290
290
290
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292
292
293
293
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295
296
296
297
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300
Management’s report on internal control
over financial reporting
Report of independent registered public accounting
firm on internal control over financial reporting
Report of the statutory auditor and the independent
registered public accounting firm on the consolidated
financial statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Statement of cash flows
Notes to the consolidated financial statements
1 Summary of significant accounting policies
2a Segment reporting
2b Segment reporting by geographic location
Income statement notes
3 Net interest and trading income
4 Net fee and commission income
5 Other income
6 Personnel expenses
7 General and administrative expenses
8 Earnings per share (EPS) and shares outstanding
Balance sheet notes: assets
9a Due from banks and loans (held at amortized cost)
9b Allowances and provisions for credit losses
10 Cash collateral on securities borrowed and lent,
repurchase and reverse repurchase agreements
11 Trading portfolio
12 Financial assets designated at fair value
13 Financial investments available-for-sale
14 Investments in associates
15 Property and equipment
16 Goodwill and intangible assets
17 Other assets
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307
309
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316
318
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330
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341
347
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350
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358
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363
Balance sheet notes: liabilities
18 Due to banks and customers
19 Financial liabilities designated at fair value and debt issued
20 Other liabilities
21 Provisions and litigation
22 Income taxes
23 Derivative instruments and hedge accounting
Off-balance-sheet information
24 Pledgeable off-balance-sheet securities
25 Operating lease commitments
Additional information
26 Capital increases and mandatory convertible notes
27 Fair value of financial instruments
28 Pledged assets and transferred financial assets
which do not qualify for derecognition
29 Measurement categories of financial assets
and financial liabilities
30 Pension and other post-employment benefit plans
31 Equity participation and other compensation plans
32 Related parties
33 Events after the reporting period
34 Significant subsidiaries and associates
35 Invested assets and net new money
36 Business combinations
37 Discontinued operations
38 Reorganizations and disposals
39 Currency translation rates
40 Swiss banking law requirements
41 Supplemental guarantor information required
under SEC rules
371
UBS AG (Parent Bank)
399
Additional disclosure required under SEC regulations
371
Parent Bank review
399
A – Introduction
400
401
402
403
403
404
404
405
405
405
407
409
410
410
411
412
413
414
415
416
417
418
B – Selected financial data
Key figures
Income statement data
Balance sheet data
Ratio of earnings to fixed charges
C – Information on the company
Property, plant and equipment
D – 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
Contractual maturities of debt investments
available-for-sale
Due from banks and loans (gross)
Due from banks and loan maturities (gross)
Impaired and non-performing loans
Cross-border outstandings
Summary of movements in allowances and provisions
for credit losses
Allocation of the allowances and provisions for credit losses
Due from banks and loans by industry sector (gross)
Loss history statistics
372
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381
382
383
383
384
385
386
390
392
392
393
395
Parent Bank financial statements
Income statement
Balance sheet
Statement of appropriation of retained earnings
Notes to the Parent Bank financial statements
Accounting policies
Additional income statement information
Net trading income
Extraordinary income and expenses
Additional balance sheet information
Allowances and provisions
Statement of shareholders’ equity
Share capital
Off-balance-sheet and other information
Assets pledged or assigned as security for own
obligations and assets subject to reservation of title
Commitments and contingent liabilities
Derivative instruments
Fiduciary transactions
Due to UBS pension plans
Transactions with related parties
Outsourcing
Personnel
Significant shareholders
Corporate governance and compensation report
Compensation details and additional information for
executive members of the BoD
Remuneration details and additional information for
independent members of the BoD
Total payments to all members of the BoD
Total compensation for all members of the GEB
Share and option ownership of members of the BoD
Compensation paid to former members of the BoD and GEB
Share and option ownership of members of the GEB
Vested and unvested options held by independent members
of the BoD and by members of the GEB
Loans granted to members of the BoD
Loans granted to members of the GEB
Report of the statutory auditor on the financial statements
Confirmations of the auditors concerning conditional
capital increase
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243
Financial information
Introduction and accounting principles
The financial information section of UBS’s Annual Report
2009 comprises: a) the critical accounting policies applied
when preparing the consolidated financial statements of
UBS Group, b) audited consolidated financial statements of
UBS Group for 2009, 2008 and 2007, prepared according
to International Financial Reporting Standards (IFRS) as is-
sued by the International Accounting Standards Board
(IASB), c) audited financial statements of UBS AG, the Par-
ent Bank, for 2009 and 2008, prepared in order to meet
Swiss regulatory requirements and in compliance with Swiss
Federal Banking Law, and d) additional disclosures required
under SEC regulations.
The basis of accounting of UBS’s Group financial state-
ments is described in Note 1 to the financial statements. Ex-
cept where otherwise explicitly stated, all financial data are in
Swiss francs (CHF), all financial information is presented on a
consolidated basis under IFRS, and all references to “UBS” re-
fer to the UBS Group and not to the Parent Bank. UBS AG, the
Swiss Parent Bank, includes branches worldwide and owns all
the UBS companies, directly or indirectly. All references to
2009, 2008 and 2007 refer to UBS Group and the Parent
Bank’s fiscal years ended 31 December 2009, 2008 and 2007,
respectively. The financial statements for UBS Group and the
Parent Bank have been audited by Ernst & Young Ltd.
244
Critical accounting policies
Basis of preparation and selection of policies
UBS prepares its Financial Statements in accordance with IFRS
as issued by the International Accounting Standards Board.
The application of certain of these accounting principles re-
quires considerable judgment based upon estimates and as-
sumptions that involve significant uncertainty at the time they
are made. Estimates and judgments are continually evaluated
and are based on historical experience and other factors, in-
cluding expectations of future events that are believed to be
reasonable under the circumstances. Changes in assumptions
may have a significant impact on the Financial Statements in
the periods where assumptions are changed. Accounting pol-
icies that are deemed critical to UBS’s results and financial po-
sition, in terms of materiality of the items to which the policy
is applied, and which involve significant assumptions and es-
timates are discussed in this section. A broader and more de-
tailed description of the accounting policies UBS employs is
shown in Note 1 to the Financial Statements.
The application of assumptions and estimates means that
any selection of different assumptions would cause the re-
ported results to differ. UBS believes that the assumptions it
has made are appropriate, and that UBS’s Financial State-
ments therefore present the financial position and results
fairly in all material respects. The alternative outcomes dis-
cussed below are presented solely to assist the reader in un-
derstanding UBS’s Financial Statements, and are not intend-
ed to suggest that other assumptions would be more
appropriate.
Many of the judgments UBS makes when applying ac-
counting principles depend on an assumption, which UBS
believes to be correct, that UBS maintains sufficient liquidity
to hold positions or investments until a particular trading
strategy matures – i.e. that UBS does not need to realize po-
sitions at unfavorable prices in order to fund immediate cash
needs. Liquidity is discussed in more detail in the “Liquidity
and funding management” section of this report.
Fair value of financial instruments
The fair values of financial instruments where no active mar-
ket exists or where quoted prices are not otherwise available
are determined by using valuation techniques. In these cas-
es, the fair values are estimated from observable data in re-
spect of similar financial instruments or using models. Where
market observable inputs are not available, inputs are esti-
mated based on appropriate assumptions. Where valuation
techniques or models are used to determine fair values, they
are periodically reviewed and validated by qualified person-
nel independent of those that sourced them. Models are
calibrated to ensure that outputs reflect actual data and
comparative market prices. To the extent practical, models
use only observable data; however, areas such as default
rates, volatilities and correlations require management to
make estimates.
The valuation techniques or models employed may not
fully reflect all factors relevant to the positions UBS holds.
Valuations are therefore adjusted, where appropriate, to al-
low for additional factors including model risks, liquidity risk
and credit risk. UBS uses different approaches to calculate
the credit risk, depending on the classification of a financial
instrument at fair value. A credit valuation adjustment (CVA)
approach based on an expected exposure profile is used to
adjust the fair value of Positive replacement values to reflect
counterparty credit risk if necessary. Correspondingly, a deb-
it valuation adjustment (DVA) approach is applied to incor-
porate the own credit risk in the fair value of uncollateralized
Negative replacement values. The own credit risk for Finan-
cial liabilities designated at fair value is calculated using
UBS’s senior debt curve.
As of 31 December 2009, financial assets and financial li-
abilities for which valuation techniques or models are used
and whose inputs are observable (level 2) amounted to CHF
487 billion and CHF 505 billion, respectively. Financial assets
and financial liabilities whose valuations include significant
unobservable inputs (level 3) amounted to CHF 38 billion and
CHF 28 billion, respectively.
Changes in assumptions for input factors would affect
the reported fair value of financial instruments. If manage-
ment had used reasonably possible alternative assumptions
for UBS’s level 3 instruments accounted for at fair value
through profit or loss, the fair value of these assets would
have been up to CHF 4.1 billion higher or lower and the fair
value of these liabilities would have been up to CHF 3.3 bil-
lion higher or lower than the amounts recognized on UBS’s
balance sheet at 31 December 2009. Favorable valuation
changes for assets would be offset to a significant degree by
unfavorable changes in liabilities and vice versa as a consis-
tent use of different assumptions and estimates would pre-
vent a simultaneous favorable or unfavorable valuation
change of assets and liabilities.
The valuation of financial instruments is described in de-
tail in Note 27.
Goodwill impairment test
The situation in the financial markets made it necessary dur-
ing 2009 to monitor closely whether there was indication
245
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Financial information
that goodwill allocated to its cash-generating units was im-
paired. At 31 December 2009, equity attributable to UBS
shareholders stood at CHF 41 billion. UBS’s market capital-
ization, excluding the shares to be issued upon conversion of
the MCNs, amounted to CHF 57 billion at 31 December
2009. On the basis of the impairment testing methodology
described in Note 16 and Note 1a) 20), UBS concluded that
the year-end 2009 balances of goodwill allocated to all its
segments remain recoverable. Goodwill allocated to the In-
vestment Bank at 31 December 2009 amounted to CHF 3.3
billion (CHF 4.3 billion at 31 December 2008), to Wealth
Management Americas CHF 3.7 billion (CHF 3.8 billion at
31 December 2008), to Wealth Management & Swiss Bank
CHF 1.5 billion (CHF 1.5 billion at 31 December 2008) and to
Global Asset Management CHF 1.6 billion (CHF 2.0 billion at
31 December 2008).
In its review of the year-end 2009 goodwill balance, UBS
specifically considered the performance outlook of its Invest-
ment Bank and Wealth Management Americas divisions and
the underlying business operations to resolve whether the
recoverable amounts for these units cover their carrying
amounts. Based on the estimated cash flows these units are
expected to generate from their businesses, discounted back
to their present value using a discount rate that reflects the
risk profiles of the underlying activities, UBS concluded that
goodwill allocated to the Investment Bank and Wealth Man-
agement Americas remained recoverable on 31 December
2009. The conclusion was reached on the basis of the fore-
cast results included in the latest 5 year business plan. The
forecasts are based on an expectation that the economic en-
vironment will gradually improve over the next three years
and reach an average growth level thereafter. The fair value
obtained from the model calculation was subject to a stress
test by decreasing forecast cash flows by one-third and at
the same time increasing the discount rate by 3.5 percent-
age points. The stress values covered the book value of the
Investment Bank and Wealth Management Americas. How-
ever, if the regulatory pressure on the banking industry in-
tensifies and conditions in the financial markets further de-
teriorate and turn out to be worse than anticipated in UBS’s
performance forecasts, the goodwill carried in these busi-
ness divisions may need to be impaired in future periods.
The same model is applied to all segments carrying good-
will. It is most sensitive to changes in the forecast earnings
available to shareholders in years one to five, to the cost of
equity and to changes in the long-term growth rate. The ap-
plied long-term growth rate is based on actual growth rates
and expected inflation. Both applied growth rates and dis-
count rates are disclosed by cash-generating units in Note
16. Earnings available to shareholders are estimated based
on forecast results, business initiatives and planned capital
investments and returns to shareholders. Valuation parame-
ters used within the Group’s impairment test model are
linked to external market information, where applicable.
Management believes that reasonable changes in key as-
sumptions used to determine the recoverable amounts of all
segments will not result in an impairment situation.
Impairment of loans and receivables
measured at amortized cost
Loan impairment allowances represent management’s best
estimate of losses incurred in the lending portfolio at the bal-
ance sheet date. The lending portfolio, which is measured at
amortized cost less impairment, is comprised of financial as-
sets presented on the balance sheet line items Due from
banks and Loans, including reclassified securities. In addi-
tion, irrevocable loan commitments are also tested for im-
pairment as described below.
Credit loss expense is recognized if there is objective evi-
dence that the Group will be unable to collect all amounts
due according to the original contractual terms or the equiv-
alent value. A financial asset or group of financial assets is
impaired only if a loss event occurred after initial recognition
of the financial asset(s) but not later than at balance sheet
date (“incurred loss model”). Management is required to ex-
ercise judgment in making assumptions and estimations
when calculating impairment losses both on a counterparty-
specific level and collectively.
The impairment loss is the difference between the carry-
ing value of the financial asset and the estimated recover-
able amount. The estimated recoverable amount is the pres-
ent value, using the loan’s original effective interest rate, of
expected future cash flows, including amounts that may re-
sult from restructuring or the liquidation of collateral. An
allowance for credit losses is reported as a reduction of the
carrying value of the financial asset on the balance sheet.
UBS periodically revises its estimated cash flows associated
with the portfolio of reclassified securities backed by multiple
assets. Adverse revisions in cash flow estimates related to cred-
it events are recognized in profit or loss as credit loss expenses.
Increases in estimated future cash receipts as a result of in-
creased recoverability are recognized as an adjustment to the
effective interest rate on the loan from the date of change.
At 31 December 2009, UBS’s gross lending portfolio
was CHF 356 billion; the related allowances amounted to
CHF 2.7 billion. Impairment charges presented as credit loss
expense were CHF 1.8 billion in 2009, of which CHF 1.0 bil-
lion related to reclassified financial assets. Refer to Note 9b
for details.
UBS’s policy on allowances and provisions for credit losses
is described in Note 1a) 11).
Reclassification of financial assets
The International Accounting Standards Board published an
amendment to International Accounting Standard 39 (IAS 39
Financial Instruments: Recognition and Measurement) on 13
246
October 2008, under which eligible financial assets, subject to
certain conditions being met, may be reclassified out of the
“Held for trading” category if the firm has the intent and abil-
ity to hold them for the foreseeable future or until maturity.
In 2008 and first quarter 2009, financial assets with a fair
value on their reclassification dates of CHF 26 billion and
CHF 0.6 billion, respectively, were reclassified out of “Trading
portfolio assets” to “Loans and receivables”.
In 2009, the reclassified financial assets generated inter-
est and other income of CHF 1.6 billion, which was partially
offset by an impairment charge of CHF 1.0 billion recog-
nized as credit loss expense. Had these financial assets not
been reclassified, a trading gain of CHF 4.7 billion would
have been recognized instead. Refer to Note 29b for details.
Consolidation of Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities
(SPEs) primarily to allow clients to hold investments in sepa-
rate legal entities, to allow clients to jointly invest in alter-
native assets, for asset securitization transactions and for
buying or selling credit protection. In accordance with IFRS,
UBS does not consolidate SPEs that it does not control. In
order to determine whether UBS controls an SPE or not,
UBS has to make judgments about risks and rewards and
assess the ability to make operational decisions for the SPE
in question. In many instances, elements are present that,
considered in isolation, indicate control or lack of control
over an SPE, but when considered together make it difficult
to reach a clear conclusion. When assessing whether UBS
has to consolidate an SPE it evaluates a range of factors,
including whether (a) the activities of the SPE are being
conducted on UBS’s behalf according to its specific business
needs so that UBS obtains the benefits from the SPE’s op-
erations, or (b) UBS has decision-making powers to obtain
the majority of the benefits of the activities of the SPE, or
UBS has delegated these decision-making powers by set-
ting up an autopilot mechanism, or (c) UBS has the rights to
obtain the majority of the benefits of the activities of an SPE
and therefore may be exposed to risks arising from the ac-
tivities of the SPE, or (d) UBS retains the majority of the re-
sidual or ownership risks related to the SPE or its assets in
order to obtain the benefits from its activities. UBS consoli-
dates an SPE if its assessment of the relevant factors indi-
cates that UBS controls the SPE.
SPEs used to allow clients to hold investments are struc-
tures that allow one or more clients to invest in an asset
or set of assets, which are generally purchased by the SPE
in the open market and not transferred from UBS. The risks
and rewards of the assets held by the SPE reside with
the clients. Typically, UBS will receive service and commis-
sion fees for creation of the SPE, or because it acts as in-
vestment manager, custodian or in some other function.
Many of these SPEs are single-investor or family trusts while
others allow a broad number of investors to invest in a di-
versified asset base through a single share or certificate.
These latter SPEs range from mutual funds to trusts invest-
ing in real estate. The majority of UBS’s SPEs are created for
client investment purposes and are not consolidated. How-
ever, UBS consolidates investment funds in certain cases
where it provides financial support to a fund. In these in-
stances UBS generally assumes the majority or a significant
portion of the risks of the fund, which, combined with
UBS’s role as investment manager, makes it the party that
can exercise control over the entity.
SPEs used to allow clients to jointly invest in alternative
assets, e.g. feeder funds, for which generally no active mar-
kets exist, are often in the form of limited partnerships. In-
vestors are the limited partners and contribute all or the ma-
jority of the capital, whereas UBS serves as the general
partner. In that capacity, UBS is the investment manager and
has sole discretion over investment and other administrative
decisions, but has no or only a nominal amount of capital
invested. UBS typically receives service and commission fees
for UBS’s services as general partner but does not, or only to
a minor extent, participates in the risks and rewards of the
vehicle, which reside with the limited partners. In most in-
stances, limited partnerships are not c onsolidated under IFRS
because UBS’s legal and con tractual rights and obligations
indicate that UBS does not have the power to govern the
financial and operating policies of these entities and concur-
rently does not have the objective of obtaining benefits from
its activities through such power.
SPEs used for securitization are created when UBS has as-
sets (for example, a portfolio of loans) which it sells to an
SPE, and the SPE in turn sells interests in the assets as securi-
ties to investors. Consolidation of these SPEs depends main-
ly on whether UBS retains the majority of the benefits or
risks of the assets in the SPE.
UBS does not consolidate SPEs for securitization if it has
no control over the assets and no longer retains any signifi-
cant exposure (for gain or loss) to the income or investment
returns on the assets sold to the SPE or the proceeds of their
liquidation. This type of SPE is a bankruptcy-remote entity
– if UBS were to go bankrupt, the holders of the securities
would clearly be owners of the asset, while if the SPE were
to go bankrupt, the securities holders would have no re-
course to UBS.
SPEs for credit protection are set up to allow UBS to sell
the credit risk on portfolios, which may or may not be held
by UBS, to investors. They exist primarily to allow UBS to
have a single counterparty (the SPE), which sells credit pro-
tection to it. The SPE in turn has investors who provide it
with capital and participate in the risks and rewards of the
credit events that it insures. UBS generally consolidates SPEs
used for credit protection.
UBS’s policy on consolidation of SPEs is further described
in Note 1a) 3).
247
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Financial information
Equity compensation
Deferred taxes
UBS recognizes options and share-settled stock appreciation
rights (SARs) awarded to employees as compensation expense
based on their fair value at grant date. The options and SARs
UBS issues to its employees have features that make them in-
comparable to options and SARs on UBS’s shares traded in
active markets. Accordingly, UBS cannot determine fair value
by reference to a quoted market price, but UBS rather esti-
mates it using an option valuation model. The model, a Mon-
te Carlo simulation, requires inputs such as interest rates, ex-
pected dividends, volatility measures and specific employee
exercise behavior patterns based on statistical data.
Some of the model inputs UBS uses are not market ob-
servable and have to be estimated or derived from available
data. Use of different estimates would produce different op-
tion and SAR values, which in turn would result in higher or
lower compensation expense being recognized.
Several recognized valuation models exist, but none can
be singled out as the best or most correct. The model UBS
applies has been selected because it is able to handle some
of the specific features included in the options and SARs
granted to UBS’s employees. If UBS was to use a different
model, the option and SAR values produced would be differ-
ent, even if it used the same inputs.
Using both different inputs and a different valuation
model could have a significant impact on the fair value of
employee options and SARs, which could be either higher or
lower than the values produced by the model UBS applies
and the inputs it has used.
Further information on UBS equity compensation plans
is disclosed in Note 1a) 24) and Note 31 to the Financial
Statements.
Deferred tax assets arise from a variety of sources, the most
significant being: a) tax losses that can be carried forward to
be utilized against profits in future years; and b) expenses
recognized in UBS’s income statement but disallowed in the
tax return until the associated cash flow occurs.
UBS records a valuation allowance to reduce its deferred tax
assets to the amount which can be recognized in line with the
relevant accounting standards. The level of deferred tax asset
recognition is influenced by management’s assessment of
UBS’s future profitability having regard to relevant business
plan forecasts. At each balance sheet date, existing assess-
ments are reviewed and, if necessary, revised to reflect changed
circumstances. In a situation where recent losses have been
incurred, the relevant accounting standards require convincing
evidence that there will be sufficient future profitability.
At 31 December 2009, the recognized deferred tax assets
amounted to CHF 8.9 billion, which included an amount of
CHF 8.2 billion in respect of tax losses (mainly in Switzerland
and the US) that can be utilized to offset taxable income in
future years.
Swiss tax losses can be carried forward for seven years
and US federal tax losses for twenty years. The deferred tax
assets recognized at 31 December 2009 have been based on
future profitability assumptions over a five-year horizon, as
adjusted to take into account the recognition criteria of IAS
12. The level of deferred tax assets recognized may, howev-
er, need to be adjusted in the future in the event of changes
to those profitability assumptions. Refer to Note 22 for fur-
ther details.
UBS’s policy on deferred taxes is further described in
Note 1a) 21).
248
Financial information
Consolidated financial statements
Consolidated financial statements
Management’s report on internal control over financial reporting
The Board of Directors and management of UBS AG (UBS)
are responsible for establishing and maintaining adequate
internal control over financial reporting. UBS’s internal con-
trol over financial reporting is designed to provide reason-
able assurance regarding the preparation and fair presenta-
tion of published financial statements in accordance with
International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board.
UBS’s internal control over financial reporting includes
those policies and procedures that:
– Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispo-
sitions of assets;
– Provide reasonable assurance that transactions are re-
corded as necessary to permit preparation and fair pre-
sentation of financial statements, and that receipts and
expenditures of the company are being made only in ac-
cordance with authorizations of UBS management; and
– Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or dis-
position of the company’s assets that could have a mate-
rial effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become in-
adequate because of changes in conditions, or that the de-
gree of compliance with the policies or procedures may de-
teriorate.
UBS management assessed the effectiveness of UBS’s in-
ternal control over financial reporting as of 31 December
2009 based on the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on
this assessment, management believes that, as of 31 Decem-
ber 2009, UBS’s internal control over financial reporting was
effective.
The effectiveness of UBS’s internal control over financial
reporting as of 31 December 2009 has been audited by Ernst
& Young Ltd, UBS’s independent registered public account-
ing firm, as stated in their report appearing on pages 250 to
251, which expressed an unqualified opinion on the effec-
tiveness of UBS’s internal control over financial reporting as
of 31 December 2009.
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Financial information
Consolidated financial statements
250
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Financial information
Consolidated financial statements
252
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254
Financial information
Consolidated financial statements
Income statement
CHF million, except per share data
Note
31.12.09
31.12.08
31.12.07
31.12.08
For the year ended
% change from
Continuing operations
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
Net interest income after credit loss expense
Net fee and commission income
Net trading income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Discontinued operations
Profit from discontinued operations before tax
Tax expense
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
from continuing operations
from discontinued operations
Net profit attributable to UBS shareholders
from continuing operations
from discontinued operations
Earnings per share (CHF)
Basic earnings per share
from continuing operations
from discontinued operations
Diluted earnings per share
from continuing operations
from discontinued operations
3
3
3
4
3
5
6
7
15
16, 38
22
37
22
8
8
23,461
(17,016)
6,446
(1,832)
4,614
17,712
(324)
599
22,601
16,543
6,248
1,048
1,123
200
25,162
(2,561)
(443)
(2,118)
(7)
0
(7)
65,679
(59,687)
5,992
(2,996)
2,996
22,929
(25,820)
692
796
16,262
10,498
1,241
341
213
28,555
(27,758)
(6,837)
(20,922)
198
1
198
109,112
(103,775)
5,337
(238)
5,099
30,634
(8,353)
4,341
31,721
25,515
8,429
1,243
0
276
35,463
(3,742)
1,369
(5,111)
145
(258)
403
(2,125)
(20,724)
(4,708)
610
600
10
(2,736)
(2,719)
(17)
(0.75)
(0.74)
0.00
(0.75)
(0.74)
0.00
568
520
48
(21,292)
(21,442)
150
(7.63)
(7.68)
0.05
(7.63)
(7.69)
0.05
539
539
0
(5,247)
(5,650)
403
(2.40)
(2.59)
0.18
(2.41)
(2.59)
0.18
(64)
(71)
8
(39)
54
(23)
99
(13)
2
(40)
(16)
229
(6)
(12)
91
94
90
(100)
90
7
15
(79)
87
87
90
90
(100)
90
90
(100)
255
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Financial information
Consolidated financial statements
Statement of comprehensive income
CHF million
Net profit
Other comprehensive income
Foreign currency translation
Foreign currency translation movements, before tax
Foreign exchange amounts reclassified to the income statement from equity
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation movements, net of tax
Financial investments available-for-sale
Net unrealized gains / (losses) on financial investments available-for-sale, before tax
Impairment charges reclassified to the income statement from equity
Realized gains reclassified to the income statement from equity
Realized losses reclassified to the income statement from equity
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale
Subtotal net unrealized gains / (losses) on financial investments available-for-sale, net of tax
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
Net unrealized (gains) / losses reclassified to the income statement from equity
Income tax effects relating to cash flow hedges
Subtotal changes in fair value of derivative instruments designated as cash flow hedges
Total other comprehensive income
Total comprehensive income
Total comprehensive income attributable to minority interests
Total comprehensive income attributable to UBS shareholders
For the year ended
31.12.09
(2,125)
31.12.08
(20,724)
31.12.07
(4,708)
(35)
(259)
22
(272)
157
70
(147)
1
(54)
27
78
(756)
257
(421)
(667)
(2,792)
484
(3,276)
(4,509)
202
(17)
(4,324)
(903)
47
(645)
6
341
(1,154)
2,001
178
(520)
1,659
(3,818)
(24,542)
(77)
(24,465)
(1,405)
108
39
(1,258)
1,578
14
(3,423)
7
421
(1,403)
369
172
(130)
411
(2,250)
(6,958)
269
(7,227)
256
Balance sheet
CHF million
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Net income recognized directly in equity, net of tax
Revaluation reserve from step acquisitions, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Treasury shares
Equity attributable to UBS shareholders
Equity attributable to minority interests
Total equity
Total liabilities and equity
Note
31.12.09
31.12.08
31.12.08
% change from
9
10
10
11
11
23
12
9
13
14
15
16
22
17
18
10
10
11
23
19
18
19
20, 21, 22
20,899
46,574
63,507
116,689
188,037
44,221
421,694
10,223
306,828
81,757
5,816
870
6,212
11,008
8,868
7,336
32,744
64,451
122,897
224,648
271,838
40,216
854,100
12,882
340,308
5,248
6,141
892
6,706
12,935
8,880
9,931
1,340,538
2,014,815
65,166
7,995
64,175
47,469
409,943
112,653
410,475
8,689
131,352
33,986
125,628
14,063
102,561
62,431
851,864
101,546
465,741
10,196
197,254
42,998
1,291,905
1,974,282
356
34,786
(4,875)
38
11,751
(2)
(1,040)
41,013
7,620
48,633
293
25,250
(4,335)
38
14,487
(46)
(3,156)
32,531
8,002
40,533
1,340,538
2,014,815
(36)
(28)
(48)
(48)
(31)
10
(51)
(21)
(10)
(5)
(2)
(7)
(15)
0
(26)
(33)
(48)
(43)
(37)
(24)
(52)
11
(12)
(15)
(33)
(21)
(35)
22
38
(12)
0
(19)
96
67
26
(5)
20
(33)
257
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Financial information
Consolidated financial statements
Statement of changes in equity
CHF million
Balance at 1 January 2007
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Cancellation of second trading line treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Dividends
Equity classified
as obligation
to purchase
own shares
(185)
Treasury
shares
(10,214)
(7,169)
4,605
2,415
Share
capital
211
(4)
Share
premium
12,640
(560)
12
898
(557)
Equity classified as obligation to purchase own shares – movements
111
(2,411)
(4,275)
Retained
earnings
47,728
Foreign currency
translation
(1,614)
Financial
investments
available-
for-sale
2,876
Cash flow
hedges
(443)
Revaluation
reserve
from step
acquisitions
38
Total equity
attributable
to UBS
shareholders
51,037
Minority
interests
6,089
Total equity
57,126
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance at 31 December 2007
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Transaction costs related to share issuances, net of tax
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance at 31 December 2008
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Transaction costs related to share issuances, net of tax
Dividends 1
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance at 31 December 2009
1 Includes dividend payment obligations for preferred securities.
258
12,433
(10,363)
(74)
(5,247)
35,795
(986)
(2,600)
(1,405)
1,471
411
(32)
38
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
28
(16)
25,250
(3,156)
(46)
(21,292)
14,487
(3,709)
(6,309)
(1,124)
347
1,659
1,627
38
207
86
293
63
(476)
2,592
(1,268)
10,599
291
1
(87)
44
356
34,786
(1,040)
(2)
(2,736)
11,751
(136)
(6,445)
17
364
(421)
1,206
38
(3,276)
41,013
(7,169)
4,605
(560)
12
898
(557)
(4,275)
111
0
0
0
0
0
(7,227)
36,875
86
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
(16)
28
0
0
0
(24,465)
32,531
63
(476)
2,592
(1,268)
10,599
291
(87)
44
1
0
0
0
0
0
0
(7,169)
4,605
(560)
12
898
(557)
(4,675)
111
996
101
(104)
(6,958)
43,826
86
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
(377)
1,618
28
12
(141)
(24,542)
40,533
63
(476)
2,592
(1,268)
10,599
291
1
(87)
(849)
44
(7)
3
(13)
(2,792)
48,633
(400)
996
101
(104)
269
6,951
(361)
1,618
12
(141)
(77)
8,002
(849)
(7)
3
(13)
484
7,620
Statement of changes in equity
CHF million
Balance at 1 January 2007
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Cancellation of second trading line treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Dividends
Total comprehensive income for the year recognized in equity
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Balance at 31 December 2007
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Transaction costs related to share issuances, net of tax
Dividends
Equity classified as obligation to purchase own shares – movements
Total comprehensive income for the year recognized in equity
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Balance at 31 December 2008
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Net premium / (discount) on treasury share and own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax benefits from deferred compensation awards
Transaction costs related to share issuances, net of tax
Dividends 1
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance at 31 December 2009
1 Includes dividend payment obligations for preferred securities.
Share
capital
211
(4)
207
86
293
63
Share
premium
12,640
(560)
12
898
(557)
(4,626)
20,003
(1,961)
(176)
(423)
(1,268)
10,599
291
1
(87)
Equity classified
as obligation
to purchase
own shares
(185)
Treasury
shares
(10,214)
(7,169)
4,605
2,415
(367)
7,574
(476)
2,592
28
44
Retained
earnings
47,728
Foreign currency
translation
(1,614)
Financial
investments
available-
for-sale
2,876
Cash flow
hedges
(443)
Revaluation
reserve
from step
acquisitions
38
(2,411)
(4,275)
Equity classified as obligation to purchase own shares – movements
111
12,433
(10,363)
(74)
(5,247)
35,795
(986)
(2,600)
(1,405)
1,471
411
(32)
38
(16)
25,250
(3,156)
(46)
(21,292)
14,487
(3,709)
(6,309)
(1,124)
347
1,659
1,627
38
Total equity
attributable
to UBS
shareholders
51,037
0
(7,169)
4,605
0
(560)
12
898
(557)
(4,275)
111
0
0
0
(7,227)
36,875
86
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
(16)
28
0
0
0
(24,465)
32,531
63
(476)
2,592
(1,268)
10,599
291
1
(87)
0
44
0
0
0
356
34,786
(1,040)
(2)
(2,736)
11,751
(136)
(6,445)
17
364
(421)
1,206
38
(3,276)
41,013
Minority
interests
6,089
Total equity
57,126
(400)
996
101
(104)
269
6,951
(361)
1,618
12
(141)
(77)
8,002
(849)
(7)
3
(13)
484
7,620
0
(7,169)
4,605
0
(560)
12
898
(557)
(4,675)
111
996
101
(104)
(6,958)
43,826
86
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
(377)
28
1,618
12
(141)
(24,542)
40,533
63
(476)
2,592
(1,268)
10,599
291
1
(87)
(849)
44
(7)
3
(13)
(2,792)
48,633
259
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Financial information
Consolidated financial statements
Statement of changes in equity (continued)
Preferred securities 1
CHF million
Balance at the beginning of the year
Issuances
Redemptions
Foreign currency translation
Balance at the end of the year
31.12.09
7,381
(7)
(120)
7,254
For the year ended
31.12.08
31.12.07
6,381
1,618
(618)
7,381
5,633
996
(248)
6,381
1 Represents equity attributable to minority interests. Increases and offsetting decreases of equity attributable by minority interests due to dividends are excluded from this table.
Number of shares
Shares issued
Balance at the beginning of the year
Issuance of share capital
Cancellation of second trading line treasury shares
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Acquisitions
Disposals
Cancellation of second trading line treasury shares
Balance at the end of the year
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
2,932,580,549
2,073,547,344
2,105,273,286
625,532,204
859,033,205
1,294,058
(33,020,000)
3,558,112,753
2,932,580,549
2,073,547,344
61,903,121
33,566,097
158,105,524
13,398,118
(57,915,346)
(109,600,521)
164,475,699
102,074,942
(75,425,117)
(33,020,000)
37,553,872
61,903,121
158,105,524
41
(27)
21
(61)
151
47
(39)
Shares issued
On 25 June 2009, UBS increased its share capital by issuing
293,258,050 new registered shares. The shares were placed
with a small number of large institutional investors. The
shares were issued out of authorized capital which had been
approved at the Annual General Meeting of shareholders
(AGM) on 15 April 2009.
On 19 August 2009, the Swiss Confederation announced
the conversion of its UBS mandatory convertible notes
(MCNs). Upon conversion on 25 August 2009, UBS issued
332,225,913 new shares from existing conditional capital.
On 27 February 2008 the extraordinary general meeting
of shareholders approved the creation of a maximum of CHF
10,370,000 in authorized capital allowing the distribution of
a stock dividend. That resulted in the issuance of 98,698,754
shares.
On 23 April 2008, the AGM of shareholders approved a
capital increase that resulted in the issuance of 760,295,181
fully paid registered shares.
All issued shares are fully paid.
For further information on the capital increase and the
conversion of the MCNs in 2009, refer to “Note 26 Capital
increases and mandatory convertible notes” in the financial
statements.
Conditional share capital
On 31 December 2009, a maximum of 29,350 shares could
have been issued against the future exercise of options
from former PaineWebber employee option plans and
149,994,296 shares could have been issued to fund UBS‘s
employee share option programs. In addition, conditional
capital of up to 277,750,000 shares was available for the
UBS share delivery obligation due to the issuance of the
March 2008 mandatory convertible notes (MCNs) and con-
ditional capital of up to 100,000,000 shares is available in
connection with the transaction with the Swiss National
Bank (SNB). These shares are shown as conditional share
capital in the UBS AG (Parent Bank) disclosure.
260
Statement of cash flows
CHF million
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
Impairment of goodwill / amortization of intangible assets
Credit loss expense / (recovery)
Share of net profits of associates
Deferred tax expense / (benefit)
Net loss / (gain) from investing activities
Net loss / (gain) from financing activities
Net (increase) / decrease in operating assets:
Net due from / to banks
Reverse repurchase agreements and cash collateral on securities borrowed
Trading portfolio, net replacement values and financial assets designated at fair value
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, deferred income and other liabilities
Income taxes paid
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries and associates
Disposal of subsidiaries and associates
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net money market papers issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Dividends paid
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Increase in minority interests 1
Dividends paid to / decrease in minority interests
Net cash flow from / (used in) financing activities
Effects of exchange rate differences
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market papers 2
Due from banks with original maturity of less than three months
Total
For the year ended
31.12.09
31.12.08
31.12.07
(2,125)
(20,724)
(4,708)
1,048
1,323
1,832
(37)
(960)
425
8,355
(57,328)
162,822
11,118
(23,705)
2,214
(41,351)
(8,629)
(505)
54,497
(42)
296
(854)
163
(20,127)
(20,563)
(60,040)
673
3,726
0
67,062
(65,024)
3
(583)
(54,183)
5,529
(14,721)
179,693
164,973
20,899
98,432
45,642
164,973
1,241
554
2,996
6
(7,020)
(797)
(47,906)
(16,561)
236,497
350,099
(183,476)
7,512
(220,935)
(23,592)
(887)
77,007
(1,502)
1,686
(1,217)
69
(712)
(1,676)
(40,637)
623
23,135
0
103,087
(92,894)
1,661
(532)
(5,557)
(39,186)
30,588
149,105
179,693
32,744
86,732
60,217
179,693
1,253
282
238
(120)
(371)
(4,085)
3,779
(60,762)
173,433
60,729
36,168
(2,408)
(271,060)
19,217
(3,663)
(52,078)
(2,337)
885
(1,910)
134
5,981
2,753
32,672
(2,771)
0
(4,275)
110,874
(62,407)
1,094
(619)
74,568
(12,228)
13,015
136,090
149,105
18,793
77,215
53,097
149,105
1 Includes issuance of preferred securities of CHF 1,617 million and CHF 996 million for the years ended 31 December 2008 and 31 December 2007, respectively. 2 Money market papers are included
in the balance sheet under “Trading portfolio assets”, “Trading portfolio assets pledged as collateral” and “Financial investments available-for-sale”. CHF 57,116 million, CHF 19,912 million and
CHF 7,881 million were pledged at 31 December 2009, 31 December 2008 and 31 December 2007, respectively. The previously disclosed amounts of pledged money market papers have been adjusted
to include positions recognized in the balance sheet under “Trading portfolio assets pledged as collateral”.
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For the year ended
31.12.09
31.12.08
31.12.07
23,844
19,597
1,090
68,232
62,284
2,779
103,828
97,489
5,313
For the year ended
31.12.09
31.12.08
31.12.07
14
31
731
1,393
33
22
5
405
114
2
173
24
3
262
2
224
60
Financial information
Consolidated financial statements
Statement of cash flows (continued)
CHF million
Additional information
Cash received as interest
Cash paid as interest
Cash received as dividends on equities (incl. associates)
Significant non-cash investing and financing activities
CHF million
Deconsolidation of UBS Pactual
Financial investments available -for-sale
Property and equipment
Goodwill and intangible assets
Debt issued
Deconsolidation of private equity investments
Property and equipment
Goodwill and intangible assets
Acquisition of Caisse Centrale de Réescompte Group (CCR)
Property and equipment
Goodwill and intangible assets
Debt issued
Acquisition of VermogensGroep
Property and equipment
Goodwill and intangible assets
Acquisition of McDonald Investments branch network
Property and equipment
Goodwill and intangible assets
Acquisition of Daehan Investment Trust Management Company
Property and equipment
Goodwill and intangible assets
Minority interests
262
Financial information
Notes to the consolidated financial statements
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
The principal accounting policies applied in preparation of
these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
1) Basis of accounting
UBS AG and subsidiaries (“UBS” or the “Group”) provide a
broad range of financial services including advisory services,
underwriting, financing, market making, asset management
and brokerage on a global level, and retail banking in Swit-
zerland. The Group was formed on 29 June 1998 when
Swiss Bank Corporation and Union Bank of Switzerland
merged. The merger was accounted for using the uniting of
interests method of accounting.
The consolidated financial statements of UBS (the “Finan-
cial Statements”) are prepared in accordance with Interna-
tional Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB), and stated
in Swiss francs (CHF), the currency of Switzerland where UBS
AG is incorporated. On 4 March 2010, the Board of Directors
approved them for issue.
Disclosures under IFRS 7 Financial Instruments: Disclo-
sures about the nature and extent of risks and capital disclo-
sures under IAS 1 Presentation of Financial Statements have
been included in the audited parts of the “Risk and treasury
management” section. Several IFRS 7 credit risk related dis-
closures are provided in Note 29c and several market risk
related disclosures are provided in Note 27c.
2) Use of estimates in the preparation of
Financial Statements
In preparing the Financial Statements in conformity with
IFRS, management is required to make estimates and as-
sumptions that affect reported income, expenses, assets, li-
abilities and disclosure of contingent assets and liabilities.
Use of available information and application of judgment are
inherent in the formation of estimates. Actual results in the
future could differ from such estimates, and the differences
may be material to the Financial Statements.
3) Subsidiaries
The Financial Statements comprise those of the parent com-
pany (UBS AG) and its subsidiaries, including special purpose
entities (SPEs), presented as a single economic entity. UBS con-
trols an entity if it has the power to govern the financial and
operating policies generally accompanying a shareholding of
more than one-half of the voting rights. Subsidiaries, including
special purpose entities, that are directly or indirectly controlled
by the Group are consolidated from the date on which control
is transferred to the Group. Subsidiaries to be divested are con-
solidated up to the date of disposal (i.e. loss of control).
Equity attributable to minority interests is presented in the
consolidated balance sheet within equity, separately from
equity attributable to UBS shareholders. Net profit attribut-
able to minority interests is shown separately in the income
statement.
When UBS acquires a subsidiary, the purchase method of
accounting is used to account for the acquisition of a subsid-
iary. The cost of acquisition is measured at the fair value of the
consideration given at the date of exchange, together with
costs directly attributable to that acquisition. The acquired
identifiable assets or liabilities and contingent liabilities are
measured at fair value at the date of acquisition. Any excess
of the cost of acquisition over the fair value of UBS’s share of
the identifiable assets, liabilities and contingent liabilities is re-
corded as goodwill. If the cost of acquisition is less than the
fair value of UBS’s share of identifiable assets, liabilities and
contingent liabilities of the business acquired, the difference is
recognized immediately in the income statement.
The Group sponsors the formation of entities, which may
or may not be directly or indirectly owned subsidiaries, for
the purpose of asset securitization transactions and struc-
tured debt issuance, and to accomplish certain narrow and
well defined objectives. These companies may acquire assets
directly or indirectly from UBS or its affiliates. Some of these
companies are bankruptcy-remote entities whose assets are
not available to satisfy the claims of creditors of the Group or
any of its subsidiaries. UBS also has employee benefit trusts
that are used in connection with share-based payment ar-
rangements and deferred compensation schemes. Such
trusts and other special purpose entities are consolidated
in the Group’s Financial Statements when the substance of
the relationship between the Group and the company indi-
cates that the company is controlled by the Group.
The following circumstances may indicate a relationship
in which, in substance, UBS controls and consequently con-
solidates the SPE:
– the activities of the SPE are being conducted on behalf of
UBS according to its specific business needs so that UBS
obtains benefits from the SPE’s operations;
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Notes to the consolidated financial statements
– UBS has the decision-making powers to obtain the major-
ity of the benefits of the activities of the SPE or, by setting
up an “autopilot” mechanism, UBS has delegated these
decision making powers;
– UBS has rights to obtain the majority of the benefits of
the SPE and therefore may be exposed to risks incident to
the activities of the SPE; or
– UBS retains the majority of the residual or ownership risks
related to the SPE or its assets in order to obtain benefits
from its activities.
UBS continuously evaluates whether triggering events re-
quire the reconsideration of the consolidation conclusions
made at inception of its involvement with special purpose
entities, especially securitization vehicles and collateralized
debt obligations (CDOs). Triggering events generally include
items such as restructurings, the vesting of potential rights
and acquisition, disposal or expiration of interests. In these
circumstances, special purpose entities may be consolidated
depending on how the conditions have changed.
Intercompany transactions, balances and unrealized gains
or losses on transactions between the Group companies are
eliminated.
Consolidated financial statements are prepared using uni-
form accounting policies for like transactions and other
events in similar circumstances.
Assets and liabilities of subsidiaries are classified as “held
for sale” if their carrying amount will be recovered princi-
pally through a sale transaction rather than through continu-
ing use – see parts 19) and 28). Major lines of business and
subsidiaries that were acquired exclusively with the intent for
resale are presented as discontinued operations in the state-
ment of comprehensive income in the period when the sale
occurred or it becomes highly probable that a sale will occur
within 12 months – see part 28).
4) Associates and jointly controlled entities
Investments in associates in which UBS has a significant in-
fluence are accounted for under the equity method of ac-
counting. Significant influence is normally evidenced when
UBS owns between 20% to 50% of a company’s voting
rights. Investments in associates are initially recorded at cost,
and the carrying amount is increased or decreased to recog-
nize the Group’s share of the investee’s net profit or loss (in-
cluding net profit or loss recognized directly in equity) after
the date of acquisition.
Interests in jointly controlled entities, in which UBS and one
or more third parties have joint control, are accounted for un-
der the equity method. A jointly controlled entity is subject to
a contractual agreement between UBS and one or more third
parties, which establishes joint control over its economic ac-
tivities. Interests in such entities are reflected under Invest-
ments in associates on the balance sheet, and the related dis-
closures are included in the disclosures for associates. UBS
holds certain interests in jointly controlled real estate entities.
Investments in associates and interests in jointly con-
trolled entities are classified as “held for sale” if their carry-
ing amount will be recovered principally through a sale
transaction rather than through continuing use – see parts
19) and 28).
5) Recognition and derecognition of financial instruments
UBS recognizes financial instruments on its balance sheet
when the Group becomes a party to the contractual provi-
sions of the instrument.
Financial assets
UBS enters into transactions where it transfers financial as-
sets recognized on its balance sheet but retains either all
risks and rewards of the transferred financial assets or a por-
tion of them. If all or substantially all risks and rewards are
retained, the transferred financial assets are not derecog-
nized from the balance sheet. Transfers of financial assets
with retention of all or substantially all risks and rewards in-
clude, for example, securities lending and repurchase trans-
actions described in this Note under parts 13) and 14). They
further include transactions where financial assets are sold
to a third party with a concurrent total rate of return swap
on the transferred assets to retain all their risks and rewards.
These types of transactions are accounted for as secured
financing transactions.
In transactions where substantially all of the risks and re-
wards of ownership of a financial asset are neither retained
nor transferred, UBS derecognizes the financial asset if con-
trol over the asset is lost. The rights and obligations retained
in the transfer are recognized separately as assets and liabili-
ties as appropriate. In transfers where control over the finan-
cial asset is retained, the Group continues to recognize the
asset to the extent of its continuing involvement, deter-
mined by the extent to which it is exposed to changes in the
value of the transferred asset. Examples of such transactions
are transfers of financial assets involving guarantees, writing
put options, acquiring call options, or specific types of swaps
linked to the performance of the asset.
Financial liabilities
UBS removes a financial liability from its balance sheet when
it is extinguished, i.e. when the obligation specified in the
contract is discharged or cancelled or expires. Where an ex-
isting financial liability is exchanged for a new one from the
same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an ex-
change or modification is treated as a derecognition of the
original liability and recognition of a new liability. The differ-
ence in the respective carrying amounts is recognized in
profit or loss.
UBS acts as trustee and in other fiduciary capacities that
result in the holding or placing of assets on behalf of indi-
viduals, trusts, retirement benefit plans and other institu-
264
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ed from UBS’s financial statements, as they are not assets of
UBS, provided the recognition criteria are not satisfied.
6) Determination of fair value
The fair value principles applied when determining fair value
are considered significant accounting policies. Fair value is
the amount for which an asset could be exchanged or a lia-
bility settled between knowledgeable, willing parties in an
arm’s length transaction. Details of the determination of fair
value of financial instruments, fair value hierarchy, valuation
techniques and inputs by products, day 1 profit or loss and
other related fair value disclosures are disclosed in Note 27.
7) Trading portfolio assets and liabilities
Trading portfolio assets consist of debt instruments (including
those in the form of securities, money market paper, traded
corporate and bank loans), equity instruments (including
those in the form of securities), assets held under unit-linked
contracts and precious metals and other commodities owned
by the Group (“long” positions). Trading portfolio liabilities
consist of obligations to deliver financial instruments such as
debt and equity instruments which the Group has sold to
third parties but does not own (“short” positions). The trad-
ing portfolio includes non-derivative financial instruments
(including those with embedded derivatives) and commodi-
ties. Financial instruments which are considered derivatives in
their entirety are generally presented on the balance sheet as
Positive and Negative replacement values, refer to part 15).
UBS’s trading portfolio assets and liabilities (refer to Note 11)
include proprietary positions, hedge positions and client busi-
ness-related positions (provided the recognition criteria men-
tioned in part 5) are satisfied).
The trading portfolio is carried at fair value. Gains and
losses realized on disposal or redemption and unrealized
gains and losses from changes in the fair value of trading
portfolio assets and liabilities are reported as Net trading in-
come. Interest and dividend income and expense on trading
portfolio assets or liabilities are included in Interest and divi-
dend income or Interest and dividend expense.
An acquired non-derivative financial asset or liability is
classified at acquisition as held for trading and presented in
the trading portfolio if it is (a) acquired or incurred principally
for the purpose of selling or repurchasing it in the near term;
or (b) part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of
a recent actual pattern of short-term profit-taking.
The Group uses settlement date accounting when record-
ing trading financial asset transactions. From the date the
purchase transaction is entered into (trade date), UBS recog-
nizes any unrealized profits and losses arising from revaluing
that contract to fair value in Net trading income. The corre-
sponding receivable or payable is presented on the balance
sheet as a Positive or Negative replacement value. When the
transaction is consummated (settlement date), a resulting fi-
nancial asset is recognized on the balance sheet at the fair
value of the consideration given or received plus or minus
the change in fair value of the contract since the trade date.
When the Group becomes party to a sales contract of a fi-
nancial asset classified in its trading portfolio, unrealized
profits and losses are no longer recognized from the date the
sales transaction is entered into (trade date) and it derecog-
nizes the asset on the day of its transfer (settlement date).
Trading portfolio assets transferred to external parties
that do not qualify for derecognition (see part 5)) are reclas-
sified on UBS‘s balance sheet from Trading portfolio assets to
Trading portfolio assets pledged as collateral, if the transfer-
ee has received the right to sell or repledge them.
Following an amendment to IAS 39 in 2008 (refer to Note
1b and Note 29b), subject to certain conditions being met,
financial assets may be reclassified from the “Held for trad-
ing” category to the “Loans and receivables” category if the
firm has the intent and ability to hold them for the foresee-
able future or until maturity. UBS applied this option in
fourth quarter 2008 and first quarter 2009 and reclassified
several illiquid financial assets (such as purchased asset-
backed securities, including mortgage-backed securities
(MBS), originated by third parties) to the category “loans
and receivables”, as a result of which these instruments to
be no longer fair valued through profit or loss but rather ac-
counted for at amortized cost less impairment.
8) Financial assets and Financial liabilities designated at fair
value through profit or loss (“Fair Value Option”)
A financial instrument may only be designated at fair value
through profit or loss at inception and this designation can-
not subsequently be changed. Financial assets (refer to Note
12) and financial liabilities (refer to Note 19) designated at
fair value are presented in separate lines on the face of the
balance sheet.
The conditions for applying the fair value option are met
when
a) they are hybrid instruments which consist of a debt host
and an embedded derivative component, or
b) they are items that are part of a portfolio which is risk
managed on a fair value basis and reported to senior
management on that basis, or
c) the application of the fair value option reduces or elimi-
nates an accounting mismatch that would otherwise
arise.
Hybrid instruments which fall under criterion a) above in-
clude i) bonds and compound debt liabilities issued, ii) com-
pound debt liabilities – OTC, and iii) hybrid financial assets
from reverse repurchase agreements. Bonds and compound
debt liabilities issued and OTC generally include embedded
derivative components which, for example, refer to an
underlying equity price, interest rate, commodities price or
index.
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Notes to the consolidated financial statements
UBS has designated most of its issued hybrid debt instru-
ments as Financial liabilities designated at fair value through
profit or loss. These instruments include predominantly the
following categories of underlyings:
– Credit-linked: bonds, notes linked to the performance (cou-
pon and / or redemption amount) of single names (such as
a company or a country) or a basket of reference entities.
– Equity-linked: bonds, notes that are linked to a single
stock, a basket of stocks or an equity index.
– Rates-linked: bonds, notes linked to a reference interest
rate, interest rate spread or formula.
Besides hybrid instruments, the fair value option is also
applied to certain loans and loan commitments which are
substantially hedged with credit derivatives. The application
of the fair value option to these instruments reduces an ac-
counting mismatch, as loans would have been otherwise ac-
counted for at amortized cost or as financial investments
available-for-sale (refer to part 9)), whereas the hedging
credit protection is accounted for as a derivative instrument
at fair value through profit or loss.
UBS has also applied the fair value option to a hedge fund
investment and structured reverse repurchase agreement
which are part of portfolios managed on a fair value basis.
Fair value changes related to financial instruments designat-
ed at fair value through profit or loss are recognized in Net
trading income.
Interest income and interest expense on financial assets
and liabilities designated at fair value through profit or loss
are included in Interest income on financial assets designat-
ed at fair value or Interest on financial liabilities designated
at fair value. Refer to Note 3.
UBS applies the same recognition and derecognition prin-
ciples to financial instruments designated at fair value as to
financial instruments held for trading (refer to parts 5) and 7)).
9) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative fi-
nancial assets that are not classified as held for trading, des-
ignated at fair value through profit or loss, or loans and re-
ceivables. They are recognized on a settlement date basis.
Financial investments available-for-sale include highly liquid
short term debt securities, strategic equity investments, cer-
tain investments in real estate funds as well as instruments
that, in management’s opinion, may be sold in response to
or in anticipation of needs for liquidity or changes in interest
rates, foreign exchange rates or equity prices. Financial in-
vestments available-for-sale consist mainly of highly liquid
short term debt securities issued by government and govern-
ment-controlled institutions, generally with residual maturi-
ties of less than three months. In addition, certain equity in-
struments, including private equity investments as well as
debt instruments and non-performing loans acquired in the
secondary market are classified as financial investments
available-for-sale.
Financial investments available-for-sale are initially recog-
nized at fair value including direct transaction costs and are
subsequently measured at fair value. Unrealized gains or
losses are reported in Equity, net of applicable income taxes,
until such investments are sold, collected or otherwise dis-
posed of, or until any such investment is determined to be
impaired. On disposal of an investment, the accumulated
unrealized gain or loss included in Equity is transferred to
Net profit for the period and reported in Other income.
Gains and losses on disposal are determined using the aver-
age cost method and are included in the income statement.
Interest and dividend income on financial investments
available-for-sale are included in Interest and dividend in-
come from financial investments available-for-sale.
UBS assesses at each balance sheet date whether there are in-
dicators of impairment of an available-for-sale investment. An
available-for-sale investment is impaired when there is objective
evidence that as a result of one or more events that occurred
after the initial recognition of the investment, the estimated
future cash flows of the investment have been affected. For
equity investments available-for-sale, a significant or prolonged
decline in fair value below its original cost is considered to be
objective evidence of impairment. For debt investments avail-
able-for-sale, objective evidence of impairment includes for ex-
ample a significant financial difficulty of the issuer or counter-
party, default or delinquency in interest or principal payments
or probability that the borrower will enter bankruptcy or finan-
cial re-organization. If a financial investment available-for-sale
is determined to be impaired, the cumulative net unrealized
loss previously recognized in Equity is included in Net profit for
the period and reported as a deduction from Other income. To
the extent impairments of financial investments available-for-
sale are covered by fair value decreases of the current year-to-
date period, impairments are directly recognized in the income
statement. To the extent impairments relate to fair value de-
creases of previous periods, amounts are released from other
comprehensive income to the income statement and separate-
ly presented in the statement of comprehensive income.
After the recognition of impairment on a financial invest-
ment available-for-sale, increases in fair value of equity in-
struments are reported in Equity and increases in fair value of
debt instruments up to original cost are recognized in Other
income, provided the fair value increase has been triggered
by a specific event (as defined by IFRS).
UBS applies the same recognition and derecognition prin-
ciples to financial assets available-for-sale as “Financial instru-
ments designated at fair value” or “Held-for-trading”, except
that unrealized gains or losses between trade date and settle-
ment date recognized in Equity (refer to parts 5) and 7)).
10) Loans and receivables
For an overview of financial assets and financial liabilities ac-
counted for as “Loans and receivables”, refer to the mea-
surement categories presented in Note 29.
266
“Loans and receivables” are non-derivative financial as-
sets with fixed or determinable payments which are not
classified as held-for-trading, not designated as at fair value
through P&L or available-for-sale and are not those for
which the Group may not recover substantially all of its
initial net investment, other than because of credit dete-
rioration.
“Loans and receivables” include:
– originated loans where money is provided directly to the
borrower, participation in a loan from another lender and
purchased loans (certain purchased non-performing loans
are also classified as financial investment available-for-
sale at inception) initially classified as “loans and receiv-
ables”;
– securities initially classified as “Loans and receivables” due
to illiquid markets such as Auction Rate Securities;
– reclassified securities previously “Held-for-trading” (refer
to Note 29b; and
– reclassified loans such as leverage finance loans previous-
ly “held-for-trading” (refer to Note 29b).
In fourth quarter 2008 and first quarter 2009, UBS re-
classified certain debt financial assets from the category
“Held-for-trading” to “Loans and receivables”, mainly due
to illiquid markets for these instruments (refer to Note 1b,
Note 29b and Note 9a and 9b). When a financial asset is
reclassified from “held-for-trading” to “loans and receiv-
ables”, the financial asset is reclassified at its fair value on
the date of reclassification. Any gain or loss recognized in
the income statement before reclassification is not reversed.
The fair value of a financial asset on the date of reclassifica-
tion becomes its cost basis or amortized cost basis, as ap-
plicable.
Loans are recognized when cash is advanced to borrow-
ers. They are initially recorded at fair value, which is the cash
given to originate or purchase the loan, plus any direct trans-
action costs, and are subsequently measured at amortized
cost using the effective interest rate method.
Interest on loans is included in Interest earned on loans
and advances and is recognized on an accrual basis. Fees
and direct costs relating to loan origination, refinancing or
restructuring and to loan commitments are deferred and
amortized to Interest earned on loans and advances over the
life of the loan using the straight-line method which approx-
imates the effective interest rate method. Fees received for
commitments that are not expected to result in a loan are
included in Credit-related fees and commissions over the
commitment period. Loan syndication fees where UBS does
not retain a portion of the syndicated loan are credited to
commission income.
Renegotiated loans
Subject to assessment on a case by case basis, UBS may ei-
ther restructure a loan or take possession of collateral. Re-
structuring may involve extending the payment arrange-
ments and agreeing to new loan conditions. Once the terms
have been renegotiated any impairment is measured using
the effective interest rate (EIR) as calculated before the mod-
ification of terms and the loan is not considered as past due.
Management continuously reviews renegotiated loans to
ensure that all criteria are met and that future payments are
likely to occur. The loans continue to be subject to impair-
ment assessment, calculated using the loan’s original EIR.
Commitments
Letters of credit, guarantees and similar instruments com-
mit UBS to make payments on behalf of third parties under
specific circumstances. These instruments, as well as un-
drawn irrevocable credit facilities, carry credit risk and are
included in the exposure to credit risk table in Note 29c,
with their gross maximum exposure to credit risk less provi-
sions.
11) Allowance and provision for credit losses
An allowance or provision for credit losses (refer to Note 9b)
is established if there is objective evidence that the Group
will be unable to collect all amounts due on a claim accord-
ing to the original contractual terms or the equivalent value.
A “claim” means a loan or receivable carried at amortized
cost, or a commitment such as a letter of credit, a guarantee,
a commitment to extend credit or other credit products.
Objective evidence of impairment include:
– significant financial difficulty of the issuer or counterparty;
or
– default or delinquency in interest or principal payments;
or
– probability that the borrower will enter bankruptcy or
financial re-organization.
An allowance for credit losses is reported as a reduction
of the carrying value of a claim on the balance sheet. For an
off-balance sheet item, such as a commitment, a provision
for credit loss is reported in Other liabilities. Additions to al-
lowances and provisions for credit losses are made through
Credit loss expense.
Allowances and provisions for credit losses are evaluated
at a counterparty-specific level and collectively based on the
following principles:
Counterparty-specific: A claim is considered impaired
when management determines that it is probable that the
Group will not be able to collect all amounts due according
to the original contractual terms or the equivalent value.
Individual credit exposures are evaluated based on the
borrower’s character, overall financial condition, resources
and payment record; the prospects for support from any fi-
nancially responsible guarantors; and, where applicable, the
realizable value of any collateral.
The estimated recoverable amount is the present value,
using the loan’s original effective interest rate, of expected
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future cash flows, including amounts that may result from
restructuring or the liquidation of collateral. Impairment is
measured and allowances for credit losses are established for
the difference between the carrying amount and the esti-
mated recoverable amount.
Upon impairment, the accrual of interest income based
on the original terms of the claim is discontinued, but the
increase of the present value of impaired claims due to the
passage of time is reported as Interest income.
All impaired claims are generally reviewed and analyzed
at least annually. Any subsequent changes to the amounts
and timing of the expected future cash flows compared with
the prior estimates result in a change in the allowance for
credit losses and are charged or credited to Credit loss ex-
pense.
An allowance for impairment is reversed only when the
credit quality has improved to such an extent that there is
reasonable assurance of timely collection of principal and in-
terest in accordance with the original contractual terms of
the claim or equivalent value.
A write-off is made when all or part of a claim is deemed
uncollectible or forgiven. Write-offs are charged against pre-
viously established allowances for credit losses or directly to
Credit loss expense and reduce the principal amount of a
claim. Recoveries in part or in full of amounts previously writ-
ten off are credited to Credit loss expense. A restructuring of
a financial asset could result in the original loan being derec-
ognized and a new loan being recognized. The new loan is
measured at fair value at initial recognition. Any allowance
taken against the original loan is removed by increasing
write-offs. The gross counterparty exposure, however, may
remain unaffected, if the rights existing prior to the restruc-
turing have not been legally waived.
A loan is classified as non-performing when the payment
of interest, principal or fees is overdue by more than 90 days
and there is no firm evidence that it will be made good by
later payments or the liquidation of collateral, insolvency
proceedings have commenced against the firm, or obliga-
tions have been restructured on concessionary terms.
Collectively: All loans for which no impairment is identi-
fied on a counterparty-specific level are grouped into sub-
portfolios with similar credit risk characteristics to collectively
assess whether impairment exists within a portfolio. Allow-
ances from collective assessment of impairment are recog-
nized as Credit loss expense and result in an offset to the
aggregated loan position. As the allowance cannot be allo-
cated to individual loans, the loans are not considered to be
impaired and interest is accrued on each loan according to
its contractual terms.
Reclassified securities: UBS periodically revises its estimat-
ed cash flows associated with the portfolio of reclassified
securities backed by multiple assets. Adverse revisions in
cash flows estimates related to credit events are recognized
in profit or loss as credit loss expenses. Increases in estimated
future cash receipts as a result of increased recoverability are
recognized as an adjustment to the effective interest rate on
the loan from the date of change.
12) Securitization structures set up by UBS
UBS securitizes various financial assets, which generally re-
sults in the sale of these assets to special purpose entities,
which in turn issue securities to investors. UBS’s involvement
in securitization structures significantly declined in 2008 and
remained low in 2009. UBS applies the policies set out in
part 3) in determining whether the respective special pur-
pose entity must be consolidated and those set out in part 5)
in determining whether derecognition of transferred finan-
cial assets is appropriate. The following statements mainly
apply to financial asset transfers which are considered true
sales to non-consolidated entities.
Interests in the securitized financial assets may be re-
tained in the form of senior or subordinated tranches,
interest-only strips or other residual interests (“retained
interests”). Retained interests are primarily recorded in
Trading portfolio assets and carried at fair value. Gains or
losses on securitization are recognized in Net trading in-
come, which is generally when the derecognition criteria
are satisfied. Typically, the Group seeks to exit its risk in
retained interests shortly after close of the securitization.
Synthetic securitization structures typically involve deriva-
tive financial instruments for which the principles set out
in part 15) apply.
UBS acts as structurer and placement agent in various
MBS and other ABS securitizations. In such capacity, UBS
purchases collateral on its own behalf or on behalf of cus-
tomers during the period prior to securitization. UBS typi-
cally sold the collateral into designated trusts at the close of
the securitization and underwrites the offerings to investors,
earning fees for its placement and structuring services. Con-
sistent with the valuation of similar inventory, fair value of
retained tranches is initially and subsequently determined
using market price quotations where available or internal
pricing models that utilize variables such as yield curves, pre-
payment speeds, default rates, loss severity, interest rate vol-
atilities and spreads. Where possible, assumptions based on
observable transactions are used to determine the fair value
of retained tranches, but for several of them, substantially
no observable information is available.
13) Securities borrowing and lending
Securities borrowing and securities lending transactions are
generally entered into on a collateralized basis. In such trans-
actions, UBS typically lends or borrows securities in exchange
for securities or cash collateral. Additionally, UBS borrows
securities from its clients’ custody accounts in exchange for
a fee. The majority of securities lending and borrowing
agreements involve shares, and the remainder typically in-
volve bonds and notes. The transactions are conducted un-
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der standard agreements employed by financial market par-
ticipants and are undertaken with counterparties subject to
UBS’s normal credit risk control processes. UBS monitors the
market value of the securities received or delivered on a dai-
ly basis and requests or provides additional collateral or re-
turns or recalls surplus collateral in accordance with the un-
derlying agreements.
The securities which have been transferred, whether in a
borrowing / lending transaction or as collateral, are not rec-
ognized on or derecognized from the balance sheet unless
the risks and rewards of ownership are also transferred. In
such transactions where UBS transfers owned securities and
where the borrower is granted the right to sell or repledge
them, the securities are reclassified on the balance sheet
from Trading portfolio assets to Trading portfolio assets
pledged as collateral. Cash collateral received is recognized
with a corresponding obligation to return it (Cash collateral
on securities lent). Cash collateral delivered is derecognized
with a corresponding receivable reflecting UBS’s right to re-
ceive it back (Cash collateral on securities borrowed). Securi-
ties received in a lending or borrowing transaction are dis-
closed as off-balance sheet items if UBS has the right to
resell or repledge them, with securities that UBS has actually
resold or repledged also disclosed separately (see Note 24).
Additionally, the sale of securities received in a borrowing or
lending transaction triggers the recognition of a trading lia-
bility (short sale).
Consideration exchanged in financing transactions (i.e.
interest received or paid) is recognized on an accrual basis
and recorded as Interest income or Interest expense.
14) Repurchase and reverse repurchase transactions
Securities purchased under agreements to resell (Reverse re-
purchase agreements) and securities sold under agreements
to repurchase (Repurchase agreements) are generally treated
as collateralized financing transactions. Nearly all repurchase
and reverse repurchase agreements involve debt instru-
ments, such as bonds, notes or money market paper. The
transactions are conducted under standard agreements em-
ployed by financial market participants and are undertaken
with counterparties subject to UBS’s normal credit risk con-
trol processes. UBS monitors the market value of the securi-
ties received or delivered on a daily basis and requests or
provides additional collateral or returns or recalls surplus col-
lateral in accordance with the underlying agreements.
In a reverse repurchase agreement, the cash delivered is
derecognized and a corresponding receivable, including ac-
crued interest, is recorded in the balance sheet line Reverse
repurchase agreements, recognizing UBS’s right to receive it
back. In a Repurchase agreement, the cash received is recog-
nized and a corresponding obligation, including accrued in-
terest, is recorded in the balance sheet line Repurchase
agreements. Securities received under reverse repurchase
agreements and securities delivered under repurchase agree-
ments are not recognized on or derecognized from the bal-
ance sheet, unless the risks and rewards of ownership are
obtained or relinquished. In repurchase agreements where
UBS transfers owned securities and where the recipient is
granted the right to resell or repledge them, the securities
are reclassified in the balance sheet from Trading portfolio
assets to Trading portfolio assets pledged as collateral. Secu-
rities received in a reverse repurchase agreement are dis-
closed as off-balance sheet items if UBS has the right to re-
sell or repledge them, with securities that UBS has actually
resold or repledged also disclosed separately (see Note 24).
Additionally, the sale of securities received in reverse repur-
chase transactions triggers the recognition of a trading liabil-
ity (short sale).
Interest earned on reverse repurchase agreements and in-
terest incurred on repurchase agreements is recognized as
interest income or interest expense over the life of each
agreement.
The Group offsets reverse repurchase agreements and re-
purchase agreements with the same counterparty, maturity,
currency and Central Securities Depository (CSD) for transac-
tions covered by legally enforceable master netting agree-
ments when net or simultaneous settlement is intended.
15) Derivative instruments and hedge accounting
Derivatives are initially recognized at fair value at the date
the derivative contract is entered into and are subsequently
remeasured to fair value. The resulting gain or loss is recog-
nized in profit or loss unless the derivative is designated and
effective as a hedging instrument, in which event the timing
of the recognition in profit or loss depends on the nature of
the hedge relationship.
Derivative instruments are reported on the balance sheet
as Positive replacement values or Negative replacement val-
ues (except for futures, 100% daily-margined exchange
traded options and London Clearing House (LCH) interest
rate swaps). Where the Group enters into derivatives for
trading purposes, gains and losses are recognized in Net
trading income. Credit losses incurred on over-the-counter
(OTC) derivatives are also reported in Net trading income.
Futures and LCH Interest rate swaps with daily margining
and 100% daily margined exchange traded options are trans-
acted and measured at fair value. They do not have a replace-
ment value as the variation margin, expressing the cumulative
market movements each day, is settled daily on a cash basis.
Any unpaid variation margin represents a receivable or payable
with fixed amount and settlement date and is presented on
the balance sheet under Due from banks and loans or Due to
banks and customers. The daily cash settlement (i.e. change in
market value) is booked to Net trading income.
Hedge accounting
The Group also uses derivative instruments as part of its as-
set and liability management activities to manage exposures
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Notes to the consolidated financial statements
to interest rate, foreign currency and credit risks, including
exposures arising from forecast transactions. The Group ap-
plies either fair value or cash flow hedge accounting when
transactions meet the specified criteria to obtain hedge ac-
counting treatment.
At the time a financial instrument is designated as a
hedge, the Group formally documents the relationship be-
tween the hedging instrument(s) and hedged item(s), includ-
ing the risk management objectives and strategy in under-
taking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging
relationship. Accordingly, the Group assesses, both at the
inception of the hedge and on an ongoing basis, whether
the hedging derivatives have been “highly effective” in off-
setting changes in the fair value or cash flows of the hedged
items. UBS regards a hedge as highly effective if the follow-
ing criteria are met: a) at inception of the hedge and
throughout its life, the hedge is expected to be highly effec-
tive in achieving offsetting changes in fair value or cash
flows attributable to the hedged risk, and b) actual results of
the hedge are within a range of 80% to 125%. In the case
of hedging a forecast transaction, the transaction must have
a high probability of occurring and must present an exposure
to variations in cash flows that could ultimately affect the
reported net profit or loss. The Group discontinues hedge
accounting when it determines that a derivative is not, or
has ceased to be, highly effective as a hedge; when the de-
rivative expires or is sold, terminated or exercised; when the
hedged item matures, is sold or repaid; or when a forecast
transaction is no longer deemed highly probable.
Hedge ineffectiveness represents the amount by which
the changes in the fair value of the hedging derivative differ
from changes in the fair value of the hedged item or the
amount by which changes in the present value of cash flows
of the hedging derivative differ from changes (or expected
changes) in the present value of cash flows of the hedged
item. Such ineffectiveness is recorded in current period earn-
ings in Net trading income.
Fair value hedges
For qualifying fair value hedges, the change in fair value of
the hedging derivative is recognized in the income state-
ment. Those changes in fair value of the hedged item that
are attributable to the risks hedged with the derivative in-
strument are reflected in an adjustment to the carrying value
of the hedged item, which is also recognized in the income
statement. The fair value change of the hedged item in a
portfolio hedge of interest rate risks is reported separately
from the hedged portfolio in Other assets or Other liabilities
as appropriate. If the hedge relationship is terminated for
reasons other than the derecognition of the hedged item,
the difference between the carrying value of the hedged
item at that point and the value at which it would have been
carried had the hedge never existed (the “unamortized fair
value adjustment”) is, in the case of interest-bearing instru-
ments, amortized to the income statement over the remain-
ing term of the original hedge, while for non-interest-bear-
ing instruments that amount is immediately recognized in
earnings. If the hedged item is derecognized, e.g. due to sale
or repayment, the unamortized fair value adjustment is rec-
ognized immediately in profit or loss.
Cash flow hedges
A fair value gain or loss associated with the effective portion
of a derivative designated as a cash flow hedge is recognized
initially in Equity. When the cash flows that the derivative is
hedging materialize, resulting in income or expense, then
the associated gain or loss on the hedging derivative is simul-
taneously transferred from Equity to the corresponding in-
come or expense line item.
If a cash flow hedge for a forecast transaction is deemed to
be no longer effective, or if the hedge relationship is termi-
nated, the cumulative gain or loss on the hedging derivative
previously reported in Equity remains there until the commit-
ted or forecast transaction occurs or is no longer expected to
occur, at which point it is transferred to profit or loss.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are ac-
counted for similarly to cash flow hedges. Gains or losses on
the hedging instrument relating to the effective portion of
the hedge are recognized directly in Equity (and presented in
the statement of equity and statement of comprehensive in-
come under Foreign currency translation), while any gains or
losses relating to the ineffective portion are recognized in
the income statement. On disposal of the foreign operation,
the cumulative value of any such gains or losses recognized
directly in Equity is reclassified to the income statement.
Economic hedges which do not qualify for hedge accounting
Derivative instruments which are transacted as economic
hedges but do not qualify for hedge accounting are treated
in the same way as derivative instruments used for trading
purposes, i.e. realized and unrealized gains and losses are
recognized in Net trading income except that, in certain cas-
es, the forward points on short duration foreign exchange
contracts are reported in Net interest income. Refer to Note
23 for more information on “economic hedges”.
Embedded derivatives
A derivative may be embedded in a “host contract”. Such
combinations are known as hybrid instruments and arise
predominantly from the issuance of certain structured debt
instruments. If the host contract is not carried at fair value
with changes in fair value reported in the income statement,
the embedded derivative is generally required to be sepa-
rated from the host contract and accounted for as a stand-
alone derivative instrument at fair value through profit or
270
loss if the economic characteristics and risks of the embed-
ded derivative are not closely related to the economic char-
acteristics and risks of the host contract, and the embedded
derivative actually meets the definition of a derivative. Bifur-
cated embedded derivatives are presented on the same bal-
ance sheet line as the host contract, and are shown in Note
29 in the “Held for trading” category, reflecting the mea-
surement and recognition principles applied.
Typically, UBS applies the fair value option to hybrid in-
struments (see part 8)), in which case bifurcation of an em-
bedded derivative component is not required.
16) Loan commitments
Loan commitments are defined amounts (unutilized credit
lines or undrawn portions of credit lines) against which cus-
tomers can borrow money at defined terms and conditions.
Loan commitments that can be cancelled by UBS at any
time (without giving a reason) according to their general
terms and conditions are neither recognized on-balance
sheet nor off-balance sheet. Upon a loan draw down by the
counterparty, the amount of the loan is accounted for as
“Loans and receivables” (refer to part 10).
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the
beneficiary or that is revocable only due to automatic cancel-
lation upon the deterioration in a borrower’s creditworthi-
ness) are classified into the following categories:
– Derivative loan commitments (loan commitments that
can be settled net in cash or by delivering or issuing an-
other financial instrument) or if there is evidence that UBS
is selling similar loans resulting from its loan commit-
ments before or shortly after origination (refer to part 15).
– Loan commitments designated at fair value through prof-
it and loss (“Fair value option”) (refer to part 8).
– Below market loan commitments. Below market loan
commitments are recognized at fair value and subse-
quently measured at the higher of the initially recognized
liability at fair value less cumulative amortization and a
provision (refer to part 26). UBS uses them only in specific
situations (e.g. restructuring, insolvency).
– Other loan commitments. Other loan commitments are
not recorded in the balance sheet. However, a provision is
recognized if it is probable that a loss has been incurred
and a reliable estimate of the amount of the obligation
can be made (refer to part 26).
17) Cash and cash equivalents
For purposes of the cash flow statement, cash and cash
equivalents comprise balances with less than three months’
maturity from the date of acquisition including cash and
non-restricted balances with central banks, treasury bills,
balances included in Due from banks, as well as money mar-
ket paper included in Trading portfolio assets and Financial
investments available-for-sale.
18) Physical commodities
Physical commodities (precious metals, base metals, energy
and other commodities) held by UBS as a result of its broker-
trader activities are accounted for at fair value less costs to
sell and recognized within the Trading portfolio. Changes in
fair value less costs to sell are recorded in Net trading income.
19) Property and equipment
Property and equipment includes own-used properties, in-
vestment properties, leasehold improvements, IT, software
and communication and other machines and equipment.
With the exception of investment properties, Property
and equipment is carried at cost, less accumulated deprecia-
tion and accumulated impairment losses, and is periodically
reviewed for impairment. The useful life of property and
equipment is estimated on the basis of the economic utiliza-
tion of the asset.
Classification for own-used property
Own-used property is defined as property held by the Group
for use in the supply of services or for administrative pur-
poses, whereas investment property is defined as property
held to earn rental income and / or for capital appreciation. If
a property of the Group includes a portion that is own-used
and another portion that is held to earn rental income or for
capital appreciation, the classification is based on whether or
not these portions can be sold separately. If the portions of
the property can be sold separately, they are separately ac-
counted for as own-used property and investment property.
If the portions cannot be sold separately, the whole property
is classified as own-used property unless the portion used by
the Group is minor. The classification of property is reviewed
on a regular basis to account for major changes in its usage.
Leasehold improvements
Leasehold improvements are investments made to custom-
ize buildings and offices occupied under operating lease
contracts to make them suitable for the intended purpose.
The present value of estimated reinstatement costs to bring
a leased property into its original condition at the end of the
lease, if required, is capitalized as part of the total leasehold
improvements costs. At the same time, a corresponding lia-
bility is recognized to reflect the obligation incurred. Rein-
statement costs are recognized in profit and loss through
depreciation of the capitalized leasehold improvements over
their estimated useful lives.
Software
Software development costs are capitalized when they meet
certain criteria relating to identifiability, it is probable that
future economic benefits will flow to the enterprise, and the
cost can be measured reliably. Internally developed software
meeting these criteria and purchased software are classified
within IT, software and communication.
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Property held for sale
Non-current property formerly own-used or leased to third
parties under an operating lease and equipment the Group
has decided to sell and for which sale within 12 months is
highly probable are classified as non-current assets held for
sale and recorded in Other assets. Upon classification as held
for sale, they are no longer depreciated and are carried at
the lower of book value or net realizable value. Foreclosed
properties and other properties classified as current assets
are included in Properties held for sale and recorded in Other
assets. They are carried at the lower of book value and net
realizable value.
Investment property
Investment property is carried at fair value with changes in
fair value recognized in the income statement in the period
of change. UBS employs internal real estate experts to deter-
mine the fair value of investment property by applying rec-
ognized valuation techniques. In cases where prices of re-
cent market transactions of comparable properties are
available, fair value is determined by reference to these
transactions.
Estimated useful life of property and equipment
Property and equipment is depreciated on a straight-line ba-
sis over its estimated useful life as follows:
Properties, excluding land
Leasehold improvements
Other machines and equipment
IT, software and communication
Not exceeding 50 years
Residual lease term,
but not exceeding 10 years
Not exceeding 10 years
Not exceeding 5 years
20) Goodwill and 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.
Goodwill is not amortized; it is tested yearly for impairment,
and, additionally, when a reasonable indication of impair-
ment exists. The impairment test is conducted at the seg-
ment level as reported in Note 2a. The segment has been
determined as the cash-generating unit for impairment test-
ing purposes as this is the level at which the performance of
investments is reviewed and assessed by management. Refer
to Note 16 for details.
Intangible assets comprise separately identifiable intangi-
ble items arising from business combinations and certain pur-
chased trademarks and similar items. Intangible assets are
recognized at cost. The cost of an intangible asset acquired in
a business combination is its fair value at the date of acquisi-
tion. Intangible assets with a definite useful life are amortized
using the straight-line method over their estimated useful
economic life, generally not exceeding 20 years. Intangible
assets with an indefinite useful life are not amortized. Gener-
ally, all identified intangible assets of UBS have a definite use-
ful life. At each balance sheet date, intangible assets are re-
viewed for indications of impairment or changes in estimated
future benefits. If such indications exist, the intangible assets
are analyzed to assess whether their carrying amount is fully
recoverable. An impairment loss is recognized if the carrying
amount exceeds the recoverable amount.
Intangible assets are classified into two categories: a) in-
frastructure, and b) customer relationships, contractual
rights and other. Infrastructure consists of an intangible asset
recognized in connection with the acquisition of PaineWeb-
ber Group, Inc. Customer relationships, contractual rights
and other includes mainly intangible assets for client rela-
tionships, non-compete agreements, favorable contracts,
proprietary software, trademarks and trade names acquired
in business combinations.
21) Income taxes
Income tax payable on profits is recognized as an expense
based on the applicable tax laws in each jurisdiction in the
period in which profits arise. The tax effects of income tax
losses available for carry forward are recognized as a de-
ferred tax asset if it is probable that future taxable profit will
be available against which those losses can be utilized.
Deferred tax liabilities are recognized for temporary dif-
ferences between the carrying amounts of assets and liabili-
ties in the balance sheet and their amounts as measured for
tax purposes, which will result in taxable amounts in future
periods. Deferred tax assets are recognized for temporary
differences that 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 differ-
ences can be utilized.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the period in which the
asset will be realized or the liability will be settled based on
enacted rates.
Tax assets and liabilities of the same type (current or de-
ferred) are offset when they arise from the same tax report-
ing group, they relate to the same tax authority, the legal
right to offset exists, and they are intended to be settled net
or realized simultaneously.
Current and deferred taxes are recognized as income tax
benefit or expense except for current and deferred taxes rec-
ognized (i) upon the acquisition of a subsidiary, (ii) for unreal-
ized gains or losses on financial investments available-for-
sale, for changes in fair value of derivative instruments
designated as cash flow hedges, and for certain foreign cur-
rency translations of foreign operations, (iii) for certain tax
benefits on deferred compensation awards, and (iv) for gains
and losses on the sale of treasury shares. Deferred taxes rec-
ognized in a business combination (item (i)) are considered
when determining goodwill. Items (ii), (iii) and (iv) are re-
corded in Net income recognized directly in equity.
272
22) Debt issued
Money Market paper
Money market paper issued is initially measured at fair value,
which is the consideration received, net of transaction costs
incurred. Subsequent measurement is at amortized cost, us-
ing the effective interest rate method to amortize cost at
inception to the redemption value over the life of the debt.
Debt without embedded derivative
Issued debt instruments without embedded derivatives are
accounted for at amortized cost. However, it is the Group’s
policy to apply fair value hedge accounting to its fixed-rate
debt instruments when the interest rate risk is managed on
a mark-to-market basis. When fair value hedge accounting is
applied to fixed-rate debt instruments, the carrying values of
debt issued are adjusted for changes in fair value related to
the hedged exposure rather than carried at amortized cost
– refer to part 15) for further discussion.
Debt with embedded derivatives (related to UBS AG shares)
Debt instruments issued with embedded derivatives that are re-
lated to UBS AG shares (e.g. mandatory convertible notes) are
separated into a liability and an equity component at issue date
if the derivative is settled by UBS receiving or delivering a fixed
number of its own shares in exchange for a fixed amount of
cash or another financial asset. When a hybrid debt instrument
is issued, a portion of the net proceeds is allocated to the debt
component based on its fair value. The determination of fair
value is generally based on quoted market prices for UBS debt
instruments with comparable terms. The debt component is
subsequently measured at amortized cost or at fair value through
profit or loss, if the fair value option is applied. The remaining
amount of the net proceeds is allocated to the equity compo-
nent and reported in Share premium. Subsequent changes in
fair value of the separated equity component are not recog-
nized. However, if the hybrid debt instrument or the embedded
derivative related to UBS AG shares is to be cash settled or if it
contains a cash or net share settlement alternative, then the sep-
arated derivative is accounted for as a freestanding derivative,
with changes in fair value recorded in Net trading income unless
the entire hybrid debt instrument is designated at fair value
through profit or loss (“Fair Value Option”) – refer to part 8).
Debt with embedded derivatives
(not related to UBS AG shares)
Debt instruments issued with embedded derivatives that are
related to non-UBS AG equity instruments, foreign ex-
change, interest rate, credit instruments or indices are con-
sidered structured debt instruments. UBS has designated
most of its structured debt instruments at fair value through
profit or loss (“Fair Value Option”) – see part 8). If such in-
struments have not been designated at fair value through
profit or loss, the embedded derivative is separated from the
host contract and accounted for as a standalone derivative if
the criteria for separation are met. The host contract is sub-
sequently measured at amortized cost. The fair value option
is not applied to certain hybrid instruments which contain
bifurcatable embedded derivatives with references to for-
eign exchange rates and precious metal prices and which are
not hedged by derivative instruments. Those hybrids are still
subject to bifurcation of the embedded derivative.
Bonds issued by UBS held as a result of market making
activities or deliberate purchases in the market are treated as
redemption of debt. A gain or loss on redemption is recorded
depending on whether the repurchase price of the bond is
lower or higher than its carrying value. A subsequent sale of
own bonds in the market is treated as a reissuance of debt.
Interest expense on debt instruments is included in Inter-
est on debt issued. Refer to Note 19 for further details on
debt issued.
23) Post-employment benefits
UBS sponsors a number of post-employment benefit plans
for its employees worldwide, which include defined benefit
and defined contribution plans, and other post-retirement
benefits such as medical and life insurance benefits.
Defined benefit plans
Typically defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of ser-
vice and compensation.
The defined benefit liability recognized in the balance
sheet is the present value of the defined obligation at the bal-
ance sheet date less the fair value of the plan assets at the
balance sheet date, together with adjustments for any unrec-
ognized actuarial gains and losses and unrecognized past ser-
vice cost. If the defined benefit liability is negative (i.e. a de-
fined benefit asset) measurement of the asset is limited to the
lower of the defined benefit asset and the total of any cumu-
lative unrecognized net actuarial losses plus unrecognized
past service cost plus the present value of economic benefits
available in the form of refunds from the plan or reductions
in future contributions to the plan. UBS applies the projected
unit credit method to determine the present value of its de-
fined benefit obligation and the related current service cost
and, where applicable, past service cost. These amounts are
calculated annually by independent actuaries. The principal
actuarial assumptions used are set out in Note 30.
UBS recognizes a portion of its actuarial gains and losses
as income or expense if the net cumulative unrecognized ac-
tuarial gains and losses at the end of the previous reporting
period are outside the corridor defined as the greater of:
a) 10% of the present value of the defined benefit obligation at that
date (before deducting the fair value of plan assets); and
b) 10% of the fair value of any plan assets at that date.
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The unrecognized actuarial gains and losses exceeding
the greater of these two values are recognized in the income
statement over the expected average remaining working
lives of the employees participating in the plans.
UBS recognizes curtailments on its defined benefit plans
when the reductions in expected future service and in the
defined benefit obligation are 10% or more. Reductions in
expected future service and in the defined benefit obligation
of between 5% and 10% are recognized if deemed materi-
al, and reductions of less than 5% are generally not recog-
nized.
Defined contribution plans
A defined contribution plan is a pension plan under which
UBS pays fixed contributions into a separate entity. UBS has
no legal or constructive obligation to pay further contribu-
tions if the plan does not hold sufficient assets to pay em-
ployees the benefits relating to employee service in the cur-
rent and prior periods. UBS’s contributions are expensed
when the employees have rendered services in exchange for
such contributions; this is generally in the year of contribu-
tion. Prepaid contributions are recognized as an asset to the
extent that a cash refund or a reduction in the future pay-
ments is available.
Other post-retirement benefits
UBS also provides post-retirement medical and life insurance
benefits to retirees in the US and the UK. The expected costs
of these benefits are recognized over the period of employ-
ment using the same accounting methodology used for the
defined benefit plans.
24) Equity participation and other compensation plans
Equity participation plans
UBS has established several equity participation plans in the
form of share plans, option plans and share-settled stock ap-
preciation right (SAR) plans. UBS’s equity participation plans
are mandatory, discretionary, or voluntary plans. UBS recog-
nizes the fair value of share, option and SAR awards, deter-
mined at the date of grant, as compensation expense over
the period that the employee is required to provide active
services in order to earn the award.
Plans containing voluntary termination non-compete pro-
visions (i.e. good leaver clauses) and no vesting conditions are
considered vested at the grant date because no future service
is required. Compensation expense is fully recognized on the
grant date or is recognized in a period prior to the grant date
if the bank can substantiate that the award is attributable to
past service and the amount of the award can be reasonably
and reliably estimated. The awards remain forfeitable until the
legal vesting date if certain conditions are not met. Forfeiture
events occurring after the grant date do not result in a reversal
of compensation expense because the related services have
been received. Forfeiture events occurring before the grant
date result in the reversal of compensation expense.
Plans containing vesting conditions have either a tiered
vesting structure, which vest in increments over that period
or a cliff vesting structure, which vest at the end of the pe-
riod. Such plans may contain provisions that shorten the re-
quired service period due to retirement eligibility. In such in-
stances, UBS recognizes compensation expense over the
shorter of the legal vesting period and the period from grant
to the retirement eligibility date of the employee. Forfeiture
of these awards during the service period results in a reversal
of compensation expense.
The fair value of a share is determined as the average of
the high and low UBS share price at the date of grant ad-
justed, where applicable, for an employee’s non-entitlement
to dividends during the vesting period, any post-vesting sale
and hedge restrictions, and non-vesting conditions. The fair
value of an option and a SAR is determined by means of a
Monte Carlo simulation which takes into account the spe-
cific terms and conditions under which the options and SARs
are granted.
Equity settled awards are classified as equity instruments.
The fair value of an equity-settled award is not remeasured
subsequent to the grant date, unless an award is modified
such that its fair value immediately after modification ex-
ceeds its fair value immediately prior to modification. Any
increase in fair value resulting from a modification is recog-
nized as compensation expense, either over the remaining
service period or immediately for vested awards.
Cash settled awards are classified as liabilities and remea-
sured to fair value at each balance sheet date as long as the
award is outstanding. Decreases in fair value reduce compen-
sation expense, and no compensation expense, on a cumu-
lative basis, is recognized for awards that expire worthless or
remain unexercised.
Other compensation plans
UBS has established other fixed and variable deferred cash
compensation plans, the value of which is not linked to
UBS’s own equity. UBS’s deferred cash compensation plans
are mandatory or discretionary plans.
The grant date fair value of fixed deferred cash awards is
recognized as compensation expense over the service peri-
od, which is the period the employee is obligated to work in
order to become entitled to the award.
Variable deferred cash compensation is generally awarded
in the form of alternative investment vehicles (AIVs). The
grant date fair value for AIVs is based on the fair value of the
underlying assets (i.e. money market funds, UBS and non-
UBS mutual funds and other UBS sponsored funds) on grant
date and is subsequently marked-to-market at each reporting
date until the award is distributed. Forfeiture of these awards
results in the reversal of expense. Refer to Note 31 for further
details on equity participation and other compensation plans.
274
25) Amounts due under unit-linked investment contracts
UBS’s financial liabilities from unit-linked contracts are pre-
sented as Other liabilities (refer to Note 20) on the balance
sheet. These contracts allow investors to invest in a pool of
assets through investment units issued by a UBS subsidiary.
The unit holders receive all rewards and bear all risks associ-
ated with the reference asset pool. The financial liability rep-
resents the amount due to unit holders and is equal to the
fair value of the reference asset pool.
Assets held under unit-linked investment contract are
presented as trading portfolio assets.
26) Provisions
Provisions are recognized when UBS has a present legal or
constructive obligation as a result of past events, it is prob-
able that an outflow of resources will be required to settle
the obligation and the amount can be reliably estimated.
Provisions are reflected under Other liabilities on the balance
sheet. Refer to Note 21.
The majority of UBS’s provisions relate to operational
risks, including litigation and restructuring costs. When a
provision is recognized, its amount needs to be estimated as
the exact amount of the obligation is generally unknown.
The estimate is based on all available information and re-
flects the amount that has the highest probability of being
paid. UBS revises existing provisions up or down as soon as it
is able to quantify the amounts more accurately.
27) Equity, treasury shares and contracts on UBS shares
UBS AG shares held
UBS AG shares held by the Group are classified in Equity as
Treasury shares and accounted for at cost. Treasury shares
are deducted from total shareholders’ equity until they are
cancelled or reissued. The difference between the proceeds
from sales of Treasury shares and their weighted average
cost (net of tax, if any) is reported as Share premium.
Contracts with gross physical settlement
(except physically settled written put options and
forward share purchase contracts)
Contracts that require gross physical settlement in UBS AG
shares are classified in Equity as Share premium (provided a
fixed amount of shares are exchanged against a fixed
amount of cash) and accounted for at cost. They are added
to or deducted from equity until settlement of such con-
tracts. Upon settlement of such contracts, the difference be-
tween the proceeds received and their cost (net of tax, if
any) are reported as Share premium.
Transaction cost related to share issuance of equity
instruments
Incremental costs directly attributable to the issue of new
shares or contracts with physical settlement (classified as eq-
uity instruments) are shown in equity as “transaction cost
related to share issuance” and are a deduction of equity, net
of tax, from the proceeds.
Contracts with net cash settlement or net cash settlement
option
Contracts on UBS AG shares that require net cash settle-
ment, or provide the counterparty or UBS with a settlement
option which includes a choice of settling net in cash are
classified as trading instruments, with changes in fair value
reported in the income statement as “net trading income”,
except for written put options and forward share purchase
contracts.
Physically settled written put options and forward share
purchase contracts
Physically settled written put options and forward share pur-
chase contracts, including contracts where physical settle-
ment is a settlement alternative, result in the recognition of
a financial liability. At inception of the contract, the present
value of the obligation to purchase own shares in exchange
for cash is transferred out of Equity and recognized as a lia-
bility. The liability is subsequently accreted, using the effec-
tive interest rate method, over the life of the contract to the
nominal purchase obligation by recognizing interest ex-
pense. Upon settlement of the contract, the liability is derec-
ognized, and the amount of equity originally recognized as a
liability is reclassified within Equity to Treasury shares. The
premium received for writing put options is recognized di-
rectly in Share premium.
Minority interests
Net profit and Equity are presented including minority inter-
ests. Net profit is split into Net profit attributable to UBS
shareholders and Net profit attributable to minority inter-
ests. Equity is split into Equity attributable to UBS sharehold-
ers and Equity attributable to minority interests.
Trust preferred securities issued
UBS has issued trust preferred securities through consolidat-
ed preferred funding trusts which hold debt issued by UBS.
UBS AG has fully and unconditionally guaranteed all of these
securities. UBS’s obligations under these guarantees are sub-
ordinated to the prior payment in full of the deposit liabilities
of UBS and all other liabilities of UBS. The trust preferred
securities represent equity instruments which are held by
third parties and treated as minority interests in UBS’s con-
solidated financial statements. The full dividend payment
obligation on these trust preferred securities issued is reclas-
sified from Equity to a corresponding liability once a coupon
payment becomes mandatory, i.e. when it is triggered by a
contractually determined event. In the income statement the
full dividend payment is reclassified from Net profit attribut-
able to UBS shareholders to Net profit attributable to minor-
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Notes to the consolidated financial statements
ity interests at that time. UBS bonds held by preferred fund-
ing trusts are eliminated in consolidation.
finance lease, while the non-existence of such conditions nor-
mally leads to a classification as an operating lease.
28) Discontinued operations and non-current assets held
for sale
UBS classifies individual non-current non-financial assets and
disposal groups as held for sale if such assets or disposal
groups are available for immediate sale in their present con-
dition subject to terms that are usual and customary for sales
of such assets or disposal groups, management is committed
to a plan to sell such assets and is actively looking for a buy-
er, the assets are being actively marketed at a reasonable
sales price in relation to their fair value, the sale is expected
to be completed within one year, and their sale is considered
highly probable. These assets (and liabilities in the case of
disposal groups) are measured at the lower of their carrying
amount and fair value less costs to sell and presented in Oth-
er assets and Other liabilities (see Notes 17 and 20). Netting
of assets and liabilities is not permitted.
UBS presents discontinued operations in a separate line in
the income statement if an entity or a component of an entity
has been disposed of or is classified as held for sale and a)
represents a separate major line of business or geographical
area of operations, b) is part of a single coordinated plan to
dispose of a separate major line of business or geographical
area of operations, or c) is a subsidiary acquired exclusively
with a view to resale (e.g. certain private equity investments).
Net profit from discontinued operations includes the net total
of operating profit and loss before tax from operations, in-
cluding net gain or loss on sale before tax or measurement to
fair value less costs to sell and discontinued operations tax
expense. A component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of UBS’s opera-
tions and cash flows. If an entity or a component of an entity
is classified as a discontinued operation, UBS restates prior
periods in the income statement. Refer to Note 37 for details.
29) Leasing
UBS enters into lease contracts, predominantly of premises
and equipment, as a lessor and a lessee. The terms and condi-
tions of these contracts are assessed and the leases are classi-
fied as operating leases or finance leases according to their
economic substance. When making such an assessment, the
Group focuses on the following aspects: a) transfer of owner-
ship of the asset to the lessee at the end of the lease term; b)
existence of a bargain purchase option held by the lessee; c)
whether the lease term is for the major part of the economic
life of the asset; d) whether the present value of the minimum
lease payments is substantially equal to the fair value of the
leased asset at inception of the lease term; and e) whether the
asset is of a specialized nature that only the lessee can use
without major modifications being made. If one or more of
the conditions are met, the lease is generally classified as a
Lease contracts classified as operating leases where UBS is
the lessee are disclosed in Note 25. These contracts include
non-cancellable long-term leases of office buildings in most
UBS locations. Lease contracts classified as operating leases
where UBS is the lessor, and finance lease contracts where
UBS is the lessor or the lessee, are not material. Contractual
arrangements which are not considered leases in their entirety
but which include lease elements are not material to UBS.
UBS recognizes a provision for a lease contract of office
space if the unavoidable costs of a contract exceed the bene-
fits to be received under it, which requires that a lease contract
is considered onerous in its entirety. A provision for onerous
lease contracts often includes significant vacant rental space.
30) Fee income
UBS earns fee income from a diverse range of services it pro-
vides to its customers. Fee income can be divided into two
broad categories: income earned from services that are pro-
vided over a certain period of time, for which customers are
generally billed on an annual or semi-annual basis, and in-
come earned from providing transaction-type services. Fees
earned from services that are provided over a certain period
of time are recognized ratably over the service period. Fees
earned from providing transaction-type services are recog-
nized when the service has been completed. Performance-
linked fees or fee components are recognized when the rec-
ognition criteria are fulfilled. Loan commitment fees on
lending arrangements where the initial expectation is that
the loan will be drawn down at some point are deferred un-
til the loan is drawn down, and then recognized as an ad-
justment to the effective yield over the life of the loan.
The following fee income is predominantly earned from
services that are provided over a period of time: investment
fund fees, fiduciary fees, custodian fees, portfolio and other
management and advisory fees, insurance-related fees,
credit-related fees and commissions received up-front. Fees
predominantly earned from providing transaction-type ser-
vices include underwriting fees, corporate finance fees and
brokerage fees.
31) Foreign currency translation
Transactions denominated in foreign currency are translated
into the functional currency of the reporting unit at the spot
exchange rate on the date of the transaction. At the balance
sheet date, all assets and liabilities denominated in foreign cur-
rency except non-monetary items are translated using the clos-
ing exchange rate. Non-monetary items measured in terms of
historical cost are translated at the exchange rate at the date
of the transaction. Resulting foreign exchange differences are
recognized in Net trading income, except for non-monetary
financial investments available-for-sale which are recorded di-
rectly in Equity until the asset is sold or becomes impaired.
276
Upon consolidation, assets and liabilities of foreign oper-
ations are translated into Swiss francs (CHF) – UBS’s presen-
tation currency – at the closing exchange rate at the balance
sheet date, and income and expense items are translated at
the average rate for the period. Differences resulting from
the use of different exchange rates are recognized directly in
Foreign currency translation within Equity. Upon disposal of
foreign operations the related foreign currency translation
impact previously deferred in equity is reclassified to Other
income.
32) Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net
profit or loss for the period attributable to ordinary share-
holders by the weighted average number of ordinary shares
outstanding during the period.
Diluted earnings per share are calculated using the same
method as for basic EPS and adjusting the net profit or loss
for the period attributable to ordinary shareholders and the
weighted average number of ordinary shares outstanding to
reflect the potential dilution that could occur if options, war-
rants, convertible debt securities or other contracts to issue
ordinary shares were converted or exercised into ordinary
shares.
33) Segment reporting
In 2009, UBS‘s businesses, i.e. wealth management and
Swiss banking business, asset management and investment
banking were organized on a worldwide basis into four busi-
ness divisions and the Corporate Center, taken into consid-
eration the economic characteristics of the businesses. The
four business divisions, also known as the operating seg-
ments or reportable segments, were Wealth Management &
Swiss Bank, Wealth Management Americas, Global Asset
Management and Investment Bank. In the internal manage-
ment report to the Group Executive Board (GEB) or the chief
operating decision maker, the financial information about
the four reportable segments and Corporate Center was
separately presented. This internal management view was
the basis for the external segment reporting. Corporate Cen-
ter predominantly includes certain costs relating to Group
functions and elimination items and it is not considered an
operating segment under IFRS 8. The costs of shared service
functions like risk management and control, finance, legal
and compliance, marketing and communications, human re-
sources, information technology infrastructure and service
centres are charged out to the business divisions based on
internal accounting policies.
UBS’s internal accounting policies determine the revenues
and expenses directly attributable to each business division.
Internal charges and transfer pricing adjustments are reflect-
ed in the business division performances.
Revenue-sharing agreements are used to allocate exter-
nal customer revenues to business divisions on a reasonable
basis. Due to the present arrangement of revenue-sharing
agreements, the total intersegment revenues for UBS are im-
material.
The costs of shared services and control functions man-
aged by Corporate Center are allocated to the direct cost
lines of personnel expenses, general and administrative ex-
penses and depreciation in the respective business division
income statements, based on internally determined alloca-
tion keys.
Net interest income is allocated to the business divisions
based on their balance sheet positions. Assets and liabili-
ties of the business divisions are funded through and invest-
ed with the central treasury department, with the net mar-
gin reflected in the results of each business division. To
complete the allocation, Corporate Center transfers interest
income earned from managing UBS’s consolidated equity
back to the reportable segments based on the average at-
tributed equity.
Commissions are credited to the business division based
on the corresponding customer relationship. Revenue-shar-
ing agreements are used for the allocation of customer rev-
enues where several business divisions are involved in the
value-creation chain.
In line with the internal management reporting, segment
assets are reported without intercompany balances or on a
third-party view basis. Refer to Note 2a “Segment report-
ing”. For the purpose of segment reporting under IFRS 8, the
non-current assets consist of investment in associates and
joint ventures, goodwill, other intangible assets as well as
plant, property and equipment.
34) Netting
UBS nets assets and liabilities in its balance sheet if it has a
legally enforceable right to set off the recognized amounts
and intends either to settle on a net basis, or to realize the
asset and settle the liability simultaneously. Netted positions
include positive and negative replacement values of OTC in-
terest rate swaps transacted with London Clearing House.
The positions are netted by currency and across maturities.
Furthermore, amounts included in Loans and Due to cus-
tomers related to UBS’s Prime Brokerage Business have been
netted, where possible.
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Financial information
Notes to the consolidated financial statements
b) Changes in accounting policies, comparability and other adjustments
Restatements made to the financial statements 2008
UBS has restated its 2008 financial statements to correct
identified accounting errors related to the 2008 financial
statements. These errors were not material to the annual or
quarterly 2008 financial statements, but related corrections
would have been material to first quarter 2009 financial
statements. On 21 May 2009, UBS re-filed its US Form 20-F
for the year 2008, which included the restated 2008 finan-
cial statements. The restatement comprises three items in
excess of CHF 100 million as follows:
The fair value of auction rate securities purchase commit-
ments at 31 December 2008, which are recognized as nega-
tive replacement values on UBS’s balance sheet, was in-
creased by CHF 112 million, resulting in a corresponding
charge to net trading income.
For certain assets reclassified from “Held-for-trading” to
“Loans and receivables” in fourth quarter 2008, recognition
of interest income based on the effective interest rate meth-
od was reduced by CHF 180 million. Other assets were re-
duced accordingly as of 31 December 2008.
The partial disposals of an investment in a consolidated
investment fund in 2008 gave rise to the realization of the
related foreign currency translation loss deferred in share-
holders’ equity. This adjustment reduced other income for
the year 2008 by CHF 192 million but did not have a net
impact on UBS’s equity. In addition to the abovementioned
items, a number of misstatements individually below CHF 65
million were adjusted. The aggregate net effect of these
items on net profit attributable to UBS shareholders was an
increase of net profit attributable to shareholders of CHF 79
million.
The total net impact of all restated items on the 2008 re-
sults was a reduction of net profit and net profit attributable
to UBS shareholders of CHF 405 million, a reduction of eq-
uity and equity attributable to UBS shareholders of CHF 269
million, and a reduction of basic and diluted earnings per
share by CHF 0.15 and CHF 0.14 respectively. There was no
effect on income tax expense.
Effective 2009
IAS 1 (revised) Presentation of Financial Statements
Effective 1 January 2009, the revised International Account-
ing Standard (IAS) 1 affected the presentation of owner
changes in equity and of comprehensive income. UBS con-
tinued to present owner changes in equity in the “statement
of changes in equity”, but detailed information relating to
non-owner changes in equity, such as foreign exchange
translation, cash flow hedges and financial investments
available-for-sale, were presented in the “Statement of com-
prehensive income”.
When implementing these amendments effective 1 Janu-
ary 2009, UBS also adjusted the format of its “statement of
changes in equity” and replaced the “statement of recog-
nized income and expense” in the financial statements of
previous years with a “statement of comprehensive in-
come”. Preferred securities issued by consolidated trusts are
reported as “equity attributable to minority interests”, as
they are equity instruments held by third parties. As these
securities make up the largest part of UBS’s equity attribut-
able to minority interests, UBS discloses movement informa-
tion in a separate table.
UBS also re-assessed its accounting treatment of divi-
dends from trust preferred securities. In line with the classifi-
cation of trust preferred securities as equity instruments,
UBS recognizes liabilities for the full dividend payment obli-
gation once a coupon payment becomes mandatory, i.e.,
when it is triggered by a contractually determined event. In
the income statement, the same amount is reclassified from
net profit attributable to UBS shareholders to net profit at-
tributable to minority interests.
IAS 1 (revised) Presentation of Financial Statements, and
IAS 32 (revised) Financial Instruments: Presentation
The IASB issued a further amendment to IAS 1 and an
amendment to IAS 32 regarding puttable financial instru-
ments and obligations arising on liquidation. The IAS 32
amendment clarifies under which circumstances puttable fi-
nancial instruments and obligations arising on liquidation
have to be treated as equity instruments.
The amendment is limited in scope and is restricted to
the accounting for such instruments under IAS 1, IAS 32,
IAS 39 and IFRS 7. The amendment to IAS 1 requires addi-
tional information about puttable financial instruments
and obligations arising on liquidations which have to be
treated as equity instruments. UBS adopted the amend-
ments on 1 January 2009. The adoption of the amendments
did not have a significant impact on UBS’s Financial State-
ments.
IFRS 8 Operating Segments
Effective as of 1 January 2009, UBS adopted IFRS 8 Operat-
ing Segments which replaced IAS 14 Segment Reporting.
Under the requirements of the new standard, UBS’s external
segmental reporting is now based on the internal manage-
ment reporting to the Group Executive Board (or the “chief
operating decision maker”), which makes decisions on the
allocation of resources and assesses the performance of the
reportable segments.
In accordance with the new UBS structure announced in
February 2009, UBS disclosed four reportable segments.
These segments are the business divisions – Wealth Manage-
ment & Swiss Bank, Wealth Management Americas, Global
278
Asset Management and Investment Bank. While the Corpo-
rate Center does not meet the requirements of an operating
segment, it is also shown separately. Segment information
from prior periods in Note 2a has been restated to conform
to the requirements of this new standard. In addition, good-
will and intangible assets presented in Note 16 have also
been reallocated in order to reflect the revised segment re-
porting structure.
As UBS’s reportable segment operations are mainly finan-
cial, the total interest income and expense for all reportable
segments are presented on a net basis. Based on the present
arrangement of revenue-sharing agreements, the total inter-
segment revenues for UBS are immaterial. Apart from that,
the segment assets are disclosed without the intercompany
balances and this basis is in line with the internal manage-
ment reporting. For more details on the basis on which the
segment information is prepared and reconciled to the
amounts presented in UBS’s income statement and balance
sheet, refer to Note 2a.
IFRS 7 (revised) Financial Instruments: Disclosures
This standard was revised in March 2009 when the Interna-
tional Accounting Standards Board (IASB) published the
amendment “Improving Disclosures about Financial Instru-
ments”. Effective 1 January 2009, the amendment requires
enhanced disclosures about fair value measurements and li-
quidity risk.
The enhanced fair value measurement disclosure require-
ments include: a fair value hierarchy (i.e. categorization of all
financial instruments into levels 1, 2 and 3 based on the rele-
vant definitions); significant transfers between level 1 and level
2; reconciliation of level 3 instruments at the beginning of the
period to the ending balance (level 3 movement table); level 3
profit or loss for positions still held at balance sheet date; and
sensitivity information for the total position of level 3 instru-
ments and the basis for the calculation of such information.
The amended liquidity risk disclosure requirements largely
confirm the previous rules for providing maturity informa-
tion for non-derivative financial liabilities, but amend the
rules for providing maturity information for derivative finan-
cial liabilities.
Reassessment of Embedded Derivatives
The International Financial Reporting Interpretations Com-
mittee (IFRIC) issued in March 2009 the supplement Embed-
ded Derivatives: Amendments to IFRIC 9 and IAS 39. This
guidance amends IFRIC 9 Reassessment of Embedded De-
rivatives, and IAS 39 Financial Instruments: Recognition and
Measurement. The amendments clarify that on reclassifica-
tion of a financial asset out of the “Held for trading” catego-
ry, all embedded derivatives have to be assessed and, if nec-
essary, separately accounted for in the financial statements.
The application of this guidance did not materially impact
UBS’s financial statements.
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 15 was issued on 3 July 2008 and is effective for annual
periods beginning on or after 1 January 2009. IFRIC 15 pro-
vides guidance on the accounting for agreements for the con-
struction of real estate where entities enter into agreements
with buyers before construction has been completed and the
timing of revenue recognition. The application of this guidance
did not materially impact UBS’s financial statements.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 16 was issued on 1 October 2008 and became effec-
tive on 1 January 2009. IFRIC 16 provides guidance in iden-
tifying the foreign currency risks that qualify as a hedged risk
in the hedge of a net investment in a foreign operation;
where, within a group, hedging instruments that are hedges
of a net investment in a foreign operation can be held to
qualify for hedge accounting, and how an entity should de-
termine the amounts to be reclassified from equity to profit
or loss for both the hedging instrument and the hedged
item. The impact of this interpretation on UBS’s financial
statements was immaterial.
IAS 24 Related Party Disclosures
In November 2009, the IASB amended IAS 24 Related Party
Disclosures with latest possible effective date 1 January 2011.
UBS has early adopted the revised requirements in its annual
financial statements 2009. The revised standard amends the
definition of related parties, in particular the relationship be-
tween UBS and associated companies of UBS’s key manage-
ment personnel or their close family members. Transactions
between UBS and associated companies of UBS key manage-
ment personnel over which UBS key management personnel
does not have control or joint control are no longer consid-
ered related party transactions. Due to the application of the
revised guidance, related party transactions disclosed in
Note 32e of the annual financial statements 2008 have been
significantly reduced. Balances and movements of loans to
related parties have been reduced by CHF 668 million at
31 December 2008 and CHF 530 million at 31 December
2007; and fees received for services provided by UBS have
been reduced by CHF 11 million in 2008 and CHF 10 million
in 2007.
Allocation of Shared Services Costs in Segment Disclosures
From 2009 onwards, ITI and Group Off-shoring costs man-
aged by the Corporate Center are allocated to the direct cost
lines personnel expenses, general and administrative expens-
es, and depreciation, in the respective business division in-
come statements, based on appropriate internally deter-
mined allocation keys. In the Corporate Center income
statement, costs allocated to the business divisions are de-
ducted from the respective cost lines. In previous reports,
these costs were presented as an expense on the line
“Services (to) / from other business divisions” within each
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Notes to the consolidated financial statements
Impact on income statement lines
For the comparative 12-month period in 2008, the following allocations were made:
CHF million
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Services (to) / from other business divisions
Wealth
Management &
Swiss Bank
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
228
328
163
(719)
85
121
60
(267)
20
28
15
(62)
300
431
216
(949)
(633)
(909)
(455)
1,997
business division and an offsetting corresponding amount
on that line in the Corporate Center. The new presentation
format provides greater transparency by allocating shared
service costs to direct cost lines in divisional income state-
ments. Comparative periods have been adjusted.
Group results and business division performance before tax
in previous periods were not impacted by this policy change.
Unit-linked Investment Contracts
In fourth quarter 2009, UBS decided to present Wealth Man-
agement & Swiss Banking’s obligations under unit-linked in-
vestment contracts under Other liabilities in order to align
the treatment with similar contracts issued by Global Asset
Management. In the past, the respective obligations of
Wealth Management & Swiss Banking have been reported
under Due to customers. UBS has retrospectively applied this
change in presentation. The change in presentation resulted
in the following effects on the balance sheet for 1 January
2008 and 31 December 2008: a decrease of Due to custom-
ers and a corresponding increase in amounts due under Oth-
er liabilities on the balance sheet (unit-linked investment
contracts) of CHF 11,787 million and CHF 9,033 million, re-
spectively. The change in presentation did not impact UBS’s
total liabilities, income statements or earnings per share for
these periods.
Effective in 2008 and earlier
IFRS 2 Share-based Payment:
Vesting Conditions and Cancellations
On 1 January 2008, UBS adopted an amendment to IFRS 2
Share-based Payment: Vesting Conditions and Cancellations
and fully restated the two comparative prior years. The
amended standard clarifies the definition of vesting condi-
tions and the accounting treatment of cancellations. Under
the amended standard, UBS is required to distinguish be-
tween vesting conditions (such as service and performance
conditions) and non-vesting conditions.
The amended standard no longer considers vesting con-
ditions to include certain non-compete provisions.
The impact of this change is that UBS compensation
awards are expensed over the period that the employee is
required to provide active services in order to earn the award.
Post-vesting sale and hedge restrictions and non-vesting
conditions are considered when determining grant date fair
value. The effect of the restatement on the opening balance
sheet at 1 January 2006 was as follows: reduction of re-
tained earnings by approximately CHF 2.3 billion, increase of
share premium by approximately CHF 2.3 billion, increase of
liabilities (including deferred tax liabilities) by approximately
CHF 0.5 billion, and increase of deferred tax assets by ap-
proximately CHF 0.5 billion. Net profit attributable to UBS
shareholders declined by CHF 863 million in 2007 and by
CHF 730 million in 2006. Additional compensation expenses
of CHF 797 million and CHF 516 million was recognized in
2007 and 2006, respectively. These additional compensation
expenses include awards granted in 2008 for the perfor-
mance year 2007. The impact of the restatement on total
equity as of 31 December 2007 was a decrease of CHF 366
million. Retained earnings at 31 December 2007 decreased
by approximately CHF 3.9 billion, share premium increased
by approximately CHF 3.5 billion, liabilities (including de-
ferred tax liabilities) increased by approximately CHF 0.6 bil-
lion and deferred tax assets increased by approximately CHF
0.2 billion. The restatement decreased basic and diluted
earnings per share for the year ended 31 December 2007 by
CHF 0.40 each and for the year ended 31 December 2006 by
CHF 0.33 and CHF 0.31, respectively. In order to provide
comparative information, these amounts also reflect the ret-
rospective adjustments to shares outstanding in 2007 due to
the capital increase and the share dividend paid in 2008.
The additional compensation expense is attributable to the
acceleration of expenses related to share-based awards as
well as for certain alternative investment vehicle awards and
deferred cash compensation awards which contain non-com-
pete provisions and sale and hedge restrictions that no longer
qualify as vesting conditions under the amended standard.
Reclassifications of Financial Assets
The International Accounting Standards Board published an
amendment to International Accounting Standard 39 (IAS 39
Financial Instruments: Recognition and Measurement) on 13
October 2008, under which eligible financial assets, subject to
certain conditions being met, may be reclassified out of the
“Held for trading” category if the firm had the intent and abil-
ity to hold them for the foreseeable future or until maturity.
280
Although the amendment could have been applied retro-
spectively from 1 July 2008, UBS decided at the end of Octo-
ber 2008 to apply the amendment with effect from 1 Octo-
ber 2008 following an assessment of the implications on its
financial statements. Refer to Note 29b for further details on
reclassification of financial assets.
Changes to segment reporting
UBS has continuously reduced its private equity business in
Industrial Holdings over the last three years. The business no
longer includes consolidated industrial private equity invest-
ments. Starting first quarter 2008, UBS presented the re-
maining activities from this business, mainly financial invest-
ments available-for-sale, under Corporate Center.
c) International Financial Reporting Standards and Interpretations to be adopted in 2010 and later
Effective in 2010
International Accounting Standards Board
Improvements to IFRS 2009
The
issued
amendments to twelve IFRS standards as part of its annual
improvements project in April 2009. The adoption of the
amendments could result in accounting changes for presen-
tation, recognition or measurement purposes. The improve-
ments to IFRS 2009 will be adopted by UBS as of 1 January
2010. UBS does not expect these amendments to have a
significant impact on UBS’s financial statements.
Amendments to IAS 39 Financial Instruments: Recognition
and Measurement – Eligible Hedged Items
The amendment to IAS 39 was issued in July 2008. The
amendments provide additional guidance on the designa-
tion of a hedged item. The amendment clarifies how the
existing principles underlying hedge accounting should be
applied in two particular situations: a) a one-sided risk in a
hedged item and b) inflation in a financial hedged item. The
amendments to IAS 39 will be adopted by UBS as of 1 Janu-
ary 2010. UBS does not expect the amendments to have a
significant impact on UBS’s financial statements.
− Transaction costs incurred by the acquirer will no longer
be part of the acquisition cost but will have to be ex-
pensed as incurred.
The revised IFRS 3 and IAS 27 are effective for annual pe-
riods beginning on 1 January 2010 and have to be applied
prospectively from the date of adoption. Business combina-
tions consummated prior to that date will not be impacted.
The amendments to IAS 27 (including the consequential
amendments to IAS 21) require the effects (including foreign
exchange translation) of all transactions with non-control-
ling interests to be recorded in equity if there is no change in
control. The standards also specify the accounting when
control is lost: any remaining interest in the entity is remea-
sured to fair value, and a gain or loss (including foreign ex-
change translation) is recognized in profit or loss. The
amendments to IAS 21 further clarify that no deferred for-
eign currency translation gains and losses are to be released
upon a partial repayment of share capital of a subsidiary
without a loss of control. The IAS 21 amendments are effec-
tive on 1 January 2010 and have to be applied prospectively
from the date of adoption.
Effective in 2011 and later, if not adopted early
IFRS 3 Business Combinations and IAS 27 Consolidated and
Separate Financial Statements
In January 2008, the IASB issued a revised Standard of IFRS 3
Business Combinations and amendments to IAS 27 Consoli-
dated and Separate Financial Statements. The most signifi-
cant changes under revised IFRS 3 are as follows:
− Contingent consideration will be recognized at fair value
as part of the consideration transferred at the acquisition
date. Currently contingent consideration is only recog-
nized once it meets the probability and reliably measur-
able criteria.
− Non-controlling interests in an acquiree will either be
measured at fair value or as the non-controlling interest’s
proportionate share of the fair value of net identifiable
assets of the entity acquired. The option is available on a
transaction-by-transaction basis.
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial instru-
ments, which includes revised guidance on the classifica-
tion and measurement of financial assets. The publication
of IFRS 9 represents the completion of the first part of a
multi-stage project to replace IAS 39 Financial instruments:
recognition and measurement. Under the revised guidance,
a financial asset is to be accounted for at amortized cost
only if it is held within a business model whose objective is
to hold assets in order to collect contractual cash flows and
the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Non-traded equity instruments may be accounted for at
fair value through equity, but the subsequent release of
amounts booked directly to equity into the income state-
281
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Notes to the consolidated financial statements
ment is no longer permitted. All other financial assets are
measured at fair value through profit or loss. UBS is cur-
rently assessing the impact of the new standard on its fi-
nancial statements. It is likely that a number of financial
assets currently accounted for at amortized cost will be ac-
counted for at fair value through profit or loss under the
new standard because a) their contractual cash flows do
not comprise solely payments of principal and interest on
the principal, and / or b) UBS does not hold the assets with
the intention to collect contractual cash flows they gener-
ate. Certain debt securities currently classified as available-
for-sale may satisfy the criteria for “amortized cost” ac-
counting; debt securities available-for-sale failing these
criteria will be accounted for at fair value. The effective
date for mandatory adoption is 1 January 2013, with early
adoption permitted. UBS did not adopt IFRS 9 for the year
ended 31 December 2009.
IFRIC 14 Prepayments of a Minimum Funding Requirement
In November 2009, the IASB issued the amended IFRIC 14 The
Limit on a Defined Benefit Asset, Minimum Funding Require-
ments and their Interaction, which itself is an interpretation of
IAS 19 Employee Benefits. The amendment applies in the lim-
ited circumstances when an entity is subject to minimum
funding requirements and makes an early payment of contri-
butions to cover those requirements. The amendment permits
an entity to treat the benefit of such an early payment as an
asset. The amendment is effective on 1 January 2011. Early
application is permitted. UBS does not expect to have an im-
pact from this interpretation on its financial statements.
282
Note 2a Segment reporting
In 2009, UBS’s businesses were reorganized on a worldwide
basis into four business divisions and the Corporate Center.
The business divisions Wealth Management & Swiss Bank,
Wealth Management Americas, Global Asset Management
and the Investment Bank constitute one segment each. In to-
tal, UBS reports four business segments and the Corporate
Center in 2009. The Corporate Center includes all corporate
functions, elimination items as well as the remaining industrial
holdings activities and is not considered a business segment.
Global Asset Management
Global Asset Management is a large-scale asset manager
with well diversified businesses across regions, capabilities
and distribution channels. It offers investment capabilities
and investment styles across all major traditional and alter-
native asset classes. These include equities, fixed income,
currency, hedge fund, real estate, infrastructure and private
equity investment capabilities that can also be combined in
multi-asset strategies.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering
comprehensive financial services to high net worth and ultra
high net worth individuals around the world – except to those
served by Wealth Management Americas – as well as private
and corporate clients in Switzerland. UBS provides clients in
over 40 countries, including Switzerland, with financial ad-
vice, products and tools to fit their individual needs. UBS has
a leading position across all client segments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based relation-
ships through financial advisors who deliver a fully integrated
set of products and services specifically designed to address
the needs of ultra high net worth, high net worth and core af-
fluent individuals and families. It includes the former Wealth
Management US business unit, as well as the domestic Cana-
dian business and the international business booked in the
United States.
Investment Bank
The Investment Bank provides securities and other financial
products and research in equities, fixed income, rates, for-
eign exchange and precious metals. It also provides advisory
services and access to the world’s capital markets for corpo-
rate, institutional, intermediary and alternative asset man-
agement clients.
Corporate Center
The Corporate Center seeks to ensure that the business
divisions operate as a coherent and effective whole by pro-
viding and managing support and control functions for the
business divisions and the Group in such areas as risk con-
trol, finance, legal and compliance, funding, capital and
balance sheet management, management of foreign cur-
rencies, communication and branding, human resources, in-
formation technology, real estate, procurement, corporate
development and service centres.
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Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting (continued)
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agree-
ments are used to allocate external customer revenues to a business division on a reasonable basis. Transactions between
business divisions are conducted at internally agreed transfer prices or at arm’s length.
CHF million
For the year ended 31 December 2009
Net interest income 1
Non-interest income
Income 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services to / from other business divisions
Depreciation of property and equipment
Impairment of goodwill 3
Amortization of intangible assets 3
Total operating expenses
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax 4
Tax expense on continuing operations
Tax expense on discontinued operations
Net profit
Additional information 5
Total assets
Additions to non-current assets
Wealth
Management &
Swiss Bank
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
4,533
6,989
11,523
(133)
11,390
5,197
2,017
(90)
289
0
67
7,480
3,910
0
3,910
800
4,746
5,546
3
5,550
4,231
1,017
4
170
34
62
5,518
32
0
32
2
2,134
2,137
0
2,137
996
387
(74)
36
340
13
1,698
438
0
438
2,339
2,494
4,833
(1,698)
3,135
5,568
2,628
(147)
360
749
59
9,216
(6,081)
0
(6,081)
(1,229)
1,623
394
(5)
389
551
199
306
193
0
0
1,250
(860)
(7)
(867)
UBS
6,446
17,987
24,433
(1,832)
22,601
16,543
6,248
0
1,048
1,123
200
25,162
(2,561)
(7)
(2,569)
(443)
0
(2,125)
248,140
43
53,197
59
20,238
11
991,964
81
26,999
745
1,340,538
939
1 Net interest income is disclosed to comply with the IFRS requirements. Refer to “Note 3 Net interest and trading income” for the information which corresponds to the view of management.
2 Impairments of financial investments available-for-sale for the year ended 31 December 2009 were as follows: Wealth Management & Swiss Bank CHF 158 million; Global Asset Management CHF 20
million; Investment Bank CHF 142 million; Corporate Center CHF 29 million. The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the busi-
ness divisions by means of revenue-sharing agreements. 3 Refer to “Note 16 Goodwill and intangible assets” of this report for further information regarding goodwill and other intangible assets by
business division. 4 Refer to “Note 38 Reorganizations and disposals” for further information on the impact on performance before tax of the disposal of UBS Pactual and restructuring charges, and
to “Note 27 Fair value of financial instruments” for further information on the allocation on own credit charges. 5 The segment assets are based on a third-party view and this is in line with the report-
ing to the management, i.e. the amounts do not include inter-company balances.
284
Note 2a Segment reporting (continued)
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agree-
ments are used to allocate external customer revenues to a business division on a reasonable basis. Transactions between
business divisions are conducted at internally agreed transfer prices or at arm’s length.
CHF million
For the year ended 31 December 2008
Net interest income
Non-interest income
Income 1
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services to / from other business divisions
Depreciation of property and equipment
Impairment of goodwill 2
Amortization of intangible assets 2
Total operating expenses
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax
Tax expense on continuing operations
Tax expense on discontinued operations
Net profit
Additional information 3
Total assets
Additions to non-current assets
Wealth
Management &
Swiss Bank
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
5,424
9,989
15,413
(392)
15,021
5,430
3,295
(73)
323
0
33
9,008
6,013
0
6,013
938
5,340
6,278
(29)
6,249
4,271
2,558
16
162
0
65
7,072
(823)
0
(823)
(2)
2,906
2,905
0
2,904
946
462
88
44
0
33
1,572
1,333
0
1,333
2,007
(23,808)
(21,800)
(2,575)
(24,375)
5,182
3,830
41
447
341
83
9,925
(34,300)
0
(34,300)
(2,375)
3,373
998
0
998
433
353
(73)
265
0
0
979
19
198
217
UBS
5,992
(2,200)
3,792
(2,996)
796
16,262
10,498
0
1,241
341
213
28,555
(27,758)
198
(27,560)
(6,837)
1
(20,724)
251,487
275
39,039
135
24,640
430
1,680,257
809
19,392
961
2,014,815
2,609
1 Impairments of financial investments available-for-sale for the year ended 31 December 2008 were as follows: Wealth Management & Swiss Bank CHF 19 million; Wealth Management Americas CHF
1 million; Global Asset Management CHF 22 million; Investment Bank CHF 121 million; Corporate Center CHF 40 million. 2 Refer to “Note 16 Goodwill and intangible assets” of this report for further
information regarding goodwill and other intangible assets by business division. 3 The segment assets are based on a third-party view and this is in line with the reporting to the management, i.e. the
amounts do not include inter-company balances.
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Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting (continued)
Internal charges and transfer pricing adjustments are reflected in the performance of each business. Revenue-sharing agree-
ments are used to allocate external customer revenues to a business division on a reasonable basis. Transactions between
business divisions are conducted at internally agreed transfer prices or at arm’s length.
CHF million
For the year ended 31 December 2007
Net interest income
Non-interest income
Income 2
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services to / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets 4
Total operating expenses
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax
Tax expense on continuing operations
Tax expense on discontinued operations
Net profit
Additional information 5
Total assets
Additions to non-current assets
Wealth
Management &
Swiss Bank
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center1
5,600
12,089
17,689
30
17,718
6,356
2,514
(43)
334
15
9,176
8,543
0
8,543
824
6,329
7,153
(2)
7,151
5,060
1,209
28
163
70
6,530
621
0
621
(76)
4,170
4,094
0
4,094
1,883
593
73
72
19
2,640
1,454
0
1,454
209
(747)
(538)
(266)
(804)
11,633
3,800
(171)
431 3
172
15,865
(16,669)
0
(16,669)
(1,220)
4,782
3,562
(0)
3,562
583
312
114
243
0
1,252
2,310
145
2,455
UBS
5,337
26,622
31,959
(238)
31,721
25,515
8,429
0
1,243
276
35,463
(3,742)
145
(3,597)
1,369
(258)
(4,708)
256,738
223
34,730
416
43,500
553
1,922,815
1,111
17,109
1,927
2,274,891
4,230
1 Includes data from Industrial Holdings which was considered a reportable segment in 2007. Results of Industrial Holdings: Total operating income CHF 689 million, total operating expenses CHF
163 million, performance from continuing operations before tax CHF 526 million, profit from discontinued operations before tax CHF 138 million. 2 Impairments of financial investments available-for-
sale for the year ended 31 December 2007 were as follows: Wealth Management & Swiss Bank CHF 11 million; Global Asset Management CHF 39 million; Investment Bank CHF 22 million; Corporate
Center CHF 2 million. 3 Includes CHF 34 million for impairments of leasehold improvements and other machines and equipment. 4 Refer to “Note 16 Goodwill and intangible assets” of this report
for further information regarding goodwill and other intangible assets by business division. 5 The segment assets are based on a third-party view and this is in line with the reporting to the management,
i.e. the amounts do not include inter-company balances.
286
Note 2b Segment reporting by geographic location
The geographic analysis of operating income and non-current assets is based on the location of the entity in which the trans-
actions and assets are recorded. The divisions of the Group are managed on an autonomous basis worldwide with a focus on
cross-divisional collaboration and the interest of UBS’s clients to yield the maximum possible profitability by product line for
the Group. The geographical analysis of operating income and non-current assets is provided in order to comply with IFRS.
For the year ended 31 December 2009
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Total
For the year ended 31 December 2008
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Total
For the year ended 31 December 2007
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Total
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
11,939
(3,999)
1,264
9,333
3,770
294
22,601
53
(18)
6
41
17
1
100
5,137
743
1,266
9,928
451
565
18,090
28
4
7
55
3
3
100
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
11,564
(9,219)
6,132
(10,519)
3,122
(284)
796
1,453
(1,158)
770
(1,321)
392
(36)
100
5,207
805
1,337
10,505
495
2,184
20,533
25
4
7
51
2
11
100
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
18,787
(1,671)
2,541
880
6,393
4,791
31,721
59
(5)
8
3
20
15
100
5,355
2,336
1,006
11,686
388
2,980
23,751
22
10
4
49
2
13
100
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Financial information
Notes to the consolidated financial statements
Income statement notes
Note 3 Net interest and trading income
Accounting standards require separate disclosure of “Net in-
terest income” and “Net trading income” (see the tables on
this and the next page). This required disclosure, however,
does not take into account that net interest and trading in-
come are generated by a range of different businesses. In
many cases, a particular business can generate both net in-
terest and trading income. Fixed income trading activity, for
example, generates both trading profits and coupon in-
come. UBS considers it to be more meaningful to analyze
net interest and trading income according to the businesses
that drive it. The second table below (“Breakdown by busi-
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
Breakdown by businesses
Net income from trading businesses 1
Net income from interest margin businesses
Net income from treasury activities and other
Total net interest and trading income
Net interest income 2
Interest income
Interest earned on loans and advances 3
Interest earned on securities borrowed and reverse repurchase agreements
Interest and dividend income from trading portfolio
Interest income on financial assets designated at fair value
Interest and dividend income from financial investments available-for-sale
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 financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
nesses”) provides information that corresponds to this view:
“Net income from trading businesses” includes both interest
and trading income generated by the Investment Bank, in-
cluding its lending activities, and trading income generated
by the other business divisions; “Net income from interest
margin businesses” comprises interest income from the loan
portfolios of Wealth Management & Swiss Bank and Wealth
Management Americas; “Net income from treasury activities
and other” reflects all income from the Group’s centralized
treasury function.
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
6,446
(324)
6,122
382
5,053
687
6,122
13,202
2,629
7,150
316
164
23,461
3,873
2,179
3,878
2,855
4,231
17,016
6,446
5,992
(25,820)
(19,828)
(27,203)
6,160
1,214
(19,828)
20,213
22,521
22,397
404
145
65,679
18,150
16,123
9,162
7,298
8,954
59,687
5,992
5,337
(8,353)
(3,016)
(10,658)
6,230
1,412
(3,016)
21,263
48,274
39,101
298
176
109,112
29,318
40,581
15,812
7,659
10,405
103,775
5,337
8
99
(18)
(43)
(35)
(88)
(68)
(22)
13
(64)
(79)
(86)
(58)
(61)
(53)
(71)
8
1 Includes lending activities of the Investment Bank. 2 Interest includes forward points on foreign exchange swaps used to manage short-term interest rate risk on foreign currency loans and deposits.
3 Includes interest income on impaired loans and advances of CHF 95 million for 2009, CHF 99 million for 2008 and CHF 110 million for 2007.
288
Note 3 Net interest and trading income (continued)
Net trading income 1
CHF million
Investment Bank equities
Investment Bank fixed income, currencies and commodities
Other business divisions
Net trading income
of which: net gains / (losses) from financial assets designated at fair value
of which: net gains / (losses) from financial liabilities designated at fair value 2
For the year ended
31.12.09
31.12.08
2,462
(5,455)
2,668
(324)
678
(6,741)
4,694
(35,040)
4,525
(25,820)
(974)
44,284
31.12.07
9,048
(21,424)
4,023
(8,353)
(30)
(3,779)
% change from
31.12.08
(48)
84
(41)
99
1 Refer to the table Net interest and trading income on the previous page for the Net income from trading businesses (for an explanation, read the corresponding introductory comment). 2 Financial
liabilities designated at fair value are to a large extent economically hedged with derivatives and other instruments whose change in fair value is also reported in Net trading income. Refer to Note 27 for
further information.
Significant impacts on net trading income
Net trading income in 2009 includes a loss of CHF 0.8 billion
from credit valuation adjustments for monoline credit pro-
tection (CHF 8.2 billion loss in 2008); refer to the “Risk man-
agement and control” section of this report for more infor-
mation on exposure to monolines. Additional losses of CHF
23.7 billion related to positions previously considered risk
concentrations were included in 2008.
The SNB transaction resulted in gains of CHF 0.1 billion from
the valuation of UBS’s option to acquire the SNB StabFund’s
equity and losses of CHF 0.2 billion due to price adjustments
for positions transferred to the fund (losses of CHF 5.2 billion
in 2008).
A gain of CHF 0.3 billion (CHF 4.6 billion gain in 2008) was
recorded on the valuation of the embedded derivative of the
MCNs issued in 2008.
Note 4 Net fee and commission income
CHF million
Equity underwriting fees
Debt underwriting fees
Total underwriting fees
M&A and corporate finance fees
Brokerage fees 1
Investment fund fees
Portfolio management and advisory fees 2
Insurance-related and other fees
Total securities trading and investment activity fees
Credit-related fees and commissions
Commission income from other services
Total fee and commission income
Brokerage fees paid 1
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
1,590
796
2,386
881
6,217
4,000
5,863
264
19,611
339
878
20,827
1,748
1,368
3,116
17,712
4,469
1,138
818
1,957
1,662
8,209
5,583
7,667
317
25,394
273
1,010
26,677
1,763
1,984
3,748
22,929
6,445
2,564
1,178
3,742
2,768
10,211
7,422
9,454
423
34,020
279
1,017
35,316
2,540
2,142
4,682
30,634
7,671
40
(3)
22
(47)
(24)
(28)
(24)
(17)
(23)
24
(13)
(22)
(1)
(31)
(17)
(23)
(31)
1 In 2009, UBS restated the amounts presented in previous periods on the lines Brokerage fees and Brokerage fees paid. Amounts previously disclosed for both lines have been decreased by CHF 146 mil-
lion for the year ended 31 December 2008 and by CHF 70 million for the year ended 31 December 2007. Net fee and commission income is not affected. 2 Includes fiduciary and custodian fees, which
were presented as separate lines in previous reports.
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Financial information
Notes to the consolidated financial statements
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains from disposals of consolidated subsidiaries 1
Net gains from disposals of investments in associates
Share of net profits of associates
Total
Financial investments available-for-sale
Net gains from disposals
Impairment charges
Total
Net income from investments in property 5
Net gains from investment properties 6
Other income from Industrial Holdings
Other
Total other income
For the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
96
(1)
37
133
110
(349) 4
(239)
72
(39)
0
672 7
599
(184)
199
(6)
9
615 2
(202)
413
88
0
0
183
692
(70)
28
145
103
3,338 3
(71)
3,267
108
31
689
143
4,341
(82)
(73)
(18)
267
(13)
1 Includes foreign exchange amounts reclassified from equity upon disposal or deconsolidation of subsidiaries. 2009 includes a loss of CHF 498 million on sale of UBS Pactual. 2 Includes a gain of
approximately CHF 360 million for the disposal of UBS’s equity stake in Bank of China. 3 Includes a pre-tax gain of CHF 1,950 million from UBS’s sale of its 20.7% stake in Julius Baer. 4 Includes
impairments for a global real estate fund of CHF 155 million, Asian debt instruments of CHF 86 million and private equity investments of CHF 55 million. 5 Includes net rent received from third parties
and net operating expenses. 6 Includes unrealized and realized gains from investment properties at fair value and foreclosed assets. 7 Includes a gain of CHF 304 million from the public tender offer
for four subordinated bonds of UBS.
Note 6 Personnel expenses
CHF million
Salaries and variable compensation
Contractors
Insurance and social security contributions
Contribution to retirement plans
Other personnel expenses
Total personnel expenses
of which: share-based personnel expense
Note 7 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Telecommunications and postage
Administration
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Other
Total general and administrative expenses
31.12.09
12,801
275
851
941
1,675
16,543
913
For the year ended
31.12.08
12,207
423
706
926
2,000
16,262
(94)
% change from
31.12.08
5
(35)
21
2
(16)
2
31.12.07
20,715
630
1,290
922
1,958
25,515
3,173
For the year ended
31.12.09
1,420
31.12.08
1,516
31.12.07
1,569
623
697
695
225
412
830
836
512
6,248
669
888
926
408
728
1,085
1,029
3,249 1
10,498
701
948
991
585
1,029
1,106
1,233
267
8,429
% change from
31.12.08
(6)
(7)
(22)
(25)
(45)
(43)
(24)
(19)
(84)
(40)
1 Includes an amount of CHF 1,464 million for the expected costs associated with the repurchase of auction rate securities from clients and CHF 917 million in connection with UBS’s US cross-border case.
290
Note 8 Earnings per share (EPS) and shares outstanding
As of or for the year ended
% change from
31.12.09
31.12.08
31.12.07
31.12.08
Basic earnings (CHF million)
Net profit attributable to UBS shareholders
from continuing operations
from discontinued operations
Diluted earnings (CHF million)
Net profit attributable to UBS shareholders
Less: (profit) / loss on equity derivative contracts
Net profit attributable to UBS shareholders for diluted EPS
from continuing operations
from discontinued operations
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
Potentially dilutive ordinary shares resulting from unvested exchangeable shares,
in-the-money options and warrants outstanding 1
Weighted average shares outstanding for diluted EPS
Potential ordinary shares from unexercised employee shares and in-the-money
options not considered due to the anti-dilutive effect
Earnings per share (CHF)
Basic
from continuing operations
from discontinued operations
Diluted
from continuing operations
from discontinued operations
Shares outstanding
Ordinary shares issued
Treasury shares
Shares outstanding
Retrospective adjustments for stock dividend 3
Retrospective adjustments for rights issue 2
Retrospective adjustment for capital increase 4
Mandatory convertible notes and exchangeable shares 5
Shares outstanding for EPS
(2,736)
(2,719)
(17)
(2,736)
(5)
(2,741)
(2,724)
(17)
(21,292)
(21,442)
150
(21,292)
(28)
(21,320)
(21,470)
150
(5,247)
(5,650)
403
(5,247)
(16)
(5,263)
(5,666)
403
3,661,086,266
2,792,023,098
2,182,836,078
754,948
1,151,556
3,661,841,214
2,793,174,654
1,467,326 2
2,184,303,404
20,166,373
27,909,964
53,668,047
(0.75)
(0.74)
0.00
(0.75)
(0.74)
0.00
(7.63)
(7.68)
0.05
(7.63)
(7.69)
0.05
(2.40)
(2.59)
0.18
(2.41)
(2.59)
0.18
3,558,112,753
2,932,580,549
2,073,547,344
37,553,872
61,903,121
158,105,524
3,520,558,881
2,870,677,428
1,915,441,820
23,252,487
273,264,461
605,547,748
95,772,091
141,850,917
17,439,825
518,711
3,793,823,342
3,499,477,663
2,171,023,364
87
87
87
82
87
87
31
(34)
31
(28)
90
90
(100)
90
90
(100)
21
(39)
23
(55)
8
1 Total equivalent shares outstanding on out-of-the-money options that were not dilutive for the respective periods but could potentially dilute earnings per share in the future were 288,915,585;
283,263,330 and 119,309,645 for the years ended 31 December 2009, 31 December 2008 and 31 December 2007 respectively. An additional 100 million ordinary shares (“contingent share issue”)
related to the SNB transaction were not dilutive for the years ended 31 December 2009 and 31 December 2008 but could potentially dilute earnings per share in the future. 2 Shares outstanding and
potentially dilutive ordinary shares are increased by 7.053% due to the rights issue carried out in 2008. 3 Shares outstanding are increased by 5% to reflect the 1:20 ratio of the stock dividend dis-
tributed in 2008 for the financial year 2007. 4 Shares outstanding increased by 0.81% due to the capital increase in 2009. 5 31 December 2009 and 31 December 2008 include 272,651,005 shares
for the mandatory convertible notes issued to two investors in March 2008. 31 December 2008 includes 332,225,913 shares for the mandatory convertible notes issued to the Swiss Confederation in
December 2008. Remaining amounts related to exchangeable shares. All adjusted for the dilution effect of the stock dividend, the rights issue and the capital increase where applicable.
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291
Financial information
Notes to the consolidated financial statements
Balance sheet notes: assets
Note 9a Due from banks and loans (held at amortized cost)
CHF million
By type of exposure
Banks, gross
Allowance for credit losses
Net due from banks
Loans, gross
Residential mortgages
Commercial mortgages
Other loans 1
Securities 2
Subtotal
Allowance for credit losses
of which: related to securities
Net loans
Net due from banks and loans (held at amortized cost)
By geographical region (based on the location of the borrower)
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Subtotal
Allowance for credit losses
Net due from banks, loans (held at amortized cost) and loans designated at fair value 3
By type of collateral
Secured by real estate
Collateralized by securities
Guarantees and other collateral
Unsecured
Subtotal
Allowance for credit losses
Net due from banks, loans (held at amortized cost) and loans designated at fair value 3
31.12.09
31.12.08
46,606
(32)
46,574
121,031
19,970
141,237
27,237
309,475
(2,648)
(179)
306,828
353,402
163,397
24,038
35,482
85,411
19,531
32,231
360,090
(2,680)
357,410
142,617
56,783
75,589
85,101
360,090
(2,680)
357,410
64,473
(22)
64,451
121,811
21,270
173,812
26,320
343,213
(2,905)
(126)
340,308
404,759
166,798
30,540
47,724
105,907
23,279
38,590
412,838
(2,927)
409,911
145,491
56,312
113,032
98,003
412,838
(2,927)
409,911
1 Includes current accounts, loans and cash collateral for derivatives. 2 On 31 December 2009, includes reclassified US student loan auction rate securities (ARS) of CHF 7.8 billion (CHF 8.4 billion on
31 December 2008), other reclassified securities of CHF 11.5 billion (CHF 13.4 billion on 31 December 2008) and CHF 8.0 billion ARS acquired from clients (CHF 4.5 billion on 31 December 2008).
3 Includes loans designated at fair value of CHF 4.0 billion on 31 December 2009 and CHF 5.2 billion on 31 December 2008. For further details refer to “Note 12 Financial assets designated at fair value”.
292
Note 9b Allowances and provisions for credit losses
CHF million
Balance at the beginning of the year
Write-offs
Recoveries
Increase / (decrease) in credit loss allowances and
provisions recognized in the income statement
Disposals
Foreign currency translation and other adjustments
Balance at the end of the year
CHF million
As a reduction of due from banks
As a reduction of loans 1
As a reduction of securities borrowed
Subtotal
Included in other liabilities related to provisions for contingent claims
Total allowances and provisions for credit losses
Specific
allowances and
provisions
Collective loan
loss allowances
and provisions
Total 31.12.09
Total 31.12.08
3,047
(2,046)
52
1,806
(51)
(37)
2,771 1
23
0
0
26
0
0
49
3,070
(2,046)
52
1,832
(51)
(37)
2,820
1,164
(868)
44
2,996
(223)
(43)
3,070
Specific
allowances and
provisions
Collective loan
loss allowances
and provisions
Total 31.12.09
Total 31.12.08
32
2,598
51
2,681
90
2,771
0
49
0
49
0
49
32
2,648
51
2,730
90
2,820
22
2,905
112
3,039
31
3,070
1 CHF 1,192 million are related to reclassified assets on 31 December 2009 and CHF 1,331 million on 31 December 2008.
Note 10 Cash collateral on securities borrowed and lent, repurchase and reverse repurchase agreements
The Group enters into collateralized reverse repurchase and
repurchase agreements and securities borrowing and securi-
ties lending transactions that may result in credit exposure in
the event that the counterparty to the transaction is unable
to fulfill its contractual obligations. The Group controls credit
risk associated with these activities by monitoring counter-
party credit exposure and collateral values on a daily basis
and requiring additional collateral to be deposited with or
returned to the Group when deemed necessary.
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
Cash collateral on
securities borrowed
31.12.09
Reverse repurchase
agreements
31.12.09
Cash collateral on
securities borrowed
31.12.08
Reverse repurchase
agreements
31.12.08
17,143
46,364
63,507
71,051
45,638
116,689
17,523
105,374
122,897
Cash collateral on
securities lent
31.12.09
Repurchase
agreements
31.12.09
Cash collateral on
securities lent
31.12.08
7,268
727
7,995
26,167
38,008
64,175
12,181
1,881
14,063
110,254
114,393
224,648
Repurchase
agreements
31.12.08
36,088
66,473
102,561
293
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Notes to the consolidated financial statements
Note 11 Trading portfolio
The Group trades in debt instruments (including money
market papers and tradeable loans), equity instruments, pre-
cious metals, other commodities and derivatives to meet
the financial needs of its clients and to generate revenue.
Non-derivative traded instruments are included in the table
below. For derivative instruments, refer to “Note 23 Deriva-
tive instruments and hedge accounting”. The table below
represents an IFRS accounting view. It does not reflect
hedges and other risk mitigating factors, and the amounts
therefore may not be reflective for risk exposures.
CHF million
Trading portfolio assets
Debt instruments
Level 1
Level 2
Level 3
Total
31.12.09
31.12.08
Government and government agencies
59,731
21,656
742
of which: Switzerland
of which: United States
of which: Japan
Banks
Corporates and other
Total debt instruments
of which: pledged as collateral
of which: pledged as collateral and can be repledged or resold
by counterparty
Equity instruments
of which: pledged as collateral
of which: pledged as collateral and can be repledged or resold
by counterparty
Subtotal
Precious metals and other commodities
Total trading portfolio assets
Trading portfolio liabilities
Debt instruments
Government and government agencies
of which: Switzerland
of which: United States
of which: Japan
Banks
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
578
3,293
63,601
13,768
28,123
63,546
678
10,462
11,882
61,788
14,317
258
125,389
77,864
12,141
20,389
5,917
0
753
298
21,441
12,014
33,454
2,617
4,989
13,523
70
13,593
102
161
262
160
422
82,129
155
22,498
25,795
15,024
41,878
139,030
46,348
30,622
76,364
18,400
13,599
215,393
16,864
232,258
26,306
85
10,351
3,384
3,472
5,447
35,226
12,243
47,469
115,696
121
31,366
46,049
23,175
85,991
224,862
62,153
30,903
77,258
15,849
9,312
302,120
9,934
312,054
34,043
129
18,914
2,344
4,354
10,945
49,342
13,089
62,431
294
Note 12 Financial assets designated at fair value
CHF million
Loans
Structured loans
Reverse repurchase and securities borrowing agreements
Banks
Customers
Other financial assets
Total financial assets designated at fair value
31.12.09
3,052
957
3,712
1,662
840
10,223
31.12.08
4,500
653
4,321
2,329
1,079
12,882
The maximum exposure to credit loss of all items in the
above table except for Other financial assets is equal to the
fair value (CHF 9,383 million at 31 December 2009 and CHF
11,803 million at 31 December 2008). Other financial assets
are generally comprised of equity investments and are not
directly exposed to credit risk. The maximum exposure to
credit loss at 31 December 2009 and 31 December 2008 is
mitigated by collateral of CHF 4,845 million and CHF 6,335
million, respectively.
The amount by which credit derivatives or similar instru-
ments mitigate the maximum exposure to credit loss of loans
and structured loans designated at fair value is as follows:
CHF million
Notional amount of loans and structured loans
Credit derivatives related to loans and structured loans – notional
amounts 1
Credit derivatives related to loans and structured loans – fair value 1
Additional Information
31.12.09
4,224
2,699
90
31.12.08
6,186
4,314
547
For the year ended
Cumulative from inception
until the year ended
CHF million
31.12.09
31.12.08
31.12.09
31.12.08
Change in fair value of loans and structured loans designated at
fair value, attributable to changes in credit risk 2
Change in fair value of credit derivatives and similar instruments
which mitigate the maximum exposure to credit loss of loans and
structured loans designated at fair value 2
530
(435)
(668)
486
(128)
90
(659)
547
1 Credit derivatives contracts include credit default swaps, total return swaps, and similar instruments. These are generally used to manage credit risk when UBS has a direct credit exposure to the
counterparty, which has not otherwise been collateralized. 2 Current and cumulative changes in the fair value of loans attributable to changes in their credit risk are only calculated for those loans
outstanding at balance sheet date. Current and cumulative changes in the fair value of credit derivatives hedging such loans include all the derivatives which have been used to mitigate credit risk of
these loans since designation at fair value. For loans reported under the fair value option, changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty
credit information obtained from independent market sources.
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Financial information
Notes to the consolidated financial statements
Note 13 Financial investments available-for-sale
CHF million
Debt instruments
Level 1
Level 2
Level 3
Total
31.12.09
31.12.08
Government and government agencies
72,510
3,591
41
of which: Switzerland
of which: United States
of which: Germany
of which: France
of which: United Kingdom
of which: Japan
Banks
Corporates and other
Total debt instruments 1
Equity instruments
Total financial investments available-for-sale
Net unrealized gains (losses) – before tax
Net unrealized gains (losses) – after tax
1,748
14
74,271
35
74,307
1,981
95
5,667
405
6,073
4
422
467
910
1,378
76,142
232
46,906
7,958
7,936
4,774
3,950
3,732
531
80,406
1,351
81,757
500
391
2,349
3
281
0
0
2,014
0
180
1,038
3,567
1,681
5,248
403
349
1 The increase in 2009 is mainly related to UBS’s strategic decision to rebalance its liquidity reserve which led to a shift from reverse repurchase agreements and trading portfolio assets into debt instru-
ments available-for-sale. These instruments include high quality liquid short-term securities issued by governments and government-controlled institutions in various currencies, mainly US dollar and euro.
Note 14 Investments in associates
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Transfers
Income
Impairments
Dividends paid
Foreign currency translation
Carrying amount at the end of the year
31.12.09
31.12.08
892
14
(38)
(1)
42
(4)
(30)
(5)
870
1,979
807
(1,307)
(422)
12
(18)
(34)
(125)
892
Significant associated companies of the Group had the following balance sheet and income statement totals on an aggre-
gated basis, not adjusted for the Group’s proportionate interest. Refer to “Note 34 Significant subsidiaries and associates”.
31.12.09
31.12.08
5,155
3,248
1,468
319
4,272
3,448
1,211
198
CHF million
Assets
Liabilities
Revenues
Net profit
296
Note 15 Property and equipment
At historical cost less accumulated depreciation
CHF million
Historical cost
Own-used
properties
Leasehold
improve-
ments
IT, software
and com-
munication
Other
machines and
equipment
Projects in
progress
Balance at the beginning of the year
9,289
3,393
4,086
Additions
Additions from acquired companies
Disposals / write-offs 1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation 2
Disposals / write-offs 1
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 3
259
0
(15)
(78)
13
9,468
77
0
(309)
76
(10)
3,227
5,272
2,031
247
(13)
(94)
6
5,417
4,051
358
(263)
3
(20)
2,109
1,118
265
0
(346)
132
12
4,150
3,612
371
(325)
2
9
3,669
481
867
24
0
(65)
(34)
(7)
784
546
72
(42)
(14)
(7)
555
229
317
229
0
0
(323)
(6)
217
0
0
0
0
0
0
217
31.12.09
31.12.08
17,952
854
0
(736)
(227)
2
18,723
1,181
7
(792)
(222)
(945)
17,846
17,952
11,461
1,048
(644)
(104)
(12)
11,750
6,096
11,679
1,241
(697)
(164)
(598)
11,461
6,491
1 Includes write-offs of fully depreciated assets. 2 In 2009, amounts include CHF 26 million impairments of own-used property, CHF 30 million impairments of leasehold improvements and CHF 2 million
impairments of IT, software and communication. 3 Fire insurance value of property and equipment is CHF 13,800 million (2008: CHF 14,166 million).
Investment properties at fair value
CHF million
Balance at the beginning of the year
Additions
Sales
Revaluations
Foreign currency translation
Balance at the end of the year
31.12.09
215
0
(60)
(37)
(2)
116
31.12.08
189
37
0
(6)
(5)
215
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
297
Financial information
Notes to the consolidated financial statements
Note 16 Goodwill and intangible assets
Introduction
At 31 December 2009, the following four segments carried
goodwill: Wealth Management & Swiss Bank (CHF 1.5 bil-
lion), Wealth Management Americas (CHF 3.7 billion), Glob-
al Asset Management (CHF 1.6 billion), and Investment Bank
(CHF 3.3 billion). For the purpose of testing goodwill for im-
pairment, UBS considers each of these segments as separate
cash-generating units, and determines the recoverable
amount of a segment on the basis of value in use.
At 31 December 2009, equity attributable to UBS share-
holders stood at CHF 41 billion, up from CHF 33 billion at
31 December 2008. UBS’s market capitalization, excluding
the shares to be issued upon conversion of the MCNs,
amounted to CHF 57 billion at 31 December 2009 compared
with CHF 44 billion at 31 December 2008. On the basis of
the impairment testing methodology described below, UBS
concluded that the year-end 2009 balances of goodwill al-
located to its segments remain recoverable.
Methodology for goodwill impairment testing
The recoverable amount is determined using a proprietary
model based on discounted cash flows, which has been
adapted to give effect to the special features of the banking
business and its regulatory environment. The recoverable
amount is determined by estimating streams of earnings
available to shareholders in the next five years, discounted to
their present values. The terminal value reflecting all periods
beyond the fifth year is calculated on the basis of the fore-
cast of fifth-year profit, the cost of equity and the long-term
growth rate. During the year 2009, the discount rates used
to calculate the present values were reduced to reflect the
improved capital basis and the realized de-risking of the bal-
ance sheet, and the long-term growth rate was also margin-
ally reduced. The recoverable amount of a segment is the
sum of earnings available to shareholders from the first five
individually forecast years and the terminal value.
The carrying amount for each segment is determined by
a roll-forward of historic carrying amounts based on the eq-
uity attributed to UBS shareholders, as full balance sheets
are not available for the segments. For each segment the
beginning-of-the-period balance of equity is rolled forward
by accounting for the items that affect a segment’s carrying
amount, e.g. allocation of transactions with shareholders at
Group level, to arrive at the end-of-the-period balance.
Assumptions
The model to determine the recoverable amount is most
sensitive to changes in the forecast earnings available to
shareholders in years one to five, the cost of equity and
changes in the long-term growth rate. The applied long-
term growth rate is based on real growth rates and expect-
ed inflation. Earnings available to shareholders are estimat-
ed based on forecast results, which take into account
business initiatives and planned capital investments, and re-
turns to shareholders, which take into account amounts of
capital that could be distributed or used for share buy-
backs. Valuation parameters used in the Group’s impair-
ment test model are linked to external market information,
where applicable. Management believes that reasonable
changes in key assumptions used to determine the recover-
able amounts of all segments will not result in an impair-
ment situation.
Discount and growth rates
In %
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Discount rates
Growth rates
31.12.09
31.12.08
31.12.09
31.12.08
9.0
9.0
9.0
11.0
9.5
11.5
11.0
13.0
1.2
2.4
2.4
2.4
1.3
2.6
2.6
2.6
298
Note 16 Goodwill and intangible assets (continued)
Investment Bank / Wealth Management Americas
On 31 December 2009, the assessment of the goodwill of
the Investment Bank and Wealth Management Americas
continued to be a key focus. Goodwill allocated to the In-
vestment Bank amounted to CHF 3.3 billion at 31 December
2009 (CHF 4.3 billion at 31 December 2008). The reduction
is due to the derecognition of CHF 0.9 billion goodwill re-
lated to UBS Pactual, of which CHF 749 million was subject
to an impairment (refer to Note 38 for details). Goodwill al-
located to Wealth Management Americas amounted to CHF
3.7 billion at 31 December 2009 (CHF 3.8 billion at 31 De-
cember 2008). In 2009, CHF 40 million goodwill related to
UBS Pactual was derecognized, of which CHF 34 million was
subject to an impairment (refer to Note 38 for details).
In its review of the year-end 2009 goodwill balance, UBS
considered the performance outlook of its Investment Bank
and Wealth Management Americas business divisions and
the underlying business operations to resolve whether the
recoverable amounts for these units covers their carrying
amounts, based on the methodology described above. On
this basis, UBS concluded that goodwill allocated to the In-
vestment Bank and Wealth Management Americas remained
recoverable at 31 December 2009. The conclusion was
reached based on the current forecast results and the under-
lying assumption that the economic environment will gradu-
ally improve over the next three years and reach an average
growth level thereafter. The fair value obtained from the
model calculation was subject to a stress test by decreasing
forecast cash flows by one-third and at the same time in-
creasing the discount rate by 3.5 percentage points. The
stress values so obtained covered the book values of the In-
vestment Bank and Wealth Management Americas. Howev-
er, if the regulatory pressure on the banking industry intensi-
fies and conditions in the financial markets turn out to be
worse than anticipated in UBS’s performance forecasts, the
goodwill carried in the Investment Bank and Wealth Man-
agement Americas business divisions might need to be im-
paired in future quarters.
Recognition of any impairment of goodwill would reduce
IFRS Equity attributable to UBS shareholders and net profit
but it would not impact cash flows, as well as the BIS tier 1
capital, BIS total capital, and capital ratios of the UBS Group,
as goodwill is required to be deducted from capital under
the Basel II capital framework.
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
Total
31.12.09
31.12.08
CHF million
Historical cost
Balance at the beginning of the year
Additions and reallocations
Disposals
Write-offs 1
Foreign currency translation
Balance at the end of the year
Accumulated amortization and impairment
Balance at the beginning of the year
Amortization
Impairment of goodwill and intangible assets
Disposals
Write-offs 1
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
11,585
32
(1,631)
0
128
10,115
0
0
1,123 2
(1,199)
0
76
0
10,115
824
0
(13)
0
(24)
787
337
42
0
(6)
0
(12)
361
425
1,308
38
(546)
0
95
894
444
102
57
(211)
0
34
426
468
1 Represents write-offs of fully amortized intangible assets. 2 Represents goodwill impairment related to UBS Pactual.
2,131
38
(559)
0
71
13,716
70
(2,190)
0
199
1,680
11,795
781
144
57
(217)
0
23
787
893
781
144
1,180
(1,416)
0
99
787
15,324
585
(33)
(472)
(1,688)
13,716
786
193
361
(7)
(472)
(80)
781
11,008
12,935
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299
Financial information
Notes to the consolidated financial statements
Note 16 Goodwill and intangible assets (continued)
The following table presents goodwill and intangible assets by business unit for the year ended 31 December 2009.
CHF million
Goodwill
Wealth Management & Swiss Bank
Weath Management Americas
Global Asset Management
Investment Bank
UBS
Intangible assets
Wealth Management & Swiss Bank
Weath Management Americas
Global Asset Management
Investment Bank
UBS
Balance at
the beginning
of the year
Additions
and
reallocations
Disposals Amortization
Impairment
Foreign
currency
translation
Balance at
the end of
the year
1,523 1
3,803 1
1,982
4,277
11,585
203 1
674 1
186
286
1,350
(2)
(1)
4
31
32
0
0
0
38
38
0
(14)
(130)
(287)
(432)
0
(83)
(160)
(99)
(342)
0
(34)
(340)
(749)
(1,123)
(56)
(1)
0
0
(57)
(11)
(100)
94
68
52
1
(4)
36
15
48
1,510
3,655
1,610
3,341
10,115
137
526
49
182
893
(11)
(61)
(13)
(59)
(144)
1 Goodwill of CHF 125 million and intangible assets of CHF 48 million have been reallocated from Wealth Management & Swiss Bank to Wealth Management Americas due to the restructuring announced
in February 2009.
Intangible assets
105
103
97
89
82
417
893
31.12.09
31.12.08
915
209
3,053
568
2,590
7,336
1,203
330
2,922
981
4,495
9,931
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million
Estimated, aggregated amortization expenses for:
2010
2011
2012
2013
2014
2015 and thereafter
Total
Note 17 Other assets
CHF million
Settlement and clearing accounts
VAT and other tax receivables
Prepaid pension costs
Properties held for sale
Other receivables
Total other assets
300
Balance sheet notes: 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
Note 19 Financial liabilities designated at fair value and debt issued
Financial liabilities designated at fair value
CHF million
Bonds and compound debt instruments issued
Equity linked
Credit linked
Rates linked
Other
Total
Compound debt instruments – OTC
Loan commitments 2
Total
31.12.09
65,166
101,573
308,903
410,475
475,641
31.12.08
125,628
91,614
374,127
465,741
591,369
31.12.09
31.12.08
54,856
25,663
16,367
2,286
99,173
13,306
174
112,653
92,446 1
7,468
1,632
101,546
1 Breakdown by product type has been implemented with the 2009 disclosure. 2 Loan commitments recognized as Financial liabilities designated at fair value, until drawn down by counterparty and
recognized as loans. See Note 1a) 8) for additional information.
At 31 December 2009, the contractual redemption amount
at maturity of Financial liabilities designated at fair value
through profit or loss was CHF 7.6 billion higher than the
carrying value. At 31 December 2008, the contractual re-
demption amount at maturity of such liabilities was CHF
12.2 billion higher than the carrying value. Refer to Note
1a) 8) for details.
Debt issued (held at amortized cost)
CHF million
Money market papers
Debt:
Senior bonds
Subordinated bonds
Bonds issued by the central bond institutions of the Swiss regional or cantonal banks
Medium-term notes
Total
31.12.09
51,579
57,653
11,244
7,909
2,967
131,352
31.12.08
111,619
67,298
12,769
2,418
3,150
197,254
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301
Financial information
Notes to the consolidated financial statements
Note 19 Financial liabilities designated at fair value and debt issued (continued)
The Group uses interest rate and foreign exchange deriva-
tives to manage the risks inherent in certain debt issues (held
at amortized cost). In certain cases, the Group applies hedge
accounting for interest rate risk as discussed in Note 1a) 15)
and “Note 23 Derivative Instruments and Hedge Account-
ing”. As a result of applying hedge accounting, at 31 De-
cember 2009 and 31 December 2008, the carrying value of
debt issued was CHF 600 million higher and CHF 904 million
higher, respectively, reflecting changes in fair value due to
interest rate movements.
The Group issues both CHF and non-CHF denominated
fixed-rate and floating-rate debt.
Subordinated debt securities are unsecured obligations of
the Group that are subordinated in right of payment to all
present and future senior indebtedness and certain other
obligations of the Group. At 31 December 2009 and 31 De-
cember 2008, the Group had CHF 11,244 million and CHF
12,769 million, respectively, in subordinated debt. Subordi-
nated debt usually pays fixed interest annually or floating
rate interest based on three-month or six-month London In-
terbank Offered Rate (LIBOR) and provides for single princi-
pal payments upon maturity.
At 31 December 2009 and 31 December 2008, the Group
had CHF 167,702 million and CHF 165,312 million, respec-
tively, in unsubordinated debt (excluding money market pa-
per, compound debt instruments – OTC and loan commit-
ments designated at fair value).
The following table shows the split between fixed-rate
and floating-rate debt issues based on the contractual terms.
However, it should be noted that the Group uses interest
rate swaps to hedge many of the fixed-rate debt issues,
which changes their repricing characteristics into those of
floating-rate debt.
Contractual maturity dates
CHF million, except where indicated
2010
2011
2012
2013
2014
2015 – 2019
Thereafter
Total
31.12.09
Total
31.12.08
UBS AG (Parent Bank)
Senior debt
Fixed rate
Interest rates (range in %) 1
Floating rate
Subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Subsidiaries
Senior debt
Fixed rate
Interest rates (range in %) 1
Floating rate
Subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Total
66,450
13,600
0 – 10.46
0 – 10.00
16,341
11,154
7,839
0 – 7.0
10,463
10,609
0 – 9.44
5,653
8,132
0 – 8.84
4,368
17,517
0 – 9.5
8,631
6,209
0 – 8.0
11,765
130,356
103,579
68,375
81,000
0
0
0
0
0
0
0
0
397
3.34
0
82,792
24,754
18,303
16,262
12,897
5,488
1,282
7,167
8,875
2.38 – 7.38
6.38 – 8.75
3,578
35,214
499
4,077
3,820
19,754
209,975
197,274
8,335
0 – 9.0
1,160
1,012
308
0 – 9.49
0 – 7.74
1,451
1,354
340
0 – 9.0
1,108
180
0 – 7.63
713
944
0 – 5.54
4,650
8,375
0 – 12.0
4,102
19,494
83,003
14,537
18,449
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
74
0
9,495
2,463
1,661
1,448
893
92,287
27,217
19,964
17,710
13,789
5,594
40,808
12,476
32,230
34,030
244,005
101,526
298,800
1 The contractual interest rates on some minor positions of structured products were not considered in the interest rate ranges. The interest rate of these products is up to 69.5%.
The table above indicates fixed interest rate coupons on the
Group’s bonds. The high or low coupons generally relate to
structured debt issues prior to the separation of embedded
derivatives. As a result, the stated interest rate on such debt
issues generally does not reflect the effective interest rate
the Group is paying to service its debt after the embedded
derivative has been separated and, where applicable, the ap-
plication of hedge accounting.
302
Note 20 Other liabilities
CHF million
Provisions
Provisions for contingent claims
Current tax liabilities
Deferred tax liabilities
VAT and other tax payables
Settlement and clearing accounts
Amounts due under unit-linked investment contracts
Other payables 1
Total other liabilities
Note
31.12.09
31.12.08
21
9b
22
2,311
90
1,082
142
612
1,430
21,740
6,579
33,986
2,727
31
1,192
1,470
1,022
3,089
22,084
11,384
42,998
1 Includes third-party interest of consolidated limited partnerships of CHF 1.6 billion (2008 CHF 3.1 billion) and liabilities from cash settled employee compensation plans of CHF 2.5 billion (2008
CHF 3.6 billion). Contingent payments (net present value as of 31 December 2008 CHF 1.4 billion) for the acquisition of Pactual in 2006 were finally derecognized in 2009 due to the sale of UBS Pac-
tual in September 2009.
Note 21 Provisions and litigation
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Capitalized reinstatement costs
Disposal of subsidiaries
Reclassifications
Foreign currency translation
Balance at the end of the year
Operational 1
270
Litigation 2 Restructuring
183
1,418
0
293
(94)
(352)
0
(32)
0
(3)
82
0
265
(22)
(516)
0
(3)
0
(113)
1,028
0
649
(6)
(415)
0
0
92
(14)
488
Other 4
856
0
139
(187)
(92)
3
0
(1)
(5)
713
Total
31.12.09
2,727
0
1,346
(309)
(1,375)
3
(35)
90
(135)
2,311
Total
31.12.08 3
1,716
1
4,002
(528)
(1,381)
(21)
0
(979)
(83)
2,727
1 Includes provisions for litigation resulting from security risks and transaction processing risks. 2 Includes litigation resulting from legal, liability and compliance risks. 3 In 2008 Global Wealth
Management & Business Banking made a provision of CHF 1,464 million (USD 1,363 million) for the expected costs of the repurchase of auction rate securities (ARS), including fines. In fourth quarter
2008, after the provision was partially applied for repurchases of ARS, an amount of CHF 968 million (USD 908 million), excluding fines, was reclassified to Negative replacement values. In addition, a
provision of CHF 917 million (USD 780 million) was made in connection with UBS’s US cross-border case. 4 Includes reinstatement costs for leasehold improvement which amounted to CHF 161 million
on 31 December 2009 (CHF 167 million on 31 December 2008), provisions for onerous lease contracts, provisions for employee benefits (service anniversaries and sabbatical leave) and other items.
Litigation
The UBS Group operates in a legal and regulatory environ-
ment that exposes it to significant litigation risks. As a result,
UBS is involved in various disputes and legal proceedings, in-
cluding litigation, arbitration, and regulatory and criminal in-
vestigations. Such cases are subject to many uncertainties,
and their outcome is often difficult to predict, including the
impact on operations or on the financial statements, particu-
larly in the earlier stages of a case. In certain circumstances, to
avoid the expense and distraction of legal proceedings, UBS
may, based on a cost-benefit analysis, enter into a settlement
even though UBS denies any wrongdoing. The Group makes
provisions for cases brought against it when, in the opinion of
management after seeking legal advice, it is probable that a
liability exists, and the amount can be reasonably estimated.
Certain potentially significant legal proceedings as of
31 December 2009 are described below:
a) Municipal Bonds: In November 2006, UBS and others re-
ceived subpoenas from the US Department of Justice, An-
(SEC) seeking
titrust Division, and the US Securities and Exchange Com-
information relating to the
mission
investment of proceeds of municipal bond issuances and
associated derivative transactions. Both investigations are
ongoing, and UBS is cooperating. In addition, various
state Attorneys General have issued subpoenas seeking
similar information. In the SEC investigation, on 4 Febru-
ary 2008, UBS received a “Wells notice” advising that the
SEC staff is considering recommending that the SEC bring
a civil action against UBS AG in connection with the
bidding of various financial instruments associated with
municipal securities. The discussions with the SEC are on-
going.
b) Auction Rate Securities: UBS was the subject of an SEC
investigation and state regulatory actions relating to the
marketing and sale of auction rate securities (ARSs) to
clients, and to UBS’s role and participation in ARS auc-
tions and underwriting of ARSs. UBS was also named in
several putative class actions and individual civil suits and
303
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Financial information
Notes to the consolidated financial statements
Note 21 Provisions and litigation (continued)
arbitrations. The regulatory actions and investigations
and the civil proceedings followed the disruption in the
markets for these securities and related auction failures
since mid-February 2008. At the end of 2008 UBS en-
tered into settlements with the SEC, the New York Attor-
ney General (NYAG) and the Massachusetts Securities Di-
vision whereby UBS agreed to offer to buy back ARSs
from eligible customers within certain time periods, the
last of which begins on 30 June 2010, and to pay penal-
ties of USD 150 million (USD 75 million to the NYAG, USD
75 million to the other states). UBS’s settlement is largely
in line with similar industry regulatory settlements. UBS is
continuing to finalize agreements with other state regu-
lators. The SEC continues to investigate individuals affili-
ated with UBS who traded in ARSs or who had responsi-
bility for disclosures.
c) US Cross-Border: UBS AG has been the subject of a num-
ber of governmental inquiries and investigations relating
to its cross-border private banking services to US private
clients during the years 2000 – 2007. On 18 February
2009, UBS AG announced that it had entered into a De-
ferred Prosecution Agreement (DPA) with the US Depart-
ment of Justice Tax Division (DOJ) and the United States
Attorney’s Office for the Southern District of Florida, and
a Consent Order with the SEC relating to these investiga-
tions. As part of the settlement agreements UBS agreed
to, among other things, (i) pay a total of USD 780 million
to the United States, (ii) complete the exit of the US cross-
border business out of non-SEC registered entities, and
(iii) implement and maintain an effective program of in-
ternal controls with respect to compliance with its obliga-
tions under the Qualified Intermediary (QI) Agreement
with the US Internal Revenue Service (IRS), as well as a
revised legal and compliance governance structure in or-
der to strengthen independent legal and compliance con-
trols. Pursuant to the DPA, the DOJ agreed that any fur-
ther prosecution of UBS will be deferred for a period of at
least 18 months, subject to extension under certain cir-
cumstances such as UBS needing more time to complete
the implementation of the exit of its US cross-border busi-
ness. If UBS satisfies all of its obligations under the DPA,
the DOJ will refrain permanently from pursuing charges
against UBS relating to the investigation of its US cross-
border business. As part of the resolution of an SEC claim
that UBS acted as an unregulated broker dealer and in-
vestment advisor in connection with its US cross-border
business, UBS consented to a settlement that provides,
among other things, that: (i) UBS will pay USD 200 million
to the SEC (included in the USD 780 million payment de-
scribed above); and (ii) UBS will complete its exit of the US
cross-border business and will be permanently enjoined
from violating certain SEC registration requirements.
304
The agreements with the DOJ and SEC did not resolve the
“John Doe” summons which the IRS served on UBS in
July 2008. In this regard, on 19 February 2009, the Civil
Tax Division of the DOJ filed a civil petition for enforce-
ment of this summons in the US Federal District Court for
the Southern District of Florida, through which it sought
an order directing UBS to produce information located in
Switzerland regarding US clients who have maintained
accounts with UBS in Switzerland without providing a
Form W-9.
On 19 August 2009, UBS executed a settlement agree-
ment with the IRS and the DOJ, to resolve the “John
Doe” summons litigation (UBS-US Settlement Agree-
ment). At the same time, the United States and Switzer-
land entered into a separate but related agreement
(Swiss-US Agreement). Among other things, these agree-
ments provide that: (i) UBS and the IRS would promptly
file a stipulation dismissing the “John Doe” summons en-
forcement action then pending in federal court in Miami,
which occurred the same day; (ii) the IRS would submit a
request for information regarding accounts of US clients
maintained at UBS in Switzerland, on the basis that such
clients appear to have committed tax fraud or the like
within the meaning of the existing 1996 Swiss-US Double
Taxation Treaty, to the Swiss Federal Tax Administration
(SFTA), which it did on 31 August 2009; (iii) UBS would
send a notice to US accountholders that appear to be
within the scope of the treaty request and produce to the
SFTA information on the corresponding accounts both in
accordance with a specified schedule, which UBS has
done in compliance with an order issued by the SFTA on
1 September 2009; and (iv) UBS and the IRS would agree
to amend UBS’s QI Agreement, whereupon the IRS would
withdraw the previously disclosed QI Notice of Default
dated 15 May 2008. The UBS-US Settlement Agreement
does not call for any monetary payment by UBS.
Because UBS has complied with all of its obligations set
forth in the UBS-US Settlement Agreement required to be
completed by 31 December 2009, the IRS has withdrawn
the summons with prejudice as to all accounts not cov-
ered by the treaty request.
Subject to UBS’s compliance with its further notification
and information processing obligations set forth in the
UBS-US Settlement Agreement, the IRS will withdraw the
“John Doe” summons with prejudice as to the remaining
accounts – i.e. those subject to the treaty request – no
later than 24 August 2010 upon the actual or anticipated
delivery to the IRS of information relating to accounts
covered by the treaty request that does not differ signifi-
cantly from the expected results. Alternatively, the sum-
mons will be withdrawn with prejudice as to the remain-
ing accounts if at any time on or after 1 January 2010 the
Note 21 Provisions and litigation (continued)
IRS has received information from any source relating to
at least 10,000 accounts of US persons maintained at
UBS in Switzerland.
On 21 January 2010, the Swiss Federal Administrative
Court ruled that the SFTA did not have a proper legal ba-
sis to grant the IRS request for information with respect to
accounts of US persons who had failed to report substan-
tial amounts of income over an extended period, but had
not engaged in fraudulent activity within the meaning of
Swiss law. The decision does not invalidate the UBS-US
Settlement Agreement or the Swiss-US Agreement and it
does not affect the treaty request to the extent it is di-
rected at accounts in relation to which such fraudulent
activity occurred. Following consultations with the US
Government about measures to ensure the further imple-
mentation of the Swiss-US Settlement Agreement, the
Swiss Government decided on 24 February 2010 that it
will seek to amend the Swiss-US Agreement and submit it
to Parliament for approval.
UBS continues, as in the past, to fulfill all of its obligations
under the settlements, including, among other things,
the exit of the US cross-border business out of non-SEC
registered entities and the provision of relevant account
information to the SFTA under the treaty process.
d) Inquiries Regarding Non-US Cross-Border Businesses: Fol-
lowing the disclosure of the US cross-border matter and
the settlements with the DOJ and the SEC, tax and regula-
tory authorities in a number of countries have requested
information relating to the cross-border wealth manage-
ment services provided by UBS and other financial institu-
tions. In particular, the revenue services of Canada, the UK
and Australia have served requests upon, or made inquiries
of, UBS and other Swiss and non-Swiss financial institu-
tions providing cross-border wealth management services
for information relating to such services that is located in
their respective jurisdictions. UBS is cooperating with these
requests strictly within the limits of financial privacy obliga-
tions under Swiss and other applicable laws. It is premature
to speculate on the outcome of any such inquiries.
e) Matters Related to the Credit Crisis: UBS is responding to
a number of governmental inquiries and investigations,
and is involved in a number of litigations, arbitrations and
disputes, related to the credit crisis and in particular mort-
gage-related securities and other structured transactions
and derivatives. These matters concern, among other
things, UBS’s valuations, accounting classifications, dis-
closures, writedowns, and contractual obligations, as well
as its role as underwriter in securities offerings for other
issuers. In particular, UBS has communicated with and has
responded to inquiries by FINMA, its home country con-
solidated regulator, as well as the SEC, the Financial In-
dustry Regulatory Authority and the United States Attor-
ney’s Office for the Eastern District of New York, regarding
some of these issues and others, including the role of in-
ternal control units, governance and processes around
risk control and valuation of mortgage-related instru-
ments, compliance with public disclosure rules, and the
business rationales for the launching and the reintegra-
tion of Dillon Read Capital Management. FINMA conclud-
ed its investigation in October 2008.
f) Claims Related to UBS Disclosure: A putative consolidated
class action has been filed against UBS and a number of
current and former directors and senior officers in the
Southern District of New York alleging securities fraud in
connection with the firm’s disclosures relating to its losses
in the subprime mortgage markets, its losses and positions
in auction rate securities, and its US cross-border business.
Defendants have moved to dismiss the complaint for lack
of jurisdiction and for failure to state a claim. UBS and a
number of senior officers and directors have also been
sued in a putative consolidated class action brought on
behalf of holders of UBS Employee Retirement Income Se-
curity Act (ERISA) retirement plans in which there were
purchases of UBS stock. UBS has moved to dismiss the
ERISA complaint for failure to state a claim.
g) Madoff: In relation to the Madoff investment fraud, UBS,
UBS (Luxembourg) SA and certain other UBS subsidiaries
have been subject to inquiries by a number of regulators,
including FINMA and the Luxembourg Commission de
Surveillance du Secteur Financier (CSSF). Those inquiries
concerned two third-party funds established under Lux-
embourg law substantially all assets of which were with
Bernard L. Madoff Investment Securities LLC (BMIS), as
well as certain funds established under offshore jurisdic-
tions with either direct or indirect exposure to BMIS.
These funds now face severe losses. The last reported net
asset value of the two Luxembourg funds before the rev-
elation of the Madoff scheme was approximately USD
1.7 billion in the aggregate. The documentation estab-
lishing both funds identifies UBS entities in various roles
including custodian, administrator, manager, distributor
and promoter, and indicates that UBS employees serve as
board members. On 25 February 2009, the CSSF issued a
communiqué with respect to the larger of the two funds,
stating that UBS (Luxembourg) SA had failed to comply
with its due diligence responsibilities as custodian bank.
The CSSF ordered UBS (Luxembourg) SA to review its in-
frastructure and procedures relating to its supervisory
obligations as custodian bank, but did not order it to
compensate investors. On 25 May 2009, UBS (Luxem-
bourg) SA submitted a comprehensive final report to the
CSSF, which resulted in the CSSF publishing a new com-
muniqué saying that UBS (Luxembourg) SA has provided
evidence demonstrating that it has the infrastructure and
305
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Notes to the consolidated financial statements
Note 21 Provisions and litigation (continued)
internal organization in place in accordance with profes-
sional standards appli cable to custodian banks in Luxem-
bourg. In addition, on 17 December 2009, a claim in the
amount of EUR 890 million was filed on behalf of the
larger of the two Luxembourg funds by the liquidators of
that fund against 15 defendants, including UBS entities,
Access Management Luxembourg SA, Ernst & Young,
the CSSF and various individuals. A large number of al-
leged beneficiaries have filed claims against UBS entities
(and non-UBS entities) for purported losses relating to
the Madoff scheme. Further, certain clients of UBS in
Germany are exposed to Madoff-managed positions
through third-party funds and funds administered by
UBS entities in Germany.
h) City of Milan Transactions: In January 2009, the City of
Milan filed civil proceedings against UBS Limited, UBS
Italia SIM Spa and three other international banks in
relation to a 2005 bond issue and associated derivatives
transactions entered into with the City of Milan be-
tween 2005 and 2007. The claim is to recover alleged
damages in an amount which will compensate for
terms of the related derivatives which the City claims to
be objectionable. In the alternative, the City seeks to
recover alleged hidden profits alleged to have been
made by the banks in the amount of EUR 88 million (of
which UBS Limited is alleged to have received EUR 16
million) together with further damages of not less than
EUR 150 million. The claims are made against all of the
banks on a joint and several basis. UBS is vigorously de-
fending the claim. In addition, a criminal investigation
by a Prosecutor in Milan has been ongoing in relation to
the same transactions. In November 2009, the Prosecu-
tor filed a request for committal for trial of two current
UBS employees and one former UBS employee, togeth-
er with employees from other banking institutions. The
request alleges that the banks’ employees engaged in
criminal conduct in order to allow the banks to earn al-
legedly concealed profits on the June 2005 bond issue
and related derivative transactions. The Prosecutor also
requested committal for trial of UBS Limited and the
other banks in relation to the administrative charge of
failing to have in place a business organization model
to prevent crime. Preliminary court hearings are taking
place through March 2010.
306
Note 22 Income taxes
CHF million
Tax expense from continuing operations
Domestic
Current
Deferred
Foreign
Current
Deferred
Total income tax expense from continuing operations
Tax expense from discontinued operations
Domestic
Total income tax expense from discontinued operations
Total income tax expense
For the year ended
31.12.09
31.12.08
31.12.07
55
23
462
(983)
(443)
0
0
(336)
(7,282)
519
262
(6,837)
1
1
(443)
(6,836)
409
(25)
1,061
(76)
1,369
(258)
(258)
1,111
The deferred tax benefit reflects the recognition of addition-
al deferred tax assets in respect of tax losses and temporary
differences in a number of locations including the US (CHF
373 million) and Japan (CHF 127 million), taking into ac-
count updated forecast profit assumptions over the five-year
horizon used for recognition purposes. In addition, it reflects
the release of a deferred tax liability of CHF 243 million relat-
ing to UBS Pactual prior to its sale during the year. The cur-
rent tax charge mainly relates to tax expenses in respect of
entities with taxable profits.
The current tax expense for 2009 includes tax costs re-
lated to prior years of CHF 50 million. In addition, there was
a tax benefit of CHF 116 million relating to prior years in re-
spect of the release of a net deferred tax liability. The net tax
benefits relating to prior years were therefore CHF 65 mil-
lion.
The Group made net corporate income tax payments, in-
cluding domestic and foreign taxes, of CHF 505 million, CHF
887 million and CHF 3,663 million in 2009, 2008 and 2007
respectively.
The components of operating profit before tax, and the
differences between income tax expense reflected in the fi-
nancial statements and the amounts calculated at the Swiss
statutory rate, are as follows:
CHF million
Operating profit from continuing operations before tax
Domestic
Foreign
Income taxes at Swiss statutory rate of 21.5% for 2009, 22% for 2008 and 2007
Increase / (decrease) resulting from:
Applicable tax rates differing from Swiss statutory rate
Tax effects of losses not recognized
Previously unrecorded tax losses now utilized
Non-taxable and lower taxed income
Non-deductible goodwill and intangible asset amortization
Non-deductible expenses
Adjustments related to prior years
Change in deferred tax valuation allowance
Other items
Income tax expense from continuing operations
31.12.09
(2,561)
4,871
(7,433)
(551)
(1,636)
1,188
(79)
(932)
7
1,005
(65)
552
69
(443)
For the year ended
31.12.08
(27,758)
3,269
(31,027)
(6,107)
(7,056)
7,412
(10)
(773)
160
737
(490)
(692)
(17)
31.12.07
(3,742)
10,337
(14,079)
(823)
(3,054)
6,327
(257)
(1,587)
15
227
(72)
279
314
(6,837)
1,369
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Financial information
Notes to the consolidated financial statements
Note 22 Income taxes (continued)
Significant components of the Group’s deferred income tax assets and liabilities are as follows:
CHF million
Deferred tax assets
Compensation and benefits
Tax loss carry-forwards
Trading assets
Other
Total deferred tax assets
Deferred tax liabilities
Compensation and benefits
Property and equipment
Financial investments and associates
Trading assets
Goodwill and intangible assets
Other
Total deferred tax liabilities
31.12.09
Valuation
allowance Recognized
(1,561)
(24,259)
(403)
(2,215)
221
8,246
158
243
Gross
1,782
32,505
561
2,458
31.12.08
Valuation
allowance
(1,213)
(24,708)
(365)
(69)
Gross
1,534
32,834
608
258
37,305
(28,437)
8,868
35,234
(26,354)
5
1
60
0
61
15
142
Recognized
321
8,126
243
190
8,880
111
29
206
244
289
591
1,470
The change in the net of deferred tax assets and liabilities
in 2009 and 2008 does not equal the deferred tax benefit
in those years. This is because certain deferred tax asset
and liability movements are recognized directly in the state-
ment of changes in equity and also because of the effects
of exchange rate changes on tax assets and liabilities de-
nominated in currencies other than Swiss francs.
During the year, deferred tax liabilities of CHF 0.7 billion
were offset against deferred tax assets in accordance with
IAS 12.
In the table above, the valuation allowance represents
amounts that are not expected to provide future benefits
due to insufficiency of future taxable income (and at 31 De-
cember 2008, also amounts offset against potential tax ad-
justments).
UBS AG Switzerland and certain overseas branches and
subsidiaries of the Group have deferred tax assets related to
tax loss carry-forwards and other items. For entities that in-
curred losses in either the current or preceding year, an
amount of CHF 8,773 million is recognized as deferred tax
assets at 31 December 2009 (CHF 8,463 million at 31 De-
cember 2008). These deferred tax assets mainly relate to
Swiss tax losses (primarily due to the write-down of invest-
ments in US subsidiaries in 2007 and 2008) and US tax
losses. Swiss tax losses can be carried forward for seven
years and US federal tax losses for 20 years.
The deferred tax assets recognized at 31 December 2009
in respect of tax losses have been based on profitability as-
sumptions over a five-year horizon. The expected future
profitability is based on business plan assumptions, as ad-
justed to take into account the recognition criteria of IAS 12.
If the business plan earnings and assumptions in following
quarters substantially deviate from the current assumptions,
the amount of deferred tax assets may need to be adjusted
in the future.
At 31 December 2009, tax losses totaling CHF 72,313
million which are not recognized as deferred tax assets are
available to be offset against potential tax adjustments or
future taxable income.
The tax losses expire as follows:
CHF million
Within 1 year
From 2 to 4 years
After 4 years
Total
31.12.09
1
4
72,308
72,313
The Group provides for deferred income taxes on undistributed earnings of subsidiaries except to the extent that those earn-
ings are indefinitely invested. At 31 December 2009, no such earnings were treated as indefinitely invested.
308
Note 23 Derivative instruments and hedge accounting
A derivative is a financial instrument, the value of which is
derived from the value of another (“underlying”) financial
instrument, an index or some other variable. Typically, the
underlying is a share, commodity or bond price, an index
value or an exchange or interest rate.
The majority of derivative contracts are negotiated as to
amount (“notional”), tenor, price and how the trade is to be
settled in the future between UBS and its counterparties,
which may be other professionals or customers (over-the-
counter (OTC) contracts).
OTC contracts are usually traded under an International
Swaps and Derivatives Association (ISDA) master trading
agreement (MTA) between UBS and its counterparties. Oth-
er derivative contracts are standardized in terms of their
amounts and settlement dates and are bought and sold on
organized exchanges (exchange-traded contracts (ETD)).
With ETDs, the exchange also acts as a central counterparty.
The notional amount of a derivative is generally the quantity
of the underlying instrument on which the derivative con-
tract is based and is the basis upon which changes in the
value of the contract are measured. It provides an indication
of the underlying volume of business transacted by the
Group but does not provide necessarily any measure of risk.
Derivative instruments are carried at fair value (refer to
Note 27 for fair value measurement of derivative instru-
ments), shown in the balance sheet as Separate totals of
Positive replacement values (assets) and Negative replace-
ment values (liabilities), except for futures, 100% daily mar-
gined exchange traded options and interest rate swaps with
the London Clearing house (LCH) with daily margining,
which are presented on the balance sheet as Due from
banks, Loans and Due to banks and customers.
Positive replacement values represent the cost to the
Group of replacing all transactions with a fair value in the
Group’s favor, assuming transactions could be replaced in-
stantaneously. Negative replacement values represent the
cost to the Group’s counterparties of replacing all their trans-
actions with the Group with a fair value in their favor. Posi-
tive and Negative replacement values on different transac-
tions are only netted if the transactions are with the same
counterparty with a legally enforceable right to set off. Posi-
tive and Negative replacement values are denominated in
the same currency, and the cash flows are intended to be
settled on a net basis. Changes in replacement values of de-
rivative instruments are recognized in the income statement
unless they meet the criteria for certain hedge accounting
relationships, as explained in Note 1a) 15) Derivative instru-
ments and hedge accounting.
Types of derivative instruments
The Group uses the following derivative financial instru-
ments for both trading and hedging purposes.
Forwards and futures are contractual obligations to buy
or sell financial instruments or commodities on a future date
at a specified price. Forward contracts are tailor-made agree-
ments that are transacted between counterparties on the
OTC market, whereas futures are standardized contracts
transacted on regulated exchanges.
Swaps are transactions in which two parties exchange
cash flows on a specified notional amount for a predeter-
mined period. Most swaps are traded OTC. The major types
of swap transactions undertaken by the Group are as fol-
lows:
– Interest rate swap contracts generally entail the contrac-
tual exchange of fixed-rate and floating-rate interest pay-
ments in a single currency, based on a notional amount
and a reference interest rate, e.g. LIBOR.
– Cross-currency swaps involve the exchange of interest
payments based on two different currency principal bal-
ances and reference interest rates and generally also en-
tail exchange of principal amounts at the start and / or
end of the contract.
– Credit default swaps (CDSs) are the most common form
of a credit derivative, under which the party buying pro-
tection makes one or more payments to the party selling
protection in exchange for an undertaking by the seller to
make a payment to the buyer following a credit event (as
defined in the contract) with respect to a third-party cred-
it entity (as defined in the contract). Settlement following
a credit event may be a net cash amount or cash in return
for physical delivery of one or more obligations of the
credit entity and is made regardless of whether the pro-
tection buyer has actually suffered a loss. After a credit
event and settlement, the contract is terminated. An
elaboration of credit derivatives is included in a separate
section below.
– Total rate of return swaps give the total return receiver
exposure to all of the cash flows and economic benefits
and risks of an underlying asset, without having to own
the asset, in exchange for a series of payments, often
based on a reference interest rate, e.g. LIBOR. The total
return payer has an equal and opposite position.
– Metal swaps (precious metal swaps and base metal
swaps) involve the purchase and sale of specific metals. A
precious metal swap involves the purchase and sale of a
specified metal with fixed notional amount and fixed
price but different settlement dates. A base metal swap is
the simultaneous purchase and sale of a specified metal
with same settlement dates but different pricing terms.
Options and warrants are contractual agreements under
which, typically, the seller (writer) grants the purchaser the
right, but not the obligation, either to buy (call option) or to
sell (put option) by or at a set date, a specified quantity of a
financial instrument or commodity at a predetermined price.
309
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Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
The purchaser pays a premium to the seller for this right.
Options involving more complex payment structures are also
transacted. Options may be traded OTC or on a regulated
exchange and may be traded in the form of a security
(warrant).
Credit derivatives
UBS’s credit derivative portfolio consists of credit default
swaps, total return swaps and options and warrants. As of
31 December 2009, the total notional value of protection
bought was CHF 1,288 billion (CHF 56 billion and CHF 23
billion Positive replacement values and Negative replace-
ment values, respectively) and the total notional value of
protection sold was CHF 1,187 billion (CHF 23 billion and
CHF 47 billion Positive replacement values and Negative re-
placement values, respectively), in 2009. UBS’s credit deriva-
tives are usually traded as OTC contracts. During 2009 a
number of initiatives were launched in both the US and
Europe to establish centralized clearing solutions for OTC
CDS contracts (exchange cleared derivatives), with the aim
of reducing counterparty risk. UBS, along with other dealer
members, has been an active participant in these initiatives.
A significant portion of UBS’s credit derivatives are traded
under an ISDA MTA between UBS and its counterparty. UBS’s
CDS trades are also documented using industry standard
forms of documentation published by ISDA or equivalent
terms documented in a bespoke (i.e. tailored) agreement.
Those forms and agreements use standardized terms that
form the basis for market conventions related to the types of
credit events that would trigger performance (i.e. payment)
under a CDS.
The types of credit events that would require UBS to per-
form under a CDS contract are subject to agreement be-
tween the parties at the time of the transaction. However,
nearly all transactions are traded using credit events that are
applicable under certain market conventions based on the
type of reference entity to which the transaction relates.
Applicable credit events by market conventions include
“bankruptcy”, “failure to pay”, “restructuring”, “obligation
acceleration” and “repudiation / moratorium”.
Recourse provisions
UBS uses standardized agreements and forms as the basis
for its credit derivative contracts. Those agreements and
forms do not contain recourse provisions that would enable
UBS to recover from third parties any amounts paid out by
UBS (i.e. this is the case where a credit event occurs and UBS
is required to make payment under a CDS).
Economic hedges and strategy
UBS actively utilizes CDS to economically hedge specific coun-
terparty credit risks in its banking book loans portfolio (includ-
ing loan commitments) with the aim of reducing concentra-
tions in individual names, sectors or specific portfolios. In
addition, UBS actively utilizes CDS to economically hedge spe-
cific counterparty credit risks in its OTC derivative port folios.
UBS is an active dealer in fixed income instruments and
CDS and related products with respect to a large number of
securities issuers. The primary purpose of these activities is
for the benefit of UBS’s clients (market making) and to a
lesser extent creating new credit exposures taken for UBS’s
own trading purposes (proprietary trading).
Market making activity consists of buying and selling sin-
gle-name CDS, index CDS, loan CDS and related referenced
cash instruments to facilitate client trading activity. Proprie-
tary trading consists of trading in single-name CDS, index
CDS and loan CDS to capitalize on pricing discrepancies be-
tween various credit instruments (bonds, loans and equities)
across investment grade, high-yield and emerging markets.
As a general matter, risk to the relevant issuers arising
from fixed income instruments, CDS and related products
are reviewed and risk-managed on a net exposure basis (i.e.
taking into account all exposures to a particular issuer aris-
ing from fixed income instruments, CDS and related prod-
ucts) across market making and proprietary trading activi-
ties.
UBS’s strategy with respect to CDS trading was the re-
duction in scope and scale of the firm’s structured credit,
proprietary credit and asset securitization (including syn-
thetic securitization) activities during 2009 and 2008.
Contingent features of derivative liabilities
Based on UBS’s credit ratings as of 31 December 2009, ad-
ditional collateral or termination payments pursuant to bi-
lateral agreements with certain counterparties of approxi-
mately CHF 1.2 billion and CHF 2.8 billion would have been
required in the event of a one-notch and two-notch reduc-
tion, respectively, in UBS’s long-term credit ratings. In eval-
uating UBS’s liquidity requirements, UBS considers addi-
tional collateral or termination payments that would be
required in the event of a reduction in UBS’s long-term
credit ratings.
Derivatives transacted for trading purposes
Most of the Group’s derivative transactions relate to sales
and trading activities. Sales activities include the structuring
and marketing of derivative products to customers to en-
able them to take, transfer, modify or reduce current or ex-
pected risks. Trading activities include market making, posi-
tioning and arbitrage activities. Market making involves
quoting bid and offer prices to other market participants
with the intention of generating revenues based on spread
and volume. Positioning means managing market risk posi-
tions with the expectation of profiting from favorable move-
310
Note 23 Derivative instruments and hedge accounting (continued)
ments in prices, rates or indices. Arbitrage activities involve
identifying and profiting from price differentials between
the same product in different markets or the same econom-
ic factor in different products.
The Group has also used equity futures, options and, to a
lesser extent, swaps for economically hedging in a variety of
equities trading strategies to offset underlying equity and
equity volatility exposure.
Derivatives transacted for hedging purposes
The Group enters into derivative transactions for the pur-
poses of hedging assets, liabilities, forecast transactions,
cash flows and credit exposures. The accounting treatment
of hedge transactions varies according to the nature of the
instrument hedged and whether the hedge qualifies as such
for accounting purposes.
Derivative transactions may qualify as hedges for account-
ing purposes. These are described under the corresponding
headings in this note. The Group’s accounting policies for
derivatives designated and accounted for as hedging instru-
ments are explained in Note 1a) 15) Derivative instruments
and hedge accounting, where terms used in the following
sections are explained.
The Group has also entered into interest rate swaps and
other interest rate derivatives (e.g. futures) for day-to-day
economic interest rate risk management purposes, but with-
out applying hedge accounting.
Fair value hedges of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
The Group has also entered into CDS’s that provide eco-
nomic hedges for credit risk exposures (refer to the credit
derivatives section).
Fair value changes of derivatives that are part of econom-
ic relationships, but do not qualify for hedge accounting
treatment, are booked to Net trading income.
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 instruments (e.g. long-term-fixed rate
debt issues) due to movements in market interest rates. The
fair values of outstanding interest rate derivatives designated
as fair value hedges were CHF 526 million and CHF 71 mil-
lion Positive replacement values and Negative replacement
values, respectively, at 31 December 2009 and a CHF 883 mil-
lion net Positive replacement values at 31 December 2008.
For the year ended
31.12.09
31.12.08
31.12.07
(171)
182
11
778
(796)
(18)
15
(11)
4
Fair value hedges of portfolio interest rate risk
The Group also applies fair value hedge accounting of port-
folio interest rate risk. The change in fair value of the hedged
items is recorded separately from the hedged item and is
included in Other assets on the balance sheet. The fair value
of derivatives designated for this hedge method at 31 De-
cember 2009 was CHF 956 million Negative replacement
value, 31 December 2008 was a CHF 765 million net Nega-
tive replacement value.
During 2008, UBS expanded the use of Fair Value hedge
accounting for portfolio interest rate risk to include other
Swiss mortgage loan portfolios. In 2009 no further scope
expansion was made.
Fair value hedge of portfolio of interest rate risk1
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
1 Hedge effectiveness is calculated on a cumulative basis.
For the year ended
31.12.09
31.12.08
31.12.07
(48)
11
(37)
(644)
688
44
(37)
30
(7)
311
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Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
Cash flow hedges of forecasted transactions
The Group is exposed to variability in future interest cash
flows on non-trading assets and liabilities that bear interest
at variable rates or are expected to be refunded or reinvested
in the future. The amounts and timing of future cash flows,
representing both principal and interest flows, are projected
for each portfolio of financial assets and liabilities, based on
contractual terms and other relevant factors including esti-
mates of prepayments and defaults. The aggregate principal
balances and interest cash flows across all portfolios over
time form the basis for identifying the non-trading interest
rate risk of the Group, which is hedged with interest rate
swaps, the maximum maturity of which is 19 years.
The schedule of forecasted principal balances on which
the expected interest cash flows arise as of 31 December
2009 is shown below.
Forecasted cash flows
CHF billion
Cash inflows (assets)
Cash outflows (liabilities)
Net cash flows
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
205
69
136
352
136
216
202
96
106
141
78
63
20
4
16
Gains and losses on the effective portions of derivatives
designated as cash flow hedges of forecasted transactions
are initially recorded in Equity as Net income recognized
directly in equity and are transferred to current period
earnings when the forecasted cash flows affect net profit
or loss. The gains and losses on ineffective portions of
such derivatives are recognized immediately in the income
statement. A CHF 183 million loss, a CHF 108 million loss
and a CHF 443 million gain was recognized in 2009, 2008
and 2007, respectively, due to hedge ineffectiveness.
As of 31 December 2009, the fair values of outstanding
derivatives designated as cash flow hedges of forecasted
transactions were CHF 5,180 million and CHF 2,736 million
Positive replacement values and Negative replacement val-
ues, respectively, and as of 31 December 2008 the amount
was CHF 2,539 million net Positive replacement values.
At the end of 2009 and 2008, gains of CHF 46 million
and CHF 86 million associated with de-designated inter-
est rate swaps were deferred in Equity. They will be re-
moved from Equity when the previously hedged fore-
casted cash flows have an impact on net profit or loss, or
when the forecasted cash flows are no longer expected
to occur. Amounts reclassified from Equity to Net inter-
est income of de-designated swaps were CHF 40 million
net gain in 2009, CHF 49 million net gain in 2008 and
CHF 79 million net gain in 2007.
In 2008, due to reductions in the volume of short-term
financial instruments, some of the forecasted cash flows
previously included in the hedge relationships were deter-
mined to no longer be expected to occur.
Hedges of net investments in foreign operations
The Group applies hedge accounting for certain consoli-
dated net investments in USD-denominated operations. At
31 December 2009 the fair values of the financial liabilities
(predominantly structured products issued by UBS) designat-
ed as hedging instruments in net investment hedges was
CHF 2.5 billion. Gains or losses on the translation of these
hedging instruments are transferred directly to Equity to
offset any gains or losses on translation of the net invest-
ments in the subsidiaries, which are also recognized in
Equity. No ineffectiveness from hedges of net investments in
foreign operations was recognized in the income statements
during 2009.
Contractual maturities of derivatives designated as hedging
instruments in hedge accounting relationships
The contractual maturities of derivatives designated as
hedging instruments in hedge accounting relationships are
considered “essential” for an understanding of the timing
of their cash flows.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash outflows
Cash inflows
Total 31.12.09
On demand
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
0
0
0
0
0
0
(0)
0
(0)
(1)
0
(1)
(3)
2
(1)
(15)
18
3
Total
(19)
20
1
1 Interest rate swaps are gross settled. The table includes all cash inflows and outflows of interest rate swaps with Positive and Negative replacement values.
312
Note 23 Derivative instruments and hedge accounting (continued)
Risks of derivative instruments
Derivative instruments are transacted in many trading port-
folios, which generally include several types of instruments,
not just derivatives. The market risk of derivatives is predom-
inantly managed and controlled as an integral part of the
market risk of these portfolios. The Group’s approach to
market risk is described in the audited “Market risk” section
of this report.
Derivative instruments are transacted with many differ-
ent counterparties, most of whom are also counterparties
for other types of business. The credit risk of derivatives is
managed and controlled in the context of the Group’s over-
all credit exposure to each counterparty. The Group’s ap-
proach to credit risk is described in the audited “Credit risk”
section of this report. It should be noted that, although the
Positive replacement values shown on the balance sheet can
be an important component of the Group’s credit exposure,
the Positive replacement values for a counterparty are rarely
an adequate reflection of the Group’s credit exposure on its
derivatives business with that counterparty. This is, for ex-
ample, because on the one hand, replacement values can
increase over time (“potential future exposure”), while on
the other hand, exposure may be mitigated by entering into
master netting agreements and bilateral collateral arrange-
ments with counterparties. Both the exposure measures
used by the Group internally to control credit risk and the
capital requirements imposed by regulators reflect these ad-
ditional factors.
The replacement values presented on UBS’s balance sheet
and in the tables on the next two pages include netting in
accordance with IFRS requirements (refer to Note 1a) 34),
which is more restrictive than netting in accordance with
Swiss Federal Banking law. The main difference of Swiss Fed-
eral Banking law to IFRS is that Swiss Federal Banking law
netting is generally based on close-out netting arrangements
which are enforceable in case of insolvency. The Positive and
Negative replacement values based on netting in accordance
with Swiss Federal Banking law (factoring in cash collateral)
are presented on the bottom of the tables on the next two
pages.
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Financial information
Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting 1 (continued)
As of 31 December 2009
Term to maturity
Within 3 months
3–12 months
1–5 years
over 5 years
CHF billion
PRV 2
NRV 3
PRV
NRV
PRV
NRV
PRV
NRV
Notional
values
related to
PRVs
Total
PRV
Notional
values
related to
NRVs
Total
NRV
Other
notional
values 4
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts 5
Futures
Options
Total
Credit derivative contracts
Over-the-counter (OTC) contracts
Credit default swaps
Total rate of return swaps
Options and warrants
Total
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts 5
Futures
Options
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 5
Futures
Options
Total
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 5
Futures
Options
Total
Total derivative instruments,
based on IFRS netting
Replacement value netting,
based on capital adequacy rules
Cash collateral netting
Total derivative instruments,
based on capital adequacy
netting 6
1.8
8.2
1.0
1.6
6.8
1.1
0.7
18.7
3.5
0.8
16.9
3.0
0.1
89.7
10.1
0.1
82.6
11.9
0.0
69.5
11.3
0.0
65.0
13.5
2.5
186.2
25.9
1,343.7
7,110.7
543.2
2.5
1,286.5
0.0
171.4
6,802.7
15,949.2
29.4
611.8
0.0
0.1
11.1
0.1
9.6
0.2
23.1
0.2
0.2
20.8
100.0
0.2
94.8
0.0
80.8
0.0
78.6
0.5
3.9
0.4
3.5
271.9
0.0
215.1
9,001.5
203.7
8,704.5 16,221.2
0.1
0.1
0.0
0.2
0.3
0.1
0.0
0.4
0.9
0.0
0.0
1.0
0.9
0.0
0.0
0.9
33.1
32.1
42.9
36.4
77.1
1,254.7
69.7
1,208.9
1.0
0.0
0.3
0.0
0.4
0.0
0.4
0.0
1.5
0.0
5.7
9.3
0.9
0.0
5.4
6.6
34.1
32.4
43.3
36.9
78.6
1,269.6
70.6
1,220.9
7.5
31.2
1.8
6.3
30.3
1.7
2.4
13.1
2.1
2.6
15.3
2.0
0.8
18.9
1.2
0.6
23.5
1.2
0.0
17.3
0.9
0.0
16.8
0.8
10.6
80.5
5.9
453.2
2,279.8
609.7
9.5
85.8
5.7
403.7
2,209.6
560.2
0.0
40.4
0.0
38.3
0.0
17.6
0.0
20.0
0.0
20.9
0.0
25.2
0.0
18.2
0.0
17.6
0.1
1.5
0.1
0.1
97.1
3,344.2
101.1
3,173.5
0.9
0.4
4.9
6.2
0.6
0.3
0.4
1.3
0.8
0.9
4.6
6.3
0.6
0.2
0.4
1.2
1.1
2.1
4.7
8.0
0.7
0.7
0.7
2.0
1.2
2.7
4.9
8.8
0.6
0.6
0.7
1.9
0.5
2.4
0.8
4.1
5.2
8.1
5.8
10.7
0.7
0.9
0.8
2.4
0.7
0.9
0.8
2.4
0.4
2.1
0.2
2.7
0.1
0.1
0.0
0.2
0.9
1.7
0.1
2.8
0.1
0.2
0.0
0.4
2.9
7.0
56.6
60.9
3.7
9.5
46.9
73.7
15.1
25.1
30.5
148.0
15.5
28.7
36.2
156.8
2.0
1.9
1.9
5.9
20.6
21.7
0.6
42.9
2.0
1.9
1.9
5.8
15.0
23.6
2.0
40.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.5
0.0
1.5
0.0
0.0
6.8
0.0
6.8
0.0
0.0
2.7
0.0
2.7
59.3
55.9
51.7
52.4
165.5
165.5
145.2
136.2
421.7 13,806.2
409.9 13,296.5 16,232.2
(313.2)
(37.2)
(313.2)
(32.7)
71.3
64.1
1 Bifurcated embedded derivatives are presented in the same balance sheet line as the host contract and are excluded from the table. Payables and receivables resulting from the valuation of regular way
purchases and sales of financial assets between trade and settlement date are recognized as replacement values and therefore included in the table. PRVs and NRVs are categorized in different time
bands on the basis of the maximal duration of the derivative contract. 2 PRV: Positive replacement value. 3 NRV: Negative replacement value. 4 Receivables resulting from derivatives are recognized
on UBS’s balance sheet under Due from banks and Loans: CHF 1.6 billion. Payables resulting from these derivatives are recognized on UBS’s balance sheet under Due to banks and Due to customers:
CHF 1.6 billion. 5 Notional values of exchange-traded products include own account trades only. 6 Includes the impact of netting agreements (including cash collateral) in accordance with Swiss
Federal Banking Law, based on the IFRS scope of consolidation.
314
Note 23 Derivative instruments and hedge accounting 1 (continued)
As of 31 December 2008
Term to maturity
Within 3 months
3–12 months
1–5 years
over 5 years
CHF billion
PRV 2
NRV 3
PRV
NRV
PRV
NRV
PRV
NRV
Notional
values
related to
PRVs
Total
PRV
Notional
values
related to
NRVs
Total
NRV
Other
notional
values 4
2.1
9.5
4.0
2.2
9.9
3.7
3.8
23.6
6.6
4.1
24.3
7.0
0.3
0.4
0.0
0.0
152.1
140.5
144.8
142.9
14.3
15.7
12.6
16.5
6.2
330.0
37.4
1,544.9
8,543.3
498.4
6.7
1,584.5
0.0
317.6
8,260.0
15,002.0
43.0
595.5
0.0
0.8
16.4
0.8
16.6
0.5
34.5
0.5
0.1
0.1
0.0
0.0
1.4
6.4
1.4
8.7
527.5
0.0
36.0
166.8
156.7
157.4
159.5
375.1 10,593.1
368.7 10,448.7 15,529.6
0.5
3.4
0.3
0.4
3.4
0.2
3.5
0.1
95.4
3.1
91.2
0.5
89.8
1.6
88.2
0.5
189.1
1,856.1
183.3
1,754.0
8.3
31.2
1.5
12.6
Total
3.9
0.7
3.6
3.6
98.4
91.7
91.4
88.8
197.4
1,887.2
184.8
1,766.7
0.0
0.0
0.0
0.0
0.0
0.0
1.7
0.0
1.7
0.0
0.0
33.5
0.0
33.5
0.0
0.0
14.1
0.0
14.1
21.0
72.1
7.5
22.8
74.5
7.6
8.4
36.2
10.0
10.6
33.8
9.1
1.6
34.9
2.1
1.1
39.2
1.8
0.1
27.1
0.0
0.1
26.5
0.0
31.2
468.1
34.5
485.6
170.3
2,047.4
173.9
1,868.4
19.7
610.1
18.6
524.8
0.2
0.3
101.0
105.2
0.0
54.6
0.0
53.5
0.0
38.7
0.0
42.1
0.0
27.2
0.0
26.6
0.2
12.8
0.3
6.1
221.5
3,138.3
227.3
2,884.8
1.9
1.7
1.6
3.2
2.0
4.8
1.8
7.4
2.2
4.7
2.0
8.5
5.0
8.6
5.2
10.0
5.3
12.1
6.7
16.0
4.8
11.7
5.6
16.1
3.0
0.8
2.1
5.8
2.4
1.0
4.3
2.6
3.7
2.5
2.2
5.6
3.8
10.7
3.9
10.1
1.9
2.6
2.7
7.1
1.6
2.3
2.7
6.6
0.2
1.7
0.9
2.9
0.9
0.3
0.0
1.2
0.3
4.0
1.2
5.5
1.1
0.2
0.0
1.4
6.4
12.9
68.5
108.9
5.7
23.0
40.1
106.1
16.1
35.3
97.9
275.2
18.7
47.4
110.5
256.7
10.0
6.3
39.1
36.3
8.7
6.1
33.1
42.4
8.6
24.9
74.7
150.1
8.7
23.6
95.6
171.1
135.7
138.1
115.5
119.2
322.8
313.1
280.0
281.6
854.1 16,043.9
851.9 15,528.0 15,578.9
(651.7)
(41.3)
(651.7)
(52.8)
161.1
147.4
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts 5
Futures
Options
Total
Credit derivative contracts
Over-the-counter (OTC) contracts
Credit default swaps
Total rate of return swaps
Options and warrants
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options
Exchange-traded contracts 5
Futures
Options
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 5
Futures
Options
Total
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 5
Futures
Options
Total
Total derivative instruments,
based on IFRS netting
Replacement value netting,
based on capital adequacy rules
Cash collateral netting
Total derivative instruments,
based on capital adequacy
netting 6
1 Bifurcated embedded derivatives are presented in the same balance sheet line as the host contract and are excluded from the table. Payables and receivables resulting from the valuation of regular way
purchases and sales of financial assets between trade and settlement date are recognized as replacement values and therefore included in the table. PRVs and NRVs are categorized in different time
bands on the basis of the maximal duration of the derivative contract. 2 PRV: Positive replacement value. 3 NRV: Negative replacement value. 4 Receivables resulting from derivatives are recognized
on UBS’s balance sheet under Due from banks and Loans: CHF 0.2 billion. Payables resulting from these derivatives are recognized on UBS’s balance sheet under Due to banks and Due to customers:
CHF 0.1 billion. 5 Notional values of exchange-traded products include own account trades only. 6 Includes the impact of netting agreements (including cash collateral) in accordance with Swiss
Federal Banking Law, based on the IFRS scope of consolidation.
315
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Financial information
Notes to the consolidated financial statements
Off-balance-sheet information
Note 24 Pledgeable off-balance-sheet securities
The Group obtains securities which are not recorded on the balance sheet with the right to sell or repledge them as shown
in the table below.
CHF million
Fair value of securities received which can be sold or repledged
under reverse repurchase, securities borrowing and lending arrangements,
derivative transactions and other transactions
in unsecured borrowings
thereof sold or repledged
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions
31.12.09
528,856
515,314
13,542
398,883
335,371
47,469
16,043
31.12.08
651,380
621,981
29,399
430,670
343,252
62,431
24,987
Note 25 Operating lease commitments
At 31 December 2009, UBS was obligated under a number
of non-cancellable operating leases for premises and equip-
ment used primarily for banking purposes. The significant
premises leases usually include renewal options and escala-
tion clauses in line with general office rental market condi-
tions as well as rent adjustments based on price indices.
However, the lease agreements do not contain contingent
rent payment clauses and purchase options, nor do they im-
pose any restrictions on UBS’s ability to pay dividends, en-
gage in debt financing transactions or enter into further
lease agreements.
The minimum commitments for non-cancellable leases of
premises and equipment are presented as follows:
CHF million
Operating leases due
2010
2011
2012
2013
2014
2015 and thereafter
Subtotal commitments for minimum payments under operating leases
Less: Sublease rentals under non-cancellable leases
Net commitments for minimum payments under operating leases
31.12.09
989
870
786
658
555
2,113
5,971
690
5,281
316
Note 25 Operating lease commitments (continued)
CHF million
Gross operating lease expense
from continuing operations
from discontinued operations
Sublease rental income from continuing operations
Net operating lease expense
from continuing operations
from discontinued operations
31.12.09
31.12.08
31.12.07
1,191
1,191
0
57
1,134
1,134
0
1,215
1,215
0
50
1,165
1,165
0
1,251
1,233
18
54
1,197
1,179
18
Operating lease contracts include non-cancellable long-term
leases of office buildings in most UBS locations. At 31 De-
cember 2009, the minimum lease commitments for each of
11 office locations exceeded CHF 100 million and non-can-
cellable minimum lease commitments for the office location
in New York exceeded CHF 500 million.
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Financial information
Notes to the consolidated financial statements
Additional information
Note 26 Capital increases and mandatory convertible notes
June 2009 share capital increase
On 25 June 2009, UBS increased its share capital by issuing
293,258,050 new registered shares with a par value of CHF
0.10 each. The shares were placed with a small number of
large institutional investors at a price of CHF 13.00 per share.
Net proceeds from the capital increase were CHF 3.8 billion.
The shares were issued upon decision by the Board of Di
rectors out of authorized capital which had been approved
at the annual general meeting of shareholders on 15 April
2009.
Conversion of the mandatory convertible notes
(MCNs) issued to the Swiss Confederation
On 19 August 2009, the Swiss Confederation announced
the conversion of its UBS CHF 6 billion mandatory convert
ible notes (MCNs). Upon conversion on 25 August 2009,
UBS issued 332,225,913 new shares with a nominal value of
CHF 0.10 each from existing conditional capital. The liability
and the Negative replacement value recorded on the bal
ance sheet for the principal amount and the embedded de
rivative component of the MCNs were reclassified to equity.
The conversion of the MCNs resulted in an overall increase in
equity of CHF 6,718 million for 2009, reflecting an increase
in share capital of CHF 33 million and an increase in share
premium of CHF 6,685 million. Prior to the conversion of the
MCNs, the embedded derivative component was remea
sured to fair value resulting in a gain of CHF 341 million for
2009. In addition, the Swiss Confederation waived its right
to receive future coupon payments on the converted MCNs
for a cash amount of approximately CHF 1.8 billion. The
impact on UBS’s income statement resulting from this waiver
was not material.
Note 27 Fair value of financial instruments
a) Valuation principles
Fair value is the amount for which an asset could be ex
changed, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction. Financial in
struments classified as held for trading or designated at fair
value through profit or loss and financial assets classified as
available for sale are recognized in the financial statements
at fair value. All derivatives are measured at fair value.
Fair values are determined from quoted prices in active
markets for identical financial assets or financial liabilities
where these are available. Fair value of a financial asset or
financial liability in an active market is the current bid or of
fer price times the number of units of the instrument held.
Where a trading portfolio contains both financial assets and
financial liabilities with offsetting market risks, fair value is
determined by valuing the gross long and short positions at
current midmarket prices, with an adjustment at portfolio
level to the net open long or short position to amend the
valuation to bid or offer as appropriate.
Where the market for a financial instrument is not active,
fair value is established using a valuation technique or pric
ing model. These valuation techniques and models involve a
degree of estimation, the extent of which depends on the
instrument’s complexity and the availability of marketbased
data. Valuation adjustments may be made to allow for ad
ditional factors including model risks, liquidity risk and credit
risk. Based on the established fair value and model gover
nance policies and related controls and procedures applied,
the management believes that these valuation adjustments
are necessary and appropriate to fairly state the values of
financial instruments carried at fair value on the balance
sheet.
When entering into a transaction where model inputs are
not market observable, the financial instrument is initially
recognized at the transaction price, which is generally the
best indicator of fair value. This may differ from the value
obtained from the valuation model (“Deferred day 1 profit
or loss”). The timing of the recognition in profit and loss of
this initial difference in fair value depends on the individual
facts and circumstances of each transaction but is never later
than when the market data become observable.
Pricing models and valuation techniques
The most frequently applied pricing models and valuation
techniques include discounted cash flow models, relative
318
Note 27 Fair value of financial instruments (continued)
a) Valuation principles (continued)
value models and option pricing models. Discounted cash
flows determine the value by estimating the expected future
cash flows from assets or liabilities discounted to their pres
ent value. Relative value models determine the value based
on the market prices of similar assets or liabilities. Option
pricing models are complex present value models, such as
binomial options pricing models.
UBS uses widely recognized valuation models for deter
mining fair values of financial instruments of lower complex
ity, such as interest rate and currency swaps. For more com
plex instruments, UBS uses internally developed models,
which are usually based on valuation methods and tech
niques generally recognized as standard within the industry.
Such valuation models are used primarily to value derivatives
transacted in the overthecounter (OTC) market, unlisted
equity and debt securities (including those with embedded
derivatives), and other fair valued debt instruments for which
markets were illiquid in 2009. Marketobservable assump
tions and inputs are used where available, and derived from
similar assets in similar and active markets, from recent
trans action prices for comparable items or from other ob
servable market data. Little, if any, weight is placed on trans
action prices when calculating the fair value if there is no
active market and the transactions are not orderly (i.e. dis
tressed or forced). For positions where observable reference
data are not available for some or all parameters, UBS cali
brates the nonmarketobservable inputs used in its valua
tion models based on a combination of judgment, historical
experience and knowledge of current market conditions. As
sumptions and inputs used in valuation techniques and
models include benchmark interest rates, credit spreads and
other premia used in estimating discount rates, bond and
equity prices, equity index prices, foreign exchange rates and
volatilities and correlations.
The output of a model is always an estimate or approxi
mation of a value that cannot be determined with cer
tainty, and valuation techniques employed may not fully
reflect all factors relevant to the positions UBS holds. Valu
ations are therefore adjusted, where appropriate, to bring
the fair value derived from the model towards the appro
priate bid / offer price and cover close out costs, credit
exposure and model uncertainty. The values derived from
applying these techniques are significantly affected by the
choice of valuation model and the underlying assumptions
made concerning factors such as the amounts and timing
of future cash flows, discount rates, volatility and credit
risk. Accrued interest is recognized as part of the fair value
of financial instruments accounted for at fair value. Lock
up periods for equity investments are considered when
determining fair value.
Interest rate curves
UBS uses various interest rate curves for valuing its financial
instruments. Financial liabilities designated at fair value are
measured using UBS’s senior debt curve. Financial assets
designated at fair value are valued consistent with the curve
used for the particular business. Uncollateralized credit
exposure is reserved through normal credit rating and re
serving methods. For the valuation of derivative instruments,
UBS generally employs a LIBOR flat curve. If the derivatives
are only partially collateralized, or uncollateralized, the credit
exposure is adjusted through a credit valuation adjustment
(CVA) or a debit valuation adjustment (DVA). For the valua
tion of overnight interestrate swaps, the overnight interest
rate swap curve is applied.
Counterparty credit risk in the valuation of OTC derivative
instruments, derivatives embedded in funded assets
designated at fair value and derivatives embedded in traded
debt instruments
In order to arrive at fair value, credit valuation adjustments
(CVA) are necessary to reflect the credit risk of the counter
party inherent in overthecounter (OTC) derivatives trans
actions, derivatives embedded in funded assets designated
at fair value and derivatives embedded in traded debt instru
ments. This amount represents the estimated market value
of protection required to hedge against credit risk from
counterparties in these instruments. CVA depends on ex
pected future exposures, default probability and recovery
rate. The calculation takes into account whether collateral or
netting arrangements or break clauses are in place. The most
significant component of the overall CVA is the portion re
lated to monoline credit protection, discussed further below.
UBS’s own credit risk in the valuations of derivative financial
liabilities (Negative replacement values)
In 2009, the Group revised its methodology for estimating
debit valuation adjustments (DVA) to incorporate own credit
in the valuation of derivatives, predominantly to align it with
the CVA methodology described above. Under the pre vious
approach, the Libor flat valuation of uncollateralized deriva
tive liabilities after consideration of any netting agreement
was revalued using UBS’s senior debt curve. The difference
between the valuation at Libor flat and the valuation at the
senior debt curve provided the lifetodate DVA, and the
change in the lifetodate DVA between periods provided
the own credit gain or loss in each period. Under the new
approach, the Group applies a methodology consistent with
that used to calculate CVA. The calculation takes into ac
count negative expected exposure profiles for the derivative
portfolio, collaterals, netting agreements, expected future
319
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
a) Valuation principles (continued)
marktomarket movements, and UBS’s credit default
spreads to determine the UBS counterparty exposure from
the perspective of holders of UBS debt. The debit valuation
adjustments (DVA) so calculated represent the theoretical
costs to counterparties of hedging their UBS credit exposure
or the credit risk reserve that a counterparty could reason
ably be expected to hold against their credit risk exposure to
UBS, if they applied the same methodology as used to calcu
late UBS’s CVA. The impact of this methodology change is
included in the financial impact of the valuation changes for
derivative liabilities and financial liabilities designated at fair
value described below.
As of 31 December 2009, the CVA and DVA for derivative
financial instruments (replacement values) were as follows:
CHF billion
Life-to-date
of which: CVA on monoline credit protection – negative basis trades
of which: CVA on monoline credit protection – other
of which: CVA on other instruments
Year-to-date 2
of which: CVA on monoline credit protection – negative basis trades
of which: CVA on monoline credit protection – other
of which: CVA on other instruments
1 Amounts do not include reserves against defaulted counterparties. 2 CVA amounts do not include commutations.
31.12.09
DVA
0.4
N/A
N/A
N/A
(1.9)
N/A
N/A
N/A
CVA 1
(4.3)
(2.9)
(0.2)
(1.2)
0.6
(0.8)
0.4
1.1
UBS’s own credit risk in the valuations of financial liabilities
designated at fair value
The Group’s own credit changes are reflected in valuations
for those financial liabilities designated at fair value, where
the Group’s own credit risk would be considered by market
participants. They are discounted for fully collateralized trans
actions and other instruments for which it is established mar
ket practice not to include an entityspecific adjustment for
own credit. Own credit changes were calculated based on a
senior debt curve generated from observed external pricing
for funding associated with new senior debt issued by the
Group, or relevant secondary market transactions in senior
longterm UBS debt. The senior debt curve is considered to
be representative of the credit risk which reflects the premi
um (or discount) that market participants require to acquire
UBS debt. In the absence of an observable senior debt curve,
credit default swap spreads would be considered as well.
The own credit results for Financial liabilities designated
at fair value (predominantly issued structured products) were
as follows:
Own credit on financial liabilities designated at fair value
CHF million
Total gain / (loss) for the year ended
of which: credit spread related only
Life-to-date gain
31.12.09 1
(2,023)
(1,958)
890
As of or for the year ended
31.12.08
31.12.07
2,032
3,993
2,953
659
659
663
1 Includes the following impacts from valuation changes as of 1 January 2009: increase in own credit of CHF 823 million on a year-to-date and life-to-date basis; increase of CHF 441 million in own
credit related to credit spread only.
320
Note 27 Fair value of financial instruments (continued)
a) Valuation principles (continued)
The yeartodate amounts represent the portion of the
change in fair value of the financial liabilities designated at
fair value that is related to own credit. The lifetodate
amount reflects the gain related to own credit by which the
fair value of financial liabilities designated at fair value has
changed since inception. Included in these amounts is the
quantification of changes in fair value attributable to chang
es in UBS’s credit spread during the periods. In addition, the
total own credit changes include the credit effect of “volume
changes”, i.e. the credit effect of period changes in fair val
ues attributable to factors other than credit spreads, such as
redemptions, effects from time decay, changes in the value
of referenced instruments issued by third parties, or, in the
case of the lifetodate amount, changes in the foreign ex
change rates.
Changes to the valuation of derivative financial instruments
and financial instruments designated at fair value
In 2009, UBS reviewed its approach to calculating and
booking own credit of derivative liabilities and financial
liabilities designated at fair value. The following paragraph
describes the impacts of the changes on UBS’s 2009 re
sults and balance sheet as of the transition date 1 January
2009.
UBS’s 2009 net profit and net trading income increased
by CHF 143 million, made up of a charge of CHF 222 million
to the Corporate Center and a CHF 365 million credit to the
Investment Bank. The net impact on the Investment Bank
comprises a credit of CHF 823 million related to own credit
and a debit of CHF 458 million to the fixed income, curren
cies and commodities business. Financial liabilities designat-
ed at fair value decreased by CHF 1,080 million, Financial
assets designated at fair value increased by CHF 198 million,
Negative replacement values increased by CHF 1,119 mil
lion, and Positive replacement values decreased by CHF 16
million.
Reflection of market liquidity risk in
fair value determinations
Fair value estimates incorporate the effects of market liquid
ity risk in the relevant markets. Market liquidity risk is the risk
that a loss is incurred in neutralizing the exposures within a
position or portfolio by either liquidating the position or
establishing an offsetting position. A liquidity adjustment is
therefore made to provide against the expected cost of cov
ering open market risk positions within a portfolio or posi
tion. Bid / Offer adjustments are taken where a net open risk
position is retained and the model on which it is valued is
calibrated to mid market. Valuations based on models in
corporate liquidity or risk premiums either implicitly (e.g. by
calibrating to market prices that incorporate such premiums)
or explicitly.
Reflection of model uncertainty in fair value determinations
Uncertainties associated with the use of modelbased valua
tions are predominantly addressed through the use of model
reserves. These reserves reflect the amounts that UBS esti
mates are appropriate to deduct from the valuations pro
duced directly by the models to reflect uncertainties in the
relevant modeling assumptions and inputs used. In arriving
at these estimates, UBS considers the range of market prac
tice and how it believes other market participants would
assess these uncertainties. Model reserves are periodically re
assessed in light of information from market transactions,
pricing utilities, and other relevant sources.
Valuation processes
UBS’s fair value and model governance structure includes
numerous controls and procedural safeguards that are in
tended to maximize the quality of fair value measurements
reported in the financial statements. New products need to
be reviewed and approved by all stakeholders relevant to risk
and financial control. Responsibility for the ongoing mea
surement of financial instruments at fair value resides with
the business but is independently validated by risk and finan
cial control functions. In carrying out their valuation respon
sibilities, the businesses are required to consider the avail
ability and quality of available external market information
and to provide justification and rationale for their fair value
estimates. Independent price verification of financial instru
ments measured at fair value is undertaken by the product
control function which is independent from the risk taking
businesses. The objective of the independent price verifica
tion process is to independently corroborate the business’
estimates of fair value against available market information.
By benchmarking the business’ fair value estimates with ob
servable market prices or other independent sources, the de
gree of valuation uncertainty embedded in these measure
ments can be assessed and managed as required in the
governance framework. A critical aspect of the independent
price verification process is evaluation of the appropriateness
of modeling approaches and input assumptions which yield
fair value estimates derived from valuation models. An inde
pendent model review group reviews UBS’s valuation models
on a regular basis or if specific triggers occur and approves
them for valuing specific products. As a result of the valua
tion controls employed, valuation adjustments may be made
to the business’ estimate of fair value to either align with
independent market information or financial accounting
standards.
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Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
b) Fair value hierarchy
All financial instruments at fair value are categorized into
one of three fair value hierarchy levels at yearend, based
upon the lowest level input that is significant to the prod
uct’s fair value measurement in its entirety:
– Level 1 – quoted prices (unadjusted) in active markets for
– Level 2 – valuation techniques for which all significant
inputs are market observable, either directly or indirectly;
and
– Level 3 – valuation techniques which include significant
inputs that are not based on observable market data.
identical assets and liabilities
Determination of fair values from quoted market prices or valuation techniques
CHF billion
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodities contracts
Financial assets designated at fair value
Financial investments available-for-sale
Total assets
Trading portfolio liabilities
Negative replacement values
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodities contracts
Financial liabilities designated at fair value
Total liabilities
Level 1
110.9
31.3
4.0
0.8
0.0
0.3
2.9
0.0
0.8
74.3
221.4
33.5
3.7
0.7
0.0
0.3
2.8
0.0
0.0
37.2
31.12.09
Level 2
Level 3
65.5
12.3
393.8
213.7
58.0
95.9
20.5
5.8
9.2
6.1
487.0
13.6
389.2
203.1
55.8
99.4
25.0
5.8
102.4
505.2
11.6
0.6
23.8
0.6
20.5
0.9
1.7
0.1
0.3
1.4
37.6
0.4
17.0
0.0
14.7
1.4
1.0
0.0
10.3
27.7
31.12.08
Total
188.0
44.2
421.7
215.1
78.6
97.1
25.1
5.9
10.2
81.8
745.9
47.5
409.9
203.7
70.6
101.1
28.7
5.8
112.7
570.1
Level 1
128.1
25.4
5.1
0.1
0.0
0.4
4.6
0.0
1.1
2.4
162.1
33.9
4.9
0.0
0.0
0.3
4.5
0.0
0.0
38.8
Level 2
128.4
13.2
811.2
372.0
166.7
221.0
26.7
24.8
11.2
1.2
965.2
27.5
812.0
366.9
153.7
227.0
40.7
23.6
91.2
930.7
Level 3
15.3
1.6
37.8
3.0
30.7
0.0
4.1
0.0
0.6
1.6
57.0
1.0
35.0
1.8
31.0
0.0
2.1
0.0
10.3
46.3
Total
271.8
40.2
854.1
375.1
197.4
221.5
35.3
24.8
12.9
5.2
1,184.3
62.4
851.9
368.7
184.8
227.3
47.4
23.6
101.5
1,015.8
Detailed breakdowns of UBS’s trading portfolio and financial investments availableforsale by fair value hierarchy levels are
shown in Note 11 and 13, respectively.
322
Note 27 Fair value of financial instruments (continued)
b) Fair value hierarchy (continued)
Transfers between level 1 and level 2 of
the fair value hierarchy
Trading assets of approximately CHF 9 billion, of which CHF
5 billion are debt instruments, and trading liabilities of ap
proximately CHF 4 billion, of which almost all are debt in
struments, were transferred from level 2 to level 1 due to
increased trading activities and volumes, respectively.
Trading assets and liabilities with amounts of approxi
mately CHF 8 billion and approximately CHF 3 billion were
transferred from level 1 to level 2. The assets largely related
to government bonds (CHF 3 billion) and equity instruments
(CHF 3 billion). The trading liabilities transferred from level 1
to level 2 consisted equally of short sold debt and equity in
struments. These assets and liabilities transferred from level
1 to level 2 no longer met the average market activity UBS
considers necessary when determining whether an instru
ment is traded in an active market.
Movements of level 3 instruments
The table below includes a rollforward of the balance
sheet amounts of the significant classes of financial instru
ments classified within level 3.
Movements of level 3 instruments and gains / losses for level 3 instruments held at the end of the reporting period
CHF billion
Balance at 31 December 2008
Total gains / losses included in the income statement
Net trading income
Other
Purchases, sales, issuances and settlements
Purchases
Sales
Issuances
Settlements
Transfers into and/or out of level 3
Transfers into level 3
Transfers out of level 3
Foreign currency translation
Balance at 31 December 2009
Total gains / losses for the period included in the income statement for
level 3 instruments held at the end of the reporting period
Net trading income
Other
Trading portfolio assets
(including those pledged
as collateral) 1
16.9
Derivative instruments
(net replacement
values) 1
2.8
Financial liabilities
designated at fair value 1
10.3
(3.9)
(3.7)
(0.2)
(6.3)
5.6
(11.9)
0.0
0.0
5.4
12.5
(7.1)
0.1
12.2
(0.5)
(1.0)
0.5
2.4
2.2
0.2
(1.0)
0.0
0.0
2.0
(3.0)
2.8
3.3
(0.5)
(0.2)
6.8
(0.6)
(0.6)
0.0
(1.7)
(1.1)
(0.6)
(4.6)
0.0
0.0
2.7
(7.3)
5.3
8.0
(2.7)
1.0
10.3
(0.7)
(0.7)
0.0
1 Where financial instruments moved into or out of level 3 level during 2009, this change is reflected as if the financial instrument had been in the new level as of the beginning of the quarter in which
the movement took place.
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Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
b) Fair value hierarchy (continued)
Material changes in level 3 instruments
As of 31 December 2009, financial instruments measured
with valuation techniques using significant nonmarket
observable inputs (level 3) mainly included the following
instruments:
– structured rates and credit trades, including bespoke
collateralized debt obligations (CDOs),
– instruments linked to the US residential and US commer
cial real estate markets,
– nonUS referencelinked notes, and
– equitylinked notes issued by UBS.
Trading portfolio assets
Trading portfolio assets transferred into and out of level 3
amounted to CHF 12.5 billion and CHF 7.1 billion, respec
tively. On a net basis, approximately CHF 3 billion of transfers
into level 3 were related to certain nonUS referencelinked
notes held in Asia as price determining factors for these
instruments, such as prices of the underlying assetbacked
securities, including residential and commercial realestate
securities, became unobservable. Other credit positions
(largely puttable bonds) of approximately CHF 2 billion were
transferred into level 3 since the embedded options could
not be price tested. In addition, leverage finance instru
ments, assetbacked securities and other instruments of ap
proximately CHF 1 billion in total, were transferred into level
3 due to prices becoming unobservable. Transfers out of lev
el 3, on a net basis, largely comprised structured rates and
credit trades of approximately CHF 1 billion, since liquidity
had returned to the underlying markets, as well as corporate
bonds of approximately CHF 1 billion, for which indepen
dent pricing sources became observable.
Level 3 trading assets purchased in 2009 largely include
leverage finance products of approximately CHF 2 billion
and other credit instruments of approximately CHF 1 billion.
Due to sales and settlements, level 3 instruments de
creased by approximately CHF 12 billion. The following in
struments were affected: structured rates and credit trades
by approximately CHF 1 billion, bespoke CDOs by approxi
mately CHF 2 billion, instruments linked to the US sub
prime residential and US commercial real estate markets by
approximately CHF 3 billion, instruments linked to the non
US real estate market by approximately CHF 2 billion, and
leverage finance instruments, referencelinked notes, non
real estate assetbacked securities, and other credit instru
ments by approximately CHF 1 billion for each of these
categories.
Derivative instruments
Net replacement values transferred into and out of level 3
amounted to approximately CHF 3 billion and approximately
CHF 1 billion, respectively. Transfers into level 3 instruments
included Positive replacement values of CHF 26 billion and neg
ative replacement values of CHF 23 billion. Transfers out of lev
el 3 instruments included Positive replacement values of CHF
20 billion and negative replacement values of CHF 19 billion.
Transfers into level 3 of replacement values mainly includ
ed bespoke CDOs, whose correlation was not observable
through models or through reference data, singlename cor
porate credit default swaps (CDS), for which credit curves
were not available from pricing sources, and home equity
loans CDSs and other instruments linked to the US residen
tial real estate market, whose recovery values became unob
servable due to the illiquidity of the underlying positions. In
addition, certain structured rates and credit trades whose
loan and credit curves were unobservable have been trans
ferred to level 3.
Transfers of replacement values out of level 3 consisted
mainly of structured rates and credit trades, for which inde
pendent pricing sources (e.g. reliable quotes from pricing
services) became available, and other credit instruments for
which recovery rates and credit spreads could be observed in
the market.
Financial liabilities designated at fair value
Level 3 financial liabilities designated at fair value reclassified
into level 3 in 2009 of CHF 8 billion predominantly related to
hybrid financial liabilities, including equitylinked notes is
sued by UBS, and funded credit derivatives. The main driver
for the reclassification was the lack of market data for un
derlying credit default swap curves.
Level 3 sensitivity information
Financial instruments carried at fair value on UBS’s balance
sheet include a subset of instruments for which fair value is
measured in full or in part using valuation techniques based
on assumptions that are not supported by market observ
able prices or rates.
There may be uncertainty about a valuation, resulting
from the choice of the valuation technique or model used,
the assumptions embedded in those models, the extent to
which inputs are not market observable, or as a result of
other elements affecting the valuation technique or model.
At 31 December 2009, UBS performed a sensitivity analy
sis to assess the range of reasonably possible alternative val
324
Note 27 Fair value of financial instruments (continued)
b) Fair value hierarchy (continued)
uations for level 3 instruments. In undertaking this analysis,
UBS evaluated these instruments by classifying them into
low, medium and high categories of valuation uncertainty
based on the assessment of instrument level characteristics
and available market information. Instrument level charac
teristics include the model from which the valuation was de
rived, the degree of impact on fair value by unobservable
parameters, reserves and valuation adjustments. Market in
formation includes any data that supports the classification
such as reference to similar instruments and observable pa
rameter information. Based on the valuation uncertainty as
signed to an instrument, the market value was adjusted up
ward and downward and summed across the level 3 financial
assets and liabilities to arrive at the estimated range of rea
sonably possible alternative valuations, as shown in the table
below: Favorable valuation changes for assets would be off
set to a significant degree by unfavorable changes in liabili
ties and vice versa as a consistent use of different assump
tions and estimates would prevent a simultaneous favorable
or unfavorable valuation change of assets and liabilities.
As of 31 December 2009, CHF billion
Financial assets 1
of which: trading portfolio assets (including those pledged as collateral)
of which: positive replacement values
Financial liabilities
of which: financial liabilities designated at fair value
of which: negative replacement values
1 Includes level 3 sensitivity for financial instruments accounted for at fair value through profit or loss.
c) Valuation techniques by product and market risk sensitivity
Favorable changes
Unfavorable changes
4.1
1.0
3.1
(3.3)
(1.6)
(1.7)
(4.1)
(1.0)
(3.1)
3.3
1.6
1.7
This section includes a description of the valuation of certain
significant product categories and related valuation tech
niques and models. In addition, sensitivity information for
certain significant instrument categories that are excluded
from Management ValueatRisk as disclosed in the Risk and
treasury management section of this report is provided.
Credit valuation adjustments on monoline credit protection
UBS previously entered into negative basis trades with
mono lines, whereby they provided credit default swap pro
tection against UBSheld underlyings, including residential
mortgagebacked securities collateralized debt obligations
(RMBS CDO), transactions with collateralized loan obligation
(CLO) and assetbacked securities collateralized debt obliga
tions (ABS CDO). Since the start of the financial crisis, the
credit valuation adjustments (CVA) relating to these mono
line exposures have been a source of valuation uncertainty,
given market illiquidity and the terms of these exposures rel
ative to other monolinerelated instruments.
CVA amounts related to monoline credit protection are
based on a methodology that uses credit default swap (CDS)
spreads on the monolines as a key input in determining an
implied level of expected loss. Where a monoline has no ob
servable CDS spread, a judgment is made on the most com
parable monoline or combination of monolines and the cor
responding spreads are used instead. For RMBS CDO, CMBS
CDO, and CLO asset categories, cash flow projections are
used in conjunction with current fair values of the underlying
assets to provide estimates of expected future exposure lev
els. For other asset categories, future exposure is based on
current exposure.
To assess the sensitivity of the monoline CVA calculation to
alternative assumptions, the impact of a 10% increase in mon
oline credit default swap spreads (e.g. from 2,000 basis points
to 2,200 basis points for a specific monoline) was considered.
At 31 December 2009, such an increase would have resulted
in an increase in the monoline credit valuation adjustment of
approximately USD 77 million (CHF 80 million; 31 December
2008: USD 206 million or CHF 220 million). The sensitivity of
the monoline credit valuation adjustment to a decrease of one
percentage point in the monoline recovery rate assumptions
(e.g. from 20% to 19% for a specific monoline, conditional on
default occurring) is estimated to result in an increase of
approximately USD 26 million (CHF 27 million) in the CVA
(31 December 2008: USD 58 million or CHF 62 million). The
sensitivity to recovery rates is substantially linear.
Instruments linked to US residential real estate market
As of 31 December 2009, instruments linked to the US resi
dential real estate market (e.g., US RMBS CDO) are present
ed as Positive or Negative replacement values, or trading
portfolio assets. The Group applies a fundamental model,
325
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques by product and market risk sensitivity (continued)
based on contractual cash flows of the underlying bonds
due to the absence of liquidity, and therefore pricing infor
mation. The contractual cash flows are adjusted for the ex
pected rate of underlying defaults. Losses in the underlying
mortgage pools are derived from the development of de
fault and prepayment curves to which loss severity and inter
est curves are applied. The projected lifetime losses are ad
ditionally calibrated to ABX market indices. The default
adjusted mortgage bond cash flows are then aggregated
across all bond positions in the CDO, to arrive at the overall
expected cash flows from the mortgage pool, used for the
discounting process. The principles of this model are applied
to both cash and synthetic instruments.
Commitments to acquire auction rate securities (ARSs)
Following the settlement agreements reached regarding
ARS, UBS has fair valued its commitment to repurchase eli
gible ARS from customers at par. The commitment is treated
as a derivative and fair valued through profit or loss. The
value of the derivative has three main variables: (1) forward
fair market value of the ARS underlying the remaining out
standing commitments, (2) client put behavior, and (3) fore
casted issuer redemptions at par. The model to value the
commitment considers the cash flows of the trusts them
selves, and where the predicted cash flows are expected to
create a surplus, the trust is assumed to redeem at par, be
cause its choices of alternative actions, primarily to issue
new loans or redeem, are severely restricted. UBS assumes
that all clients will put their eligible ARS back to UBS at par
on the first eligible day pursuant to the agreement with the
US authorities. The discount rates in this model embed risk
premiums that are calibrated to observed market trans
actions. UBS estimates that a 50% increase or decrease in
the risk premiums would result in a loss of approximately
USD 287 million (CHF 297 million) or gain of approximately
USD 303 million (CHF 314 million). As of 31 December 2008
a similar model was applied, however, at the beginning of
2009 revisions were made to better reflect assumptions
about when the clients are expected to exercise their put
options.
US reference-linked notes (US RLNs)
The US referencelinked notes (US RLNs) consist of a series of
transactions whereby UBS purchased credit protection, pre
dominantly in note form, on a notional portfolio of fixed in
come assets. The referenced assets are comprised of USD
Asset-Backed Securities (ABSs) (primarily commercial mort
gagebacked securities and subprime residential mortgage
backed securities) and / or corporate bonds and loans across
all rating categories. The credit protection embodied in the
RLNs is fair valued using a market standard approach to the
valuation of portfolio credit protection (Gaussian copula).
This approach effectively is intended to simulate correlated
defaults within the portfolio, where the expected losses and
defaults of the individual assets are closely linked to the ob
served market prices (spread levels) of those assets. Key as
sumptions of the model include correlations and recovery
rates. UBS applies fair value adjustments related to potential
uncertainty in each of these parameters, which are only part
ly observable. In addition, UBS applies fair value adjustments
for uncertainties associated with the use of observed spread
levels as the primary inputs. These fair value adjustments are
calculated by applying shocks to the relevant parameters
and revaluing the credit protection. These shocks for correla
tion, recovery and spreads are set to various levels depend
ing on the asset type and / or region and may vary over time
depending on the best judgment of the relevant trading and
control personnel. Correlation and recovery shocks are gen
erally in the reasonably possible range of 5 to 15 percentage
points. Spread shocks vary more widely and depend on
whether the underlying protection is funded or unfunded to
reflect cash or synthetic basis effects. As of 31 December
2009, the fair value of the US RLN credit protection (pre
reserve) is approximately USD 1,502 million (CHF 1,555 mil
lion; 31 December 2008: USD 3,284 million or CHF 3,502
million). The fair value adjustments calculated by applying
the shocks described above are approximately USD 71 mil
lion (CHF 74 million; 31 December 2008: USD 299 million or
CHF 319 million) as of 31 December 2009. This adjustment
may also be considered a measurement of sensitivity.
Non-US reference-linked notes (Non-US RLNs)
The same valuation model and the same approach to calcu
lation of fair value adjustments are applied to the nonUS
referencelinked note (nonUS RLN) credit protection as to
the US RLN credit protection described above, except that
the spread is shocked by 10% for European corporate
names. As of 31 December 2009, the fair value of the non
US RLN credit protection is approximately USD 1,155 million
(CHF 1,196 million; 31 December 2008: USD 1,971 million
or CHF 2,102 million). The fair value adjustments (up and
down) calculated by applying the shocks described above
are approximately USD 105 million (CHF 109 million; 31 De
cember 2008: USD 155 million or CHF 165 million). This
adjustment may also be considered a measurement of sen
sitivity.
Option to acquire equity of the SNB StabFund
Under IFRS, UBS’s option to purchase the SNB StabFund’s
equity is recognized on the balance sheet as a derivative at
326
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques by product and market risk sensitivity (continued)
fair value (Positive replacement values) with changes to fair
value recognized in profit and loss. As of 31 December 2009,
the fair value (after adjustments) of UBS’s call option was ap
proximately USD 1,174 million (CHF 1,216 million; 31 De
cember 2008: CHF 1,100 million).
The model adopted in 2009 incorporates cash flow pro
jections for all assets within the fund across various scenarios
and is calibrated to market levels by setting the spread above
onemonth Libor rates used to discount future cash flows
such that the modelgenerated price of the underlying asset
pool equals UBS’s assessed fair value of the asset pool. The
model incorporates a model reserve (fair value adjustment)
to address potential uncertainty in this calibration. For
31 December 2009, this adjustment was USD 262 million
(CHF 271 million; 30 September 2009: USD 229 million or
CHF 237 million). As of 31 December 2009, a 100 basis
points increase in the discount rate would have decreased
the option value by approximately USD 126 million (CHF
130 million) and a 100 basis points decrease would have in
creased the option value by approximately USD 143 million
(CHF 148 million).
Bespoke collateralized debt obligations (CDOs)
Significant positions of bespoke CDOs are classified as level 3
instruments (31 December 2009: Positive replacement value
of CHF 6,067 million and Negative replacement value of CHF
6,208 million; 31 December 2008: Positive replacement value
of CHF 15,118 million and Negative replacement value of
CHF 16,137 million). The instruments represent customized
collateralized debt obligations. These products are sold in
‘tranches’ whereby the tranche’s seniority and attachment
points reflect the size of the risk being taken. One of the main
risks that the investor is exposed to is the correlation behavior
of the names in the tranche.
The primary market inputs to the valuation approach are
observed in the vanilla credit markets, being the vanilla
credit indices and single name credit curves. A widelyused
modeling approach is applied, which first constructs the
correlation from the index information and then values the
transaction by comparing it to the index.
Equity-linked notes issued by UBS
As of 31 December 2009, equitylinked notes issued by UBS
of CHF 3,398 million (31 December 2008: CHF 3,316 mil
lion) accounted for as financial liabilities designated at fair
value were classified as level 3.
The valuation models used for these types of notes are a
market standard BlackScholes model for the more standard
vanilla type returns and a “Local Volatility Monte Carlo”
based approach for more complex instruments.
While some of the parameter inputs to these models will be
observable, for example equity and FX spot prices and interest
rates, others will be based on valuation techniques or will re
quire the extrapolation of observable data, which may result in
an instrument being required to be classified in level 3.
The main parameters which may not be directly observ
able are equity volatilities and dividend assumptions for
longerdated trades which will normally be extrapolated
from observable shorterterm market information. Correla
tion inputs, required for instruments where the value is
based upon multiple underlyings, will be calculated by a
modeling technique which uses historic data to estimate
future correlation levels, the model output being bench
marked against available information.
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327
Financial information
Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
d) Deferred day 1 profit or loss
The table reflects financial instruments for which fair value
is determined using valuation models where not all signifi
cant inputs are market observable. Such financial instru
ments are initially recognized at their transaction price al
though the values obtained from the relevant valuation
model on day 1 may differ. The table shows the aggregate
difference yet to be recognized in profit or loss at the begin
ning and end of the period and a reconciliation of changes
in the balance of this difference (movement of deferred
day 1 profit or loss).
Deferred day 1 profit or loss
CHF million
Balance at the beginning of the year
Deferred profit / (loss) on new transactions
Recognized (profit) / loss in the income statement
Foreign currency translation
Balance at the end of the year
For the year ended
31.12.09
31.12.08
627
231
(240)
(19)
599
550
588
(459)
(52)
627
On 31 December 2009, deferred day 1 profit or loss of ap
proximately CHF 0.3 billion (31 December 2008: approxi
mately CHF 0.4 billion) pertains to multiname credit default
swaps (largely structured rates and credit trades, including
bespoke CDOs), and of approximately CHF 0.3 billion
(31 December 2008: approximately CHF 0.2 billion) to over
thecounter (OTC) equity options. Both instruments are pre
sented as replacement values on UBS’s balance sheet.
e) Financial instruments accounted for at amortized cost
The following table reflects the estimated fair values for
UBS’s instruments accounted for at amortized cost. Refer to
Note 29 for an overview of financial assets classified as
“loans and receivables” and financial liabilities accounted
for at amortized cost.
CHF billion
Assets
Due from banks
Loans
Cash collateral on securities borrowed
Reverse repurchase agreements
Accrued income and prepaid expenses, other assets
Liabilities
Due to banks
Due to customers
Cash collateral on securities lent
Repurchase agreements
Debt issued
Accrued expenses and deferred income, other liabilities
Off-balance-sheet financial instruments
Loan commitments 1
Guarantees and similar instruments 2
31.12.09
31.12.08
Carrying value
Fair value
Carrying value
Fair value
46.6
305.1
63.5
116.7
5.1
65.2
410.5
8.0
64.2
134.5
15.9
0.3
0.1
46.6
306.0
63.5
116.7
5.1
65.1
410.5
8.0
64.2
133.6
15.9
0.4
(0.1)
64.5
338.5
122.9
224.6
9.1
125.6
465.7
14.1
102.5
201.2
22.8
64.5
338.1
122.9
224.8
9.1
125.6
465.7
14.1
102.5
199.7
22.8
1 Loan commitments include derivative loan commitments, loan commitments accounted for as financial liabilities designated at fair value and other loan commitments not recognized on balance sheet,
unless a provision is required. 2 The fair value of financial guarantees is positive as the present value of the expected fees exceeds the present value of the expected outflows.
328
Note 27 Fair value of financial instruments (continued)
e) Financial instruments accounted for at amortized cost (continued)
The fair values included in the table above were calcu lated
for disclosure purposes only. The valuation techniques and
assumptions described below provide a measurement of fair
value of UBS’s financial instruments accounted for at amor
tized cost. However, because other institutions may use dif
ferent methods and assumptions for their fair value esti
mation, such fair value disclosures cannot necessarily be
compared from one financial institution to another. UBS ap
plies significant judgments and assumptions to arrive at
these fair values, which are more holistic and less sophisti
cated than UBS’s established fair value and model gover
nance policies and processes applied for financial instru
ments accounted for at fair value, whose fair values impact
UBS’s balance sheet and net profit. The following principles
were applied when determining fair value estimates for
financial instruments accounted for at amortized cost:
– For financial instruments with remaining maturities greater
than three months, the fair value was determined from
quoted market prices, where available.
– Where quoted market prices were not available, the fair
values were estimated by discounting contractual cash
flows using current market interest rates or appropriate
yield curves for instruments with similar credit risk and
maturity. These estimates generally include adjustments
for counterparty credit or UBS’s own credit.
have remaining maturities of three months or less: 99%
of loans due from banks; 55% of loans due from cus
tomers; 100% of cash collateral on securities borrowed;
100% of reverse repurchase agreements; 96% of
amounts due to banks; 100% of amount due to custom
ers; 100% of cash collateral on securities lent; 100% of
repurchase agreements; and 49% of debt issued.
– The fair value of variableinterest bearing financial instru
ments accounted for at amortized cost is assumed to be
approximated by their carrying amounts, which are net of
credit loss allowances, and does not reflect fair value
changes in the credit quality of counterparties or UBS’s
own credit movements.
– The fair value estimates for repurchase and reverse repur
chase agreements with variable and fixed interest rates,
for all maturities, include the valuation of the interest rate
component of these instruments. Credit and debit valua
tion adjustments have not been included in the valuation
due to the shortterm nature of these instruments.
– Loans include Wealth Management assets, mainly mort
gage loans, where fair values exceed related carrying val
ues by CHF 3.3 billion, and Investment Bank assets where
fair values fall below related carrying values by CHF 2.4
billion, of which CHF 0.9 billion relate to reclassified fi
nancial assets.
– For shortterm financial instruments with remaining ma
turities of three months or less, the carrying amount,
which is net of credit loss allowances, is generally consid
ered a reasonable estimate of fair value. The following
financial instruments accounted for at amortized cost
– The estimated fair values of offbalance sheet financial
instruments are based on market prices for similar facili
ties and guarantees. Where this information is not avail
able, fair value is estimated using discounted cash flow
analysis.
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329
Financial information
Notes to the consolidated financial statements
Note 28 Pledged assets and transferred financial assets which do not qualify for derecognition
Financial assets are mainly pledged in securities borrowing
and lending transactions, in repurchase and reverse repur
chase transactions, under collateralized credit lines with cen
tral banks, against loans from mortgage institutions, in con
nection with derivative transactions, as security deposits for
stock exchanges and clearinghouse memberships, or trans
ferred for security purpose in connection with the issuance
of covered bonds.
Assets pledged
CHF million
Financial assets held for trading pledged to third parties for liabilities with and without the right of rehypothecation
of which: pledged to third parties with right of rehypothecation
Mortgage loans 1
Other 2
Total
Carrying amount
31.12.09
31.12.08
64,748
44,221
21,741
65,775
152,264
78,002
40,216
3,699
21,040
102,741
1 Book value includes mortgage loans transferred for security purpose in preparation of upcoming covered bond issuances. 2 Includes financial investments available-for-sale of CHF 53 billion (2008:
CHF 0 billion) and reclassified financial assets of CHF 10 billion (2008: CHF 16 billion).
The following table presents details of financial assets which
have been sold or otherwise transferred, but which do not
qualify for derecognition. Criteria for derecognition are dis
cussed in Note 1a) 5).
Transfer of financial assets which do not qualify for derecognition
CHF billion
Nature of transaction
Securities lending agreements
Repurchase agreements
Other financial asset transfers
Total
Continued asset recognition in full – Total assets
31.12.09
31.12.08
17.1
24.6
110.9
152.6
22.0
13.1
46.6
81.7
The transactions are mostly conducted under standard
agreements employed by financial market participants and
are undertaken with counterparties subject to UBS’s normal
credit risk control processes. The resulting credit exposures
are controlled by daily monitoring and collateralization of
the positions. The financial assets which continue to be rec
ognized are typically transferred in exchange for cash or oth
er financial assets. The associated liabilities can therefore be
assumed to be approximately the carrying amount of the
transferred financial assets except for certain positions
pledged with central banks.
UBS retains substantially all risks and rewards of the trans
ferred assets in each situation of continued recognition in
full. These include credit risk, settlement risk, country risk
and market risk.
Repurchase agreements and securities lending agree
ments are discussed in Notes 1a) 13) and 1a) 14). Other fi
nancial asset transfers include sales of financial assets while
concurrently entering into a total rate of return swap with
the same counterparty and sales of financial assets involving
guarantees.
Transferred financial assets which are subject to partial
continued recognition were immaterial in 2009 and 2008.
The carrying amounts of the partially recognized transferred
financial assets are included in the table.
330
Note 29 Measurement categories of financial assets and financial liabilities
a) Measurement categories of financial assets and financial liabilities
The following table provides information about the carrying
amounts of individual classes of financial instruments within
the measurement categories of financial assets and financial
liabilities as defined in IAS 39. Only those assets and liabilities
which are deemed to be financial instruments are included
in the table below, which causes certain balances to differ
from those presented on the balance sheet.
Refer to “Note 27 Fair value of financial instruments” for
more information on how fair value of financial instruments
is determined.
Financial assets 1
Held for trading
Trading portfolio assets
Trading portfolio assets pledged as collateral
Debt issued 2
Positive replacement values
Total
Fair value through profit or loss
Financial assets designated at fair value
Cash, loans and receivables
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Loans
Accrued income and prepaid expenses
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
Financial liabilities
Held for trading
Trading portfolio liabilities
Debt issued 2
Negative replacement values
Total
Fair value through profit or loss, other
Financial liabilities designated at fair value
Amounts due under unit-linked contracts
Total
Financial liabilities at amortized cost
Due to banks
Cash collateral on securities lent
Repurchase agreements
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.09
31.12.08
171,173
44,221
3,109
421,694
640,197
261,904
40,216
4,152
854,100
1,160,372
10,223
12,882
20,899
46,574
63,507
116,689
305,061
1,465
3,594
557,789
32,744
64,451
122,897
224,648
338,520
3,238
5,901
792,399
81,757
1,289,966
5,248
1,970,901
47,469
8
409,943
457,420
112,653
21,740
134,393
65,166
7,995
64,175
410,475
8,522
134,453
7,415
698,201
62,431
185
851,864
914,480
101,546
22,084
123,630
125,628
14,063
102,561
465,741
10,012
201,221
12,765
931,991
1,290,014
1,970,101
1 CHF 138 billion of Loans, CHF 0 billion of Due from banks, CHF 8 billion of Financial investments available-for-sale and CHF 7 billion of Financial assets designated at fair value are expected to be
recovered or settled after twelve months. 2 Embedded derivatives presented on the balance sheet line Debt issued.
331
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Financial information
Notes to the consolidated financial statements
Note 29 Measurement categories of financial assets and financial liabilities (continued)
b) Reclassification of financial assets
The reclassification of financial assets reflected UBS’s change
in intent and ability to hold these financial assets for the
foreseeable future rather than for trading in the near term.
The financial assets were reclassified using their fair value on
the date of the reclassification, which became their new cost
basis at that date.
In 2008 and first quarter 2009, financial assets with fair
values on their reclassification dates of CHF 26 billion and
CHF 0.6 billion, respectively, were reclassified out of Trading
portfolio assets to Loans.
The table below shows the carrying values and fair values
of these financial assets.
Trading portfolio assets reclassified to loans
CHF billion
Carrying value of trading portfolio assets reclassified
Fair value of trading portfolio assets reclassified
Pro-forma fair value gain / (loss)
31.12.09
31.12.08
19.9
19.0
(0.9)
24.2
20.8
(3.4)
In 2009, carrying values decreased by approximately CHF
4.3 billion mainly due to sales of approximately CHF 2.6 bil
lion. Redemptions, credit loss expenses of CHF 1 billion and
the appreciation of the Swiss franc against the US dollar re
sulted in a decrease of approximately CHF 3.3 billion. The
decrease was partially offset by financial assets of CHF 0.6
billion reclassified in 2009, and the accretion of interest of
approximately CHF 0.9 billion from the amortization of the
discount between carrying values and the expected recover
able amounts.
Fair values of reclassified financial assets decreased as well
by approximately CHF 1.8 billion in 2009, which includes a
fair value gain of approximately CHF 4.7 billion and financial
assets reclassified in 2009 of CHF 0.6 billion, offset by de
creases of approximately CHF 2.6 billion related to sales and
decreases of approximately CHF 4.5 billion related to re
demptions and the decline of the CHF/USD exchange rate.
The table below provides notional values, fair values, and
carrying values by product category, as well as the ratio of
carrying value to notional value.
Reclassified assets
31.12.09, CHF billion
US student loan and municipal auction rate securities
Monoline-protected assets 1
Leveraged finance
CMBS / CRE (excluding interest-only strips)
US reference-linked notes
Other assets
Total (excluding CMBS interest-only strips)
CMBS interest-only strips
Total reclassified assets
Notional value
Fair value
Carrying value
Ratio of carrying
to notional value
9.3
7.5
2.6
2.0
1.1
1.1
23.6
23.6
8.0
6.1
0.9
1.5
0.9
0.9
18.2
0.8
19.0
8.2
6.5
0.8
1.6
1.0
1.0
19.0
0.9
19.9
88%
86%
30%
82%
86%
90%
80%
1 Includes CDOs (notional value of approximately CHF 0.45 billion; carrying value and fair value of approximately CHF 0.3 billion) which are no longer hedged by CDS with monoline insurers following
the commutation of these CDS trades in prior periods.
Reclassified financial assets impacted UBS’s income statement as presented in the table below.
Contribution of the reclassified assets to the income statement
CHF billion
Net interest income
Credit loss (expense) / recovery
Other income
Impact on operating profit before tax
332
For the year ended
31.12.09
31.12.08
1.5
(1.0)
0.1
0.6
0.1
(1.3)
0.0
(1.2)
Note 29 Measurement categories of financial assets and financial liabilities (continued)
c) Maximum exposure to credit risk and credit quality information
The table below presents the Group’s maximum exposure to
credit risk without taking account of any collateral held or
other credit enhancements. The amounts included in the table
represent the carrying amounts of financial instruments sub
ject to credit risk which were determined under the guidance
of IFRS. Financial instruments have been netted only if and to
the extent a) legally enforceable rights to offset exist, and b)
UBS has the intention to settle the underlying transactions on
a net basis. As such, the amounts disclosed in the table below
should not necessarily be considered a “risk measure”.
Maximum exposure to credit risk 1
CHF million
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed
WM&SB
WMA
8,589
2,651
0
1,074
194,410
21,492
0
0
31.12.09
IB
9,525
42,568
89,057
63,507
Other 2
0
282
101
0
Reverse repurchase agreements
1,107
4,302
109,896
1,384
116,689
UBS
WM&SB
WMA
18,114
46,574
17,628
5,499
0
1,096
31.12.08
IB
11,528
57,475
305,061
203,758
23,956
110,056
63,507
0
0
0
122,897
4,223
219,580
Other 2
0
381
750
0
844
UBS
29,156
64,451
338,520
122,897
224,648
Accrued income, other assets and debt under-
writing commitments subject to credit risk
Financial instruments measured at
amortized cost on balance sheet
Positive replacement values
Trading portfolio assets (including pledged
positions) – debt instruments
Financial assets designated at fair value –
debt instruments
Financial investments available-for-sale –
debt intruments
Financial instruments measured at
fair value on balance sheet
Credit guarantees, performance guarantees,
documentary credits and similar instruments 3
Undrawn irrevocable credit facilities
Irrevocable commitments to acquire ARS
Commitments
Total at the year-end
1,319
147
2,436
1,185
5,087
1,955
183
4,526
2,479
9,144
208,076
27,015
316,989
2,534
520
416,862
2,952
1,778
555,032
421,694
228,840
29,458
526,062
5,610
491
847,158
4,454
841
788,816
854,100
16,341
1,107
117,047
4,535
139,030
85
1,343
219,739
3,695
224,862
65
0
9,317
0
9,383
0
0
11,803
0
11,803
5,393
16,515
52,183
6,315
80,406
615
278
2,451
223
3,567
24,333
18,142
595,409
12,628
650,513
6,310
2,112 1,081,151
4,759
1,094,332
11,888
7,236
0
385
498
0
4,569
51,593
8,700
137
0
0
19,124
883
64,862
137
16,979
59,328
8,700
85,007
14,258
2,775
0
17,033
405
13
0
418
4,856
57,528
16,571
78,955
149
0
0
149
19,668
60,316
16,571
96,555
251,533
46,040
977,260
15,717 1,290,552
252,183
31,988 1,686,168
9,362
1,979,703
1 The exposures are considered the best representation of “maximum exposure to credit risk” as defined by IFRS, without taking into account additional netting potentials, collaterals and other credit
risk mitigation measures. 2 Other includes Global Asset Management and the Corporate Center. 3 The related provision of CHF 90 million (CHF 31 million for 2008) has been deducted.
The table above does not include written credit protection, which is generally recognized on UBS’s balance sheet under
Negative replacement values. It also excludes UBS’s obligations under the Swiss Deposit Insurance.
The maximum exposure to credit risk determined under IFRS
guidance and disclosed in the table above is actively man
aged and subject to credit risk management such as collater
alization and hedging. Collateral held and credit risk mitiga
tion is described in the section “Risk management and
control”.
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Financial information
Notes to the consolidated financial statements
Note 29 Measurement categories of financial assets and financial liabilities (continued)
c) Maximum exposure to credit risk and credit quality information (continued)
Financial assets subject to credit risk by rating category
CHF million
Rating category
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse repur-
chase agreements
Positive replacement values
Trading portfolio assets (including pledged) – debt instruments
Financial investments available-for-sale – debt instruments
Other financial instruments
Commitments 1
Guarantees and similar instruments 2
Undrawn irrevocable credit facilities
Total
CHF million
Rating category
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse
repurchase agreements
Positive replacement values
Trading portfolio assets (including pledged) – debt instruments
Financial investments available-for-sale – debt instruments
Other financial instruments
Commitments 1
Guarantees and similar instruments 2
Undrawn irrevocable credit facilities
Total
0–1
14,491
3,392
21,000
47,928
18,138
61,492
75,363
696
87
962
2–3
3,615
39,256
82,204
100,127
357,590
57,128
5,007
9,211
8,391
40,682
4–5
9
2,526
81,791
24,108
31,511
10,081
3
2,435
4,129
8,441
6–8
9–13
defaulted
1,108
98,611
7,444
10,316
4,523
25
945
2,931
3,357
186
18,544
537
2,682
5,090
8
559
1,475
5,463
106
2,910
52
1,456
716
624
56
422
31.12.09
Total
18,114
46,574
305,061
180,196
421,694
139,030
80,406
14,470
17,070
59,328
243,550
703,210
165,033
129,262
34,546
6,341
1,281,942
6–8
9–13
defaulted
0–1
23,619
5,697
26,210
95,379
46,805
98,836
3,271
1,253
2–3
5,534
43,075
97,300
218,644
602,505
89,508
131
13,085
4–5
3
13,847
82,431
19,841
172,865
20,780
110
2,846
36
238
9,496
33,820
4,944
15,285
1,418
108,076
327
20,204
12,528
24,333
7,103
35
2,048
3,654
2,840
711
5,081
8,031
16
890
1,497
7,719
31.12.08
Total
29,156
64,451
87
4,298
338,520
441
2,511
604
3
824
72
415
347,544
854,100
224,862
3,567
20,947
19,699
60,316
301,344
1,113,099
332,952
162,035
44,477
9,254
1,963,161
1 Excludes commitments to acquire ARS of CHF 8,700 million for 2009 (CHF 16,571 million 2008). 2 The provisions of CHF 90 million for 2009 (CHF 31 million 2008) are not deducted from the
notional value of “guarantees and similar instruments”.
334
Note 30 Pension and other post-employment benefit plans
a) Defined benefit plans
UBS 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 valua
tions are performed for the plans in these locations. The
measurement date of these plans is 31 December for each
year presented.
The overall investment policy and strategy for UBS’s de
fined benefit pension plans is guided by the objective of
achieving an investment return which, together with the
contributions paid, is sufficient to maintain reasonable con
trol over the various funding risks of the plans. The invest
ment advisors appointed by plan fiduciaries are responsible
for determining the mix of asset types and target allocations
which are reviewed by the plan fiduciaries on a regular basis.
Actual asset allocation is determined by a variety of current
economic and market conditions and in consideration of
specific asset class risk.
The expected longterm rates of return on plan assets are
based on longterm expected inflation, interest rates, risk
premiums and targeted asset class allocations. These esti
mates take into consideration historical asset class returns
and are determined together with the plans’ investment and
actuarial advisors.
Swiss pension plan
The Swiss pension plan covers all UBS employees in Switzer
land and exceeds the minimum benefit requirements under
Swiss law. The Swiss plan allows employees a choice in the
level of annual contributions paid by the employee. The
pension plan provides benefits which are based on annual
contributions as a percentage of salary and accrue at an
interest rate that is defined annually by the Pension Foun
dation Board.
Contributions to the pension plan are paid by employees
and the employer. The employee contributions are calculat
ed as a percentage of covered salary and are deducted
monthly. The percentages deducted from salary for the full
standard level of benefit coverage depend on age and vary
between 1% and 9% of covered base salary and 3% and
8% of covered variable compensation. The employer pays a
contribution that ranges between 100% and 375% of em
ployees’ contributions for the standard level of benefit cov
erage. The benefits covered include retirement benefits; dis
ability, death and survivor pensions; and employment
termination benefits.
The employer contributions expected to be made in 2010
to the Swiss pension plan are CHF 560 million.
Foreign pension plans
The foreign locations of UBS operate various pension plans in
accordance with local regulations and practices. The locations
with defined benefit plans of a material nature are in the UK,
the US and Germany. The UK and the US defined benefit
plans are closed to new entrants who are covered by defined
contribution plans. The amounts shown for foreign plans re
flect the net funded positions of the material foreign plans.
The pension plans provide benefits in the event of retire
ment, death or disability. The level of benefits provided de
pends on the defined rate of benefit accrual and level of com
pensation. The plans are funded entirely by UBS. The employer
contributions expected to be made in 2010 to these pension
plans are CHF 107 million. The funding policy for these plans is
consistent with local government and tax requirements.
The assumptions used in foreign plans take into account
local economic conditions.
Refer also to Note 1a) 23).
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335
Financial information
Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
a) Defined benefit plans (continued)
CHF million
For the year ended
Swiss
Foreign
31.12.09
31.12.08
31.12.07
31.12.09
31.12.08
31.12.07
Defined benefit obligation at the beginning of the year
(21,311)
(20,877)
(21,506)
(3,642)
(4,928)
(5,207)
Service cost
Interest cost
Plan participant contributions
Amendments
Actuarial gain / (loss)
Benefits paid
Termination benefits
Acquisitions
Foreign currency translation
Defined benefit obligation at the end of the year
Fair value of plan assets at the beginning of the year
Expected return on plan assets
Actuarial gain / (loss)
Employer contributions
Plan participant contributions
Benefits paid
Foreign currency translation
Fair value of plan assets at the end of the year
Funded status
Unrecognized net actuarial (gains) / losses
Unrecognized assets
(Accrued) / prepaid pension cost
Movement in the net (liability) or asset
(Accrued) / prepaid pension cost at the beginning of the year
Net periodic pension cost
Employer contributions
Acquisitions
Foreign currency translation
(432)
(672)
(195)
0
231
1,314
(54)
(21,119)
19,029
846
963
567
195
(336)
(710)
(233)
0
(288)
1,158
(25)
(21,311)
22,181
990
(3,820)
603
233
(1,314)
(1,158)
20,286
(833)
2,996
0
2,163
2,123
(527)
567
19,029
(2,282)
4,405
0
2,123
2,123
(603)
603
(367)
(633)
(236)
(414)
1,508
792
(21)
(20,877)
21,336
1,067
(250)
584
236
(792)
22,181
1,304
2,123
(1,304)
2,123
1,953
(414)
584
(Accrued) / prepaid pension cost
2,163
2,123
2,123
Amounts recognized in the balance sheet
Prepaid pension cost
Accrued pension liability
(Accrued) / prepaid pension cost
2,163
2,123
2,123
2,163
2,123
2,123
(41)
(230)
(471)
153
0
(122)
(4,353)
2,866
202
266
232
(153)
104
3,517
(836)
1,475
(63)
(251)
318
148
0
1,134
(3,642)
4,579
282
(1,027)
194
(148)
(1,014)
2,866
(776)
1,324
(88)
(264)
236
151
(54)
298
(4,928)
4,602
313
(97)
200
(151)
(288)
4,579
(349)
975
639
548
626
548
(167)
232
0
26
639
890
(251)
639
626
(69)
194
0
(203)
548
798
(250)
548
633
(97)
200
(54)
(56)
626
887
(261)
626
336
Note 30 Pension and other post-employment benefit plans (continued)
a) Defined benefit plans (continued)
CHF million
For the year ended
Components of net periodic pension cost
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized net (gains) / losses
Immediate recognition of net actuarial (gains) / losses in current period
Immediate recognition of past service cost in current period
Special termination benefits
Limit of defined benefit asset
Net periodic pension cost
Funded and unfunded plans
CHF million
Defined benefit obligation from funded plans
Plan assets
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
Experience gains / (losses) on plan assets
CHF million
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
Experience gains / (losses) on plan assets
Swiss
Foreign
31.12.09
31.12.08
31.12.07
31.12.09
31.12.08
31.12.07
432
672
(846)
215
0
0
54
0
527
336
710
(990)
0
367
633
(1,067)
0
1,826
(1,258)
0
25
(1,304)
603
414
21
1,304
414
Swiss
41
230
(202)
98
63
251
(282)
37
88
264
(313)
58
167
69
97
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
(21,506)
21,336
(170)
(20,972)
20,229
(743)
(21,119)
20,286
(833)
214
963
(21,311)
19,029
(2,282)
0
(3,820)
(20,877)
22,181
1,304
0
(250)
Foreign
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
(4,078)
(275)
3,517
(836)
(12)
266
(3,402)
(240)
2,866
(776)
62
(1,027)
(4,654)
(274)
4,579
(349)
(32)
(97)
(5,002)
(205)
4,602
(605)
(4,635)
(385)
4,288
(732)
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337
Financial information
Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
a) Defined benefit plans (continued)
Principal weighted average actuarial assumptions used (%)
Assumptions used to determine defined benefit obligations at the end of the year
Swiss
Foreign
31.12.09
31.12.08
31.12.07
31.12.09
31.12.08
31.12.07
Discount rate
Expected rate of salary increase
Rate of pension increase
Assumptions used to determine net periodic pension cost for the year ended
Discount rate
Expected rate of return on plan assets
Expected rate of salary increase
Rate of pension increase
Plan assets (weighted average)
Actual plan asset allocation (%)
Equity instruments
Debt instruments
Real estate
Other
Total
Long-term target plan asset allocation (%)
Equity instruments
Debt instruments
Real estate
Other
Actual return on plan assets (%)
Additional details to fair value of plan assets
UBS financial instruments and UBS bank accounts
UBS AG shares 1
Securities lent to UBS included in plan assets
Other assets used by UBS included in plan assets
3.3
2.5
0.5
3.3
4.5
2.5
0.5
35
51
13
1
100
18–44
41–65
9–17
0–5
9.7
205
66
0
218
5.7
5.0
2.5
6.0
6.6
4.5
1.9
46
35
3
16
100
6.0
4.5
1.9
5.8
7.1
4.8
2.4
46
35
3
16
100
5.8
4.8
2.4
5.2
7.0
4.6
2.1
50
38
4
8
100
42–45
37–44
3–7
11–12
15.5
45–48
37–38
3–7
10–12
(18.2)
49–52
38–44
4–6
1–3
4.8
3.3
2.5
0.5
3.5
4.5
2.5
0.8
26
55
13
6
100
20–48
37–63
10–20
0–5
(12.8)
782
55
0
148
3.5
2.5
0.8
3.0
5.0
2.5
0.8
38
47
11
4
100
33–51
31–50
10–19
0
3.9
336
128
9,379
111
1 The number of UBS AG shares was 4,095,850, 3,734,000 and 2,436,257 as of 31 December 2009, 31 December 2008 and 31 December 2007, respectively.
Mortality tables and life expectancies for major plans
Mortality table
BVG 2005
PA 2000 G, medium cohort with
adjustment
Dr. K. Heubeck 2005 G
RP 2000 with projections
Mortality table
BVG 2005
PA 2000 G, medium cohort with
adjustment
Dr. K. Heubeck 2005 G
RP 2000 with projections
Life expectancy at age 65 for a male member currently
31.12.09
aged 65
31.12.08
31.12.07
31.12.09
aged 45
31.12.08
31.12.07
17.9
22.8
19.1
18.4
17.8
22.7
19.0
18.4
17.8
21.9
18.9
18.3
17.9
25.7
21.9
18.4
17.8
25.6
21.8
18.4
17.8
23.0
21.6
18.3
Life expectancy at age 65 for a female member currently
31.12.09
aged 65
31.12.08
31.12.07
31.12.09
aged 45
31.12.08
31.12.07
21.0
24.6
23.3
20.6
21.1
24.5
23.1
20.6
21.1
24.8
23.0
20.5
21.0
26.5
25.8
20.6
21.1
26.4
25.7
20.6
21.1
25.8
25.6
20.5
Country
Switzerland
UK
Germany
US
Country
Switzerland
UK
Germany
US
338
Note 30 Pension and other post-employment benefit plans (continued)
b) Post-retirement medical and life plans
In the US and the UK, UBS offers retiree medical benefits that
contribute to the health care coverage of employees and ben
eficiaries after retirement. The UK plan is closed to new en
trants. In addition to retiree medical benefits, UBS in the US
also provides retiree life insurance benefits. The benefit obli
gation in excess of the fair value of plan assets for these plans
amounts to CHF 186 million as of 31 December 2009 (2008:
CHF 159 million; 2007: CHF 190 million) and the total ac
crued postretirement cost amounts to CHF 163 million as of
31 December 2009 (2008: CHF 164 million; 2007: CHF 181
million). The net periodic postretirement costs for the years
ended 31 December 2009, 31 December 2008, and 31 De
cember 2007 were CHF 9 million (including a curtailment
gain of CHF 8 million), CHF 9 million (including a curtailment
gain of CHF 11 million), and CHF 26 million, respectively.
The employer contributions expected to be made in
2010 to the postretirement medical and life plans are CHF 7
million.
CHF million
31.12.09
31.12.08
31.12.07
Post-retirement benefit obligation at the beginning of the year
Service cost
Interest cost
Plan participant contributions
Actuarial gain / (loss)
Amendments
Benefits paid
Curtailments
Foreign currency translation
(159)
(7)
(10)
(2)
(31)
0
10
9
4
Post-retirement benefit obligation at the end of the year
(186)
(190)
(8)
(11)
(0)
14
0
7
9
20
(159)
0
6
1
(7)
0
(219)
(12)
(11)
(1)
39
(8)
8
0
14
(190)
0
7
1
(8)
0
0
8
2
(10)
0
Fair value of plan assets at the beginning of the year
Employer contributions
Plan participant contributions
Benefits paid
Fair value of plan assets at the end of the year
CHF million
Defined benefit obligation
Plan asset
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
(186)
0
(186)
8
(159)
0
(159)
3
(190)
0
(190)
8
(219)
0
(219)
1
(216)
0
(216)
(3)
The assumed average health care cost trend rate used in de
termining postretirement benefit expense is assumed to be
9% for 2009 and to decrease to an ultimate trend rate of
5% in 2015. On a countrybycountry basis, the same dis
count rate is used for the calculation of the postretirement
benefit obligation from medical and life plans as for the de
fined benefit obligations arising from pension plans.
Assumed average health care cost trend rates have a sig
nificant effect on the amounts reported for health care
plans. A one percentage point change in the assumed health
care cost trend rates would change the US postretirement
benefit obligation and the service and interest cost compo
nents of the net periodic postretirement benefit costs as
follows:
CHF million
Effect on total service and interest cost
Effect on the post-retirement benefit obligation
1% increase
1% decrease
4
26
(3)
(21)
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339
Financial information
Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
c) Defined contribution plans
UBS also sponsors a number of defined contribution plans
in its foreign locations. The locations with defined contri
bution plans of a material nature are in the UK and the US.
Certain plans permit employees to make contributions and
earn matching or other contributions from UBS. The em
ployer contributions to these plans recognized as expense
for the years ended 31 December 2009, 31 December
2008, and 31 December 2007 were CHF 246 million, CHF
312 million, and CHF 285 million, respectively.
d) Related party disclosure
UBS is the principal bank for the pension fund of UBS in
Switzerland. In this function, UBS is engaged to execute
most of the pension fund’s banking activities. These activities
include, but are not limited to, trading and securities lending
and borrowing. All transactions have been executed at arm’s
length conditions.
The foreign UBS pension funds do not have a similar
banking relationship with UBS, but they may hold and trade
UBS shares and / or securities.
In 2008, UBS sold to its Swiss pension fund certain bank
occupied properties for proceeds of approximately CHF 186
million and recognized a gain of approximately CHF 97 mil
lion. UBS and its Swiss pension fund entered simultaneously
into leaseback arrangements for some of the properties
with 25year lease terms and two renewal options for ten
years each. At 31 December 2008 the minimum commit
ment towards the Swiss pension fund under the related
leases was approximately CHF 41 million.
During 2009, UBS renegotiated one of the lease contracts
which reduced UBS’s remaining lease commitment. At
31 December 2009 the minimum commitment towards the
Swiss pension fund under the related leases is approximately
CHF 27 million. The rent paid by UBS under these leases
amounted to CHF 5 million in 2009.
The following fees and interest have been received or
paid by UBS:
Related party disclosure
CHF million
Received by UBS
Fees
Paid by UBS
Interest
Dividends and capital repayments
The transaction volumes in UBS shares and other UBS securities are as follows:
Transaction volumes – related parties
Financial instruments bought by pension funds
UBS AG shares (in thousands of shares)
UBS financial instruments (nominal values in CHF million)
Financial instruments sold by pension funds or matured
UBS AG shares (in thousands of shares)
UBS financial instruments (nominal values in CHF million)
For the year ended
31.12.09
31.12.08
31.12.07
34
2
0
44
1
4
58
2
38
For the year ended
31.12.09
31.12.08
31.12.07
3,869
35
4,116
14
6,925
78
1,881
10
1,728
950
1,930
976
UBS has also leased buildings from its pension funds. The
rent paid by UBS under these leases amounted to CHF 12
million in 2009, CHF 7 million in 2008, and CHF 6 million in
2007.
There were no financial instruments due from UBS pen
sion plans outstanding as of 31 December 2009 (2008: CHF
0 million; 2007: CHF 0 million). The amounts due to UBS
defined benefit pension plans are included in the additional
details to the fair value of plan assets. Furthermore, UBS de
fined contribution plans hold 17,259,203 UBS shares with a
market value of CHF 278 million as of 31 December 2009
(2008: 17,866,949 shares with a market value of CHF 272
million; 2007: 14,121,239 shares with a market value of
CHF 736 million).
340
Note 31 Equity participation and other compensation plans
a) Plans offered
UBS has established several equity participation and other
compensation plans to further align the interests of execu
tives, managers and staff with the interests of shareholders.
The plans are offered to eligible employees in approximately
50 countries and are designed to meet the complex legal,
tax and regulatory requirements of each country in which
they are offered. UBS’s compensation plans are mandatory,
discretionary or voluntary. The explanations below provide a
general description of the terms of the most significant plans
offered, however specific plan rules may vary by country. Re
fer to Note 1a) 24) for a description of the accounting policy
related to equity participation and other compensation
plans.
Mandatory sharebased compensation plans
Equity Ownership Plan (EOP): Certain employees receive a
portion of their annual performancerelated compensation,
which exceeds a certain threshold, in the form of an EOP
award of UBS shares, notional UBS shares, or of alternative
investment vehicles (AIVs)1 instead of cash, on a mandatory
basis. The awards granted in UBS shares or notional UBS
shares are settled by delivering UBS shares, except in coun
tries where this is not permitted for legal reasons. Awards
granted in the form of AIVs are settled in cash. The majority
of EOP awards continue to be granted in UBS shares and
notional UBS shares. EOP awards generally vest in onethird
increments over a threeyear vesting period. These awards
are generally forfeitable upon voluntary termination of em
ployment with UBS. Compensation expense for these awards
is generally recognized over the shorter of the legal vesting
period and the period from grant to the date the employee
satisfies certain retirement eligibility requirements. Compen
sation expense is recognized in the performance year if the
employee meets these retirement eligibility requirements at
the date of grant.
During 2009, UBS only granted EOP awards to certain
employees for which it had a contractual commitment.
During 2008, UBS granted to certain employees EOP
awards with a ninemonth vesting period. Compensation ex
pense for these awards was fully recognized in 2007.
Senior Executive Equity Ownership Plan (SEEOP): Senior
executives receive a portion of their performancerelated
compensation in UBS shares or notional UBS shares instead
of cash, on a mandatory basis. The awards granted in UBS
shares or notional UBS shares are settled by delivering UBS
shares. SEEOP awards generally vest in onefifth increments
over a fiveyear vesting period. These awards are forfeitable
if certain conditions are not met. Compensation expense for
1 Selected employees are granted a contingent right to receive a cash payment, the value of which
is based on the value of underlying investment funds, rather than the value of UBS’s equity.
all SEEOP awards is recognized during the performance year,
which is generally the period prior to the grant date.
During 2009, UBS only granted SEEOP awards to certain
employees for which it had a contractual commitment.
During 2008, UBS granted to certain employees SEEOP
awards with a ninemonth vesting period. Compensation ex
pense for these awards was fully recognized in 2007.
Mandatory deferred cash compensation plans
Conditional Variable Compensation Plan (CVCP): CVCP was
a onetime forward looking compensation plan under which
awards were granted to certain employees on a mandatory
basis in the second quarter of 2009. Under this plan, UBS
awarded a contingent right to receive cash payments at
vesting subject to forfeiture provisions. These awards are
generally forfeitable upon termination of employment with
UBS and additionally require profitability and recapitaliza
tion performance hurdles to be met in order for the awards
not to forfeit. The awards vest in onethird increments over
a threeyear vesting period. Compensation expense is rec
ognized over the shorter of the vesting period and the pe
riod from the service inception date to the retirement eligi
bility date of the employee. No further grants will be made
under this plan.
WMUS Partner Plus Plan: Wealth Management Americas
sponsors a compulsory deferred cash compensation plan for
selected eligible employees in the US. Under this plan, UBS
awards amounts based on a predefined formula during the
performance year. Participants are also allowed to voluntarily
contribute additional amounts earned during the year into
the plan up to a percentage of UBS’s contributions. The
amounts awarded earn an abovemarket rate of interest
during the initial fouryear period and a market rate of inter
est thereafter. Partner Plus awards vest in 20% increments 6
to 10 years after the grant date. The UBS contributions and
all interest earned are forfeitable in certain circumstances.
Compensation expense is recognized over the shorter of the
vesting period and the period from the performance year to
the date that the employee is eligible to leave UBS and retain
their award.
Cash Balance Plan (CBP): This plan applies to members of
the Group Executive Board and allows for a maximum pay
out of 60% of an executive’s variable cash incentive at the
beginning of the following year (subject to an additional
cashcap). A minimum of 40% of an executive’s cash incen
tive awarded for 2009 is deferred and paid out during the
two subsequent years subject to forfeiture, i.e. the entire
cash incentive is paid out over a threeyear period. The for
feiture provisions allow for unvested awards to be reduced
(including to nil) in certain events including termination for
341
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
a) Plans offered (continued)
cause, certain fi nancial losses, behavior that contributes sub
stantially to a material restatement of financial results or to
harm to UBS’s reputation, breaches of legal or regu latory re
quirements or of risk/compliance policies, and a number of
other events. Compensation expense is recognized in the
performance year, which is generally the year prior to the
grant date.
Discretionary sharebased compensation plans
Key Employee Stock Appreciation Rights Plan (KESAP) and
Key Employee Stock Option Plan (KESOP): Key and high po
tential employees may be granted discretionary sharesettled
Stock Appreciation Rights (SARs) or UBS options with a strike
price not less than the fair market value of a UBS share on
the date the SAR or option is granted. In certain cases, an
option or SAR may be granted at a higher strike price. A SAR
gives employees the right to receive such number of UBS
shares equal to the value of any appreciation in the market
price of a UBS share between the grant date and the exercise
date. One option gives the right to acquire one registered
UBS share at the option’s strike price.
KESAP and KESOP awards are settled by delivering UBS
shares, except in countries where this is not permitted for
legal reasons. Options granted prior to 2008 generally vest
in onethird increments over a threeyear vesting period and
generally expire ten years from the grant date. SARs2 and
options granted from 2008 onwards vest in full following a
threeyear vesting period and generally expire ten years from
the grant date. These awards are generally forfeitable upon
termination of employment with UBS. Compensation ex
pense is recognized over the shorter of the legal vesting pe
riod and the period from grant to the retirement eligibility
date of the employee.
Senior Executive Stock Appreciation Rights Plan (SESAP)
and Senior Executive Stock Option Plan (SESOP): senior ex
ecutives may be granted discretionary SARs or UBS options
with a strike price set at 110% of the fair market value of a
UBS share on the date the SAR or option is granted. A SAR
gives employees the right to receive such number of UBS
shares equal to the value of any appreciation over 110% of
the market price of a UBS share between grant date and the
exercise date. One option gives the right to acquire one reg
istered UBS share at the option’s strike price. SESAP and SES
OP awards are settled by delivering UBS shares. These awards
vest in full following a threeyear vesting period and gener
ally expire ten years from the grant date. These awards are
forfeitable if certain conditions are not met. Compensation
expense for all SESAP and SESOP awards is recognized dur
ing the performance year, which is generally the period prior
to the grant date. During 2009, UBS only granted SESOP
awards to certain employees for which it had a contractual
commitment.
Voluntary sharebased compensation plans
Equity Plus Plan (Equity Plus): This voluntary plan gives eligi
ble employees the opportunity to purchase UBS shares at fair
market value and generally receive at no additional cost two
UBS options for each share purchased, up to a maximum an
nual limit. Share purchases can be made annually from bo
nus compensation and / or quarterly based on regular de
ductions from salary. Shares purchased under Equity Plus are
restricted from sale for two years from the time of purchase.
The options have a strike price equal to the fair market value
of a UBS share on the date the option is granted, a twoyear
vesting period and generally expire ten years from the date
of grant. The options are forfeitable in certain circumstances
and are settled by delivering UBS shares, except in countries
where this is not permitted for legal reasons. Compensation
expense related to the UBS options is recognized over the
shorter of the legal vesting period and the period from grant
to the retirement eligibility date of the employee.
UBS satisfies share delivery obligations under its option
based and SARbased participation plans either by purchas
ing UBS shares in the market or through the issuance of new
shares. For UBS’s optionbased plans, shares held in treasury
or newly issued shares are delivered to the employee against
receipt of the strike price at exercise. Under its SARbased
plans, UBS does not receive payment of a strike price at ex
ercise but rather delivers to the employee shares held in trea
sury or newly issued shares equal to the difference between
the market value of a UBS share at exercise and the strike
price. As of 31 December 2009, UBS was holding approxi
mately 27.7 million shares in treasury and an additional 150
million unissued shares in conditional share capital, which
are available and can be used for future employee option
and SAR exercises. The shares available cover all vested (i.e.
exercisable) employee options and SARs.
Other plans
Executive Capital Accumulation Plan (ECAP): UBS sponsors a
voluntary deferred compensation plan for selected eligible
employees. Under this plan, participants are allowed to no
tionally invest a portion of their cash bonus in money market
funds, UBS and nonUBS mutual funds and other UBS spon
sored funds. No additional company match is granted, the
awards are generally not forfeitable and are settled in cash.
This plan does not result in compensation expense for UBS.
2 The first grants made under KESAP were in 2009.
342
Note 31 Equity participation and other compensation plans (continued)
b) Effect on income statement
Mandatory, discretionary and voluntary sharebased
compensation plans
The total sharebased compensation expense, including
amounts for AIVs granted under EOP, recognized for the
years ended 31 December 2009, 31 December 2008 and
31 December 2007 was CHF 913 million, negative CHF
94 million and CHF 3,173 million, respectively. For the years
ended 31 December 2009, 31 December 2008 and 31 De
cember 2007, the compensation expense recognized for
sharebased payments was primarily related to equitysettled
plans. At 31 December 2009, total compensation expense
related to nonvested mandatory, discretionary and volun
tary sharebased awards, including amounts for AIVs issued
under EOP, granted in 2009 and previous years which will be
recognized as an expense in the income statement from
2010 and later is CHF 832 million. This amount is expected
to be recognized in Personnel expenses over a weighted
average period of 3.6 years.
Payments to participants of cashsettled sharebased
plans, including amounts for AIVs granted under EOP, for
the years ended 31 December 2009, 31 December 2008 and
31 December 2007 were CHF 83 million, CHF 80 million and
CHF 42 million, respectively. The total carrying amount of
the liability related to these cashsettled plans amounted to
CHF 206 million as of 31 December 2009.
Mandatory deferred cash compensation plans
The total deferred cash compensation expense, related to
CBP and CVCP (as described in previous section), recognized
for the year ended 31 December 2009 was CHF 63 million.
At 31 December 2009, total compensation expense related
to CVCP awards granted in 2009 which will be recognized
as an expense in the income statement from 2010 and later
is CHF 570 million. This amount is expected to be recognized
in Personnel expenses over a weighted average period of
1.8 years.
c) UBS share awards
Movements in shares granted under the equity participation plans described in Note 31a) are as follows:
Forfeitable, at the beginning of the year
Shares awarded during the year
Distributions during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: shares vested for accounting purposes
Number of
shares
31.12.09
Weighted
average
grant date
fair value CHF
84,736,935
39,067,130
(31,293,824)
(5,621,615)
86,888,626
40,148,461
53
12
66
38
31
Weighted
average
grant date
fair value CHF
66
32
61
54
53
Number of
shares
31.12.08
59,102,580
90,895,594
(60,105,109)
(5,156,131)
84,736,935
65,767,017
Number of
shares
31.12.07
56,141,102
30,271,820
(25,031,819)
(2,278,523)
59,102,580
47,700,903
Weighted
average
grant date
fair value CHF
58
70
55
66
66
UBS measures compensation expense based on the average
market price of the UBS share on the grant date as quoted
on the SIX Swiss Exchange less a discount for postvesting
sale and hedge restrictions and nonvesting conditions, in
accordance with IFRS 2 Share-based Payment: Vesting Con-
ditions and Cancellations. The grant date fair value of no
tional UBS shares without dividend entitlements also in
cludes a deduction for the present value of future expected
dividends to be paid between grant date and distribution.
The fair value of the share awards subject to postvesting
sale and hedge restrictions is discounted based upon the
duration of the postvesting restriction and is referenced to
the cost of purchasing an atthemoney plain vanilla Euro
pean put option for the term of the transfer restriction. The
weighted average discount for share awards granted in
2009 is approximately 31.7% of the market price of the
UBS share. Discounts for nonvesting conditions are based
on the probability that the nonvesting conditions will be
achieved and the award will become exercisable. The fair
value of sharebased awards granted prior to 2008 was not
discounted for postvesting sale and hedge restrictions, as
there was no distinction between vesting and nonvesting
conditions until the IASB amended IFRS 2 Share-based Pay-
ment: Vesting Conditions and Cancellations. The market
value of shares legally vested was CHF 346 million, CHF
1,385 million, and CHF 1,737 million for the years ended
31 December 2009, 31 December 2008, and 31 December
2007, respectively.
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Financial information
Notes to the consolidated Financial information
Note 31 Equity participation and other compensation plans (continued)
d) UBS option awards
Movements in options granted under the equity participation plans described in Note 31a) are as follows:
Outstanding, at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
Number of
options
31.12.09
236,055,545
22,525,624
(48,241)
(7,245,512)
(22,663,530)
228,623,886
137,797,186
Weighted
average
exercise price
CHF 2
47
Number of
options
31.12.08 1
198,213,092
Weighted
average exercise
price CHF 1,2
52
Number of
options
31.12.07 1
188,393,473
Weighted
average exercise
price CHF 1,2
47
13
16
37
48
43
51
62,973,879
(3,673,657)
(6,732,080)
(14,725,689)
236,055,545
124,054,442
30
26
52
46
47
46
48,094,483
(34,331,511)
(3,650,942)
(292,411)
198,213,092
96,396,428
67
36
62
58
52
39
1 As a result of the rights offering in June 2008, UBS adjusted the number of options and exercise price for vested and unvested employee options which were unexercised at the date of the rights of-
fering. This was done to prevent any dilution impact to holders of these options. No additional compensation expense was recognized. This resulted in an increase to the number of options awarded in
2008 of 3,881,320 and an increase to the prior year outstanding balance of 2,400,143. 2 Some of the options in this table have exercise prices denominated in USD which have been converted into
CHF at the year-end spot exchange rate for the purposes of this table.
The weighted average share price at the time when the op
tions were exercised during the year was CHF 18, CHF 34,
and CHF 72 for the years ended 31 December 2009, 31 De
cember 2008, and 31 December 2007, respectively. The fol
lowing table provides additional information about option
awards:
Intrinsic value of options exercised during the year (CHF million)
Weighted average grant date fair value of options granted (CHF)
31.12.09
31.12.08
31.12.07
0.2
6.00
29
7.53
1,046
10.43
The following table summarizes additional information about options outstanding and options exercisable at 31 Decem
ber 2009:
Options outstanding
Options exercisable
Number of
options
outstanding
Weighted
average
exercise price
(CHF / USD)
Aggregate
intrinsic value
(CHF / USD
million)
Weighted
average
remaining
contractual
term (years)
Number of
options
exercisable
Weighted
average
exercise price
(CHF / USD)
Aggregate
intrinsic value
(CHF / USD
million)
Weighted
average
remaining
contractual
term (years)
Range of exercise price per share
CHF awards
10.21–15.00
15.01–25.00
25.01–35.00
35.01–45.00
45.01–55.00
55.01–65.00
65.01–75.00
10.21–75.00
USD awards
4.61–15.00
15.01–25.00
25.01–35.00
35.01–45.00
45.01–51.99
4.61–51.99
344
18,599,225
11,560,852
45,514,537
25,831,524
21,961,024
4,945,136
67,395,232
195,807,530
15,632
10,288,746
3,037,460
16,052,302
3,422,216
32,816,356
11.33
18.70
31.10
39.04
49.34
60.26
67.89
44.98
13.53
21.11
27.95
38.12
44.89
32.54
87.8
1.8
0.0
0.0
0.0
0.0
0.0
9.1
9.3
7.3
5.0
5.4
7.0
6.7
2,001
93,767
8,319,508
16,931,901
21,539,533
4,509,038
53,616,749
89.6
6.9 105,012,497
0.0
0.0
0.0
0.0
0.0
0.0
0.3
2.7
3.7
4.8
5.4
15,632
10,268,746
3,037,355
16,040,740
3,422,216
4.1
32,784,689
14.47
20.07
28.31
40.58
49.26
59.96
67.27
55.83
13.53
21.11
27.95
38.12
44.89
32.54
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
8.9
8.7
3.4
3.3
5.3
6.9
6.6
5.6
0.3
2.7
3.7
4.8
5.4
4.1
Note 31 Equity participation and other compensation plans (continued)
e) UBS SAR awards
Movements in SARs granted under the equity participation plans described in Note 31a) are as follows:
Outstanding, at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Expired unexercised
Outstanding, at the end of the year
Exercisable, at the end of the year
Number of rights
Weighted average
31.12.09
exercise price (CHF)
0
66,126,830
0
(5,219,655)
0
60,907,175
4,000,000
0
12
0
11
0
12
10
The following table summarizes additional information about SARs outstanding at 31 December 2009.
Range of exercise price per SAR
CHF awards
9.35–12.50
12.51–15.00
15.01–17.50
17.51–20.00
37.51– 40.00
9.35– 40.00
SARs outstanding
Number of SARs
outstanding
Weighted average
exercise price (CHF)
Aggregate
intrinsic value (CHF)
Weighted average
remaining contractual
term (years)
59,273,505
53,410
268,330
406,930
905,000
60,907,175
11.26
14.57
16.47
19.25
40.00
11.77
283.9
0.1
0.0
0.0
0.0
284.0
8.8
9.5
9.5
9.7
9.2
8.8
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Financial information
Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
f) Valuation
The fair value of options and SARs (instruments) is deter
mined by means of a Monte Carlo simulation. The simula
tion technique uses a mix of implied and historic volatility
and specific employee exercise behavior patterns based on
statistical data, taking into account the specific terms and
conditions under which the instruments are granted, such as
the vesting period, forced exercises during the lifetime, and
gain and timedependent exercise behavior. The expected
term of each instrument is calculated as the probability
weighted average period of the time between grant and ex
ercise. The term structure of volatility is derived from the im
plied volatilities of traded UBS options in combination with
the observed longterm historic share price volatility. Expect
ed future dividends are derived from the historical dividend
pattern.
The fair value of options and SARs granted in 2009 and
the fair value of options granted in 2008 and 2007 was de
termined using the following assumptions:
CHF awards
48.22
2.16
0.27
11.88
11.64
CHF awards
33.86
2.83
1.85
30.11
28.05
CHF awards
23.86
2.58
3.13
71.31
70.25
31.12.09
range low
40.91
1.50
0.00
9.35
9.35
31.12.08
range low
30.00
1.74
1.10
14.47
14.47
31.12.07
range low
22.51
2.46
2.20
55.48
55.48
range high
53.47
2.57
0.29
40.00
19.27
range high
49.32
3.27
2.57
46.02
43.61
range high
29.23
3.27
4.56
78.80
78.80
Expected volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Strike price (CHF)
Share price (CHF)
Expected volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Strike price (CHF)
Share price (CHF)
Expected volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Strike price (CHF) 1
Share price (CHF) 1
1 Not adjusted for stock dividend and rights offering in 2008.
346
Note 32 Related parties
The Group defines related parties as associated companies
(entities which are controlled or significantly influenced by
UBS), postemployment benefit plans for the benefit of
UBS employees, key management personnel, close family
members of key management personnel and entities which
are, directly or indirectly, controlled or jointly controlled
by key management personnel or their close family mem
bers. Key management personnel is defined as members of
the Board of Directors (BoD) and Group Executive Board
(GEB). This definition is based on the revised requirements
of IAS 24 Related Party Disclosures issued in November
2009.
a) Remuneration of key management personnel
The nonindependent members of the BoD have top man
agement employment contracts and receive pension bene
fits upon retirement. Total remuneration of the noninde
pendent members of the BoD, and GEB including those who
stepped down during, 2009 1 is as follows:
CHF million
Base salaries and other cash payments
Incentive awards – cash
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity compensation benefits 2
Total
31.12.09
31.12.08
31.12.07
16
64
2
1
29
112
12
0
2
1
0
15
14
38
2
2
22
78
1 During 2009, Marcel Rohner, Jerker Johansson, Raoul Weil, Walter H. Stürzinger, Rory Tapner, and Marten Hoekstra stepped down from the GEB. The total awards of approximately CHF 39 million are heavily
influenced by contractual obligations. 2 Expense for shares and options granted is measured at grant date and allocated over the vesting period, generally 3 years for options and 5 years for shares.
Peter Kurer, former Chairman of the BoD, did not stand for
reelection at the AGM on 15 April 2009, and retired from
UBS as of April 2009. He received his base salary until the
termination date of 30 April 2009. For ongoing advisory re
quirements and assistance in the handover to his successor,
Peter Kurer received a flat salary of CHF 1,000,000. For
2009, as was the case for 2007 and 2008, he did not receive
any discretionary incentive or fixed share awards. After as
sessing his tenure as Chairman and the specific organiza
tional transition requirements, the Human Resources and
Compensation Committee (HRCC) deemed it appropriate to
approve a onetime contribution of CHF 3,332,000 into the
UBS pension fund on his behalf to cover the deficit in his
pension fund.
Marcel Rohner stepped down as Group CEO on 26 Febru
ary 2009. In honoring the twelvemonth notice period of his
contract, he received his annual salary of CHF 1,500,000. For
2009, as also for 2008, he did not receive any discretionary
incentive awards. After assessing his tenure as Group CEO
and the specific organizational transition requirements, the
HRCC deemed it appropriate to approve a onetime contri
bution of CHF 1,200,000 into the UBS pension fund on his
behalf to cover the deficit in his pension fund.
The independent members of the BoD do not have em
ployment or service contracts with UBS, and thus are not
entitled to benefits upon termination of their service on the
BoD. Payments to these individuals for their services as exter
nal board members amounted to CHF 6.4 million in 2009,
CHF 6.4 million in 2008 and CHF 5.7 million in 2007.
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Financial information
Notes to the consolidated financial statements
Note 32 Related parties (continued)
b) Equity holdings
Number of stock options from equity participation plans held by non-independent members of the BoD
and the GEB 1
Number of shares held by members of the BoD, GEB and parties closely linked to them
1 Further information about UBS’s equity participation plans can be found in Note 31.
31.12.09
31.12.08
31.12.07
9,410,280
4,180,154
8,458,037
5,869,952
6,828,152
6,693,012
Of the share totals above, at 31 December 2009, 31 Decem
ber 2008 and 31 December 2007, 0 shares, 15,878 shares
and 4,852 shares, respectively, were held by close family
members of key management personnel and 0 shares,
103,841 shares and 2,200,000 shares, respectively, were
held by entities which are directly or indirectly controlled or
jointly controlled by key management personnel or their
close family members. Further information about UBS’s
equity participation plans can be found in Note 31. No mem
ber of the BoD or GEB is the beneficial owner of more than
1% of the Group’s shares at 31 December 2009.
c) Loans, advances and mortgages to key management personnel
Nonindependent members of the BoD and GEB members
have been granted loans, fixed advances and mortgages on
the same terms and conditions that are available to other
employees, based on terms and conditions granted to third
parties adjusted for reduced credit risk. Independent BoD
members are granted loans and mortgages at general mar
ket conditions.
Movements in the loan, advances and mortgage balances
are as follows:
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
31.12.09
31.12.08
11
12
(5)
18
15
8
(12)
11
No unsecured loans were granted to key management personnel as of 31 December 2009 and 31 December 2008.
d) Associated companies
CHF million
Balance at the beginning of the year
Additions
Reductions
Credit loss (expense) / recovery
Foreign currency translation
Balance at the end of the year
of which: unsecured loans
of which: allowances for credit losses
All loans to associated companies are transacted at arm’s length.
31.12.09
31.12.08
301
295
(222)
(1)
0
373
42
1
220
171
(77)
0
(13)
301
82
3
348
Note 32 Related parties (continued)
d) Associated companies (continued)
Other transactions with associated companies transacted at arm’s length are as follows:
CHF million
Payments to associates for goods and services received
Fees received for services provided to associates
Commitments and contingent liabilities to associates
Note 34 provides a list of significant associates.
e) Other related party transactions
During 2008 and 2007, UBS entered into transactions at
arm’s length with entities which are directly or indirectly con
trolled or jointly controlled by UBS’s key management per
sonnel or their close family members. In 2009, UBS did not
enter into any such transactions. The 2008 and 2007 num
bers included into the table below have been restated to
reflect the revised guidance in IAS 24 Related Party Disclo-
sures. Refer to Note 1b for details.
Movements in loans to other related parties are as follows:
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year 1
As of or for the year ended
31.12.09
31.12.08
31.12.07
130
2
156
90
6
40
87
20
33
In 2008 these entities included: Aebi + Co. AG (Switzer
land), Kedge Capital Selected Funds Ltd. (Jersey), Löwenfeld
AG (Switzerland), Martown Trading Ltd. (Isle of Man), Ome
ga Fund I Ltd (Jersey), Omega Fund IV Ltd (Jersey), Stadler
Rail Group (Switzerland), Team Alinghi (Switzerland) and
Team Alinghi (Spain).
31.12.09
31.12.08
31.12.07
6
0
(6)
0
158
0
(152)
6
539
77
(458)
158
1 In 2009 includes loans, guarantees and contingent liabilities of CHF 0 million and unused committed facilities of CHF 0 million but excludes unused uncommitted working capital facilities and unused
guarantees of CHF 0 million. In 2008 includes loans, guarantees and contingent liabilities of CHF 6 million and unused committed facilities of CHF 0 million but excludes unused un committed working
capital facilities and unused guarantees of CHF 320 million. In 2007 includes loans, guarantees and contingent liabilities of CHF 158 million and unused committed facilities of CHF 0 million but excludes
unused uncommitted working capital facilities and unused guarantees of CHF 57 million.
Other transactions with these related parties include:
CHF million
Goods sold and services provided to UBS
Fees received for services provided by UBS
31.12.09
31.12.08
31.12.07
0
0
1
11
8
6
As part of its sponsorship of Team Alinghi, UBS paid CHF
828,090 (EUR 538,000) in basic sponsoring fees for 2008.
Team Alinghi’s controlling shareholder is UBS former Board
member Ernesto Bertarelli.
f) Additional information
UBS also engages in trading and risk management activities
(e.g. swaps, options, forwards) with various related parties
mentioned in previous sections. These transactions may give
rise to credit risk either for UBS or for a related party towards
UBS. As part of its normal course of business, UBS is also a
market maker in equity and debt instruments and at times
may hold positions in instruments of related parties.
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Financial information
Notes to the consolidated financial statements
Note 33 Events after the reporting period
In January 2010, UBS closed the sale of its investments in
several associated entities owning office space in New York.
A significant portion of the office space is leased by UBS
Group until 2018. The sales price is USD 180 million, with a
resulting gain on sale of approximately USD 173 million,
which will be recognized in 2010.
There have been no further material events after the re
porting period which would require disclosure or adjustment
to the 31 December 2009 Financial Statements.
On 4 March 2010, the Board of Directors reviewed
the financial statements and authorized them for issue.
These financial statements will be submitted to the Annual
General Meeting of Shareholders on 14 April 2010 for
approval.
Note 34 Significant subsidiaries and associates
The legal entity group structure of UBS is designed to sup
port the Group’s businesses within an efficient legal, tax,
regulatory and funding framework. Neither the business di
visions of UBS (namely Investment Bank, Wealth Manage
ment Americas, Wealth Management & Swiss Bank and
Global Asset Management) nor Corporate Center are repli
cated in their own individual legal entities, but rather they
generally operate out of UBS AG (Parent Bank) through its
Swiss and foreign branches.
The Parent Bank structure allows UBS to use one legal
platform for all the business divisions.
Where, usually due to local legal, tax or regulatory rules
or due to additional legal entities joining the UBS Group via
acquisition, it is either not possible or not efficient to operate
out of the Parent Bank, then local subsidiary companies host
the businesses. The significant operating subsidiary compa
nies in the Group are listed below:
Significant subsidiaries
Company
Caisse Centrale de Réescompte
CCR Asset Management S.A.
Fondcenter AG
OOO UBS Bank
PT UBS Securities Indonesia
Topcard Service AG
UBS (Bahamas) Ltd.
UBS (France) S.A.
UBS (Grand Cayman) Limited
UBS (Italia) S.p.A.
UBS (Luxembourg) S.A.
UBS (Luxembourg) SA Austria Branch
UBS (Monaco) S.A.
Jurisdiction of incorporation
Paris, France
Paris, France
Zurich, Switzerland
Moscow, Russia
Jakarta, Indonesia
Glattbrugg, Switzerland
Nassau, Bahamas
Paris, France
Business division 1
Global AM
Global AM
Global AM
IB
IB
WM&SB
WM&SB
WM&SB
George Town, Cayman Islands
IB
Milan, Italy
Luxembourg, Luxembourg
Vienna, Austria
Monte Carlo, Monaco
UBS Alternative and Quantitative Investments Limited
London, Great Britain
UBS Alternative and Quantitative Investments LLC
UBS Americas Inc
UBS Asesores SA
UBS Bank (Canada)
UBS Bank Mexico, S.A. Institucion de Banca Multiple,
UBS Grupo Financiero
UBS Bank USA
UBS Bank, S.A.
UBS Belgium SA/NV
UBS Capital Securities (Jersey) Limited
Delaware, USA
Delaware, USA
Panama, Panama
Toronto, Canada
Mexico City, Mexico
Utah, USA
Madrid, Spain
Brussels, Belgium
St. Helier, Jersey
WM&SB
WM&SB
WM&SB
WM&SB
Global AM
Global AM
IB
WM&SB
WMA
IB
WMA
WM&SB
WM&SB
CC
Share capital in
millions
Equity interest
accumulated in %
EUR
EUR
CHF
RUB
IDR
CHF
USD
EUR
USD
EUR
CHF
CHF
EUR
GBP
USD
USD
USD
CAD
MXN
USD
EUR
EUR
EUR
5.0
4.8
0.1
1,250.0
118,000.0
0.2
4.0
125.7
25.0
60.0
150.0
0.0
9.2
0.3
0.1
0.0
0.0
8.5
706.4
1,880.0 2
82.2
23.0
0.0
100.0
100.0
100.0
100.0
98.6
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
1 WMA: Wealth Management Americas, WM&SB: Wealth Management & Swiss Bank, Global AM: Global Asset Management, IB: Investment Bank, CC: Corporate Center. 2 Share capital and share premium.
350
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued)
Company
UBS Card Center AG
UBS Casa de Bolsa, S.A. de C.V.
UBS Convertible Securities (Jersey) Limited
UBS Custody Services Singapore Pte. Ltd.
UBS Derivatives Hong Kong Limited
UBS Deutschland AG
UBS Fiduciaria S.p.A.
UBS Finance (Curação) N.V.
UBS Finance (Delaware) LLC
UBS Financial Services Inc.
Jurisdiction of incorporation
Glattbrugg, Switzerland
Business division 1
WM&SB
Mexico City, Mexico
St. Helier, Jersey
Singapore, Singapore
Hong Kong, China
Frankfurt am Main, Germany
Milan, Italy
Willemstad, Netherlands Antilles
Delaware, USA
Delaware, USA
UBS Financial Services Incorporated of Puerto Rico
Hato Rey, Puerto Rico
UBS Fund Advisor, L.L.C.
UBS Fund Holding (Luxembourg) S.A.
UBS Fund Holding (Switzerland) AG
UBS Fund Management (Switzerland) AG
UBS Fund Services (Cayman) Ltd
UBS Fund Services (Ireland) Limited
Delaware, USA
Luxembourg, Luxembourg
Basel, Switzerland
Basel, Switzerland
George Town, Cayman Islands
Dublin, Ireland
UBS Fund Services (Luxembourg) S.A.
Luxembourg, Luxembourg
UBS Fund Services (Luxembourg) S.A. Poland Branch
Zabierzow, Poland
UBS Futures Singapore Ltd.
UBS Global Asset Management (Americas) Inc
UBS Global Asset Management (Australia) Ltd
UBS Global Asset Management (Canada) Co
Singapore, Singapore
Delaware, USA
Sydney, Australia
Toronto, Canada
UBS Global Asset Management (Deutschland) GmbH
Frankfurt am Main, Germany
UBS Global Asset Management (Hong Kong) Limited
Hong Kong, China
UBS Global Asset Management (Italia) SGR SpA
UBS Global Asset Management (Japan) Ltd
Milan, Italy
Tokyo, Japan
UBS Global Asset Management (Singapore) Ltd
Singapore, Singapore
UBS Global Asset Management (Taiwan) Ltd
Taipei, Taiwan
UBS Global Asset Management (UK) Ltd
UBS Global Asset Management (US) Inc
UBS Global Asset Management Funds Ltd
UBS Global Asset Management Holding Ltd
UBS Global Asset Management Life Ltd
UBS Global Life AG
UBS Global Trust Corporation
UBS Hana Asset Management Company Ltd
UBS Hypotheken AG
UBS International Holdings B.V.
UBS International Life Limited
UBS Investment Management Canada Inc.
UBS Investments Philippines, Inc.
UBS Italia SIM SpA
UBS Leasing AG
UBS Life AG
UBS Life Insurance Company USA
UBS Limited
UBS Loan Finance LLC
UBS Menkul Degerler AS
London, Great Britain
Delaware, USA
London, Great Britain
London, Great Britain
London, Great Britain
Vaduz, Liechtenstein
St. John, Canada
Seoul, South Korea
Zurich, Switzerland
Amsterdam, the Netherlands
Dublin, Ireland
Toronto, Canada
Makati City, Philippines
Milan, Italy
Zurich, Switzerland
Zurich, Switzerland
California, USA
London, Great Britain
Delaware, USA
Istanbul, Turkey
Share capital in
millions
Equity interest
accumulated in %
CHF
MXN
CHF
SGD
HKD
EUR
EUR
USD
USD
USD
USD
USD
CHF
CHF
CHF
USD
EUR
CHF
PLN
USD
USD
AUD
CAD
EUR
HKD
EUR
JPY
SGD
TWD
GBP
USD
GBP
GBP
GBP
CHF
CAD
KRW
CHF
EUR
EUR
CAD
PHP
EUR
CHF
CHF
USD
GBP
USD
TRY
0.1
114.9
50.0
5.5
880.0
176.0
0.2
0.1
37.3 2
3,505.8 2
31.0 2
0.0 2
42.0
18.0
1.0
5.6
1.3
2.5
0.1
39.8 2
0.0
8.0
117.0 2
7.7
25.0
5.1
2,200.0
4.0
340.0
93.0
17.2 2
26.0
109.4
5.0
5.0
0.1
45,000.0
0.1
6.8
1.0
0.0
360.0
15.1
10.0
25.0
39.3 2
63.3
16.7 2
30.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
98.0
100.0
100.0
100.0
99.4
100.0
100.0
100.0
100.0
100.0
100.0
100.0
IB
CC
WM&SB
IB
WM&SB
WM&SB
CC
IB
WMA
WMA
WMA
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
CC
IB
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
Global AM
WM&SB
WM&SB
Global AM
WM&SB
CC
WM&SB
WMA
IB
IB
WM&SB
WM&SB
WMA
IB
IB
IB
1 WMA: Wealth Management Americas, WM&SB: Wealth Management & Swiss Bank, Global AM: Global Asset Management, IB: Investment Bank, CC: Corporate Center. 2 Share capital and share premium.
351
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Financial information
Notes to the consolidated financial statements
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued)
Company
UBS New Zealand Limited
UBS O’Connor Limited
UBS O’Connor LLC
UBS Preferred Funding (Jersey) Limited
UBS Preferred Funding Company LLC I
UBS Preferred Funding Company LLC II
UBS Preferred Funding Company LLC IV
UBS Preferred Funding Company LLC V
UBS Real Estate Kapitalanlagegesellschaft mbH
UBS Real Estate Securities Inc
UBS Realty Investors LLC
Jurisdiction of incorporation
Auckland, New Zealand
London, Great Britain
Delaware, USA
St. Helier, Jersey
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Munich, Germany
Delaware, USA
Massachusetts, USA
UBS Sauerborn Private Equity Komplementär GmbH
Bad Homburg, Germany
Business division 1
IB
Global AM
Global AM
CC
CC
CC
CC
CC
Global AM
IB
Global AM
WM&SB
UBS Securities (Thailand) Ltd
UBS Securities Asia Limited
UBS Securities Australia Ltd
UBS Securities Canada Inc
UBS Securities España Sociedad de Valores SA
UBS Securities France S.A.
UBS Securities Hong Kong Limited
UBS Securities India Private Limited
UBS Securities International Limited
UBS Securities Japan Ltd
UBS Securities LLC
UBS Securities Malaysia Sdn. Bhd.
UBS Securities Philippines Inc
UBS Securities Pte. Ltd.
UBS Securities Pte. Ltd. Seoul Branch
UBS Service Centre (Poland) Sp. z o.o.
UBS South Africa (Proprietary) Limited
UBS Swiss Financial Advisers AG
UBS Trust Company National Association
UBS Trustees (Bahamas) Ltd
UBS Trustees (Cayman) Ltd
UBS Trustees (Jersey) Ltd.
UBS Trustees (Singapore) Ltd
UBS UK Properties Limited
UBS Wealth Management (UK) Ltd
UBS Wealth Management Australia Ltd
Vermogens Advies Holding B.V.
Bangkok, Thailand
Hong Kong, China
Sydney, Australia
Toronto, Canada
Madrid, Spain
Paris, France
Hong Kong, China
Mumbai, India
London, Great Britain
George Town, Cayman Islands
Delaware, USA
Kuala Lumpur, Malaysia
Makati City, Philippines
Singapore, Singapore
Seoul, South Korea
Krakow, Poland
Sandton, South Africa
Zurich, Switzerland
New York, USA
Nassau, Bahamas
George Town, Cayman Islands
St. Helier, Jersey
Singapore, Singapore
London, Great Britain
London, Great Britain
Melbourne, Australia
Amsterdam, the Netherlands
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
IB
CC
IB
WM&SB
WMA
WM&SB
WM&SB
WM&SB
WM&SB
IB
WM&SB
WM&SB
WM&SB
Share capital in
millions
Equity interest
accumulated in %
NZD
GBP
USD
EUR
USD
USD
USD
USD
EUR
USD
USD
EUR
THB
HKD
AUD
CAD
EUR
EUR
HKD
INR
GBP
JPY
USD
MYR
PHP
SGD
KRW
PLN
ZAR
CHF
USD
USD
USD
GBP
SGD
GBP
GBP
AUD
EUR
7.5
8.8
1.0
0.0
0.0
0.0
0.0
0.0
7.5
1,300.4
9.3
0.0
400.0
20.0
209.8 2
10.0
15.0
22.9
430.0
140.0
18.0
60,000.0
22,205.6 2
80.0
190.0
311.5
150,000.0
0.1
0.0
1.5
105.0 2
2.0
2.0
0.0
3.3
132.0
2.5
53.9
0.3
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1 WMA: Wealth Management Americas, WM&SB: Wealth Management & Swiss Bank, Global AM: Global Asset Management, IB: Investment Bank, CC: Corporate Center. 2 Share capital and share premium.
352
Note 34 Significant subsidiaries and associates (continued)
Changes in the consolidation scope 2009
Newly significant, fully consolidated companies
Topcard Service AG – Glattbrugg, Switzerland
UBS (Luxembourg) SA Austria Branch – Vienna, Austria
UBS Capital Securities (Jersey) Limited – St. Helier, Jersey
UBS Casa de Bolsa, S.A. de C.V. – Mexico City, Mexico
UBS Custody Services Singapore Pte. Ltd. – Singapore, Singapore
UBS Hypotheken AG – Zurich, Switzerland
UBS Preferred Funding (Jersey) Limited – St. Helier, Jersey
Significant deconsolidated companies
Banco UBS Pactual S.A. – Rio de Janeiro, Brazil
CCR Actions S.A. – Paris, France
CCR Gestion S.A. – Paris, France
UBS Factoring AG – Zurich, Switzerland
UBS Finance (Cayman Islands) Ltd. – George Town, Cayman Islands
UBS International Inc. – Delaware, USA
UBS Pactual Asset Management S.A. DTVM – Rio de Janeiro, Brazil
UBS Service Centre (India) Private Limited – Mumbai, India
UBS Services USA LLC – Delaware, USA
Significant associates
Company
SIX Group AG – Zurich, Switzerland 1
UBS Securities Co. Limited – Beijing, China
1 UBS is represented in the Board of Directors.
Reason for deconsolidation
Sold
Merged
Merged
Merged
Liquidated
Merged
Sold
Sold
Merged
Industry
Financial
Financial
Equity interest in %
17.3
20.0
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353
Financial information
Notes to the consolidated financial statements
Note 35 Invested assets and net new money
Invested assets include all client assets managed by or de
posited with UBS for investment purposes. Invested assets
include managed fund assets, managed institutional assets,
discretionary and advisory wealth management portfolios,
fiduciary deposits, time deposits, savings accounts and
wealth management securities or brokerage accounts. All
assets held for purely transactional purposes and custody
only assets, including corporate client assets held for cash
management and transactional purposes, are excluded from
invested assets as the Group only administers the assets and
does not offer advice on how the assets should be invested.
Also excluded are nonbankable assets (e.g. art collections)
and deposits from thirdparty banks for funding or trading
purposes.
Discretionary assets are defined as client assets which UBS
decides how to invest. Other invested assets are those where
the client ultimately decides how the assets are invested.
When a single product is created in one business division
and sold in another, it is counted in both the business divi
sion that manages the investment and the one that distrib
utes it. This results in double counting within UBS total in
vested assets, as both business divisions are providing a
service independently to their respective clients, and both
add value and generate revenue.
Net new money in a period is the net amount of invested
assets that are entrusted to UBS by new and existing clients
less those withdrawn by existing clients and clients who ter
minated their relationship with UBS.
Net new money is calculated using the direct method, by
which inflows and outflows to / from invested assets are de
termined at the client level based on transactions. Interest
and dividend income from invested assets is not counted as
net new money inflow. Market and currency movements, as
well as fees, commissions and interest on loans charged are
excluded from net new money, as are the effects resulting
from any acquisition or divestment of a UBS subsidiary or
business. Reclassifications between invested assets and cli
ent assets as a result of a change in the service level delivered
are treated as net new money flows.
CHF billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets (double counts included)
of which: double count
of which: acquisitions (divestments)
Net new money (double counts included)
As of or for the year ended
31.12.09
31.12.08
319
590
1,325
2,233
254
(48.2)
(147.3)
339
528
1,307
2,174
273
19.1
(226.0)
354
Note 36 Business combinations
Business combinations completed in 2009
Acquisition of the commodity index business of
AIG Financial Products Corp.
In May 2009, UBS completed the acquisition of the com
modity index business of AIG Financial Products Corp., in
cluding AIG’s rights to the DJAIG Commodity index. This
commodity index business comprises a product platform of
commodity index swaps and funded notes based on the
benchmark Dow JonesAIG Commodity Index (DJAIGCI).
The cost of the business combination, including directly at
tributable transaction costs, amounted to CHF 74 million
(USD 65 million) of which CHF 17 million (USD 15 million)
was paid in cash upon closing. The remaining payments,
based upon future earnings of the purchased business, are
expected to be made by September 2010. The cost of the
business combination was allocated to Intangible assets of
CHF 40 million (USD 35 million) and Goodwill of CHF 34 mil
lion (USD 30 million). The business of AIG was integrated
into UBS’s Investment Bank.
AIG Commodity Index 2009
CHF million
Assets
Intangible assets
Goodwill
All other assets
Total assets
Liabilities and equity
Liabilities
Equity
Total liabilities and equity
Book value
Step-up to fair value
Fair value
0
0
598
598
598
0
598
40
34
0
74
0
74
74
40
34
598
672
598
74
672
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355
Financial information
Notes to the consolidated financial statements
Note 36 Business combinations (continued)
Business combinations completed in 2008
Caisse Centrale de Réescompte Group
In February 2008, UBS completed the acquisition in France
of 100% of Caisse Centrale de Réescompte Group (CCR)
from Commerzbank. The cost of the business combination,
including directly attributable transaction costs, amounted
to approximately CHF 613 million (EUR 387 million) and was
paid in cash. The cost of the business combination included
approximately EUR 133 million for the excess capital in CCR
at closing. The cost of the business combination has been
allocated to Intangible assets reflecting customer relation
ships of CHF 36 million (EUR 23 million), net assets of CHF
209 million (EUR 131 million) and Goodwill of CHF 368 mil
lion (EUR 233 million). The business of CCR, which included
EUR 13.3 billion of invested assets as of 31 December 2007
and approximately 190 employees, was integrated into
UBS’s asset management and wealth management business
es in France.
Caisse Centrale de Réescompte Group (CCR) 2008
CHF million
Assets
Intangible assets
Property and equipment
Goodwill
All other assets
Total assets
Liabilities and equity
Liabilities
Equity
Total liabilities and equity
Book value
Step-up to fair value
Fair value
0
5
0
513
518
297
221
518
36
0
368
1
405
13
392
405
36
5
368
514
923
310
613
923
In 2009, the allocations were finalized and the intangible assets and goodwill were allocated to the divisions as follows:
Caisse Centrale de Réescompte Group (CCR) 2008
Wealth Management &
Swiss Bank
Global Asset
Management
10
33
26
335
Total
36
368
CHF million
Assets
Intangible assets
Goodwill
356
Note 36 Business combinations (continued)
VermogensGroep
In August 2008, UBS completed the acquisition of 100% of
VermogensGroep, an independent Dutch wealth manager.
The cost of the business combination, including directly at
tributable transaction costs, amounted to approximately
CHF 173 million (EUR 107 million) out of which approxi
mately CHF 81 million (EUR 50 million) was paid in cash
upon closing. The remaining cost of the business combina
tion is expected to be paid in installments over 3 years. The
cost of the business combination was allocated to Intangi-
ble assets of CHF 49 million (EUR 30 million), Net liabilities
of CHF 2.1 million (EUR 1.3 million) and Goodwill of CHF
126 million (EUR 78 million). VermogensGroep serve
wealthy private clients, foundations and institutions in the
Dutch market and managed client assets of approximately
EUR 4 billion at the time of the transaction. Vermogens
Groep was integrated into UBS’s wealth management
business.
VermogensGroep 2008
CHF million
Assets
Intangible assets
Property and equipment
Goodwill
All other assets
Total assets
Liabilities and equity
Liabilities
Equity
Total liabilities and equity
Book value
Step-up to fair value
Fair value
0
2
0
10
12
2
10
12
49
0
126
0
175
12
163
175
49
2
126
10
187
14
173
187
Pro-forma information (unaudited)
The following proforma information shows UBS’s total op
erating income, net profit attributable to UBS shareholders
and basic earnings per share as if all of the acquisitions com
pleted in 2009 had been made as of 1 January 2008 and all
acquisitions completed in 2008 had been made as of 1 Janu
ary 2007. Adjustments have been made to reflect additional
amortization and depreciation of assets and liabilities, which
have been assigned fair values different from their carryover
bases in purchase accounting.
Pro-forma information (unaudited)
CHF million, except where indicated
Total operating income
Net profit
Basic earnings per share (CHF)
31.12.09
22,606
(2,737)
(0.75)
For the year ended
31.12.08
910
(21,251)
(7.61)
31.12.07
31,932
(5,233)
(2.40)
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357
Financial information
Notes to the consolidated financial statements
Note 37 Discontinued operations
2009
2007
In 2009, private equity investments sold in prior years con
tributed a subsequent loss of CHF 7 million to UBS’s net prof
it from discontinued operations.
2008
Industrial holdings
In 2008, private equity investments, including the sale of one
equity investment and subsequent gains on private equity
investments sold in prior years, contributed CHF 155 million
to UBS’s net profit from discontinued operations, which in
cluded aftertax gains on sale of CHF 120 million and an af
tertax operating profit of CHF 34 million. The cash consider
ation received for the equity investment sold in 2008
amounted to CHF 141 million. These private equity invest
ments were held within the Industrial Holdings segment, in
tegrated within the Corporate Center since the beginning of
2008, and were sold in line with UBS’s strategy to exit the
private equity business.
Industrial holdings
In 2007, private equity investments, including the sale of
two private equity investments, as well as subsequent gains
on private equity investments sold in prior years, contributed
CHF 138 million to UBS’s net profit from discontinued opera
tions, which included aftertax gains on sale of CHF 102 mil
lion and an aftertax operating profit of CHF 36 million. The
cash consideration received for the two investments sold in
2007 amounted to CHF 14 million. These private equity in
vestments were all held within the Industrial Holdings seg
ment and were sold in line with UBS’s strategy to exit the
private equity business.
Private Banks & GAM
The tax benefit on gain from sales of CHF 258 million in
cludes the release of a deferred tax liability of approximately
CHF 275 million to the profit and loss account, which was
recognized upon the sale of UBS’s 20.7% stake in Julius Baer
in 2007. This deferred tax liability had been recognized in
connection with the receipt of Julius Baer shares on the sale
of Private Banks & GAM in December 2005, but was not ul
timately incurred due to the manner of realization of the
Julius Baer investment. The tax expense from the recognition
of the deferred tax liability was booked in discontinued op
erations in 2005, and therefore the release has also been
reflected in discontinued operations.
358
Note 37 Discontinued operations (continued)
CHF million
Operating income
Operating expenses
Operating profit from discontinued operations before tax
Pre-tax gain on sale
Profit from discontinued operations before tax
Tax expense on operating profit from discontinued operations before tax
Tax expense on gain from sale
Tax expense from discontinued operations
Net profit from discontinued operations
Net cash flows from
operating activities
investing activities
financing activities
For the year ended 31.12.08
Private Banks & GAM 1,2
0
0
0
44
44
0
1
1
43
0
0
0
Industrial Holdings 2
19
(15)
34
120
155
0
0
0
155
(1)
3
0
1 Gain resulting from a purchase price adjustment related to the sale of Private Banks & GAM in 2005. 2 Included in Corporate Center in Note 2a.
CHF million
Operating income
Operating expenses
Operating profit from discontinued operations before tax
Pre-tax gain on sale
Profit from discontinued operations before tax
Tax expense on operating profit from discontinued operations before tax
Tax expense on gain from sale
Tax expense from discontinued operations
Net profit from discontinued operations
Net cash flows from
operating activities
investing activities
financing activities
1 Included in Corporate Center in Note 2a.
For the year ended 31.12.07
Private Banks & GAM 1
0
Industrial Holdings 1
394
0
0
7
7
0
(258)
(258)
265
0
0
0
358
36
102
138
0
0
0
138
32
(1)
(42)
359
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Financial information
Notes to the consolidated financial statements
Note 38 Reorganizations and disposals
Sale of UBS Pactual
On 18 September 2009, UBS completed the sale of its Bra
zilian financial services business, UBS Pactual, to BTG Invest
ments, LP. The sale consideration consisted of a combina
tion of cash and transfer of liabilities by BTG Investments.
The total cash consideration amounted to USD 620 million,
of which USD 420 million was paid at closing of the trans
action and the remaining USD 200 million, plus accrued in
terest, will be payable 12 months after the closing. The lia
bilities transferred to BTG Investments consisted primarily of
the present value of the residual payment obligation of USD
1.6 billion owed to former Pactual partners, which was in
curred by UBS upon acquisition of Pactual in 2006 and was
due in 2011.
Overall, the impact of the transaction on UBS’s profit
before tax was a net charge of CHF 1,403 million, including
a goodwill impairment charge of CHF 1,123 million and a
pretax loss on sale of CHF 498 million reported in the Cor
porate Center, partly offset by UBS Pactual’s pretax opera
tional profits for 2009 of CHF 218 million. In addition, de
ferred tax benefits of CHF 243 million have been recognized.
The goodwill impairment charge of CHF 1,123 million
was allocated to the business divisions as follows: Invest
ment Bank, CHF 749 million; Global Asset Management,
CHF 340 million; and Wealth Management Americas CHF
34 million. It includes an impairment of CHF 492 million
primarily relating to the effects from foreign exchange
losses that were pre viously deferred in equity and from the
translation of the US dollar denominated sales price into
Swiss francs. For management and segment reporting pur
poses, consistent with UBS’s internal policy that foreign ex
change exposures related to investments in subsidiaries are
managed by Group Treasury, related gains and losses are
recognized in the Corporate Center. This impairment was
charged through the “Services (to) / from other business di-
visions” line item to the Corporate Center with respective
credits to the Investment Bank of CHF 328 million, Global
Asset Management of CHF 149 million and Wealth Man
agement Americas of CHF 15 million.
The operational results of UBS Pactual of CHF 218 million
were included in the business divisions Investment Bank,
Global Asset Management and Wealth Management Ameri
cas and the Corporate Center.
Sale of 56 branches in Wealth Management Americas
Following an agreement announced in March 2009, UBS
sold 56 branches in Wealth Management Americas to Stifel,
Nicolaus & Company, Incorporated for an upfront cash pay
ment of approximately USD 29 million. In addition, UBS re
ceived aggregate payments of USD 18 million for net fixed
360
assets and employee forgivable loans, and net USD 154 mil
lion for customer loans that were transferred. Under the
terms of the agreement, UBS may also receive additional
consideration contingent on the performance of the busi
ness sold during the two years following the closing of the
transaction. The transaction was closed in four separate clos
ings during the second half of 2009. Overall, for 2009 the
impact of the transaction on UBS’s profit before tax was a
net charge of approximately USD 12 million.
Sale of UBS’s India Service Centre (ISC)
On 30 December 2009, UBS completed the sale of its India
Service Centre (ISC) to Cognizant Technology Solutions for a
sale consideration of USD 82 million, which was paid in cash
at closing.
The net impact of the transaction on UBS’s profit before
tax was a gain of CHF 36 million recognized in the fourth
quarter in Other income. In addition, the ISC contributed a
pretax profit of CHF 11 million for 2009.
Sale of assets to a third-party fund controlled by the
Swiss National Bank (SNB)
As announced on 16 October 2008, UBS entered into an
agreement with the Swiss National Bank (SNB) to transfer
certain illiquid securities and other positions to the SNB Stab
Fund limited partnership for collective investments (the
“fund”), which is fully owned and controlled by the SNB.
For each transfer of assets, the SNB financed 90% of the
purchase price by providing a loan to the fund and the re
maining 10% by making an equity contribution to the fund.
Upon each asset transfer, UBS purchased, for an amount
equal to the SNB’s equity contribution to the fund on that
date, an option to repurchase the fund’s equity (all such op
tions referred to collectively as the “call option”). The exer
cise price of the call option was set at USD 1 billion plus 50%
of the fund’s equity value exceeding USD 1 billion at the time
of exercise. The call option will be exercisable upon repay
ment in full of the loan provided by the SNB. The loan is se
cured by the assets of the fund and bears interest at a rate of
one month USDLIBOR plus 250 basis points. Service of the
loan is made from the cash flows generated by the fund’s
assets.
In the event of a change of control of UBS, the SNB has
the right but not the obligation to request that UBS purchase
the loan it provided to the fund at its outstanding principal
amount plus accrued interest and the fund’s equity for 50%
of its value at the time (the “put option”).
If, upon termination of the fund, the SNB incurs a loss on
its loan, it will be entitled to receive 100 million UBS ordinary
shares, subject to antidilution adjustments, in exchange for
Note 38 Reorganizations and disposals (continued)
payment of the par value of these shares (the “contingent
share issue”).
The positions were transferred to the fund at fair value
determined at 30 September 2008. UBS’s estimated fair val
ues as of 30 September 2008 were subject to review by in
dependent thirdparty valuation agents and the positions
transferred to the SNB were priced at the lower of UBS’s
estimated fair value and the value determined by the SNB
based on the valuation estimated by the valuation agents.
The total market value (net exposure) transferred to the
SNB StabFund’s portfolio amounted to USD 38.7 billion (net
of pricing adjustments). USD 16.4 billion of positions were
transferred to the fund in December 2008, followed by the
remaining USD 22.2 billion of positions, of which USD 6.6
billion were transferred in March and USD 15.7 billion in ear
ly April 2009.
The purchase price for the overall portfolio was, in the
aggregate, USD 1 billion lower than the market value UBS
assigned to these positions on 30 September 2008. Of this
USD 1 billion, USD 0.7 billion was accounted for in UBS’s
results for 2008. The remaining USD 0.3 billion price differ
ence was recognized in the income statement in 2009.
Under IFRS, UBS’s call option to acquire equity of the SNB
StabFund is recognized on the balance sheet as a derivative
(Positive replacement values) at fair value (CHF 1.2 billion at
31 December 2009), with changes in fair value recognized in
profit or loss. The put option was valued as a contingent li
ability that has been deemed remote at 31 December 2009
and 2008. The contingent share issue was treated as an eq
uity instrument and was recognized at fair value in equity as
an increase to share premium and an expense in net trading
income in 2008. The fair value of the contingent share issue
was estimated at approximately CHF 607 million and not
thereafter remeasured to fair value.
Overall, the impact of the SNB transaction on the income
statement in 2009 was a loss of CHF 115 million, which in
cludes a CHF 232 million loss due to the price difference
recognized in first quarter 2009 and a CHF 117 million net
gain on UBS’s option to acquire the fund’s equity.
Restructuring
In 2009, UBS incurred restructuring charges of CHF 791 mil
lion, including CHF 491 million in Personnel expenses, main
ly for severance payments, CHF 256 million in General and
administrative expenses, primarily for realestate related
costs, and CHF 45 million of depreciation and impairment
losses on property and equipment. These restructuring
charges were allocated to the business divisions as follows:
Wealth Management & Swiss Bank, CHF 322 million; Wealth
Management Americas, CHF 152 million; Global Asset Man
agement, CHF 48 million; Investment Bank, CHF 226 million;
and the Corporate Center, CHF 45 million.
Note 39 Currency translation rates
The following table shows the principal rates used to translate the financial information of foreign entities into Swiss francs:
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As of
Average rate
Year ended
31.12.09
31.12.08
31.12.09
31.12.08
31.12.07
1.04
1.48
1.67
1.11
1.07
1.49
1.56
1.17
1.08
1.51
1.70
1.16
1.06
1.58
1.96
0.98
1.22
1.65
2.31
1.02
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361
Financial information
Notes to the consolidated financial statements
Note 40 Swiss banking law requirements
The consolidated Financial Statements of UBS are prepared
in accordance with International Financial Reporting Stan
dards (IFRS). The Guidelines of the Swiss Financial Market
Supervisory Authority (FINMA) require banks which present
their financial statements under IFRS to provide a narrative
explanation of the main differences between IFRS and Swiss
GAAP (FINMA circular 08/2) and the Banking Ordinance. In
cluded in this note are the significant differences in regard to
recognition and measurement between IFRS and the provi
sions of the Banking Ordinance and the Guidelines of the
FINMA governing financial statement reporting pursuant to
Article 23 through Article 27 of the Banking Ordinance. The
differences outlined in points two through nine also apply to
the Parent Bank statutory accounts.
1. Consolidation
Under IFRS, all entities which are controlled by the Group are
consolidated.
Under Swiss law, only entities that are active in the field
of banking and finance and real estate entities are subject to
consolidation. Entities which are held temporarily are gener
ally recorded as financial investments.
2. Financial investments availableforsale
Under IFRS, financial investments availableforsale are
carried at fair value. Changes in fair value are recorded di
rectly in equity until an investment is sold, collected or oth
erwise disposed of, or until an investment is determined to
be impaired. At the time an availableforsale investment is
determined to be impaired, the cumulative unrealized loss
previously recognized in equity is included in net profit or
loss for the period. On disposal of a financial investment
availableforsale, the cumulative unrecognized gain or loss
previously recognized in equity is recognized in the income
statement.
Under Swiss law, financial investments are carried either
at the lower of cost or market or at amortized cost less im
pairment with changes in measurement recorded in the in
come statement. Reductions to market value below cost and
reversals of such reductions up to original cost as well as
gains and losses on disposal are included in Other income.
Equity investments that are considered permanent are car
ried on the balance sheet at cost less impairment with im
pairment losses recorded in the income statement. Perma
nent investments are classified on the balance sheet as
investments in associated companies.
3. Cash flow hedges
The Group uses derivative instruments to hedge the expo
sure from varying cash flows. Under IFRS, when hedge ac
counting is applied the fair value gain or loss on the effective
portion of the derivative designated as a cash flow hedge is
recognized in equity. When the hedged cash flows material
ize, the accumulated unrecognized gain or loss is realized
and released to income.
Under Swiss law, the effective portion of the fair value
change of the derivative instrument used to hedge cash flow
exposures is deferred on the balance sheet as other assets or
other liabilities. The deferred amounts are released to in
come when the hedged cash flows materialize.
4. Investment property
Under IFRS, investment property is carried at fair value, with
changes in fair value recognized in the income statement.
Under Swiss law, investment property is carried at amor
tized cost less any accumulated depreciation less impairment
losses unless the investment property is classified as held for
sale. Investment property classified as held for sale is carried
at the lower of cost or market.
5. Fair value option
Under IFRS, the Group applies the fair value option to cer
tain financial assets and financial liabilities, mainly to hybrid
debt instruments. As a result, the entire hybrid instrument
is accounted for at fair value with changes in fair value re
flected in net trading income. Furthermore, UBS designat
ed certain loans, loan commitments and fund investments
as financial assets designated at fair value through profit
and loss.
Under Swiss accounting rules, the fair value option is not
available.
6. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is
not amortized but tested annually for impairment. Intangible
assets acquired in a business combination with an indefinite
useful life are also not amortized but tested annually for im
pairment.
Under Swiss law, goodwill and intangible assets with in
definite useful lives are amortized over a period not exceed
ing five years, unless a longer useful life, which may not
exceed twenty years, can be justified.
7. Discontinued operations
Under certain conditions, IFRS requires that noncurrent as
sets or disposal groups be classified as held for sale. Disposal
groups that meet the criteria of discontinued operations are
presented in the income statement in a single line as Net
income from discontinued operations.
Under Swiss law, no such reclassification takes place.
362
Note 40 Swiss banking law requirements (continued)
8. Extraordinary income and expense
Certain items of income and expense are classified as
extraordinary items under Swiss law, whereas in the Group
Income Statement the amounts are classified as operating
income or expense or are included in net profit from discon
tinued operations, if required.
9. Netting of replacement values
Under IFRS, replacement values are reported on a gross
basis, unless certain restrictive requirements are met. Under
Swiss law, replacement values and the related cash collateral
are reported on a net basis, provided the master netting and
the related collateral agreements are legally enforceable.
Note 41 Supplemental guarantor information required under SEC rules
Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc., UBS
made a full and unconditional guarantee of the senior and
subordinated notes and trust preferred securities (“Debt
Securities”) of PaineWebber. Prior to the acquisition, Paine
Webber was an, SEC Registrant. Upon the acquisition, Paine
Webber was merged into UBS Americas Inc., a wholly owned
subsidiary of UBS.
Under the guarantee, if UBS Americas Inc. fails to make
any timely payment under the Debt Securities agreements,
the holders of the Debt Securities or the Debt Securities
trustee may demand payment from UBS without first pro
ceeding against UBS Americas Inc. UBS’s obligations under
the subordinated note guarantee are subordinated to the
prior payment in full of the deposit liabilities of UBS and all
other liabilities of UBS.
The information presented in this note is prepared in ac
cordance with IFRS and should be read in conjunction with
the Consolidated Financial Statements of UBS of which this
information is a part.
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2009
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
Consolidating
entries
UBS Group
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
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
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
Net profit attributable to UBS shareholders
18,798
(16,860)
1,939
(937)
1,002
7,912
(1,487)
1,114
550
9,092
8,577
2,351
686
0
3
11,617
(2,526)
210
(2,736)
0
(2,736)
0
(2,736)
4,432
(1,982)
2,450
(897)
1,553
6,025
(423)
0
(872)
6,282
5,566
2,512
171
0
96
8,345
(2,063)
(549)
(1,514)
0
(1,514)
(3)
(1,511)
6,715
(4,657)
2,058
2
2,060
3,774
1,586
0
921
8,341
2,400
1,385
191
1,123
101
5,200
3,141
(104)
3,245
(7)
3,238
613
2,625
(6,484)
6,484
0
0
0
0
0
(1,114)
0
(1,114)
0
0
0
0
0
0
(1,114)
0
(1,114)
0
(1,114)
0
(1,114)
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS.
23,461
(17,016)
6,446
(1,832)
4,614
17,712
(324)
0
599
22,601
16,543
6,248
1,048
1,123
200
25,162
(2,561)
(443)
(2,118)
(7)
(2,125)
610
(2,736)
363
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Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2009
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Equity attributable to UBS shareholders
Equity attributable to minority interests
Total equity
Total liabilities and equity
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
entries
UBS Group
Consolidating
15,177
67,640
39,807
113,891
122,801
47,954
413,822
5,831
296,497
63,459
1,664
61,551
4,920
494
6,352
7,131
75
8,597
56,402
37,914
18,224
11,422
8,260
5,876
45,774
15,441
3,880
24
791
9,101
2,037
2,115
5,647
100,909
10,700
82,474
48,739
859
145,265
11,283
22,749
2,857
1,100
49
501
1,413
479
2,169
1,268,991
225,933
437,194
110,418
17,662
38,563
41,884
400,432
100,768
341,200
5,155
126,965
8,229
1,191,276
77,715
0
77,715
1,268,991
53,751
22,993
66,545
10,792
8,173
276
54,470
2,269
493
3,380
223,142
(234)
3,025
2,791
225,933
31,569
10,742
76,657
610
146,992
27,953
72,999
2,093
12,242
26,455
408,312
24,287
4,595
28,882
437,194
0
(130,572)
(43,402)
(117,590)
(1,727)
(16,014)
(145,654)
(12,768)
(58,193)
0
(828)
(60,754)
0
0
0
(4,078)
(591,580)
(130,572)
(43,402)
(117,590)
(5,817)
(145,654)
(16,344)
(58,193)
(828)
(8,348)
(4,078)
(530,826)
(60,754)
0
(60,754)
(591,580)
20,899
46,574
63,507
116,689
188,037
44,221
421,694
10,223
306,828
81,757
5,816
870
6,212
11,008
8,868
7,336
1,340,538
65,166
7,995
64,175
47,469
409,943
112,653
410,475
8,689
131,352
33,986
1,291,905
41,013
7,620
48,633
1,340,538
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS.
364
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2009
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries and associates
Disposal of subsidiaries and associates
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net money market papers issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Increase in minority interests
Dividends paid to / decrease in 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 and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market papers 2
Due from banks with original maturity of less than three months
Total
UBS AG
Parent Bank 1
4,841
UBS
Americas Inc.
Subsidiaries
UBS Group
(6,469)
56,126
54,497
(42)
296
(656)
104
(22,319)
(22,616)
(7,020)
673
3,726
64,956
(55,616)
0
0
(4,032)
2,686
5,886
(9,202)
132,782
123,580
15,177
78,025
30,378
123,580
0
0
(124)
53
(12,484)
(12,555)
0
0
(75)
6
14,677
14,608
(42)
296
(854)
163
(20,127)
(20,563)
(1,596)
(51,424)
(60,040)
0
0
0
(1,548)
0
(8)
2,419
(733)
574
(19,183)
24,421
5,238
75
3,714
1,450
5,238
0
0
2,106
(7,861)
3
(576)
1,614
(56,136)
(933)
13,664
22,490
36,154
5,647
16,694
13,814
36,154
673
3,726
67,062
(65,024)
3
(583)
0
(54,183)
5,529
(14,721)
179,693
164,973
20,899
98,432
45,642
164,973
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2 Money
market papers are included in the balance sheet under “Trading portfolio assets”, “Trading portfolio assets pledged as collateral” and “Financial investments available-for-sale”. CHF 57,116 million were
pledged as of 31 December 2009.
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Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2008
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
Consolidating
entries
UBS Group
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
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
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
Net profit attributable to UBS shareholders
49,699
(48,686)
1,013
(861)
152
9,709
(8,129)
(19,882)
2,836
(15,314)
8,738
3,918
770
0
1
13,427
(28,741)
(7,407)
(21,335)
43
(21,292)
0
(21,292)
21,343
(17,436)
3,907
(2,050)
1,857
7,910
(19,847)
0
1,058
(9,022)
5,169
4,604
205
341
93
10,412
(19,434)
(4)
(19,430)
0
(19,430)
(9)
(19,421)
27,354
(26,282)
1,072
(85)
987
5,310
2,156
0
(3,202)
5,251
2,355
1,976
266
0
119
4,716
535
574
(39)
155
116
577
(461)
(32,717)
32,717
0
0
0
0
0
19,882
0
19,882
0
0
0
0
0
0
19,882
0
19,882
0
19,882
0
19,882
65,679
(59,687)
5,992
(2,996)
2,996
22,929
(25,820)
0
692
796
16,262
10,498
1,241
341
213
28,555
(27,758)
(6,837)
(20,922)
198
(20,724)
568
(21,292)
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS.
366
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2008
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Accrued income and prepaid expenses
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total liabilities
Equity attributable to UBS shareholders
Equity attributable to minority interests
Total equity
Total liabilities and equity
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
Consolidating
entries
UBS Group
27,030
111,563
48,874
206,087
145,012
71,736
862,459
5,120
326,548
1,237
3,684
66,255
5,093
250
6,607
8,934
332
11,490
109,783
79,178
47,558
12,655
18,215
7,755
53,774
638
2,700
58
971
9,393
1,757
2,148
5,382
192,206
16,914
145,851
57,230
1,531
293,896
12,741
35,193
3,373
2,666
50
642
3,292
516
6,333
0
(250,808)
(52,674)
(206,468)
22,038
(45,706)
(320,470)
(12,734)
(75,207)
0
(2,909)
(65,473)
0
0
0
(7,484)
32,744
64,451
122,897
224,648
271,838
40,216
854,100
12,882
340,308
5,248
6,141
892
6,706
12,935
8,880
9,931
1,896,489
358,405
777,816
(1,017,895)
2,014,815
196,723
25,248
30,988
51,034
855,005
88,505
422,688
7,417
127,408
12,598
1,817,614
78,875
0
78,875
1,896,489
68,213
32,884
140,197
17,086
16,792
1,716
70,242
2,584
2,439
4,313
356,466
(1,097)
3,036
1,939
358,405
111,500
8,605
137,844
903
300,537
35,973
48,018
3,104
72,569
33,571
752,624
20,226
4,966
25,192
777,816
(250,808)
(52,674)
(206,468)
(6,592)
(320,470)
(24,648)
(75,207)
(2,909)
(5,162)
(7,484)
(952,422)
(65,473)
0
(65,473)
(1,017,895)
125,628
14,063
102,561
62,431
851,864
101,546
465,741
10,196
197,254
42,998
1,974,282
32,531
8,002
40,533
2,014,815
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS.
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367
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2008
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries and associates
Disposal of subsidiaries and associates
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net money market papers issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Capital issuance
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Increase in minority interests
Dividends paid to / decrease in 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 and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market papers 2
Due from banks with original maturity of less than three months
Total
UBS AG
Parent Bank 1
69,799
(1,502)
1,686
(819)
37
330
(268)
(52,815)
623
23,135
91,961
(62,822)
0
0
(11,978)
(11,896)
(33,963)
23,672
109,110
132,782
27,030
62,777
42,975
132,782
UBS
Americas Inc.
(438)
0
0
(258)
27
156
(75)
914
0
0
0
(14,500)
842
(112)
21,816
8,960
442
8,889
15,532
24,421
332
19,875
4,214
24,421
Subsidiaries
7,646
UBS Group
77,007
0
0
(140)
5
(1,198)
(1,333)
11,264
0
0
11,126
(15,572)
819
(420)
(9,838)
(2,621)
(5,665)
(1,973)
24,463
22,490
5,382
4,080
13,028
22,490
(1,502)
1,686
(1,217)
69
(712)
(1,676)
(40,637)
623
23,135
103,087
(92,894)
1,661
(532)
0
(5,557)
(39,186)
30,588
149,105
179,693
32,744
86,732
60,217
179,693
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2 Money
market papers are included in the balance sheet under “Trading portfolio assets”, “Trading portfolio assets pledged as collateral” and “Financial investments available-for-sale”. CHF 19,912 million were
pledged as of 31 December 2008. The previously disclosed amount of pledged money market papers has been adjusted to include positions recognized in the balance sheet under “Trading portfolio
assets pledged as collateral”.
368
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2007
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
Consolidating
entries
UBS Group
Operating income
Interest income
Interest expense
Net interest income
Credit loss (expense) / recovery
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 intangible assets
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
Net profit attributable to UBS shareholders
77,306
(74,689)
2,617
11
2,628
12,852
3,467
464
(4,273)
15,138
13,239
5,684
930
3
19,856
(4,718)
794
(5,512)
265
(5,247)
0
(5,247)
47,747
(46,420)
1,327
(234)
1,093
10,119
(9,932)
0
8,369
9,649
8,329
3,446
138
101
12,014
(2,365)
(486)
(1,879)
0
(1,879)
18
(1,897)
51,985
(50,592)
1,393
(15)
1,378
7,663
(1,888)
0
245
7,398
3,947
(701)
175
172
3,593
3,805
1,061
2,744
138
2,882
521
2,361
(67,926)
67,926
109,112
(103,775)
0
0
0
0
0
(464)
0
(464)
0
0
0
0
0
(464)
0
(464)
0
(464)
0
(464)
5,337
(238)
5,099
30,634
(8,353)
0
4,341
31,721
25,515
8,429
1,243
276
35,463
(3,742)
1,369
(5,111)
403
(4,708)
539
(5,247)
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS.
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369
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2007
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries and associates
Disposal of subsidiaries and associates
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale
Net cash flow from / (used in) investing activities
Cash flow from / (used in) financing activities
Net money market papers issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Dividends paid
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Increase in minority interests
Dividends paid to / decrease in 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 and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market papers 2
Due from banks with original maturity of less than three months
Total
UBS AG
Parent Bank 1
(65,749)
UBS
Americas Inc.
19,670
Subsidiaries
(5,999)
UBS Group
(52,078)
(2,337)
885
(1,022)
40
4,027
1,593
35,017
(2,771)
(4,275)
105,197
(54,251)
0
0
871
79,788
(9,070)
6,562
102,548
109,110
8,530
60,266
40,314
109,110
0
0
(581)
28
34
(519)
(1,426)
0
0
1,022
(7,022)
32
(665)
(6,627)
(14,686)
(3,062)
1,403
14,129
15,532
109
13,202
2,221
15,532
0
0
(307)
66
1,920
1,679
(919)
0
0
4,655
(1,134)
1,062
46
5,756
9,466
(96)
5,050
19,413
24,463
10,154
3,747
10,562
24,463
(2,337)
885
(1,910)
134
5,981
2,753
32,672
(2,771)
(4,275)
110,874
(62,407)
1,094
(619)
0
74,568
(12,228)
13,015
136,090
149,105
18,793
77,215
53,097
149,105
1 UBS AG Parent Bank prepares its financial statements in accordance with Swiss banking law requirements. For the purpose of this disclosure, the accounts have been adjusted to IFRS. 2 Money
market papers are included in the balance sheet under “Trading portfolio assets”, “Trading portfolio assets pledged as collateral” and “Financial investments available-for-sale”. CHF 7,881 million were
pledged as of 31 December 2007. The previously disclosed amount of pledged money market papers has been adjusted to include positions recognized in the balance sheet under “Trading portfolio
assets pledged as collateral”.
Guarantee of other securities
UBS AG, acting through whollyowned finance subsidiaries, issued the following trust preferred securities:
USD billion, unless otherwise indicated
Issuing entity
UBS Preferred Funding Trust I
UBS Preferred Funding Trust II
UBS Preferred Funding Trust IV
UBS Preferred Funding Trust V
Type of security
Trust preferred securities
Trust preferred securities 1
Floating rate non-cumulative trust
preferred securities
Trust preferred securities
Outstanding as of 31.12.09
Date issued
Interest (%)
Amount
October 2000
June 2001
May 2003
May 2006
8.622
7.247
one-month LIBOR
+ 0.7
6.243
1.5
0.5
0.3
1.0
1 In June 2006, USD 300 million (at 7.25%) of Trust preferred securities also issued in June 2001 were redeemed.
UBS AG has fully and unconditionally guaranteed these
securities. UBS’s obligations under the trust preferred secu
rities guarantee are subordinated to the prior payment in
full of the deposit liabilities of UBS and all other liabilities of
UBS. At 31 December 2009, the amount of senior liabilities
of UBS to which the holders of the subordinated debt
securities would be subordinated is approximately CHF
1,280 billion.
370
Financial information
UBS AG (Parent Bank)
UBS AG (Parent Bank)
Parent Bank review
Income statement
The Parent Bank UBS AG net loss decreased by CHF 31,448
million from a loss of CHF 36,489 million to a loss of CHF
5,041 million.
Net trading income improved by CHF 8,990 million from
negative CHF 9,466 million to negative CHF 476 million.
2008 reflects mainly losses in the fixed income business and
charges associated with the SNB transaction.
Income from investments in associated companies de-
creased to CHF 1,154 million from CHF 3,763 million in
2008 mainly due to lower dividend distributions received.
Personnel expenses were up to CHF 9,101 million from
CHF 6,707 million in 2008 mainly due to recognition of a
defined pension asset in 2008.
Depreciation decreased to CHF 2,405 million from CHF
26,900 million in 2008 which included write-downs of in-
vestments in associated US companies.
Allowances, provisions and losses decreased to CHF
1,432 million from CHF 3,071 million in 2008, which includ-
ed costs related to the US cross-border case and costs associ-
ated with the repurchase of auction rate securities.
The decrease in Extraordinary income and in Extraordi-
nary expenses are explained in additional income statement
information.
Balance sheet
In 2009, UBS’s overall balance sheet reduction initiatives led
also to lower Parent Bank total assets. In particular UBS sub-
sidiaries and third party banks in the Americas, European
region, and to lesser extent in Asia, reduced their assets and
therefore their funding needs from the Parent Bank. The Par-
ent Bank total assets stood at CHF 848 billion at 31 Decem-
ber 2009, a drop of CHF 342 billion from CHF 1,189 billion
at 31 December 2008.
The reductions occurred in inter-bank lending (loans
and collateral trading), which declined by 165 billion, pos-
itive replacement values (down CHF 133 billion), customer
loans and collateral trading (down CHF 37 billion), trading
balances (down CHF 21 billion), and liquid assets (down
CHF 12 billion). These declines however were partially off-
set by higher positions in money market papers (up CHF
29 billion) and financial investments (up CHF 4 billion).
Mortgage loans remained stable in 2009 at CHF 141 bil-
lion.
Interbank lending
During 2009, due from banks on time declined by CHF 53
billion, predominately due to lower funding needs of third
party banks in the Americas and European region as well as
UBS subsidiaries in the European region. Due from banks on
demand declined by CHF 12 billion due to lower funding to
bank subsidiaries in the European region. In addition, inter-
bank collateral trading declined by CHF 100 billion, attribut-
able to lower trading volumes and a shift into money market
paper within UBS subsidiaries in the Americas, European re-
gion and Asia.
Customer lending
The customer loan drop of CHF 37 billion was the result of
lower funding needs by clients in the Americas and in the
European region, as well as UBS subsidiaries (non-banks),
predominately in the Americas region.
Money market papers
The increase in money market papers is due to UBS’s strate-
gic decision to rebalance its investment portfolio, which led
to a shift from reverse repurchase agreements into money
market papers available-for-sale. These instruments include
highly liquid short-term securities issued by governments
and government-controlled institutions in various currencies,
mainly US dollar and euro.
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Financial information
UBS AG (Parent Bank)
Parent Bank financial statements
Income statement
CHF million
Interest and discount income
Interest and dividend income from trading portfolio
Interest and dividend income from financial investments
Interest expense
Net interest income
Credit-related fees and commissions
Fee and commission income from securities and investment business
Other fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Net income from disposal of financial 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
Profit / (loss) for the period
372
For the year ended
% change from
31.12.09
31.12.08
31.12.08
13,764
4,911
92
(16,901)
1,866
255
9,294
624
(2,264)
7,909
(476)
123
1,154
26
4,761
(3,604)
2,460
11,759
9,101
4,421
13,522
(1,763)
2,405
1,432
(5,600)
688
(49)
(80)
37,825
12,014
76
(49,022)
893
208
11,668
610
(2,849)
9,637
(9,466)
176
3,763
29
3,384
(2,767)
4,584
5,648
6,707
5,822
12,528
(6,880)
26,900
3,071
(36,852)
1,002
(482)
(157)
(5,041)
(36,489)
(64)
(59)
21
(66)
109
23
(20)
2
(21)
(18)
95
(30)
(69)
(10)
41
30
(46)
108
36
(24)
8
74
(91)
(53)
85
(31)
(90)
(49)
86
Balance sheet
CHF million
Assets
Liquid assets
Money market papers
Due from banks
Due from customers
Mortgage loans
Trading balances in securities and precious metals
Financial investments
Investments in associated companies
Fixed assets
Accrued income and prepaid expenses
Positive replacement values
Other assets
Total assets
Total subordinated assets
Total amounts receivable from Group companies
Liabilities and equity
Money market papers issued
Due to banks
Due to customers on savings and deposit accounts
Other amounts due to customers
Medium-term bonds
Bonds issued and loans from central mortgage institutions
Accruals and deferred income
Negative replacement values
Other liabilities
Allowances and provisions
Share capital
General statutory reserve
Reserve for own shares
Other reserves
Profit / (loss) for the period
Total liabilities and equity
Total subordinated liabilities
Total amounts payable to Group companies
31.12.09
31.12.08
% change from
31.12.08
15,177
91,988
191,002
153,893
140,671
138,160
15,206
19,225
4,986
1,754
68,977
6,504
847,543
2,617
242,617
45,043
184,010
72,985
287,156
2,967
155,907
7,520
54,468
6,641
2,277
356
30,377
835
2,042
(5,041)
847,543
19,410
145,268
27,030
62,777
355,679
191,308
141,328
158,741
11,085
22,001
5,032
3,877
201,801
8,697
1,189,356
3,924
435,721
52,063
292,730
61,872
388,338
3,150
143,589
7,895
193,108
14,181
2,724
293
40,910
2,877
22,115
(36,489)
1,189,356
21,228
271,434
(44)
47
(46)
(20)
0
(13)
37
(13)
(1)
(55)
(66)
(25)
(29)
(33)
(44)
(13)
(37)
18
(26)
(6)
9
(5)
(72)
(53)
(16)
22
(26)
(71)
(91)
86
(29)
(9)
(46)
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting (AGM) on 14 April 2010 approves the following appropriation:
CHF million
Profit / (loss) for the financial year 2009 as per the Parent Bank’s Income Statement
Appropriation to other reserves
Appropriation to general statutory reserves: Share premium
(5,041)
(2,042)
(2,999)
373
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Financial information
UBS AG (Parent Bank)
Notes to the Parent Bank financial statements
Accounting policies
The Parent Bank Financial Statements are prepared in accor-
dance with Swiss Federal banking law. The accounting poli-
cies are principally the same as for the Group Financial State-
ments outlined in Note 1, Summary of Significant Accounting
Policies. Major differences between the Swiss Federal bank-
ing law requirements and International Financial Reporting
Standards are described in Note 40 to the financial state-
ments. The accounting policies applied for the statutory ac-
counts of the Parent Bank are discussed below. The risk
management of UBS AG is described in the context of the
risk management for UBS Group. Refer to “Risk and treasury
management” section.
Treasury shares
Treasury shares are own equity instruments held by an entity.
Under Swiss law, treasury shares are recognized in the bal-
ance sheet as trading balances. Short positions in treasury
shares are recognized in “Due to banks”. Treasury shares
recognized as trading balances and short positions in trea-
sury shares are measured at fair value with unrealized gains
or losses from remeasurement to fair value included in the
income statement. Realized gains and losses on the sale or
acquisition of treasury shares are recognized in the income
statement.
A Reserve for own shares must be created within equity
equal to the cost value of the treasury shares held through
reclassification from Other reserves. Repurchase of treasury
shares is only allowed if sufficient Other reserves are avail-
able. The Reserve for own shares is not available for distribu-
tion to shareholders.
Foreign currency translation
Assets and liabilities of foreign branches are translated into
CHF at the spot exchange rate at the balance sheet date. In-
come and expense items are translated at weighted average
exchange rates for the period. Gains resulting from exchange
differences on the translation of each of these foreign
branches are credited to a provision account (other liabilities).
Losses resulting from exchange differences are debited firstly
to the aforementioned provision account until such provision
is fully utilized, and secondly to profit and loss.
Investments in associated companies
Investments in associated companies are equity interests which
are held for the purpose of the Parent Bank’s business activities
or for strategic reasons. They include all directly held subsidiar-
ies and are carried at cost less impairment, if applicable.
Deferred taxes
Deferred tax assets are not recognized in the Parent Bank
Financial Statements. Deferred tax liabilities are recognized
for all taxable temporary differences. The change in the de-
ferred tax liability is recognized in profit or loss.
Equity participation and other compensation plans
Equity participation plans
Under Swiss law, employee share awards are recognized as
compensation expense and accrued over the performance
year, which is generally the period prior to the grant date.
Employee option awards which do not contain voluntary ter-
mination non-compete provisions are recognized as compen-
sation expense on the grant date. If the award is performance
based and contains substantive future service / vesting period
conditions, compensation expense is recognized over the per-
formance period. Employee option awards which contain vol-
untary termination non-compete provisions (i.e. good leaver
clause) are recognized as compensation expense over the per-
formance year. Equity- and cash-settled awards are classified
as liabilities. The employee share option awards are remea-
sured to fair value at each balance sheet date. However, for
employee share options that UBS intends to settle in shares
from conditional capital, there is no impact on the income
statement and no liability is recognized. Upon exercise of em-
ployee options, cash received for payment of the strike price
is credited against share capital and general statutory reserve.
Other compensation plans
Fixed and variable deferred cash compensation is recognized
as compensation expense over the performance year. If the
award is performance based and contains substantive future
service / vesting period conditions, compensation expense is
recognized over the performance period.
374
Changes in accounting policies, comparability and
other adjustments
Netting of cash collateral against replacement values
In 2009, UBS concluded that the cash collateral provided
or received can be offset against the negative or positive
replacement values if the cash collateral is provided or re-
ceived under the same legally enforceable master netting
and related collateral agreement. The change in account-
ing policy resulted in the following effects on the balance
sheet for 31 December 2009: a decrease of approximately
CHF 28.3 billion in Positive replacement values, a decrease
of approximately CHF 29.4 billion in Negative replacement
values and a corresponding decrease in Due from banks /
Due from customers and Due to banks / Due to customers.
There was no impact to the income statement for the pe-
riod.
Subordinated liabilities
In the balance sheet 2009, total subordinated liabilities
presented for 31 December 2008 have been adjusted from
CHF 24,427 million to CHF 21,228 million.
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375
Financial information
UBS AG (Parent Bank)
Additional income statement information
Net trading income
CHF million
Investment Bank equities
Investment Bank fixed income, currencies and commodities 1
Other business divisions 1
Total
1 The prior year amounts have been adjusted to conform to the current year’s presentation.
Extraordinary income and expenses
For the year ended
% change from
31.12.09
31.12.08
31.12.08
3,005
(4,496)
1,014
(476)
3,930
(12,678)
(718)
(9,466)
(24)
65
95
Extraordinary income includes gains from sale of subsidiaries
and associated companies of CHF 393 million in 2009, where-
as 2008 included a gain on sale of Bank of China investment
of approximately CHF 360 million. Further, 2009 includes
write-up of investments in associated companies of CHF 265
million (2008: CHF 30 million). Amounts in 2008 included a
release on reserves on investments in subsidiaries of CHF 490
million and a release of provisions of CHF 72 million.
Extraordinary expenses in 2009 include losses from sale of
subsidiaries and associated companies of CHF 48 million.
2008 included CHF 478 million related to an overstatement
of trading income in 2007.
376
Additional balance sheet information
Allowances and provisions 1
CHF million
Default risks (credit and country risk)
Litigation risks
Operational risks
Retirement benefit plans
Restructuring provisions
Deferred taxes
Other
Total allowances and provisions
Allowances deducted from assets
Total provisions as per balance sheet
Provisions applied
in accordance
with their
specified purpose
Recoveries,
doubtful interest,
currency translation
differences
Balance at
31.12.08
Provisions released
to income
New provisions
charged to income
Balance at
31.12.09
(1,408)
(280)
(203)
(29)
(205)
0
(522)
(2,647)
196
(100)
0
(1)
45
(15)
2
127
(493)
(22)
(57)
0
(3)
(12)
(173)
(760)
1,405
134
145
32
303
0
458
2,477
1,556
1,078
157
94
74
36
1,259
4,254
1,530
2,724
1,256
810
42
96
214
9
1,024
3,451
1,174
2,277
1 In previous years, the table included “Trading portfolio risks” (CHF 14,858 million at 31 December 2008). “Trading portfolio risks” includes credit, liquidity and model adjustments to financial instruments
accounted for at fair value through profit or loss. As these adjustments are components of fair value rather than allowances and provisions, and respective profit or loss impacts are presented as net trading
income rather than credit loss expense / (recovery), “Trading portfolio risks” are no longer included.
Statement of shareholders’ equity
CHF million
As of 31.12.07 and 1.1.08
Capital increase 1
Capital increase related to MCNs
Increase in reserves
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares
Transfers
As of 31.12.08 and 1.1.09
Capital increase
Capital increase related to MCNs
Increase in reserves
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares
Transfers 2
As of 31.12.09
General statutory
reserves:
Share premium
General statutory
reserves:
Retained earnings
Reserves for own
shares
6,303
15,911
16,223
(11,901)
26,536
3,783
58
(2,999)
27,378
2,472
9,441
(2,472)
0
(6,564)
2,877
(2,042)
0
835
Share capital
207
86
293
30
33
356
Total
shareholders’
equity (before
distribution
of profit)
33,990
15,982
16,223
0
0
(36,489)
0
0
29,706
3,813
91
0
0
(5,041)
0
0
28,569
Other reserves
15,567
(15)
(36,489)
6,564
14,373
0
(5,041)
2,042
2,999
0
1 Includes stock dividend. 2 Subject to approval by the Annual General Meeting on 14 April 2010.
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377
Financial information
UBS AG (Parent Bank)
Share capital
As of 31.12.09
Issued and paid up
Conditional share capital
As of 31.12.08
Issued and paid up
Conditional share capital
Shares issued
On 25 June 2009, UBS increased its share capital by issuing
293,258,050 new registered shares. The shares were placed
with a small number of large institutional investors. The
shares were issued out of authorized capital which had been
approved at the Annual General Meeting of shareholders
(AGM) on 15 April 2009.
On 19 August 2009, the Swiss Confederation announced
the conversion of its UBS mandatory convertible notes
(MCNs). Upon conversion on 25 August 2009, UBS issued
332,225,913 new shares from existing conditional capital.
On 27 February 2008 the extraordinary general meeting
of shareholders approved the creation of a maximum of CHF
10,370,000 in authorized capital allowing the distribution of
a stock dividend. That resulted in the issuance of 98,698,754
shares.
On 23 April 2008, the AGM of shareholders approved a
capital increase that resulted in the issuance of 760,295,181
fully paid registered shares. All issued shares are fully paid.
Par value
Ranking for dividends
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,558,112,753
355,811,275
3,558,112,753
355,811,275
527,773,646
52,777,365
2,932,580,549
293,258,055
2,932,580,549
293,258,055
792,844,711
79,284,471
For further information on the capital increase and the
conversion of the MCNs in 2009, refer to “Note 26 Capital
increases and mandatory convertible notes” in the financial
statements.
Conditional share capital
On 31 December 2009, a maximum of 29,350 shares could
have been issued against the future exercise of options
from former PaineWebber employee option plans and
149,994,296 shares could have been issued to fund UBS’s
employee share option programs. In addition, conditional
capital of up to 277,750,000 shares was available for the
UBS share delivery obligation due to the issuance of the
March 2008 mandatory convertible notes (MCNs) and con-
ditional capital of up to 100,000,000 shares is available in
connection with the transaction with the Swiss National
Bank (SNB).
378
Off-balance-sheet and other information
Assets pledged or assigned as security for own obligations and assets subject to reservation of title
CHF million
Money market papers
Mortgage loans 1
Securities
Other
Total
31.12.09
31.12.08
Change in %
Book value
Effective liability
Book value
Effective liability
Book value
Effective liability
42,898
21,741
47,289
8,578
120,506
1,368
12,321
31,862
0
45,551
7,429
3,699
50,223
8,149
69,500
1,300
2,418
37,083
0
40,801
477
488
(6)
5
73
5
410
(14)
12
1 Book value includes mortgage loans transferred for security purpose in preparation of upcoming covered bond issuances.
Financial assets are mainly pledged in securities borrowing
and lending transactions, in repurchase and reverse repur-
chase transactions, under collateralized credit lines with cen-
tral banks, against loans from mortgage institutions, in con-
nection with derivative transactions, as security deposits for
stock exchanges and clearinghouse memberships, or trans-
ferred for security purpose in connection with the issuance
of covered bonds.
Commitments and contingent liabilities
CHF million
Contingent liabilities
Irrevocable commitments
Liabilities for calls on shares and other equities
Confirmed credits
31.12.09
139,319
73,270
151
2,083
31.12.08
286,451
68,660
145
2,079
% change from
31.12.08
(51)
7
4
0
UBS AG is jointly and severally liable for the value added tax (VAT) liability of Swiss subsidiaries that belong to its VAT group.
Derivative instruments
CHF million, except where indicated
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Precious metal contracts
Equity / index contracts
Commodities contracts, excluding precious metals contracts
Total derivative instruments
Replacement value netting
Replacement values after netting
1 PRV: Positive replacement value. 2 NRV: Negative replacement value.
31.12.09
31.12.08
Notional
amount
CHF billion
33,787
2,525
6,523
79
251
6
43,171
PRV 1
187,506
80,008
97,925
3,442
17,314
761
386,956
317,979
68,977
NRV 2
174,632
70,586
101,800
3,378
21,353
697
372,447
317,979
54,468
Notional
amount
CHF billion
36,476
3,712
6,005
108
473
160
46,934
PRV 1
377,307
202,357
222,178
5,804
28,502
27,055
863,203
661,402
201,801
NRV 2
370,346
187,216
229,656
5,697
36,208
25,387
854,510
661,402
193,108
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379
Financial information
UBS AG (Parent Bank)
Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.09
31.12.08
% change from
31.12.08
17,088
1,810
18,898
36,452
2,738
39,190
(53)
(34)
(52)
Due to UBS pension plans
CHF million
Due to UBS pension plans and UBS debt instruments held by pension plans
For the year ended
% change from
31.12.09
397
31.12.08
876
31.12.08
(55)
Transactions with related parties
Transactions with related parties (such as securities transactions, payment transfer services, borrowing and compensation for
deposits) are conducted at internally agreed transfer prices or at arm’s length.
Outsourcing
Outsourcing of IT and other services through agreements with external service providers is in compliance with FINMA circu-
lar 08 / 7 “Outsourcing banks”.
Personnel
The Parent Bank employed 36,182 personnel on 31 December 2009 and 40,998 personnel on 31 December 2008.
Significant shareholders
In % of shares issued
Chase Nominees Ltd, London
DTC (Cede & Co.), New York 1
Mellon Bank N.A., Everett
Nortrust Nominees Ltd, London
1 DTC (Cede & Co.), New York, “The Depository Trust Company” is a US securities clearing organization.
31.12.09
11.63
8.42
3.21
3.07
31.12.08
31.12.07
7.19
9.89
less than 3
less than 3
7.99
14.15
less than 3
less than 3
380
Corporate governance and compensation report
Compensation details and additional information for executive members of the BoD
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Peter Kurer, former Chairman
Marcel Ospel, former Chairman
Stephan Haeringer,
former Executive Vice Chairman
For the
year ended
2009
2008
2009
2008
2009
2008
2009
2008
Base salary
602,083
666,667
1,333,333
666,667
1,125,000
Annual incentive
award (cash)
0
0
0
0
0
Annual incentive
award (shares
– fair value) c
0
Discretionary
award (options
– fair value) d
0
Benefits
in kind e
74,488
Contributions to
retirement
benefits plans f
0
Total
676,571
0
0
0
0
0
0
0
0
37,561
58,267
89,780
794,008
174,047
1,565,647
80,755
87,023
834,445
108,846
195,802
1,429,648
1 2009: Kaspar Villiger was the only non-independent member in office on 31 December 2009; Peter Kurer did not stand for reelection at the AGM on 15 April 2009. 2008: Peter Kurer was the only
executive member in office on 31 December 2008; Marcel Ospel did not stand for reelection at the AGM on 23 April 2008 and Stephan Haeringer stepped down during the year as a member of the BoD,
and both of these payments are pro-rata for the four and nine months, respectively, in their functions.
Explanation of the tables outlining compensation details of executive members of
the BoD and members of the GEB:
a. Local currencies are converted into CHF using the exchange rates as detailed in “Note 39 Currency translation rates” in the “Financial informa-
tion” section of this report.
b. The entire cash incentive is only paid out over a three-year period and is subject to forfeiture.
c. Values per performance share at grant: CHF 16.30 for PEP awards and CHF 22.20 for IPP awards granted in 2010 related to the performance year
2009. These are based on the performance share valuation which will be used for accounting purposes under IFRS 2. The valuation was carried out
by PricewaterhouseCoopers and takes into account the relevant performance conditions, targets set, and the range of possible outcomes for these.
d. No options were granted in 2010 for the performance year 2009.
e. Benefits in kind – car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits and gen-
eral expense allowances – are all valued at market price.
f. Swiss executives participate in the same pension plan as all other employees. Under this plan, employees receive a company contribution to
the plan which covers compensation up to CHF 820,800. The retirement benefits consist of a pension, a bridging pension and a one-off
payout of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security
contributions (AHV, ALV) but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribu-
tion is included in the base salary and annual incentive award components.
In both the US and the UK, executives participate in the same plans as all other employees. In the US the plans differ between the two business
divisions. For each business division there are two different plans. The grandfathered plans, which are no longer open to new hires, operate, de-
pending on the business division, either on a cash balance basis or a career average salary basis and participants accrue a pension based on their
annual compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). In the defined contribution plan,
participants receive company contributions to the plan based on compensation limited to USD 245,000. US management may also participate in
a 401(k) defined contribution plan (open to all employees), which provides a company matching contribution for employee contributions. In the
UK, management participates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap
of GBP 100,000, or a grandfathered defined benefit plan which provides a pension on retirement based on career average base salary (uncapped).
381
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Financial information
UBS AG (Parent Bank)
Remuneration details and additional information for independent members of the BoD
CHF, except where indicated a
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p
m
o
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e
t
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i
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e
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a
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o
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a
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&
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o
C
k
s
i
R
y
g
e
t
a
r
t
S
e
t
t
i
e For the
period
AGM to
AGM
m
m
o
C
Base fee
Committee
retainer(s)
Benefits
in kind
M
M
M
M
C
M
M
M
M
M
M
C
M
M
M
M
M
M
2009/2010 325,000
M 2008/2009 325,000
100,000
200,000
2009/2010
2008/2009 325,000
2009/2010 325,000
2008/2009 162,500
200,000
350,000
75,000
2009/2010 325,000
200,000
2008/2009
M
M
2009/2010 325,000
M 2008/2009 162,500
2009/2010 325,000
2008/2009 162,500
2009/2010 325,000
2008/2009
2009/2010
200,000
150,000
200,000
100,000
250,000
2008/2009 325,000
M
2009/2010 325,000
250,000
200,000
M
M
C
C
2008/2009
2009/2010
2008/2009 162,500
2009/2010 325,000
2008/2009 325,000
2009/2010 325,000
2008/2009 162,500
2009/2010 325,000
2008/2009 325,000
2009/2010
2008/2009 162,500
2009/2010 325,000
M 2008/2009 325,000
2009/2010
150,000
300,000
300,000
300,000
100,000
400,000
450,000
0
100,000
400,000
C
M
2008/2009 325,000
300,000
2008/2009 162,500
100,000
2009/2010
M
M
M
M
C
M
C
M
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Additional
payments
250,000 6
250,000 6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Share
percent-
age 3
100
Number of
shares 4,5
51,845
100
76,228
100
50
50
50
100
50
50
50
50
51,596
27,261
12,280
21,203
40,301
16,158
21,203
13,572
23,222
Total
675,000
775,000
525,000
675,000
237,500
525,000
525,000
312,500
525,000
262,500
575,000
575,000
525,000
50
100
29,731
40,301
312,500
625,000
625,000
625,000
262,500
725,000
775,000
162,500
425,000
725,000
50
50
50
50
50
50
50
100
50
50
16,158
25,242
32,316
25,242
13,572
29,281
40,072
15,945
17,164
37,487
262,500
50
13,572
50
32,316
625,000
6,425,000
6,437,500
Name, function 1
Sergio Marchionne,
Senior Independent
Director, Vice Chairman
Ernesto Bertarelli,
former member
Sally Bott,
member2
Michel Demaré,
member
Rainer-Marc Frey,
member2
Bruno Gehrig,
member2
Ann F. Godbehere,
member
Gabrielle Kaufmann-
Kohler, former member
Axel P. Lehmann,
member
Rolf A. Meyer,
former member2
Helmut Panke,
member
William G. Parrett,
member2
David Sidwell,
member
Peter Spuhler,
former member2
Peter R. Voser,
member
Lawrence A. Weinbach,
former member2
Joerg Wolle,
former member
Total 2009
Total 2008
Legend: C = Chairperson of the respective committee; M = Member of the respective committee
1 There were 11 independent BoD members in office on 31 December 2009. Michel Demaré, Ann F. Godbehere and Axel P. Lehmann were appointed at the AGM on 15 April 2009 and Ernesto Berta relli,
Gabrielle Kaufmann-Kohler and Joerg Wolle stepped down from the BoD at the AGM on 15 April 2009. There were 11 independent BoD members in office on 31 December 2008. David Sidwell was
appointed at the AGM on 23 April 2008, and Rolf A. Meyer, Peter Spuhler and Lawrence A. Weinbach stepped down from the BoD at the EGM on 2 October 2008. Sally Bott, Rainer-Marc Frey, Bruno
Gehrig and William G. Parrett were appointed at the EGM on 2 October 2008. 2 Remuneration for 2008 / 2009 is for six months only, as such members either stepped down or were appointed on 2
October 2008. 3 Fees are paid 50% in cash and 50% in restricted UBS shares. However, independent BoD members can elect to have 100% of their remuneration paid in restricted UBS shares. 4 For
2009, shares valued at CHF 14.57 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2010) included a price discount of 15%, for a new value of discount price
CHF 12.38. These shares are blocked for four years. For 2008, shares valued at CHF 11.38 (average price of UBS shares at virt-x, now SIX Swiss Exchange, over the last 10 trading days of February 2009)
included a price discount of 15%, discount price for a new value of CHF 9.67. These shares are blocked for four years. 5 Number of shares is reduced in case of the 100% election to deduct social
security contribution. All remuneration payments are submitted to social security contribution / withholding tax. 6 This payment is associated with the Senior Independent Director function.
In addition, for 2008 / 2009 only, one-off cash payments were made to the Chairmen of the RC (CHF 500,000), the GNC (CHF 300,000) and the HRCC (CHF 200,000). These payments reflect the sub-
stantial workload of setting up the new RC, and expanding the mandate of the GNC and the HRCC.
382
Total payments to all members of the BoD
CHF, except where indicated a
Aggregate of all members of the BoD
Aggregate of all members of the BoD
For the
year ended
2009
2008
Total
7,895,579
10,267,240
Total compensation for all members of the GEB
CHF, except where indicated a
Name, function
For the
year ended
Base salary
Annual
incentive
award CBP
and cash b
Annual
incentive
award PEP c
Annual
incentive
award IPP c
Contributions
to retirement
benefits
plans f
Benefits
in kind e
Total
Carsten Kengeter, co-CEO Investment Bank
(highest-paid)
Marcel Rohner, Group Chief Executive Officer
(highest-paid)
Aggregate of all members of the GEB who
were in office on 31 December 2009 1
Aggregate of all members of the GEB who
were in office on 31 December 2008 1
Aggregate of all members of the GEB who
stepped down during 2009 2
Aggregate of all members of the GEB who
stepped down during 2008 2
2009
2008
2009
2008
2009
2008
669,092
5,003,470
6,155,869
1,349,336
0
12,545
13,190,312
1,500,000
0
0
0
161,768
152,934
1,814,702
12,000,055
25,734,711
13,453,424 3
15,696,333
270,971
1,551,068
68,706,562
7,815,943
0
2,447,544
38,443,097
1,614,871
0
0
0
0
0
0
0
457,652
817,315
9,090,911
215,151
171,122
41,276,914
234,838
258,423
2,108,132
1 Numbers and distribution of GEB members in 2009: 13 GEB members in office on 31 December. 2008: 12 GEB members in office on 31 December. 2 Number and distribution of GEB members in
2009: includes two months in office as a GEB member for Marcel Rohner, three months in office for Walter H. Stürzinger and Raoul Weil, four months in office for Jerker Johansson, six months in office
for Rory Tapner and ten for Marten Hoekstra. 2008: includes four months in office as a GEB member for Peter Kurer, eight months in office for Marco Suter and ten months for Joe Scoby. 3 Included in
the share awards are SEEOP awards at a fair value of GBP 4,655,950 and EOP awards at a fair value of GBP 1,594,250.
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383
Financial information
UBS AG (Parent Bank)
Share and option ownership of members of the BoD on 31 December 2008 / 2009
Name, function 1
Kaspar Villiger, Chairman
Sergio Marchionne,
Senior Independent Director, Vice Chairman
Ernesto Bertarelli, former member 4
Sally Bott, member
Michel Demaré, member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Gabrielle Kaufmann-Kohler, former member 4
Peter Kurer, former Chairman 4
Axel P. Lehmann, member
Helmut Panke, member
William G. Parrett, member
David Sidwell, member
Peter R. Voser, member
Joerg Wolle, former member 4
For the
year ended
Number of
shares held
Voting rights
in %
Number of
options held
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
22,500
–
164,154
87,926
–
89,434
12,281
1
2,500
–
16,158
0
16,572
3,000
0
–
–
18,713
–
416,088
18,151
–
64,287
31,971
17,573
4,000
40,073
1
68,310
30,823
–
41,509
0.001
0.009
0.005
0.005
0.001
0.000
0.000
0.001
0.000
0.001
0.000
0.000
0.001
0
–
0
0
–
0
0
0
0
–
0
0
0
0
0
–
–
0
–
0.025
372,995
0.001
0.003
0.002
0.001
0.000
0.002
0.000
0.004
0.002
0.002
0
–
0
0
0
0
0
0
0
0
–
0
Potentially conferred
voting rights in % 2
0.000
Type and quantity
of options 3
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.022
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
xli:
xlvii:
lvi:
lxiv:
85,256
95,913
95,913
95,913
1 This table includes vested, unvested, blocked and unblocked shares and options held by members of the BoD including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity
participation and other compensation plans” in the “Financial information” section of this report for more information on stock option plans. 4 Members of the BoD who stepped down at the AGM 2009.
384
Compensation paid to former members of the BoD and GEB1
CHF, except where indicated a
Name, function
Georges Blum, former member of the BoD
(Swiss Bank Corporation)
Franz Galliker, former member of the BoD
(Swiss Bank Corporation)
Walter G. Frehner, former member of the BoD
(Swiss Bank Corporation)
Hans (Liliane) Strasser, former member of the BoD
(Swiss Bank Corporation)
Robert Studer, former member of the BoD
(Union Bank of Switzerland)
Alberto Togni, former member of the BoD
(UBS)
Philippe (Alix) de Weck, former member of the BoD
(Union Bank of Switzerland)
Aggregate of all former members of the GEB 2
Aggregate of all former members of the BoD and GEB
For the
year ended
Compensation
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
320,136
318,461
0
0
320,136
318,461
Benefits
in kind
92,399
101,579
10,659
69,596
25,371
74,663
9,758
32,673
18,751
126,208
355,983
427,949
93,135
109,703
18,293
171,180
624,349
Total
92,399
101,579
10,659
69,596
25,371
74,663
9,758
32,673
18,751
126,208
676,119
746,410
93,135
109,703
18,293
171,180
944,485
1,113,551
1,432,012
1 Compensation or remuneration that is connected with the former members’ activity on the BoD or GEB, or that is not at market conditions. 2 Includes two former GEB members.
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385
Financial information
UBS AG (Parent Bank)
Share and option ownership of members of the GEB on 31 December 2008 / 2009
Name, function 1
Oswald J. Grübel,
Group Chief Executive Officer
Marcel Rohner,
former Group Chief Executive Officer 4
2009
2008
2009
2008
For the
year ended
Number of
shares held
Voting rights
in %
Number of
options held
Potentially conferred
voting rights in % 2
0.217
Type and
quantity of
options 3
lxx: 4,000,000
0
–
–
0.000
4,000,000
–
–
711,366
0.042
1,055,043
0.063
John Cryan,
Group Chief Financial Officer
2009
235,929
0.013
382,673
0.021
2008
235,929
0.014
382,673
0.023
Markus U. Diethelm,
Group General Counsel
John A. Fraser,
Chairman and CEO Global Asset Management
2009
2008
2009
112,245
112,245
480,464
0.006
0.007
0.027
0
0
1,088,795
0.000
0.000
0.059
386
31,971
xxxii:
xli:
213,140
xlvii: 277,082
lvi:
319,710
lxiv: 213,140
21,362
iii:
20,731
iv:
20,725
vii:
5,454
xii:
5,294
xiii:
5,292
xvi:
23,626
xxi:
23,620
xxiii:
23,612
xxvi:
5,526
xxviii:
5,524
xxix:
xxx:
5,524
xxxviii: 17,072
17,068
xl:
17,063
xlii:
14,210
xliv:
14,210
xlv:
14,207
xlvi:
5,330
liii:
5,328
liv:
5,326
lv:
17,762
lxi:
17,762
lxii:
17,760
lxiii:
53,285
lxvi:
iii:
21,362
iv:
20,731
vii:
20,725
xii:
5,454
xiii:
5,294
xvi:
5,292
xxi:
23,626
xxiii:
23,620
xxvi:
23,612
xxviii:
5,526
xxix:
5,524
5,524
xxx:
xxxviii: 17,072
17,068
xl:
17,063
xlii:
14,210
xliv:
14,210
xlv:
14,207
xlvi:
5,330
liii:
5,328
liv:
5,326
lv:
17,762
lxi:
17,762
lxii:
17,760
lxiii:
53,285
lxvi:
viii:
76,380
127,884
xix:
xxv: 127,884
xliii: 170,512
xlviii: 202,483
lvi:
213,140
lxiv: 170,512
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
Name, function 1
John A. Fraser,
Chairman and CEO Global Asset Management
For the
year ended
2008
Number of
shares held
561,216
Voting rights
in %
Number of
options held
0.035
1,144,808
Potentially conferred
voting rights in % 2
0.068
Marten Hoekstra,
former CEO Wealth Management US 4
2009
2008
–
245,397
–
0.015
684,168
0.041
Type and
quantity of
options 3
56,013
i:
76,380
viii:
xix:
127,884
xxv: 127,884
xliii: 170,512
xlviii: 202,483
lvi:
213,140
lxiv: 170,512
ii:
8,679
vi:
8,421
ix:
8,421
xi:
8,823
xiv:
4,262
xv:
8,563
8,561
xviii:
xxxiii: 42,628
53,285
xliii:
53,285
xlviii:
lvi:
85,256
lxiv: 154,931
lxvii: 239,053
Jerker Johansson,
former Chairman and CEO Investment Bank 4
Carsten Kengeter,
co-CEO Investment Bank
Ulrich Körner,
Group Chief Operating Officer
Philip J. Lofts,
Group Chief Risk Officer
2009
2008
2009
2008
2009
2008
2009
–
521,544
516,909
–
0
–
0.031
0.028
0.000
–
753,410
905,000
–
0
–
179,234
0.010
577,723
0.045
lxviii: 745,990
7,420
lxix:
0.049
lxxi: 905,000
0.000
0.031
2008
186,434
0.011
577,723
0.034
11,445
iii:
11,104
iv:
11,098
vii:
1,240
xii:
5,464
xiii:
1,199
xvi:
9,985
xxi:
9,980
xxiii:
9,974
xxvi:
1,833
xxviii:
1,830
xxix:
xxx:
1,830
xxxviii: 35,524
35,524
xl:
xlii:
35,521
xlvii: 117,090
117,227
lvi:
85,256
lxiv:
74,599
lxvii:
11,445
iii:
11,104
iv:
11,098
vii:
1,240
xii:
5,464
xiii:
1,199
xvi:
9,985
xxi:
9,980
xxiii:
9,974
xxvi:
1,833
xxviii:
1,830
xxix:
xxx:
1,830
xxxviii: 35,524
35,524
xl:
xlii:
35,521
xlvii: 117,090
117,227
lvi:
85,256
lxiv:
74,599
lxvii:
387
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Financial information
UBS AG (Parent Bank)
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
Name, function 1
Robert J. McCann,
CEO Wealth Management Americas
Franco Morra,
CEO UBS Switzerland
Walter H. Stürzinger,
former Chief Operating Officer, Corporate Center 4
Rory Tapner,
former Chairman and CEO Asia Pacific 4
Raoul Weil,
former Chairman and CEO Global Wealth
Management & Business Banking 4
Alexander Wilmot-Sitwell,
co-CEO Investment Bank
For the
year ended
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
Number of
shares held
602,481
–
153,860
Voting rights
in %
Number of
options held
0.033
0
–
Potentially conferred
voting rights in % 2
0.000
0.008
325,086
0.018
–
–
–
–
296,886
0.018
372,995
0.022
–
827,809
–
315,698
–
0.049
1,379,533
0.082
–
0.019
432,409
0.026
2009
286,767
0.016
353,807
0.019
2008
304,655
0.018
353,807
0.021
Robert Wolf,
Chairman and CEO, UBS Group Americas /
President Investment Bank
2009
785,631
0.043
948,473
0.051
2008
827,307
0.049
948,473
0.056
Type and
quantity of
options 3
43,911
lvi:
lxiv:
66,866
lxvii: 114,309
lxxii: 100,000
xx:
xli:
xlvii:
lvi:
lxiv:
31,971
63,942
85,256
95,913
95,913
281,862
vii:
xix:
213,140
xxxi: 213,140
xli:
170,512
xlvii: 159,855
170,512
lvi:
lxiv: 170,512
xix:
53,285
xlvii: 102,281
127,884
lvi:
lxiv: 148,959
xlvi:
53,282
xlix:
2,130
liii:
35,524
liv:
35,524
35,521
lv:
lxiv: 106,570
85,256
lxvii:
53,282
xlvi:
2,130
xlix:
35,524
liii:
35,524
liv:
lv:
35,521
lxiv: 106,570
85,256
lxvii:
xxv: 287,739
xliii: 213,140
xlviii: 127,884
lvi:
106,570
lxiv: 106,570
lxvii: 106,570
xxv: 287,739
xliii: 213,140
xlviii: 127,884
lvi:
106,570
lxiv: 106,570
lxvii: 106,570
388
Share and option ownership of members of the GEB on 31 December 2008 / 2009 (continued)
Name, function 1
Chi-Won Yoon,
Chairman and CEO Asia Pacific
For the
year ended
2009
Number of
shares held
367,573
Voting rights
in %
Number of
options held
0.020
623,253
Potentially conferred
voting rights in % 2
0.034
Jürg Zeltner,
CEO Wealth Management
2008
2009
–
16,502
–
0.001
205,470
0.011
Type and
quantity of
options 3
11,577
i:
11,229
v:
11,227
viii:
2,252
x:
6,446
xiv:
2,184
xvii:
8,648
xxii:
8,642
xxiv:
8,635
xxvii:
4,262
xxxiv:
3,374
xxxv:
3,371
xxxvi:
xxxvii:
3,371
xxxviii: 6,200
4,262
xxxix:
6,198
xl:
6,195
xlii:
10,659
xliv:
10,657
xlv:
10,654
xlvi:
21,316
liii:
21,314
liv:
21,311
lv:
8,881
lxi:
8,880
lxii:
8,880
lxiii:
lxvi:
42,628
lxxii: 350,000
iii:
iv:
vii:
xlii:
xliv:
xlv:
xlvi:
xlix:
l:
li:
lii:
liii:
liv:
lv:
lvii:
lviii:
lix:
lx:
lxi:
lxii:
lxiii:
lxv:
lxvii:
lxxii:
809
784
784
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
223
42,628
90,000
1 This table includes vested and unvested shares and options held by members of the GEB, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation
and other compensation plans“ in the “Financial information” section of this report for more information. 4 GEB members who stepped down during 2009.
2008
–
–
n
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a
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o
f
n
i
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a
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n
a
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i
F
389
Financial information
UBS AG (Parent Bank)
Vested and unvested options held by independent members of the BoD and
by members of the GEB on 31 December 2008 / 2009
Type
Number of options
Year of grant
Vesting date
Expiry date
Subscription ratio
i
ii
iii
iv
v
vi
vii
viii
ix
x
xi
xii
xiii
xiv
xv
xvi
xvii
xviii
xix
xx
xxi
xxii
xxiii
xxiv
xxv
xxvi
xxvii
xxviii
xxix
xxx
xxxi
xxxii
xxxiii
xxxiv
xxxv
xxxvi
xxxvii
xxxviii
xxxix
xl
xli
xlii
xliii
xliv
xlv
xlvi
xlvii
xlviii
xlix
l
li
390
11,577
8,679
33,616
32,619
11,229
8,421
314,469
87,607
8,421
2,252
8,823
6,694
10,758
10,708
8,563
6,491
2,184
8,561
394,309
31,971
33,611
8,648
33,600
8,642
415,623
33,586
8,635
7,359
7,354
7,354
213,140
31,971
42,628
4,262
3,374
3,371
3,371
58,796
4,262
58,790
532,850
63,751
436,937
31,975
31,970
85,246
837,477
383,652
2,223
161
149
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2004
2004
2004
2004
2004
2004
2005
2005
2005
2005
2005
2005
2005
2005
31.01.2002
31.01.2002
31.01.2003
31.01.2004
31.01.2004
31.01.2004
31.01.2005
31.01.2005
31.01.2005
28.02.2002
28.02.2002
28.02.2003
28.02.2004
29.02.2004
29.02.2004
28.02.2005
28.02.2005
28.02.2005
28.06.2005
28.06.2005
01.03.2004
01.03.2004
01.03.2005
01.03.2005
31.01.2006
01.03.2006
01.03.2006
01.03.2004
01.03.2005
01.03.2006
31.01.2006
31.01.2006
31.01.2006
28.02.2005
01.03.2004
01.03.2005
01.03.2006
01.03.2005
27.02.2006
01.03.2006
28.02.2007
01.03.2007
01.03.2007
01.03.2006
01.03.2007
01.03.2008
01.03.2008
01.03.2008
04.03.2007
06.06.2007
09.09.2007
31.01.2012
31.07.2012
31.01.2012
31.01.2012
31.01.2012
31.07.2012
31.01.2012
31.01.2012
31.07.2012
28.02.2012
28.08.2012
28.02.2012
28.02.2012
28.02.2012
28.08.2012
28.02.2012
28.02.2012
28.08.2012
28.06.2012
28.12.2012
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
31.01.2013
28.02.2013
28.02.2013
28.02.2013
31.01.2013
31.07.2013
31.07.2013
28.02.2013
28.02.2013
28.02.2013
28.02.2013
27.02.2014
27.02.2014
27.02.2014
27.02.2014
27.02.2014
27.02.2014
28.02.2015
28.02.2015
28.02.2015
28.02.2015
28.02.2015
04.03.2015
06.06.2015
09.09.2015
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
Strike price
USD 21.24
USD 21.24
CHF 36.49
CHF 36.49
USD 21.24
USD 21.24
CHF 36.49
USD 21.24
USD 21.24
USD 21.70
USD 21.70
CHF 36.65
CHF 36.65
USD 21.70
USD 21.70
CHF 36.65
USD 21.70
USD 21.70
CHF 37.90
CHF 37.90
CHF 27.81
USD 20.49
CHF 27.81
USD 20.49
USD 22.53
CHF 27.81
USD 20.49
CHF 26.39
CHF 26.39
CHF 26.39
CHF 30.50
CHF 30.50
USD 22.53
USD 19.53
USD 19.53
USD 19.53
USD 19.53
CHF 44.32
CHF 44.32
CHF 44.32
CHF 48.69
CHF 44.32
USD 38.13
CHF 47.58
CHF 47.58
CHF 47.58
CHF 52.32
USD 44.81
CHF 47.89
CHF 45.97
CHF 50.47
Vested and unvested options held by independent members of the BoD and
by members of the GEB on 31 December 2008 / 2009 (continued)
Type
lii
liii
liv
lv
lvi
lvii
lviii
lix
lx
lxi
lxii
lxiii
lxiv
lxv
lxvi
lxvii
lxviii
lxix
lxx
lxxi
lxxii
Number of options
Year of grant
Vesting date
Expiry date
Subscription ratio
Strike price
127
69,276
69,269
69,261
1,376,036
110
242
230
221
33,748
33,747
33,743
1,415,142
223
95,913
662,415
745,990
7,420
4,000,000
905,000
540,000
2005
2006
2006
2006
2006
2006
2006
2006
2006
2007
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
05.12.2007
01.03.2007
01.03.2008
01.03.2009
01.03.2009
03.03.2008
09.06.2008
08.09.2008
08.12.2008
01.03.2008
01.03.2009
01.03.2010
01.03.2010
02.03.2009
01.03.2011
01.03.2011
01.03.2011
01.03.2011
26.02.2009
01.03.2012
01.03.2012
05.12.2015
28.02.2016
28.02.2016
28.02.2016
28.02.2016
03.03.2016
09.06.2016
08.09.2016
08.12.2016
28.02.2017
28.02.2017
28.02.2017
28.02.2017
02.03.2017
28.02.2018
28.02.2018
07.04.2018
06.06.2018
25.02.2014
27.12.2019
27.02.2019
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
1:1
CHF 59.03
CHF 65.97
CHF 65.97
CHF 65.97
CHF 72.57
CHF 65.91
CHF 61.84
CHF 65.76
CHF 67.63
CHF 67.00
CHF 67.00
CHF 67.00
CHF 73.67
CHF 67.08
CHF 32.45
CHF 35.66
CHF 36.46
CHF 28.10
CHF 10.10
CHF 40.00
CHF 11.35
n
o
i
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a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
391
Financial information
UBS AG (Parent Bank)
Loans granted to members of the BoD on 31 December 2008 / 2009
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Sergio Marchionne, Senior Independent Director, Vice Chairman
Ernesto Bertarelli, former member 3
Sally Bott, member
Michel Demaré, member
Rainer-Marc Frey, member
Bruno Gehrig, member 2
Ann F. Godbehere, member
Gabrielle Kaufmann-Kohler, former member 3
Peter Kurer, former Chairman 2,3
Axel P. Lehmann, member
Helmut Panke, member
William G. Parrett, member 2
David Sidwell, member
Peter R. Voser, member
Joerg Wolle, former member 3
Aggregate of all members of the BoD
Aggregate of all members of the BoD
For the
year ended
Secured loans
Other loans
granted
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
0
0
0
0
–
0
0
0
850,000
0
0
0
798,000
798,000
0
0
–
0
–
1,261,000
0
0
0
0
1,260,731
1,167,659
0
0
0
0
–
0
2,908,731
3,226,659
0
0
0
0
–
0
0
0
0
0
0
0
0
0
0
0
–
0
–
0
0
0
0
0
0
0
0
0
0
0
–
0
0
0
Total
0
0
0
0
–
0
0
0
850,000
0
0
0
798,000
798,000
0
0
–
0
–
1,261,000
0
0
0
0
1,260,731
1,167,659
0
0
0
0
–
0
2,908,731
3,226,659
1 No loans have been granted to related parties of the members of the BoD at conditions not customary in the market. 2 Secured loans granted prior to their election to the BoD. 3 Including those
members of the BoD who stepped down at the AGM 2009.
Loans granted to members of the GEB on 31 December 2008 / 2009
CHF, except where indicated a
Name, function 1
Jürg Zeltner, CEO Wealth Management
Markus U. Diethelm, Group General Counsel
Aggregate of all members of the GEB 3
Aggregate of all members of the GEB 4
For the
year ended
2009
2008
2009
2008
Secured loans
5,800,202
3,900,000
15,356,483
7,740,562
Other loans
granted 2
0
0
0
0
Total
5,800,202
3,900,000
15,356,483
7,740,562
1 No loans have been granted to related parties of the members of the GEB at conditions not customary in the market. 2 Guarantees. 3 Including those members of the GEB who stepped down
during 2009. 4 Including those members of the GEB who stepped down during 2008.
392
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Financial information
UBS AG (Parent Bank)
394
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Financial information
UBS AG (Parent Bank)
396
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397
Additional disclosure required
under SEC regulations
A – Introduction
The following pages contain additional disclosures about
UBS Group which are required under SEC regulations.
UBS’s consolidated Financial Statements have been pre-
pared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) and are denominated in Swiss francs
(CHF), the reporting currency of the Group.
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Financial information
Additional disclosure required under SEC regulations
B – Selected financial data
The tables below set forth, for the periods and dates indi-
cated, 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 26 February 2010 the noon buying rate was 0.9336 USD
per 1 CHF.
Year ended 31 December
2005
2006
2007
2008
2009
Month
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
1 The average of the noon buying rates on the last business day of each full month during the relevant period.
Average rate 1
(USD per 1 CHF)
At period end
0.8010
0.8034
0.8381
0.9298
0.9260
0.7606
0.8200
0.8827
0.9369
0.9654
High
0.8721
0.8396
0.9087
1.0142
1.0016
High
0.9768
0.9936
0.9996
1.0016
0.9848
0.9472
Low
0.7544
0.7575
0.7978
0.8171
0.8408
Low
0.9387
0.9593
0.9703
0.9532
0.9472
0.9210
400
Key figures
CHF million, except where indicated
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
As of or for the year ended
Balance sheet data
Total assets
Equity attributable to UBS shareholders
Average equity to average assets (%)
Market capitalization
Shares
Registered ordinary shares
Treasury shares
BIS capital ratios
Tier 1 (%)
Total BIS (%)
Risk-weighted assets
Invested assets (CHF billion)
Personnel (full-time equivalents)
Switzerland
United Kingdom
Rest of Europe
Middle East / Africa
United States
Rest of Americas
Asia Pacific
Total
Long-term ratings 2
Fitch, London
Moody’s, New York
Standard & Poor’s, New York
1,340,538
2,014,815
2,274,891
2,348,733
2,001,099
41,013
1.9
57,108
32,531
1.5
43,519
36,875
1.8
108,654
51,037
2.0
154,222
45,633
1.9
131,949
3,558,112,753
2,932,580,549
2,073,547,344
2,105,273,286
2,177,265,044
37,553,872
61,903,121
158,105,524
164,475,699
208,519,748
15.4
19.8
206,525
2,233
24,050
6,204
4,145
134
22,702
1,132
6,865
65,233
A+
Aa3
A+
11.0
15.0
302,273
2,174
26,406
7,071
4,817
145
27,362
1,984
9,998
77,783
A+
Aa2
A+
9.1 1
12.2 1
374,421 1
3,189
27,884
8,813
4,776
139
29,921
2,054
9,973
83,560
AA
Aaa
AA
12.2 1
15.0 1
344,015 1
2,989
27,022
8,243
4,338
102
29,076
1,743
7,616
78,140
AA+
Aa2
AA+
13.3 1
14.5 1
312,532 1
2,652
26,029
7,135
3,759
112
25,999
1,137
5,398
69,569
AA+
Aa2
AA+
1 The calculation prior to 2008 is based on the Basel I approach. 2 Refer to the “Credit risk” section of this report for information about the nature of these ratings.
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Financial information
Additional disclosure required under SEC regulations
Income statement data
CHF million, except where indicated
31.12.09
31.12.08
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
Total operating expenses
Operating profit from continuing operations before tax
Tax expense
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to minority interests
Net profit attributable to UBS shareholders
Cost / income ratio (%) 1
Per share data (CHF)
Basic earnings per share 2
Diluted earnings per share 2
Operating profit before tax per share
Cash dividends declared per share (CHF) 3,4
Cash dividend declared per share (USD) 3,4
Dividend payout ratio (%) 3,4
Rates of return (%)
Return on equity attributable to UBS shareholders 5
Return on average equity
Return on average assets
23,461
(17,016)
6,446
(1,832)
4,614
17,712
(324)
599
22,601
25,162
(2,561)
(443)
(2,118)
(7)
(2,125)
610
(2,736)
103.0
(0.75)
(0.75)
(0.70)
N/A
N/A
N/A
(7.8)
(7.9)
(0.1)
65,679
(59,687)
5,992
(2,996)
2,996
22,929
(25,820)
692
796
28,555
(27,758)
(6,837)
(20,922)
198
(20,724)
568
(21,292)
753.0
(7.63)
(7.63)
(9.94)
N/A
N/A
N/A
(58.7)
(60.6)
(0.9)
For the year ended
31.12.07
109,112
(103,775)
31.12.06
87,401
(80,880)
31.12.05
59,286
(49,758)
5,337
(238)
5,099
30,634
(8,353)
4,341
31,721
35,463
(3,742)
1,369
(5,111)
403
(4,708)
539
(5,247)
111.0
(2.40)
(2.41)
(1.71)
N/A
N/A
N/A
(10.5)
(10.6)
(0.2)
6,521
156
6,677
25,456
13,743
1,608
47,484
33,365
14,119
2,998
11,121
899
12,020
493
11,527
70.5
5.15
4.95
6.30
2.20
1.83
42.7
23.8
24.0
0.5
9,528
375
9,903
21,184
8,248
1,135
40,470
28,533
11,937
2,270
9,667
4,526
14,193
661
13,532
71.2
5.93
5.70
5.23
1.60
1.26
27.0
34.0
34.4
0.7
1 Operating expenses / operating income before credit loss expense. 2 For EPS calculation, refer to Note 8 in the Financial Statements. 3 Additionally, in July 2006, a par value reduction of CHF 0.30
(USD 0.24) per share was distributed. Dividends are normally declared and paid in the year subsequent to the reporting period. 4 For the business year 2007 a stock dividend was distributed for which
98,698,754 new shares were issued on 19 May 2008 to UBS shareholders with an exchange ratio of 20:1. 5 Net profit attributable to UBS shareholders / average equity attributable to UBS shareholders.
Calculation excludes expected deductions for dividend distributions.
402
Balance sheet data
CHF million
Assets
Total assets
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Trading portfolio assets pledged as collateral
Positive replacement values
Loans
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Financial liabilities designated at fair value
Due to customers
Debt issued
Equity attributable to UBS shareholders
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
For the year ended
1,340,538
2,014,815
2,274,891
2,348,733
2,001,099
46,574
63,507
116,689
188,037
44,221
421,694
306,828
65,166
7,995
64,175
47,469
409,943
112,653
410,475
131,352
41,013
64,451
122,897
224,648
271,838
40,216
854,100
340,308
125,628
14,063
102,561
62,431
851,864
101,546
465,741
197,254
32,531
60,907
207,063
376,928
660,182
114,190
428,217
335,864
145,762
31,621
305,887
164,788
443,539
191,853
630,105
222,077
36,875
50,426
351,590
405,834
648,346
230,168
292,975
297,842
203,689
63,088
545,480
204,773
297,063
145,687
546,154
190,143
51,037
33,644
288,435
404,432
499,297
154,759
273,889
279,910
124,328
59,938
478,508
188,631
277,770
117,401
461,425
160,710
45,633
Ratio of earnings to fixed charges
The following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios
are calculated based on earnings from continuing operations. Ratios of earnings to combined fixed charges and preferred
stock dividend requirements are not presented as there were no preferred share dividends in any of the periods indicated.
31.12.09
0.82
31.12.08
0.53
31.12.07
0.96
31.12.06
1.17
31.12.05
1.23
For the year ended
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403
Financial information
Additional disclosure required under SEC regulations
C – Information on the company
Property, plant and equipment
At 31 December 2009, UBS operated about 973 business
and banking locations worldwide, of which about 42%
were in Switzerland, 41% in the Americas, 12% in the rest
of Europe, Middle East and Africa and 5% in Asia-Pacific.
Of the business and banking locations in Switzerland, 37%
were owned directly by UBS, with the remainder, along
with most of UBS’s offices outside Switzerland, being held
under commercial leases.
These premises are subject to continuous maintenance
and upgrading and are considered suitable and adequate
for current and anticipated operations.
404
D – Information required by industry guide 3
Selected statistical information
The tables below set forth selected statistical information re-
garding the Group’s banking operations extracted from the
Financial Statements. Unless otherwise indicated, average
balances for the years ended 31 December 2009, 31 Decem-
ber 2008 and 31 December 2007 are calculated from
monthly data. The distinction between domestic and foreign
is generally based on the booking location. For loans, this
method is not significantly different from an analysis based
on the domicile of the borrower.
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 2009, 2008 and 2007.
CHF million, except where indicated
Assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and
reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Total interest-earning assets
Net interest on swaps
Interest income and average
interest-earning assets
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
Average
balance
31.12.09
Interest
Average
rate (%)
Average
balance
31.12.08
Interest
Average
rate (%)
Average
balance
31.12.07
Interest
Average
rate (%)
3,420
52,668
200
321
10,029
381,049
10,976
270,674
2,160
244
2,385
228
6,915
7
272,834
6,922
5.8
0.6
2.4
0.6
2.1
2.6
0.3
2.5
7,243
58,287
421
1,559
31,642
669,010
15,104
522,804
8,070
1,208
21,313
520
21,494
383
530,874
21,877
548
11,674
0
316
945
2.7
11,024
179,680
151,584
5,532
4,946
991
28,295
0
28,295
1,103,748
21
143
143
21,258
2,203
3.1
3.3
2.1
0.5
0.5
1.9
188,950
147,034
1,599
3,370
0
3,370
1,665,082
0
404
6,840
8,304
72
73
73
62,591
3,088
5.8
2.7
3.8
3.2
3.4
4.1
4.7
4.1
3.7
3.6
5.6
4.5
2.2
2.2
3.8
11,784
46,049
664
2,344
31,473
977,302
11,866
861,923
5,754
1,693
46,581
696
38,206
199
867,677
38,405
588
9,114
187,073
146,040
3,930
2,934
0
2,934
0
298
6,565
9,359
66
110
110
2,295,830
106,781
2,331
5.6
5.1
5.4
4.8
5.9
4.4
3.5
4.4
3.3
3.5
6.4
1.7
3.7
3.7
4.7
1,103,748
23,461
2.1
1,665,082
65,679
3.9
2,295,830
109,112
4.8
654,651
6,609
86,133
1,851,141
600,073
7,091
82,357
2,354,603
373,229
7,090
82,739
2,758,888
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Financial information
Additional disclosure required under SEC regulations
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
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
36,278
76,305
219
457
11,321
195,991
1,411
58,091
934
106,690
64,877
68,042
13,075
145,994
304,641
689
86,186
11,152
76,961
200
1,979
55
3,823
17
2,838
98
521
451
1,070
2,127
27
2,234
153
1,817
Total interest-bearing liabilities
1,112,644
17,016
Non-interest-bearing liabilities
Negative replacement values
Other
Total liabilities
Total equity
Total average liabilities and equity
Net interest income
Net yield on interest-earning assets
641,028
54,720
1,808,392
42,749
1,851,141
Average
balance
31.12.09
Interest
Average
rate (%)
Average
balance
31.12.08
Interest
Average
rate (%)
Average
balance
31.12.07
Interest
Average
rate (%)
0.6
0.6
1.8
1.0
3.9
6.6
1.8
2.7
0.2
0.8
3.4
0.7
0.7
3.9
2.6
1.4
2.4
1.5
51,027
88,798
1,503
3,423
31,269
397,453
1,026
15,097
5,525
132,901
1,444
151,324
56,730
65,073
35,575
157,378
394,151
1,735
134,920
5,766
74,531
256
8,906
69
7,229
495
604
1,081
2,180
11,044
63
6,216
148
2,527
1,628,222
59,687
605,990
77,476
2,311,688
42,915
2,354,603
2.9
3.9
3.3
3.8
4.6
6.7
4.8
4.8
0.9
0.9
3.0
1.4
2.8
3.6
4.6
2.6
3.4
3.7
60,858
146,286
2,477
8,008
47,041
752,616
1,902
38,680
5,561
328
214,326
15,484
1,503
173,162
64,568
75,587
41,056
181,211
418,558
2,228
144,546
4,235
70,079
79
7,580
736
502
1,206
2,444
16,388
98
8,643
115
1,549
2,222,210
103,775
382,115
98,951
2,703,276
55,612
2,758,888
4.1
5.5
4.0
5.1
5.9
7.2
5.3
4.4
1.1
0.7
2.9
1.3
3.9
4.4
6.0
2.7
2.2
4.7
6,446
5,992
5,337
0.6
0.4
0.2
The percentage of total average interest-earning assets at-
tributable to foreign activities was 81% for 2009 (85% for
2008 and 89% for 2007). The percentage of total average
interest-bearing liabilities attributable to foreign activities
was 81% for 2009 (84% for 2008 and 86% for 2007). All
assets and liabilities are translated into CHF at uniform
month-end rates. Interest income and interest expense are
translated at monthly average rates.
Average rates earned and paid on assets and liabilities can
change from period to period based on the changes in inter-
est rates in general, but are also affected by changes in the
currency mix included in the assets and liabilities. This is espe-
cially 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 insignifi-
cant and the impact from such income is therefore negligible.
406
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earn-
ing assets and interest-bearing liabilities, the changes in in-
terest income and expense due to changes in volume and
interest rates for the year ended 31 December 2009 com-
pared with the year ended 31 December 2008, and for the
year ended 31 December 2008 compared with the year end-
ed 31 December 2007. Volume and rate variances have been
calculated on movements in average balances and changes
in interest rates. Changes due to a combination of volume
and rates have been allocated proportionally. Refer to the
appropriate section of Industry Guide 3 for a discussion of
the treatment of impaired and non-performing loans.
CHF million
Interest income from interest-earning assets
Due from banks
Domestic
Foreign
Cash collateral on securities borrowed and reverse repurchase agreements
Domestic
Foreign
Trading portfolio assets
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Interest income
Domestic
Foreign
Total interest income from interest-earning assets
Net interest on swaps
Total interest income
2009 compared with 2008
2008 compared with 2007
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(222)
(152)
1
(1,086)
(221)
(1,238)
(254)
624
11
(1,409)
(243)
(785)
(821)
(9,215)
(143)
(964)
9
(494)
(485)
(9,713)
(18,928)
(14,798)
(10,470)
(25,268)
(140)
(152)
(292)
191
(10,337)
(4,242)
(14,579)
(14,921)
(278)
(98)
(376)
81
(367)
(1,791)
103
(176)
(16,712)
184
(10,615)
(4,340)
(14,955)
(14,840)
(1,688)
(16,528)
0
24
(334)
255
(27)
548
0
548
0
(112)
0
(88)
(974)
(3,613)
(1,308)
(3,358)
(24)
(478)
0
(478)
(51)
70
0
70
(2,836)
(38,497)
(41,333)
(885)
(42,218)
(1,544)
(19,155)
(20,699)
(1,292)
(19,342)
(20,634)
0
63
66
64
(40)
16
0
16
(28)
(28,871)
(28,899)
0
43
0
106
209
(1,119)
275
(1,055)
46
(53)
0
(53)
(595)
(14,696)
(15,291)
6
(37)
0
(37)
(623)
(43,567)
(44,190)
757
(43,433)
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Financial information
Additional disclosure required under SEC regulations
Analysis of changes in interest income and expense (continued)
2009 compared with 2008
2008 compared with 2007
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(428)
(487)
(856)
(2,479)
(1,284)
(2,966)
(403)
(3,162)
(168)
(826)
(631)
(5,462)
(13,118)
(18,113)
(658)
(7,656)
(189)
(5,012)
(24)
(12)
(71)
(28)
(201)
(5,083)
(52)
(2,142)
(2,249)
(4,391)
73
27
(675)
(575)
(470)
(110)
45
(535)
(2,506)
(6,411)
(397)
(83)
(630)
(1,110)
(8,917)
(38)
2
(36)
(2,242)
(1,740)
(3,982)
140
83
(135)
(793)
5
(710)
(2)
(5,863)
(3)
(961)
(86)
(74)
(159)
(319)
(952)
(22)
(578)
41
98
(1,772)
(19,962)
(21,734)
(1,732)
(19,205)
(20,937)
(3,504)
(39,167)
(42,671)
(1,339)
(29,531)
(30,870)
(571)
(1,423)
(245)
(5,470)
(70)
(715)
(7)
610
(155)
176
34
55
(974)
(4,585)
(876)
(23,583)
(72)
(6,578)
(10)
(351)
(241)
102
(125)
(264)
(4,392)
(5,344)
(13)
(1,849)
(35)
(2,427)
(8)
880
(859)
(12,359)
(13,218)
33
978
(2,198)
(41,890)
(44,088)
CHF million
Interest expense on interest-bearing liabilities
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Interest expense
Domestic
Foreign
Total interest expense
408
Deposits
The following table analyzes average deposits and the aver-
age rates on each deposit category listed below for the years
ended 31 December 2009, 2008 and 2007. 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 55,171 million, CHF 45,082 mil-
lion and CHF 72,849 million at 31 December 2009, 31 De-
cember 2008 and 31 December 2007, respectively.
CHF million, except where indicated
31.12.09
31.12.08
31.12.07
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
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
Time and savings deposits 1
Total foreign offices
Total due to customers
1 Mainly time deposits.
1,154
2,266
3,420
52,668
56,088
64,877
68,042
13,075
145,994
93,520
211,121
304,641
450,635
0.1
0.9
0.6
0.6
0.6
0.2
0.8
3.4
0.7
0.4
0.8
0.7
0.7
2,341
4,902
7,243
58,287
65,530
56,730
65,073
35,575
157,378
111,168
282,983
394,151
551,529
0.5
3.8
2.7
3.9
3.7
0.9
0.9
3.0
1.4
2.4
2.9
2.8
2.4
2,474
9,310
11,784
46,049
57,833
64,568
75,587
41,056
181,211
110,839
307,719
418,558
599,769
0.6
5.1
4.2
5.5
5.2
1.1
0.7
2.9
1.3
1.1
4.9
3.9
3.1
At 31 December 2009, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies,
was as follows:
CHF million
Within 3 months
Over 3 up to 6 months
Over 6 up to 12 months
Over 1 up to 5 years
Over 5 years
Total time deposits
Domestic
27,398
773
655
358
160
Foreign
82,800
9,315
3,242
827
80
29,344
96,264
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409
Financial information
Additional disclosure required under SEC regulations
Short-term borrowings
The following table presents the period-end, average and maximum month-end outstanding amounts for short-term borrow-
ings, along with the average rates and period-end rates at and for the years ended 31 December 2009, 2008 and 2007.
CHF million, except where indicated
31.12.09
31.12.08
31.12.07
31.12.09
31.12.08
31.12.07
Money market papers issued
Due to banks
Repurchase agreements 1
31.12.08
31.12.07
31.12.09
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
51,579
86,875
125,812
2.6
0.9
111,619
136,655
170,503
4.6
2.9
152,256
146,774
167,637
6.0
6.1
18,560
56,495
74,044
0.6
0.6
61,155
74,295
87,233
3.5
2.3
84,826
136,811
149,311
195,613
175,233
272,443
5.1
4.5
0.7
0.3
140,039
404,512
591,005
3.5
1.4
487,455
739,138
848,401
5.0
4.9
1 For the purpose of this disclosure, balances are presented on a gross basis.
Contractual maturities of debt investments available-for-sale 1,2
CHF million, except percentages
31 December 2009
Swiss national government and agencies
Swiss local governments
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities 3
Mortgage-backed securities
Other debt instruments
Total fair value
CHF million, except percentages
31 December 2008
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 instruments
Total fair value
CHF million, except percentages
31 December 2007
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 instruments
Total fair value
Within 1 year
Over 1 up to 5 years Over 5 up to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
209
0
3,475
2,861
5,227
27
98
11,898
0.47
0.00
0.05
0.98
0.11
0.00
2.80
16
0
1,831
96
5,021
3
3
6,970
2.27
0.00
0.02
2.75
0.10
4.87
1.21
1.11
0.00
0.00
1.88
21.80
3.75
0.00
6
0
0
25
0
25
0
56
4.00
0.00
0.00
3.66
21.80
0.43
0.00
1
0
0
18
3
752
0
774
Within 1 year
Over 1 up to 5 years
Over 5 up to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
0.00
0.00
0.00
1.31
23.35
0.00
9.06
0
0
0
33
3
0
188
224
3.46
0.00
0.00
0.00
3.38
0.00
13.47
2
0
0
0
88
0
3
93
0
0
0
33
38
42
0
113
0.00
0.00
0.00
2.81
3.12
4.00
0.00
1
0
0
34
12
455
37
539
4.00
0.00
0.00
5.22
1.74
5.28
7.42
Within 1 year
Over 1 up to 5 years
Over 5 up to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
0
0
0
50
50
0
14
114
0.00
0.00
0.00
1.87
5.66
0.00
4.20
2.02
0.00
0.00
2.54
4.11
0.00
12.41
2
0
0
2
44
0
216
264
0.00
0.00
0.00
4.48
0.00
4.48
0.00
0
0
0
75
0
3
0
78
1
0
0
0
0
561
0
562
4.00
0.00
0.00
0.00
0.00
5.28
0.00
1 Money market papers of CHF 60,317 million (2008: CHF 2,165 million) and debt instruments without fixed maturities are not disclosed in this table. Refer to Note 13. 2 Average yields are calculated
on an amortized cost basis. 3 Absolute Return Bonds (ARBs) had been purchased below par and therefore generated a yield of 21.8% in maturities above 5 years.
410
Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across in-
dustry sectors with no significant concentrations of credit
risk. CHF 152.8 billion (42.4% of the total) consists of loans
to thousands of private households, predominantly in Swit-
zerland, and mostly secured by mortgages, financial collat-
eral or other assets. Exposure to Banks and Financial institu-
tions amounted to CHF 132.6 billion (36.8% of the total).
This includes cash posted as collateral by UBS against nega-
tive replacement values on derivatives or other positions,
which, from a risk perspective, is not considered lending but
is a key component of the measurement of counterparty risk
taken in connection with the underlying products. Exposure
to Banks includes money market deposits with highly rated
institutions. Excluding Banks and Financial institutions, the
largest industry sector exposure as of December 2009 is CHF
16.3 billion (4.5% of the total) to Public authorities. For fur-
ther discussion of the loan portfolio, refer to credit risk in the
“Risk and treasury management” section.
CHF million
Domestic
Banks 1
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services 2
Other 3
Total domestic
Foreign
Banks 1
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 4
Total foreign
Total gross
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
819
1,381
7,458
1,882
3,374
119,432
3,785
11,745
4,299
5,702
3,520
1,734
1,377
8,113
1,811
4,020
119,285
4,042
12,097
4,818
6,172
3,329
1,237
1,393
5,525
1,824
3,887
121,536
4,734
11,691
5,138
6,170
3,300
561
1,535
5,542
1,957
3,643
117,852
4,972
11,356
4,569
6,758
4,345
1,407
1,816
4,213
2,044
4,134
111,549
5,494
11,792
4,808
8,088
3,119
163,397
166,798
166,435
163,090
158,464
46,452
2,403
741
1,024
77,838
3,606
3,177
33,392
12,472
1,305
1,772
8,629
3,085
797
196,693
360,090
63,708
2,816
448
2,995
100,779
5,026
4,394
33,242
11,094
4,240
2,515
9,816
3,894
1,073
246,040
412,838
60,333
635
624
1,888
96,370
4,678
4,509
42,828
4,172
5,056
2,239
9,294
1,752
1,105
50,124
1,321
522
951
67,676
3,006
3,177
35,031
2,175
4,360
1,815
16,436
1,528
564
32,287
2,716
295
1,637
62,344
3,784
3,431
38,283
1,686
2,707
1,257
5,593
1,419
272
235,483
401,918
188,686
351,776
157,711
316,175
1 Includes Due from banks and Loans from Industrial Holdings of CHF 27 million at 31 December 2007, CHF 93 million at 31 December 2006, CHF 728 million at 31 December 2005. 2 Includes com-
munication, health and social work, education and other social and personal service activities. 3 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water
supply. 4 Includes food and beverages, hotels and restaurants.
The table above also includes loans designated at fair value.
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411
Financial information
Additional disclosure required under SEC regulations
Due from banks and loans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio
by geographic origin of the client and type of mortgage at
31 December 2009, 2008, 2007, 2006 and 2005. Mortgag-
es are included in the industry categories mentioned on the
previous page.
CHF million
Mortgages
Domestic
Foreign
Total gross mortgages
Mortgages
Residential
Commercial
Total gross mortgages
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
136,029
4,972
141,001
121,031
19,970
141,001
134,700
8,381
143,081
121,811
21,270
143,081
135,341
8,152
143,493
122,435
21,058
143,493
134,468
10,069
144,537
124,548
19,989
144,537
130,880
15,619
146,499
127,990
18,509
146,499
Due from banks and loan maturities (gross) 1
CHF million
Domestic
Banks
Mortgages
Other loans
Total domestic
Foreign
Banks
Mortgages
Other loans
Total foreign
Total gross
Within 1 year
Over 1 up
to 5 years
Over 5 years
Total
728
53,436
20,405
74,569
45,444
2,845
93,965
142,254
216,823
90
58,961
4,832
63,883
212
1,611
12,491
14,314
78,197
0
23,632
1,314
24,946
132
516
35,467
36,115
61,061
818
136,029
26,551
163,398
45,788
4,972
141,923 2
192,683
356,081
1 Loans designated at fair value are not included. 2 On 31 December 2009, includes reclassified US student loan auction rate securities (ARS) of CHF 7.8 billion (CHF 8.4 billion on 31 December 2008),
other reclassified securities of CHF 11.5 billion (CHF 13.4 billion on 31 December 2008) and CHF 8.0 billion ARS acquired from clients (CHF 4.5 billion on 31 December 2008).
At 31 December 2009, the total amount of Due from banks and Loans due after one year granted at fixed and floating rates
is as follows:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
1 to 5 years
Over 5 years
75,064
3,132
78,196
27,623
33,439
61,062
Total
102,687
36,571
139,258
412
Impaired and non-performing loans
A loan (included in Due from banks or Loans) is classified as
non-performing: 1) when the payment of interest, principal
or fees is overdue by more than 90 days and there is no firm
evidence that it will be made good by later payments or the
liquidation of collateral; 2) when insolvency proceedings
have commenced; or 3) when obligations have been restruc-
tured on concessionary terms.
CHF million
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
Gross interest income that would have been recorded on non-performing loans:
Domestic
Foreign
Interest income included in net profit for non-performing loans:
Domestic
Foreign
13
9
41
9
16
3
32
4
39
4
40
2
50
10
56
8
81
8
72
9
The table below provides an analysis of the Group’s non-performing loans. For further information see credit risk in the “Risk
and treasury management” section.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
1,462
3,940
5,402
1,431
3,272
4,703
1,349
132
1,481
1,744
174
1,918
2,106
257
2,363
UBS does not, as a matter of policy, typically restructure
loans to accrue interest at rates different from the original
contractual terms or reduce the principal amount of loans.
For more information see the “Credit risk” section of this
report. Instead, specific loan allowances are established as
necessary. Unrecognized interest related to restructured
loans was not material to the results of operations in 2009,
2008, 2007, 2006 or 2005.
In addition to the non-performing loans shown above,
the Group has CHF 1,463 million, CHF 4,442 million, CHF
911 million, CHF 710 million and CHF 1,071 million in “oth-
er impaired loans” for the years ended 31 December 2009,
2008, 2007, 2006 and 2005, respectively.
Other impaired loans are loans where the Group’s credit
officers have expressed doubts as to the ability of the bor-
rowers to repay the loans. For the years ended 31 Decem-
ber 2009, 2008, 2007, 2006 and 2005, they are loans not
considered “non-performing” in accordance with Swiss
regulatory guidelines. As of 31 December 2009, 31 Decem-
ber 2008, 31 December 2007, 31 December 2006 and 31
December 2005, specific allowances of CHF 410 million,
CHF 941 million, CHF 124 million, CHF 106 million, CHF
200 million, respectively, had been established against
these loans
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413
Financial information
Additional disclosure required under SEC regulations
Cross-border outstandings
Cross-border outstandings consist of general banking prod-
ucts such as loans and deposits with third parties, credit
equivalents of over-the-counter (OTC) derivatives and securi-
ties financing, and the market value of the inventory of debt
securities. Outstandings are monitored and reported on an
ongoing basis by the credit risk control organization with a
dedicated country risk information system. With the excep-
tion of the 32 most developed economies, these exposures
are rigorously limited. The following analysis excludes Due
from banks and Loans from Industrial Holdings.
Claims that are secured by third-party guarantees are re-
corded against the guarantor’s country of domicile. Out-
standings 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 Financial Market Supervisory Authority (FINMA).
The following tables list those countries for which cross-
border outstandings exceeded 0.75% of total assets at
31 December 2009, 2008 and 2007. At 31 December 2009,
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 abil-
ity to service its obligations.
For more information on country exposure, see credit risk
in the “Risk and treasury management” section.
Banks
Private sector
Public sector
Total % of total assets
31.12.09
14,915
14,612
625
9,672
4,700
4,425
1,694
3,950
Banks
13,869
2,093
19,098
11,469
9,599
2,883
Banks
13,110
1,761
21,384
6,624
173
10,620
52,305
9,114
4,280
5,672
9,293
7,023
2,296
8,509
62,224
12,648
22,888
10,848
7,310
2,940
8,729
20
31.12.08
129,444
36,374
27,793
26,192
21,303
14,388
12,719
12,479
9.7
2.7
2.1
2.0
1.6
1.1
0.9
0.9
Private sector
Public sector
Total % of total assets
71,584
13,159
10,418
7,048
8,608
17,586
14,234
38,922
6,010
6,807
2,625
0
31.12.07
99,687
54,174
35,526
25,324
20,832
20,469
4.9
2.7
1.8
1.3
1.0
1.0
Private sector
Public sector
Total % of total assets
192,049
12,883
12,354
14,647
27,715
7,075
16,545
36,717
2,249
8,552
74
4,605
221,704
51,361
35,988
29,823
27,963
22,300
9.8
2.3
1.6
1.3
1.2
1.0
CHF million
United States
Germany
Japan
France
United Kingdom
Netherlands
Italy
Luxembourg
CHF million
United States
Japan
Germany
France
United Kingdom
Luxembourg
CHF million
United States
Japan
Germany
United Kingdom
Cayman Islands
France
414
Summary of movements in allowances and provisions for credit losses
The following table provides an analysis of movements in al-
lowances and provisions for credit losses.
UBS writes off loans against allowances only on final set-
tlement of bankruptcy proceedings, the sale of the underly-
ing assets and / or in case of debt forgiveness. Under Swiss
law, a creditor can continue to collect from a debtor who has
emerged from bankruptcy, unless the debt has been forgiv-
en through a formal agreement.
CHF million
Balance at beginning of year
Domestic
Write-offs
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 write-offs
Foreign
Write-offs
Banks
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing 4
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 5
Total foreign write-offs
Total write-offs
Recoveries
Domestic
Foreign
Total recoveries
Net write-offs
Increase / (decrease) in credit loss allowance and provision
Collective loan loss provisions
Other adjustments
Balance at end of year
Net foreign exchange
Other adjustments
Total adjustments
31.12.09
3,070
31.12.08
1,164
31.12.07
1,332
31.12.06
1,776
31.12.05
2,802
0
(16)
(2)
(2)
(21)
(61)
0
(19)
(41)
(3)
(12)
(177)
(8)
(111)
(10)
0
(685)
(138)
(5)
(40)
(25)
(196)
(121)
(413)
(37)
(80)
(1,869)
(2,046)
44
8
52
(1,994)
1,806
26
(88)
2,820
(37)
(51) 6
(88)
0
(6)
(37)
(3)
(31)
(112)
0
(10)
(4)
(7)
0
(210)
(13)
(1)
0
0
(623)
(6)
0
(5)
(2)
0
0
0
(7)
(1)
(658)
(868)
43
1
44
(824)
3,007
(11)
(266)
3,070
(43)
(223) 6
(266)
0
(9)
(8)
(7)
(45)
(68)
(1)
(27)
(62)
(20)
(21)
(268)
(1)
0
0
0
(15)
(21)
0
(14)
(2)
0
0
0
0
0
(53)
(321)
52
3
55
(266)
242
(4)
(140)
1,164
(9)
(131)
(140)
0
(14)
(11)
(16)
(40)
(89)
0
(44)
(20)
(47)
(2)
(283)
(3)
0
0
0
0
(11)
(1)
(7)
(58)
0
0
0
0
0
(80)
(363)
51
11
62
(301)
(108)
(48)
13
1,332
10
3
13
0
(16)
(14)
(26)
(39)
(131)
0
(56)
(25)
(35)
(4)
(346)
(164)
0
0
0
(50)
(8)
(23)
(21)
(22)
(3)
(9)
0
0
(5)
(305)
(651)
53
10
63
(588)
(298)
(76)
(64)
1,776
50
(114)
(64)
1 Until 2008 this position includes chemicals, food and beverages. 2 Includes communication, health and social work, education and other social and personal service activities and until 2008 trans-
portation. 3 Includes mining and electricity, gas and water supply and in 2009 additionally chemicals, food and beverages, transportation. 4 Until 2008 this position includes food and beverages.
5 Includes hotels and restaurants and in 2009 additionally food and beverages. 6 In 2009 the other adjustments was due to the sale of UBS Pactual. In 2008 a loan was forgiven in exchange for the
collateral.
415
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Financial information
Additional disclosure required under SEC regulations
Allocation of the allowances and provisions for credit losses
The following table provides an analysis of the allocation of
the allowances and provisions for credit loss by industry sec-
tor and geographic location at 31 December 2009, 2008,
2007, 2006 and 2005. For a description of procedures with
respect to allowances and provisions for credit losses, see
credit risk in the “Risk and treasury management” section.
CHF million
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
Banks 4
Chemicals
Construction
Electricity, gas and water supply
Financial institutions
Manufacturing 5
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 6
Total foreign
Collective loan loss provisions 7
Total allowances and provisions for credit losses 8
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
1
27
126
6
104
119
20
21
221
99
43
787
31
1,037
1
0
414
83
0
171
87
36
17
100
7
0
1,984
49
2,820
16
39
18
8
71
121
1
50
262
78
92
756
6
960
8
2
542
25
4
233
19
208
80
19
185
0
2,291
23
3,070
10
43
52
10
113
190
1
57
247
112
76
911
18
1
1
3
112
20
0
15
20
8
4
4
1
12
219
34
1,164
10
72
61
27
155
187
3
99
311
113
107
10
91
75
49
174
262
8
168
330
196
61
1,145
1,424
20
4
2
8
9
37
0
26
21
4
4
7
1
6
35
5
2
16
8
57
1
30
72
3
1
27
0
8
149
38
1,332
265
86
1,775
1 Until 2008 this position includes chemicals, food and beverages. 2 Includes communication, health and social work, education and other social and personal service activities and until 2008
transportation. 3 Includes mining, electricity, gas and water supply and in 2009 additionally chemicals, food and beverages, transportation. 4 Counterparty allowances and provisions only. 5 Until
2008 this position includes food and beverages. 6 Includes hotels and restaurants and in 2009 additionally food and beverages. 7 The 2009, 2008, 2007, 2006 and 2005 amounts include CHF 0
million, CHF 0 million, CHF 0 million, CHF 0 million and CHF 48 million, respectively, of country provisions. 8 The 2009, 2008, 2007, 2006 and 2005 amounts include CHF 90 million, CHF 31 million,
CHF 63 million, CHF 76 million, CHF 109 million, respectively, of provisions for unused commitments and contingent liabilities.
416
Due from banks and loans by industry sector (gross)
The following table presents the percentage of loans in each
industry sector and geographic location to total loans. This
table can be read in conjunction with the preceding table
showing the breakdown of the allowances and provisions
for credit losses by industry sectors to evaluate the credit
risks in each of the categories.
In %
Domestic
Banks 1
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services 2
Other 3
Total domestic
Foreign
Banks 1
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 4
Total foreign
Total gross
31.12.09
31.12.08
31.12.07
31.12.06
31.12.05
0.2
0.4
2.1
0.5
0.9
33.2
1.0
3.3
1.2
1.6
1.0
45.4
12.9
0.7
0.2
0.3
21.6
1.0
0.9
9.3
3.4
0.4
0.5
2.4
0.8
0.2
0.4
0.3
2.0
0.4
1.0
28.9
1.0
2.9
1.2
1.5
0.8
40.4
15.4
0.7
0.1
0.7
24.4
1.2
1.1
8.1
2.7
1.0
0.6
2.4
0.9
0.3
0.3
0.3
1.4
0.5
1.0
30.2
1.2
2.9
1.3
1.5
0.8
41.4
15.0
0.2
0.2
0.5
24.0
1.2
1.1
10.7
1.0
1.3
0.6
2.3
0.4
0.1
0.2
0.4
1.6
0.6
1.0
33.5
1.4
3.2
1.3
1.9
1.3
46.4
14.2
0.4
0.1
0.3
19.2
0.9
0.9
10.0
0.6
1.2
0.5
4.7
0.4
0.2
0.4
0.6
1.3
0.6
1.3
35.3
1.7
3.7
1.5
2.6
1.1
50.1
10.2
0.9
0.1
0.5
19.7
1.2
1.1
12.1
0.5
0.9
0.4
1.8
0.4
0.1
54.6
100.0
59.6
100.0
58.6
100.0
53.6
100.0
49.9
100.0
1 Includes Due from banks and Loans from Industrial Holdings of CHF 27 million at 31 December 2007, CHF 93 million at 31 December 2006, and CHF 728 million at 31 December 2005. 2 Includes
communication, health and social work, education and other social and personal service activities. 3 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water
supply. 4 Includes food and beverages, hotels and restaurants.
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417
Financial information
Additional disclosure required under SEC regulations
Loss history statistics
The following is a summary of the Group’s loan loss history (relating to Due from banks and Loans). The table below does
not include loans designated at fair value.
CHF million, except where indicated
Gross loans 1
Impaired loans
Non-performing loans
Allowances and provisions for credit losses 2
Net write-offs
Credit loss (expense) / recovery
Ratios
Impaired loans as a percentage of gross loans
Non-performing loans as a percentage of gross loans
Allowances and provisions for credit losses as a percentage of:
Gross loans
Impaired loans
Non-performing loans
Allocated allowances as a percentage of impaired loans 3
Allocated allowances as a percentage of non-performing loans 4
Net write-offs as a percentage of:
Gross loans
Average loans outstanding during the period
Allowances and provisions for credit losses
Allowance and provisions for credit losses
as a multiple of net write-offs
31.12.09
356,081
6,865
5,402
2,820
1,994
(1,832)
31.12.08
407,685
9,145
4,703
3,070
824
(2,996)
31.12.07
397,802
2,392
1,481
1,164
266
(238)
31.12.06
349,524
2,628
1,918
1,332
301
156
1.9
1.5
0.8
41.1
52.2
38.3
41.6
0.6
0.5
70.7
1.41
2.2
1.2
0.8
33.6
65.3
31.8
41.8
0.2
0.2
26.8
3.73
0.6
0.4
0.3
48.7
78.6
41.7
58.9
0.1
0.0
22.9
4.38
0.8
0.5
0.4
50.7
69.4
46.3
58.0
0.1
0.1
22.6
4.43
31.12.05
315,210
3,434
2,363
1,776
588
375
1.1
0.7
0.6
51.7
75.2
46.4
59.0
0.2
0.1
33.1
3.02
1 Includes Due from banks and Loans from Industrial Holdings in the amount of CHF 27 million for 2007, CHF 93 million for 2006 and CHF 728 million for 2005. 2 Includes collective loan loss provi-
sions. 3 Allowances relating to impaired loans only. 4 Allowances relating to non-performing loans only.
418
Cautionary statement regarding forward-looking statements | This report contains statements that constitute “forward-looking statements”, including but not limited
to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future
development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other
important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (1) future develop-
ments in the markets in which UBS operates or to which it is exposed, including movements in securities markets, credit spreads, currency exchange rates and interest rates; (2)
the effect of the current economic environment or other developments on the financial position or creditworthiness of UBS’s customers and counterparties; (3) changes in the
availability of capital and funding, including any changes in UBS’s credit spreads and ratings; (4) the consequences of the recent Swiss court decision relating to the provision of
certain UBS client data to the US Internal Revenue Service, including possible effects on UBS’s 2009 settlements with US authorities and on its businesses; (5) the outcome and
possible consequences of pending or future actions or inquiries concerning UBS’s cross-border banking business by tax or regulatory authorities in various other jurisdictions;
(6) the degree to which UBS is successful in effecting organizational changes and implementing strategic plans, and whether those changes and plans will have the effects
intended; (7) UBS’s ability to retain and attract the employees that are necessary to generate revenues and to manage, support and control its businesses; (8) possible political,
legal and regulatory developments, including the effect of more stringent capital and liquidity requirements, constraints on remuneration and the imposition of additional legal or
regulatory constraints on UBS’s activities; (9) changes in accounting standards or policies, and accounting determinations affecting the recognition of gain or loss, the valuation
of goodwill and other matters; (10) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial
models generally; (11) changes in the size, capabilities and effectiveness of UBS’s competitors; (12) the occurrence of operational failures, such as fraud, unauthorized trading and
systems failures, either within UBS or within a counterparty; and (13) technological developments. In addition, actual results could depend on other factors that we have previ-
ously indicated could adversely affect our business and financial performance which are contained in our past and future filings and reports, including those filed with the SEC.
More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F
for the year ended 31 December 2009. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as
a result of new information, future events, or otherwise.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages and percent changes are calculated based
on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived based on figures that are not rounded.
Imprint | Publisher: UBS AG, P.O. Box, CH-8098 Zurich, Switzerland; P.O. Box, CH-4002 Basel, Switzerland; www.ubs.com | Language: English / German | SAP-No. 80531E-1001
© UBS 2010. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.